-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mbfcc4I3Di7skZpoN2UvylrLRhBIb7PVxqidEaDxsybv0qQIbxx3hGLBC7VrBovB ZT29HKoIvzKT1T/HqAC+qA== 0000950130-02-002066.txt : 20020415 0000950130-02-002066.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950130-02-002066 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXSTAR FINANCE HOLDINGS INC CENTRAL INDEX KEY: 0001158165 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-68964 FILM NUMBER: 02588534 BUSINESS ADDRESS: STREET 1: 200 ABINGTON EXECUTIVE PARK CITY: CLARKS SUMMIT STATE: PA ZIP: 18411 BUSINESS PHONE: 5705865400 MAIL ADDRESS: STREET 1: 200 ABINGTON EXECUTIVE PARK CITY: CLARKS SUMMIT STATE: PA ZIP: 18411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXSTAR FINANCE HOLDINGS LLC CENTRAL INDEX KEY: 0001158168 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-68964-01 FILM NUMBER: 02588535 BUSINESS ADDRESS: STREET 1: 200 ABINGTON EXECUTIVE PARK CITY: CLARKS SUMMIT STATE: PA ZIP: 18411 BUSINESS PHONE: 5705865400 MAIL ADDRESS: STREET 1: 200 ABINGTON EXECUTIVE PARK CITY: CLARKS SUMMIT STATE: PA ZIP: 18411 10-K405 1 d10k405.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to . Commission File Number: 333-68964 ----------------- NEXSTAR FINANCE HOLDINGS, L.L.C. NEXSTAR FINANCE HOLDINGS, INC. (Exact name of registrant as specified in its charter) 23-3083129 Delaware 23-3063153 (State of Organization or Incorporation) (IRS Employer Identification No.) 200 Abington Executive Park, Suite 201 Clarks Summit, Pennsylvania 18411 (570) 586-5400 (Address of Principal Executive Offices, including Zip Code) (Registrant's Telephone Number, Including Area Code)
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 it 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 the 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 December 31, 2001, Nexstar Finance Holdings, L.L.C. had one member, Nexstar Finance Holdings II, L.L.C., and Nexstar Finance Holdings, Inc. had 1,000 shares of common stock outstanding. ================================================================================ TABLE OF CONTENTS
Page ---- PART I ITEM 1. BUSINESS................................................... 3 ITEM 2. PROPERTIES................................................. 25 ITEM 3. LEGAL PROCEEDINGS.......................................... 27 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 27 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.... 28 ITEM 6. SELECTED FINANCIAL DATA.................................... 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 41 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA... 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................... 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS........................... 43 ITEM 11. EXECUTIVE COMPENSATION..................................... 44 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 45 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................... 50 Index to Consolidated Financial Statements.......................... F-1 Index to Exhibits................................................... E-1
i General As used in this Annual Report on Form 10-K and unless the context indicates otherwise, (1) "Nexstar" refers to Nexstar Finance Holdings, L.L.C. and its consolidated subsidiaries including Nexstar Finance Holdings, Inc.; (2) "Nexstar Finance" refers to Nexstar Finance, L.L.C. and its consolidated subsidiaries including Nexstar Finance, Inc.; (3) "Nexstar Broadcasting Group" refers to Nexstar Broadcasting Group, L.L.C. but not its direct or indirect subsidiaries; (4) "Nexstar Broadcasting" refers to Nexstar Broadcasting Group, L.L.C., and all of Nexstar Broadcasting Group, L.L.C.'s direct and indirect subsidiaries, including Nexstar; (5) "Bastet Group" refers to Bastet Broadcasting, Inc., Mission Broadcasting of Joplin, Inc., Mission Broadcasting of Wichita Falls, Inc. and all of their respective subsidiaries; and (6) all references to "we," "our," "ours," and "us" refer, collectively, to Nexstar and the Bastet Group. Nexstar has time brokerage, shared services and joint sales agreements relating to the television stations owned by the Bastet Group, but does not own any of the equity interests in the Bastet Group. For a description of the relationship between Nexstar and the Bastet Group, see "Certain Relationships and Related Transactions." In the context of describing ownership of television stations in a particular market, the term "duopoly" refers to owning or deriving the economic benefit, through joint sales agreements, time brokerage agreements and shared services agreements, from two or more stations in a particular market. For more information on how we derive economic benefit from a duopoly, see Item 1. "Business" and Item 13. "Certain Relationships and Related Transactions." There are 210 generally recognized television markets, known as Designated Market Areas, or DMAs, in the United States. DMAs are ranked in size according to various factors based upon actual or potential audience. DMA rankings contained in this Annual Report on Form 10-K are from the Nielsen Station Index dated November 2001 as estimated by the A.C. Nielsen Company as published in BIA Investing in Television, 4th ed. 2001. Unless the context indicates otherwise: (1) data relating to market rank, television household data and audience share are from The Neilsen Station Index for Sunday to Saturday, 7:00 AM to 1:00AM dated November 2001 and (2) the term "station" or "commercial station" means a television broadcast station and does not include non-commercial television stations, cable program services or networks (for example, CNN, MTV and ESPN) or stations that do not meet the minimum Nielsen reporting standards (for example, weekly cumulative audience share of at least 2.5% for Sunday to Saturday, 7:00 a.m. to 1:00 a.m.); and (5) the term "independent" describes a commercial television station that is not affiliated with the ABC, CBS, NBC, Fox, WB, PAX or UPN television networks. Reference is made in this Annual Report on Form 10-K to the following trademarks/tradenames which are owned by the third parties referenced in parentheses: Dharma & Greg, King of the Hill, The Simpsons, Divorce Court (20th Century Fox Film Corporation); Seinfeld, Ricky Lake (Columbia Tristar Television Distribution, a unit of Sony Pictures); Judge Judy, Entertainment Tonight, Spin City, Montel, Frasier, Andy Griffith (Paramount Distribution); The Rosie O'Donnell Show, Extra, Friends, Martin (Warner Brothers Domestic Television Distribution, a division of Time Warner Entertainment Co. LP); The Maury Povich Show, Sally (Studios USA Television Distribution LLC); That 70's Show, Third Rock From The Sun (Carsey Werner Distribution LLC); Home Improvement (Buena Vista Television, Inc.); Everybody Loves Raymond (Eyemark Entertainment); and The Oprah Winfrey Show, Wheel of Fortune, Jeopardy, Hollywood Squares (King World Productions, Inc.). This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including: any projections or expectations of earnings, revenues, financial performance, liquidity and capital resources or other financial items; any assumptions or projections about the television broadcastings industry, any statements of our plans, strategies and objectives for our future operations; any statements 1 concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect" or "anticipate" and other similar words. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ from a projection or assumption in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties discussed under Item 1. "Business--Risks Related to Our Business" and elsewhere in this Annual Report on Form 10-K as well as in our other filings with the Securities and Exchange Commission. The forward-looking statements made in this Annual Report on Form 10-K are made only as of the date hereof and we do not have or undertake any obligation to publicly update any forward-looking statements to reflect new information or subsequent events or circumstances unless otherwise required by law. 2 PART I Item 1. Business Overview Nexstar's predecessor was formed in 1996 to own and operate television stations in small- and medium-sized markets across the United States. We completed our first acquisition in June 1996 with the purchase of WYOU, the CBS affiliate in Wilkes Barre-Scranton, Pennsylvania. Our stations are geographically diverse, existing in seven states stretching from Texas to New York. We also benefit from diversity in our network affiliations. Specifically, the stations in our group have primary affiliation agreements with all four major networks (six with NBC, five with CBS, three with ABC, two with Fox) and one with UPN. We currently own and operate 17 stations in 13 markets. In three of the markets in which we operate, we have duopolies. Additionally, in December 2001, Mission Broadcasting of Joplin, Inc. entered into a time brokerage agreement to provide certain programming to and sell the advertising time of KODE, the ABC affiliate in Joplin, Missouri, pending the acquisition of the station's assets, which is scheduled to close on September 30, 2002. The purchase price for the assets is $14.0 million and will be financed under the Bastet Group's senior credit facility. Effective December 1, 2001, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcast Group, Inc. to provide certain engineering, production, sales and administrative services for WYZZ, the Fox affiliate in the Peoria-Bloomington, Illinois market. Nexstar and Sinclair Broadcast Group, Inc. will share in the combined broadcast cash flow generated by WYZZ and Nexstar-owned WMBD. For the year ended December 31, 2001, no single station contributed more than 11.3% of total net revenue or 16.2% of broadcast cash flow with the majority of the stations contributing no more than 7.0% of total net revenue or 7.0% of broadcast cash flow. We believe there are significant advantages in focusing on small- to medium-sized markets, most of which result from a lower level of local competition as compared to larger markets. Many of the broadcast television competitors in our markets are, generally, not as professionally managed or well capitalized as we are, and are often family owned and operated. By providing equity incentives to our station general managers, we are able to attract management with experience in larger markets who employ marketing and sales techniques that are not typically utilized in our markets. Lastly, in negotiating with programming vendors, we are able to exercise leverage because there are typically more programs available than outlets. In many of our markets, there are only two or three other competing commercial local television stations. We target markets that have stable employment and population, a diverse base of employers (government, education, business), and communities receptive to local programming. Broadcast television stations in these markets offer an opportunity to generate attractive and stable broadcast cash flows while providing limited competition for viewers and syndicated programming. As a result of the implementation of our business strategies, discussed below, we have experienced significant growth. Business Strategy Within our markets, we seek to maximize revenue growth and broadcast cash flow through the following strategies: Develop Leading Local Franchises. Each of our stations seeks to create a distinct identity, primarily through the quality of its local news programming. In 10 of our 13 markets, we rank number one or number two in news viewership. Strong local news generates high ratings among attractive demographic profiles and enhances audience loyalty, which results in higher ratings for programs both preceding and following the news. We continually invest in our stations' news product and have increased the local news programming of our stations, since acquisition, in the aggregate by 25.1% to 280 hours per week. Extensive local sports coverage further differentiates us from our competitors and adds to our local advertising appeal. In addition, each station actively sponsors community events, which has led to stronger community relationships and increased local advertising. 3 Emphasize Local Sales. We employ a high-quality local sales force in each of our markets to capitalize on our investment in local programming. We seek to maximize local advertising revenues, which are generally more stable than national advertising revenues and which we directly manage through our own local sales forces. For the year ended December 31, 2001, the percentage of our total spot revenues, excluding political, from local advertising was 62.5%, while for the year ended December 31, 2000, our total spot revenues, excluding political, from local advertising was 61.9%, each of which we believe is higher than other station groups. While we maintain strict cost controls, in most of our markets we have increased the size and quality of our local sales force. Since acquiring our stations, we have added a net total of 26 account executives, a 30.0% increase in our overall sales force. We also invest in our sales personnel by implementing comprehensive training programs and employing a sophisticated inventory tracking system to help maximize advertising rates and the amount of inventory sold in each time period. Maintain Strict Cost Controls. We emphasize strict controls on operating and programming costs in order to increase broadcast cash flow. We continually seek to identify and implement cost savings opportunities at each of our stations, and our overall size benefits each station with respect to negotiating favorable terms with programming suppliers and other vendors. By leveraging our size and corporate management expertise, we are able to achieve economies of scale by providing programming, financial, sales and marketing support to our entire station portfolio. Due to the significant negotiating leverage afforded by our scale and limited competition in our markets, our cash programming expenses were 7.2% of the total net revenue for the years ended December 31, 2001 and 2000, which we believe is lower than other station groups. Attract and Retain High Quality Management. We are able to attract and retain station general managers with proven track records in larger television markets by offering equity incentives, which typically are not offered by other station operators in our markets. All of Nexstar's station general managers have purchased equity interests in Nexstar Broadcasting. Our station general managers have an average of over 20 years of experience in the television broadcasting industry. Since Nexstar's inception, there has been no turnover at our general manager level, with the exception of that which occurred as a result of retirement or actions initiated by us. Pursue Duopoly Opportunities. We seek to eliminate redundant management and achieve significant economies of scale in marketing, programming and capital expenditures by combining the operations of two or three stations in one market, typically into a single physical facility. For example, in our Wichita Falls, Texas facility, we simultaneously operate three separate stations, KFDX (NBC), KJTL (Fox) and KJBO-LP (UPN), with a single general sales manager, engineering department, production crew and administrative staff. We selectively evaluate acquisitions and asset exchanges with the objective of obtaining additional duopolies. 4 Our Stations The following chart sets forth general information about our stations:
Commercial Market Station Stations in Station Market Rank Affiliation Rank/(1)/ Market/(2)/ - ------------ --------------------------------- ------ ----------- -------- ----------- WBRE Wilkes Barre-Scranton, PA 52 NBC 2 4 WYOU/(3)/ Wilkes Barre-Scranton, PA 52 CBS 3 4 WROC Rochester, NY 71 CBS 1 4 KTAL Shreveport, LA 79 NBC 3 5 WCIA/WCFN Champaign-Springfield-Decatur, IL 82 CBS 1 5 WMBD Peoria-Bloomington, IL 116 CBS 2 4 WYZZ/(4)/ Peoria-Bloomington, IL 116 Fox 4 4 KBTV Beaumont-Port Arthur, TX 136 NBC 3 3 KFDX Wichita Falls, TX-Lawton, OK 141 NBC 1 4 KJTL/(7)/ Wichita Falls, TX-Lawton, OK 141 Fox 4 4 KJBO-LP/(7)/ Wichita Falls, TX-Lawton, OK 141 UPN NA 4 KSNF Joplin, MO-Pittsburgh, KS 142 NBC 3 3 KODE/(6)/ Joplin, MO-Pittsburgh, KS 142 ABC 2 3 WJET Erie, PA 143 ABC 3 4 WFXP/(5)/ Erie, PA 143 Fox 4 4 WTWO Terre Haute, IN 145 NBC 2 3 KMID Midland-Odessa, TX 154 ABC 2 (tied) 5 KTAB Abilene-Sweetwater, TX 162 CBS 1 4 KQTV St. Joseph, MO 189 ABC 1 1
- -------- (1) Station ranking in market is determined by audience shares from November 2001. (2) The term "commercial station" means a television broadcast station and does not include non-commercial television stations, cable program services or networks, or stations that do not meet the minimum Nielson reporting standards. (3) Owned by Bastet Broadcasting, Inc. and operated under a shared services agreement. (4) Owned by a subsidiary of Sinclair Broadcasting Group, Inc. and operated under an outsourcing agreement with Nexstar. (5) Owned by Bastet Broadcasting, Inc. and operated under a time brokerage agreement. (6) Owned by a subsidiary of GOCOM Holdings, LLC and operated under a time brokerage agreement with Mission Broadcasting of Joplin, Inc. (7) Owned by Mission Broadcasting of Wichita Falls, Inc. and operated under a shared services agreement and joint sales agreement. Wilkes Barre-Scranton, PA WBRE Station Profile. Nexstar acquired WBRE, an NBC affiliate, in January 1998. For the November 2001 ratings period, WBRE ranked second in its market, with an audience share of 13.0%. The station's syndicated programming includes Wheel of Fortune, The Oprah Winfrey Show and Seinfeld. WYOU Station Profile. Nexstar acquired WYOU, a CBS affiliate, in June 1996 and sold it to the Bastet Group in 1998, when a shared services agreement was entered into with WBRE. For the November 2001 ratings period, WYOU ranked third in its market, with an audience share of 10.0%. The station's syndicated programming includes King of the Hill, Entertainment Tonight, and Judge Judy. Rochester, NY WROC Station Profile. Nexstar acquired WROC, a CBS affiliate, in December 1999. For the November 2001 ratings period, WROC ranked first in its market, with an audience share of 16.0%. The station's syndicated programming includes Jeopardy, Wheel of Fortune and Entertainment Tonight. 5 Shreveport, LA KTAL Station Profile. Nexstar acquired KTAL, an NBC affiliate, in November 2000. For the November 2001 ratings period, KTAL ranked third in its market, with an audience share of 8.0%. The station's syndicated programming includes Wheel of Fortune, Hollywood Squares and Divorce Court. Champaign-Springfield-Decatur, IL WCIA Station Profile. Nexstar acquired WCIA, a CBS affiliate, in January 2001. For the November 2001 ratings period, WCIA ranked first in its market, with an audience share of 17.0%. The station's syndicated programming includes The Oprah Winfrey Show, Hollywood Squares and Frasier. WCFN Station Profile. Nexstar acquired WCFN, which is located in Springfield, in conjunction with WCIA. Nexstar is currently using WCFN to simulcast WCIA to the southwest segment of the DMA. The FCC granted duopoly status for WCFN and Nexstar is entering into an affiliate agreement with UPN to create an additional broadcasting outlet. Launching WCFN as a stand-alone station will allow the station to benefit from substantial operational efficiencies, and will result in additional inventory to sell in the market. The initial broadcast of WCFN as a UPN station is scheduled for the second quarter of 2002. The station's syndicated programming will include Martin, Ricky Lake and Andy Griffith. Peoria-Bloomington, IL WMBD Station Profile. Nexstar acquired WMBD, a CBS affiliate, in January 2001. For the November 2001 ratings period, WMBD ranked second in its market, with an audience share of 15.0%. The station's syndicated programming includes Wheel of Fortune, Jeopardy and Hollywood Squares. WYZZ Station Profile. Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcasting Group, Inc. effective December 1, 2001. The agreement allows Nexstar to provide certain engineering, production, sales and administrative services for WYZZ, the Fox affiliate located in Bloomington. Nexstar has identified potential cost savings of over $0.8 million due to the elimination of redundant positions. Nexstar is also planning to initiate a 9 p.m. newscast in the second quarter of 2002 to enhance local programming and target the Bloomington audience. For the November 2001 ratings period, WYZZ ranked fourth in its market, with an audience share of 7.0%. The station's syndicated programming includes Spin City, Frasier and Everybody Loves Raymond. Beaumont-Port Arthur, TX KBTV Station Profile. Nexstar acquired KBTV, an NBC affiliate, in January 1998. For the November 2001 ratings period, KBTV ranked third in its market, with an audience share of 9.0%. The station's syndicated programming includes Jeopardy, Hollywood Squares and The Maury Povich Show. Wichita Falls, TX--Lawton, OK KFDX Station Profile. Nexstar acquired KFDX, an NBC affiliate, in January 1998. For the November 2001 ratings period, KFDX ranked first in its market, with an audience share of 15.0%. The station's syndicated programming includes Entertainment Tonight, Montel and The Rosie O'Donnell Show. 6 KJTL Station Profile. A member of the Bastet Group acquired KJTL, a Fox affiliate, in June 1999. For the November 2001 ratings period, KJTL ranked fourth in its market, with an audience share of 6.0%. The station's syndicated programming includes Frasier, Friends and Judge Judy. KJBO-LP Station Profile. A member of the Bastet Group acquired KJBO-LP, a UPN affiliate, in June 1999. Operating through its joint sales agreement and shared services agreement with KFDX, KJBO-LP is a highly efficient operation and produces a broadcast cash flow margin greater than 80.0%. Joplin, MO--Pittsburg, KS KSNF Station Profile. Nexstar acquired KSNF, an NBC affiliate, in January 1998. For the November 2001 ratings period, KSNF ranked third in its market, with an audience share of 13.0%. The station's syndicated programming includes Frasier, Judge Judy and The Rosie O'Donnell Show. KODE Station Profile. A member of the Bastet Group entered into a time brokerage agreement in December 2001 to provide certain programming and sell the advertising time on KODE, an ABC affiliate, pending the acquisition of its assets, at which time it will enter into a shared services agreement with Nexstar, whereby KSNF will provide certain services to KODE. Once the stations share the same facility, the anticipated cost savings of eliminating redundant positions and other expenses is approximately $0.8 million. For the November 2001 ratings period, KODE ranked second in its market, with an audience share of 15.0%. The station's syndicated programming includes Seinfeld, Jeopardy and Oprah. Erie, PA WJET Station Profile. Nexstar acquired WJET, an ABC affiliate, in January 1998. For the November 2001 ratings period, WJET ranked third in its market, with an audience share of 15.0%. The station's syndicated programming includes Frasier, Seinfeld and Everybody Loves Raymond. WFXP Station Profile. Nexstar began its time brokerage agreement with WFXP, a Fox affiliate, in August 1998. In November 1998, a member of the Bastet Group acquired WFXP. For the November 2001 ratings period, WFXP ranked fourth in its market, with an audience share of 6.0%. WFXP's syndicated programming includes Friends, The Simpsons and Spin City. Terre Haute, IN WTWO Station Profile. Nexstar acquired WTWO, an NBC affiliate, in April 1997. For the November 2001 ratings period, WTWO ranked second in its market, with an audience share of 17.0%. The station's syndicated programming includes The Oprah Winfrey Show, Jeopardy and Wheel of Fortune. Midland-Odessa, TX KMID Station Profile. Nexstar acquired KMID, an ABC affiliate, in September 2001. For the November 2001 ratings period, KMID tied for second in market ranking, with an audience share of 12.0%. The station's syndicated programming includes The Oprah Winfrey Show, Wheel of Fortune and Jeopardy. 7 Abilene, TX KTAB Station Profile. Nexstar purchased KTAB, a CBS affiliate, in August 1999. For the November 2001 ratings period, KTAB ranked first in its market, with an audience share of 16.0%. The station's syndicated programming includes The Oprah Winfrey Show, Wheel of Fortune and Jeopardy. St. Joseph, MO KQTV Station Profile. Nexstar acquired KQTV, an ABC affiliate, in April 1997. KQTV is the only commercial television station in its market. In the November 2001 ratings period, KQTV had an audience share of 19.0%. The station's syndicated programming includes The Oprah Winfrey Show, Wheel of Fortune and Friends. Industry Background The Television Broadcasting Industry Commercial television broadcasting began in the United States on a regular basis in the 1940s. There are a limited number of channels available for broadcasting in any one geographic area. Television stations can be distinguished by the frequency on which they broadcast. Television stations that broadcast over the very high frequency or VHF band (channels 2-13) of the spectrum generally have some competitive advantage over television stations which broadcast over the ultra-high frequency or UHF band (channels above 13) of the spectrum because the former usually have better signal coverage and operate at a lower transmission cost. However, 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. Any disparity between VHF and UHF is likely to diminish even further in the coming era of digital television. The Market for Television Programming Television station revenues are primarily derived from local, regional and national advertising and, to a lesser extent, from network compensation and revenues from studio rental and commercial production activities. Advertising rates are based upon a variety of factors, including 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 makeup 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, as well as the station's ratings and share among particular demographic groups which an advertiser may be targeting. Because broadcast television stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a result may contribute to a decrease in the revenues of broadcast television stations. All television stations in the country are grouped by A.C. Nielsen Company, a national audience measuring service, into 210 generally recognized television markets, known as designated market areas, or DMAs, that are ranked in size according to various metrics based upon actual or potential audience. Each DMA is determined as an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. 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 station's "rating," which is a percentage of the total potential audience in the market viewing a station, or the station's "share," which is the percentage of the audience actually watching television. Nielsen provides this data on the basis of local 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 a combination of meters connected directly to selected television sets and weekly diaries of television viewing, while in smaller markets only weekly diaries are completed. 8 Whether or not 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 the majority 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 time during network programs. The network then sells this advertising time and retains the revenues. The affiliates retains the revenues from the time sold during breaks in and between network programs and programs the affiliate produces or purchases from non-network sources. Broadcast television stations compete for advertising revenues primarily with other broadcast television stations, and to a lesser extent, with radio stations and cable system operators serving the same market. Non-commercial, religious and Spanish-language broadcasting stations in many markets compete with commercial stations for viewers. In addition, the Internet and other leisure activities may draw viewers away from commercial stations. Developments in the Television Market Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenue, because network-affiliated stations competed only with each other in most local markets. Beginning in the 1980s and continuing through the 1990s, however, this level of dominance changed as more local stations were authorized by the FCC and marketplace choices expanded with the growth of independent stations, new networks such as UPN, WB and PAX, and cable television services. Cable television systems, which grew at a rapid rate beginning in the early 1970s, were initially used to retransmit broadcast television programming to paying subscribers in areas with poor broadcast signal reception. In the aggregate, cable-originated programming has emerged as a significant competitor for viewers of broadcast television programming. With the increase in cable penetration in the 1980s and 1990s, the advertising share of cable networks has increased. Notwithstanding these increases in cable viewership and advertising, over-the-air broadcasting remains the primary distribution system for mass market television advertising. Basic cable penetration (the percentage of television households which are connected to a cable system) in our television markets ranges from 56.0% to 82.0%. In acquiring programming to supplement network programming, network affiliates compete with other broadcasting stations in their markets. Cable systems generally do not compete with local stations for programming. In the past, the cost of programming increased dramatically, primarily because of an increase in the number of new independent stations and a shortage of desirable programming. Recently, however, program prices have stabilized as a result of increases in the supply of programming. The FCC finalized its allotment of new advanced television channels to existing broadcast stations in the first half of 1998. Advanced television is a digital television, or DTV, transmission system that delivers improved video and audio signals including high definition television and also has substantial multiplexing and data transmission capabilities. For each licensed television station, the FCC has allocated a matching DTV channel. Under current FCC guidelines, all commercial television station operators must complete construction of and begin broadcasting with their digital transmission systems no later than May 1, 2002, unless an extension of time has been granted. Network affiliated stations in the top 10 markets were required to begin digital broadcasting by May 1999, and in the top 30 markets by November 1, 1999. By the end of 2006, the FCC expects television broadcasters to cease non-digital broadcasting and return one of their channels to the U.S. government, provided that 85.0% of households within the relevant DMA have the capability to receive a digital signal. Advertising Sales General Television station revenues are primarily derived from the sale of local and national advertising. Television stations compete for advertising revenues primarily with other broadcast television stations, radio stations, cable system operators and programmers, and newspapers serving the same market. 9 All network-affiliated stations are required to carry spot advertising sold by their networks which reduces the amount of advertising spots available for sale by our stations. Our stations sell all of the remaining advertising to be inserted in network programming and all of the advertising in non-network programming, retaining all of the revenues received from these sales. A national syndicated program distributor will often retain a portion of the available advertising time for programming it supplies in exchange for no fees or reduced fees charged to the stations for such programming. These programming arrangements are referred to as barter programming. Advertisers wishing to reach a national audience usually purchase time directly from the networks, or advertise nationwide on a case-by-case basis. National advertisers who wish to reach a particular region or local audience often buy advertising time directly from local stations through national advertising sales representative firms. Local businesses purchase advertising time directly from the stations' local sales staffs. Advertising rates are based upon a program's popularity among the viewers that an advertiser wishes to target, the number of advertisers competing for the available time, the size and the demographic composition of the market served by the station, the availability of alternative advertising media in the market area, and the effectiveness of the stations' sales force. Advertising rates are also determined by a station's overall ability to attract viewers in its market area, as well as the station's ability to attract viewers among particular demographic groups that an advertiser may be targeting. Advertising revenues are positively affected by strong local economies, national and regional political election campaigns, and certain events such as the Olympic Games or the Super Bowl. Because television broadcast stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a result may contribute to a decrease in the revenues of broadcast television stations. Local Sales Local advertising time is sold by each station's local sales staff who call upon advertising agencies and local businesses, which typically include car dealerships, retail stores and restaurants. Compared to revenues from national advertising accounts, revenues from local advertising are generally more stable and more controllable. We seek to attract new advertisers to television, and to increase the amount of advertising time sold to existing local advertisers by relying on experienced local sales forces with strong community ties, producing news and other programming with local advertising appeal and sponsoring or co-promoting local events and activities. We place a strong emphasis on the experience of our local sales staff and maintain an on-going training program for sales personnel. National Sales National advertising time is sold through national sales representative firms which call upon advertising agencies, whose clients typically include automobile manufacturers and dealer groups, telecommunications companies, fast food franchisers, and national retailers (some of which may advertise locally). Network Affiliations Each station is affiliated with its network pursuant to an affiliation agreement. WBRE, WTWO, KTAL, KBTV, KFDX and KSNF are affiliated with NBC. KTAB, WROC, WCIA/WCFN, WMBD and WYOU are affiliated with CBS. WJET, KMID and KQTV are affiliated with ABC. KJTL and WFXP are affiliated with Fox and KJBO-LP is affiliated with UPN. KODE, owned by a subsidiary of GOCOM Holdings, LLC and operated under a time brokerage agreement by Mission Broadcasting of Joplin, Inc., is affiliated with ABC. WYZZ, owned by a subsidiary of Sinclair Broadcast Group, Inc. and operated under an outsourcing agreement with Nexstar, is a Fox affiliate. 10 Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the network with which it is affiliated. In exchange, the network has the right to sell a substantial majority of the advertising time during these broadcasts. In addition, for each hour that the station elects to broadcast network programming, the network pays the station a fee (with the exception of Fox and UPN), specified in each affiliation agreement, which varies with the time of day. Typically, "prime-time" programming (Monday through Saturday from 8:00 p.m. to 11:00 p.m., Eastern time and Sunday from 7:00 p.m. to 11:00 p.m., Eastern time) generates the highest hourly rates. Our NBC affiliation agreements for WBRE, WTWO, KBTV, KFDX, and KSNF expire on December 31, 2008, while our NBC affiliation agreement for KTAL expires on December 31, 2005. Our CBS affiliate agreement for KTAB expires on December 31, 2004. Our CBS affiliation agreement for WROC expires on January 31, 2005 and our CBS affiliation agreement for WCIA/WCFN and WMBD expires on September 30, 2005. Our CBS affiliation agreement with WYOU expires on December 31, 2007. Our ABC affiliation agreement for WJET expires on January 2, 2005. Our ABC network affiliation agreement for KMID expires on July 15, 2005. Our ABC affiliation agreement for KQTV expires on April 15, 2007. Our Fox affiliation agreement for KJTL expires on November 30, 2003, while our Fox affiliation agreement for WFXP expires on March 31, 2006. Our UPN affiliation agreement for KJBO-LP expires on September 1, 2004; however, UPN may cancel this affiliation agreement at any time with 30 days prior written notice. The ABC affiliation agreement for KODE expires in August 2002. The Fox affiliation agreement for WYZZ is currently on a month-to-month basis. Competition Competition in the television industry takes place on several levels: 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 signal coverage and assigned frequency. The broadcasting industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material effect on our operations. Audience. Stations compete for viewership generally against other leisure activities in which one could choose to engage rather than watch television. Broadcast stations compete for audience share specifically on the basis of program popularity, which has a direct effect on advertising rates. A portion of the daily programming on our NBC, CBS, ABC, Fox and UPN affiliated stations is supplied by the network with which each station is affiliated. In those periods, the stations are dependent upon the performance of the network programs in attracting viewers. Our stations program non-network time periods 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. A majority of the daily programming on our Fox and UPN affiliated stations consists of programming of this kind. Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenues because network-affiliated stations competed only with each other in most local markets. However, the development of methods of video transmission other than over-the-air broadcasting, and in particular the growth of cable television, has significantly altered competition for audience share in the television industry. These other transmission methods can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station's audience. Other sources of competition include home entertainment systems, such as VCRs, DVDs and television game devices. Transmission of video programming over broadband Internet may be a future source of competition to television broadcasters. Although cable television systems were initially used to retransmit broadcast television programming to subscribers in areas with poor broadcast signal reception, significant increases in cable television penetration 11 occurred throughout the 1970s and 1980s in areas that did not have signal reception problems. 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. Historically, cable operators have not sought to compete with broadcast stations for a share of the local news audience. Recently, however, certain cable operators have elected to compete for these audiences, and the increased competition could have an adverse effect on our advertising revenues. Further advances in technology may increase competition for household audiences and advertisers. Video compression techniques, now under development for use with current cable channels or direct broadcast satellites, 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 expenditures. We are unable to predict the effect that these or other technological changes will have on the broadcast television industry or on the future results of our operations. Programming. Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Our stations compete against in-market broadcast station operators for exclusive access to off-network reruns (such as Seinfeld) and first-run product (such as Entertainment Tonight) in their respective markets. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. AOL/Time Warner, Inc., Viacom Communications, Inc. and The News Corporation Limited, each of which has a television network, also own or control major production studios, which are the primary source of programming for the networks. It is uncertain whether in the future such programming, which is generally subject to short-term agreements between the studios and the networks, will be moved to the new networks. Television broadcasters also compete for non-network programming unique to the markets they serve. As such, stations strive to provide exclusive news stories, unique features such as investigative reporting and coverage of community events and to secure broadcast rights for regional and local sporting events. Advertising. Advertising rates are based upon a number of factors including: . 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 makeup of the market served by the station; . the availability of alternative advertising media in the market area; . the effectiveness of the sales forces; and . development of projects, features and programs that tie advertiser messages to programming. In addition to competing with other media outlets for audience share, our stations compete for advertising revenues with: . other television stations in their respective markets; and . other advertising media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, local cable systems and the Internet. 12 Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets. Generally, a television broadcasting station in a particular market does not compete with stations in other market areas. Federal Regulation of Television Broadcasting The following is a brief discussion of certain provisions of the Communications Act of 1934 ("Communications Act") , as amended, and the FCC's regulations and policies that affect the business operations of television broadcasting stations. For more information about the nature and extent of the FCC regulation of television broadcasting stations you should refer to the Communications Act and FCC's rules, public notices, and rulings. Over the years, Congress and the FCC have added, amended and deleted statutory and regulatory requirements to which station owners are subject. Some of these changes have a minimal business impact whereas others may significantly affect the business or operation of individual stations or the broadcast industry as a whole. The following discussion summarizes statutory and regulatory requirements and policies currently in effect. License Grant and Renewal. Television broadcast licenses are granted for a maximum term of eight years and are subject to renewal upon application to the FCC. The FCC is required to grant an application for license renewal if during the preceding term the station served the public interest, the licensee did not commit any serious violations of the Communications Act or the FCC's rules, and the licensee committed no other violations of the Communications Act or the FCC's rules which, taken together, would constitute a pattern of abuse. The vast majority of renewal applications are routinely renewed under this standard. If a licensee fails to meet this standard the FCC may still grant renewal on terms and conditions that it deems appropriate, including a monetary forfeiture or renewal for a term less than the normal eight-year period. During certain limited periods after a renewal application is filed, interested parties, including members of the public, may file petitions to deny a renewal application, to which the licensee/renewal applicant is entitled to respond. After reviewing the pleadings, if the FCC determines that there is a substantial and material question of fact whether grant of the renewal application would serve the public interest, the FCC is required to hold a trial-type hearing on the issues presented. If, after the hearing, the FCC determines that the renewal applicant has met the renewal standard the FCC must grant the renewal application. If the licensee/renewal applicant fails to meet the renewal standard or show that there are mitigating factors entitling it to renewal subject to appropriate sanctions, the FCC can deny the renewal application. In the vast majority of cases where a petition to deny is filed against a renewal, the FCC ultimately grants the renewal without a hearing. No competing application for authority to operate a station and replace the incumbent licensee may be filed against a renewal application unless the FCC first determines that the incumbent licensee is not entitled to license renewal. In addition to considering rule violations in connection with a license renewal application, the FCC may sanction a station operator for failing to observe FCC rules and policies during the license term, including the imposition of a monetary forfeiture. The FCC prohibits the assignment or the transfer of control of a broadcasting licensee without prior FCC approval. Ownership Matters. The FCC has rules which establish limits on the ownership of broadcast stations. The ownership limits apply only to attributable interests in a station licensee held by an individual, corporation, partnership or other entity. In the case of corporations, officers, directors and voting stock interests of five percent or more (twenty percent or more in the case of qualified investment companies, such as insurance companies and bank trust departments) are considered attributable interests. For partnerships, all general partners and non-insulated limited partners are attributable. Limited liability companies are treated the same as 13 partnerships. The FCC also considers attributable the holder of more than thirty-three percent of a licensee's total assets (defined as total debt plus total equity), if that person or entity also provides over fifteen percent of the station's total weekly broadcast programming or has an attributable interest in another media entity in the same market which is subject to the FCC's ownership rules, such as a radio or television station, cable television system, or daily newspaper. Local Ownership (Duopoly Rule). Prior to August 1999, no party could have attributable interests in two television stations if those stations had overlapping service areas (which generally meant one station per market), although the FCC did not attribute local marketing agreements involving a second station with an overlapping service area. In August 1999, the FCC adopted new rules which allowed the ownership of two stations in a single market (defined using A.C. Nielsen Company's DMAs) if (1) the two stations do not have overlapping service areas, or (2) after the combination there are at least eight independently owned and operating full-power television stations and one of the commonly owned stations is not ranked among the top four stations in the DMA. The FCC will consider waivers of the rule to permit the ownership of a second market station in cases where the second station is a failed, failing or unbuilt. Absent these circumstances ownership of only one television station in a market is permitted. "Satellite" stations were an exception to the prior FCC local ownership/duopoly rules and remain an exception under the new rules. The FCC now attributes and counts towards the local ownership limits another in-market station that a station owner operates pursuant to a local marketing agreement if it provides more than 15 percent of the second station's weekly broadcast programming. However, local marketing agreements entered into prior to November 5, 1996, are exempt from attribution for approximately five years from the adoption of the revised rule (which was adopted in 1999); this "grandfathered" period is subject to possible extension. Parties to local marketing agreements entered into on or after November 5, 1996, that would result in attribution of two stations in a market in violation of the ownership limits had until August 5, 2001, to come into compliance with the new ownership rules. The only market in which we currently operate stations that has the eight or more stations that allow us to own two stations in the market is Champaign-Springfield, Illinois. In all of the markets where we have entered into joint sales agreements, except for one, we do not provide programming other than news to the second station (comprising less than 15 percent of the second station's programming) and are not therefore attributed with the second station. In the one market where we do provide programming to the second station, Erie, Pennsylvania, the local marketing agreement was entered into prior to November 5, 1996. Therefore, it is exempt from the FCC's ownership rules and we may continue to operate under the terms of that agreement until at least the end of 2004. National Ownership. There is no nationwide limit on the number of television stations which a party may own. However, no party may have an attributable interest in television stations which, in the aggregate, cover more than 35.0% of all U.S. television households. In calculating the nationwide audience coverage, the ownership of UHF stations is counted as 50.0% of a market's percentage of the total national audience. The stations we own have a combined national audience reach of approximately 3.0% of television households. On February 19, 2002, the U.S. Court of Appeals for the D.C. Circuit vacated the FCC's decision not to modify or repeal this rule and remanded this rule to the FCC for further consideration. Radio/Television Cross-Ownership Rule. The "one-to-a-market" rule limits the common ownership or control of radio and television stations in the same market. In August 1999, the FCC amended its rules to increase the number of stations that may be commonly owned, subject to standards based on the number of independently owned media voices that would remain in the market after the combination. In markets with at least twenty independently owned media outlets, ownership of one television station and up to seven radio stations, or two television stations (if allowed under the television duopoly rule) and six radio stations is permitted. If the number of independently owned media outlets is fewer than twenty but greater than or equal to ten, ownership of one television station (or two if allowed) and four radio stations is permitted. In markets with 14 fewer than ten independent media voices, ownership of one television station (or two if allowed) and one radio station is permitted. In calculating the number of independent media voices the FCC includes all radio and television stations, independently owned cable systems (counted as one voice if cable is generally available in the market), and independently owned daily newspapers which have circulation that exceeds five percent of the households in the market. When the FCC adopted the new one-to-a-market limits in August 1999, it eliminated the waiver policy that previously applied for failed stations. Local Television/Cable Cross-Ownership Rule. The FCC prohibits any cable television system (including all parties under common control) from carrying the signal of any television broadcast station that has a predicted service area that overlaps, in whole or in part, the cable system's service area, if the cable system (or any of its attributable principals) has an attributable interest in the television station. On February 19, 2002, the U.S. Court of Appeals for the D.C. Circuit directed the FCC to repeal this rule in its entirety. Effective upon such repeal, cable systems and co-located television stations may be commonly-owned. Local Television/Newspaper Cross-Ownership Rule. The FCC prohibits any party from having an attributable interest in a television station and a daily newspaper if the television station's Grade A signal contour encompasses the entire community in which the newspaper is published. In September, 2001, the FCC issued a Notice of Proposed Rule Making in which the FCC proposed to eliminate its local television/daily newspaper cross-ownership prohibition. Comments were filed in December 2001 and reply comments were due February 15, 2002. Cable "Must-Carry" or Retransmission Consent Rights. Every three years television broadcasters are required to make an election whether they choose to exercise their "must-carry" or retransmission consent rights in connection with the carriage of their analog signal on cable television systems within their DMA. The most recent election was made October 1, 1999, and is effective for the three-year period beginning January 1, 2000. The next election date is October 1, 2002, for the three-year period beginning January 1, 2003. If a broadcaster chooses to exercise its must-carry rights, it may request cable system carriage on its over-the-air channel or another channel on which it was carried on the cable system as of a specified date. A cable system generally must carry the station's signal in compliance with the station's carriage request, and in a manner that makes the signal available to all cable subscribers. However, must-carry rights are not absolute, and whether a cable system is required to carry the station on its system, or in the specific manner requested, depends on variables such as the location, size and number of activated channels of the cable system and whether the station's programming duplicates, or substantially duplicates the programming of another station carried on the cable system. If certain conditions are met, a cable system may decline to carry a television station that has elected must carry status, although it is unusual for all the required conditions to exist. If a broadcaster chooses to exercise its retransmission consent rights, a cable television system which is subject to that election may not carry the station's signal without the station's consent. This generally requires the cable system and television station operator to negotiate the terms under which the television station will consent to the cable system's carriage of the station. In most instances, Nexstar's stations have elected to exercise their retransmission consent rights rather than must-carry status, and have negotiated retransmission consent agreements with cable television systems in their markets. The terms of these agreements generally range from three to ten years and provide for the carriage of the stations' signals. Except for WYOU, the Bastet Group stations generally have opted for must-carry status. Direct-to-Home Satellite Services and Must-Carry. In November 1999, Congress enacted the Satellite Home Viewer Improvement Act of 1999, or SHVIA. This statute requires providers of direct broadcast satellite services such as Direct TV and Echostar, by January 1, 2002, to carry upon request the signals of all local television stations in a DMA in which the satellite service provider is carrying at least one local television station's signal. Until January 1, 2002, satellite service providers were allowed (but not required) to retransmit a 15 local station's signal within its market upon that station's consent. Satellite providers also may provide network service from a station outside a local market to subscribers in the market who are "unserved" by a local station affiliated with the same network. Unserved generally refers to a satellite subscriber who is unable, using a conventional outdoor rooftop antenna, to receive a "Grade B" signal of a local network affiliated station. If a subscriber is able to receive a Grade B quality signal from a local network affiliate then, subject to certain exceptions, the subscriber is not eligible to receive that network's programming from an out-of-market affiliate carried on the satellite service. In those markets where satellite service providers have elected to provide carriage of local television stations, such carriage has generally been limited to the local affiliates of the major networks, including ABC, CBS, NBC and Fox. At this time there is no satellite carriage of any of the local stations in any market in which we operate television stations. We cannot state when or if such carriage will commence. In November 2000, the FCC adopted rules implementing the requirements of SHVIA. These include requiring commercial television stations to elect between retransmission consent and must carry status. The first election, which was to be made by July 1, 2001, for carriage to commence January 1, 2002, is for a four-year period. Beginning in 2006, the cable and satellite election periods will coincide and occur every three years. Market areas are based on Nielsen's DMAs. Satellite carriers are not required to carry duplicative network signals from a local market unless the stations are licensed to different communities in different states. Satellite carriers are required to carry all local television stations in a contiguous manner on their channel line-up and may not discriminate in their carriage of stations. Digital Television. Advanced television is a digital television, or DTV, transmission system that delivers video and audio signals of higher quality (including high definition television) than the existing analog transmission system. DTV also has substantial capabilities for multiplexing (the broadcast of several programs concurrently) and data transmission. The FCC assigned new advanced television channels to existing broadcast stations in the first half of 1997. For each licensed television station the FCC allocated a matching DTV channel (which is different from the station's analog channel). In general, the DTV channels assigned to television stations are intended to allow stations to have their DTV coverage area replicate their analog coverage area. However, there are a number of variables which will ultimately determine the extent to which a station's DTV operation will provide such replication. Under certain circumstances, a station's DTV operation may reduce its geographic coverage area. The introduction of digital television will require consumers to purchase new televisions that are capable of receiving and displaying DTV signals, or adapters to receive DTV signals and convert them to an analog signal for display on their existing receivers. Under current FCC guidelines, all commercial television station operators must begin broadcasting with DTV transmission systems no later than May 1, 2002 unless an extension of time is granted. We have requested an extension of time to begin digital operations for all of our stations, except WCIA and WCFN. Stations affiliated with the four largest networks (ABC, CBS, NBC and Fox) in the top 10 markets were required to begin digital broadcasting by May 1, 1999, and in the top 30 markets by November 1, 1999. Once a station begins broadcasting its DTV signal, it may broadcast both its analog and DTV signals until December 31, 2006, after which, subject to certain conditions described below, the FCC expects to reclaim one of the channels and each broadcaster will operate a single DTV channel. Starting April 1, 2003, commercial station operators must simulcast at least 50 percent of the video programming broadcast on their analog channel on their DTV channel. The required simulcast percentage increases annually until April 1, 2005, when an operator must simulcast 100 percent of its programming on its analog and DTV channels. Channels now used for analog broadcasts range from 2 through 69. The FCC designated Channels 2 through 51 as the "core" channels which will be used for DTV broadcasts. However, because of the limited number of available core DTV channels currently available, the FCC assigned many stations DTV channels above Channel 51 (Channels 52 through 69) for use during the transition period from simultaneous digital and analog transmission to DTV only operation. At the end of the transition period these stations will have to change their 16 DTV operation to one of the DTV core channels. This has created three categories of television stations with respect to their analog and DTV channel assignments: (1) stations with both their analog and DTV channels within the "core" channels; (2) stations with either an analog or DTV channel inside the core and the other outside the core; and (3) stations with both their analog and DTV channels outside the core. All of our stations currently fall within the first or second group. We have no markets in which both our analog and DTV channels are outside the core. Station operators with both their analog and DTV channels inside the core will be required to select which of their assigned channels they will use for permanent DTV operation before the end of the transition period. (The FCC has not set a date for this election.) These operators may elect to continue to use their current DTV channel or switch their DTV operation to their current analog channel. The channel not selected for permanent DTV operation will be returned to the FCC at the end of the transition period. Most of our stations and those stations with which we have local marketing agreements fall in this category. The FCC has not yet established the permanent DTV channel selection process for stations that have one or both channels outside the DTV core channels. The Communications Act provides that under certain conditions the DTV transition period may be extended beyond December 31, 2006. The transition is to be extended in any market in which one of the following conditions is met: (1) a station licensed to one of the four largest networks (ABC, CBS, NBC and Fox) is not broadcasting a digital signal and that station has qualified for an extension of the FCC's DTV construction deadline; (2) digital-to-analog converter technology is not generally available in the market; or (3) fifteen percent or more of the television households in the market do not subscribe to a multichannel video programming distributor (cable, direct broadcast satellite) that carries the digital channel of each of the television stations in the market broadcasting a DTV channel, and do not have at least one television receiver capable of receiving the stations' DTV broadcasts or an analog television receiver equipped with a digital-to-analog converter capable of receiving the stations' DTV broadcasts. We cannot predict whether conditions will exist in any of our markets such that the DTV transition period will be extended under any of these provisions. We estimate that the conversion to DTV will require an average initial capital expenditure of approximately $250,000 per station for low-power transmission of digital signal programming and an average additional capital expenditure of approximately $750,000 per station to complete the roll-out to full-power transmission of digital signal programming. In addition, for some of our stations, we may have to undertake capital expenditures to purchase studio and production equipment that can support digital format. We have applied for a six-month extension regarding the May 2002 conversion deadline for all of our stations except WCIA and WCFN, which we expect to meet the deadline. With respect to cable system carriage of television stations which are broadcasting both an analog and DTV signal, such stations may choose must carry status or retransmission consent for their analog signals, but only retransmission consent for their digital signals. Such stations do not presently have the right to assert must carry rights for both their analog and DTV signals. The FCC has pending a rule making proceeding examining whether to allow such stations to assert must carry rights for both their analog and DTV signals, but has tentatively concluded that it will not do so. The FCC has requested further comments on this issue in order to develop a more complete record before issuing a final decision. If a television station operates only a DTV signal, or returns its analog channel to the FCC and converts to digital operations, it may assert must carry rights for its DTV signal. The exercise of must carry rights by a television station for its DTV signal applies only to a single programming stream and other program-related content. If a television station is concurrently broadcasting more than one program stream on its DTV signal it may select which program stream is subject to its must carry election. Cable systems are not required to carry internet, e-commerce or other ancillary services provided over DTV signals if those services are not related to the station's primary video programming carried on the cable system. Digital television signals that are carried on a cable system must be available to subscribers on the system's basic service tier. 17 With respect to direct-to-the-home satellite service providers, the FCC in November 2000 declined to address whether television stations' must carry rights as to satellite service providers, which go into effect January 1, 2002, will also apply to stations' DTV signals. The FCC said it would address this issue at the same time it considers digital carriage issues for cable television. Television station operators may use their DTV signals to provide ancillary services, such as computer software distribution, internet, interactive materials, e-commerce, paging services, audio signals, subscription video, or data transmission services. To the extent a station provides such ancillary services it is subject to the same regulations as are applicable to other analogous services under the FCC's rules and policies. Commercial television stations also are required to pay the FCC five percent of the gross revenue derived from all ancillary services provided over their DTV signals for which a station received a fee in exchange for the service or received compensation from a third party in exchange for transmission of material from that third party, not including commercial advertisements used to support broadcasting. Programming and Operation. The Communications Act of 1934 requires broadcasters to serve "the public interest." Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, television station licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. The FCC may consider complaints from viewers concerning programming when it evaluates a station's license renewal application, although viewer complaints also may be filed and considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things: . political advertising; . sponsorship identifications; . contest and lottery advertising; . obscene and indecent broadcasts; and . technical operations, including limits on radio frequency radiation. In 2000, the FCC enacted new Equal Employment Opportunity rules for broadcasters. The rules became effective, but in 2001, the U.S. Court of Appeals for the District of Columbia Circuit declared them invalid. The FCC suspended its rules (other than a general non-discrimination rule) and did not appeal the Court of Appeals ruling to the U.S. Supreme Court. Other parties, however, did appeal to the Supreme Court, and their appeal is pending. In the meantime, the FCC has initiated a rulemaking proceeding regarding possible new Equal Employment Opportunity rules for broadcasters. The Telecommunications Act of 1996 directs the FCC to establish, if the broadcast industry does not do so on a voluntary basis, guidelines and procedures for rating programming that contains sexual, violent, or other indecent material. A multi-industry task force developed a ratings plan which the FCC has ratified. The FCC also has issued rules that require television manufacturers to install appropriate technology, such as a "V-Chip" that can block programming based on an electronically encoded rating, to facilitate the implementation of the ratings guidelines. Proposed Legislation and Regulations. With the exception of the FCC's ongoing rule making proceeding concerning implementation of the transition from analog to digital television broadcasts and the FCC's proposal to eliminate the local television/daily newspaper cross-ownership prohibition, there are no pending rule making proceedings which are likely to have a significant impact on the television industry or the operation of our stations. The FCC may decide to initiate new rule making proceedings, on its own or in response to requests from the private sector, any of which might have such an impact. However, the FCC should shortly initiate a rulemaking proceeding to further consider the national ownership rules. Congress also may act to amend the 18 Communications Act in a manner that would impact our stations or the television broadcast industry. Other matters that could affect our broadcast properties include technological innovations affecting the mass communications industry such as spectrum allocation matters, including assignment by the FCC of channels for additional broadcast stations, and FCC policies concerning low power television stations and multichannel video program service providers, including cable television, direct broadcast satellite and wireless cable systems. Employees As of December 31, 2001, we had a total of 1,027 employees comprised of 891 full-time and 136 part-time or temporary employees. As of December 31, 2001, 214 of our employees are covered by collective bargaining agreements. We believe that our employee relations are satisfactory, and we have not experienced any work stoppages at any of our facilities. However, we cannot assure you that our collective bargaining agreements will be renewed in the future or that we will not experience a prolonged labor dispute, which could have a material adverse effect on our business, financial condition, or results of operations. Risks Related to Our Business Substantial Leverage--Our substantial indebtedness could adversely affect our financial position We have a significant amount of indebtedness, as set forth below.
As of December 31, 2001 ------------ (dollars in thousands) Total indebtedness(1)............. $304,655 Member's interest................. 82,679 -------- Total capitalization.............. $387,344 ======== Debt to total capitalization ratio 78.7%
- -------- (1) Excludes Nexstar Finance's guarantee of a $3.0 million loan for a related party. At December 31, 2001, there were $53.9 million of unused commitments under our senior credit facilities. Our substantial indebtedness could have important consequences. For example, it could: . limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes; . require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes; . limit our flexibility in planning for and reacting to changes in our business and in the industry in which we operate that could make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and . place us at a disadvantage compared to our competitors that have less debt. Any of the above listed factors could materially adversely affect us. Ability to Service Debt--To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Our ability to service our debt and to finance indebtedness when necessary depends on our financial and operating performance, each of which is subject to prevailing economic conditions and to financial, business, legislative and regulatory factors as well as other factors beyond our control. 19 We cannot assure you that we will generate sufficient cash flow from operations or that we will be able to obtain sufficient funding to satisfy all of our obligations. If we are unable to pay our debts, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. In addition, the ability to borrow funds under our senior credit facilities in the future will depend on our meeting the financial covenants in the agreements governing these facilities, including a minimum interest coverage test and a maximum leverage ratio test. We cannot assure you that our business will generate cash flow from operations or that future borrowings will be available to us under our senior credit facilities, in an amount sufficient to enable us to pay our debt or to fund other liquidity needs. As a result, we may need to refinance all or a portion of our debt on or before maturity. However, we cannot assure you that any alternative strategies will be feasible at the time or prove adequate. Also, some alternative strategies will require the consent of our lenders before we engage in those strategies. We may not receive all available cash generated by, or be able to obtain the assets of, stations owned by the Bastet Group. The Bastet Group consists of entities 100% owned by an independent third party. Collectively, these entities own and/or operate and program the following television stations: WYOU-TV, WFXP-TV, KJTL-TV, KJBO-TV and KODE-TV. A member of the Bastet Group entered into a time brokerage agreement with a subsidiary of GOCOM Holdings, LLC in December 2001 with regard to KODE, the ABC affiliate in Joplin, Missouri, pending the acquisition of the station's assets, which acquisition is scheduled to close on September 30, 2002. We do not own or control the television stations owned and/or operated by the Bastet Group, but we have entered into various management and service arrangements with them. We also guarantee the Bastet Group's combined debt. In addition, the Bastet Group has granted us options to purchase the stations owned by the Bastet Group. The Bastet Group is considered a special purpose entity in accordance with financial accounting standards. Therefore, the financial results of operations of these entities have been consolidated with those of Nexstar in our consolidated financial statements. The management and service arrangements that Nexstar has entered into with the Bastet Group do not entitle Nexstar to all monies generated by the stations owned and/or operated by the Bastet Group. In addition, in the event that a bankruptcy claim were filed by or against us under the U.S. Bankruptcy Code, Nexstar cannot assure you that it will be able to exercise the options that the Bastet Group has granted to Nexstar to obtain the assets of the stations owned by the Bastet Group for the benefit of Nexstar's creditors. Possible Additional Borrowings--Despite current indebtedness levels, we may still be able to incur more debt. This could further exacerbate the risks described above. We may be able to incur additional indebtedness in the future. The terms of the indenture governing the 12% senior subordinated notes due 2008 issued by Nexstar Finance (the "Notes"), the indenture governing the 16% senior discount notes due 2009 issued by Nexstar (the "Discount Notes") and the terms of the credit agreements governing our senior credit facilities do not fully prohibit us from doing so. At December 31, 2001 there were $53.9 million of unused commitments under our senior credit facilities. The addition of new debt to our current debt levels could increase the leverage-related risks described above. Restrictive Covenants--The indenture governing the Notes, the indenture governing the Discount Notes and the credit agreements governing our senior credit facilities contain various covenants that limit our management's discretion in the operation of our business. As more fully described in Note 9 to the financial statements located elsewhere in this Annual Report on Form 10-K, the indenture governing the Notes, the indenture governing the Discount Notes and the credit agreements governing our senior credit facilities contain various provisions that limit our management's discretion by restricting our ability to: . incur additional debt and issue preferred stock; . pay dividends and make other distributions; 20 . make investments and other restricted payments; . enter into sale and leaseback transactions; . create liens; . sell assets; and . enter into certain transactions with affiliates. These restrictions on our management's ability to operate our business in accordance with its discretion could have a material adverse effect on our business. In addition, our senior credit facilities require us to meet certain financial ratios in order to draw funds. If we default under any financing agreements, our lenders could: . elect to declare all amounts borrowed to be immediately due and payable, together with accrued and unpaid interest; and/or . terminate their commitments, if any, to make further extensions of credit. If we are unable to pay our obligations to our senior secured lenders, they could proceed against any or all of the collateral securing our indebtedness to them. The collateral under our senior credit facilities consists of substantially all of our existing assets. In addition, a breach of certain of these restrictions or covenants, or an acceleration by our senior secured lenders of our obligations to them, would cause a default under the Notes and the Discount Notes. We may not have, or be able to obtain, sufficient funds to make accelerated payments, including payments on the Notes or the Discount Notes, or to repay the Notes or the Discount Notes in full after we pay our senior secured lenders to the extent of their collateral. Our broadcast operations could be adversely affected if we fail to renew on favorable terms, if at all, our network affiliation agreements. We have six primary affiliation agreements with NBC, five with CBS, three with ABC, two with Fox and one with UPN. Each of NBC, CBS and ABC generally provides our stations affiliated with these networks with up to 22 hours of prime time programming per week, while Fox and UPN each provides up to 15 hours of prime time programming per week. With respect to our affiliation agreements with NBC, CBS and ABC, our affiliated stations broadcast network-inserted commercials during the programming and receive cash network compensation. Although network affiliates generally have achieved higher ratings than unaffiliated independent stations in the same market, we cannot assure you of the future success of each network's programming or the continuation of that programming. Our network affiliation agreements are subject to termination by the networks under certain circumstances. We believe that we enjoy a good relationship with each of NBC, CBS, ABC, Fox and UPN. However, we cannot assure you that our affiliation agreements will be renewed or that each network will continue to provide programming or compensation to affiliates on the same basis as it currently provides programming or compensation. The non-renewal or termination of a network affiliation agreement could adversely affect our business. For information about when we must review our network affiliation agreements, see "Business--Industry Background." The planned industry conversion to digital television could adversely affect our broadcast business. Under current FCC guidelines, all commercial television stations in the United States must start broadcasting in digital format by May 2002 unless the FCC grants an extension of time and must abandon the present analog format by December 31, 2006, provided that 85% of households within the relevant DMA have the capability to receive a digital signal. The implementation of these regulations will expose our business to the following additional risks: . It will be expensive to convert from the current analog format to digital format. We estimate that this conversion will require an average initial capital expenditure of approximately $250,000 per station for 21 low-power transmission of digital signal programming and an average additional capital expenditure of approximately $750,000 per station to complete the roll-out to full-power transmission of digital signal programming. In addition, for some of our stations we may have to undertake capital expenditures to purchase studio and production equipment that can support digital format. . The digital technology may allow us and our competitors to broadcast multiple channels, compared to only one today. We do not know now what impact this will have on the competitive landscape or on our results of operations. . The FCC sought to replicate the coverage area of existing stations' analog signals when it assigned stations' digital channels. Because existing stations operating on very high frequency, or VHF, channels generally have larger geographic service areas than stations operating on ultra high frequency, or UHF, channels, the FCC generally made available to VHF stations digital channel allocations that allow higher power operation in order to replicate those stations' current analog coverage areas. In addition, to achieve a certain level of comparable geographic signal coverage, a station operating on a UHF channel must operate with considerably higher power than a station operating on a VHF channel. Nine of our stations including one low-power station (which may not be eligible for a digital channel assignment) presently operate on UHF channels. Eight of our stations now operate on VHF channels. Some of our stations which currently operate on UHF were allocated VHF digital channels and vice versa. The geographic coverage and power disparities could put us at a disadvantage to at least some of our competitors in certain markets. Furthermore, the higher power required to operate those of our analog VHF channels that were assigned UHF digital channels with comparable geographic signal coverage may translate into higher operating costs for these stations. These higher operating costs could have a negative effect on our results of operations. . In some cases, when we convert a station to digital television, the signal may not be received in as large a coverage area, or it may suffer from additional interference. Also, the digital signal may be subject to reception problems to a greater degree than current analog transmissions. As a result, viewers using antennas located inside their homes, as opposed to outdoor, roof-top antennas, may not receive reliable signals. If viewers do not receive high-quality, reliable signals from our stations, our audience viewership may suffer, and in turn, our ability to sell time to advertisers could be impaired. . The FCC is considering whether to require cable companies to carry both the analog and the digital signals of their local broadcasters during the transition period when television stations will be broadcasting both. The FCC stated its preliminary conclusion not to require cable carriage of both signals during this transition period. If the FCC does not require such dual carriage, cable systems in our broadcast markets may not carry our digital signal or our analog signal, which could affect us adversely. The new federal satellite legislation could adversely affect our broadcast business. The Satellite Home Viewer Improvement Act of 1999 could have an adverse effect on our stations' audience shares and advertising revenues. This legislation allows satellite carriers to provide, under certain circumstances, the signals of distant stations with the same network affiliations as our stations to more television viewers in our markets than would have been permitted under previous law. In addition, the legislation allows satellite carriers to provide local television signals by satellite within a station's market, but did not require satellite carriers to carry all local stations in a market until January 2002. To date, satellite carriers are not offering the carriage of any local stations in any of Nexstar's markets. We face certain other regulatory risks. The television broadcast industry is subject to regulation by the FCC under the Communications Act of 1934, as amended, and, to a certain extent, by other federal laws and state and local authorities. Proceedings to implement the Communications Act are on-going, and we cannot predict the outcomes of these proceedings or 22 their effect on our business. Approval by the FCC is required for the issuance, renewal and assignment of station operating licenses and the transfer of control of station licensees. In particular, our business is dependent upon our continuing to hold television broadcast licenses from the FCC, which since January 1997 are issued for maximum terms of eight years. Although in the vast majority of cases the FCC renews these licenses, we cannot assure you that our licenses will be renewed at their expiration dates. If the FCC cancels, revokes, suspends, or fails to renew any of these licenses, it could have a harmful effect on our business. Apart from the FCC, federal agencies that administer the antitrust laws also monitor market concentrations in television, including through local marketing agreements that are permitted by the FCC. While the stations that we currently own and operate have already passed through necessary approvals, unfavorable rulings in the future by these federal agencies could limit partially or altogether our ability to create new agreements with other stations in our markets through shared services, joint sales and/or local marketing agreements. We face significant competition and rapidly changing technology; the competitive landscape changes constantly. Generally, we compete for our audience against all the other leisure activities in which one could choose to engage rather than watch television. Specifically, our stations compete for audience share, programming and advertising revenue with other television stations in their respective markets and with other advertising media, including cable operators, new television networks such as Paxson Communications Corporation (in which NBC has an equity investment) and the Internet. Due to rapid technological change, the nature of our competition, both general and specific, is continually shifting. Competition could adversely affect our stations' future revenues and performance. The markets in which we operate are in a constant state of change arising from, among other things, technological improvements, economic and regulatory developments as well as industry consolidation. One or more of these factors may vary unpredictably, which could materially adversely affect our business. We may not be able to compete effectively or adjust our contemplated plan of development to meet changing market conditions. We are unable to predict what forms of competition will develop in the future, the extent of that competition or its possible effects on our businesses. Our programming costs may increase. One of our most significant operating costs is syndicated programming. We cannot assure you that we will not be exposed in the future to increased syndicated programming costs, which may adversely affect our operating results. Acquisition of program rights is often made two or three years in advance, making it difficult to predict accurately how a program will perform. In some instances, programs must be replaced before their costs have been fully amortized, resulting in write-offs that increase station operating costs. We are dependent upon key personnel. Nexstar Broadcasting believes that its success depends upon its ability to retain the services of Perry A. Sook, its President and Chief Executive Officer. The loss of Mr. Sook's services could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. In addition, we believe that our success depends on our ability to identify, hire and retain skilled managers and other personnel, including our present officers and general managers. We may be unsuccessful in attracting and retaining our personnel and this failure could materially adversely affect our business. We are dependent on advertising revenues which are affected by local and national economic conditions. Our revenues are primarily derived from the sale of advertising time on our stations. Our reliance on advertising revenue makes our operating results particularly susceptible to prevailing economic conditions 23 because the demand for advertising time may decrease during an economic recession or downturn. Our revenues could be adversely affected by a future national recessionary environment and, due to the substantial portion of revenues derived from local advertisers, our operating results in individual markets could be adversely affected by local or regional economic downturns. Our revenues are subject to the biennial cycle that affects the television broadcasting industry. The television industry operates in a biennial cycle in which even-numbered years tend to have higher advertising revenues than odd numbered years. Even numbered years benefit from higher revenues associated with political advertising, as there are congressional elections every even year, and from Olympic Games advertising, as there is the Summer or Winter Olympic Games every even year. Our financial results for the year ended December 31, 2001 were affected by a general slowdown in the advertising industry, the terrorist attack on September 11, 2001, the comparative absence of advertising revenue for the 2000 Olympic Games and the non-recurring political advertising. Our results in the future may continue to be affected by this biennial cycle and we have no control over the extent to which our stations may benefit from increased political advertising or whether our stations will be affiliated with the networks that carry the Olympic Games programming. To a lesser extent, our revenues may also fluctuate based on our ability to telecast high profile sporting and entertainment events such as the Super Bowl. 24 ITEM 2. PROPERTIES We lease our primary corporate headquarters, which are located at 200 Abington Executive Park, Suite 201, Clarks Summit, Pennsylvania 18411 and occupy approximately 1,636 square feet. None of the individual station leases are material to our operations, and we do not anticipate difficulty in replacing those facilities or obtaining additional facilities, if needed. We lease and own facilities in the following locations:
Square Footage/Acreage Owned or Approximate Expiration Station Metropolitan Area and Use Leased Size of Lease - --------------------------------- ---------- --------------- ----------- WBRE--Wilkes Barre-Scranton, PA Office-Studio 100% Owned 34,838 Sq. Ft. -- Office-Studio 100% Owned 49,556 Sq. Ft. -- Office-Studio--Williamsport Bureau Lease 811 Sq. Ft. Month/Month Tower/Transmitter Site--Williamsport 33% Owned 1.33 Acres -- Tower/Transmitter Site--Sharp Mountain 33% Owned 0.23 Acres -- Tower/Transmitter Site--Blue Mountain 100% Owned 0.998 Acres -- Tower/Transmitter Site--Penobscot Mountain 100% Owned 20 Acres -- WYOU--Wilkes Barre-Scranton, PA Office-Studio--News Bureau/Office Lease 6,977 Sq. Ft. 12/1/04 Sales Office Lease 800 Sq. Ft. 10/31/04 Tower/Transmitter Site 100% Owned 120.33 Acres -- Tower/Transmitter Site 100% Owned 7.2 Acres -- Tower/Transmitter Site--Williamsport 33% Owned 1.33 Acres -- Tower/Transmitter Site--Sharp Mountain 33% Owned 0.23 Acres -- Tower/Transmitter Site Lease 10,000 Sq. Ft. Month/Month KTAL--Shreveport, LA Office-Studio 100% Owned 2 Acres -- Office-Studio 100% Owned 16,000 Sq. Ft. -- Office-Studio--Texarkana 100% Owned 7,245 Sq. Ft. -- Office-Studio--Texarkana 100% Owned 1.687 Acres -- Office-Studio--Texarkana Lease 2,147 Sq. Ft. 8/31/08 Tower/Transmitter Site 100% Owned 109 Acres -- Tower/Transmitter Site 100% Owned 2,284 Sq. Ft. -- WROC--Rochester, NY Office-Studio 100% Owned 3.9 Acres -- Office-Studio 100% Owned 48,000 Sq. Ft. -- Tower/Transmitter Site 50% Owned 0.24 Acre -- WCIA/WCFN--Champaign-Springfield-Decatur, IL Office-Studio 100% Owned 20,000 Sq. Ft. -- Office-Studio 100% Owned 1.5 Acres -- Office-Studio--Sales Bureau Lease 1,600 Sq. Ft. 1/31/12 Office-Studio--News Bureau Lease 350 Sq. Ft. 9/30/02 Office-Studio--Decatur News Bureau Lease 300 Sq. Ft. 5/31/04 Tower/Transmitter Site--WCIA Tower 100% Owned 38.06 Acres -- Tower/Transmitter Site--Springfield Tower 100% Owned 2.0 Acres -- Tower/Transmitter Site--Dewitt Tower 100% Owned 1.0 Acres -- WMBD--Peoria-Bloomington, IL Office-Studio 100% Owned 0.556 Acres -- Office-Studio 100% Owned 18,360 Sq. Ft. -- Office-Studio Lease 1,128 Sq. Ft. 8/31/02 Tower/Transmitter Site 100% Owned 34.93 Acres -- Tower/Transmitter Site 100% Owned 1.0 Acres --
25
Square Footage/Acreage Owned or Approximate Expiration Station Metropolitan Area and Use Leased Size of Lease - --------------------------------- ---------- --------------- ----------- KBTV--Beaumont-Port Arthur, TX Office-Studio 100% Owned 1.2 Acres -- Office-Studio 100% Owned 26,160 Sq. Ft. -- Office-Studio Leased 8,000 Sq. Ft. 9/1/09 Tower/Transmitter Site 100% Owned 40 Acres -- WTWO--Terre Haute, IN Office-Studio 100% Owned 4.774 Acres -- Office-Studio 100% Owned 17,375 Sq. Ft. -- Office-Studio Lease 1,425 Sq. Ft. 11/30/04 WJET--Erie, PA Tower/Transmitter Site Lease 2 Sq. Ft. Month/Month WFXP--Erie, PA Tower/Transmitter Site Lease 1 Sq. Ft. 6/30/04 ENTERTAINMENT REALTY CORP., Erie, PA Office-Studio/(1)/ 100% Owned 9.87 Acres -- Office-Studio/(1)/ 100% Owned 15,533 Sq. Ft. -- KFDX--Wichita Falls, TX--Lawton, OK Office-Studio 100% Owned 28.06 Acres -- Office-Studio 100% Owned 13,568 Sq. Ft. -- KJTL--Wichita Falls, TX--Lawton, OK Office-Studio/(2)/ -- -- -- Tower/Transmitter Site Lease 40 Acres 1/30/15 KJBO-LP--Wichita Falls, TX--Lawton, OK Office-Studio/(2)/ -- -- -- Tower/Transmitter Site Lease 5 Acres Year/Year KSNF--Joplin, MO--Pittsburgh, KS Office-Studio 100% Owned 13.36 Acres -- Office-Studio 100% Owned 13,169 Sq. Ft. -- Tower/Transmitter Site Lease 900 Sq. Ft. 10/5/02 KMID--Midland--Odessa, TX Office-Studio 100% Owned 1.127 Acres -- Office-Studio 100% Owned 14,000 Sq. Ft. -- Tower/Transmitter Site 100% Owned 69.87 Acres -- Tower/Transmitter Site 100% Owned 0.322 Acres -- KTAB--Abilene-Sweetwater, TX Office-Studio 100% Owned 2.98 Acres -- Office-Studio 100% Owned 14,532 Sq. Ft. -- Tower/Transmitter Site 100% Owned 25.55 Acres -- KQTV--St Joseph, MO Office-Studio 100% Owned 3 Acres -- Office-Studio 100% Owned 9,360 Sq. Ft. -- Tower/Transmitter Site 100% Owned 13,169 Sq. Ft. -- CORPORATE OFFICE--Clarks Summit, PA Lease 1,636 Sq. Ft. Year/Year CORPORATE BRANCH OFFICE--Terre Haute, IN Lease 1,227 Sq. Ft. 7/31/04
- -------- (1) WJET and WFXP operate in facilities owned by Entertainment Realty Corporation, a subsidiary of Nexstar and a guarantor of the Notes. The main tower for WJET is at this site. (2) The office space and studio used by KJTL and KJBO-LP is owned by KFDX. 26 Item 3. Legal Proceedings From time to time, we are involved in litigation that arises from the ordinary operations of our business, such as contractual or employment disputes or other general actions. In the event of an adverse outcome of these proceedings, we believe the resulting liabilities would not have a material adverse effect on our financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders Neither Nexstar Finance Holdings, L.L.C. nor Nexstar Finance Holdings, Inc. submitted any matter to a vote of its security holders during the fourth quarter of 2001. 27 PART II Item 5. Market for Common Stock and Related Stockholder Matters Market Information This item is not applicable in that all of the equity securities of Nexstar Finance Holdings, L.L.C. are owned by its immediate parent company, Nexstar Finance Holdings II, L.L.C., and all of the equity securities of Nexstar Finance Holdings, Inc. are owned by Nexstar Finance Holdings, L.L.C. Item 6. Selected Financial Data The selected historical consolidated financial data presented below for the years ended December 31, 2001, 2000, 1999 and 1998 has been derived from our audited consolidated financial statements. The selected historical combined consolidated financial data presented below for the year ended December 31, 1997 have been derived from the audited combined financial statements of Nexstar's predecessor entities. These entities have been presented on a combined basis because they were under the common control of ABRY, the principal equityholder of Nexstar Broadcasting Group until they were reorganized into Nexstar Broadcasting Group on January 5, 1998. The following financial data should be read in conjunction with Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Fiscal Year Ended December 31, -------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- --------- ----------- Predecessor ----------- Statement of Operations Data: (dollars in thousands) Net broadcast revenue/(1)/..................... $ 99,054 $107,085 $ 78,490 $ 56,005 $20,876 Trade and barter revenue....................... 11,675 10,382 8,470 6,606 2,683 -------- -------- -------- --------- ------- Total net revenue.............................. 110,729 117,467 86,960 62,611 23,559 Operating costs and expenses: Station operating expenses................... 31,332 29,269 23,760 16,960 6,556 Selling, general and administrative.......... 28,180 28,790 23,645 15,514 9,807 Amortization of program rights............... 17,344 16,905 13,580 8,972 3,077 Depreciation and amortization................ 33,811 23,933 20,467 21,254 5,698 -------- -------- -------- --------- ------- Income (loss) from operations.................. 62 18,570 5,508 (89) (1,579) Interest expense............................... 38,794 20,045 16,282 11,588 2,669 Interest income................................ (316) (309) (261) (136) (37) Other expense.................................. 519 259 249 125 -- -------- -------- -------- --------- ------- Loss before income taxes and extraordinary item (38,935) (1,425) (10,762) (11,666) (4,211) (Provision) benefit for income taxes........... 879 (1,098) (658) (98) 731 -------- -------- -------- --------- ------- Loss before extraordinary item................. (38,056) (2,523) (11,420) (11,764) (3,480) Extraordinary item, net of income tax benefit.. (263) -- (2,829) -- -- -------- -------- -------- --------- ------- Net loss....................................... $(38,319) $ (2,523) $(14,249) $(11,764) $(3,480) ======== ======== ======== ========= ======= Balance Sheet Data (end of period): Cash and cash equivalents...................... $ 5,802 $ 2,750 $ 2,989 $ 1,964 $ 1,358 Net intangible assets.......................... 313,280 220,480 199,066 146,640 41,512 Total assets................................... 426,354 318,275 287,229 209,610 66,973 Total debt/(2)/................................ 304,655 253,556 203,531 140,545 35,168 Total member's interest........................ 82,679 31,524 34,187 45,470 14,907 Working capital................................ 17,961 5,144 (9,690) 4,843 3,911 Other Financial Data: Capital expenditures, net...................... $ 5,590 $ 5,595 $ 6,621 $ 5,495 $ 228 Cash payments for program obligations.......... 8,001 8,426 6,916 4,464 1,813 Broadcast cash flow/(3)/....................... 37,383 47,592 30,244 23,285 8,803 Broadcast cash flow margin/(4)/................ 37.7% 44.4% 38.5% 41.6% 42.2% EBITDA(5)...................................... $ 34,631 $ 44,501 $ 27,583 $ 21,334 $ 6,747
See notes to selected historical consolidated financial data 28 NOTES TO THE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (1) Net broadcast revenue is defined as revenue net of agency commissions and excluding barter and trade. (2) Excludes Nexstar's guarantee of a $3.0 million loan for a related party and includes capital leases. (3) Broadcast cash flow ("BCF") is defined as net income before interest expense, income taxes, depreciation and amortization, other income/(expense), corporate overhead, non-cash trade and barter expenses and non-recurring expenses (including time brokerage agreement fees), less payments on program obligations and non-cash trade and barter revenue. BCF is not a measure of performance calculated in accordance with Generally Accepted Accounting Principles ("GAAP") should not be considered in isolation or as a substitute for net income, operating income or cash flow as reflected in our consolidated financial statements and is not intended to represent a measure of funds available for debt service, dividends, reinvestment or other discretionary uses. In addition, this definition of BCF may not be comparable to similarly titled measures reported by other companies. We believe that the presentation of BCF is relevant and useful because 1) it is a measurement utilized by industry analysts to determine a private market value of our television stations and 2) it is a measurement industry analysts utilize when determining our operating performance. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the calculation of BCF. (4) BCF margin is defined as BCF divided by net broadcast revenue. (5) EBITDA is defined as BCF less corporate expenses. We consider EBITDA to be an important indicator of the operational strength and performance of our business. EBITDA should not be considered an alternative to operating or net income as an indicator of our performance, or as an alternative to cash flows from operating activities as measures of liquidity, in each case determined in accordance with GAAP. In addition, this definition of EBITDA may not be comparable to EBITDA reported by other companies. We believe that the presentation of EBITDA is relevant and useful because 1) it is a measurement used by industry analysts to determine a private market value for our television stations and 2) it is a measurement industry analysts utilize when determining our operating performance. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with Item 6 "Selected Financial Data" and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including: any projections or expectations of earnings, revenues, financial performance, liquidity and capital resources or other financial items; any assumptions or projections about the television broadcastings industry, any statements of our plans, strategies and objectives for our future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect" or "anticipate" and other similar words. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ from this projection or assumption in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties discussed elsewhere in the Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission. The forward-looking statements made in this Annual Report on Form 10-K are made only as of the date hereof and we do not have or undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. We make references throughout our "Management's Discussion and Analysis of Financial Condition and Results of Operations" to comparisons on a "same station basis." These comparisons refer to stations which we have owned at the beginning and end of a particular period. In particular, references to a comparison on a same station basis for the year ended December 31, 2001 versus the year ended December 31, 2000 include the following stations: WYOU, KQTV, WTWO, WBRE, KFDX, KSNF, KBTV, WJET, WFXP, WROC, KJTL, KJBO and KTAB. References to a comparison on a same station basis for the year ended December 31, 2000 versus the year ended December 31, 1999 include the following stations: WYOU, KQTV, WTWO, KFDX, WBRE, KSNF, KBTV, WJET and WFXP. 29 Introduction The operating revenues of our stations are derived primarily from advertising revenue, which in turn depends on the economic conditions of the markets in which we operate, the demographic makeup of those markets and the marketing strategy we employ in each market. The primary operating expenses consist of commissions on revenues, employee compensation and related benefits, newsgathering and programming costs. A large percentage of the costs involved in the operation of our stations remain relatively fixed. The networks provide programming to our stations during various time periods of the day. The networks compensate our stations for distributing the networks' product over the air and for keeping a portion of advertising inventory during those time periods. Each station purchases licenses to broadcast programming in non-news time periods during the remainder of the day. The licenses are either purchased from a syndicator for cash or the syndicator is allowed to retain some of the inventory as compensation to eliminate or reduce the cash cost for the license. The station records the estimated fair market value of the inventory given to the syndicator as a barter asset and liability. Over the term of the contract, these values are amortized as barter revenue and expense. Advertising rates are based upon a program's popularity among the viewers that an advertiser wishes to target, the number of advertisers competing for the available time, the size and the demographic composition of the market served by the station, the availability of alternative advertising media in the market area, and the effectiveness of the stations' sales force. Advertising rates are also determined by a station's overall ability to attract viewers in its market area, as well as the station's ability to attract viewers among particular demographic groups that an advertiser may be targeting. Advertising revenues are positively affected by strong local economies, national and regional political election campaigns, and certain events such as the Olympic Games or the Super Bowl. Because television broadcast stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a result may contribute to a decrease in the revenues of broadcast television stations. Most advertising contracts are short-term and generally run for a few weeks. Excluding political revenue, 62.5% and 61.9% of our spot revenue for the years ended December 31, 2001 and December 31, 2000, respectively, was generated from local advertising which is sold by a station's sales staff. The remainder of our advertising revenue represents inventory sold for national or political advertising. Each station has an agreement with a national representative firm that normally provides for representation outside the particular station's market. National commission rates vary within the industry but are governed by each station's agreement. All national and political revenue is placed by advertising agencies. The agencies receive a commission rate of 15.0% for the gross amount of advertising schedules placed by them. While the majority of local spot revenue is placed by local agencies, some advertisers place their schedules directly with the local sales staff, thereby eliminating the agency commission. The advertising revenue of our stations is 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 revenue is generally higher during even numbered years resulting from political advertising and advertising aired during the Olympic Games. We define broadcast cash flow, or BCF, as net income before interest expense, income taxes, depreciation, amortization, other income/(expenses), corporate overhead, non-cash trade and barter expenses and time brokerage fees less payments on program obligations and non-cash trade and barter revenue. Other television broadcasting companies may measure BCF in a different manner. We have included BCF data because such data is commonly used as a measure of performance for broadcast companies and is also used by industry analysts to determine a private market value for our television stations. BCF should not be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements, is not intended to represent 30 funds available for debt service, dividends, reinvestment or other discretionary uses, is not a measure of financial performance under Generally Accepted Accounting Principles, or GAAP, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Our acquisitions and other arrangements during each of the fiscal years ended December 31, 2001, 2000 and 1999 affect the year-to-year comparability of the operating results discussed below. In 2001, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcast Group, Inc. to provide certain engineering, production, sales and administrative services for WYZZ, the Fox affiliate in the Peoria-Bloomington, Illinois market. A member of the Bastet Group entered into a time brokerage agreement with a subsidiary of GOCOM Holdings, L.L.C. in December 2001 with regard to KODE, the ABC affiliate in Joplin, Missouri, pending the acquisition of the station's assets for $14.0 million. In 2000, Nexstar acquired substantially all of the assets of KMID, the ABC affiliate in Midland-Odessa, Texas, for approximately $10.0 million and substantially all of the assets of KTAL, the NBC affiliate in Shreveport, Louisiana, for approximately $35.3 million. In 1999, Nexstar acquired substantially all of the assets of WROC, the CBS affiliate in Rochester, New York, for approximately $46.0 million and the assets of KTAB, the CBS affiliate in Abilene-Sweetwater, Texas, for approximately $17.3 million. Nexstar also entered into a time brokerage agreement with WCIA/WCFN and WMBD during 1999, and, as discussed below, acquired substantially all of the assets of these stations in 2001. Also in 1999, the Bastet Group acquired substantially all of the assets of KJTL, the Fox affiliate in Wichita Falls, Texas-Lawton, Oklahoma, and KJBO-LP, the UPN affiliate in Wichita Falls, Texas-Lawton, Oklahoma, for approximately $15.5 million. Recent Developments Acquisitions and Station Agreements On January 12, 2001, Nexstar acquired substantially all of the assets of WCIA/WCFN and WMBD for approximately $108.0 million. WCIA/WCFN is the CBS affiliate in the Champaign-Springfield-Decatur, Illinois market, and WMBD is the CBS affiliate in the Peoria-Bloomington, Illinois market. We financed the purchase of WCIA/WCFN and WMBD with the proceeds of (1) our existing $275.0 million senior credit facilities, (2) Nexstar's $40.0 million unsecured interim loan, the proceeds of which were contributed to Nexstar Finance, and (3) $65.0 million of equity contributed by our parent, Nexstar Finance Holdings II, L.L.C. (then known as Nexstar Finance Holdings, L.L.C.). A member of the Bastet Group entered into a time brokerage agreement with a subsidiary of GOCOM Holdings, L.L.C. in December 2001 with regard to KODE, the ABC affiliate in Joplin, Missouri, pending the acquisition of the station's assets, which is scheduled to close on September 30, 2002. The purchase price of the assets is $14.0 million and will be financed under the Bastet Group's senior credit facility. Pursuant to the terms of the agreement, Mission Broadcasting of Joplin, Inc. has made a down payment of $6.0 million against the purchase price to GOCOM Holdings, L.L.C., which is reflected in other assets in the consolidated financial statements. Effective December 1, 2001, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcasting Group, Inc. to provide certain engineering, production, sales and administrative services for WYZZ, the Fox affiliate in the Peoria-Bloomington, Illinois market. The parties will share in the combined broadcast cash flow generated by WYZZ and, Nexstar-owned, WMBD. Senior Subordinated Notes On March 16, 2001, Nexstar Finance completed the sale of $160.0 million aggregate principal amount of 12% Senior Subordinated Notes due 2008 (the "Notes") at a price of 96.012%. The Notes mature on April 1, 2008. The Notes are unconditionally guaranteed by each of Nexstar Finance's existing and future domestic subsidiaries and by the Bastet Group. The proceeds from the sale of the Notes were used to (1) repay $30.0 million of the unsecured interim loan, (2) repay $116.2 million of Nexstar's reducing revolving credit facility and (3) pay fees and expenses of the financing. 31 Senior Discount Notes On May 17, 2001, Nexstar completed the sale of $36.988 million aggregate principal amount at maturity of Senior Discount Notes due 2009 (the "Discount Notes") at a price of 54.0373%. The Discount Notes mature on May 15, 2009. Each Discount Note will have an accreted value at maturity of $1,000. The Discount Notes will not begin to accrue cash interest until May 15, 2005 with payments to be made every six months in an arrears on May 15 and November 15. The Discount Notes are general unsecured senior obligations effectively subordinated to all of our senior secured debt and are structurally subordinated to the Notes described above. Reorganization As required by the terms of the indenture governing the Discount Notes, on August 6, 2001, pursuant to an assignment and assumption agreement, the entity formerly known as Nexstar Finance Holdings, L.L.C. contributed all of the equity interests of Nexstar Finance, L.L.C. (a 100% wholly owned subsidiary of the entity formerly known as Nexstar Finance Holdings, L.L.C.) and all shares of common stock of Nexstar Finance, Inc. (also a 100% wholly-owned subsidiary of the entity formerly known as Nexstar Finance Holdings, L.L.C.) to a newly created wholly-owned subsidiary of the entity formerly known as Nexstar Finance Holdings, L.L.C., NBG, L.L.C. As a result of this transaction, all of the net assets of the entity formerly known as Nexstar Finance Holdings, L.L.C. were transferred to NBG, L.L.C. with the exception of an intercompany note payable to Nexstar Broadcasting Group, L.L.C. (the ultimate parent company of the entity formerly known as Nexstar Finance Holdings, L.L.C.) of $31.6 million plus accrued interest. Simultaneous with this reorganization, the entity formerly known as Nexstar Finance Holdings, L.L.C. was renamed Nexstar Finance Holdings II, L.L.C. and NBG, L.L.C. was renamed Nexstar Finance Holdings, L.L.C. In addition, upon completion of this reorganization, Nexstar Broadcasting Group, L.L.C.'s guaranty of the Discount Notes was released and all obligations of Nexstar Broadcasting Group, L.L.C. under the indenture governing the Discount Notes ceased to be effective. The reorganization has been accounted for in a manner similar to a pooling of interests and, accordingly, the financial information for Nexstar Finance Holdings, L.L.C. (formerly NBG, L.L.C.) for all periods has been revised to reflect the reorganization. Capital Contributions On January 12, 2001, we received $65.0 million in capital contributions from Nexstar Finance Holdings II, L.L.C. (known then as Nexstar Finance Holdings, L.L.C). On May 17, 2001, concurrent with the sale of the Discount Notes, $8.0 million was distributed back to Nexstar Finance Holdings L.L.C. and $1.25 million was received in capital contributions. On August 7, 2001 and on November 14, 2001, we received $20.0 million and $15.0 million, respectively, in capital contributions from Nexstar Finance Holdings II, L.L.C. The proceeds from both capital contributions were used to reduce bank debt. 32 Historical Performance Revenues The following table sets forth the principal types of revenues received by our stations for the periods indicated and the percentage contribution of each subcategory of our total revenues, as well as agency and national sales representative commissions:
Year Ended December 31, ------------------------------------------- 2001 2000 1999 -------------- -------------- ------------- Amount % Amount % Amount % -------- ----- -------- ----- ------- ----- (dollars in thousands) Local............................................... $ 64,097 56.0 $ 62,595 50.2 $49,953 54.9 National............................................ 38,456 33.6 38,602 31.0 32,212 35.3 Political........................................... 2,197 1.9 15,126 12.1 1,703 1.9 Network compensation................................ 7,454 6.5 6,258 5.0 5,440 6.0 Other............................................... 2,270 2.0 2,050 1.7 1,751 1.9 -------- ----- -------- ----- ------- ----- Total gross revenue.............................. 114,474 100.0 124,631 100.0 91,059 100.0 Less: Agency and national representative commissions 15,420 13.5 17,546 14.1 12,569 13.8 -------- ----- -------- ----- ------- ----- Net broadcast revenue............................ 99,054 86.5 107,085 85.9 78,490 86.2 Trade and barter.................................... 11,675 10,382 8,470 -------- -------- ------- Total net revenue................................... $110,729 $117,467 $86,960 ======== ======== =======
Results of Operations The following table sets forth a summary of our operations for the periods indicated and their percentages of total net revenue:
Year Ended December 31, ------------------------------------------- 2001 2000 1999 -------------- -------------- ------------- Amount % Amount % Amount % -------- ----- -------- ----- ------- ----- (dollars in thousands) Total net revenue......................................... $110,729 100.0 $117,467 100.0 $86,960 100.0 Operating expenses: Station operating...................................... 28,635 25.9 27,591 23.5 21,824 25.1 Selling, general and administrative.................... 28,180 25.4 28,790 24.5 23,645 27.2 Trade and barter....................................... 11,713 10.6 10,227 8.7 8,311 9.6 Depreciation and amortization.......................... 33,811 30.5 23,933 20.4 20,467 23.5 Amortization of program license rights, net of barter.. 8,328 7.6 8,356 7.1 7,205 8.3 -------- -------- ------- Operating income.......................................... $ 62 $ 18,570 $ 5,508 ======== ======== =======
Broadcast Cash Flow The following table sets forth certain operating data for the periods indicated. Please refer to the "Liquidity and Capital Resources" section for a discussion of operating cash flows.
Year Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (dollars in thousands) Operating income..................................... $ 62 $18,570 $ 5,508 Add: Amortization of program license rights, net of barter 8,328 8,356 7,205 Depreciation and amortization........................ 33,811 23,933 20,467 Corporate expenses/(1)/.............................. 2,752 3,091 2,661 Non-recurring license and marketing agreement fees... 77 1,914 1,216 Trade and barter expense............................. 11,713 10,227 8,311 Interest income...................................... 316 309 262 Less: Trade and barter revenue............................. 11,675 10,382 8,470 Payments for program license liabilities............. 8,001 8,426 6,916 ------- ------- ------- Broadcast cash flow.................................. $37,383 $47,592 $30,244 ======= ======= ======= Broadcast cash flow margin/(2)/...................... 37.7% 44.4% 38.5%
- -------- (1) Corporate expenses represent costs associated with the centralized management of our stations. (2) Broadcast cash flow margin is defined as broadcast cash flow divided by net broadcast revenue. 33 Year Ended December 31, 2001 Compared to Year Ended December 31, 2000. Net broadcast revenue for the year ended December 31, 2001 was $99.1 million, a decrease of $8.0 million, compared to $107.1 million for the year ended December 31, 2000. An increase of approximately $2.9 million was attributable to stations acquired after January 1, 2000. On a same station basis, net broadcast revenue for the year ended December 31, 2001 was $71.8 million as compared to $82.7 million for December 31, 2000, a 13.2% decrease. Of this decrease, $1.5 million was attributable to local revenue, $1.5 million was due to a decline in national revenue and $8.5 million was non-recurring political revenue partially offset by increases in other broadcast revenue for the year. A general slowdown in the advertising industry, the terrorist attack on September 11, 2001, the comparative absence of advertising revenue from the 2000 Olympic games and the non-recurring political advertising are the primary components of the decrease in broadcast revenue. After the terrorist attack, the networks aired twenty-four hour newscasts with no commercial breaks for several days. The unscheduled newscasts and absence of commercial breaks resulted in a loss of approximately $1.1 million in net broadcast revenue for our stations. Operating expenses, including selling, general and administrative expenses and corporate overhead, net of trade, for the year ended December 31, 2001 were $56.8 million, compared to $56.4 million for the year ended December 31, 2000, an increase of $0.4 million. An increase of approximately $1.6 million was attributable to stations acquired after January 1, 2000. On a same station basis, operating expenses for the year ended December 31, 2001 were $40.8 million as compared to $42.0 million for the year ended December 31, 2000, a 2.9% decline. Cost controls implemented at the stations accounted for this decrease. Cost controls included a reduction in work force and the related personnel costs, strict controls on overtime and a decrease in promotional costs. Amortization of program license rights, net of barter, for the year ended December 31, 2001 was $8.3 million, compared to $8.4 million for the year ended December 31, 2000. An increase of $0.5 million was attributable to the stations acquired in 2000 and 2001, offset by a decrease of $0.6 million as a result of lower contract costs from favorable negotiations on programming contracts. Depreciation of property and equipment and amortization of intangibles was $33.8 million for the year ended December 31, 2001, compared with $23.9 million for the comparable period in 2000, an increase of $9.9 million. The increase of $9.9 million was attributable to the effect of the stations acquired in 2000 and 2001. Operating income for the year ended December 31, 2001 was $0.1 million as compared to $18.6 million for the year ended December 31, 2000, a decrease of $18.5 million. Of the $18.5 million decrease, approximately $12.1 million was attributable to stations acquired after January 1, 2000. On a same station basis, operating income for the year ended December 31, 2001 was $2.9 million as compared to $9.3 million for the year ended December 31, 2000. The decrease was primarily attributable to lower net revenues, partially offset by the cost controls described above. Interest expense, including amortization of debt financing costs, for the year ended December 31, 2001 was $38.8 million, compared to $20.0 million for the same period in 2000, an increase of $18.8 million. The increase was primarily attributable to the full year effect of the additional indebtedness to acquire the stations in 2000 and 2001, amortization of debt financing costs related to interim financing and an increase in the cost of funds. In 2001, we wrote off $0.3 million of debt financing costs, net of the tax effect, as a result of refinancing our senior credit facilities in January 2001. As a result of the factors discussed above, our net loss was $38.3 million for the year ended December 31, 2001, compared to a net loss of $2.5 million for the same period in 2000, an increase in net loss of $35.8 million. Broadcast cash flow for the year ended December 31, 2001 was $37.4 million, compared with $47.6 million for the year ended December 31, 2000, a decrease of $10.2 million. Of the $10.2 million decrease, approximately $0.9 million was attributable to stations acquired after January 1, 2000. On a same station basis, broadcast cash 34 flow for the year ended December 31, 2001 was $28.5 million as compared to $37.8 million for the year ended December 31, 2000, a 24.6% decrease. Broadcast cash flow margins for the year ended December 31, 2001 decreased to 37.7% from 44.4% in 2000. The decrease in broadcast flow and broadcast cash flow margins were attributable to lower net revenues as described above. The margins were directly affected by the lower revenues due to the non-variable nature of operating costs at a television station. The operating expenses, except for sales commissions and incentives, remain relatively stable regardless of the change in revenue. We expect to continue to have higher margins during the even numbered years as a result of advertising revenue associated with the Olympic games and political campaigns and lower margins in during the odd numbered years without Olympic games and nominal political activity. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999. Net broadcast revenue for the year ended December 31, 2000 was $107.1 million, an increase of $28.6 million, compared to $78.5 million for the year ended December 31, 1999. Of the $28.6 million increase, approximately $20.9 million was attributable to stations acquired after January 1, 1999. On a same station basis, net broadcast revenue for the year ended December 31, 2000 was $65.5 million as compared to $57.8 million for December 31, 1999, a 13.3% increase. Most of this increase was attributed to increased political advertising as 2000 had a close presidential election, congressional elections and senatorial elections in Missouri, Texas, Indiana, Pennsylvania and New York, while 1999 had only state and local elections. Local and national revenues were relatively flat as the increased demand for political advertising crowded out local and national advertisers. The increased pressure on inventory during the months nearest the November election resulted in increased rates and the amount of inventory sold in each time period. Local and national revenues for our NBC affiliates benefited from the Olympic Games. Operating expenses, including selling, general and administrative expenses and corporate overhead, net of trade, for the year ended December 31, 2000 were $56.4 million, compared to $45.5 million for the year ended December 31, 1999, an increase of $10.9 million. Of this $10.9 million net increase, approximately $11.6 million was attributable to stations acquired after January 1, 1999. On a same station basis, operating expenses for the year ended December 31, 2000 were $31.8 million as compared to $32.5 million for the year ended December 31, 1999, a 2.2% decline. Cost controls implemented at the stations accounted for this decrease. Amortization of program license rights, net of barter, for the year ended December 31, 2000 was $8.4 million, compared to $7.2 million for the year ended December 31, 1999, an increase of $1.2 million. The increase of $1.2 million was attributable to the stations acquired in 1999 and 2000. Depreciation of property and equipment and amortization of intangibles was $23.9 million for the year ended December 31, 2000, compared with $20.5 million for the comparable period in 1999, an increase of $3.4 million. The increase of $3.4 million was attributable to the effect of the stations acquired in 1999 and 2000. Operating income for the year ended December 31, 2000 was $18.6 million as compared to $5.5 million for the year ended December 31, 1999, an increase of $13.1 million. Of the $13.1 million increase, approximately $6.8 million was attributable to stations acquired after January 1, 1999. On a same station basis, operating income for the year ended December 31, 2000 was $10.3 million as compared to $4.0 million for the year ended December 31, 1999. The increase was primarily attributable to internal revenue growth. Interest expense for the year ended December 31, 2000 was $20.0 million, compared to $16.3 million for the same period in 1999, including amortization of debt financing costs, an increase of $3.7 million. The increase was primarily attributable to the full year effect of the additional indebtedness to acquire the stations in 1999 and 2000. In 1999, we wrote off $2.8 million of debt financing costs, net of the tax effect, as a result of refinancing our senior credit facilities during the year ended 1999. 35 As a result of the factors discussed above, our net loss was $2.5 million for the year ended December 31, 2000, compared to a net loss of $14.2 million for the same period in 1999, a decrease in net loss of $11.7 million. Broadcast cash flow for the year ended December 31, 2000 was $47.6 million, compared with $30.2 million for the year ended December 31, 1999, an increase of $17.4 million. Of the $17.4 million increase, approximately $9.1 million was attributable to stations acquired after January 1, 1999. On a same station basis, broadcast cash flow for the year ended December 31, 2000 was $31.9 million as compared to $23.6 million for the year ended December 31, 1999, a 35.1% increase. Broadcast cash flow margins for the year ended December 31, 2000 increased to 44.4% from 38.5% in 1999. The increase in broadcast cash flow and broadcast cash flow margins was attributable to an increase in net broadcast revenue and lower operating costs on a same station basis. Liquidity and Capital Resources As of December 31, 2001, cash and cash equivalents were $5.8 million compared to $2.8 million as of December 31, 2000. Our primary sources of liquidity are cash flows from operating activities and the senior credit facilities. Cash flows provided by operating activities were $2.0 million for the year ended December 31, 2001, as compared to $16.6 million for the year ended December 31, 2000. A decrease in demand for advertising time would reduce the availability of funds from operating activities. Cash used for investing activities was $139.1 million for the year ended December 31, 2001, as compared to $52.1 million for the year ended December 31, 2000. Cash used for investing activities for the year ended December 31, 2001 was the result of an outlay of approximately $108.0 million for the purchase of WCIA and WMBD, a down payment of $6.0 million for the future acquisition of KODE, transaction and financing costs of approximately $19.4 million and ongoing capital expenditures of $5.7 million, compared to $45.3 million for the purchase of KMID and KTAL, transaction costs of approximately $1.1 million and capital expenditures of $5.7 million during 2000. We expect capital expenditures for 2002 to approximate $7.0 million, partially as a result of converting some of our stations to a low-power digital television transmission system. We estimate that the conversion will require approximately $250,000 per station. Nine of our stations are scheduled to complete the conversion in 2002 with the remaining station conversions and related expenditures to occur in 2003. Cash flows from financing activities were $140.2 million for the year ended December 31, 2001, compared to $35.3 million for the year ended December 31, 2000. The change in cash flows from financing activities for the year ended December 31, 2001 was the result of (1) borrowings under the new senior credit facilities of $278.8 million with a subsequent borrowing and repayment of $160.1 million as a result of the amendment on June 14, 2001 on the credit agreement governing our senior credit facilities to allow for a $50.0 Term A facility, a $75.0 million Term B facility and a $100.0 million revolving facility, (2) borrowings of $153.6 million evidenced by the senior subordinated notes (3) borrowing and subsequent repayment of a $40.0 million interim loan (4) borrowings of $18.7 million evidenced by the senior discount notes, (5) additional equity proceeds of $93.3 million (net of an $8.0 million distribution) and (6) borrowing of $12.0 million less a repayment of $6.0 million to fund a deposit on the acquisition of KODE less the repayment of the existing senior credit facility. As of December 31, 2001, $53.9 million of the revolving credit facility is available for use. As of December 31, 2000, cash and cash equivalents were $2.8 million, compared to $3.0 million as of December 31, 1999. Cash flows from operating activities were $16.6 million for the year ended December 31, 2000, compared to $9.7 million for the year ended December 31, 1999. Changes in our net cash flows from operating activities are primarily the result of higher broadcast cash flows offset by increases in working capital needs. Cash used for investing activities was $52.1 million for the year ended December 31, 2000, as compared to $89.0 million for the year ended December 31, 1999. Cash used for investing activities for the year ended December 31, 2000 was the result of an outlay of approximately $10.0 million for the purchase of KMID and 36 approximately $35.3 million for the purchase of KTAL and the related transaction costs, as well as ongoing capital expenditures at the stations. Our capital expenditures were $5.7 million for the year ended December 31, 2000 and $6.6 million for the year ended December 31, 1999. Cash flows from financing activities were $35.3 million for the year ended December 31, 2000, as compared to $80.3 million for the year ended December 31, 1999. The change in cash flows from financing activities for the year ended December 31, 2000 was the result of fewer acquisitions and principal payments. We are highly leveraged, which makes us vulnerable to changes in general economic conditions. Our ability to repay or refinance our debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond our control. We believe that, taken together, our current cash balances, internally generated cash flow and availability under our credit facilities should result in our having adequate cash resources to meet our debt service and other financial obligations for at least the next twelve months. Senior Credit Facilities On January 12, 2001, Nexstar and the Bastet Group each entered into a senior secured credit facility with a group of commercial banks. The terms of the credit agreement governing the Nexstar facility provide for a reducing revolving credit facility in the amount of $72.0 million and a term loan facility in the amount of $110.0 million. The Nexstar facility was subsequently amended on June 14, 2001, to allow for a $50.0 million term loan facility, which is Term A facility, a $75.0 million term loan facility, which is Term B facility and a $57.0 million reducing revolving facility. On November 14, 2001, the credit facility was amended to adjust financial covenants effective September 30, 2001 and future periods and to reduce the revolving facility to $42.0 million. Prepayments have been made under the Term A facility, effectively reducing the commitment to $32.0 million. The terms of the credit agreement governing the Bastet Group facility provide for a revolving credit facility in the amount of $43.0 million. On November 14, 2001, the credit facility was amended to increase the revolving facility to $58.0 million. Interest rates associated with the Nexstar and the Bastet Group credit facilities are based, at our option, on the prevailing prime rate plus an applicable margin or the LIBOR rate plus an applicable margin. Interest is fixed for a period ranging from one month to 12 months, depending on availability of the interest basis selected, except if we select a prime-based loan, in which case the interest rate will fluctuate during the period as the prime rate fluctuates. Interest is payable periodically based on the type of interest rate selected. In addition, Nexstar and the Bastet Group are required to pay quarterly commitment fees based on our consolidated total leverage ratio for that particular quarter on the unused portion of the revolving commitments. The reducing revolving credit facility and the term loans are subject to amortization schedules. The revolving facilities and the Term A facility are due and payable on, January 12, 2007, while the maturity date of the Term B facility is July 12, 2007. The senior credit facilities contain covenants which require us to comply with certain limitations on the incurrence of additional indebtedness, issuance of equity, payment of dividends and on certain other business activities. We were in compliance with all covenants contained in the credit agreement governing our senior credit facilities at December 31, 2001. Senior Subordinated Notes On March 16, 2001, Nexstar Finance issued $160.0 million of 12% Senior Subordinated Notes (the "Notes") at a price of 96.012%. The Notes mature on April 1, 2008. Interest is payable every six months in arrears on April 1 and October 1. The Notes are guaranteed by all of our domestic existing and future restricted subsidiaries. They are general unsecured senior subordinated obligations subordinated to all of our senior debt. The Notes are redeemable on or after April 1, 2005 and Nexstar may redeem up to 35.0% of the aggregate principal amount of the notes before April 1, 2004 with the net cash proceeds from qualified equity offerings. The indenture governing the Notes contains covenants which require the Nexstar to comply with certain limitations on the incurrence of additional indebtedness, issuance of equity, payment of dividends and on certain other business activities. We were in compliance with all covenants contained in the indenture governing the Notes at December 31, 2001. 37 Senior Discount Notes On May 17, 2001, we issued $36.988 million principal amount at maturity of Senior Discount Notes (the "Discount Notes") at a price of 54.0373%. The Discount Notes mature on May 15, 2009. Each Discount Note will have an accreted value at maturity of $1,000. The Discount Notes will not begin to accrue cash interest until May 15, 2005 with payments to be made every six months in arrears on May 15 and November 15. The Discount Notes are general unsecured senior obligations effectively subordinated to all of our senior secured debt and structurally subordinated to the Notes described above. The Discount Notes contain covenants, which require us to comply with certain limitations on the incurrence of additional indebtedness, issuance of equity, payment of dividends and on certain other business activities. We were in compliance with all covenants contained in the indenture governing the Discount Notes at December 31, 2001. Registration In September 2001 and January 2002, we registered our Notes and Discount Notes, respectively, under the Securities Act of 1933 pursuant to a registration rights agreement. Unsecured Interim Loan On January 12, 2001, we were issued an unsecured interim loan by our primary lender in the amount of $40.0 million. The interim loan had an initial interest rate of 13.5% per year, which automatically increased by 0.5% on each three-month anniversary of the closing date, not to exceed 18.0% per year. Interest was payable quarterly in arrears until maturity, commencing after January 12, 2005. The interim loan had a maturity date of January 12, 2008. The interim loan was effectively subordinate to the prior payment in full of all senior debt either outstanding or to be created, incurred, assumed or guaranteed. In conjunction with the offering of the Notes, $30.0 million of the interim loan was repaid. The remaining $11.2 million (including accrued interest) was repaid with proceeds from the offering of the Discount Notes. Digital Conversion FCC regulations require us to commence digital operations by May 1, 2002, in addition to continuing our analog operations, unless an extension of time is granted. We have requested an extension of time to begin digital operations at all of the stations except WCIA and WCFN, which are scheduled to meet the deadline. Although there can be no assurance that the FCC will so act, we anticipate that the FCC will grant the extensions. We estimate the digital conversion will require an average initial capital investment of $250,000 per station for low-power transmission of digital signal programming and an average additional capital expenditure of $750,000 per station for full-power transmission modifications. Except for the capital invested in WCFN to make it a full-power broadcasting station there were no expenditures for digital conversion in 2001. We anticipate that digital expenditures will be funded through available cash on hand and cash generated from operations. Off-Balance Sheet Arrangements At December 31, 2001 and 2000, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 38 Contractual Obligations The following summarizes our contractual obligations at December 31, 2001, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.
Total 2002 2003-2004 2005-2006 Thereafter -------- ------- --------- --------- ---------- (dollars in thousands) Senior credit facility................ $128,143 $ 488 $ 6,411 $11,739 $109,505 Senior subordinated debt.............. 160,000 -- -- -- 160,000 Senior discount notes................. 36,988 -- -- -- 36,988 Broadcast rights current commitments.. 7,957 5,572 1,105 572 708 Broadcast rights future commitments... 11,670 3,800 6,985 885 -- Executive employment contracts........ 2,397 895 1,502 -- -- Capital lease payments................ 23 23 -- -- -- KODE purchase price obligation........ 8,000 8,000 -- -- -- TBA and other outsourcing agreements.. 315 315 -- -- -- Operating lease obligations........... 2,089 441 780 420 448 -------- ------- ------- ------- -------- Total contractual cash obligations.... $357,582 $19,534 $16,783 $13,616 $307,649 ======== ======= ======= ======= ========
We do not have any rating downgrade triggers that would accelerate the maturity dates of our debt. However, a downgrade in our credit rating could adversely affect our ability to renew existing, or obtain access to new, credit facilities in the future and could increase the cost of such facilities. We believe that our available cash and anticipated cash flow from operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. Critical Accounting Policies and Estimates The preparation of consolidated financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangible assets, bad debts, program rights, income taxes, commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We have significant goodwill and intangible assets on our balance sheet. If the value of these assets was impaired by some factor, such as the loss of a network affiliation or an adverse change in the advertising marketplace, we may be required to record an impairment charge. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Broadcast rights, primarily in the form of syndicated programs and feature film packages, are initially recorded at the amount paid or payable to program suppliers for the limited right to broadcast the suppliers' programming and are recorded when available for use. Broadcast rights are stated at the lower of unamortized cost or net realizable value. Amortization is computed using the straight-line method based on the license period or usage, whichever is greater. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. We charge program rights to operations over the estimated broadcast period. If the expected broadcast period was shortened or cancelled due, for example, to poor ratings, we would be required to write-off the remaining value of the related program rights to operations on an accelerated basis or possibly immediately. 39 We barter advertising time for certain programming. These transactions are recorded at our estimate of the value of the advertising time exchanged, which approximates the fair value of the programming received. The value of advertising time exchanged is estimated by applying average historical advertising rates for specific time periods. We trade certain advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. Revenue from trade transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense or capitalized when received or used. We record a valuation allowance to reduce our deferred tax assets to the amount that is not likely to be realized. While we have considered future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance, in the event that we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such a determination was made. We use derivative financial instruments for purposes other than trading, such as hedging for long-term variable rate debt to reduce our exposure to fluctuations in interest rates, as dictated by our credit agreement and for hedging fair value changes attributable to changes in the benchmark interest rate on fixed rate debt. All derivatives are recognized on our balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. We assess, both at its inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows of hedged items. We assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion to current earnings. If we determine that a cash flow hedge is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the forecasted transaction, and any unrealized gain or loss on the contract is recognized in current earnings. In the normal course of business, we are party to various claims and legal proceedings. We record a reserve for these matters when an adverse outcome is probable and we can reasonably estimate our potential liability. Although the ultimate outcome of these matters is currently not determinable, we do not believe that the resolution of these matters in a manner adverse to our interest, will have a material effect upon our financial condition, results of operations or cash flows for an interim or annual period. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." Subsequently, SFAS No. 133 was amended by the issuance of SFAS No. 137 and SFAS No. 138. These amendments modify the provisions and effective date of SFAS No. 133. SFAS No. 133, as amended, is effective for fiscal quarter of all fiscal years beginning after June 15, 2000. Upon adoption of SFAS No. 133, on January 1, 2001, we recorded other comprehensive loss to recognize at fair value all derivatives that were designated as cash flow hedging instruments, which was comprised of unrealized losses related to our interest rate swaps of $0.2 million. This unrealized net loss increased by $3.5 million during the year ended December 31, 2001 due to the deferral of the effective portion of additional derivative losses on hedges of variable rate debt. As of December 31, 2001, the cumulative unrealized loss, net of reclassifications to earnings as required by SFAS No. 133, on our interest rate swaps was $3.7 million. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142. Goodwill and Other Intangible Assets. SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing certain intangible assets including goodwill and FCC licenses. The amortization of existing goodwill and FCC 40 licenses ceased on December 31, 2001. Any goodwill and FCC licenses resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill and FCC licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change which would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in our discontinuation of amortization of goodwill and FCC licenses; however, we will be required to test our goodwill and FCC licenses for impairment under the new standard during 2002, which could have an adverse effect on our future results of operations if an impairment occurs. We are currently in the process of assessing the impact of SFAS No. 142, including how it will measure impairments for goodwill and FCC licenses, however we have not yet had sufficient time to complete such evaluation. During the year ended December 31, 2001, we incurred goodwill amortization expense of $3.6 million. During the year ended December 31, 2001, we incurred amortization expense related to its FCC licenses of $5.2 million. We do not expect that our net income will be impacted by amortization expense related to goodwill or FCC licenses as a result of implementing SFAS No. 142 on January 1, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions relating to the disposal of a segment of a business described in Accounting Principles Board Opinion No. 30. We do not expect that the adoption of SFAS No. 144 will have a material impact on our financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. All borrowings at December 31, 2001 under our senior credit facilities bear interest at the base rate, or Eurodollar rate, plus the applicable margin, as defined (ranging from 5.23% to 6.64% at December 31, 2001). Interest is payable in accordance with the credit agreements. The following table estimates the changes to cash flow of operations if interest rates were to fluctuate by 100 or 50 basis points, or BPS (where 100 basis points represents one percentage point) for a twelve-month time horizon:
Interest rate Interest rate decrease increase --------------- --------------- No change to 100 BPS 50 BPS interest rate 50 BPS 100 BPS ------- ------- ------------- ------- ------- (dollars in thousands) Senior credit facilities. $ 6,533 $ 6,607 $ 6,682 $ 6,756 $ 6,830 Senior subordinated notes 16,128 16,428 16,728 17,028 17,328 Senior discount notes.... 3,328 3,328 3,328 3,328 3,328 ------- ------- ------- ------- ------- Total.................... $25,989 $26,363 $26,738 $27,112 $27,486 ======= ======= ======= ======= =======
At December 31, 2001, we had in effect three interest rate swap agreements, with commercial banks, with notional amounts of $93.3 million, $20.0 million and $60.0 million. Our $93.3 million and $20.0 million interest rate swap agreements require us to pay a fixed rate and receive a floating rate thereby creating fixed rate debt. The $60.0 million swap agreement requires us to pay a floating rate and receive a fixed rate. The differential to be paid or received on the swaps is accrued as an adjustment to interest expense. We are exposed to credit loss in the event of nonperformance by the counterparty. The net fair value of the interest rate swap agreements, which represent the cash that we would pay to settle the agreements, was approximately $2.4 million and $0.2 million at December 31, 2001 and December 31, 2000, respectively. 41 The table below provides information about our derivative financial instruments that are sensitive to changes in interest rates. The table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
Expected Fair Expiration 2002 2008 Value ---------- -------- ------- ------ (dollars in thousands) Interest Rate Derivatives Variable to Fixed........ 2002 $113,320 (4,022) Average pay rate...... 4.91% Average receive rate.. 2.20% Fixed to Variable........ 2008 $60,000 1,590 Average pay rate...... 11.10% Average receive rate.. 12.00%
Impact of Inflation We believe that our results of operations are not dependent upon moderate changes in the inflation rate. Item 8. Consolidated Financial Statements and Supplementary Data The financial statements and schedules are listed in Part IV, Item 14 of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 42 PART III Item 10. Directors and Executive Officers The table below sets forth information about Nexstar's board of managers, or directors, and executive officers:
Name Age Position With Company ---- --- ------------------------------------------------ Perry A. Sook....... 44 President, Chief Executive Officer and Director Duane A. Lammers.... 40 Executive Vice President Shirley E. Green.... 42 Vice President, Finance Susana G. Willingham 35 Vice President, Corporate News Director Richard Stolpe...... 45 Vice President, Director of Engineering Peni A. Garber...... 39 Vice President, Assistant Secretary and Director Jay M. Grossman..... 42 Vice President, Assistant Secretary and Director Peggy Koenig........ 45 Vice President and Assistant Secretary Royce Yudkoff....... 46 Vice President, Assistant Secretary and Director Erik Brooks......... 34 Vice President, Assistant Secretary and Director
Perry A. Sook formed Nexstar's predecessor in 1996. Since its inception, Mr. Sook has served as Nexstar's President and Chief Executive Officer and as a Director. From 1991 to 1996, Mr. Sook was a principal of Superior Communications Group, Inc. Mr. Sook currently serves as a director of Pennsylvania Association of Broadcasters and the Television Bureau of Advertising. Duane A. Lammers was promoted to Nexstar's Executive Vice President in February 2001. Prior to that, Mr. Lammers served as Nexstar's Vice President, Director of Sales and Marketing from 1998 until January 2001. He was employed as a Nexstar station general manager from 1997 to 1999. Prior to joining Nexstar, Mr. Lammers was the General Manager of WHTM, the ABC affiliate in Harrisburg, Pennsylvania from 1994 to 1997. Shirley E. Green was promoted to Nexstar's Vice President, Finance in February 2001. Prior to that, Ms. Green served as Nexstar's Controller since 1997. Prior to her employment at Nexstar, from 1994 to 1997, Ms. Green was Business Manager at KOCB, Oklahoma City, Oklahoma, which was owned by Superior Communications Group, Inc. Susana G. Willingham has served as Nexstar's Vice President, Corporate News Director since 1997. She served as Assistant News Director for WHTM from 1994 to 1997. Prior to that, Ms. Willingham was the Assistant News Director for KFDX from 1992 to 1993. Richard Stolpe has served as Nexstar's Vice President, Director of Engineering since January 2000. Prior to that, Mr. Stolpe served as Director of Engineering from 1998 to 2000. Prior to joining Nexstar, Mr. Stolpe was employed by WYOU from 1996 to 1998 as both Assistant Chief Engineer and Chief Engineer. Peni A. Garber served as a Vice President, Assistant Secretary and a Director of Nexstar from 1997 until 2002. Ms. Garber is a Partner at ABRY. From 1990 to 2000, she had served as a Principal and Secretary of ABRY. Prior to joining ABRY, Ms. Garber served as Senior Accountant at Price Waterhouse LLP. Ms. Garber is presently a director (or the equivalent) of several private companies, including Network Music Holdings, LLC, Quorum Broadcast Holdings LLC and Muzak Holdings LLC. Ms. Garber resigned as Vice President, Assistant Secretary and Director of Nexstar on March 7, 2002. Jay M. Grossman has served as a Vice President, Assistant Secretary and a Director of Nexstar since 1997. Since 1996, Mr. Grossman has served as a Partner of ABRY. Prior to joining ABRY, Mr. Grossman was an investment banker specializing in media and entertainment at Kidder Peabody and at Prudential Securities. Mr. Grossman currently serves as a director (or the equivalent) of several private companies including TV Fanfare, Consolidated Theaters, WideOpenWest and Network Music Holdings, LLC. 43 Peggy Koenig served as a Vice President and Assistant Secretary of Nexstar from 1997 until 2002. Ms. Koenig is a partner in ABRY, which she joined in 1993. From 1988 to 1992, Ms. Koenig was a Vice President, partner and member of the Board of Directors of Sillerman Communication Management Corporation, a merchant bank, which made investments principally in the radio industry. Ms. Koenig was the Director of Finance from 1986 to 1988 for Magera Management, an independent motion picture financing company. She is presently a director (or the equivalent) of Connoisseur Communications Partners, L.P., Pinnacle Holdings Inc., Network Music Holdings LLC and Mercom. Ms. Koenig resigned as a Vice President and Assistant Secretary of Nexstar on March 7, 2002. Royce Yudkoff has served as a Vice President, Assistant Secretary and a Director of Nexstar since 1997. Since 1989, Mr. Yudkoff has served as the President and Managing Partner of ABRY. Prior to joining ABRY, Mr. Yudkoff was affiliated with Bain & Company, serving as a partner from 1985 to 1988. Mr. Yudkoff is presently a director (or the equivalent) of several companies, including Quorum Broadcast Holdings LLC, Metrocall, Inc. and Muzak Holdings LLC. Erik Brooks became a Vice President, Assistant Secretary and Director of Nexstar on March 7, 2002. Mr. Brooks is a Principal at ABRY, which he joined in 1999. Prior to joining ABRY, Mr. Brooks was a Vice President at NCH Capital, a private equity investment fund. Item 11. Executive Compensation Summary Compensation Table
Annual Compensation ------------------- All Other Salary Bonus Compensation -------- ----- ------------ Perry A. Sook...................................... $290,000 -- $5,031/(1)/ President, Chief Executive Officer and Director Duane A. Lammers................................... 185,000 -- 1,376/(2)/ Executive Vice President Susana G. Willingham............................... 115,000 -- 897/(3)/ Vice President, News Director Shirley E. Green................................... 100,000 -- 5,145/(4)/ Vice President, Finance Richard Stolpe..................................... 70,000 -- 2,741/(5)/ Vice President, Corporate Chief Engineer
- -------- (1) Includes $2,684 associated with personal use of company owned vehicle and $1,629 associated with moving expenses reimbursed by Nexstar. (2) Includes $1,250 associated with personal use of company owned vehicle. (3) Includes $783 associated with personal use of company owned vehicle. (4) Includes $4,855 associated with personal use of company owned vehicle. (5) Includes $2,636 associated with personal use of company owned vehicle. Employment Agreements Perry A. Sook. Mr. Sook is employed under an employment agreement with Nexstar Broadcasting Group, Inc. as President and Chief Executive Officer. The term of the agreement expires on December 31, 2004 and automatically renews for successive one-year periods unless either party notifies the other of their intention not to renew the agreement. Under the agreement, Mr. Sook's current base salary is $150,000 for the six months ended December 31, 2001, $400,000 for the year ended December 31, 2002, $415,000 for the year ended December 31, 2003, and $430,000 for the year ended December 31, 2004 and each subsequent year. In addition to his base salary, Mr. Sook is eligible to earn a targeted annual bonus of $75,000 after the 2001 fiscal year, $100,000 after the 2002 fiscal year, $103,750 after the 2003 fiscal year, and $107,500 after the 2004 fiscal year and each 44 subsequent fiscal year, upon achievement of goals established by the board of directors. In the event of termination for reasons other than cause, Mr. Sook is eligible to receive his base salary for a period that is the shorter of one year or until the term of his employment would otherwise be completed. Duane A. Lammers. Mr. Lammers is employed under an amended employment agreement with Nexstar Broadcasting Group, Inc. as Executive Vice President. The agreement terminates on December 31, 2003 and automatically renews for successive one-year periods unless either party notifies the other of its intention not to renew the agreement. Under the agreement, Mr. Lammers' base salary is $185,000 for the year ended December 31, 2001, $200,000 for the year ended December 31, 2002 and $205,000 for the year ended December 31, 2003. In addition to his base salary, Mr. Lammers is eligible to receive a targeted annual bonus of $45,000 for the year ended April 30, 2001, $50,000 for the year ended April 30, 2002, and $55,000 for the year ended April 30, 2003 at the discretion of Nexstar's Chief Executive Officer, upon attainment of, among other things, certain financial performance targets. In the event of termination for reasons other than cause, Mr. Lammers is eligible to receive his base salary for a period of six months. Shirley E. Green. Ms. Green is employed under an amended employment agreement with Nexstar Broadcasting Group, Inc. as Vice President, Finance. The term of the agreement ends on February 28, 2005 and automatically renews for successive one-year periods unless either party notifies the other of its intention not to renew the agreement. Under the agreement, Ms. Green's current base salary is $100,000 through February 28, 2003, $110,000 for the year ended February 28, 2004 and $120,000 for the year ended February 28, 2005. In addition to her base salary, Ms. Green is eligible to earn a targeted annual bonus of $10,000 for the year ended 2002, $15,000 for the year ended 2003 and $20,000 for the year ended 2004 at the discretion of Nexstar's Chief Executive Officer, based on Ms. Green's attainment of goals set by Nexstar's Chief Executive Officer. In the event of termination for reasons other than cause, Ms. Green is eligible to receive her base salary for a period of six months. Susana G. Willingham. Ms. Willingham is employed under an employment agreement with Nexstar Broadcasting Group, Inc. as Vice President, Corporate News Director. The initial term of the agreement terminates on January 1, 2004 and automatically renews for successive one-year periods unless either party notifies the other of its intention not to renew the agreement. Under the agreement, Ms. Willingham's base salary is $115,000 for the year ended December 31, 2001, $120,000 for the year ended December 31, 2002, and $125,000 for each successive year thereafter. In addition to her base salary, Ms. Willingham is eligible to earn an annual bonus, at the discretion of Nexstar's Chief Executive Officer. In the event of termination for reasons other than cause, Ms. Willingham is eligible to receive her base salary for a period of six months. Richard Stolpe. Mr. Stolpe is employed under an employment agreement with Nexstar Broadcasting Group, Inc. as Vice President, Corporate Chief Engineer. The initial term of the agreement ends on January 1, 2004 and automatically renews for successive one-year periods unless either party notifies the other of their intention not to renew the agreement. Under the agreement, Mr. Stolpe's base salary is $70,000 for the year ended December 31, 2001, $75,000 for the year ended December 31, 2002, and $80,000 for each successive year thereafter. In addition to his base salary, Mr. Stolpe is eligible to earn a targeted annual bonus of $10,000 at the discretion of Nexstar's Chief Executive Officer, upon attainment of certain goals. In the event of termination for reasons other than cause, Mr. Stolpe is eligible to receive his base salary for a period of six months. Compensation of Managers Nexstar currently reimburses members of the board of managers for any reasonable out-of-pocket expenses incurred by them in connection with attendance at board and committee meetings. Item 12. Security Ownership of Certain Beneficial Owners and Management The equity interests of Nexstar are indirectly 100% owned by Nexstar's indirect parent company, Nexstar Broadcasting Group, L.L.C. David S. Smith owns 100% of the equity interests in the Bastet Group. 45 The following table sets forth, as of December 31, 2001, information regarding the equity interests of Nexstar Broadcasting beneficially owned by (1) each equityholder who is known by Nexstar to beneficially own in excess of five percent of the outstanding equity interests of Nexstar Broadcasting, (2) each of Nexstar's managers and directors, (3) each of Nexstar's named executive officers, and (4) all of Nexstar's executive officers, managers and directors as a group. Unless otherwise indicated below, (1) the persons and entities named in the table have sole voting and investment power with respect to all equity interests beneficially owned, subject to applicable community property laws and (2) the address of each of the individuals listed in the table is in care of Nexstar Broadcasting Group, L.L.C., 200 Abington Executive Park, Suite 201, Clarks Summit, PA 18411.
Number of Equity Percentage of Interests Total Equity Beneficially Interests Name and Address of Beneficial Owner Owned Outstanding/(1)/ - ------------------------------------ ------------ --------------- ABRY Broadcast Partners II, L.P...................................... 3,274,787 49.4% 18 Newbury Street Boston, MA 02116 ABRY Broadcast Partners III, L.P./(2)/............................... 2,091,132 31.5% 18 Newbury Street Boston, MA 02116 BancAmerica Capital Investors I, L.P./(3)/........................... 613,264 9.2% Nexstar Finance Holdings II, L.L.C./(4)/............................. -- -- Royce Yudkoff/(5)(6)/................................................ 5,365,919 80.9% Perry A. Sook........................................................ 432,626 6.5% Shirley E. Green/(7)/................................................ 9,850 * Richard Stolpe/(8)/.................................................. 3,110 * Susana G. Willingham/(9)/............................................ 3,110 * Duane A. Lammers/(10)/............................................... 23,315 * Jay M. Grossman/(6)/................................................. -- -- Peni Garber/(6)/..................................................... -- -- All managers, directors and executive officers as a group (8 persons) 5,837,930 88.1%
- -------- * Less than 1% (1) Nexstar Broadcasting has nine classes of equity interests outstanding. Each class of equity interest has been assigned a "point value." The number of equity interests beneficially owned and the percentage of total equity interests outstanding indicated in this table are reported on a point basis. (2) Does not include 15,000 shares of Series BB preferred membership interests with an aggregate liquidation preference of $15,000,000. The Series BB preferred interests do not have a point value assigned to them. (3) The address of BancAmerica Capital Investors I, L.P. is 100 North Tryon Street, 25th Floor, Charlotte, NC 28255-0001. Does not include 40,000 shares of Series AA preferred membership interests with an aggregate liquidation preference of $40,000,000. The Series AA preferred interests do not have a point value assigned to them. (4) Nexstar Finance Holdings II, L.L.C., an indirect subsidiary of Nexstar Broadcasting Group, L.L.C., is the sole manager of Nexstar Finance Holdings, L.L.C. (5) Mr. Yudkoff is the sole trustee of ABRY Holdings III, Co., which is the sole member of ABRY Holdings III LLC, which is the sole general partner of ABRY Equity Investors, L.P., the sole general partner of ABRY Broadcast Partners III, L.P. Mr. Yudkoff is also the trustee of ABRY Holdings Co., which is the sole member of ABRY Holdings LLC, which is the sole general partner of ABRY Capital, L.P., which is the sole general partner of ABRY Broadcast Partners II, L.P. (6) The address of Mr. Yudkoff, Mr. Grossman and Ms. Garber is the address of ABRY. (7) Includes 1,555, or 50%, of Ms. Green's class C-2 equity interests, subject to forfeiture if Ms. Green's employment is terminated prior to January 1, 2003, decreasing to 777.5, or 25%, if termination occurs between January 1, 2003 and January 1, 2004. (8) Includes 1,555, or 50%, of Mr. Stolpe's class C-2 equity interests, subject to forfeiture if Mr. Stolpe's employment is terminated prior to January 1, 2003, decreasing to 777.5, or 25%, if termination occurs between January 1, 2003 and January 1, 2004. (9) Includes 1,555, or 50%, of Ms. Willingham's class C-2 equity interests, subject to forfeiture if Ms. Willingham's employment is terminated prior to January 1, 2003, decreasing to 777.5, or 25%, if termination occurs between January 1, 2003 and January 1, 2004. (10) Includes 5,051, or 25%, of Mr. Lammers' class C-1 equity interests, subject to forfeiture if Mr. Lammers' employment is terminated prior to May 1, 2002; and 1,555, or 50%, of Mr. Lammers class C-2 equity interests, subject to forfeiture if Mr. Lammers' employment is terminated prior to January 1, 2003, decreasing to 777.5, or 25%, if termination occurs between January 1, 2003 and January 1, 2004. 46 Item 13. Certain Relationships and Related Transactions L.L.C. Agreement ABRY Broadcast Partners II, L.P., ABRY Broadcast Partners III, L.P. Nexstar Equity Corp., Banc America Capital Investors I, L.P. and each of the members of Nexstar Broadcasting Group, L.L.C., including Perry Sook, Shirley Green, Duane Lammers, Susana Willingham and Richard Stolpe, are parties to a fifth amended and restated limited liability company agreement dated as of November 14, 2001, pursuant to which Nexstar Broadcasting Group, L.L.C. is organized. The agreement provides for capital contributions to be made by the members in exchange for membership interests, which are allocated at the discretion of ABRY Broadcast Partners II, L.P., as manager of Nexstar Broadcasting Group, L.L.C. As manager, ABRY Broadcast Partners II, L.P. exercises full control over all of the activities of Nexstar Broadcasting Group, L.L.C. and is reimbursed for all expenses incurred as manager. Nexstar Broadcasting Group, L.L.C. may be dissolved upon a vote by those members owning a majority of the outstanding class A interests. Investor Rights Agreement Nexstar Broadcasting Group, ABRY Broadcast Partners II, L.P., ABRY Broadcast Partners III, L.P., Nexstar Equity Corp. and each of the other members of Nexstar Broadcasting Group, L.L.C., including Perry Sook, Shirley Green, Duane Lammers, Susana Willingham and Richard Stolpe, are parties to a fourth amended and restated investor rights agreement, dated as of August 7, 2001. Pursuant to the investors agreement, the parties agreed to vote their equity interests in Nexstar Broadcasting Group to elect Mr. Sook to the board of directors. The investors agreement also contains (1) co-sale rights exercisable in the event of certain sales by ABRY Broadcast Partners II, L.P. and ABRY Broadcast Partners III, L.P., (2) restrictions on transfers of equity interests by all members and their permitted transferees, and (3) drag-along sale rights exercisable by the holders of a majority of the class A interests of Nexstar Broadcasting Group in the event of an approved sale of Nexstar Broadcasting Group. The voting, co-sale, drag-along and transfer restrictions will terminate upon the consummation of the first to occur of (a) a public offering within certain parameters that are set forth in the investors agreement, or (b) a sale of all of the equity securities or assets of Nexstar Broadcasting Group to independent third party. ABRY Management and Consulting Services Agreement Pursuant to a second amended and restated management and consulting services agreement between Nexstar Broadcasting Group, Inc. and ABRY Partners, LLC (as successor to ABRY Partners, Inc.), dated as of January 5, 1998, ABRY Partners, LLC was entitled to a management fee for certain financial and management consulting services provided to Nexstar Broadcasting Group, Inc., including in connection with any acquisitions or divestitures in which ABRY Partners, LLC had substantially assisted in the organization or structuring. Under the agreement, the management fee was based on the purchase price of any such acquisition or divestiture, as well as a certain amount per annum paid for each broadcast station owned or managed by Nexstar Broadcasting Group, L.L.C. or its subsidiaries. ABRY Partners, LLC was also reimbursed for any reasonable out-of-pocket expenses incurred. ABRY Partners, LLC terminated the agreement effective December 31, 2000. Perry Sook Guaranty Pursuant to an individual loan agreement dated January 5, 1998, Bank of America National Trust and Savings Association has established a loan facility under which Mr. Sook, Nexstar's President and Chief Executive Officer, may borrow an aggregate amount of up to $3.0 million. As of December 31, 2001, approximately $2.8 million in principal amount of loans were outstanding under that facility. The proceeds of those loans have been and will be used by Mr. Sook in part to invest in Nexstar Broadcasting Group, L.L.C. Nexstar has guaranteed the payment of up to $3.0 million in principal amount of those loans, pursuant to a continuing guaranty dated June 16, 2001. 47 Time Brokerage Agreement, Shared Services Agreements, and Joint Sales Agreement Nexstar has agreements in place with entities that are part of the Bastet Group in three markets: Erie, Pennsylvania, Wichita Falls, Texas, and Wilkes Barre-Scranton, Pennsylvania. Nexstar Broadcasting of Erie, L.L.C., an indirect subsidiary of Nexstar, and Bastet Broadcasting, Inc. are parties to an amended time brokerage agreement dated as of July 31, 1998, which expires on August 16, 2006 and may be renewed for one term of five years with 90 days notice. This agreement allows Nexstar to program most of WFXP's broadcast time, sell the station's advertising time and retain the advertising revenue. Mission Broadcasting of Wichita Falls, Inc. ("Mission of Wichita Falls") and Nexstar Broadcasting of Wichita Falls, L.L.C., an indirect subsidiary of Nexstar, are parties to a shared services agreement dated as of June 1, 1999, which has an initial term of 10 years. Under this agreement, Nexstar Broadcasting of Wichita Falls L.L.C. agreed with Mission of Wichita Falls to share the costs of certain services that Nexstar's station KFDX and Mission of Wichita Falls' stations KJTL and KJBO-LP individually incurred. These shared services include news production, technical maintenance, and security, among other services, but do not include the services of senior management personnel, programming or sales. In consideration of certain services provided to KJTL and KJBO-LP by KFDX personnel, Mission of Wichita Falls pays Nexstar a monthly service fee, calculated based on the cash flow of KJTL and KJBO-LP. Mission of Wichita Falls and Nexstar Broadcasting of Wichita Falls, L.L.C. are also parties to an agreement for the sale of commercial time dated as of June 1, 1999, which has an initial term of 10 years. Under this agreement, called a joint sales agreement, Nexstar Broadcasting of Wichita Falls, L.L.C. purchases advertising time on KJTL and KJBO-LP and retains the advertising revenue, in return for payments to Mission of Wichita Falls of $100,000 per month, subject to adjustment to assure that each payment equals Mission of Wichita Falls's actual operating costs plus $10,000 per month. Nexstar Broadcasting of Northeastern Pennsylvania, L.L.C., an indirect subsidiary of Nexstar, and Bastet Broadcasting, Inc. are parties to a shared services agreement dated as of January 5, 1998, which has an initial term of 10 years. The terms of this agreement are substantially similar to the terms of Nexstar's shared services agreement with Mission of Wichita Falls and provides for the parties to share the costs of certain services that Nexstar's station WBRE and Bastet's station WYOU otherwise would separately incur. Mission Broadcasting of Joplin, Inc. ("Mission of Joplin") and GOCOM Broadcasting of Joplin, L.L.C. are parties to a time brokerage agreement dated December 31, 2001 to provide services for KODE, the ABC affiliate in Joplin, Missouri. This agreement allows Mission of Joplin to program most of KODE's broadcast time, sell the station's advertising time and retain advertising revenue in return for a monthly fee paid to GOCOM. The time brokerage agreement will be terminated upon the closing of the acquisition or the termination of the Purchase and Sale agreement. The same parties entered into a Purchase and Sale Agreement for Mission of Joplin to purchase substantially all the assets of KODE. The purchase price for the assets is $14.0 million and will be financed under the senior credit facilities. The scheduled closing date of the acquisition is September 30, 2002. Nexstar Broadcasting of Peoria, L.L.C. ("Nexstar of Peoria") and WYZZ, Inc., a subsidiary of Sinclair Broadcast Group, Inc., entered into an outsourcing agreement. This agreement allows for Nexstar of Peoria to provide certain engineering, production, sales and administrative services for WYZZ, the Fox affiliate in the Peoria-Bloomington, Illinois market. The parties will share in the combined broadcast cash flow generated by WYZZ and, Nexstar-owned, WMBD. The effective date of the agreement is December 1, 2001 and has an initial term of seven years. Option Agreements In consideration of Nexstar's guarantee of indebtedness incurred by entities in the Bastet Group, Nexstar also has options to purchase the assets of the Bastet group's stations in Erie, Wichita Falls and Wilkes Barre- Scranton (subject to prior FCC approval). In Erie, Bastet Broadcasting, Inc., David S. Smith, and Nexstar 48 Broadcasting Group, L.L.C., Nexstar's indirect parent, are parties to an option agreement dated as of November 30, 1998. In Wichita Falls, Mission Broadcasting of Wichita Falls, Inc., David S. Smith, and Nexstar Broadcasting of Wichita Falls, L.L.C., an indirect subsidiary of Nexstar, are parties to an option agreement dated as of June 1999. In Wilkes Barre-Scranton, Bastet Broadcasting, Inc., David S. Smith, and Nexstar Broadcasting of Northeastern Pennsylvania, L.L.C., an indirect subsidiary of Nexstar, are parties to an option agreement dated as of May 19, 1998. Under the terms of these option agreements, Nexstar may exercise its option upon written notice to the counterparty to the relevant option agreement. In each option agreement, the exercise price of the option equals the station's existing indebtedness plus assumption of the station's operating liabilities. The relevant Bastet Group entity and/or David S. Smith may terminate each option agreement by written notice any time after the seventh anniversary date of the relevant option agreement. Management Agreement Bastet Broadcasting, Inc., Mission Broadcasting of Wichita Falls, Inc., Mission Broadcasting of Amarillo, Inc., David S. Smith and Nancie J. Smith, the wife of David S. Smith, are parties to a compensation agreement. Under this agreement, the Bastet Group pays David S. Smith and Nancie J. Smith collectively up to $200,000 per year for certain management services. 49 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report: (1) Financial Statements. The following financial statements of Nexstar Finance Holdings, L.L.C. have been included on pages F-1 through F-22 of this Annual Report on Form 10-K: . Report of Independent Accountants . Consolidated Balance Sheets at December 31, 2001 and December 31, 2000 . Consolidated Statements of Operations for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 . Consolidated Statement of Changes in Member's Interest for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 . Consolidated Statement of Cash Flows for years ended December 31, 2001, December 31, 2000 and December 31, 1999 . Notes to Consolidated Financial Statements (3) Exhibits. The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index beginning on page E-1 of this Annual Report on Form 10-K. (b) Reports on Form 8-K Neither Nexstar Finance Holdings, L.L.C. nor Nexstar Finance Holdings, Inc. filed reports on Form 8-K during the quarter ended December 31, 2001. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEXSTAR FINANCE HOLDINGS, L.L.C. /S/ PERRY A. SOOK By: _______________________________ Perry A. Sook President and Chief Executive Officer March 26, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 26, 2002.
Name Title ---- ----- /S/ PERRY A. SOOK Director, President and Chief Executive Officer - ---------------------------------- (Principal Executive Officer) Perry A. Sook /S/ SHIRLEY E. GREEN Vice President-Finance and Secretary - ---------------------------------- (Principal Financial and Accounting Officer) Shirley E. Green /S/ ROYCE YUDKOFF Vice President and Assistant Secretary - ---------------------------------- Royce Yudkoff /S/ JAY M. GROSSMAN Vice President and Assistant Secretary - ---------------------------------- Jay M. Grossman Nexstar Finance Holdings II, L.L.C. Sole Member of Nexstar Finance Holdings, L.L.C. /S/ PERRY A. SOOK - ---------------------------------- By: Perry A. Sook Its: President and Chief Executive Officer
51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEXSTAR FINANCE HOLDINGS, INC. /S/ PERRY A. SOOK By: _______________________________ Perry A. Sook President and Chief Executive Officer March 26, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 26, 2002. Name Title ---- ----- /S/ PERRY A. SOOK Director, President and Chief Executive Officer --------------------- (Principal Executive Officer) Perry A. Sook /S/ SHIRLEY E. GREEN Vice President-Finance and Secretary --------------------- (Principal Financial and Accounting Officer) Shirley E. Green /S/ JAY M. GROSSMAN Vice President, Assistant Secretary and Director --------------------- Jay M. Grossman /S/ ERIK BROOKS Director --------------------- Erik Brooks /S/ ROYCE YUDKOFF Vice President, Assistant Secretary and Director --------------------- Royce Yudkoff 52 NEXSTAR FINANCE HOLDINGS, L.L.C. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page - ---- Report of Independent Accountants................................................................. F-2 Consolidated Balance Sheets at December 31, 2001 and December 31, 2000............................ F-3 Consolidated Statements of Operations for the years ended December 31, 2001, December 31, 2000 and December 31, 1999............................................................................... F-4 Consolidated Statement of Changes in Member's Interest for the years ended December 31, 2001, December 31, 2000 and December 31, 1999......................................................... F-5 Consolidated Statement of Cash Flows for years ended December 31, 2001, December 31, 2000 and December 31, 1999............................................................................... F-6 Notes to Consolidated Financial Statements........................................................ F-7
F-1 Report of Independent Accountants To the Member of Nexstar Finance Holdings, L.L.C.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, of member's interest and of cash flows present fairly, in all material respects, the financial position of Nexstar Finance Holdings, L.L.C., a wholly-owned indirect subsidiary of Nexstar Broadcasting Group, L.L.C., and its subsidiaries (the "Company"), at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." March 4, 2002 F-2 NEXSTAR FINANCE HOLDINGS, L.L.C. CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000
2001 2000 -------- -------- (dollars in thousands) Assets Current assets: Cash and cash equivalents...................................... $ 5,802 $ 2,750 Accounts receivable, net of allowance for doubtful accounts of. $490 and $415, respectively.................................... 25,442 23,274 Current portion of broadcast rights............................ 10,062 10,866 Prepaid expenses and other current assets...................... 993 530 Deferred tax assets............................................ 276 280 Taxes receivable............................................... 233 -- -------- -------- Total current assets....................................... 42,808 37,700 Property and equipment, net.................................... 57,383 55,344 Broadcast rights............................................... 3,685 4,180 Due from parent entities....................................... 958 494 Other noncurrent assets........................................ 8,240 77 Intangible assets, net......................................... 313,280 220,480 -------- -------- Total assets............................................... $426,354 $318,275 ======== ======== Liabilities and Member's Interest Current liabilities: Current portion of debt........................................ $ 488 $ 11,125 Current portion of capital lease obligations................... 23 61 Current portion of broadcast rights payable.................... 10,242 10,754 Accounts payable............................................... 3,732 4,264 Accrued expenses............................................... 3,986 2,795 Taxes payable.................................................. -- 625 Interest payable............................................... 6,041 308 Deferred revenue............................................... 335 368 Due to Midwest Television, Inc................................. -- 2,256 -------- -------- Total current liabilities.................................. 24,847 32,556 Debt.............................................................. 304,144 242,347 Capital lease obligations......................................... -- 23 Broadcast rights payable.......................................... 3,770 4,262 Deferred tax liabilities.......................................... 6,892 7,563 Other liabilities................................................. 4,022 -- -------- -------- Total liabilities.......................................... 343,675 286,751 -------- -------- Commitments and contingencies (Note 12) Member's interest: Contributed capital............................................ 154,736 61,531 Accumulated deficit............................................ (68,326) (30,007) Accumulated other comprehensive loss on derivative instruments. (3,731) -- -------- -------- Total member's interest.................................... 82,679 31,524 -------- -------- Total liabilities and member's interest.................... $426,354 $318,275 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 NEXSTAR FINANCE HOLDINGS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 -------- -------- -------- (dollars in thousands) Revenues (excluding trade and barter)..................... $114,474 $124,631 $ 91,058 Less: commissions......................................... (15,420) (17,546) (12,569) -------- -------- -------- Net revenues (excluding trade and barter)................. 99,054 107,085 78,489 Trade and barter revenues................................. 11,675 10,382 8,470 -------- -------- -------- Total net revenues................................. 110,729 117,467 86,959 -------- -------- -------- Expenses: Operating.............................................. 31,332 29,269 23,760 Selling, general and administrative.................... 28,180 28,790 23,645 Amortization of broadcast rights....................... 17,344 16,905 13,580 Amortization of intangible assets...................... 21,117 14,750 12,983 Depreciation........................................... 12,694 9,183 7,483 -------- -------- -------- Total expenses..................................... 110,667 98,897 81,451 -------- -------- -------- Income from operations.................................... 62 18,570 5,508 Interest expense, including amortization of debt financing costs......................................... (38,794) (20,045) (16,282) Interest income........................................... 316 309 261 Other expense, net........................................ (519) (259) (249) -------- -------- -------- Loss before income taxes.................................. (38,935) (1,425) (10,762) Income tax benefit (expense).............................. 879 (1,098) (658) -------- -------- -------- Loss before extraordinary loss from modification of credit facility................................................ (38,056) (2,523) (11,420) Extraordinary loss from modification of credit facility, net of tax (Note 9).................... (263) -- (2,829) -------- -------- -------- Net loss.................................................. $(38,319) $ (2,523) $(14,249) ======== ======== ======== Other comprehensive loss: Cumulative effect of change in accounting principle.... $ (241) $ -- $ -- Deferral of unrealized derivative gains and losses..... (3,490) -- -- -------- -------- -------- Net loss and other comprehensive loss..................... $(42,050) $ (2,523) $(14,249) ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 NEXSTAR FINANCE HOLDINGS, L.L.C. CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST For the Years Ended December 31, 2001, 2000 and 1999
Other Total Contributed Accumulated Comprehensive Member's Capital Deficit Loss Interest ----------- ----------- ------------- -------- (dollars in thousands) Balance at December 31, 1999....................... $ 61,671 $(27,484) $ -- $ 34,187 Contributions...................................... 10 -- -- 10 Distributions...................................... (150) -- -- (150) Net loss........................................... -- (2,523) -- (2,523) -------- -------- ------- -------- Balance at December 31, 2000....................... 61,531 (30,007) -- 31,524 Contributions...................................... 101,265 -- -- 101,265 Distributions...................................... (8,060) -- -- (8,060) Net loss........................................... -- (38,319) -- (38,319) Cumulative effect of change in accounting principle -- -- (241) (241) Deferral of unrealized derivative gains and losses. -- -- (3,490) (3,490) -------- -------- ------- -------- Balance at December 31, 2001....................... $154,736 $(68,326) $(3,731) $ 82,679 ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 NEXSTAR FINANCE HOLDINGS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 --------- -------- --------- (dollars in thousands) Cash flows from operating activities: Net loss.......................................................................... $ (38,319) $ (2,523) $ (14,249) Adjustments to reconcile net loss to net cash provided by operating activities: Deferred income taxes.......................................................... (651) (549) (367) Depreciation of property and equipment......................................... 12,694 9,183 7,483 Amortization of intangible assets.............................................. 21,117 14,750 12,983 Amortization of debt financing costs........................................... 3,805 178 155 Amortization of broadcast rights, net of barter................................ 8,328 8,356 7,205 Payments for broadcast rights.................................................. (8,001) (8,426) (6,916) Loss on asset disposal, net.................................................... 330 259 249 Loss from modification of credit facility, net of tax.......................... 263 -- 2,829 Amortization of debt discount.................................................. 2,537 -- -- Effect of accounting for derivative instruments................................ 290 -- -- Changes in assets and liabilities: Increase in accounts receivable and due from parent entities................... (2,633) (1,574) (9,390) (Increase) decrease in prepaid expenses and other current assets............... (463) (77) 315 Increase in taxes receivable................................................... (233) -- -- (Increase) decrease in other noncurrent assets................................. (573) 50 94 Increase in accounts payable and accrued expenses.............................. 659 94 3,220 Increase (decrease) in taxes payable........................................... (625) 541 (251) Increase (decrease) in interest payable........................................ 5,733 (2,091) 2,399 Increase (decrease) in deferred revenue........................................ (33) 199 (122) Increase (decrease) in due to Midwest Television, Inc.......................... (2,256) (1,815) 4,070 --------- -------- --------- Net cash provided by operating activities................................... 1,969 16,555 9,707 --------- -------- --------- Cash flows from investing activities: Additions to property and equipment, net.......................................... (5,701) (5,693) (6,627) Proceeds on sales of assets....................................................... 111 98 6 Acquisition of broadcast properties............................................... (127,505) (46,493) (82,379) Downpayment on acquisition of station............................................. (6,000) -- -- --------- -------- --------- Net cash used for investing activities...................................... (139,095) (52,088) (89,000) --------- -------- --------- Cash flows from financing activities: Proceeds from debt issuance....................................................... 638,838 -- 160,872 Repayment of loans................................................................ (616,365) (13,544) (128,399) Proceeds from revolver draws, net................................................. 24,500 63,500 30,357 Note payable to related party..................................................... -- (14,522) 14,522 Capital contributions............................................................. 101,265 10 3,023 Distributions..................................................................... (8,060) (150) (57) --------- -------- --------- Net cash provided by financing activities................................... 140,178 35,294 80,318 --------- -------- --------- Net increase (decrease) in cash and cash equivalents.................................. 3,052 (239) 1,025 Cash and cash equivalents at beginning of year........................................ 2,750 2,989 1,964 --------- -------- --------- Cash and cash equivalents at end of year.............................................. $ 5,802 $ 2,750 $ 2,989 ========= ======== ========= Supplemental schedule of noncash activities: Cash paid for interest............................................................ $ 26,276 $ 21,610 $ 13,292 ========= ======== ========= Cash paid for taxes............................................................... $ 658 $ 1,070 $ 1,110 ========= ======== =========
The accompanying notes are an integral part of these consolidated financial statements F-6 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Business Operations Nexstar Finance Holdings, L.L.C. ("Nexstar") owns, operates and programs, through its subsidiaries, six NBC-affiliated television stations, three ABC-affiliated television stations and four CBS-affiliated television stations in the United States of America. Nexstar has an outsourcing agreement to provide services for a Fox affiliate owned by a subsidiary of Sinclair Broadcast Group, Inc. Through three special purpose entities (Note 4), Nexstar (i) programs one Fox-affiliated television station under a Time Brokerage Agreement ("TBA") and has a Shared Services Agreement ("SSA") with a CBS-affiliated television station and (ii) has an SSA and a Joint Sales Agreement ("JSA") with a Fox-affiliated television station and a low-power UPN-affiliated television station. Additionally, Mission Broadcasting of Joplin, Inc. ("Mission of Joplin") provides most of the programming to an ABC-affiliated television station under a TBA and intends to purchase the underlying licenses and assets in September 2002 (Note 5). The television stations described above are located in New York, Pennsylvania, Illinois, Indiana, Missouri, Texas and Louisiana. Nexstar was organized as a limited liability company ("L.L.C.") on May 30, 2001 in the State of Delaware under a plan of reorganization for the purpose of executing various financing transactions described in Note 9. On August 6, 2001, in connection with the reorganization, substantially all of the assets and liabilities of Nexstar Finance Holdings II, L.L.C. ("Nexstar II"), except those related to Nexstar Broadcasting Group, L.L.C., were transferred to Nexstar. The reorganization has been accounted for as a combination of entities under common control in a manner similar to a pooling of interests and, accordingly, the financial statements for all periods have been restated to reflect the exchange of members' interest. Nexstar is a wholly-owned subsidiary of Nexstar II, formerly known as Nexstar Finance Holdings, L.L.C., which was organized as an L.L.C. on December 5, 2000 in the State of Delaware to execute the financing transactions referenced above. Nexstar and Nexstar II are wholly-owned indirect subsidiaries of Nexstar Broadcasting Group, L.L.C. ("Nexstar Broadcasting") which was organized as an L.L.C. on December 12, 1996 in the State of Delaware. Nexstar Broadcasting commenced operations on April 15, 1997. Television broadcasting is subject to the jurisdiction of the Federal Communications Commission ("FCC") under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of television broadcasting stations, except under a license issued by the FCC, and empowers the FCC, among other things, to issue, revoke, and modify broadcasting licenses, determine the location of the stations, regulate the equipment used by the stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for the violation of such regulations. The Company is highly leveraged, which makes it vulnerable to changes in general economic conditions. The Company's ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond the control of the Company. The Company believes that, taken together, its current cash balances, internally generated cash flow and availability under its credit facilities should result in the Company having adequate cash resources to meet its debt service and other financial obligations for at least the next twelve months. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Nexstar, its wholly-owned subsidiaries and Bastet Broadcasting, Inc. ("Bastet"), Mission Broadcasting of Wichita Falls, Inc. ("Mission of Wichita Falls") and Mission of Joplin (collectively, the "Company"). Bastet, Mission of Wichita Falls and Mission of Joplin are special purpose entities (Note 4). All intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise noted, all dollars are in thousands. F-7 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. Summary of Significant Accounting Policies--(Continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and the disclosure for contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates made by management include those relating to the allowance for doubtful accounts, the recoverability of broadcast program rights and the useful lives of intangible assets. Actual results may vary from estimates used. Cash and Cash Equivalents The Company considers all highly liquid investments in debt securities purchased with an original maturity of ninety days or less to be cash equivalents. Concentration of Credit Risk Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash investments and accounts receivable. The Company invests primarily in high quality debt securities with original maturities of ninety days or less. Accordingly, these investments are subject to minimal credit and market risk. The Company maintained cash in excess of federally insured deposits at financial institutions on December 31, 2001, 2000 and 1999. The Company does not believe that such deposits are subject to any unusual credit risk beyond the normal credit risk associated with operating its business. A significant portion of the Company's accounts receivable are due from local and national advertising agencies. Such accounts are generally unsecured. The Company has not experienced significant losses related receivables from individual customers or by geographical area. Additionally, the Company maintains reserves for potential credit losses. Revenue Recognition Advertising revenues, which include network compensation, are recognized in the period during which the time spots are aired. Revenues from other sources, which may include income from production and other similar activities from time to time, are recognized in the period during which the goods or services are provided. Trade and Barter Transactions The Company trades certain advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. Revenue from trade transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense or capitalized when received or used. The Company barters advertising time for certain program material. These transactions are recorded at management's estimate of the value of the advertising time exchanged, which approximates the fair value of the program material received. The value of advertising time exchanged is estimated by applying average historical advertising rates for specific time periods Broadcast Rights and Broadcast Rights Payable Broadcast rights, primarily in the form of syndicated programs and feature film packages, are initially recorded at the amount paid or payable to program suppliers for the limited right to broadcast the suppliers' programming and are recorded when available for use. Broadcast rights are stated at the lower of unamortized cost or net realizable value. Amortization is computed using the straight-line method based on the license period or usage, whichever is greater. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. F-8 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. Summary of Significant Accounting Policies--(Continued) Property and Equipment Property and equipment is stated at cost or estimated fair value for purchase business combinations and trade transactions at the date of acquisition. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets ranging from 5 to 39 years. Intangible Assets Intangible assets represent the estimated fair value of both identifiable intangible assets and goodwill resulting from the acquisitions by the Company (Note 3). Identifiable intangible assets include FCC licenses, network affiliation agreements and commercial advertising contracts and are being amortized on a straight-line basis over periods ranging from 1 to 15 years. Goodwill is the excess of the purchase price over the fair market value of the net assets acquired and is amortized over 40 years using the straight-line method. Long-Lived Assets The Company evaluates the recoverability of its tangible and intangible assets whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than previously anticipated. If the net book value of the related asset exceeds the fair value of the asset, the carrying value would be reduced to its fair value, which is measured as the present value of its expected future cash flows and an impairment loss would be recognized. The Company did not recognize any impairment loss for the years ended December 31, 2001, 2000 and 1999. Debt Financing Costs Debt financing costs represent direct costs incurred to obtain long-term financing and are amortized to interest expense over the term of the underlying debt utilizing the effective interest method. Derivatives and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which established new guidelines for accounting and reporting for derivative instruments and hedging activities. Subsequently, SFAS No. 133 was amended by the issuance of SFAS No. 137 and SFAS No. 138. These amendments modify the provisions and effective date of SFAS No. 133. SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 on January 1, 2001. The Company uses derivative financial instruments to reduce its cash flow exposure to fluctuations in interest rates on its variable rate debt or to hedge fair value changes attributable to changes in the benchmark interest rate on its fixed rate debt. All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The gains and losses on derivative instruments that are reported in other comprehensive income are reclassified into earnings in the periods in which earnings are affected by movements in the variable rates on the debt agreements. The Company assesses, both at inception and on an ongoing basis, whether the derivatives that F-9 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. Summary of Significant Accounting Policies--(Continued) are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair value of hedged items. No components of derivative instruments' gains or losses are excluded from the assessment of hedge effectiveness. The Company assesses hedge effectiveness on a quarterly basis and records the derivative gain or loss related to the ineffective portion of the derivative to current earnings. The ineffectiveness reported in current earnings during the year ended December 31, 2001 was immaterial. If the Company determines that the forecasted cash flows of the hedged item are no longer probable of occurring, the Company discontinues hedge accounting for the affected portion of the forecasted transaction, and any unrealized gain or loss on the derivative contract related to the affected portion of the forecasted transaction is recognized in current earnings. The Company adopted SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001. At the time of adoption, the Company recorded approximately a $0.2 million liability to reflect the fair value of the interest rate swap agreements in effect at the time of adoption in which the Company paid a fixed rate and received a variable rate. The agreements were designated as a hedge of the variable cash flow exposure on the Company's variable rate debt. Correspondingly, the Company recorded a cumulative-effect adjustment of approximately $0.2 million in accumulated other comprehensive loss in accordance with the transition provisions of SFAS No. 133. Of the $0.2 million recorded in accumulated other comprehensive loss, all of it was reclassified into earnings for the year ended December 31, 2001. Of the $3.7 million net derivative losses recorded in accumulated other comprehensive loss at December 31, 2001, all of it is expected to be reclassified into earnings within the next 12 months pursuant to the Company's hedge of its variable rate debt. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income," requires the display of comprehensive income or loss and its components as part of the Company's full set of financial statements. Comprehensive income or loss is comprised of net income or loss and other comprehensive income or loss. Other comprehensive income or loss includes certain changes in equity that are excluded from net income, such as translation adjustments and unrealized holding gains and losses on available-for-sale marketable securities and certain derivative instruments, net of tax. Prior to January 1, 2001, the Company did not have any transactions that qualified as comprehensive income or loss. Upon adoption of SFAS No. 133, on January 1, 2001, the Company recorded other comprehensive loss of $0.2 million to recognize the fair value of all derivatives that were designated as cash flow hedging instruments of the Company's variable rate debt. As of December 31, 2001, the cumulative net unrealized losses recorded in other comprehensive loss were $3.7 million. Advertising Expense The cost of advertising is expensed as incurred. The Company incurred advertising costs in the amount of $803, $1,450 and $923 for the years ended December 31, 2001, 2000 and 1999, respectively. Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, broadcast rights payable, accounts payable and accrued expenses approximates fair value due to their short-term nature. The fair value of derivative financial instruments is obtained from financial institution quotes. The interest rates on the Company's term loan and revolving credit facility are adjusted regularly to reflect current market rates. Accordingly, the carrying amount of the Company's term loan and revolving credit facility approximates fair value. See Note 9 for fair value of fixed rate debt. F-10 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. Summary of Significant Accounting Policies--(Continued) Accounting for Income Taxes Nexstar is an L.L.C. that is treated as a partnership for income tax purposes. No provision for income taxes is required by Nexstar as its income and expenses are taxable to or deductible by its members. Bastet, Mission of Wichita Falls and Mission of Joplin and certain wholly-owned corporate subsidiaries of Nexstar are subject to income taxes and account for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. Recently Issued Accounting Pronouncements In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill and certain other intangible assets including FCC licenses. The amortization of existing goodwill and FCC licenses will cease on December 31, 2001. Any goodwill and FCC licenses resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill and FCC licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company's discontinuation of amortization of its goodwill and FCC licenses; however, the Company will be required to test its goodwill and FCC licenses for impairment under the new standard during 2002, which could have an adverse effect on the Company's future results of operations if an impairment occurs. The Company is currently in the process of assessing the impact of SFAS No. 142, including how it will measure impairment for goodwill and FCC licenses, however it has not yet had sufficient time to complete such evaluation. During the year ended December 31, 2001, the Company incurred goodwill amortization expense of $3.6 million and incurred amortization expense related to its broadcast licenses of $5.2 million. As a result of implementing SFAS No. 142, the Company's net income will not be impacted by amortization expense related to goodwill or FCC licenses. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions relating to the disposal of a segment of a business described in Accounting Principles Board Opinion ("APB") No. 30. The Company does not expect that the adoption of SFAS No. 144 will have a material impact on its financial statements. 3. Acquisitions During 2001, 2000, and 1999, the Company made the acquisitions set forth below, each of which has been accounted for under the purchase method and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value on the acquisition date. The consolidated financial statements include the operating results of each business from the date of acquisition. The WCIA-TV/WCFN-TV and WMBD-TV Acquisition On January 12, 2001, Nexstar acquired substantially all of the assets of WCIA-TV/WCFN-TV and WMBD-TV from Midwest Television, Inc. ("Midwest") for approximately $108.0 million, exclusive of transaction costs. Included in the purchase price was $0.5 million, which was paid directly to the owner of Midwest for the F-11 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Acquisitions--(Continued) building that houses WCIA-TV. The acquisition has been accounted for under the purchase method and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value on the acquisition date. The excess of the consideration paid over the estimated fair value of the tangible and identifiable intangible assets acquired approximated $36.6 and is being amortized using the straight-line method over 40 years. TBA fees in the amount of $2.25 million were paid to Midwest at the time of closing. The KTAL-TV Acquisition On November 1, 2000, Nexstar acquired substantially all of the assets of KTAL-TV from KCMC, Inc. for approximately $35.3 million, exclusive of transaction costs. The excess of the consideration paid over the estimated fair market value of the tangible net assets and identifiable intangible assets approximated $4.3 million and is being amortized using the straight-line method over 40 years. The KMID-TV Acquisition On September 21, 2000, Nexstar acquired substantially all the assets of KMID-TV from Gocom Holdings, LLC for approximately $10.0 million, exclusive of transaction costs. The consideration paid approximated the estimated fair market value of the tangible net assets and identifiable intangible assets acquired. As such, no goodwill has been recorded. The WROC-TV Acquisition In 1999, Nexstar acquired substantially all of the assets of WROC-TV from STC Broadcasting, Inc. for approximately $46.0 million, exclusive of transaction costs. The excess of the consideration paid over the estimated fair market value of the tangible net assets and identifiable intangible assets acquired approximated $1.2 million and is being amortized using the straight-line method over 40 years. The KTAB-TV Acquisition In 1999, Nexstar acquired substantially all of the assets of KTAB-TV from Shooting Star Broadcasting, LP for approximately $17.3 million, exclusive of transaction costs. The excess of the consideration paid over the estimated fair market value of the tangible net assets and identifiable intangible assets acquired approximated $4.6 million and is being amortized using the straight-line method over 40 years. The KJTL-TV and KJBO-TV Acquisition On June 1, 1999, Mission acquired substantially all of the assets of KJTL-TV and KJBO-TV from Wicks Broadcast Group, LP for approximately $15.5 million, exclusive of transaction costs. The excess of the consideration paid over the estimated fair market value of the tangible net assets and identifiable intangible assets acquired approximated $3.9 million and is being amortized using the straight-line method over 40 years. F-12 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Acquisitions--(Continued) The selected unaudited pro forma consolidated information for the years ended December 31, 2001, 2000 and 1999, determined as if the acquisitions described above occurred on January 1 of the prior year, would have resulted in the following:
December 31, 2001/(1)/ December 31, 2000 December 31, 1999 - - -------------------- -------------------- -------------------- As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma ----------- --------- ----------- --------- ----------- --------- Revenues (excluding trade and barter) $114,474 $114,474 $124,631 $133,240 $ 91,058 $110,063 Total net revenues................... 110,729 110,729 117,467 124,743 86,959 103,874 Income (loss) from operations........ 62 62 18,570 19,207 5,508 6,542 Net loss............................. $(38,319) $(38,319) $ (2,523) $ (8,496) $(14,249) $(22,360)
- -------- (1) The December 31, 2001 pro forma amounts do not include the results of Midwest for the twelve days prior to acquisition on January 12, 2001. Amounts deemed de minimus. This unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company and the acquired companies been combined during the specified periods. 4. Special Purpose Entities Bastet, Mission of Wichita Falls and Mission of Joplin are separate entities 100% owned by an independent third party. Collectively, these entities own, operate and program the following television stations: WYOU-TV, WFXP-TV, KJTL-TV, and KJBO-TV. Through a TBA, Mission of Joplin provides most of the programming and administrative services for KODE-TV pending the purchase of its assets in September 2002. Nexstar does not own or control the television stations, but it has entered into various management and service arrangements with all of the stations, except KODE-TV (Note 1). In addition to providing certain services to the television stations, Nexstar is also guarantor of Bastet's and both Missions' combined debt (Note 9). Additionally, the owner has granted to Nexstar a purchase option on each entity to acquire the assets and liabilities of each entity for consideration equal to the indebtedness of the entity as defined in the option agreement. Pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," Bastet, Mission of Wichita Falls and Mission of Joplin satisfy the definition of special purpose entities and as such Nexstar is considered a sponsor of them. Accordingly, the financial results of operations of these entities have been consolidated with those of Nexstar in these consolidated financial statements. Because the relevant entities have a net asset deficit and there is no binding obligation on the minority party to make good on the deficit, minority interest in the results of operations and share of net assets have not been recognized. 5. Time Brokerage and Outsourcing Agreements In 2001, 2000 and 1999, the Company had the following arrangements: The KODE-TV Arrangement On December 31, 2001 Mission of Joplin entered into a TBA with a subsidiary of Gocom Holdings, LLC, current owner of KODE-TV. In September 2002, Mission of Joplin will purchase substantially all of the assets of the station for $14.0 million. Pursuant to the terms of the agreement, Mission of Joplin has made a down payment of $6.0 million against the purchase price, which is included in other noncurrent assets on the balance sheet. Mission of Joplin will make TBA payments of $35 per month to Gocom Holdings, LLC through September 2002. F-13 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Time Brokerage and Outsourcing Agreements--(Continued) The WYZZ-TV Arrangement Effective December 1, 2001, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcast Group, Inc. to provide certain engineering, production, sales and administrative services for WYZZ-TV, a Fox affiliate in Peoria, IL. The parties will share the combined broadcast cash flow generated by WYZZ-TV and WMBD-TV. The agreement is non-cancelable until May 2003 and expires in December 2008. The KMID-TV Arrangement In 2000, Nexstar entered into a TBA with a subsidiary of Gocom Holdings, LLC to program KMID-TV. Under the TBA Nexstar paid fees to the previous owner until the acquisition was completed. Fees of $60 were paid during the TBA period. The KTAB-TV Arrangement In 1999, Nexstar entered into a TBA with Shooting Star Broadcasting, LP to program KTAB-TV. Under the TBA, Nexstar accrued fees to the previous owner until the acquisition was completed. Fees of $203 were paid on the acquisition date. The WROC-TV Arrangement In 1999, Nexstar entered into a TBA with STC Broadcasting, Inc. to program WROC-TV. Under the TBA, Nexstar paid fees to the previous owner until the acquisition was completed. Fees of $175 were paid during the TBA period. The WCIA-TV/WCFN-TV and WMBD-TV Arrangement In 1999, Nexstar entered into a TBA with Midwest Television, Inc. ("Midwest") to program WCIA-TV/WCFN-TV and WMBD-TV. On January 12, 2001, Nexstar purchased the assets of the stations for approximately $108.0 million at which time the TBA terminated. A TBA fee of $2.25 million was paid at closing. Nexstar accrued the fee over the term of the agreement at a rate of $125 per month. 6. Related Party Transactions Guaranty--Chief Executive Officer Pursuant to a continuing guaranty agreement dated June 16, 2001 with the Company's primary lender, the Company has entered into an agreement to guarantee a $3.0 million nonrevolving line of credit to its President and Chief Executive Officer to enable him to purchase equity units of the Company. The line of credit is full-recourse to the officer and is available until December 31, 2004. Management Services Agreement The Company paid management and consulting fees to ABRY Partners LLC ("ABRY"). For the years ended December 31, 2000 and 1999, the Company incurred $276 and $265, respectively, of management and consulting fees which are included in selling, general and administrative expenses. Effective December 31, 2000 ABRY terminated its management services agreement with the Company. Bridge Loan The Company received a bridge loan by one of the ABRY partnerships in conjunction with the Company's acquisition of WROC-TV in 1999. The principal amount of $14.5 million and accrued interest thereon, was due on May 31, 2000. The outstanding amount was paid in full on May 12, 2000. Interest accrued annually at a rate of 9.0%. The Company recorded $454 and $784 of interest expense for the years ended December 31, 2000 and 1999, respectively. F-14 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. Property and Equipment
Estimated December 31, useful life ------------------ (years) 2001 2000 ------------- -------- -------- Buildings and building improvements 39 $ 15,841 $ 13,298 Land and land improvements......... N/A-39 2,738 2,750 Leasehold improvements............. term of lease 1,523 1,212 Studio equipment................... 5-7 33,181 32,245 Transmission equipment............. 5-15 27,800 20,128 Office equipment and furniture..... 5-7 5,122 3,833 Vehicles........................... 5 4,241 3,281 Construction in progress........... N/A 724 308 -------- -------- 91,170 77,055 Less: accumulated depreciation..... (33,787) (21,711) -------- -------- Property and equipment, net of accumulated depreciation......... $ 57,383 $ 55,344 ======== ========
8. Intangible Assets
Estimated December 31, useful life ------------------ (years) 2001 2000 ------------ -------- -------- Goodwill...................... 40 $ 99,097 $ 66,448 Network affiliation agreement. 15 171,957 129,639 FCC license................... 15 77,113 57,019 Debt financing costs.......... term of debt 17,488 594 Other intangibles............. 1-15 7,104 5,788 -------- -------- 372,759 259,488 Less: accumulated amortization (59,479) (39,008) -------- -------- Intangible assets, net of accumulated amortization.... $313,280 $220,480 ======== ========
9. Debt Long-term debt consists of the following:
December 31, ------------------ 2001 2000 -------- -------- Term loans................................ $ 82,000 $119,500 Revolving credit facilities............... 46,143 133,972 Senior subordinated notes, net of discount 154,097 -- Senior discount notes, net of discount.... 20,802 -- SFAS No. 133 hedge accounting adjustment.. 1,590 -- -------- -------- 304,632 253,472 Less: current portion..................... (488) (11,125) -------- -------- $304,144 $242,347 ======== ========
F-15 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Debt--(Continued) The Nexstar Senior Secured Credit Facility On January 12, 2001, Nexstar entered into a senior secured credit facility with a group of commercial banks. The terms of the credit agreement provided for a revolving credit facility (the "Nexstar revolver") in the amount of $122.0 million and a term loan facility (the "Nexstar term loan") in the amount of $110.0 million. The revolving credit facility was subsequently reduced to $72.0 million after the issuance of the Senior Subordinated Notes discussed below. The credit facility was subsequently amended on June 14, 2001 to allow for a $50.0 million Term A facility, a $75.0 million Term B facility and a $57.0 million revolving facility. On November 14, 2001, the credit facility was amended to adjust certain financial covenants effective for the period ended September 30, 2001 and future periods and to reduce the revolving facility to $42.0 million. Prepayments were made under the Term A facility, which effectively reduced the commitment to $32.0 million. Interest rates associated with the Nexstar revolver and term loans are based, at the option of the Company, on the prevailing prime rate plus an applicable margin or the LIBOR rate plus an applicable margin, as defined (ranging from 5.65% to 6.64% at December 31, 2001). Interest is fixed for a period ranging from one month to 12 months, depending on availability of the interest basis selected, except if the Company selects a prime-based loan, in which case the interest rate will fluctuate during the period as the prime rate fluctuates. Interest is payable periodically based on the type of interest rate selected. In addition, the Company is required to pay quarterly commitment fees based on the Company's leverage ratio for that particular quarter on the unused portion of the Nexstar revolver loan commitment. The Nexstar term loans are subject to scheduled mandatory repayments beginning in 2002 and the Nexstar revolver is subject to scheduled mandatory reductions commencing in 2003. Any excess amount outstanding at the time of a mandatory reduction is payable at that time. The borrowings under the Nexstar senior secured credit facility are guaranteed, jointly and severally, by Nexstar Broadcasting, Bastet, Mission of Wichita Falls and Mission of Joplin, and by each existing and subsequently acquired or organized subsidiary. The Bastet/Mission Senior Secured Credit Facility On January 12, 2001, Bastet and Mission of Wichita Falls, Inc. entered into a credit agreement (the "Bastet/Mission credit facility") with a group of commercial banks. The terms provided for the banks to make revolving loans to Bastet and Mission of Wichita Falls not to exceed the aggregate commitment of $43.0 million. On November 14, 2001, the credit facility was amended to increase the revolving facility to $58.0 million and to include Mission of Joplin as a borrower. Bastet and both Missions are jointly and severally liable for the outstanding amount of the loan. Nexstar has entered into a guarantor agreement, whereby Nexstar guarantees full payment of any obligations outstanding in the event of default. Interest rates associated with the Bastet/Mission credit facility are based, at the option of Bastet and both Missions, on the prevailing prime rate plus an applicable margin or the LIBOR rate plus an applicable margin, as defined (ranging from 5.23% to 5.40% at December 31, 2001). Interest is fixed for a period ranging from one month to 12 months, depending on availability of the interest basis selected, except if Bastet or either Mission selects a prime-based loan, in which case the interest rate will fluctuate during the period as the prime rate fluctuates. Interest is payable periodically based on the type of interest rate selected. In addition, Bastet and both Missions are required to pay quarterly commitment fees based on the Company's leverage ratio for that particular quarter on the unused portion of the Bastet/Mission credit facility loan commitment. The Bastet/Mission credit facility is due and payable on the maturity date, January 12, 2007. Based on borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company's credit facilities approximates carrying value. F-16 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Debt--(Continued) On June 1, 1999, the existing Nexstar credit agreements were amended and restated to include a term loan for an aggregate maximum amount of $125.0 million, a revolving credit facility of $80.0 million and an available incremental revolving credit facility not to exceed $75.0 million. On January 12, 2001, the debt outstanding was repaid with the proceeds of the senior secured credit facility described above. On June 1, 1999, the Bastet and Mission of Wichita Falls existing credit facility was amended to increase the aggregate maximum amount to $45.0 million and to include Mission as a co-borrower. On January 12, 2001, the debt outstanding was repaid with the proceeds of the senior secured credit facility described above. Senior Subordinated Notes On March 16, 2001, Nexstar Finance, L.L.C., a wholly-owned subsidiary of Nexstar, issued $160.0 million of 12.0% Senior Subordinated Notes (the "notes") at a price of 96.012%. The notes mature on April 1, 2008. Interest is payable every six months in arrears on April 1 and October 1. The notes are guaranteed by all of the domestic existing and future restricted subsidiaries of the Company. They are general unsecured senior subordinated obligations subordinated to all of the Company's senior debt. The notes are redeemable on or after April 1, 2004 with the net cash proceeds from qualified equity offerings. The discount on the notes is amortized to interest expense over the term of the notes. The proceeds of the offering were used to partially refinance existing indebtedness of the Company and fund working capital needs. Senior Discount Notes On May 17, 2001, the Company issued $36.988 million principal amount at maturity of Senior Discount Notes (the "discount notes") at a price of 54.0373%. The discount notes mature on May 15, 2009. Each discount note will have an accreted value at maturity of $1,000. The discount notes will begin to accrue cash interest until May 15, 2005 with payments to be made every six months in arrears on May 15 and November 15. They are general unsecured senior obligations effectively subordinated to all of the Company's senior secured debt and are structurally subordinated to the notes described above. The discount on the discount notes is amortized to interest expense over the term of the notes. Registration In January 2002 and September 2001, the discount notes and notes, respectively, were registered under the Securities Act of 1933 pursuant to a registration rights agreement. The fair value of the Company's fixed rate debt is estimated based on quoted market prices for the same or similar issue, or on the current rates offered to the Company for debt of the same remaining maturities. The carrying amounts and fair value of fixed rate debt were as follows:
December 31, 2001 ------------ Carrying amount $174,899 Fair value..... 182,402
F-17 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Debt--(Continued) At December 31, 2001, scheduled maturities of the Company's debt (undiscounted) are summarized as follows: 2002............................... $ 488 2003............................... 2,567 2004............................... 3,845 2005............................... 5,337 2006............................... 6,402 Thereafter......................... 306,492 -------- $325,131 ========
Debt Covenants The bank debt agreements, notes and discount notes contain covenants which require the Company to comply with certain financial ratios, capital expenditure and cash film payments and other limits. Covenants are formally calculated quarterly and are prepared on a consolidated basis. The Company was in compliance with all covenants at December 31, 2001, 2000 and 1999. Debt Financing Costs In conjunction with the amendment and restatement of the credit facility during 1999 and the modification of the credit facility during 2001, the Company expensed $2.8 million and $0.3 million, respectively, related to certain debt financing costs. The amount, net of tax benefit, has been presented as an extraordinary item. Interest Rate Swap Agreements At December 31, 2001, the Company had in effect two interest rate swap agreements to pay fixed and receive variable interest rates as required by its credit facility agreements, with notional amounts of $93.3 million and $20.0 million, respectively, and one swap agreement to pay a variable rate and receive a fixed rate with a notional amount of $60.0 million. The $93.3 million notional swap, while economically being used to hedge the variability of cash flows on a portion of the Company's variable rate debt, does not qualify for SFAS No. 133 hedge accounting and, thus, is being recorded on the balance sheet at fair value with changes in fair value each period reported in other income and expense. The remaining agreements are designated as hedges of either the variability of cash flows on variable rate debt or the fair value change of the fixed rate debt attributable to changes in the benchmark interest rate. The differential to be paid or received on the swaps is accrued as an adjustment to interest expense. The net fair value of the interest rate swap agreements representing the cash the Company would pay to settle the agreements was approximately $2.4 million and $0.2 million at December 31, 2001 and December 31, 2000, respectively. Unsecured Interim Loan On January 12, 2001, the Company received an unsecured interim loan by its primary lender (the "interim loan") in the amount of $40.0 million. The interest rate was 13.5% through April 12, 2001 at which time it increased to 14.0%. In conjunction with the offering of the notes described above, $30.0 million of the interim loan was repaid. The remaining $10.0 million plus accrued interest was repaid with the proceeds from the discount notes described above. F-18 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Debt--(Continued) Note Payable A note payable for $4.5 million was issued by the Company as part of the consideration for the acquisition of KFDX-TV, KBTV-TV and KSNF-TV from US Broadcast Group, LLC in 1998. The noninterest-bearing note required payments of $1.0 million and $2.5 million on December 31, 2000 and 1999, respectively. The unamortized discount was calculated using an interest rate of 7.5%, which approximated the Company's incremental borrowing rate for similar debt at the time of acquisition. The amount remaining outstanding was paid in full on December 31, 2000. 10. Member's Interest The Company is 100% owned and controlled by one member, Nexstar II (Note 1). On January 12, 2001, Nexstar received $65.0 million in capital contributions from Nexstar II, (known then as Nexstar Finance Holdings, L.L.C.). On May 17, 2001, concurrent with the funding from the discount notes, $8.0 million was distributed back to Nexstar II and $1.25 million was received in capital contributions. On August 7, 2001 and November 14, 2001, Nexstar received $20.0 million and $15.0 million, respectively, in capital contributions from Nexstar II, the proceeds of which were used to reduce bank debt. 11. Income Taxes The provision for income taxes charged to continuing operations was as follows at December 31:
2001 2000 1999 ---- ------- ----- Current tax (expense) benefit: Federal........................... $307 $(1,131) $(662) State............................. (95) (516) (158) ---- ------- ----- 212 (1,647) (820) ---- ------- ----- Deferred tax (expense) benefit: Federal........................... 539 447 507 State............................. 128 102 (345) ---- ------- ----- 667 549 162 ---- ------- ----- Net tax (expense) benefit..... $879 $(1,098) $(658) ==== ======= =====
The provision for income taxes is different than the amount computed using the applicable statutory federal income tax rate for the years ended December 31 with the differences summarized below:
2001 2000 1999 -------- ------- ------- Tax benefit at statutory rates.................................... $ 13,627 $ 1,831 $ 4,982 Change in valuation allowance..................................... (1,947) (1,301) (1,296) Income earned by a partnership not subject to corporate income tax (10,906) (1,376) (4,012) State and local taxes, net of federal benefit..................... 348 (21) (128) Other, net........................................................ (243) (231) (204) -------- ------- ------- Net tax (expense) benefit......................................... $ 879 $(1,098) $ (658) ======== ======= =======
F-19 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Income Taxes--(Continued) The components of the net deferred tax liability are as follows at December 31:
2001 2000 1999 ------- ------- ------- Net operating loss carryforwards $(5,341) $(3,818) $(2,307) Property and equipment.......... 1,966 2,243 2,327 Intangible assets............... 4,570 5,385 5,650 Other........................... (129) (130) (141) Valuation allowance............. 5,550 3,603 2,302 ------- ------- ------- Net deferred tax liability...... $ 6,616 $ 7,283 $ 7,831 ======= ======= =======
At December 31, 2001, the Company has federal and state net operating loss carryforwards available of approximately $12.6 million and $15.7 million, respectively, to reduce future taxable income. These net operating losses begin to expire in 2008 if not utilized. The Company has provided a valuation allowance for certain deferred tax assets. The allowance relates to the generation of net operating losses and other deferred tax assets of certain corporate subsidiaries, the benefit of which may not be realized. A corporation that undergoes a "change of ownership" pursuant to section 382 of the Internal Revenue Code is subject to limitations on the amount of its net operating loss carryforwards which may be used in the future. An ownership change occurred with regard to one subsidiary on April 15, 1997. The amount of the net operating loss at December 31, 2001 associated with that subsidiary was approximately $1.1 million. The annual limitation on the use of the net operating loss is approximately $446. The Company estimates the limitation on the net operating loss will not have a material adverse impact on the Company's financial position or results of operation. No assurance can be given that an ownership change will not occur as a result of other transactions entered into by the Company, or by certain other parties over which the Company has no control. If a "change in ownership" for income tax purposes occurs, the Company's ability to use "pre-change losses" could be postponed or reduced, possibly resulting in accelerated or additional tax payments which, with respect to tax periods beyond 2001, could have a material adverse impact on the Company's financial position or results of operations. 12. Commitments and Contingencies Broadcast Rights Commitments Broadcast rights acquired for cash and barter under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. Future minimum payments arising from unavailable current and future broadcast license commitments outstanding are as follows at December 31, 2001: 2002......................................................... $ 3,800 2003......................................................... 4,472 2004......................................................... 2,513 2005......................................................... 885 Thereafter................................................... -- ------- Future minimum payments for unavailable cash broadcast rights $11,670 =======
F-20 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. Commitments and Contingencies--(Continued) Unavailable broadcast rights commitments represent obligations to acquire cash and barter program rights for which the license period has not commenced and, accordingly, for which no asset or liability has been recorded. Digital Conversion FCC regulations require the Company to commence digital operations by May 1, 2002, in addition to continuing the Company's analog operations, unless an extension of time is granted. We have requested an extension of time to begin digital operations at all of the stations except WCIA-TV and WCFN-TV which are scheduled to meet the deadline. Although there can be no assurance that the FCC will so act, the Company anticipates that the FCC will grant the extension. The digital conversion will require an average initial capital investment of $0.25 million per station for low-power transmission of digital signal programming and an average additional capital expenditure of $0.75 million per station for full-power transmission modifications. Except for the capital invested in WCFN-TV to make it a full-power broadcasting station, there were no expenditures for digital conversion in 2001. The Company anticipates that digital expenditures will be funded through available cash on hand and cash generated from operations. Operating and Capital Leases The Company leases office space, vehicles, antennae sites, studio and other operating equipment under noncancelable capital and operating lease arrangements expiring through 2007. Charges to operations for such leases aggregated $584, $643 and $504 for the years ended December 31, 2001, 2000 and 1999, respectively. Future minimum lease payments under these leases are as follows at December 31, 2001:
Capital Operating lease lease obligations obligations ----------- ----------- 2002................................... $23 $ 441 2003................................... -- 426 2004................................... -- 354 2005................................... -- 213 2006................................... -- 207 Thereafter............................. -- 448 --- ------ $23 $2,089 === ====== Less: amount representing interest..... 1 --- Present value of minimum lease payments $22 ===
Litigation From time to time, the Company is involved with claims that arise out of the normal course of business. In the opinion of management, the ultimate liability with respect to these claims will not have a material adverse effect on the financial statements of the Company. F-21 NEXSTAR FINANCE HOLDINGS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Employment Matters As of December 31, 2001, the Company had a total of 1,027 employees comprised of 891 full-time and 136 part-time or temporary employees. As of December 31, 2001, 214 of the Company's employees are covered by collective bargaining agreements. The Company believes that employee relations are satisfactory, and the Company has not experienced any work stoppages at any of its facilities. However, there can be no assurance that the Company's collective bargaining agreements will be renewed in the future or that the Company will not experience a prolonged labor dispute, which could have a material adverse effect on the Company's business, financial condition, or results of operations. The Company has established a retirement savings plan under Section 401(k) of the Internal Revenue Code (the "Plan"). The Plan covers substantially all employees of the Company who meet minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. Contributions to the Plan may be made at the discretion of the Company. Through December 31, 2001, the Company had not elected to make such contibutions, except where required to do so under the terms of specific union labor contracts. Mandatory amounts contributed pursuant to labor contracts were $0, $26 and $25 during the years ended December 31, 2001, 2000 and 1999, respectively. 14. Nexstar Finance Holdings, Inc. Nexstar Finance Holdings, Inc., a wholly-owned subsidiary of Nexstar, was incorporated on December 5, 2000 in the State of Delaware for the purpose of facilitating future financings. Nexstar Finance Holdings, Inc. was capitalized with an immaterial amount of equity and had no operating activities for the year ended December 31, 2001 and 2000. 15. Valuation and Qualifying Accounts Allowance for Doubtful Accounts Rollforward
Balance at Charged Beginning to Balance at of period Operations Deductions End of Period ---------- ---------- ---------- ------------- Year ended December 31, 1999--Allowance for doubtful accounts........................................... $344 $214 $(206) $352 Year ended December 31, 2000--Allowance for doubtful accounts........................................... 352 346 (283) 415 Year ended December 31, 2001--Allowance for doubtful accounts........................................... 415 438 (363) 490
F-22
Exhibit No. Exhibit Index - ------- ------------- 3.1.. Certificate of Formation of NBG, L.L.C. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 3.2 Certificate of Amendment to the Certificate of Formation of NBG, L.L.C. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 3.3 Limited Liability Company Agreement of NBG, L.L.C. (Incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 3.4 Amendment No. 1 to the Limited Liability Company Agreement of NBG, L.L.C. (Incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 3.5 Articles of Incorporation of Nexstar Finance Holdings, Inc. (Incorporated by reference to Exhibit 3.5 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 3.6 By-laws of Nexstar Finance Holdings, Inc. (Incorporated by reference to Exhibit 3.6 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 4.1 Indenture, among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc., Bastet Broadcasting, Inc., Mission Broadcasting of Wichita Falls, Inc., Nexstar Broadcasting Group, L.L.C. and The Bank of New York, as successor to United States Trust Company of New York, dated as of May 17, 2001. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 4.2 Supplemental Indenture, among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc., Nexstar Finance Holdings II, L.L.C. and The Bank of New York, dated August 6, 2001. (Incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-4 (File No. 333- 68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 4.3 Form of exchange note (Included in Exhibit 4.1 hereto.) (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 4.4 Registration Rights Agreement, by and among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc., Banc of America Securities LLC and Barclays Capital Inc. dated as of May 17, 2001. (Incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-4 (File No. 333- 68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 10.1 Purchase Agreement, by and among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc., Nexstar Equity Corp., Nexstar Broadcasting Group, L.L.C., Banc of America Securities LLC and Barclays Capital Inc., dated as of May 14, 2001. (Incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 10.2 Unit Agreement, among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc., Nexstar Equity Corp., Nexstar Broadcasting Group, L.L.C. and The Bank of New York, as successor to United States Trust Company of New York, dated as of May 17, 2001. (Incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 10.3 Reimbursement Agreement, between Nexstar Equity Corp. and Nexstar Broadcasting Group, L.L.C., dated as of May 17, 2001. (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.)
E-1
Exhibit No. Exhibit Index - ------- ------------- 10.4 First Amendment to Amended and Restated Credit Agreement and Limited Consent dated as of November 14, 2001, among Nexstar Finance, L.L.C., Bank of America, N.A. and the other parties signatory thereto. 10.5 Amended and Restated Credit Agreement, dated as of June 14, 2001, by and among Nexstar Finance, L.L.C., Nexstar Broadcasting Group, L.L.C. and certain of its Subsidiaries from time to time parties thereto, the several financial institutions from time to time parties thereto, Bank of America, N.A., Barclays Bank PLC and First Union National Bank. (Incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 10.6 First Amendment to Credit Agreement and Limited Consent, among Nexstar Finance, L.L.C., Nexstar Broadcasting Group, L.L.C., the Parent Guarantors named therein, the several Banks named therein and Bank of America, N.A., dated as of May 17, 2001. (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.) 10.7 Credit Agreement, by and among Nexstar Finance, L.L.C., the parent guarantors party thereto, Banc of America, N.A., CIBC Inc., Firstar Bank, N.A., Barclays Bank PLC and First Union National Bank, dated as of January 12, 2001. (Incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.8 Third Amendment to Credit Agreement, Limited Consent and Assumption Agreement Consent, dated as of November 14, 2001, among Bastet Broadcasting, Inc., Mission Broadcasting of Wichita Falls, Inc. and Mission Broadcasting of Joplin, Inc., Bank of America, N.A. and the other parties signatories thereto. 10.9 Credit Agreement, by and among Bastet Broadcasting, Inc., Mission Broadcasting of Wichita Falls, Inc., Bank of America, N.A., Barclays Bank PLC and First Union National Bank, dated as of January 12, 2001. (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.10 Guaranty Agreement, dated as of January 12, 2001, executed by Nexstar Broadcasting Group, L.L.C. and Nexstar Finance Holdings, L.L.C. in favor of the guaranteed parties defined therein. (Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 (File No. 333- 62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.11 Guaranty Agreement, dated as of January 12, 2001, executed by Nexstar Finance Holdings, Inc. in favor of the guaranteed parties defined therein. (Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.12 Guaranty Agreement, dated as of January 12, 2001, executed by Bastet Broadcasting, Inc. and Mission Broadcasting of Wichita Falls, Inc. (Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.13 Security Agreement, dated as of January 12, 2001, made by each of the Nexstar entities defined therein in favor of Bank of America, N.A., as collateral agent. (Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.14 Pledge and Security Agreement, dated as of January 12, 2001, made by each of the Nexstar entities defined therein in favor of Bank of America, N.A., as collateral agent. (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.)
E-2
Exhibit No. Exhibit Index - ------- ------------- 10.15 Executive Employment Agreement, dated as of January 5, 1998, by and between Perry A. Sook and Nexstar Broadcasting Group, Inc., as amended on January 5, 1999. (Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.16 Amendment to Employment Agreement, dated as of May 10, 2001, by and between Perry A. Sook and Nexstar Broadcasting Group, Inc. (Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.17 Executive Employment Agreement, dated as of January 5, 1998, by and between Duane Lammers and Nexstar Broadcasting Group, Inc., as amended on December 31, 1999. (Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.18 Addendum to Employment Agreement, dated February 9, 2001, by and between Duane Lammers and Nexstar Broadcasting Group, Inc. (Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.19 Executive Employment Agreement, dated as of January 5, 1998, by and between Shirley Green and Nexstar Broadcasting Group, Inc., as amended on December 31, 1999. (Incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.20 Second Addendum to Employment Agreement, dated as of February 6, 2002, by and between Shirley Green and Nexstar Broadcasting Group, Inc. 10.21 Executive Employment Agreement, dated as of December 31, 1999, by and between Susana G. Willingham and Nexstar Broadcasting Group, Inc. (Incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance, Inc.) 10.22 Executive Employment Agreement, dated as of December 31, 1999, by and between Richard Stolpe and Nexstar Broadcasting Group, Inc. (Incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance, Inc.) 10.23 Assignment and Assumption Agreement, dated as of August 6, 2001, by Nexstar Finance Holdings II, L.L.C. and Nexstar Finance Holdings, L.L.C. (Incorporated by reference to Exhibit 10.20 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance, L.L.C. and Nexstar Finance Holdings, Inc.) 10.24 Purchase and Sale Agreement, dated as of December 31, 2001, by and among Mission Broadcasting of Joplin, Inc., GOCOM Broadcasting of Joplin, LLC and GOCOM of Joplin License Sub, LLC. 10.25 Time Brokerage Agreement, dated as of December 31, 2001, by and between GOCOM of Joplin License Sub, LLC and Mission Broadcasting of Joplin, Inc. 10.26 Outsourcing Agreement, dated as of November 28, 2001, by and among WYZZ, Inc., WYZZ License, Inc., and Nexstar Broadcasting of Peoria, L.L.C. 21.1 Subsidiaries of the registrant. (Incorporated by reference to Exhibit 21.1 to Registration Statement on Form S-4 (File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings, Inc.)
E-3 EX-10.4 3 dex104.txt 1ST AMENDMENT TO RESTATED CREDIT AGREEMENT EXHIBIT 10.4 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND LIMITED CONSENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND LIMITED CONSENT (this "Amendment"), dated as of November 14, 2001, among NEXSTAR FINANCE, L.L.C., a Delaware limited liability company (the "Borrower"), NEXSTAR BROADCASTING GROUP, L.L.C., a Delaware limited liability company (the "Ultimate Parent"), the other Parent Guarantors (as such term is defined in the hereinafter described Credit Agreement) parties to this Amendment, the several Banks (as such term is defined in the hereinafter described Credit Agreement) parties to this Amendment, and BANK OF AMERICA, N.A., as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). R E C I T A L S: A. The Borrower, the Ultimate Parent, the other Parent Guarantors, the Administrative Agent, Barclays Bank PLC, as Syndication Agent, First Union National Bank, as Documentation Agent, and the several Banks parties thereto entered into that certain Amended and Restated Credit Agreement dated as of June 14, 2001 (as the same may be amended, modified, restated, supplemented, renewed, extended, increased, rearranged and/or substituted from time to time, the "Credit Agreement"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. B. The Borrower has advised the Lenders that the Parent Guarantors and the Borrower do not anticipate to be in compliance with the financial covenant set forth in Section 8.09(a) of the Credit Agreement with respect to the Measurement Period ended September 30, 2001 (such anticipated noncompliance is hereinafter referred to as the "Financial Covenant Default"). C. Pursuant to Section 9.02 of the Credit Agreement, if at the end of any Fiscal Quarter there exists an Event of Default with respect to Section 8.09(a), the Borrower may, prior to the date upon which financial statements for such Fiscal Quarter are required to be delivered pursuant to Section 7.01, cure such Event of Default by receiving equity contributions from ABRY L.P. II, ABRY L.P. III and/or Sook (and/or other Persons exercising preemptive rights in connection with an equity issuance to one or more of them), or a payment pursuant to an ABRY Capital Contribution Agreement, and applying the proceeds therefrom to repay Loans and/or to reduce Commitments so that the Consolidated Total Leverage Ratio, calculated on a Pro Forma Basis after giving effect to any such equity contributions and repayments, as of the last day of the Fiscal Quarter for which such Event of Default occurred, do not exceed the ratio set forth in Section 8.09(a). D. The Administrative Agent has requested that ABRY L.P. III make a cash equity contribution of $5,000,000 in immediately available funds to the Ultimate Parent as required by Section 2(a) of the ABRY Capital Contribution Agreement. E. In satisfaction of Section 2(a) of the ABRY Capital Contribution Agreement and in order to cure the Financial Covenant Default pursuant to Section 9.02 of the Credit Agreement, ABRY L.P. II and/or ABRY L.P. III have proposed purchasing Permitted Parent Preferred Equity (the "Additional Parent Equity") for an aggregate cash purchase price of $15,000,000 in immediately available funds on or before the Amendment Effective Date, $5,000,000 of the proceeds of which shall be used to make a mandatory prepayment of Term Loans pursuant to Section 2.07(h) of the Credit Agreement to be applied pursuant Sections 2.07(k), 2.08(b) and 9.02 thereof, and $10,000,000 of the proceeds of which shall be used to make a voluntary prepayment of Term Loans pursuant to Section 2.06 of the Credit Agreement to be applied pursuant Sections 2.06(c), 2.08(b) and 9.02 thereof. F. The consent of the Majority Banks is required in order to allow the issuance of the Additional Parent Equity pursuant to Section 8.05(l) of the Credit Agreement inasmuch as the Financial Covenant Default exists prior to such issuance and pursuant Section 8.14(ii) of the Credit Agreement inasmuch as certain amendments to the Charter Documents of the Ultimate Parent are required to authorize the issuance of the Additional Parent Equity. G. The Borrower and the Ultimate Parent have further advised the Administrative Agent that they wish to effect the following transactions: (i) the execution, delivery and performance by Nexstar Broadcasting of Peoria, L.L.C. ("Nexstar Peoria") of an Outsourcing Agreement with WYZZ, Inc. with respect to commercial television broadcast station WYZZ, Peoria-Bloomington, Illinois, substantially in the form previously provided by the Borrower to the Administrative Agent (the "Outsourcing Agreement"); (ii) the guaranty by the Ultimate Parent of certain lease obligations of Mission Broadcasting of Joplin, Inc., a Delaware corporation ("Mission Joplin"), to SpectraSite Broadcast Towers, Inc. in connection with the acquisition by Mission Joplin of commercial television broadcast station KODE-TV, Joplin, Missouri (the "Station"), which Guaranty Obligations shall be incurred pursuant to documentation substantially in the form previously provided by the Borrower to the Administrative Agent (such guaranties are hereinafter referred to collectively as the "SpectraSite Lease Guaranties"); and (iii) the execution, delivery and performance by Nexstar Broadcasting of Joplin L.L.C. ("Nexstar Joplin") of a Shared Services Agreement with Mission Joplin with respect to the Station substantially in the form previously provided by the Borrowers to the Administrative Agent (the "KODE SSA"). H. The written consent of Majority Banks is required prior to the execution, delivery and performance of the Outsourcing Agreement and the KODE SSA pursuant to Section 8.04(b) of the Credit Agreement inasmuch as the Consolidated Total Leverage Ratio immediately prior to the consummation of such transaction is greater than 5:00:1:00. 2 I. The amendment of Section 8.05 of the Credit Agreement is required prior to the execution and delivery of the SpectraSite Lease Guaranties inasmuch as the incurrence of the Guaranty Obligations thereunder is not otherwise permitted pursuant to Section 8.05 . J. The Borrower and the Ultimate Parent have requested that the Banks (i) consent to the issuance of the Additional Parent Equity notwithstanding the existence of the Financial Covenant Default, (ii) consent to the amendment of the Charter Documents of the Ultimate Parent in order to permit such issuance, (iii) consent to the execution, delivery and performance of the Outsourcing Agreement and the KODE SSA, (iv) amend the Credit Agreement to permit the execution and delivery of the SpectraSite Lease Guaranties, and (v) amend certain financial covenants in order to assist the Credit Parties with future compliance with such covenants, in each case as more fully described hereinbelow. K. The several Banks parties to this Amendment are willing to (i) consent to the issuance of the Additional Parent Equity notwithstanding the existence of the Financial Covenant Default, (ii) consent to the amendment of the Charter Documents of the Ultimate Parent in order to permit such issuance, (iii) consent to the execution, delivery and performance of the Outsourcing Agreement and the KODE SSA, (iv) amend the Credit Agreement to permit the SpectraSite Lease Guaranties, and (v) agree to the other amendments to the Credit Agreement set forth herein, subject in each case to the performance and observance in full of each of the covenants, terms and conditions, and in reliance upon all of the representations and warranties of the Borrower and the Ultimate Parent, set forth herein. NOW, THEREFORE, in consideration of the premises and the covenants, terms, conditions, representations and warranties herein contained, the parties hereto agree hereby as follows: Section 1. AMENDMENTS. Subject to the covenants, terms and conditions set forth herein and in reliance upon the representations and warranties of the Borrower and the Parent Guarantors herein contained, the Borrower, the Parent Guarantors and the several Banks parties to this Amendment hereby agree to amend the Credit Agreement, effective as of the Amendment Effective Date (as hereinafter defined) as follows: (a) Section 1.01 is amended by deleting existing definition of "Applicable Margin" and inserting the following in lieu thereof: "Applicable Margin" means (i) with respect to Term A Loans (other than Incremental Term Loans) and Revolving Loans (other than Incremental Revolving Loans) which are Eurodollar Loans, the margin to be added at any date to the Eurodollar Rate, which is equal to the applicable percentage rate per annum set forth below, based upon the applicable Level in effect for the Borrower on such date; (ii) with respect to Term A Loans (other than Incremental Term Loans) and Revolving Loans (other than Incremental Revolving Loans) which are Base Rate Loans, the margin to be added at any date to the Base Rate, which is equal to the percentage per annum which is 1.625% less than the Applicable Margin for Eurodollar Loans then in effect for the Borrower on such date, but in no event less than zero, (iii) with respect to Term B Loans which are Eurodollar Loans, (x) while the applicable Level in effect for the Borrower is Level VII, 3 4.250% , and (y) at all other times, 4.000%; (iv) with respect to Term B Loans which are Base Rate Loans, 1.625% less than the Applicable Margin for Term B Loans which are Eurodollar Loans then in effect for the Borrower on such date, but in no event less than zero; and (iv) with respect to Incremental Term Loans and Incremental Revolving Loans, the Incremental Margin to be added to the Base Rate or Eurodollar Rate, as the case may be, as agreed upon by the Borrower and the Bank or Banks providing the Incremental Term Commitment and/or Incremental Revolving Commitment relating thereto as provided in Section 2.16(a), or if not agreed upon, as provided in Section 2.16(b). =========================================== Level Applicable Percentage Rate =========================================== Level I 2.000% ------------------------------------------- Level II 2.250% ------------------------------------------- Level III 2.500% ------------------------------------------- Level IV 2.750% ------------------------------------------- Level V 3.000% ------------------------------------------- Level VI 3.250% ------------------------------------------- Level VII 3.500% ------------------------------------------- (b) Section 1.01 is amended by inserting the following sentence at the end of the existing definition of "Consolidated Operating Cash Flow": "Notwithstanding the foregoing, the Consolidated Net Income of a Person attributable from payments accrued to or received by such Person under any Network Affiliation Agreements to which such Person is a party shall include only payments actually received or currently receivable by such Person under such agreements during such period (regardless of the GAAP treatment thereof) for the purpose of calculating such Person's Consolidated Operating Cash Flow for such period." (c) Section 1.01 is amended by deleting the definition of "Level" and inserting the following definition in lieu thereof: "Level" means, as of any date of determination, the applicable Level set forth below which is then in effect, as determined in accordance with the following provisions of this definition. On the Effective Date and continuing through and including November 13, 2001, the Level for purposes of calculating the Applicable Margin shall be deemed to be Level VI, after November 13, 2001, through and including the day immediately preceding the first Adjustment Date occurring after September 30, 2001, the Level for 4 purposes of calculating the Applicable Margin shall be deemed to be Level VII and for each period thereafter beginning on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the Level for purposes of calculating the Applicable Margin shall be the applicable Level set forth below opposite the Consolidated Total Leverage Ratio determined as at the end of the last Fiscal Quarter ended prior to the first day of such period. If by any Adjustment Date, the Borrower has failed to deliver a Compliance Certificate for the then most recently completed Fiscal Quarter, the Applicable Margin for the next succeeding period commencing on such Adjustment Date and ending on the second Business Day after such Compliance Certificate is actually delivered shall be computed as if the Consolidated Total Leverage Ratio were at Level VII. ================================================================================ Level Consolidated Total Leverage Ratio ================================================================================ I Less than or equal to 4.50 to 1.00 - -------------------------------------------------------------------------------- II Greater than 4.50 to 1.00 but less than or equal to 5.00 to 1.00 - -------------------------------------------------------------------------------- III Greater than 5.00 to 1.00 but less than or equal to 5.50 to 1.00 - -------------------------------------------------------------------------------- IV Greater than 5.50 to 1.00 but less than or equal to 6.00 to 1.00 - -------------------------------------------------------------------------------- V Greater than 6.00 to 1.00 but less than or equal to 6.50 to 1.00 - -------------------------------------------------------------------------------- VI Greater than 6.50 to 1.00 but less than or equal to 6.75 to 1.00 - -------------------------------------------------------------------------------- VII Greater than 6.75 to 1.00 - -------------------------------------------------------------------------------- (d) Section 1.01 is amended by inserting the following proviso at the end of the existing definition of "Loan Documents" immediately prior to the period: "provided, that, for the purposes of Sections 9.02 and 11.01 of this Agreement, the term "Loan Documents" shall not include any Interest Rate Protection Agreement with any Bank or any Affiliate of any Bank" (e) Section 2.08 (a)(i) is amended by deleting the date "March 31, 2002" from the fifth line thereof and inserting the date "June 30, 2003" in lieu thereof. (f) Section 2.08 (a)(ii) is amended by deleting the date "March 31, 2002" from the fifth line thereof and inserting the date "June 30, 2002" in lieu thereof. (g) Section 8.05 is further amended by (i) deleting the word "and" from the end of clause (p), (ii) deleting the period from the end of clause (q) and inserting a semicolon and the word "and" in lieu thereof, and (iii) adding a new clause (r) that reads as follows: "(r) Guaranty Obligations of the Ultimate Parent with respect to lease obligations under those certain Site Agreements dated as of August 24, 2000 between SpectraSite Broadcast Towers, Inc. and Mission Broadcasting of Joplin, Inc. (as assignee of GOCOM Broadcasting of Joplin, LLC) relative to "Towers 19, 20 and 21, Joplin, 5 Missouri" described therein, provided, that such Guaranty Obligations are incurred pursuant to documentation in form and substance satisfactory to the Administrative Agent." (h) Section 8.09(a) is deleted in its entirety and the following is inserted in lieu thereof: "(a) Consolidated Total Leverage Ratio. The Consolidated Total Leverage Ratio shall not at any time during any period set forth below exceed the ratio set forth opposite such period below: Period Ratio - ---------------------------------------------- ------------------ Effective Date through and including September 29, 2001 6.75 to 1.00 September 30, 2001 through and including June 29, 2002 7.75 to 1.00 June 30, 2002 through and including September 29, 2002 7.25 to 1.00 September 30, 2002 through and including December 30, 2002 6.50 to 1.00 December 31, 2002 through and including March 30, 2003 6.00 to 1.00 March 31, 2003 through and including June 29, 2003 5.50 to 1.00 June 30, 2003 through and including June 29, 2004 5.25 to 1.00 June 30, 2004 through and including September 29, 2004 5.00 to 1.00 September 30, 2004 through and including December 30, 2004 4.75 to 1.00 December 31, 2004 and thereafter 4.00 to 1.00" (i) Section 8.09(b) is deleted in its entirety and the following is inserted in lieu thereof: "(b) Consolidated Senior Leverage Ratio. The Consolidated Senior Leverage Ratio shall not at any time during any period set forth below exceed the ratio set forth opposite such period below: Period Ratio - ---------------------------------------------- ---------------- Effective Date through and including September 29, 2001 4.00 to 1.00 September 30, 2001 through and including June 29, 2002 3.75 to 1.00 6 Period Ratio - ---------------------------------------------- ---------------- June 30, 2002 through and including September 29, 2002 3.50 to 1.00 September 30, 2002 through and including March 30, 2003 3.25 to 1.00 March 31, 2003 through and including June 29, 2003 2.75 to 1.00 June 30, 2003 and thereafter 2.50 to 1.00 (j) Section 8.09(c) is deleted in its entirety and the following is inserted in lieu thereof: "(c) Consolidated Interest Coverage Ratio. The Consolidated Interest Coverage Ratio shall not at any time during any period set forth below be less than the ratio set forth opposite such period below: Period Ratio - ---------------------------------------------- ---------------- Effective Date through and including June 29, 2002 1.50 to 1.00 June 30, 2002 through and including March 30, 2003 1.40 to 1.00 March 31, 2003 through and including September 29, 2004 1.50 to 1.00 September 30, 2004 through and including March 30, 2006 1.75 to 1.00 March 31, 2006 through and including March 30, 2007 2.00 to 1.00 March 31, 2007 and thereafter 2.25 to 1.00" (k) Section 11.07(a) is amended by deleting the final sentence and inserting the following in lieu thereof: "The Borrower and the Administrative Agent hereby grant the consent required by the immediately preceding sentence with respect to any assignment that any Bank may from time to time make to any Affiliate or any Related Fund of such Bank or any assignment that any Bank may from time to time to any other Bank or any Affiliate or Related Fund of any other Bank provided that the Borrower and the Administrative Agent are each given at least three (3) Business Days' written notice prior to the effective date of such assignment." The amendments set forth in this Section 1 are limited to the extent specifically set forth above and no other terms, covenants or provisions of the Credit Agreement are intended to be effected hereby. 7 Section 2. LIMITED CONSENT. Subject to the covenants, terms and conditions set forth in this Amendment, and in reliance upon the representations and warranties of the Borrower and the Parent Guarantors herein contained, the several Banks parties to this Amendment hereby consent to the following: (a) the issuance of the Additional Parent Equity notwithstanding the existence of the Financial Covenant Default immediately prior to such issuance, provided, that (i) such issuance otherwise complies with all of the other requirements of Section 8.05(l) of the Credit Agreement (including, without limitation, the requirements that the Additional Parent Equity satisfy the definition of Permitted Parent Preferred Equity and that the Net Issuance Proceeds be applied in accordance with the Section 2.07(f) to the extent applicable), (ii) $5,000,000 of the proceeds of the Additional Parent Equity shall be immediately used to make a mandatory prepayment of Term Loans pursuant to Section 2.07(h) of the Credit Agreement to be applied pursuant Sections 2.07(k), 2.08(b) and 9.02 thereof, and (iii) $10,000,000 of the proceeds of the Additional Parent Equity shall be immediately used to make a voluntary prepayment of Term Loans pursuant to Section 2.06 of the Credit Agreement to be applied pursuant Sections 2.06(c), 2.08(b) and 9.02 thereof; (b) the amendment of the Charter Documents of the Ultimate Parent in order to authorize the issuance of the Permitted Parent Preferred Equity, provided, that such amendment is made pursuant to documentation in form and substance satisfactory to the Administrative Agent, in its sole discretion; (c) the execution, delivery and performance of the Outsourcing Agreement by Nexstar Peoria, which consent is granted pursuant to and in satisfaction of the consent requirements set forth in Section 8.04(b) of the Credit Agreement, provided, that (i) the Borrower and the execution, delivery and performance of the Outsourcing Agreement otherwise comply in all respects with all other requirements set forth in such Section 8.04(b) and all other requirements set forth elsewhere in the Credit Agreement or in any of the other Loan Documents, (ii) the execution and delivery of the Outsourcing Agreement and commencement of performance of services thereunder occur on or before the date that is 3 months after the Amendment Effective Date, and (iii) any revisions to the Outsourcing Agreement from the form previously provided by the Borrower to the Administrative Agent, and any additional agreements or instruments executed in connection therewith, shall be in form and substance satisfactory to the Administrative Agent, in its sole discretion; (d) the execution, delivery and performance of the KODE SSA by Nexstar Joplin, which consent is granted pursuant to and in satisfaction of the consent requirements set forth in Section 8.04(b) of the Credit Agreement, provided, that (i) the Borrower and the execution, delivery and performance of the KODE SSA otherwise comply in all respects with all other requirements set forth in such Section 8.04(b) and all other requirements set forth elsewhere in the Credit Agreement or in any of the other Loan Documents, and (ii) any revisions to the KODE SSA from the form previously provided by the Borrower to the Administrative Agent, and any additional agreements or instruments executed in connection therewith, shall be in form and substance satisfactory to the Administrative Agent, in its sole discretion; and 8 (e) the execution, delivery and performance by the parties thereto of the Third Amendment to Credit Agreement and Limited Consent dated as of even date herewith relative to the Bastet/Mission Credit Agreement (the "Bastet/Mission Amendment"), and all transactions described therein. The consents set forth in this Section 2 are limited to the extent specifically set forth above and no other terms, covenants or provisions of the Credit Agreement are intended to be effected hereby. Section 3. CONDITIONS PRECEDENT. The parties hereto agree that this Amendment and the consents and amendments contained herein shall not be effective until the satisfaction of each of the following conditions precedent: (a) Execution and Delivery of this Amendment. The Administrative Agent shall have received a copy of this Amendment executed and delivered by each of the applicable Credit Parties and by all Banks necessary for the effectiveness of each of the amendments and consents set forth herein pursuant to Section 11.01 of the Credit Agreement. (b) Representations and Warranties. Each of the representations and warranties made in this Amendment shall be true and correct on and as of the Amendment Effective Date as if made on and as of such date, both before and after giving effect to this Amendment. (c) Reduction of Loan Commitments. The Borrower shall have permanently reduced the Aggregate Revolving Commitment by at least $15,000,000 in the aggregate pursuant to Section 2.05(a) of the Credit Agreement. (d) Equity Contributions and Compliance Certificate. (i) ABRY L.P. II and/or ABRY L.P. III shall have purchased the Permitted Parent Preferred Equity for an aggregate cash purchase price of at least $15,000,000 in immediately available funds, $5,000,000 of the proceeds of which shall have been used to make a mandatory prepayment of Term Loans pursuant to Section 2.07(h) of the Credit Agreement and applied pursuant Sections 2.07(k), 2.08(b) and 9.02 thereof, and $10,000,000 of the proceeds of which shall have been used to make a voluntary prepayment of Term Loans pursuant to Section 2.06 of the Credit Agreement and applied pursuant Sections 2.06(c), 2.08(b) and 9.02 thereof, and (ii) the Ultimate Parent and the Borrower shall have executed and delivered to the Administrative Agent a certificate executed by a Responsible Officer containing calculations in detail satisfactory to the Administrative Agent demonstrating that, after giving effect to the equity contributions and repayments described in clause (i) hereof on a Pro Forma Basis as of the last day of the Fiscal Quarter ended September 30, 2001, no Event of Default exists under Section 8.09(a) of the Credit Agreement with respect to such Fiscal Quarter or any other covenant thereof. (e) Fees and Expenses. The Administrative Agent shall have received for its own account and for the account of each Bank party to this Amendment, an amendment fee for each Bank party to this Amendment (collectively, the "Amendment Fees") in an amount equal to the product of (i) 0.125%, multiplied by, (ii) the sum of the amount of such Bank's Revolving Commitment, plus the amount of such Lender's outstanding Term A Loans and outstanding 9 Term B Loans, as computed on the Amendment Effective Date after to giving effect to any reductions to such Bank's Revolving Credit Commitment in satisfaction of Section 3(c) and 3(d) above and any reductions to such Lender's outstanding Term A Loans and Term B Loans, as applicable, occurring on the Amendment Effective Date as a result of the satisfaction of the condition precedent described in Section 3(c) and 3(d) above. The Amendment Fees shall be nonrefundable and shall be deemed to have been earned in full when this Amendment has been executed and delivered to the Administrative Agent by the Borrowers and Lenders constituting the Majority Lenders, whether or not the Amendment Effective Date occurs. In addition, the Borrowers shall pay the estimated fees, costs and out-of-pocket expenses incurred by counsel to the Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Amendment, the Bastet/Mission Amendment, and all transaction contemplated hereby and thereby. (f) Effectiveness of Bastet/Mission Amendment. All conditions precedent to the effectiveness to the Bastet/Mission Amendment shall have been satisfied in a manner reasonably satisfactory to the Administrative Agent of such credit facility. Section 4. REPRESENTATIONS AND WARRANTIES. To induce the Administrative Agent and the several Banks parties hereto to enter into this Amendment and to agree to grant the consents and make the amendments contained herein and in the Bastet/Mission Amendment, each of the Borrower and the Parent Guarantors represents and warrants to the Administrative Agent and the Banks as follows: (a) Authorization; No Contravention. The execution, delivery and performance by the applicable Credit Parties of this Amendment have been duly authorized by all necessary partnership, corporate or limited liability company action, as applicable, and do not and will not (i) contravene the terms of any Charter Documents of any Credit Party, (ii) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which any Credit Party is a party or any order, injunction, writ or decree of any Governmental Authority to which any Credit Party is a party or its property is subject, or (iii) violate any Requirement of Law. (b) Governmental Authorization. No approval, consent, exemption, authorization or other action by, or notice to, or filing with or approvals required under state blue sky securities laws or by any Governmental Authority is necessary or required in connection with the execution, delivery, performance or enforcement of this Amendment. (c) No Default. No Default or Event of Default exists under any of the Loan Documents. No Credit Party is in default under or with respect to (i) its Charter Documents or (ii) any material Contractual Obligation of such Person. The execution, delivery and performance of this Amendment shall not result in any default under any Contractual Obligation of any Credit Party in any respect. (d) Binding Effect. This Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding obligations of the Credit Parties that are parties thereto, enforceable against such Credit Parties in accordance with their respective terms, except as 10 enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles of general applicability. (e) Representations and Warranties. The representations and warranties set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the Amendment Effective Date, both before and after giving effect to the amendments contemplated in this Amendment, as if such representations and warranties were being made on and as of the Amendment Effective Date. Section 5. MISCELLANEOUS (a) Ratification and Confirmation of Loan Documents. Except for the specific consents and amendments expressly set forth in this Amendment, the terms, provisions, conditions and covenants of the Credit Agreement and the other Loan Documents remain in full force and effect and are hereby ratified and confirmed, and the execution, delivery and performance of this Amendment shall not in any manner operate as a waiver of, consent to or amendment of any other term, provision, condition or covenant of the Credit Agreement or any other Loan Document. Without limiting the generality of the foregoing, the consents set forth in Section 2 of this Amendment shall be limited precisely as set forth above, and nothing in this Amendment shall be deemed (i) to constitute a waiver of compliance or consent to noncompliance by any of the Credit Parties with respect to any other term provision, condition or covenant of the Credit Agreement or other Loan Documents; (ii) to prejudice any right or remedy that the Administrative Agent or the Banks may now have or may have in the future under or in connection with the Credit Agreement or any other Loan Document; or (iii) to constitute a waiver of compliance or consent to noncompliance by any of the Credit Parties with respect to the terms, provisions, conditions and covenants of the Credit Agreement made the subject hereof. (b) Fees and Expenses. The Borrower and the Parent Guarantors jointly and severally agree to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution, and delivery of this Amendment and any other documents prepared in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent. (c) Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. (e) Counterparts and Amendment Effective Date. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such 11 counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective when each of the conditions precedent set forth in Section 3 of this Amendment have been satisfied (the "Amendment Effective Date"). (f) Affirmation of Guarantees. Notwithstanding that such consent is not required thereunder, each of the Parent Guarantors and the other Guarantors hereby consent to the execution and delivery of this Amendment and the Bastet/Mission Amendment and reaffirm their respective obligations under each of the Guaranty Agreements to which such Guarantors are parties. (g) Confirmation of Loan Documents and Liens. As a material inducement to the Banks to agree to grant the consents set forth herein, to amend the Credit Agreement as set forth herein and to enter into the Bastet/Mission Amendment, the Borrowers and the Guarantors hereby (i) acknowledge and confirm the continuing existence, validity and effectiveness of the Loan Documents to which they are parties, including, without limitation the Guaranty Agreements, the Security Documents, and the Liens granted under the Security Documents, (ii) agrees that the execution, delivery and performance of this Amendment and the Nexstar Amendment shall not in any way release, diminish, impair, reduce or otherwise adversely affect such Loan Documents and Liens and (iii) acknowledges and agrees that the Liens granted under the Security Documents secure payment of the Obligations under the Loan Documents in the same priority as on the date such Liens were created and perfected, and the performance and observance by the Borrowers and the other Credit Parties of the covenants, agreements and conditions to be performed and observed by each under the Credit Agreement, as amended hereby, and the Bastet Mission Credit Agreement, as amended by the Bastet/Mission Amendment. (h) FINAL AGREEMENT. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [Remainder of Page Intentionally Left Blank; Signature Pages Follow] 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers effective as of the Amendment Effective Date. BORROWER: NEXSTAR FINANCE, L.L.C. By: /s/ Shirley Green -------------------------------- Name: Shirley Green Title: Vice President, Finance PARENT GUARANTORS: NEXSTAR BROADCASTING GROUP, L.L.C. NEXSTAR BROADCASTING OF NORTHEASTERN PENNSYLVANIA, INC. NEXSTAR BROADCASTING OF JOPLIN, INC. NEXSTAR BROADCASTING OF ERIE, INC. NEXSTAR BROADCASTING OF BEAUMONT/PORT ARTHUR, INC. NEXSTAR BROADCASTING OF WICHITA FALLS, INC. NEXSTAR BROADCASTING OF ROCHESTER, INC. NEXSTAR BROADCASTING OF ABILENE, INC. ERC HOLDINGS, INC. NEXSTAR MIDWEST HOLDINGS, INC. NEXSTAR BROADCASTING OF CHAMPAIGN, INC. NEXSTAR BROADCASTING OF PEORIA, INC. NEXSTAR BROADCASTING OF MIDLAND-ODESSA, INC. NEXSTAR BROADCASTING OF LOUISIANA, INC. NEXSTAR FINANCE HOLDINGS, L.L.C. NEXSTAR FINANCE HOLDINGS II, L.L.C. NEXSTAR FINANCE HOLDINGS, INC. By: /s/ Shirley Green ------------------------------------ Name: Shirley Green Title: Vice President, Finance ADMINISTRATIVE AGENT AND BANKS: BANK OF AMERICA, N.A., as Administrative Agent and as a Bank By: /s/ Steven P. Renwick ------------------------------------ Name: Steven P. Renwick Title: Vice President BARCLAYS BANK PLC, as a Bank By: /s/ Daniele Iacovone ------------------------------------ Name: Daniele Iacovone Title: Director FIRST UNION NATIONAL BANK, as a Bank By: /s/ Lawrence P. Sullivan ------------------------------------ Name: Lawrence P. Sullivan Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as a Bank By: /s/ Michael J. Homeyer ------------------------------------ Name: Michael J. Homeyer Title: Vice President CIBC INC., as a Bank By: /s/ Joan S. Griffin ------------------------------------ Name: Joan S. Griffin Title: Executive Director ELC (Cayman) Ltd. 1999 - II ELC (Cayman) Ltd. 1999 - III ELC (Cayman) Ltd. 2000 - I APEX (IDM) CDO I, Ltd. TRYON CLO Ltd. 2000-I, as a Bank By: /s/ Mark K. Misenheimer ------------------------------------ Name: Mark K. Misenheimer Title: Senior Vice President OTHER GUARANTORS (for purposes of Section 5(f) and 5(g) hereof): NEXSTAR BROADCASTING OF ABILENE, L.L.C. NEXSTAR BROADCASTING OF BEAUMONT/ PORT ARTHUR, L.L.C. NEXSTAR BROADCASTING OF CHAMPAIGN, L.L.C. ENTERTAINMENT REALTY CORPORATION NEXSTAR BROADCASTING OF ERIE, L.L.C. NEXSTAR BROADCASTING OF JOPLIN, L.L.C. NEXSTAR BROADCASTING OF LOUISIANA, L.L.C. NEXSTAR BROADCASTING OF MIDLAND-ODESSA, L.L.C. NEXSTAR BROADCASTING OF THE MIDWEST, INC. NEXSTAR BROADCASTING GROUP, INC. NEXSTAR BROADCASTING OF NORTHEASTERN PENNSYLVANIA, L.L.C. NEXSTAR FINANCE, INC. NEXSTAR BROADCASTING OF PEORIA, L.L.C. NEXSTAR BROADCASTING OF ROCHESTER, L.L.C. NEXSTAR BROADCASTING OF WICHITA FALLS, L.L.C. By: /s/ Shirley Green ----------------------------- Title: Vice President of Finance of each of the above-named entities BASTET BROADCASTING, INC. By: /s/ Nancie J. Smith ----------------------------- Name: Nancie J. Smith Title: Vice President MISSION BROADCASTING OF WICHITA FALLS, INC. By: /s/ Nancie J. Smith ----------------------------- Name: Nancie J. Smith Title: Vice President MISSION BROADCASTING OF JOPLIN, INC. By: /s/ Nancie J. Smith ----------------------------- Name: Nancie J. Smith Title: Vice President EX-10.8 4 dex108.txt 3RD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.8 THIRD AMENDMENT TO CREDIT AGREEMENT, LIMITED CONSENT AND ASSUMPTION AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT, LIMITED CONSENT AND ASSUMPTION AGREEMENT (this "Amendment"), dated as of November 14, 2001, is among BASTET BROADCASTING, INC., a Delaware corporation ("Bastet"), MISSION BROADCASTING OF WICHITA FALLS, INC., a Delaware corporation ("Mission Wichita Falls" and together with Bastet, collectively, the "Original Borrowers"), MISSION BROADCASTING OF JOPLIN, INC., a Delaware corporation ("Mission Joplin" and together with the Original Borrowers, collectively, the "Borrowers"), the several Banks (as such term is defined in the hereinafter described Credit Agreement) parties to this Amendment, and BANK OF AMERICA, N.A., as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). R E C I T A L S: A. The Original Borrowers are parties to a Credit Agreement dated as of January 12, 2001 (as amended by the First Amendment to Credit Agreement dated as of May 17, 2001, the Second Amendment to Credit Agreement dated as of June 14, 2001, and as the same may be further amended, modified, restated, supplemented, renewed, extended, increased, rearranged and/or substituted from time to time, the "Credit Agreement") among the Original Borrowers, the Administrative Agent, Barclays Bank PLC, as Syndication Agent, First Union National Bank, as Documentation Agent, and the several Banks from time to time parties thereto. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. B. Each of the Original Borrowers is a direct Wholly-Owned Subsidiary of David Smith ("Smith"). C. Subsequent to the date of the Credit Agreement, Smith formed Mission Joplin as a Wholly-Owned Subsidiary. D. The Original Borrowers and Mission Joplin have requested that Mission Joplin be added as a "Borrower" under the Credit Agreement, as such term is defined therein, subject to all liabilities and entitled to all privileges of a Borrower thereunder, in exchange for Mission Joplin's assumptions of all Obligations thereunder. E. In addition, the Borrowers have advised the Administrative Agent that they wish to effect the following transactions (the "Proposed Transactions"): (i) the purchase by Mission Joplin of commercial television broadcast station KODE-TV, Joplin, Missouri (the "Station") and all related assets necessary to operate the Station (collectively, the "Specified Assets"), from GOCOM Broadcasting of Joplin, LLC, a Delaware limited liability company and GOCOM of Joplin License Sub, LLC, a Delaware limited liability company (collectively, the "Sellers") for an aggregate cash purchase price not to exceed $14,000,000, upon and subject to the terms and conditions of a purchase and sale agreement and related documents, each substantially in the form previously provided by the Borrowers to the Administrative Agent (the "Asset Purchase Documents", and the purchase of the Specified Assets, the "Proposed Asset Purchase"); (ii) the execution, delivery and performance by Mission Joplin and the Sellers of a Time Brokerage Agreement with respect to the Station, substantially in the form previously provided by the Borrowers to the Administrative Agent (the "KODE TBA" ); and (iii) the execution, delivery and performance by Mission Joplin and Nexstar Broadcasting of Joplin L.L.C. ("Nexstar Joplin") of a Shared Services Agreement with respect to the Station, substantially in the form previously provided by the Borrowers to the Administrative Agent (the "KODE SSA"). F. The written consent of Majority Banks is required prior to the consummation of the Proposed Transactions pursuant to Section 8.04(d) of the Credit Agreement inasmuch as the Consolidated Total Leverage Ratio immediately prior to the consummation of such transactions is greater than 5:00:1:00. G. Accordingly, the Borrowers have further requested that the Banks (i) consent to the consummation of the Proposed Transactions and (ii) in connection therewith, increase the Aggregate Commitments under the Credit Agreement from $43,000,000 to $58,000,000, in each case as more fully set forth herein. H. The several Banks party to this Amendment are willing to consent to the Proposed Transactions and to amend the Credit Agreement as set forth herein, subject in each case to the performance and observance in full of each of the terms and conditions and in reliance upon the representations and warranties of the Borrowers set forth hereinbelow. NOW, THEREFORE, in consideration of the premises and the covenants, terms, conditions, representations and warranties herein contained, the parties hereto agree hereby as follows: Section 1. AMENDMENTS. Subject to the covenants, terms and conditions set forth herein and in reliance upon the representations and warranties of the Borrowers herein contained, the Borrowers and the several Banks parties to this Amendment hereby agree to amend the Credit Agreement as of the Amendment Effective Date (as hereinafter defined) as follows: (a) Amendment to Add Additional Borrower. The Credit Agreement is hereby amended to add Mission Joplin as a Borrower for all purposes thereunder. Pursuant to such addition, Mission Joplin, the Original Borrowers, the Banks and the Administrative Agent are each hereby bound from and after the Amendment Effective Date by all of the provisions of the Credit Agreement, and for all purposes the provisions of the Credit Agreement shall pertain to 2 Mission Joplin as a Borrower thereunder to the same extent as if Mission Joplin had originally been a party thereto. (b) Amendment to Definition of Borrower. Pursuant to the amendment contained in Section 1(a) above, the definitions of "Borrower" and "Borrowers" contained in the preamble and Section 1.01 of the Credit Agreement are amended to include Mission Joplin. (c) Amendment to Increase Commitments. Schedule 2.01 to the Credit Agreement is hereby deleted in its entirety and Schedule 2.01 attached hereto is inserted in lieu thereof and the Commitments of the Banks are hereby increased as reflected therein. (d) Amendment to Definition of Loan Documents. Section 1.01 is amended by inserting the following proviso at the end of the existing definition of "Loan Documents": "provided, that, for the purposes of Sections 9.02 and 12.01 of this Agreement, the term "Loan Documents" shall not include any Interest Rate Protection Agreement with any Bank or any Affiliate of any Bank" (e) Amendment to Section 12.07. Section 12.07(a) is amended by inserting the following sentence to the end thereof: "The Borrowers and the Administrative Agent hereby grant the consent required by the immediately preceding sentence with respect to any assignment that any Bank may from time to time make to any Affiliate or any Related Fund of such Bank or any assignment that any Bank may from time to time to any other Bank or any Affiliate or Related Fund of any other Bank provided that the Borrowers and the Administrative Agent are each given at least three (3) Business Days' written notice prior to the effective date of such assignment." The amendments set forth in this Section 1 are limited to the extent specifically set forth above and no other terms, covenants or provisions of the Credit Agreement are intended to be effected hereby. Section 2. ASSUMPTION. Mission Joplin hereby expressly and unconditionally ratifies and assumes (a) all of the Obligations of the Borrowers under the Credit Agreement, including, without limitation, the Borrowers' obligations under Sections 2.01. 2.07, 2.12, 10.01 and 12.05 of the Credit Agreement, as if Mission Joplin had been an original party to the Credit Agreement and (b) the due and punctual performance and observance of all of the obligations to be performed and provisions to be observed by the Borrowers under the Credit Agreement. Mission Joplin specifically acknowledges and agrees that such assumption pertains to all Obligations under the Credit Agreement notwithstanding that a portion of such Obligations are outstanding prior to the effective date of this Amendment. Section 3. LIMITED CONSENT. Subject to the terms and conditions set forth in this Amendment, and in reliance upon the representations and warranties of the Borrowers made herein, the several Banks parties to this Amendment hereby: 3 (a) consent to (i) the Proposed Asset Purchase pursuant to and in accordance with the Asset Purchase Documents for an aggregate cash purchase price of not more than $14,000,000, and (ii) the execution, delivery and performance by Mission Joplin of the KODE TBA and the KODE SSA, each of which consents is granted pursuant to and in satisfaction of the consent requirements set forth in Section 8.04(d) of the Credit Agreement, provided, that (i) the Borrowers and the Proposed Transactions otherwise comply in all respects with all other requirements set forth in such Section 8.04(d) and all other requirements set forth elsewhere in the Credit Agreement or in any of the other Loan Documents, and (ii) any revisions to any of the Asset Purchase Documents, the KODE TBA or the KODE SSA from the forms previously provided by the Borrowers to the Administrative Agent, and any additional agreements or instruments executed in connection therewith, shall be in form and substance satisfactory to the Administrative Agent, in its sole discretion; (b) consent to the execution, delivery and performance by the parties thereto of the First Amendment to Amended and Restated Credit Agreement and Limited Consent dated as of even date herewith relative to the Nexstar Credit Agreement (the "Nexstar Amendment"), and all transactions described therein. The consents set forth in this Section 3 are limited to the extent specifically set forth above and no other terms, covenants or provisions of the Credit Agreement are intended to be effected hereby. Section 4. CONDITIONS PRECEDENT. The parties hereto agree that the consents contained herein shall not be effective until the satisfaction of each of the following conditions precedent: (a) Execution and Delivery of this Amendment. The Administrative Agent shall have received a copy of this Amendment executed and delivered by each of the applicable Credit Parties and by all Banks necessary for the effectiveness of each of the amendments and consents set forth herein pursuant to Section 12.01 of the Credit Agreement. (b) Representations and Warranties. Each of the representations and warranties made in this Amendment shall be true and correct on and as of the Amendment Effective Date as if made on and as of such date, both before and after giving effect to this Amendment. (c) Effectiveness of First Amendment to Nexstar Credit Agreement. All conditions precedent to the effectiveness to the First Amendment to Credit Agreement and Limited Consent dated as of even date herewith concerning the Nexstar Credit Agreement (the "Nexstar Amendment") shall have been satisfied in a manner reasonably satisfactory to the Administrative Agent of such credit facility. (d) Amended and Restated Promissory Notes. All Banks that previously requested and received promissory notes pursuant to Section 2.02(b) of the Credit Agreement shall have received amended and restated promissory notes executed and delivered by the Borrowers, 4 which promissory notes reflect a face amount equal to the Commitment of such Bank under the Credit Agreement, as increased by this Amendment, and are otherwise in a form prescribed by the Administrative Agent. Such Notes shall be secured by and entitled to all of the rights and benefits of the Credit Agreement and the other Loan Documents. (e) Legal Opinions and Additional Loan Documentation. The Administrative Agent shall have received each of the items set forth in this Section 4(e) below, each in form and substance reasonably satisfactory to the Administrative Agent and the Banks with increased Commitments hereunder and in sufficient copies for each such Bank: (i) Legal Opinions. (A) An opinion of Arter & Hadden, counsel to the Borrowers, addressed to the Administrative Agent and the Banks, which opinion shall cover such matters incident to the transactions contemplated herein and in the other Loan Documents as the Administrative Agent may reasonably request and shall be in form and substance reasonably satisfactory to the Administrative Agent; and (B) an opinion of Kirkland & Ellis, counsel to the Nexstar Entities and special counsel to the Borrowers, addressed to the Administrative Agent and the Banks, which opinion shall cover such matters incident to the transactions contemplated herein and in the other Loan Documents as the Administrative Agent may reasonably request and shall be in form and substance reasonably satisfactory to the Administrative Agent. (ii) Closing Certificates. A Closing Certificate of each Credit Party, dated as of the Amendment Effective Date, substantially in the form of Exhibit J to the Credit Agreement, duly executed by a Responsible Officer and the Secretary or any Assistant Secretary of each Credit Party, together with: (A) original certificates of existence and good standing, dated not more than 10 days prior to the Amendment Effective Date, from appropriate officials of each Credit Party's respective state of incorporation or organization and certificates of good standing and authority to do business, dated not more than 10 days prior to Amendment Effective Date, from appropriate officials of any and all jurisdictions where each Credit Party's property or business makes qualification to transact business therein necessary and where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect; (B) copies of Board Resolutions of each Credit Party approving the Loan Documents to which such Credit Party is a party and authorizing the transactions contemplated herein and therein, duly adopted at a meeting of, or by the unanimous written consent of, the Board of Directors of such Credit Party; and (C) a copy of all Charter Documents of each Credit Party. The articles/certificate of incorporation (or equivalent limited liability company document) of each Credit Party shall be accompanied by an original certificate 5 issued by the Secretary of the State of incorporation or organization of such Credit Party, dated not more than 10 days prior to the Amendment Effective Date, certifying that such copy is correct and complete. (iii) Mission Joplin Loan Documents. Such amendments and joinders to the existing Loan Documents and such additional Loan Documents as the Administrative Agent shall request, including, without limitation, a Joinder to Pledge Agreement, a Joinder to Security Agreement and such other Security Documents as are requested by the Collateral Agent in order grant to the Collateral Agent, for the benefit of the Banks, a duly perfected, first priority security interest in and Lien on all real and personal property of Mission Joplin and a duly perfected, first priority pledge of the Capital Securities of Mission Joplin. (iv) Other Documents. Such other approvals, opinions or documents, including financing statements, as the Administrative Agent or any Bank may request. (f) Fees and Expenses. The Administrative Agent shall have received for its own account and for the account of each Bank party to this Amendment, an amendment fee for each Bank party to this Amendment (collectively, the "Amendment Fees") in an amount equal to the product of (i) 0.125%, multiplied by, (ii) the sum of the amount of such Bank's Commitment, as computed on the Amendment Effective Date after to giving effect to any increases to such Bank's Commitment hereunder. The Amendment Fees shall be nonrefundable and shall be deemed to have been earned in full when this Amendment has been executed and delivered to the Administrative Agent by the Borrowers and Lenders constituting the Majority Lenders, whether or not the Amendment Effective Date occurs. In addition, the Borrowers shall pay the estimated fees, costs and out-of-pocket expenses incurred by counsel to the Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Amendment, the Bastet/Mission Amendment, and all transaction contemplated hereby and thereby. Section 5. REPRESENTATIONS AND WARRANTIES. To induce the Administrative Agent and the several Banks parties hereto to enter into this Amendment and to agree to grant the consents and make the amendments contained herein and in the Nexstar Amendment, each of the Borrowers represents and warrants to the Administrative Agent and the Banks as follows: (a) Authorization; No Contravention. The execution, delivery and performance by the Borrowers of this Amendment have been duly authorized by all necessary partnership, corporate or limited liability company action, as applicable, and do not and will not (i) contravene the terms of any Charter Documents of the Borrowers, (ii) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which any Borrower is a party or any order, injunction, writ or decree of any Governmental Authority to which any Borrower is a party or its property is subject, or (iii) violate any Requirement of Law. (b) Governmental Authorization. No approval, consent, exemption, authorization or other action by, or notice to, or filing with or approvals required under state blue sky securities 6 laws or by any Governmental Authority is necessary or required in connection with the execution, delivery, performance or enforcement of this Amendment. (c) No Default. Upon and after the Amendment Effective Date hereof, no Default or Event of Default exists or is reasonably expected to occur under any of the Loan Documents. No Borrower is in default under or with respect to (i) its Charter Documents or (ii) any material Contractual Obligation of such Person. The execution, delivery and performance of this Amendment shall not result in any default under any Contractual Obligation of any Borrower in any respect. (d) Binding Effect. This Amendment constitutes the legal, valid and binding obligations of the Borrowers, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles of general applicability. (e) Representations and Warranties. The representations and warranties set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the Amendment Effective Date, both before and after giving effect to this Amendment, as if such representations and warranties were being made on and as of the Amendment Effective Date. Section 6. MISCELLANEOUS (a) Ratification and Confirmation of Loan Documents. Except for the specific consent and amendments expressly set forth in this Amendment, the terms, provisions, conditions and covenants of the Credit Agreement and the other Loan Documents remain in full force and effect and are hereby ratified and confirmed, and the execution, delivery and performance of this Amendment shall not in any manner operate as a waiver of, consent to or amendment of any other term, provision, condition or covenant of the Credit Agreement or any other Loan Document. Without limiting the generality of the foregoing, the consents set forth in Section 3 of this Amendment shall be limited precisely as set forth above, and nothing in this Amendment shall be deemed (i) to constitute a waiver of compliance or consent to noncompliance by any of the Credit Parties with respect to any other term provision, condition or covenant of the Credit Agreement or other Loan Documents; (ii) to prejudice any right or remedy that the Administrative Agent or the Banks may now have or may have in the future under or in connection with the Credit Agreement or any other Loan Document; or (iii) to constitute a waiver of compliance or consent to noncompliance by any of the Credit Parties with respect to the terms, provisions, conditions and covenants of the Credit Agreement made the subject hereof. (b) Fees and Expenses. The Borrowers jointly and severally agree to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution, and delivery of this Amendment and any other documents prepared in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent. 7 (c) Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. (e) Counterparts and Amendment Effective Date. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective when each of the conditions precedent set forth in Section 4 of this Amendment have been satisfied (the "Amendment Effective Date"). (f) Affirmation of Guarantees. Notwithstanding that such consent is not required thereunder, the undersigned Guarantors hereby consent to the execution and delivery of this Amendment and Nexstar Amendment and reaffirm their respective obligations under each of the Guaranty Agreements to which such Guarantors are parties. (g) Confirmation of Loan Documents and Liens. As a material inducement to the Banks to agree to grant the consents set forth herein, to amend the Credit Agreement as set forth herein and to enter into the Nexstar Amendment, the Original Borrowers and the Guarantors hereby (i) acknowledge and confirm the continuing existence, validity and effectiveness of the Loan Documents to which they are parties, including, without limitation the Guaranty Agreements, the Security Documents, and the Liens granted under the Security Documents, (ii) agrees that the execution, delivery and performance of this Amendment and the Nexstar Amendment shall not in any way release, diminish, impair, reduce or otherwise adversely affect such Loan Documents and Liens and (iii) acknowledges and agrees that the Liens granted under the Security Documents secure payment of the Obligations under the Loan Documents (including the all Loans made pursuant to the Commitments as increased hereby) in the same priority as on the date such Liens were created and perfected, and the performance and observance by the Borrowers and the other Credit Parties of the covenants, agreements and conditions to be performed and observed by each under the Credit Agreement, as amended hereby, and Nexstar Credit Agreement, as amended by the Nexstar Amendment. In furtherance of the foregoing, from and after the Amendment Effective Date the terms "Borrower" and "Borrowers" as used in the Loan Documents to which the Original Borrowers and the Guarantors are parties shall include Mission Joplin for all purposes. (h) FINAL AGREEMENT. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR 8 SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [Remainder of Page Intentionally Left Blank; Signature Pages Follow] 9 Exhibit 10.8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers effective as of the Amendment Effective Date. BORROWERS: BASTET BROADCASTING, INC. By: /s/ Nancie J. Smith --------------------------------------- Name: Nancie J. Smith Title: Vice President MISSION BROADCASTING OF WICHITA FALLS, INC. By: /s/ Nancie J. Smith --------------------------------------- Name: Nancie J. Smith Title: Vice President MISSION BROADCASTING OF JOPLIN, INC. By: /s/ Nancie J. Smith --------------------------------------- Name: Nancie J. Smith Title: Vice President ADMINISTRATIVE AGENT AND BANKS: BANK OF AMERICA, N.A., as Administrative Agent and as a Bank By: /s/ Steven P. Renwick --------------------------------------- Name: Steven P. Renwick Title: Vice President BARCLAYS BANK PLC, as a Bank By: /s/ Daniele Iacovone --------------------------------------- Name: Daniele Iacovone Title: Director FIRST UNION NATIONAL BANK, as a Bank By: /s/ Lawrence P. Sullivan --------------------------------------- Name: Lawrence P. Sullivan Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as a Bank By: /s/ Michael J. Homeyer --------------------------------------- Name: Michael J. Homeyer Title: Vice President CIBC INC., as a Bank By: /s/ Joan S. Griffin --------------------------------------- Name: Joan S. Griffin Title: Executive Director GUARANTORS (for purposes of Section 6(f) and Section 6(g) hereof): NEXSTAR BROADCASTING GROUP, L.L.C. NEXSTAR FINANCE, L.L.C. NEXSTAR BROADCASTING OF NORTHEASTERN PENNSYLVANIA, INC. NEXSTAR BROADCASTING OF JOPLIN, INC. NEXSTAR BROADCASTING OF ERIE, INC. NEXSTAR BROADCASTING OF BEAUMONT/PORT ARTHUR, INC. NEXSTAR BROADCASTING OF WICHITA FALLS, INC. NEXSTAR BROADCASTING OF ROCHESTER, INC. NEXSTAR BROADCASTING OF ABILENE, INC. ERC HOLDINGS, INC. NEXSTAR MIDWEST HOLDINGS, INC. NEXSTAR BROADCASTING OF CHAMPAIGN, INC. NEXSTAR BROADCASTING OF PEORIA, INC. NEXSTAR BROADCASTING OF MIDLAND-ODESSA, INC. NEXSTAR BROADCASTING OF LOUISIANA, INC. NEXSTAR FINANCE HOLDINGS, L.L.C. NEXSTAR FINANCE HOLDINGS II, L.L.C. NEXSTAR FINANCE HOLDINGS, INC. NEXSTAR BROADCASTING OF ABILENE, L.L.C. NEXSTAR BROADCASTING OF BEAUMONT/ PORT ARTHUR, L.L.C. NEXSTAR BROADCASTING OF CHAMPAIGN, L.L.C. ENTERTAINMENT REALTY CORPORATION NEXSTAR BROADCASTING OF ERIE, L.L.C. NEXSTAR BROADCASTING OF JOPLIN, L.L.C. NEXSTAR BROADCASTING OF LOUISIANA, L.L.C. NEXSTAR BROADCASTING OF MIDLAND-ODESSA, L.L.C. NEXSTAR BROADCASTING OF THE MIDWEST, INC. NEXSTAR BROADCASTING GROUP, INC. NEXSTAR BROADCASTING OF NORTHEASTERN PENNSYLVANIA, L.L.C. NEXSTAR FINANCE, INC. NEXSTAR BROADCASTING OF PEORIA, L.L.C. NEXSTAR BROADCASTING OF ROCHESTER, L.L.C. NEXSTAR BROADCASTING OF WICHITA FALLS, L.L.C. By: /s/ Shirley Green ------------------------------------- Title: Vice President, Finance of each of the above-named entities Exhibit 10.8 SCHEDULE 2.01 COMMITMENTS Bank Revolving Commitment ---- -------------------- Bank of America, N.A. $20,247,272.70 Barclays Bank PLC $11,600,000.00 CIBC Inc. $7,170,909.10 U.S. Bank National Association $9,490,909.10 First Union National Bank $9,490,909.10 -------------- TOTAL: $58,000,000.00 EX-10.20 5 dex1020.txt 2ND AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10.20 TO: Shirley E. Green FR: Perry A. Sook RE: 2nd Amendment to Your Employment Agreement DA: 2/6/02 This memorandum will serve as the second addendum to your employment agreement with Nexstar Broadcasting Group, Inc., dated January 5, 1999. Section 2., Term of Employment, is hereby extended through February 28, 2005. Section 4(a), Base Salary, is hereby amended as follows: From March 1, 2002 through February 28, 2003 your base salary will be $100,000. From March 1, 2003 through February 28, 2004 your base salary will be $110,000. From March 1, 2004 through February 28, 2005 your base salary will be $120,000. Section 4(b) Bonus, is hereby amended to reflect annual bonus targets as follows After the 2002 Fiscal Year: $10,000. After the 2003 Fiscal Year: $15,000. After the 2004 Fiscal Year: $20,000. All other terms and conditions of your employment agreement remain in full force and effect. Sincerely, /s/ Perry A. Sook Perry A. Sook [NEXSTAR LOGO APPEARS HERE] 200 Abington Executive Park, Suite 201 Clarks Summit, PA 18411 (570)586-5400 fax (570)586-8745 Accepted and Agreed /s/ Shirley E. Green __________________________________ Shirley E. Green Vice President -- Finance and Secretary EX-10.24 6 dex1024.txt PURCHASE AND SALE AGREEMENT EXHIBIT 10.24 Execution Copy PURCHASE AND SALE AGREEMENT BY AND BETWEEN MISSION BROADCASTING OF JOPLIN, INC. "BUYER" AND GOCOM BROADCASTING OF JOPLIN, LLC AND GOCOM OF JOPLIN LICENSE SUB, LLC "SELLERS" Dated as of December 31, 2001 TABLE OF CONTENTS ARTICLE I DEFINITIONS........................................................1 1.1 Definitions......................................................1 1.2 Singular/Plural; Gender..........................................9 ARTICLE II PURCHASE AND SALE................................................10 2.1 Purchase and Sale...............................................10 2.2 Payment of Purchase Price.......................................10 2.3 Closing Date Deliveries.........................................10 2.4 Proration; Adjustments to Purchase Price........................10 2.5 Taxes...........................................................13 2.6 [Intentionally Omitted].........................................13 2.7 Allocation of Purchase Price....................................13 2.8 Access..........................................................13 2.9 Accounts Receivable.............................................14 ARTICLE III GOVERNMENTAL APPROVALS AND CONTROL OF STATION...................15 3.1 FCC Consent.....................................................15 3.2 Control Prior to Closing........................................15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS........................15 4.1 Organization....................................................15 4.2 Authorization; Enforceability...................................16 4.3 Absence of Conflicting Agreements...............................16 4.4 Purchased Assets................................................17 4.5 Title to Purchased Assets; Liens and Encumbrances...............17 4.6 Equipment.......................................................17 4.7 The Contracts...................................................17 4.8 Intangible Property.............................................18 4.9 Real Property...................................................18 4.10 The Leases......................................................19 4.11 Financial Statements and Interim Financial Statements...........20 4.12 No Changes......................................................20 4.13 No Litigation; Labor Disputes; Compliance with Laws.............21 4.14 Taxes...........................................................22 4.15 Governmental Authorizations.....................................22 4.16 Compliance with FCC Requirements................................23 4.17 Insurance.......................................................23 4.18 Brokers.........................................................23 4.19 Employees.......................................................23 4.20 Financial Benefit Plans.........................................23 4.21 Environmental Compliance........................................24 4.22 Affiliation Agreement...........................................25 -i- ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER...........................25 5.1 Organization....................................................25 5.2 Authorization; Enforceability...................................25 5.3 Absence of Conflicting Laws and Agreements......................26 5.4 Brokers.........................................................26 5.5 FCC Qualification...............................................26 5.6 Financing.......................................................26 5.7 Due Diligence...................................................26 5.8 Absence of Litigation...........................................27 ARTICLE VI CERTAIN MATTERS PENDING THE CLOSING..............................27 6.1 Notice of Adverse Changes.......................................27 6.2 Operations Pending Closing......................................27 6.3 Reports.........................................................28 6.4 Consents........................................................28 6.5 Cooperation; Reasonable Efforts; Release........................28 6.6 Tax Returns and Payments........................................29 6.7 Release of Liens................................................29 6.8 Public Announcement.............................................29 6.9 Exclusivity.....................................................30 6.10 Real Estate Matters.............................................30 6.11 Access and Information..........................................30 ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER................31 7.1 Compliance with Agreement.......................................31 7.2 Representations and Warranties..................................31 7.3 Deliveries at Closing...........................................32 7.4 Other Documents.................................................32 7.5 [Intentionally deleted.]........................................32 7.6 Absence of Investigations and Proceedings.......................32 7.7 FCC Consent.....................................................32 7.8 Licenses........................................................32 7.9 Release of Liens................................................32 ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS.............33 8.1 Compliance with Agreement.......................................33 8.2 Representations and Warranties..................................33 8.3 Deliveries at Closing...........................................33 8.4 Other Documents.................................................33 8.5 Absence of Investigations and Proceedings.......................33 8.6 Governmental Consents...........................................33 8.7 Required Consent and Release....................................33 ARTICLE IX INDEMNIFICATION..................................................34 9.1 Survival of Representations and Warranties......................34 -ii- 9.2 Survival of Covenants and Agreements............................34 9.3 Indemnification by Sellers......................................34 9.4 Indemnification by Buyer........................................35 9.5 Remedies........................................................36 9.6 Certain Limitations of Liability................................37 9.7 Survival........................................................37 9.8 Determination of Loss and Amount................................37 ARTICLE X FURTHER AGREEMENTS................................................38 10.1 Event of Loss...................................................38 10.2 Station Employees...............................................38 10.3 Non-Competition.................................................39 ARTICLE XI TERMINATION; MISCELLANEOUS.......................................39 11.1 Termination.....................................................39 11.2 Rights on Termination; Waiver...................................40 11.3 Further Assurances..............................................41 11.4 Survival........................................................41 11.5 Entire Agreement; Amendment; Waivers............................41 11.6 Expenses........................................................42 11.7 Benefit; Assignment.............................................42 11.8 Confidentiality.................................................42 11.9 Notices.........................................................43 11.10 Counterparts; Headings..........................................44 11.11 Income Tax Position.............................................44 11.12 Severability....................................................44 11.13 No Reliance.....................................................44 11.14 Judicial Interpretation.........................................45 11.15 Saturdays, Sundays and Legal Holidays...........................45 11.16 Governing Law...................................................45 EXHIBITS Assumption Agreement.................................................Exhibit A Bill of Sale and Assignment..........................................Exhibit B Buyer's Closing Certificate..........................................Exhibit C Buyer's Performance Certificate......................................Exhibit D Assignment and Assumption of Contracts...............................Exhibit E Assignment and Assumption of Leases..................................Exhibit F Sellers' Closing Certificate.........................................Exhibit G Sellers' Performance Certificate.....................................Exhibit H Assignment and Assumption of Registered Trademarks...................Exhibit I -iii- SCHEDULES 1.1 Assumed Liabilities 1.2 Contracts 1.2A Available Program Runs 1.3 Copyrights 1.4 Equipment 1.5 Leases 1.6 Licenses 1.7 Motor Vehicles 1.8 Permitted Liens 1.9 Real Property 1.10 Retained Assets 1.11 Trademarks 4.3 Conflicting Agreements of Sellers 4.5 Title Exceptions/Locations - Personal Property 4.7 Contract Exceptions 4.8 Intangible Property Exceptions 4.9 Real Property Exceptions 4.10 Lease Exceptions 4.11(a) Financial Statements 4.11(b) Interim Financial Statements 4.12 Changes 4.13 Litigation 4.14 Tax Exceptions 4.15 FCC License Exceptions 4.16 FCC Equipment Exceptions 4.17 Insurance 4.19 Employees 4.20 Financial Benefit Plans 4.21 Environment 5.3 Conflicts of Buyer 7.6 Investigations and Proceedings 8.7 Required Consents and Releases -iv- PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT is made this 31st day of December, 2001, by and between GOCOM Broadcasting of Joplin, LLC, a Delaware limited liability company ("Non-License Seller"), GOCOM of Joplin License Sub, LLC, a Delaware limited liability company ("License Seller") (each a "Seller" and collectively, "Sellers"), and Mission Broadcasting of Joplin, Inc., a Delaware corporation ("Buyer"). R E C I T A L S: A. The License Seller owns those licenses, permits and authorizations issued by the FCC, together with certain related assets (collectively, the "FCC License Assets") relating to commercial television broadcast Station KODE-TV, in Joplin, Missouri (the "Station") B. Non-License Seller owns the assets of the Station, other than the FCC License Assets. C. Sellers are willing to sell to Buyer and Buyer is willing to purchase from Sellers, substantially all of the assets, business, properties and rights of Sellers related to the conduct of the Station on the terms and subject to the conditions set forth herein. D. Sellers and Buyer are entering into a Time Brokerage Agreement ("TBA Agreement") simultaneously with the execution and delivery of this Agreement pursuant to which Buyer will provide programming to the Station and sell advertising time related to such programming, and Seller will air such programming and advertising, subject to the terms of the TBA Agreement. NOW, THEREFORE, in consideration of the Recitals and of the mutual covenants, conditions and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Except as specified otherwise, when used in this Agreement, the following terms shall have the meanings specified: "ABC" shall mean American Broadcasting Companies, Inc. "Accounts Payable" shall mean all accounts payable of Sellers (other than Tradeout Payables) related to the Station as of any date or time of determination as determined in accordance with generally accepted accounting principles and Section 2.4; provided that in no event shall "Accounts Payable" include the accrued vacation of employees; "Accounts Receivable" shall mean all accounts receivable of Sellers (other than Tradeout Receivables) related to the Station as of any date or time of determination as determined in accordance with generally accepted accounting principles and Section 2.4; "Adjustment Amount" shall have the meaning set forth in Section 2.4(d); "Adjustment List" shall have the meaning set forth in Section 2.4(d); "Adjustment Time" shall have the meaning set forth in Section 2.4(a); "Affiliate" of a Person shall mean any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person; "Affiliation Agreement" shall mean the network affiliation agreement by and between ABC and Eastern Broadcasting Corporation, predecessor-in-interest of Sellers, dated as of November 22, 1995, as amended and supplemented. "Agreement" shall mean this Purchase and Sale Agreement, together with the Schedules and the Exhibits attached hereto, as the same shall be amended from time to time in accordance with the terms hereof; "Assumed Contract" shall mean any Contract described in clause (b) of the definition of the term "Assumed Liabilities"; "Assumed Liabilities" shall mean (a) the liabilities of Sellers, if any, listed on Schedule 1.1; (b) the obligations of Sellers under (i) the Contracts listed on Schedule 1.2, (ii) Contracts not required pursuant to Section 4.7 to be listed on Schedule 1.2 (other than Contracts described in clauses (iii) or (iv) of Section 4.7(a)), (iii) Contracts entered into after the date hereof and prior to the Closing Date in accordance with this Agreement, and (iv) the Leases, in each case arising from and accruing with respect to the operation of the Station after the Closing Date, and in each case except those Contracts and Leases, if any, included in the Retained Assets; (c) the liabilities, obligations and claims resulting from the operation of the Station following (i) the Adjustment Time and prior to the Closing Date to the extent such liabilities, obligations and claims have actually been taken into account in adjusting the Purchase Price pursuant to Section 2.4, and (ii) the effective time of the Closing; (d) liabilities under Permitted Liens and (e) Buyer's obligations and liabilities under Section 10.2; provided that, without affecting Sellers' rights under the TBA Agreement, Assumed Liabilities shall not include (A) liabilities of Sellers arising out of any facts, circumstances or actions that constitute a misrepresentation or breach of any warranty or covenant by Sellers made in this Agreement or the TBA Agreement, (B) the Sellers' obligations under this Agreement or the TBA Agreement, (C) liabilities arising out of the termination of employees of the Station prior to the Adjustment Time, (D) any indebtedness for borrowed money of the Sellers, (E) any income taxes incurred by the Sellers during the period of operations under the TBA Agreement, (F) any liabilities of Sellers resulting from, or arising out of, relating to, in the nature of or caused by any breach of contract, breach of warranty, tort, infringement, claim or lawsuit relating to any Assumed Contract for the period prior to the Adjustment Time, (G) the liabilities of Sellers for the accrued vacation of their employees, and (H) any liabilities and obligations under the Master Site Lease Agreement that is part of the SpectraSite Agreements which relate to the period prior to the Closing or relate to any property not included in the Purchased Assets or arise under Section 2.7 thereof (unless, with respect to such Section 2.7, Buyer's lenders consent to such assumption); -2- "Assumption Agreement" shall mean an instrument in the form of Exhibit "A" attached hereto by which the Assumed Liabilities shall be assumed by Buyer; "Benefit Arrangements" shall mean a benefit program or practice of Sellers providing for bonuses, incentive compensation, vacation pay, severance pay, insurance, restricted stock, stock options, employee discounts, company cars, tuition reimbursement or any other perquisite or benefit (including, without limitation, any fringe benefit under Section 132 of the Code) to employees, officers or independent contractors that is not a Plan; "Bill of Sale and Assignment" shall mean an instrument in the form of Exhibit "B" attached hereto, by which Sellers shall convey to Buyer title to the Customer Lists, the Equipment, the Intangible Property, the Licenses, the Miscellaneous Assets, the Motor Vehicles, the Records and the Trade Secrets; "Buyer's Closing Certificate" shall mean the certificate of Buyer in the form of Exhibit "C" attached hereto; "Buyer's Opinion of Counsel" shall mean the opinion of counsel of Buyer in a form reasonably acceptable to Buyer and Sellers; "Buyer's Performance Certificate" shall mean the certificate of Buyer in the form of Exhibit "D" attached hereto; "Cable Act" shall mean the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992), as amended; "Cash" shall mean all moneys of Sellers, whether in the form of cash, cash equivalents, marketable securities, short-term investments or deposits in bank or other financial institution accounts of any kind; "Closing" shall mean the conference to be held at 10:00 a.m., New York, New York time on the Closing Date at such place as the parties may mutually agree to in writing, at which time the transactions contemplated by this Agreement shall be consummated; "Closing Date" shall mean (a) September 30, 2002 or such later date on which a Final Order is issued, unless extended as provided in Section 7.1, or (b) such other date as Buyer and Sellers may agree upon in writing. The Closing shall be deemed effective as of 12:01 a.m., Joplin, Missouri time, on the Closing Date; "Code" shall mean the Internal Revenue Code of 1986, as amended; "Collections" shall have the meaning set forth in Section 2.9; "Collection Period" shall have the meaning set forth in Section 2.9; "Communications Act" means the Communications Act of 1934, as amended, together with the rules, regulations and policies of the FCC; -3- "Contract Assignment" shall mean the Assignment and Assumption of Contracts, in the form of Exhibit "E" attached hereto, by which Sellers shall assign the Assumed Contracts to Buyer and Buyer shall assume the Assumed Liabilities arising under such Contracts; "Contracts" shall mean those agreements (other than those included in the Retained Assets and other than the Leases) under which the business of the Station is conducted by Sellers, whether written, oral or implied, including all contractual obligations incurred by Sellers for the Program Rights, including without limitation those agreements listed on Schedule 1.2; "Copyrights" shall mean all rights of Sellers to copyrights and copyright applications related to the Station, including without limitation those items described on Schedule 1.3; "Customer Lists" shall mean all lists, documents, written information and computer tapes and programs and other computer readable media used by or in Sellers' possession concerning past, present and potential purchasers of advertising or services from the Station; "Eligible Employees" shall have the meaning set forth in Section 10.2; "Environmental Laws" shall mean the rules and regulations of the FCC, the Environmental Protection Agency and any other federal, state or local government authority pertaining to human exposure to RF radiation and all applicable rules and regulations of federal, state and local laws, including statutes, regulations, ordinances, codes, and rules, as amended, relating to the discharge or removal of air pollutants, water pollutants or process waste water or hazardous or toxic substances, including, but not limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, and the Occupational Safety and Health Act of 1970, each as amended, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, regulations of the Occupational Safety and Health Administration and regulations of any state department of natural resources or state environmental protection agency, now in effect; "Equipment" shall mean all machinery, equipment, furniture, fixtures, furnishings, toolings, parts, blank films and tapes and other items of tangible personal property owned or leased by Sellers which are used or useable in the operation of the Station, including without limitation to those items listed on Schedule 1.4; "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; "Event of Loss" shall mean any loss, taking, condemnation, damage or destruction of or to any of the Purchased Assets or the Station; "FCC" means the Federal Communications Commission; "FCC Consent" shall mean action by the FCC granting its consent to the assignment of the Licenses from Sellers to Buyer; -4- "Final Order" shall mean an FCC Consent, with respect to which no action, request for stay, petition for rehearing or reconsideration, appeal or review by the FCC on its own motion is pending and as to which the time for filing or initiation of any such request, petition, appeal or review has expired; "Financial Statements" shall mean the financial statements of Sellers described in Section 4.11(a); "Financing Lease" shall mean any Lease that is properly characterized as a capitalized lease obligation in accordance with generally accepted accounting principles; "Hazardous Materials" shall mean any wastes, substances, or materials (whether solids, liquids or gases) that are deemed hazardous, toxic, pollutants, or contaminants, including without limitation, substances defined as "hazardous wastes," "hazardous substances," "toxic substances," "radioactive materials," or other similar designations in, or otherwise subject to regulation under, any Environmental Laws. "Hazardous Materials" includes but is not limited to polychlorinated biphenyls (PCB's) asbestos, lead-based paints, infectious wastes, radioactive materials and wastes and petroleum and petroleum products (including, without limitation, crude oil or any fraction thereof); "Indemnity Deductible" shall have the meaning set forth in Section 9.6(c); "Intangible Property" shall mean: (a) the Copyrights; (b) the Trademarks; (c) the Trade Secrets; (d) all of the rights of the Sellers in and to the call letters "KODE-TV" or "KODE"; and (e) all rights of Sellers in and to all slogans, phrases or logos of the Station; and (f) all goodwill associated therewith and with the other Purchased Assets; "Interim Financial Statements" shall mean the financial statements of Sellers described in Section 4.11(b); "Internet Web Sites" means all internet domain names of the Station, and all rights that the Station or Sellers has in the HTML content relating to the Station located and publicly accessible from those domain names, and the "visitor" email data base for those sites; "Knowledge of Sellers" or "to the Sellers' Knowledge" shall mean, collectively, the actual knowledge without independent investigation of (i) Ric Gorman, (ii) the Station's general manager, and (iii) the Station's business manager ("Knowledge of Sellers" or "to the Sellers' Knowledge" shall in no event involve any constructive knowledge of such individuals); "Lease Assignment" shall mean the Assignment and Assumption of Leases in the form of Exhibit "F" attached hereto, by which Sellers shall assign to Buyer the Leases or in the case of Leases of Real Property, in such other form as is reasonably acceptable to the Title Company; "Leases" shall mean those leases of Real Property and Equipment related to the Station as listed on Schedule 1.5; -5- "Licenses" shall mean all licenses, permits and authorizations issued by the FCC to Sellers for the operation of the Station and all auxiliary facilities licensed by the FCC for operation in connection with the Station, as listed on Schedule 1.6; "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, security interest, encumbrance, claim, lien, lease (including any capitalized lease) or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any of the Purchased Assets or the Station, including any agreement to give or grant any of the foregoing, any conditional sale or other title retention agreement and the filing of or agreement to give any financing statement with respect to any of the Purchased Assets or the Station under the Uniform Commercial Code of the State of Missouri or comparable law of any jurisdiction; "Material Adverse Effect" shall mean a material adverse effect on (i) the present or future business, operations, financial condition or results of operations of the Station, in each case taken as a whole, exclusive of (a) general changes to the national economy or the economy of the Station's Designated Market Area, (b) conditions affecting the national television broadcast industry generally or the television broadcast industry in the Station's Designated Market Area generally, and (c) the effects of the taking of any action expressly required by or contemplated under this Agreement or the TBA Agreement, or (ii) the ability of Sellers, taken as a whole, to perform their material obligations under this Agreement or the TBA Agreement; "Miscellaneous Assets" shall mean all tangible and intangible assets owned by, leased by or licensed to Sellers and used or useable in the operation of the Station and not otherwise specifically referred to in this Agreement, including any warranties related to any of the Purchased Assets, excepting therefrom only the Retained Assets; "Motor Vehicles" shall mean all motor vehicles owned by Sellers related to the operation of the Station including without limitation those listed on Schedule 1.7; "Motor Vehicle Title Certificates" shall mean the official evidences of title to the Motor Vehicles; "Parent" shall have the meaning set forth in Section 6.5; "Permitted Liens" shall mean (i) Liens imposed by any governmental authority for Taxes not yet due and/or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Sellers in accordance with GAAP; (ii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other non-consensual Liens arising in the ordinary course of business and securing amounts not yet due and payable or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Sellers in accordance with GAAP; (iii) pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (iv) deposits to secure the performance of any or all of the following: bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (v) easements, rights-of-way, restrictions and other similar encumbrances on real property incurred in the ordinary course of business, and -6- encroachments (whether or not in the ordinary course of business), which do not secure any monetary amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business thereon; and (vi) all of the exceptions reflected in Schedule 1.8 or the title insurance policies attached thereto, provided the Liens on the Purchased Assets granted to FINOVA Capital Corporation, as agent (collectively, the "Debtholders") are to be released at Closing. Schedule 1.8 also sets forth a list of the Liens described in clauses (i) and (ii) above as Liens which are being contested in good faith; "Person" shall mean any natural person, general or limited partnership, corporation, limited liability company or other entity; "Plan" shall mean any plan, program or arrangement, whether or not written, that is or was (a) an "employee benefit plan" as such term is defined in Section 3(3) of ERISA and (i) which was or is established or maintained by Sellers; (ii) to which Sellers contributed or was obligated to contribute or to fund or provide benefits; or (iii) which provides or promises benefits to any person who performs or who has performed services for Sellers and because of those services is or has been (A) a participant therein or (B) entitled to benefits thereunder; (b) an "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA, including, without limitation, any such plan that satisfies, or is intended by Sellers to satisfy, the requirements for tax qualification described in Section 401 of the Code; (c) a "multiemployer plan" as such term is defined in Section 3(37) of ERISA; or (d) an "employee welfare benefit plan" as such term is defined in Section 3(1) of ERISA; "Pre-TBA Receivables" shall have the meaning set forth in Section 2.9; "Program Contracts" shall have the meaning set forth in Section 2.4(b); "Program Payments" shall have the meaning set forth in Section 2.4(b); "Program Rights" shall mean all rights of Sellers presently existing or obtained prior to the Closing, in accordance with this Agreement, to broadcast television programs or shows as part of the Station's programming and for which Sellers are or will be obligated to compensate the vendor of such Program Rights, including all film and program barter agreements; "Purchased Assets" shall mean all rights of Sellers in, to and under all assets used or useable in the operation of the Station, including but not limited to (a) the Contracts; (b) the Customer Lists; (c) the Equipment; (d) the Intangible Property; (e) the Leases; (f) the Licenses; (g) the Miscellaneous Assets; (h) the Motor Vehicles; (i) the Real Property; (j) the Records; (k) the Trade Secrets; and (l) Internet Web Sites; in each case, other than the Retained Assets; "Purchase Price" shall mean the sum of Fourteen Million Dollars ($14,000,000.00), as adjusted pursuant to Section 2.4; "Real Property" shall mean the real property owned in fee simple or leasehold by Sellers more particularly described on Schedule 1.9, and all buildings, improvements and fixtures thereon, together with all strips and gores, rights of way, easements, strips and gores privileges -7- and appurtenances pertaining thereto, including any right, title and interest of Sellers in and to any street adjoining any portion of the Real Property; "Records" shall mean files and records, including schematics, technical information and engineering data, programming information, correspondence, books of account, employment records, customer files, purchase and sales records and correspondence, advertising records, files and literature, and FCC logs, files and records and other written materials of Sellers relating to the Station other than those that are Retained Assets; provided, however, that Records shall not mean or include the certificates of formation, limited liability company agreements, bylaws, qualifications to conduct business as a foreign limited liability company, arrangements with registered agents relating to foreign qualification, taxpayer and other identification numbers, seals, minute books, and other documents and records relating to the organization, maintenance and existence of Sellers as limited liability companies; "Retained Assets" shall mean (a) Cash; (b) Pre-TBA Receivables (subject to Buyer's right to collect and use the proceeds of same as provided in Section 2.9 hereof); (c) any and all claims of Sellers with respect to transactions prior to the Closing Date including, without limitation, claims for tax refunds and refunds of fees paid to the FCC, except to the extent any such item was taken into account in adjusting the Purchase Price pursuant to Section 2.4 or relates to Assumed Liabilities or the Purchased Assets; (d) all contracts of insurance entered into by Sellers; (e) all rights and obligations under any agreements listed on Schedule 1.10; (f) those other assets, if any, described on Schedule 1.10; (g) all assets related to Seller's Station Employee Benefit Plans; (h) the records and other documents described in the proviso to the definition of Records above; and (i) any of the rights of Sellers under this Agreement, the TBA Agreement and under any agreement or documents executed or to be executed in connection herewith or therewith or any side agreement between Sellers and Buyer entered into on or after the date of this Agreement; "Retained Liabilities" shall mean all the obligations and liabilities of Sellers whether now existing or previously or hereafter incurred other than the Assumed Liabilities; "Schedules" shall mean those schedules referenced to in this Agreement which have been bound in that separate volume executed by or on behalf of the parties, and delivered concurrently with the execution of this Agreement, which schedules and volume are hereby incorporated herein and made a part hereof; "Sellers' Closing Certificate" shall mean the certificate of Sellers in the form of Exhibit "G" attached hereto; "Sellers' Opinion of Counsel" means the legal opinion of counsel to Sellers addressed to Buyer in a form reasonably acceptable to Buyer and Sellers; "Sellers' Performance Certificate" shall mean the certificate of Sellers in the form of Exhibit "H" attached hereto; "SpectraSite Agreements" shall mean the lease, site and other agreements by and between SpectraSite Broadcast Towers, Inc. ("SpectraSite") and Non-License Seller and among -8- SpectraSite, Non-License Seller, GOCOM Holdings, LLC and its subsidiaries, in each case pertaining to KODE listed in Schedule 1.2 or Schedule 1.5; "Station" shall have the meaning set forth in the Recitals; "Station Employee Benefit Plans" shall mean any Plan or Benefit Arrangement in which any current, former or retired employee of the Sellers participates; "TBA Agreement" shall have the meaning set forth in the recitals; "Title Commitment" shall have the meaning set forth in Section 6.2; "Title Company" shall mean First American Title Insurance Company, or such other title insurance company reasonably acceptable to Sellers; "Title Policy" shall have the meaning set forth in Section 6.2; "Trade Secrets" shall mean all proprietary or confidential information of Sellers relating to the Station; "Trademarks" shall mean all of those names, trademarks, service marks, jingles, slogans, logos, trademark and service mark registrations and trademark and service mark applications owned, used, held for use, licensed by or leased by Sellers relating to the Station including without limitation those set forth on Schedule 1.11; "Trademark Assignment" shall mean an instrument, in the form of Exhibit "I" attached hereto, by which Sellers shall convey to Buyer the Trademarks; "Tradeout Agreement" shall mean any Contract pursuant to which Sellers have sold or traded commercial air time of the Station in consideration for any property or services in lieu of or in addition to Cash, excluding film and program barter agreements; "Tradeout Payables" means all obligations of Sellers arising under any Tradeout Agreement, whenever made; "Tradeout Receivables" means all current assets of Sellers that are goods or services receivable by any Seller arising under any Tradeout Agreement, whenever made; "Warranty Deed" shall mean a special or limited warranty deed in a form acceptable to the Title Company pursuant to which Sellers shall convey to Buyer at the Closing the Real Property owned by Sellers, subject only to Permitted Liens. 1.2 Singular/Plural; Gender. Where the context so requires or permits, the use of the singular form includes the plural, and the use of the plural form includes the singular, and the use of any gender includes any and all genders. Except as specifically set forth herein, all Section and Article references are to Sections and Articles of this Agreement. -9- ARTICLE II PURCHASE AND SALE 2.1 Purchase and Sale. At the Closing on the Closing Date, and upon all of the terms and subject to all of the conditions of this Agreement, Sellers shall sell, assign, convey, transfer and deliver to Buyer, and Buyer shall purchase the Purchased Assets, including all of Sellers' legal and equitable interests therein. Notwithstanding any provision of this Agreement to the contrary, Sellers shall not transfer, convey or assign to Buyer, but shall retain, all of its right, title and interest in and to the Retained Assets. 2.2 Payment of Purchase Price. (a) On the date of this Agreement, Buyer shall pay to Sellers, by wire transfer in immediately available funds, the sum of Six Million Dollars ($6,000,000.00); (b) At Closing, Buyer shall pay to Sellers, by wire transfer in immediately available funds, an amount equal to the Purchase Price (as adjusted pursuant to Section 2.4 below), less the amount paid pursuant to Section 2.2(a); and (c) At Closing, Buyer shall assume the Assumed Liabilities pursuant to the Assumption Agreement. 2.3 Closing Date Deliveries. At the Closing on the Closing Date: (a) Sellers shall deliver, or cause to be delivered to Buyer, properly executed and dated as of the Closing Date: (i) the Assumption Agreement; (ii) the Bill of Sale and Assignment; (iii) the Contract Assignment; (iv) the Lease Assignment; (v) the Motor Vehicle Title Certificates; (vi) Sellers' Closing Certificate; (vii) Sellers' Opinion of Counsel; (viii) Sellers' Performance Certificate; (ix) the Trademark Assignment; (x) the Warranty Deed; (xi) a certificate of existence or good standing with respect to each Seller from the Secretary of State of Delaware and with respect to Non-License Seller from the Secretary of State of Missouri; and (xii) such other documents as provided in Article VII hereof or as Buyer shall reasonably request; and (b) In addition to the payments described in Section 2.2, Buyer shall deliver, or cause to be delivered to Sellers, properly executed and dated as of the Closing Date: (i) the Assumption Agreement; (ii) the Bill of Sale and Assignment; (iii) Buyer's Closing Certificate; (iv) Buyer's Opinion of Counsel; (v) Buyer's Performance Certificate; (vi) the Contract Assignment; (vii) the Lease Assignment; (viii) the Trademark Assignment; (ix) a certificate of existence or good standing with respect to Buyer from the Secretaries of State of Delaware and Missouri; and (x) such other documents as provided in Article VIII hereof or as Sellers shall reasonably request. 2.4 Proration; Adjustments to Purchase Price. (a) For the purposes of (i) identifying the Purchased Assets, Retained Assets, Assumed Liabilities and Retained Liabilities, (ii) determining the adjustment to the Purchase Price, if any, to be made pursuant to this Section 2.4, and (iii) identifying the Pre-TBA -10- Receivables for the purpose of Section 2.9, all prepaid or deferred revenue, prepaid expenses, accrued income and accrued expenses of the Station as of 12:01 a.m., Joplin, Missouri time on the date hereof (the "Adjustment Time") shall, except as otherwise expressly provided herein, be adjusted and allocated between Sellers and Buyer to reflect the principle that all revenue, income and expenses (including, without limitation, accrued liabilities for vacation pay, sick pay, compensatory pay and similar amounts, and amounts that may become payable in respect of unlicensed software, whether or not Sellers' normally accrue such amounts) arising from the operation of the Station or relating to the Purchased Assets before the Adjustment Time shall be for the account of Sellers, and all revenue, income and expenses arising from the operation of the Station or relating to the Purchased Assets from and after the Adjustment Time shall be for the account of Buyer (under this Agreement or the TBA Agreement). Any and all rebates which, under any agreements in effect as of the Adjustment Time, may be payable after such date to any advertiser or other user of the Station's facilities, based in part on business, advertising or services prior to the Closing Date, shall be borne by Sellers and Buyer ratably in proportion to revenues received or volume of business done by each during the applicable period. Any and all agency commissions which are subject to adjustment after the Adjustment Time based on revenue, volume of business done or services rendered in part before the Adjustment Time and in part after the Adjustment Time shall be shared by Sellers, on the one hand, and Buyer, on the other hand, ratably in proportion to the revenue, volume of business done or services rendered, as the case may be, by each during the applicable period. (b) Treatment of Program Liabilities. Notwithstanding anything to the contrary set forth in Section 2.4(a) above, as between Buyer and Sellers with respect to all Contracts relating to Program Rights ("Program Contracts"): (i) Sellers will be allocated all obligations to make cash payments of license and usage fees pursuant to any Program Contract ("Program Payments") which first becomes due and payable under the terms of the Program Contract in question prior to the first day of the calendar month which includes the Adjustment Time; (ii) Buyer will be allocated all Program Payments which first become due and payable under the terms of the Program Contract in question after the last day of the calendar month which includes the Adjustment Time; and (iii) with respect to Program Payments which first become due and payable under the terms of the Program Contract in question during the calendar month which includes the Adjustment Time: (A) Sellers will be allocated a portion of each such Program Payment which is equal to a fraction, the numerator of which is the number of days (if any) in such calendar month which are prior to the Adjustment Time and the denominator of which is the total number of days in such calendar month, and (B) Buyer will be allocated the remaining portion of such Program Payments. (c) To the extent not inconsistent with the express provisions of this Agreement, the allocations made pursuant to Sections 2.4(a) and (b) above shall be made in accordance with generally accepted accounting principles. -11- (d) Net settlement of the adjustments contemplated under Section 2.4(e) shall be made at the Closing by decreasing the Purchase Price appropriately, if feasible based on Sellers' and Buyer's good faith estimates. For items not readily subject to ascertainment at the Closing, the following procedures shall apply. Buyer shall prepare and deliver to Sellers within thirty (30) business days following the Closing Date, or such earlier or later date as shall be mutually agreed to by Sellers and Buyer, an itemized list (the "Adjustment List") of all sums which, as described in Section 2.4(e) below, shall decrease the Purchase Price, with a brief explanation thereof. Such list shall show the net amount of the decrease to the Purchase Price (the "Adjustment Amount"). If the Adjustment Amount is a decrease to the Purchase Price, Sellers shall pay such amount to Buyer. Except as provided otherwise in Section 2.4(f), payment of the Adjustment Amount shall be made not later than fifteen (15) business days following the delivery of the Adjustment List. (e) The items set forth on the Adjustment List and the calculation of the Adjustment Amount shall each reflect the understanding that the Purchase Price shall be: (i) decreased by the amount of all Accounts Payable existing as of the Adjustment Time actually paid or assumed by Buyer or reimbursed by Buyer to Sellers under the TBA Agreement (not including any Accounts Payable which may have previously reduced the payment by Buyer to Sellers of collections of Pre-TBA Receivables made pursuant to Section 2.9); (ii) decreased by the amount, if any, by which Tradeout Payables as of the Adjustment Time exceed Tradeout Receivables as of the Adjustment Time by more than $15,000; and (iii) decreased by the amount of all liabilities under Financing Leases, if any, existing as of the Adjustment Time. (f) Not later than fifteen (15) business days following the delivery of the Adjustment List, Sellers may furnish Buyer with written notification of any dispute concerning any items shown thereon or omitted therefrom together with a detailed explanation in support of Sellers' position in respect thereof. If Sellers do not furnish Buyer such a written notification during such fifteen (15) business day period, then Buyer's determination of the Adjustment Amount (as set forth in the Adjustment List) will be final and binding on Buyer and Sellers as of the last day of such fifteen (15) business day period. If Sellers do furnish Buyer such a written notification during such fifteen (15) business day period, then Buyer and Sellers shall consult to resolve any such dispute for a period of fifteen (15) business days following the notification thereof. In the event of any such dispute, that portion of the Adjustment Amount that is not in dispute shall be paid to the party entitled to receive the same on the day for payment provided in Section 2.4(d). If such fifteen (15) business day consultation period expires and the dispute has not been resolved, the matter shall be referred to an independent "Big Five" public accounting firm mutually agreed upon by Sellers and Buyer (the "Accountants"), which shall resolve the dispute and shall render its decision (together with a brief explanation of the basis therefor) to Buyer and Sellers not later than twenty (20) business days following submission of the dispute to it; provided, however, if Buyer and Sellers are unable to mutually agree upon an independent public accounting firm, then Buyer and Sellers shall each choose an independent public -12- accounting firm and those firms shall appoint a third independent public accounting firm to act as the Accountants. The Accountants' determination of the disputed portion of the Adjustment Amount (the "Disputed Amount") will become final and binding on Buyer and Sellers on the business day after the date upon which a written report setting forth such determination is delivered to Sellers and Buyer. The Disputed Amount shall be paid by the party required to pay the same within five (5) business days after the delivery of a copy of such decision to Sellers and Buyer. The fees and expenses of the Accountants shall be shared equally by Sellers, on the one hand, and Buyer on the other hand. (g) The Adjustment List to the extent not disputed within the specified period by Sellers, any mutually agreed written settlement of any such dispute concerning the Adjustment List and any determination of disputed items by the Accountants shall be final, conclusive and binding on the parties hereto absent manifest error. (h) Notwithstanding anything herein to the contrary, the Buyer shall reimburse the Sellers (pursuant to an increase to the Purchase Price paid at Closing) for the prepaid expenses set forth on Schedule A; provided that the dollar amounts set forth on Schedule A are as of the date set forth on such Schedule and the actual amounts to be reimbursed hereunder shall be those amounts outstanding as of the date hereof as reasonably determined by the Buyer and Sellers and subject to the proration procedures set forth above. 2.5 Taxes. All federal, state, local and other transfer, sales and use taxes and recording costs applicable to, imposed upon or arising out of the transfer to Buyer of the Purchased Assets as contemplated by this Agreement shall be shared equally by Buyer on the one hand, and Sellers on the other. 2.6 [Intentionally Omitted] 2.7 Allocation of Purchase Price. The Purchase Price will be allocated among each item or class of the Purchased Assets based upon (i) the mutual agreement of Buyer and Sellers, or (ii) in the event Buyer and Sellers fail to agree, an appraisal to be paid for by Buyer, to be conducted by a nationally-recognized appraisal firm experienced in appraising, for tax purposes, small-to-medium market television stations selected by Buyer and which is reasonably acceptable to Sellers, under the residual method of allocating assets, which allocation shall be incorporated in a schedule to be provided by Buyer and executed by the parties within one hundred twenty (120) days after the Closing. Buyer and Sellers each agree to report such allocation to the Internal Revenue Service in the form required by Treasury Regulations Section 1.1060-1; provided, however that nothing contained herein shall require Buyer or Sellers to contest or litigate in any forum any proposed deficiency or adjustment by any taxing authority or agency that may challenge the allocation determined pursuant to this Section 2.7. 2.8 Access. (a) Subject to Section 11.8(b), Sellers and their authorized agents, officers and representatives, upon prior written request, shall have access to the appropriate records of Buyer to conduct such examination and investigation as Sellers deem necessary to assure compliance with this Article 2, and to permit Sellers to comply with their tax reporting compliance -13- requirements, provided that such examination and investigation shall be at Sellers' sole cost and expense and shall be during the Station's normal business hours, shall not unreasonably interfere with the Station's operations and activities and shall not, after the consummation of the Closing, constitute Sellers' exercising control over the Station under FCC rules, regulations or guidelines. (b) Subject to Section 11.8(a), Buyer and its authorized agents, officers and representatives, upon prior written request, shall have access to the appropriate records of Sellers to conduct such examination and investigation as Buyer deems necessary to assure compliance with this Article 2, and to permit Buyer to comply with its tax reporting compliance requirements, provided that such examination and investigation shall be at Buyer's sole cost and expense and shall be during Sellers' normal business hours, shall not unreasonably interfere with Sellers' operations and activities. 2.9 Accounts Receivable. From and after the Adjustment Time until the one hundred and twentieth (120th) day following the Adjustment Time (the "Collection Period"), Buyer agrees to use reasonable efforts to collect, as agent for Sellers, the Accounts Receivable of the Sellers as of the Adjustment Time (the "Pre-TBA Receivables") in the manner regularly pursued by Buyer with respect to the collection of its accounts receivable and in the ordinary course of business. Buyer shall hold the proceeds collected from Pre-TBA Receivables (which may be commingled with other funds of Buyer and/or used by Buyer for its own purposes) pending remittance to Sellers as provided in this Section 2.9. Within ten (10) days following the end of the Collection Period, Buyer shall pay to the Sellers in immediately available funds all proceeds of Pre-TBA Receivables actually collected by Buyer during the Collection Period, minus the amount of all the Accounts Payable of the Sellers as of the Adjustment Time (the "Pre-TBA Payables") actually paid by Buyer, assumed by Buyer, or reimbursed by Buyer to Sellers under the TBA Agreement (provided that in the event the amount of such Accounts Payable exceeds the proceeds of Pre-TBA Receivables actually collected by Buyer, then the Sellers shall pay such difference to Buyer in the same manner). On the tenth (10th) day following the end of the Collection Period, Buyer will deliver to Sellers all records of uncollected Pre-TBA Receivables (provided that Buyer may retain copies of such records). In the collection of accounts receivable, all payments received by Buyer from account debtors will be applied first to the Pre-TBA Receivables and then to Buyer's accounts receivable, in the order of origination (i.e., "first-in, first-out"), unless the account debtor specifies otherwise, in which case the proceeds shall be applied as specifically designated by the account debtor. Buyer will take no action to encourage an account debtor to dispute its obligation to pay any billing that relates to a Pre-TBA Receivable or to specify that any payment be applied to billings other than in chronological order. Buyer or Sellers will promptly deliver to the other a true copy of any notice of a dispute as to the validity or enforceability of a Pre-TBA Receivable received from an account debtor. Buyer shall not agree to any settlement, discount or reduction of any Pre-TBA Receivable without the prior written consent of Sellers. Buyer's collection obligation under this Section 2.9 shall not include any obligation to bring suit, engage a collection agent or take any legal action for the collection of any Pre-TBA Receivable. After the Collection Period, Buyer shall, if requested by Sellers, execute and deliver letters, in form and substance reasonably satisfactory to Sellers and Buyer, to the effect that the respective account debtor should send payments on the Pre-TBA Receivables to Sellers' designee. In the event this Agreement is terminated prior to the end of the Collection Period (or prior to the making of the payment described above) for any reason, promptly but in any event within ten (10) days thereafter, Buyer -14- shall deliver to Seller, in immediately available funds, an amount equal to (i) the proceeds of all Pre-TBA Receivables collected by Buyer from and after the Adjustment Time less (ii) all Pre-TBA Payables actually paid by Buyer or reimbursed by Buyer to Sellers under the TBA Agreement (provided that in the event the amount of such Accounts Payable exceeds the proceeds of Pre-TBA Receivables actually collected by Buyer, then the Sellers shall pay such difference to Buyer in the same manner). Notwithstanding anything to the contrary herein, this Section 2.9 shall survive the termination of this Agreement. ARTICLE III GOVERNMENTAL APPROVALS AND CONTROL OF STATION 3.1 FCC Consent. It is specifically understood and agreed by Buyer and Sellers that the Closing shall be in all respects subject to, and conditioned upon, the receipt of prior FCC Consent in respect of the Station's main television broadcast license (KODE-TV). Buyer and Sellers shall prepare and file with the FCC as soon as practicable but in no event later than five (5) business days after the execution of this Agreement, all requisite applications and other necessary instruments and documents to request the FCC Consent and any necessary extensions thereof to comply with the Closing Date. After the aforesaid applications, instruments and documents have been filed with the FCC, Buyer and Sellers shall prosecute such applications with all reasonable diligence and take all steps reasonably necessary to obtain the requisite FCC Consent including, without limitation, vigorously contesting any petitions or protests against such applications. Buyer shall promptly provide Sellers, and Sellers shall promptly provide the Buyer, with any pleading, order or other document served on such party relating to such FCC applications and all proceedings relating thereto. No party hereto shall take any action that such party knows or should know would adversely affect obtaining the FCC Consent, or adversely affect the FCC Consent becoming a Final Order. Buyer shall pay all FCC filing or transfer fees relating to the transactions contemplated hereby irrespective of whether the transactions contemplated by this Agreement are consummated and irrespective of whether such fees are assessed before or after the Closing. 3.2 Control Prior to Closing. Between the date hereof and the Closing Date, Buyer shall not directly or indirectly control, supervise or direct, or attempt to control, supervise or direct, the operation of the Station. Such operation, including ultimate control and supervision of all programs, employees and policies, shall be the sole responsibility of Sellers hereunder and under the TBA Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS Subject to the last paragraph of Section 6.2, Sellers represents and warrants to Buyer that the statements contained in this Article IV are true, correct and complete as of the date of this Agreement, as follows: 4.1 Organization. Each Seller is a limited liability company organized, validly existing and in good standing under the law of the State of Delaware and each is qualified to do business as a foreign limited liability company in the State of Missouri. Each Seller has the -15- power and authority to own, lease, and operate its properties and to conduct its business as it is now being conducted. 4.2 Authorization; Enforceability. The execution, delivery and performance of this Agreement and the TBA Agreement and all of the documents and instruments required hereby by Sellers are within the power of each Seller and have been duly authorized by all necessary action by Sellers. This Agreement and the TBA Agreement are, and the other documents and instruments required hereby will be, when executed and delivered by Sellers, the valid and binding obligations of Sellers, enforceable against Sellers in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies. 4.3 Absence of Conflicting Agreements. Except for the FCC Consent or as described on Schedule 4.3, neither the execution, delivery or performance of this Agreement or the TBA Agreement in accordance with their respective terms by Sellers nor the consummation of the sale and purchase of the Purchased Assets or any other transaction contemplated by this Agreement (including, without limitation, the commencement or continuation of operations under the TBA Agreement), does or will, with or without the giving of notice, or the lapse of time or both, or otherwise: (a) conflict with, result in a breach of, or constitute a default under, the organizational documents of either Seller, or any federal, state or local law, statute, ordinance, rule or regulation applicable to Sellers, or any court of administrative order or process applicable to Sellers, or any material contract, agreement, arrangement, commitment or plan to which either Seller is a party or by which either Seller is bound and which relates to, the ownership or operation of the Station or the Purchased Assets; (b) result in the creation of any Lien upon any of the Purchased Assets, except for Permitted Liens; (c) terminate, amend or modify, or give any other Person the right to terminate, amend, modify, abandon or refuse to perform any material contract, agreement, arrangement, commitment or plan to which either Seller is a party and which relates to, the ownership or operation of the Station or the Purchased Assets; (d) accelerate or modify, or give any party the right to accelerate or modify, the time within which, or the terms under which, any duties or obligations are to be performed, or any rights or benefits are to be received, under any material contract, agreement, arrangement, commitment or plan to which either Seller is a party and which relates to the ownership or operation of the Station or the Purchased Assets; (e) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or governmental or public agency or other authority other than the FCC; or -16- (f) require the consent of any Person under any material agreement, arrangement or commitment of any nature to which either Seller is party, by which either Seller is bound, or by which the Purchased Assets are bound or subject. 4.4 Purchased Assets. The Purchased Assets include all of the assets, properties and rights of every type and description, real, personal and mixed, tangible and intangible, that are necessary for the business of owning and operating the Station as currently conducted by Sellers, with the exception of the Retained Assets. All inventories of supplies, tubes and spare parts necessary or appropriate for the operation of the Station are at levels at least equal to the Station's usual and customary levels. 4.5 Title to Purchased Assets; Liens and Encumbrances. Except as set forth on Schedule 4.5, Sellers own good and marketable title to or have valid leasehold interests in all of the Purchased Assets (other than the Real Property as to which the provisions of Section 4.9 shall apply and the Intangible Property as to which the provisions of Section 4.8 shall apply) free and clear of any and all Liens except for Permitted Liens. 4.6 Equipment. Each of the material items of (i) the Equipment and (ii) the Station's physical facilities, electrical and mechanical systems and the transmitting and studio equipment is in good condition and repair, ordinary wear and tear excepted, and is not in need of imminent repair or replacement, is operating and has been serviced and maintained by Sellers in accordance with normal industry standards and practices and FCC rules and regulations. 4.7 The Contracts. Except as set forth on Schedule 4.7: (a) Schedule 1.2 lists all agreements relating to properties, undertakings or commitments to or for third parties in the operation and conduct of the Station except for (i) agreements (other than Tradeout Agreements) for the sale of time on the Station that involve the purchase of less than Twenty-Five Thousand Dollars ($25,000.00) in advertising time and require performance over a period of less than thirty (30) days, (ii) other agreements which are cancelable by Sellers or its assignee without breach or penalty on not more than thirty (30) days notice and which involve average annual payments or receipts by the Station of less than Ten Thousand Dollars ($10,000.00) in the case of any single contract and Twenty-Five Thousand Dollars ($25,000.00) in the aggregate, (iii) Sellers' (and their affiliates') senior loan agreement with FINOVA Capital Corporation and all related agreements, documents and instruments, and (iv) Sellers' and their affiliates' limited liability company agreements; (b) Sellers have performed, or are in compliance with, each material term, covenant and condition of each of the Contracts required to be listed on Schedule 1.2, and no material event of default on the part of Sellers, and to the Knowledge of Sellers, any other party thereto, exists under any of the Contracts required to be listed on Schedule 1.2; (c) each of the Contracts listed on Schedule 1.2 is in full force and effect, unimpaired by any acts or omissions of Sellers, and constitutes the legal and binding obligation of, and is enforceable against Sellers, and to the Knowledge of Sellers, against each other party thereto in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or rights of creditors -17- generally and by general equitable principles which may limit the right to obtain equitable remedies; (d) Sellers have furnished or made available to Buyer true and complete copies of all written Contracts required to be listed on Schedule 1.2, including all amendments, modifications and supplements thereto, and Schedule 1.2 contains summaries of the following provisions of all oral Contracts which involve Ten Thousand Dollars ($10,000.00) in the case of any single oral Contract and Twenty-Five Thousand Dollars ($25,000.00) in the aggregate: the parties thereto, and the value of the goods and services to be provided thereunder; (e) Schedule 1.2 sets forth an accurate and complete list of all Tradeout Agreements, and sets forth for each Tradeout Agreement the parties thereto, the value of broadcast time required to be provided on the Station from and after the date shown on such Schedule and the value of goods and services to be provided to the Station from and after such date; and (f) With respect to each Program Contract, the "Available Runs" specified on the attached Schedule 1.2-A reflects the number of unused exhibitions pursuant to the cash portion, if any, of such Program Contract as of the corresponding date specified on such Schedule. 4.8 Intangible Property. Except as set forth on Schedule 4.8: (a) there are no claims, demands or proceedings instituted, pending or, to the Knowledge of Sellers, threatened by any Person pertaining to or challenging Sellers' right to use any of the Intangible Property; (b) to the Knowledge of Sellers, Sellers are not infringing upon or otherwise acting adversely to any trademark, trade name, patent or copyright owned by a third party; (c) there are no royalty agreements between Sellers and any third party relating to any of the Intangible Property; (d) the Intangible Property constitutes all of the intangible and intellectual property interests and other intellectual property necessary or appropriate for or used in the operation of the Station (other than Copyrights and Trademarks with respect to Program Rights); and (e) all Copyrights and Trademarks are listed on Schedule 1.3 and Schedule 1.11, respectively, and all Intangible Property is transferable to Buyer by the sole act of Sellers. 4.9 Real Property. Except as disclosed on Schedule 4.9: (a) Sellers have good, marketable and insurable fee simple or leasehold interests, as applicable, in the Real Property, and such Real Property includes all real property necessary for the business of the Station as currently conducted or used in the operation of the Station. Attached to Schedule 4.9 are all policies of title insurance currently existing in favor of Sellers with respect to the Real Property. Except for Permitted Liens and the items set forth on -18- Schedule 4.9, there are no Liens to title to any portion of the Real Property. No Lien set forth or required to be set forth on Schedule 4.9 (not including those described in items 1 through 8 and item 20 on Schedule 4.9) materially interferes with the operation of the Station as currently operated; (b) Sellers have not received notice of any pending condemnation or similar proceeding affecting the Real Property or any portion thereof, and to the Knowledge of Sellers, no such action is presently contemplated or threatened; (c) Sellers have not received any written notice from any insurance company of any defects or inadequacies in the Real Property or any part thereof, which would materially adversely affect the insurability of the Real Property or the premiums for the insurance thereof. Sellers have not received any notice from any insurance company which has issued or refused to issue a policy with respect to any portion of the Real Property or by any board of fire underwriters (or other body exercising similar functions) requiring the performance of any repairs, alterations or other work with which compliance has not been made; (d) there are no parties in possession of any portion of the Real Property other than Sellers, whether as lessees, tenants at will, trespassers or otherwise; (e) there is no law, ordinance, order, regulation or requirement now in existence, (other than Environmental Laws) which would require any material expenditure to remediate, remedy, remove, modify or improve any of the Real Property in order to bring it into substantial compliance therewith; (f) the Real Property has adequate direct access to and from completed, dedicated and accepted public roads, and there is no pending or, to the Knowledge of Sellers, threatened governmental proceeding which would impair or curtail such access; and (g) to the Knowledge of Sellers, there are no material structural, electrical, mechanical, plumbing, air conditioning, heating or other defects in the buildings or towers located on the Real Property and the roofs of the buildings located on the Real Property are free from leaks and in good condition, ordinary wear and tear excepted. 4.10 The Leases. Except as set forth on Schedule 4.10: (a) the Leases described on Schedule 1.5 constitute all of the lease agreements between Sellers and third parties relating to the operation of the Station or the Purchased Assets; (b) Sellers have performed each material term, covenant and condition of each of the Leases which is required to be performed by Sellers at or before the date hereof, and no material default or event which with the passing of time or giving of notice or both would constitute a default on the part of the Sellers and, to the Knowledge of Sellers, on the part of any other party thereto, exists under any Lease; (c) each of the Leases is in full force and effect, unimpaired by any acts or omissions of Seller, and constitutes the legal and binding obligation of, and is legally enforceable -19- against Sellers, and to the Knowledge of Sellers, against each other party thereto in accordance with its terms; (d) Sellers have furnished or made available to Buyer true and complete copies of the Leases, including any and all amendments thereto; (e) there are no leasing commissions or similar payments due, arising out of, resulting from or with respect to any Lease which are owned by Sellers; and (f) each of Sellers' Financing Leases is listed as such on Schedule 4.10. 4.11 Financial Statements and Interim Financial Statements. (a) Attached as Schedule 4.11(a) are true and complete copies of the unaudited consolidated balance sheets of Sellers, as of December 31, 1999 and December 31, 2000 and the related consolidated statements of income for the fiscal years then ended. The Financial Statements are in accordance with the books and records of Sellers, have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with preceding years and present fairly in all material respects the financial condition of the Sellers as of the date indicated and the results of their operations and changes in cash flows for the period then ended, provided that the Financial Statements do not contain footnotes and lack other presentation items. (b) Attached as Schedule 4.11(b) are true and complete copies of the unaudited consolidated balance sheet of Sellers as of November 30, 2001, and the related consolidated statement of income for the month and eleven (11) month period then ended. The Interim Financial Statements are in accordance with the books and records of Sellers, have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the Financial Statements and present fairly in all material respects the financial condition of Sellers as of the date indicated and the results of their operations and changes in financial position for the period then ended; subject, however, to year-end adjustments which, in the aggregate, will not be materially adverse and provided that the Interim Financial Statements do not contain footnotes and lack other presentation items. 4.12 No Changes. Except as set forth on Schedule 4.12 or as otherwise contemplated by this Agreement, since November 30, 2001 through the Adjustment Time, there has not been any: (a) amendment or termination of any Contract, Lease or License to which Sellers are a party with respect to the Station except in the ordinary course of business; (b) increase in compensation paid, payable or to become payable by Sellers to any of its employees at the Station, except in the ordinary course of business; (c) extraordinary losses (whether or not covered by insurance) or waiver by Sellers of any extraordinary rights of value; -20- (d) commitment to or liability to any labor organization which represents, or proposes to represent, employees of the Station; (e) notice from any of the Station's sponsors or any customers (determined on the basis of the Station's revenues for the trailing twelve (12) month period) as to any of such sponsor's or customer's intention not to conduct business with the Station, the result of which loss or losses of business, individually or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect; (f) sale, assignment, lease or other transfer or disposition of any of the Purchased Assets or properties of the Station except in the ordinary course of business or in connection with the acquisition of similar property or assets in the ordinary course of business; (f) sale, assignment, lease or other transfer or disposition of any of the Purchased Assets or properties of the Station except in the ordinary course of business or in connection with the acquisition of similar property or assets in the ordinary course of business; (g) adverse change in cable carriage or channel position on which the Station is carried (on any cable system with more than 1,000 subscribers); (h) period of four consecutive days or more during which the Station was off the air for any reason or a period of fifteen (15) days or more during which the Station operated at substantially reduced power; (i) termination of the Affiliation Agreement or loss by the Station of the ABC network affiliation; or (j) change in the financial condition, business, assets or results of operation of the Station which has had a Material Adverse Effect. 4.13 No Litigation; Labor Disputes; Compliance with Laws. Except as set forth on Schedule 4.13: (a) except for FCC rulemaking procedures generally affecting the television broadcasting industry, there is no decree, judgment, order, litigation at law or in equity, arbitration proceeding or other proceeding before or by any commission, agency or other administrative or regulatory body or authority pending or, to the Knowledge of Sellers, threatened, to which Sellers are a party or otherwise relating to the Station or the Purchased Assets which could reasonably be expected to have a Material Adverse Effect; (b) to the Knowledge of Sellers, there is no material investigation by any commission, agency or other administrative or regulatory body or authority pending or threatened, which is specifically concerned with the operations, business or affairs of Sellers, the Station or the Purchased Assets; (c) (i) the Station is not subject to or bound by any labor agreement, and there is no and there has not been any labor strike or request for union representation pending, or to the Knowledge of Sellers, threatened against Sellers relating to or affecting the business or operations of the Station and, (ii) there is no and there has not been any labor dispute, grievance or controversy, pending, or to the Knowledge of Sellers, threatened against Sellers relating to or affecting the business or operations of the Station which could reasonably be expected to have Material Adverse Effect; and -21- (d) Sellers have carried on and conducted the business and affairs of the Station in compliance with all applicable federal, foreign, state and local laws, statutes, ordinances, rules and regulations, and all applicable court or administrative orders or processes, including but not limited to FCC, Occupational Safety and Health Administration, Equal Employment Opportunity Commission ("EEOC"), National Labor Relations Board and Environmental Protection Agency a violation of which has had or may reasonably be expected to have a Material Adverse Effect. The Station complies in all material respects with all applicable statutes, rules and regulations pertaining to equal employment opportunity. 4.14 Taxes. Except as disclosed on Schedule 4.14: (a) Sellers have duly filed all required federal, state and local tax returns, reports and estimates for all years and periods (and portions thereof) for which any such returns, reports and estimates were due by Sellers (taking into account any permitted extensions), and any and all amounts shown on such returns and reports to be due and payable have been paid in full except as may be contested in good faith. All of such returns, reports and estimates are true and complete in all material respects. Sellers have withheld all taxes required to be withheld under applicable law and regulations, and such withholdings have either been paid to the proper governmental agency or set aside in accounts for such purpose, or accrued, reserved against and entered upon the books of Sellers, as the case may be; and (b) There are, and after the date of this Agreement will be, no tax deficiencies (including penalties and interest) of any kind assessed against or relating to Sellers or the Purchased Assets with respect to any taxable periods ending on or before, or including, the Closing Date of a character or nature that would result in Liens or claims on any of the Purchased Assets or on Buyer's title or use of the Purchased Assets or that would result in any claim against Buyer or the Purchased Assets; provided, however, that Sellers shall not be deemed to make any representations or warranty with respect to any Liens or claims arising by reason of, or attributable to, Buyer's use or operation of the Station or the Purchased Assets on or after the Adjustment Time. 4.15 Governmental Authorizations. Sellers hold, and, on the Closing Date Sellers will hold, all regular and valid licenses, permits and authorizations issued by the FCC to operate the Station as a television broadcast station with the power with respect to the Station's main broadcast license disclosed on Schedule 1.6. Such licenses, permits and authorizations constitute all of the licenses, permits and authorizations that are necessary under the Communications Act for the operation of the Station. The Licenses are in full force and effect. Except as set forth on Schedule 4.15, no qualifications, registrations, filings, privileges, franchises, licenses, permits, approvals or authorizations other than the Licenses and those as set forth on Schedule 4.15 are required for Sellers to own and operate the Station in the manner operated on the date hereof. As of the date hereof, (i) no action or proceeding is pending or, to the Knowledge of Sellers, threatened before the FCC or any other governmental authority to revoke, refuse to renew or materially and adversely modify the Licenses (except for FCC rulemaking procedures generally affecting the television broadcasting industry), and (ii) there is no pending, issued or outstanding or, to the Knowledge of Sellers, threatened by or before the FCC any investigation, order to show cause, cease and desist order, notice of violation, notice of apparent liability, notice or forfeiture, petition or complaint with respect to the Station or any of the Licenses. -22- 4.16 Compliance with FCC Requirements. Except as set forth on set forth on Schedule 4.16, the Station, its physical facilities, electrical and mechanical systems and transmitting and studio equipment are being and have been operated in all material respects in accordance with the specifications of the applicable Licenses, and the Station is in compliance in all material respects with the Communications Act. Except as set forth on Schedule 4.16, Sellers have complied in all material respects with the Communications Act concerning limits on the duration of advertising in children's programming, and the record keeping obligations related thereto. Except as set forth on Schedule 4.16, all obligations, reports and other filings required by the FCC with respect to the Station, including, without limitation, material required to be placed in the Station's public inspection file, have been properly and timely filed. Except as set forth on Schedule 4.16, no cable television system has notified Sellers of any signal quality deficiency or copyright indemnity or other prerequisite to cable carriage of the Station's signal, and no cable television system has notified Sellers that it has declined or threatened to decline such carriage or failed to respond to a request for carriage or sought any form of relief from carriage from the FCC. To the Knowledge of Sellers, the Station's main transmitting tower (which is designated Tower #19 and owned by SpectraSite) located at 1928 West Thirteenth Street, Joplin, Missouri (i) has the structural capacity to hold, or (ii) is otherwise suitable for, additional DTV antennae and other equipment necessary for satisfying the FCC's minimum DTV operating requirements for the Station. 4.17 Insurance. Schedule 4.17 is a correct list of all liability and casualty insurance and errors and omissions insurance policies insuring the business, properties and assets of the Station. Sellers are not in default with respect to such insurance policies, nor has either of the Sellers failed to give any notice or present any claim under any policies in a due and timely fashion. 4.18 Brokers. Neither this Agreement nor the sale and purchase of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of or representing Sellers as broker, finder, investment banker, financial advisor or in any similar capacity. 4.19 Employees. Schedule 4.19 is a true and complete list of all of Sellers' employees as of the date of this Agreement, which list identifies the name of such employees, and the following compensation information with respect to each of them: (i) current annual base salary; (ii) accrued vacation and sick leave time and; (iii) the dates and amounts of the last increase in compensation. Except as set forth on Schedule 4.19 hereto, or as otherwise provided by applicable state law, the employment of all employees of the Station is terminable at will by such employer without any penalty or severance obligations incurred by such employer. Except as set forth in Schedule 4.19, neither Seller is bound by any collective bargaining agreement, and to the Knowledge of Sellers, there exists no organizational effort presently being made or, threatened by or on behalf of any labor union with respect to employees of the Station. 4.20 Financial Benefit Plans. Except as set forth in Schedule 4.20, neither Seller has at any time maintained or been a party to or made contributions to any of the following: (i) any "employee pension benefit plan," as such term is defined in Section 3(2) of ERISA; or (ii) any "employee welfare benefit plan," as such term is defined in Section 3(1) of ERISA, whether written or oral. Except as set forth in Schedule 4.20, all employee benefit plans maintained by -23- Sellers or to which Sellers are obligated to contribute ("Employee Benefit Plans") are, and have in the past been, in all material respects maintained, funded and administered in compliance with ERISA, the Code, and other applicable law. As to each Employee Benefit Plan for which an annual report, including schedules, or comparable report is required to be filed under ERISA or the Code, no liabilities, with respect to such plan, existed on the dates of such annual report except as disclosed therein and, except as disclosed in Schedule 4.20, no material adverse change has occurred with respect to the financial data covered by such annual report since the date thereof. Except as disclosed in Schedule 4.20, the execution of this Agreement and performance of the transactions contemplated hereby will not in and of itself constitute a triggering event under any Employee Benefit Plan that will result in any payment (whether of severance pay or otherwise) becoming due from either Seller. Each Employee Benefit Plan that is an employee pension benefit plan, if any, has received a determination letter stating that it is tax-qualified under Section 401(a) of the Code, and no event has occurred that could result in a disqualification of such plan. Neither Seller has ever maintained a pension plan subject to Section 412 of the Code or Title IV of ERISA, and no such Person has ever maintained, contributed to or been required to contribute to any employee benefit plan that is a "multiemployer plan" (as defined in Section 3(37)(A) or (D) of ERISA) as amended by the Multiemployer Pension Plan Amendments Acts of 1980. Neither Seller nor any plan fiduciary has engaged in any "prohibited transaction," as defined in Section 406 of ERISA, the Code, or in Section 4975 of the Code with respect to any Employee Benefit Plan. No complete or partial termination has occurred within the five (5) years preceding the date hereof with respect to any Employee Benefit Plan. 4.21 Environmental Compliance. Except as set forth in Schedule 4.21 (including the reports attached thereto): (a) Sellers have complied in all material respects and are in material compliance with all Environmental Laws; (b) Sellers are not a party to any litigation or administrative proceeding and, to the Knowledge of Sellers, nor is any litigation or administrative proceeding threatened against them, which in either case (i) asserts or alleges that Sellers violated any Environmental Laws, (ii) asserts or alleges that Sellers are required to clean up, remove or take remedial or other response action due to the disposal, depositing, discharge, leaking or other release of any Hazardous Materials at the Real Property, or (iii) asserts or alleges that Sellers are required to pay all or a portion of the cost of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Materials by Sellers at any of the Real Property; (c) with respect to the period during which Sellers owned or occupied the Real Property, and, to the Knowledge of Sellers with respect to the time before Sellers owned or occupied the Real Property, no person has caused or permitted Hazardous Materials to be stored, deposited, treated, recycled or disposed of on, under or at any Real Property owned, leased, used or occupied by Sellers which would subject Sellers to liability for the cleanup, removal or some other remedial action under Environmental Laws; -24- (d) there are not now, nor, to the Knowledge of Sellers, have there previously been, tanks or other facilities on, under, or at the Real Property which contained any Hazardous Materials which, if known to be present in soils or ground water, would subject any owner or operator of such Real Property to liability for cleanup, removal or some other remedial action under Environmental Laws; (e) to the Knowledge of Sellers, there are not conditions existing currently which would subject any owner or operator to the Real Property to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws; (f) Sellers are not subject, as a result of its interest in the Real Property, to any judgment, order or citation related to or arising out of any Environmental Laws and has not been named or listed as a potentially responsible party by any governmental body or agency in a matter related to or arising out of any Environmental Laws; and (g) the operation of the Station does not exceed the permissible levels of exposure to RF radiation specified in either the FCC's current rules, regulations and policies concerning RF radiation. 4.22 Affiliation Agreement. As of the date of this Agreement, subject to the disclosures with respect to the Affiliation Agreement on Schedule 1.2, (i) the Affiliation Agreement is in full force and effect and (ii) ABC has not given Sellers written or verbal notice of any type of ABC's intention to terminate or fail to renew the Affiliation Agreement or that ABC is considering such possible termination or failure to renew the Affiliation Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers that the statements contained in this Article V are true, correct and complete as of the date of this Agreement, as follows: 5.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and on the Closing Date Buyer shall be duly qualified to do business as a foreign entity in Missouri, and Buyer has full power to purchase the Purchased Assets pursuant to this Agreement. 5.2 Authorization; Enforceability. The execution, delivery and performance of this Agreement and the TBA Agreement and all of the documents and instruments required hereby by Buyer are within the power of Buyer and have been duly authorized by all necessary action by Buyer. This Agreement and the TBA Agreement are, and the other documents and instruments required hereby will be, when executed and delivered by Buyer, the valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability or right of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies. -25- 5.3 Absence of Conflicting Laws and Agreements. Except as set forth on Schedule 5.3, neither the execution, delivery or performance of this Agreement or the TBA Agreement by Buyer nor the consummation of the sale and purchase of the Purchased Assets or any other transaction contemplated by this Agreement or the TBA Agreement does or will, with or without the giving of notice, or the lapse of time, or otherwise: (a) conflict with, result in a breach of, or constitute a default under, the certificate of incorporation or bylaws of Buyer, or any federal, state or local law, statute, ordinance, rule or regulation, or any court or administrative order or process, or any material contract, agreement, arrangement, commitment or plan to which Buyer is a party or by which Buyer or its assets is bound; (b) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or governmental or public agency other than the FCC Consent; or (c) require the consent of any Person under any material agreement, material arrangement or material commitment of any nature to which Buyer is a party or by which it is bound. 5.4 Brokers. Neither this Agreement nor the sale and purchase of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of or representing Buyer as broker, finder, investment banker, financial advisor or in any similar capacity. 5.5 FCC Qualification. Except for proceedings of general applicability to the television industry, Buyer knows of no facts that would, under the Communications Act or the present or pending rules, regulations, published policies and published practices of the United States Federal Trade Commission or the United States Department of Justice, disqualify Buyer as an assignee of the Licenses or as an owner or operator of the Station. Buyer is now and as of the Closing Date will be legally and financially qualified under the Communications Act to become the assignee of the Licenses. 5.6 Financing. The Buyer has and at the Closing will have adequate funds or financing to consummate the transactions contemplated by this Agreement. 5.7 Due Diligence. (a) Buyer has conducted its own independent investigation of the Sellers and their business, has been provided the opportunity to obtain information and documents concerning the Sellers and has had the opportunity to ask questions of, and receive answers from, the officers of the Sellers pertaining to the Sellers and the Station. (b) With respect to the Affiliation Agreement, Buyer acknowledges and agrees that (i) the current term thereof expires on August 7, 2002, and (ii) it shall not be a condition to Buyer consummating the Closing that ABC's consent to the assignment of the Affiliation Agreement shall have been obtained or that the Affiliation Agreement shall not have been terminated by ABC. -26- 5.8 Absence of Litigation. There is no decree, judgment, order, litigation at law or in equity, arbitration proceeding or proceeding before or by any commission, agency or other administrative or regulatory body or authority pending or, to the knowledge of Buyer, threatened to which Buyer is a party and which could materially and adversely affect Buyer's ability to purchase the Purchased Assets under this Agreement or to perform its obligations under the TBA Agreement. ARTICLE VI CERTAIN MATTERS PENDING THE CLOSING From and after the date of this Agreement and until the Closing (unless otherwise provided herein): 6.1 Notice of Adverse Changes. Pending the Closing, Sellers shall give Buyer prompt written notice of the occurrence of any of the following as they gain Knowledge thereof: (a) the commencement of any proceeding or litigation at law or in equity or before the FCC or any other commission, agency or administrative or regulatory body or authority which involves any of the Licenses or which could reasonably be expected to have a Material Adverse Effect, other than proceedings or litigation of general applicability to the television broadcasting industry; or (b) any material violation by Sellers, or written notice of any alleged material violation by Sellers, of any federal, state or local law, statute, ordinance, rule or regulation. 6.2 Operations Pending Closing. Subject to the provisions of Section 3.2 regarding control of the Station, after the date hereof and prior to the Closing and subject to the TBA Agreement, Sellers shall: (a) operate the Station in all material respects in accordance with applicable FCC requirements, rules and regulations and make all filings necessary to make the representation in Section 4.15 true and correct at Closing; (b) not sell, lease, mortgage, pledge or otherwise dispose of any of the Purchased Assets except for transactions in the ordinary and regular course of the operation of the Station where the proceeds of such disposition are used to replace such Purchased Assets; (c) except with Buyer's prior written consent, not enter into, or become obligated under, amend or otherwise modify any agreement or commitment on behalf of the Station; (d) maintain in full force and effect policies of liability and casualty insurance of substantially the same type, character and coverage as the policies currently carried with respect to the business, operations and assets of the Station; (e) not enter into any Tradeout Agreements relating to the Station, and shall take all commercially reasonable action to protect the present service areas of the Station from increased electrical interference from other stations, existing or proposed, and take all -27- commercially reasonable action to maintain carriage, if any, of the Station's signals on all cable television systems or satellite systems; and (f) except as required by law, not enter into any collective bargaining agreement or modify the employment terms applicable to any employee of the Station. Notwithstanding any provision of this Agreement or the TBA Agreement to the contrary, none of the following shall be deemed (i) a breach of Sellers' agreements or covenants under this Section 6.2 or under the TBA Agreement or of the representations and warranties contained in Article IV hereof, or (ii) a failure of any of the conditions set forth in Article VII to be satisfied: any fact or circumstance that occurs as a result of either any action or omission to act of the Buyer pursuant to the TBA Agreement or any other agreement or arrangement, or by virtue of Buyer's activities or operations with respect to the Station. 6.3 Reports. Within thirty (30) days after the end of the calendar month that includes the date hereof, Sellers will furnish Buyer with a copy of Sellers' monthly financial reports for the Station for December 2001 (including a balance sheet and operating statement for each such month and the fiscal year to the end of such months), and Sellers will furnish to Buyer within ten (10) days after filing all reports filed with the FCC with respect to the Station after the date hereof. 6.4 Consents. Sellers will use its commercially reasonable efforts to obtain all consents and approvals required from third Persons, whose consent or approval is required pursuant to any Contract or Lease prior to the Closing Date as a result of the purchase and sale of the Purchased Assets as contemplated herein. Anything to the contrary in this Agreement notwithstanding, Sellers shall not be required to pay any fees or provide or deliver any other consideration to any such Person in order to obtain such consent or approval. 6.5 Cooperation; Reasonable Efforts; Release. Buyer and Sellers will cooperate in all respects in connection with and use commercially reasonable efforts to: (a) secure any nongovernmental approvals, consents and waivers of third parties listed in Schedule 4.3; (b) give notices to any governmental authority, or secure the permission, approval, determination, consent or waiver of any governmental authority, required by law in connection with the transfer of the Purchased Assets from Sellers to Buyer; and (c) cause all of the conditions set forth in Article VII and Article VIII to be satisfied (but not waived). Without limiting the generality of the foregoing: (a) Buyer shall, on or prior to the Closing, execute and deliver to ABC and Sellers, in form and substance reasonably satisfactory to ABC and Sellers, the acknowledgement and agreement of Buyer that, upon consummation of the assignment of the Station's license and the Closing, Buyer will assume and perform the Affiliation Agreement in its entirety without limitation of any kind; and (b) Buyer shall, on or prior to the Closing, execute and deliver to SpectraSite and Sellers, in form and substance satisfactory to SpectraSite and Sellers, the acknowledgement and agreement of Buyer that, upon consummation of the Closing, Buyer will assume, be bound by and perform the SpectraSite Agreements in their entirety without limitation of any kind; -28- provided that in no event shall Buyer be required to assume any obligation or liability which either accrues or arises under the SpectraSite Agreements prior to the Closing (provided that such language shall not be deemed to impair Buyer's reimbursement obligations under the TBA Agreement) or which relates to any property not included in the Purchased Assets; provided further that Buyer shall not be required to assume the obligations set forth in Section 2.7 of the Master Site Lease Agreement that is part of the SpectraSite Agreements (unless Buyer's lenders consent to such assumption, which consent the Buyer shall use its commercially reasonable efforts to obtain). Buyer and Sellers shall, and shall cause their affiliates to, use commercially reasonable efforts to cause Sellers' parent, GOCOM Holdings, LLC (the "Parent"), Non-License Seller and the Parent's other direct and indirect subsidiaries (collectively, the "Subsidiaries") to be released and discharged, effective as of the consummation of the Closing and in form and substance reasonably satisfactory to Sellers, from all liabilities and obligations under and in respect of any or all of the SpectraSite Agreements (except to the extent such liabilities and obligations relate to the period prior to the Closing or relate to any property not included in the Purchased Assets), including, without limitation, as set forth in Section 7.14 of the Master Site Lease Agreement that is part of the SpectraSite Agreements. 6.6 Tax Returns and Payments. (a) All tax returns, estimates and reports with respect to the Purchased Assets that are required to be filed by Sellers prior to the Closing Date or relating to periods prior to the Closing Date will be timely filed when due with the appropriate governmental agencies or extensions will have been granted; and (b) All taxes pertaining to ownership of the Purchased Assets prior to the Closing Date will be paid by Sellers (or with respect to income and franchise taxes, the Parent, as the case may be) when due and payable unless protested in good faith. 6.7 Release of Liens. Except for the Permitted Liens, at or prior to the Closing, Sellers shall obtain the release of all Liens disclosed in the Schedules hereto and any other Liens on the Purchased Assets and shall duly file releases or terminations of all such Liens in each governmental agency or office in which any such Lien or evidence thereof shall have been previously filed. 6.8 Public Announcement. Sellers shall publish and broadcast a public notice concerning the filing of the application for assignment of the Licenses in accordance with the requirements of Section 73.3580 of the FCC's Rules, and the parties shall file with the FCC copies of this Agreement, the TBA Agreement and any and all other required documentation in connection with FCC applications described in Section 3.1. As to any other announcements or press releases, no party hereto shall, and each party shall direct and use reasonable efforts to cause its representatives and agents to not, directly or indirectly, issue any press release or make any public announcement, comment or statement with respect to (not including to employees of the Station), or otherwise publicly divulge or disclose the existence of, this Agreement, the TBA -29- Agreement or the transactions contemplated hereby or thereby or the terms, conditions or other aspects of such transactions without prior approval of the other parties hereto (which shall not be unreasonably withheld), except (i) as and to the extent that such party shall be obligated by law, rule or regulation, in which case the other party shall be so advised and the parties shall use commercially reasonable efforts to cause a mutually agreeable release or announcement to be issued and (ii) in connection with Sellers receiving the approval of their senior lender to such transactions. 6.9 Exclusivity. Sellers agree and covenant that until Closing or this Agreement expires or is terminated, neither Seller nor any of their representatives, will discuss, negotiate or offer (or solicit offers) regarding a sale, transfer or other disposition of the Station or the Purchased Assets or any merger, combination, restructuring, refinancing or similar transaction involving Sellers (a "Sale") with another Person or provide any information to any other Person regarding the Station or Sellers in that connection. Sellers represent that neither Seller is a party to or bound by any agreement with respect to a Sale except for this Agreement. Sellers will disclose to Buyer the existence or occurrence of any proposal or contract whether written or oral which it may receive during the term of this Agreement in respect of any such competing transaction. 6.10 Real Estate Matters. (a) Prior to the Closing, Sellers will reasonably cooperate with Buyer (at no cost to Seller) so that Buyer may obtain, for the benefit of and at the cost of Buyer, all documents reasonably required (including estoppel certificates, owner's affidavits, indemnities and GAP undertakings) for a final commitment for an ALTA Owners Policy of Title Insurance, as the case may be, Form B-1970 (or if not reasonably attainable, 1992 Form), for each parcel of Owned Real Property, issued by a title insurer designated by Buyer (the "Title Insurer"), in such amount as Buyer reasonably determines to be the fair market value thereof, insuring the Buyer's interest in such parcel, subject only to the Permitted Liens, and with such other endorsements and other terms and conditions as Buyer may reasonably request. (b) At Buyer's request, Sellers will reasonably cooperate with Buyer (at no cost to Sellers) so that Buyer may procure for the benefit of Buyer, in preparation for the Closing, current surveys of each parcel of Owned Real Property disclosing no survey defects or encroachments which materially interfere with the current business and operation of the Station, prepared by a licensed surveyor and conforming to 1992 ALTA/ACSM Minimum Detail Requirements for Urban Land Title Surveys, and such standards as the Title Insurer may reasonably require as a condition to the removal of any survey exceptions from the commitment for the title insurance policy described in Section 6.10(a), and certified to Buyer, Buyer's lenders and the Title Insurer, in a form sufficient to permit the issuance of the title policies described above in Section 6.10(a). Buyer shall bear the cost of obtaining the surveys. 6.11 Access and Information. From the date hereof, Buyer and its financing sources shall be entitled to make or cause to be made such reasonable investigation of the Purchased Assets as the Buyer and its financing sources deem necessary or advisable, and the Sellers shall reasonably cooperate with any such investigation. In furtherance of the foregoing, but not in limitation thereof, Seller will provide Buyer and its financing sources and their respective agents -30- and representatives, or cause them to be provided, with reasonable access to any and all of its management personnel, accountants, representatives, premises, properties, contracts, commitments, book, records and other information of Sellers upon reasonable notice and during regular business hours and shall furnish such financial and operating data, projections, forecasts, business plans, strategic plans and other data related to the Sellers and their respective businesses as the Buyer, its financing sources and their respective agents, representatives and advisors shall reasonably request from time to time. Sellers and their Affiliates agree to use their reasonable efforts to cause their respective officers, employees, consultants, agents, accountants and attorneys to reasonably cooperate with the Buyer, its financing sources, representatives and advisors in connection with such review and the financing of the transactions contemplated hereby, including the preparation by the Buyer and its financing sources of any offering memorandum, bank book, registration statement or related documents or other documents related to such financing; provided that the Buyer shall be responsible and shall promptly pay for any out of pocket expenses incurred by the Sellers in such regard. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER Each and every obligation of Buyer to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: 7.1 Compliance with Agreement. Subject to the last paragraph of Section 6.2, Sellers shall have performed and complied with Sellers' material obligations under this Agreement and the TBA Agreement which are to be performed or complied with by it prior to or at the Closing; provided that the Buyer shall not be entitled to rely on the failure of any obligation of the Sellers under this Agreement or the TBA Agreement (not including obligations of the Sellers under Sections 2.1 and 2.3(a) which are required or permitted to be satisfied at Closing and other material obligations which the Sellers have complied with up to the date which is 15 days prior to the Closing Date but which the Sellers do not comply with thereafter prior to the Closing Date) to have been complied with, in order to not consummate the transactions contemplated hereby, unless the Buyer shall have provided the Sellers with written notice at least 15 days prior to the Closing Date to the effect that the Buyer does not intend to consummate the transactions contemplated hereby unless such obligation has been complied with prior to the Closing Date; provided that if the Sellers receive such a notice and are acting in good faith to satisfy the obligations described therein and a delay will not materially and adversely affect the Buyer, then the Closing Date shall be postponed for such a reasonable period of time (in any event not to exceed 30 days) as is necessary for the Sellers to satisfy such obligations; provided that notwithstanding anything herein to the contrary, Buyer shall not be obligated to consummate the transactions contemplated herein to the extent the Sellers fails to perform or comply with any of their obligations herein to the extent such failure is a result of either Sellers' bad faith. 7.2 Representations and Warranties. Subject to the last paragraph of Section 6.2, the representations and warranties made by Sellers (i) in Sections 4.1, 4.2, 4.3, 4.5, 4.9(a), 4.11, 4.13 (a) and (b), 4.14, 4.15 and 4.18 of this Agreement shall have been true and correct as of the Adjustment Time and shall be true and correct as of the Closing Date (provided that for purposes of the truth of such representations on the Closing Date, Sellers shall be permitted, subject to the reasonable approval of Buyer, to amend the Schedules with respect to such Sections to account -31- for events occurring following the Adjustment Time), and (ii) in Sections 4.4, 4.6, 4.7, 4.8, 4.9(b)-(g), 4.10, 4.12, 4.13 (c) and (d), 4.16, 4.17, 4.19, 4.20, 4.21 and 4.22 shall have been true and correct as of the Adjustment Time; in each case under either clause (i) or (ii) above disregarding all materiality qualifiers set forth therein, except for (A) matters which have not or could not reasonably be expected to have a Material Adverse Effect (after giving due regard to any positive events during the applicable period) and (B) changes permitted or contemplated by this Agreement, or contemplated or effected as a result of the TBA Agreement or Buyer's operations, activities, acts or omissions with respect to the Station. 7.3 Deliveries at Closing. Sellers shall have delivered or caused to be delivered to Buyer the documents, each properly executed and dated as of the Closing Date as required pursuant to Section 2.3(a). 7.4 Other Documents. Sellers shall have delivered to Buyer such documents and certificates of officers of Sellers and public officials as shall be reasonably requested by Buyer's counsel to establish the existence and good standing of Sellers and the due authorization of this Agreement and the transactions contemplated hereby by Sellers. 7.5 [Intentionally deleted.] 7.6 Absence of Investigations and Proceedings. Except for governmental investigations relating to high definition television or the broadcast industry generally, including proceedings of general applicability under the Cable Act and as set forth on Schedule 7.6, there shall be no claim, suit, action or other proceeding pending or threatened before or by any court, governmental agency, arbitrator or other entity against any of the parties to this Agreement that makes it reasonably likely to be unlawful to consummate the Closing. 7.7 FCC Consent. The FCC Consent for the Station's main broadcast television license (KODE-TV) (without any conditions materially adverse to Buyer other than those generally applicable to assignees of such licenses) shall have been issued, and shall, at Closing, be a Final Order and in full force and effect. 7.8 Licenses. License Seller or Non-License Seller shall be the holder of the Station's main broadcast television license and all other material licenses lawfully necessary for the operation of the Station and there shall not have been any modification of any of such Licenses that has had or could reasonably be expected to have a Material Adverse Effect. Subject to the last paragraph of Section 6.2, no proceeding shall be pending or, to the Knowledge of Sellers, threatened in or before the FCC that is reasonably likely to result in the revocation, cancellation, failure to renew, suspension or modification in a material and adverse way of any of the Licenses described above. 7.9 Release of Liens. All Liens (other than Permitted Liens) on the Purchased Assets shall be released as provided in Section 6.7. If any of the conditions set forth in this Article VII have not been satisfied prior to or at the Closing, Buyer may (without waiving any other right or remedy under this Agreement or the TBA Agreement) in its sole discretion waive any such condition (other than as set forth in -32- Section 7.7) and elect to proceed with the consummation of the transactions contemplated hereby. ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS Each and every obligation of Sellers to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: 8.1 Compliance with Agreement. Buyer shall have performed and complied in all material respects with all of its obligations under this Agreement and the TBA Agreement which are to be performed or complied with by it prior to or at the Closing. 8.2 Representations and Warranties. The representations and warranties made by Buyer in this Agreement shall be true and correct in all material respects as of the Closing Date with the same force and effect as though such representations and warranties had been made on the Closing Date. 8.3 Deliveries at Closing. Buyer shall have delivered, or caused to be delivered, to Sellers the documents, each properly executed and dated as of the Closing Date, required pursuant to Section 2.3(b) and paragraphs (i) and (ii) of Section 6.5. Buyer shall also have made the payments described in Section 2.2. 8.4 Other Documents. Buyer shall have delivered, or caused to be delivered, to Sellers such documents and certificates of officers of Buyer and of public officials as shall be reasonably requested by Sellers' counsel to establish the existence and good standing of Buyer and the due authorization of this Agreement and the transactions contemplated hereby by Buyer. 8.5 Absence of Investigations and Proceedings. Except for governmental investigations relating to high definition television or the broadcast industry generally, including proceedings of general applicability under the Cable Act and as set forth on Schedule 7.6, no claim, suit, action or other proceeding shall be pending or threatened before or by any court, governmental agency, arbitrator or other entity against any of the parties to this Agreement the effect of which would make it reasonably likely to be unlawful to consummate the transactions contemplated by this Agreement to be performed prior to or at the Closing. 8.6 Governmental Consents. The FCC Consent shall have been issued and shall be in full force and effect. All other material authorizations, consents or approvals of any and all governmental regulatory authorities necessary in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and be in full force and effect. 8.7 Required Consent and Release. There shall have been secured from SpectraSite and Worldnow such permissions, approvals, determinations, consents, waivers and releases as set forth on Schedule 8.7, including, without limitation, a release of any and all obligations of the Parent, Sellers, and the Subsidiaries from any and all further obligations and liabilities (except to the extent such liabilities and obligations relate to the period prior to the Closing or relate to any property not included in the Purchased Assets) under the SpectraSite Agreements or the -33- Affiliation Agreement with Gannaway Web Holdings, LLC d/b/a WorldNow described on Schedule 1.2. If any of the conditions set forth in this Article VIII have not been satisfied, Sellers may (without waiving any other right or remedy under this Agreement or the TBA Agreement) in their sole discretion waive any of such conditions (other than as set forth in Section 8.6) and elect to proceed with the consummation of the transactions contemplated hereby. ARTICLE IX INDEMNIFICATION 9.1 Survival of Representations and Warranties. All of the representations and warranties of the parties hereto contained in the Agreement shall survive the Closing (regardless of any investigation or inquiry of any party and even if the damaged party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect until September 30, 2002; provided, however, that (i) the representations and warranties contained in Section 4.21 (related to Environmental Compliance) shall survive the Closing and continue in full force and effect until April 30, 2003; and (ii) the representations and warranties contained in Section 4.14 (related to Taxes) shall survive the Closing and continue in full force and effect for a period expiring one (1) year prior to the expiration of the applicable statutes of limitation. Any claim with respect to the foregoing sentence under Section 9.3 or 9.4 must be asserted in writing with reasonable particularity by the party making such claim within the applicable survival period. 9.2 Survival of Covenants and Agreements. The respective covenants and agreements of the parties contained in this Agreement shall survive the Closing. Any claim as to a breach of a covenant or agreement under Section 9.3 or 9.4 must be asserted in writing with reasonable particularity by the party making such claim. 9.3 Indemnification by Sellers. Subject to (a) the survival provisions set forth in Section 9.1 and (b) the other limitations set forth in this Article IX, Sellers shall jointly and severally indemnify and hold harmless Buyer, its successors and assigns (collectively, "Buyer Indemnified Parties") from and against any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including, without limitation, reasonable attorneys' fees) ("Losses") which Buyer Indemnified Parties may at any time suffer or incur, or become subject to, as a result of or in connection with: (i) subject to the last paragraph of Section 6.2, any breach of the representations and warranties made by Sellers in or pursuant to this Agreement, or in any instrument, certificate or affidavit delivered by Sellers at the Closing in accordance with the provisions of this Agreement; (ii) subject to the last paragraph of Section 6.2, any failure by Sellers to carry out, perform, or otherwise fulfill or comply with any covenant, agreement, undertaking, or obligation under this Agreement or the TBA Agreement; (iii) the Retained Liabilities; -34- (iv) without limiting clause (iii) above, any and all losses, liabilities or damages resulting from the litigation required to be listed on Schedule 4.13; or (v) any suit, action or other proceeding brought by any governmental authority or other Person arising out of, or in any way related to, any of the matters referred to in Sections 9.3(i), 9.3(ii), 9.3(iii), or 9.3(iv); provided, however, that if any action, suit, proceeding, claim, liability, demand or assessment shall be asserted against any Buyer Indemnified Parties in respect of which such Buyer Indemnified Parties proposes to demand indemnification, such Buyer Indemnified Parties shall notify the Sellers thereof within a reasonable period of time after assertion thereof, and such notice shall include copies of all suit, service and claim documents, all other relevant documents in the possession of the Buyer Indemnified Parties, and an explanation of the Buyer Indemnified Parties' contentions and defenses with as much specificity and particularity as the circumstances permit, provided, that the failure of the Buyer Indemnified Parties to give such notice shall not relieve the Sellers of their obligations under this Section 9.3, except to the extent that the Sellers shall have been prejudiced thereby. Subject to rights of or duties to any insurer or other third Person having liability therefor, the Sellers shall have the right within twenty (20) days after receipt of such notice to assume the control of the defense, compromise or settlement of any such action, suit, proceeding, claim, liability, demand, or assessment, including, at its own expense, employment of counsel; provided further, however, that if the Sellers shall have exercised their right to assume such control, the Buyer Indemnified Parties may, in its sole discretion and expense, employ counsel to represent it (in addition to counsel employed by the Sellers) in any such matter, and in such event counsel selected by the Sellers shall be required to cooperate with such counsel of the Buyer Indemnified Parties in such defense, compromise or settlement for the purpose of informing and sharing information with such Buyer Indemnified Parties. So long as the Sellers are defending in good faith any such claim or demand asserted by a third Person against the Buyer Indemnified Parties, the Buyer Indemnified Parties shall not settle or compromise such claim or demand. If the Sellers have assumed the defense of any such claim or demand, then they shall have the power and authority to settle or consent to the entry of judgment without the consent of Buyer if the judgment or settlement results only in the payment by Sellers of the full amount of money damages, provided, that the Sellers have made arrangements for the payment of such damages in a manner reasonably satisfactory to Buyer; in all other events, the Sellers shall not consent to the entry of judgment or enter into any settlement without the prior written consent of the Buyer Indemnified Parties, which consent shall not be unreasonably withheld. The Buyer Indemnified Parties shall make available to the Sellers or their agents all records and other materials in the Buyer Indemnified Parties' possession reasonably required by them for their use in contesting any third party claim or demand. 9.4 Indemnification by Buyer. Subject to the survival provisions set forth in Section 9.1, Buyer agrees to indemnify and hold harmless Sellers and their respective successors and assigns (individually a "Seller Indemnitee," and collectively the "Seller Indemnified Parties") from, against and in respect of any and all Losses, which Seller Indemnified Parties may at any time suffer or incur, or become subject to, as a result of or in connection with: -35- (i) any breach of the representations and warranties of Buyer contained in this Agreement or in any instrument, certificate or affidavit delivered by or on behalf of Buyer at the Closing in accordance with this Agreement; and (ii) any failure by Buyer to perform or otherwise fulfill or comply with any covenant, undertaking, agreement or obligation to be performed, fulfilled, or complied with by Buyer hereunder and under the TBA Agreement prior to, on or after the Closing; (iii) the Assumed Liabilities; or (iv) any suit, action or other proceeding brought by any governmental authority or Person arising out of, or in any way related to, any of the matters referred to in 9.4(i) , 9.4(ii) or 9.4(iii); provided, however, that if any action, suit, proceeding, claim, liability, demand or assessment shall be asserted against any Seller Indemnitee in respect of which such Seller Indemnitee proposes to demand indemnification, such Seller Indemnitee shall notify Buyer thereof within a reasonable period of time after assertion thereof, and such notice shall include copies of all suit, service and claim documents, all other relevant documents in the possession of the Seller Indemnitee and an explanation of the Seller Indemnitee's contentions and defenses with as much specificity and particularity as the circumstances permit, provided, that the failure of the Seller Indemnitee to give such notice shall not relieve Buyer of its obligations under this Section 9.4, except to the extent that Buyer shall have been prejudiced thereby. Subject to rights of or duties to any insurer or other third Person having liability therefor, Buyer shall have the right within twenty (20) days after receipt of such notice to assume the control of the defense, compromise or settlement of any such action, suit, proceeding, claim, liability, demand, or assessment, including, at its own expense, employment of counsel; provided further, however, that if Buyer shall have exercised its right to assume such control, the Seller Indemnitee may, in its sole discretion and expense, employ counsel to represent it (in addition to counsel employed by Buyer) in any such matter, and in such event counsel selected by Buyer shall be required to cooperate with such counsel of the Seller Indemnitee in such defense, compromise or settlement for the purpose of informing and sharing information with such Seller Indemnitee. So long as Buyer is defending in good faith any such claims or demands asserted by a third Person against the Seller Indemnitee, the Seller Indemnitee shall not settle or compromise such claim or demand. If Buyer has assumed the defense of any such claim or demand, then it shall have the power and authority to settle or consent to the entry of judgment without the consent of Sellers if the judgment or settlement results only in the payment by Buyer of the full amount of money damages, provided, that Buyer has made arrangements for the payment of such damages in a manner reasonably satisfactory to Sellers; in all other events, Buyer shall not consent to the entry of judgment or enter into any settlement without the prior written consent of Sellers, which consent shall not be unreasonably withheld. The Seller Indemnitee shall make available to the Buyer or its agents all records and other materials in the Seller Indemnitee's possession reasonably required by it for its use in contesting any third party claim or demand. 9.5 Remedies. The indemnification provisions of this Article IX are the sole and exclusive post-Closing remedy of Buyer and Sellers for a breach or nonperformance of any -36- representations, warranties or covenants contained in this Agreement or in any related agreement, document, instrument or certificate (other than (i) the rights and remedies contained in the TBA Agreement, which shall be deemed non-exclusive herewith, (ii) in the case of fraud, and (iii) rights to seek specific performance of post-closing covenants). 9.6 Certain Limitations of Liability. (a) Anything to the contrary herein notwithstanding, no recovery under the indemnification provisions of this Agreement shall include any special, indirect, incidental or consequential damages whatsoever. (b) No Loss shall be asserted by any party with respect to any matter to the extent such Loss is covered by insurance. (c) Any provision of this Agreement to the contrary notwithstanding, the Seller Indemnitors shall have no obligation to indemnify any Buyer Indemnified Parties for any Losses suffered or incurred by the Buyer Indemnified Party for a breach of the representations or warranties of the Sellers made under this Agreement or in any instrument, certificate or affidavit delivered by or on behalf of Sellers under this Agreement until such Losses exceed an aggregate deductible of Fifty Thousand Dollars ($50,000.00) (the "Indemnity Deductible") (after which point the Seller Indemnitors shall be obligated to indemnify Buyer from and against all Losses in excess of the Indemnity Deductible); provided, however, that, notwithstanding any provision to the contrary in this Agreement, Buyer Indemnified Parties shall not be entitled to be indemnified by Sellers for any such Losses unless such Losses relating to an individual claim exceed Five Thousand Dollars ($5,000.00), and such Losses related to an individual claim for Losses for less than or equal to Five Thousand Dollars ($5,000.00) shall not be counted toward the Indemnity Deductible. For example, if Buyer Indemnified Parties suffer such Losses in respect of five separate claims of Four Thousand Dollars ($4,000.00) each, none of such claims will be counted in determining whether the Indemnity Deductible has been satisfied. For purposes of this Section 9.6(c), an individual claim for such Losses shall include any claims arising out of the same transaction or occurrence. (d) Any provision of this Agreement to the contrary notwithstanding, the aggregate amount of Buyer Indemnified Parties' Losses required to be indemnified or paid by the Sellers with (i) respect to claims for indemnification made under Section 9.3(i) (and under 9.3(v) relating thereto), and (ii) with respect to claims for indemnification made under Section 9.3(ii) (and under 9.3(v) relating thereto) for actions, failures or breaches on the part of either Seller occurring with Buyer's knowledge prior to Closing, shall not exceed the sum of Five Hundred Thousand Dollars ($500,000.00) (after which point the Sellers shall have no liability or obligation to indemnify the Buyer Indemnified Parties with respect to such claims for indemnification). 9.7 Survival. Notwithstanding any other provision to the contrary in this Agreement, this Article IX shall survive termination of this Agreement without limitation. 9.8 Determination of Loss and Amount. In view of the limitation set forth in Section 9.6(c), for purposes of determining whether any Loss has occurred, or the amount of -37- such Loss, the representations, warranties, covenants and agreements of the parties set forth in this Agreement will be considered without regard to any materiality qualification set forth therein. ARTICLE X FURTHER AGREEMENTS 10.1 Event of Loss. If prior to Closing the Station shall suffer an Event of Loss , at Closing, Sellers shall assign to Buyer all its rights under any insurance and all proceeds of insurance (excluding business interruption proceeds for periods prior to the Closing Date) covering the property damage, destruction or loss not repaired, replaced or restored prior to Closing. 10.2 Station Employees. Buyer, or one of its affiliates, shall, within five (5) business days following the grant of the FCC Consent in respect of the Station's main broadcast license, employ and hire (to the extent employees accept employment) all employees of Sellers as of the Adjustment Time and any other replacements therefor in the ordinary course of business, other than (i) Neil Evans and Charlotte Haywood (collectively, the "Retained Employees") and (ii) Dave Tillary, upon terms and conditions of employment no less favorable than those of their respective current employment with Sellers, or, if applicable, pursuant to the terms and provisions of such employees' respective employment agreements as listed in Schedule 1.2. All employees of Sellers who work in the operation of the Station as of the Adjustment Time and any other replacements therefor in the ordinary course of business other than the Retained Employees and Dave Tillary shall be collectively referred to as "Eligible Employees." Buyer understands, acknowledges and agrees that upon hire by Buyer, the Eligible Employees shall no longer be entitled to participate in Sellers' Station Employee Benefit Plans, and Buyer or its affiliates' shall cover those Eligible Employees whom they hire under Buyer's (or an affiliate's) employee benefit plans. Notwithstanding any provision to the contrary in this Agreement, as of the date that Buyer hires or is required to hire Eligible Employees as provided above, Buyer or its affiliates, as the case may be, shall assume all obligations of Sellers under (i) any employment agreement described on Schedule 1.2 between Sellers and Eligible Employees, and (ii) all other obligations with respect to Eligible Employees (other than those who refuse employment with Buyer); including in each case severance obligations, to the extent set forth on Schedule 4.19, but excluding all items described in clauses (A) through (G) of the proviso to the definition of "Assumed Liabilities". All obligations to (x) employees of Sellers who are not Eligible Employees and (y) Eligible Employees whose employment is terminated by Sellers prior to the date that Buyer hires or is required to hire Eligible Employees as provided above or who refuse to accept employment with the Buyer, shall remain the responsibility of the Sellers. Any notification required by any federal, state or local law governing mass layoffs or terminations, including without limitation the federal Worker Adjustment and Retraining Notification Act of 1988 (collectively, the "WARN Laws"), shall be given by Buyer, and compliance with all the WARN Laws shall be Buyer's sole responsibility and liability. Buyer shall indemnify, defend and hold the Sellers Indemnified Parties harmless from and against all Losses arising out of (i) the violation, or alleged violation, of any WARN Laws; (ii) the termination of employment of any Eligible Employees, including, without limitation, any claims for severance payments (to the extent set forth on Schedule 4.19) or accrued vacation time; (iii) any claim by any Eligible Employee concerning the violation or alleged violation of any federal, state or local laws; (iv) -38- any claim for breach of any employment contract between Sellers and any Eligible Employee; and (v) any acts or omissions of Eligible Employees, including, without limitation, any acts or omissions thereof that Sellers may be vicariously liable for; (A) in the case of clauses (i), (ii), (iii) and (iv) above, to the extent such losses or claims relate to actions or omissions of Buyer or its affiliates after the Adjustment Time, and (B) in the case of clause (v) above, to the extent such acts or omissions were directed by Buyer or its affiliates; provided that in no event shall Buyer or its affiliates be responsible for or indemnify Sellers Indemnified Parties for any items described in clauses (A) through (G) of the proviso of the definition of "Assumed Liabilities." Sellers agree that for a period commencing on and from the date hereof and ending twelve (12) months following the Closing, neither Sellers nor their Affiliates shall (i) hire any person employed at the Station at any time from the date hereof through the Closing Date (excluding the Retained Employees) or (ii) solicit or induce any person employed at the Station at any time from the date hereof through the Closing Date to remain in or return to the employ of Seller or any of its Affiliates or otherwise attempt to retain or obtain the services of any such person (excluding the Retained Employees). 10.3 Non-Competition. Sellers each separately and individually agree that neither Sellers nor their Affiliates will, directly or indirectly, for a period of three (3) years from and after the Closing Date own, manage, operate, control, be employed by, participate in or be engaged in any manner with the operation of a television broadcast station in the Joplin, Missouri Designated Market Area. For purposes hereof, an "Affiliate" shall mean any person controlling, controlled by or under common control with another Person, and "control" shall mean the ownership (legal or beneficial) of over fifty percent (50%) of the capital stock or common equity interests of the applicable Person. ARTICLE XI TERMINATION; MISCELLANEOUS 11.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date, as follows: (a) by mutual written agreement of Sellers and Buyer; or (b) subject to the last paragraph of Section 6.2, by Buyer if any of the conditions set forth in Article VII of this Agreement shall not have been fulfilled by the Closing Date (provided that the failure of any such condition to be fulfilled is not a result of the Buyer's breach of this Agreement or the TBA Agreement); or (c) by Sellers if any of the conditions set forth in Article VIII of this Agreement shall not have been fulfilled by the Closing Date (provided that the failure of any such condition to be fulfilled is not a result of either Seller's breach of this Agreement or the TBA Agreement); or (d) by Buyer or Sellers if a Final Order (unless waived by Buyer) shall not have been issued on or before September 30, 2002 (provided that such failure is not the result of the terminating Party's breach of this Agreement or the TBA Agreement); provided that Sellers shall, if the failure of a Final Order to be issued prior to September 30, 2002 is not the result of -39- either Seller's breach of this Agreement or the TBA Agreement, have the right to extend such date until December 1, 2002 pursuant to written notice of such extension delivered to Buyer prior to September 30, 2002; or (e) by Buyer, if Buyer is not then in material breach of this Agreement or the TBA Agreement and either Seller is then in material breach of this Agreement or the TBA Agreement, and such breach remains uncured within thirty (30) days after receipt of written notice thereof from Buyer; provided that such 30-day period will be extended for a reasonable period of time if the breaching party is acting in good faith to cure and such delay is not materially adverse to the other party; or (f) by Sellers, if neither Seller is then in material breach of this Agreement or the TBA Agreement and Buyer is then in material breach of this Agreement or the TBA Agreement, and such breach remains uncured within thirty (30) days after receipt of written notice thereof from Sellers; provided that such 30-day period will be extended for a reasonable period of time if the breaching party is acting in good faith to cure and such delay is not materially adverse to the other party; or (g) by Buyer or Seller upon termination (other than in connection with Closing) of the TBA Agreement in accordance with the terms thereof. Notwithstanding anything herein or in the TBA Agreement, the Parties agree that if on such date which is the earlier of (i) the 10th day following the date on which the FCC has released public notice of its grant of assignment of the Station's FCC Licenses to Buyer, and (ii) April 30, 2002, the parties have not obtained the necessary consents from SpectraSite to consummate the transactions contemplated hereby (including with respect to Buyer's non-assumption of the obligations described in clause (H) to the definition of Assumed Liabilities) (provided that Sellers and their Affiliates shall not be required to provide any guaranty with respect to or in connection with the obtaining of such consents, as contemplated by Section 7.6(a)(ii) of the Master Site Lease Agreement which is part of the SpectraSite Agreements or otherwise), this Agreement may be terminated by Buyer or Sellers at any time following such date until such consents from SpectraSite are obtained (provided that the failure to obtain such consents is not the result of the terminating Party's breach of this Agreement or the TBA Agreement), and such termination shall be treated as a termination pursuant to Section 11.1(d) for the purposes of Section 11.2 hereof. 11.2 Rights on Termination; Waiver. (a) If this Agreement is terminated pursuant to Section 11.1(a), or 11.1(b) (and neither Seller is in material default of this Agreement) or 11.1(c) (and Buyer is not in material default of this Agreement), 11.1(d), or 11.1(g) (and neither Party is in material default under the TBA Agreement), all further obligations of the parties under or pursuant to this Agreement shall immediately terminate without further liability of any party to the other and the initial payment of $6,000,000.00 (together with interest thereon at a rate of 9% per annum) made pursuant to Section 2.2 hereof shall be returned promptly to Buyer (provided that any payment pursuant to the terms of Section 2.9 shall remain payable and shall be paid pursuant to the terms thereof). -40- (b) If this Agreement is terminated (or terminable in the case of clause (i) below) by Buyer pursuant to Section 11.1(b) (and either Seller is in material default of this Agreement), pursuant to Section 11.1(e), or pursuant to Section 11.1(g) (and Sellers are in material default under the TBA Agreement), then Buyer shall be entitled to (i) pursue the legal remedy of specific performance (in lieu of terminating this Agreement), or (ii) (A) be repaid by Sellers the initial payment of $6,000,000.00 made pursuant to Section 2.2 hereof (together with interest thereon at a rate of 9% per annum), and (B) claim and be paid an amount equal to its direct and actual damages (provided that any payment pursuant to the terms of Section 2.9 shall remain payable and shall be paid pursuant to the terms thereof). (c) If this Agreement is terminated by Seller pursuant to Section 11.1(c) (and Buyer is in material default of this Agreement), pursuant to Section 11.1(f), or pursuant to Section 11.1(g) (and Buyer is in material default under the TBA Agreement), then Sellers shall be entitled to keep as its sole liquidated damages hereunder and under the TBA Agreement, the sum of $6,000,000.00 paid pursuant to Section 2.2 (provided that any payment pursuant to the terms of Section 2.9 shall remain payable and shall be paid pursuant to the terms thereof). (d) The parties agree that the liquidated damages provided in Sections (b) and (c) above are intended to limit the claims that a non-defaulting party hereto may have against a defaulting party hereto in the circumstances described therein. The parties acknowledge and agree that the liquidated damages provided in such Sections bear a reasonable relationship to the anticipated harm, which would be caused by a breach of this Agreement and the TBA Agreement. The parties further acknowledge and agree that the amount of actual loss caused by a breach of this Agreement is incapable and difficult of precise estimation and that there would not be a convenient and adequate alternative to liquidated damages hereunder. 11.3 Further Assurances. From time to time after the Closing Date, upon the reasonable request of Buyer, Sellers shall execute and deliver or cause to be executed and delivered such further instruments of conveyance, assignment and transfer and take such further action as Buyer may reasonably request in order more effectively to sell, assign, convey, transfer, reduce to possession and record title to Buyer to any of the Purchased Assets. Sellers agree to cooperate with Buyer in all reasonable respects to assure to Buyer the continued title to and possession of the Purchased Assets in the condition and manner contemplated by this Agreement; provided, however, Sellers shall not be required to spend additional sums of money other than incidental expenses. 11.4 Survival. The obligations to indemnify contained in Article IX hereof, the agreements contained herein and, as limited by Article IX hereof, the representations and warranties made in this Agreement or made pursuant hereto shall survive the Closing and the consummation of the transactions contemplated by this Agreement, and any dissolution, merger or consolidation of Buyer or Sellers and shall bind the legal representatives, assigns and successors of Buyer and Sellers. 11.5 Entire Agreement; Amendment; Waivers. This Agreement, the TBA Agreement and the documents required to be delivered pursuant hereto constitute the entire agreement between the parties pertaining to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions of the parties, -41- whether oral or written, and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof, except as specifically set forth herein. No amendment, supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision of this Agreement, whether or not similar, unless otherwise expressly provided. 11.6 Expenses. Except as otherwise specifically provided herein, whether or not the transactions contemplated by this Agreement are consummated, each of the parties shall pay the fees and expenses of its respective counsel, accountants and other experts incident to the negotiation, drafting and execution of this Agreement, the TBA Agreement and consummation of the transactions contemplated hereby. 11.7 Benefit; Assignment. This Agreement shall be binding upon and inure to the benefit of and shall be enforceable by Buyer and Sellers and their respective proper successors and permitted assigns. This Agreement (and any rights, obligations or liabilities hereunder) may not be assigned or delegated in whole or in part by any party without the prior written consent of the other party; provided, however, that Buyer may, without such consent, assign its rights hereunder to (i) its lenders and (ii) after the Closing, to any other Person; provided further that Sellers may, without such consent, assign their rights hereunder to their lenders. 11.8 Confidentiality. (a) Buyer agrees that prior to Closing, Buyer and its Affiliates, respective agents and representatives shall only use for its or their own benefit (except when required by law, rule or regulation and except for use in connection with Buyer's financing of the transaction and Buyer's investigation of the Station and its assets in connection with this Agreement), and shall hold in strict confidence and not disclose (unless required under applicable laws or pursuant to a duly issued subpoena), (i) any data or information relating to Sellers, their Affiliates, or the Station obtained from Sellers or any of its directors, officers, employees, agents or representatives in connection with this Agreement, or (ii) any data and information relating to the business, customers, financial statements, conditions or operations of the Station which is confidential in nature and not generally known to the public (clauses (i) and (ii) together, "Sellers' Information"). If the transactions contemplated in this Agreement are not consummated for any reason, Buyer shall return to Sellers all data, information and any other written material obtained by Buyer from Sellers in connection with this transaction and any copies, summaries or extracts thereof, and shall refrain from disclosing any of Sellers' Information to any third party or using any of Sellers' Information for its own benefit or that of any other person, other than in connection with the filing of tax returns applicable to the Purchased Assets. (b) Sellers agree that Sellers and their Affiliates, agents and representatives shall only use for its or their own benefit (except when required by law, rule or regulation and except for use in connection with their investigations and review of Buyer in connection with this Agreement), and shall hold in strict confidence and not disclose (unless required under applicable laws or pursuant to a duly issued subpoena or in connection with obtaining any required third party consents or approvals or filing any tax returns), (i) any data or information, relating to Buyer or its Affiliates obtained from Buyer, or from any of its directors, officers, -42- employees, agents or representatives, in connection with this Agreement, or (ii) any data and information relating to the business, customers, financial statements, conditions or operations of the Station or the Buyer (including, without limitation, of the Station's operations under the TBA Agreement) which is confidential in nature and not generally known to the public (clauses (i) and (ii) together "Buyer's Information"). If the transactions contemplated in this Agreement are not consummated for any reason, Sellers shall return to Buyer all data, information and any other written material obtained by Sellers from Buyer in connection with this transaction and any copies, summaries or extracts, thereof and shall refrain from disclosing any of Buyer's Information to any third party or using any of Buyer's Information for its own benefit or that of any other person other than in connection with the filing of tax returns. (c) Notwithstanding any other provision to the contrary herein, the provisions of this Section 11.9 shall survive the termination of this Agreement. 11.9 Notices. All communications or notices required or permitted by this Agreement shall be in writing and shall be deemed to have been given (i) on the date of personal delivery to an officer of the other party, or (ii) if sent by telecopy or facsimile machine to the number shown below, on the date of such confirmed facsimile or telecopy transmission, or (iii) when properly deposited for delivery by commercial overnight delivery service, prepaid, or by deposit in the United States mail, certified or registered mail, postage prepaid, return receipt requested, on the date that is two days after the date set forth in the records of such delivery service or on the return receipt and addressed as follows, unless and until either of such parties notifies the other in accordance with this Section of a change of address or change of telecopy number: If to Buyer: Mission Broadcasting of Joplin, Inc. 544 Red Rock Drive Wadsworth, Ohio 44281 Attention: David Smith Telecopy No.: (330) 336-8454 With a copy to (which shall not constitute notice to Buyer): Arter & Hadden 1801 K Street, N.W. Washington, D.C. 20006-1301 Attention: Howard M. Liberman Telecopy No.: (202) 857-0172 Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022 Attention: John Kuehn Telecopy No.: (212) 446-4900 -43- If to Sellers: c/o GoCom Holdings, LLC 7621 Little Avenue, Suite 506 Charlotte, NC 28226 Attention: Ric Gorman Telecopy No.: (704) 341-0945 With a copy to (which shall not constitute notice to Sellers): Wyrick Robbins Yates & Ponton LLP 4101 Lake Boone Trail Suite 300 Raleigh, NC 27607 Attention: Stephen Brissette Telecopy No.: (919) 781-4865 And to: Cohn and Marks 1920 N Street, Suite 300 Washington, D.C. 20036-1622 Attention: Joel Levy, Esq. Telecopy No.: (202) 293-4827 11.10 Counterparts; Headings. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same Agreement. This Agreement may be executed and delivered in counterpart signature pages executed and delivered via facsimile transmission, and any such counterpart executed and delivered via facsimile transmission shall be deemed an original for all intents and purposes. The Table of Contents and Article and Section headings in this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 11.11 Income Tax Position. Neither Buyer nor Sellers shall take a position for income tax purposes which is inconsistent with this Agreement; provided, however that nothing contained herein shall require Buyer or Sellers to contest or litigate in any forum any proposed deficiency or adjustment by any taxing authority or agency that may challenge the manner in which the transactions under this Agreement are treated. 11.12 Severability. If any provision, clause or part of this Agreement or the application thereof under certain circumstances is held invalid, or unenforceable, the remainder of this Agreement, or the application of such provision, clause or part under other circumstances, shall not be affected thereby. 11.13 No Reliance. Except for (i) successors and any assignees permitted by Section 11.8 of this Agreement and (ii) lenders (and their successors and assigns) providing financing for the consummation of the transactions contemplated by this Agreement: (a) no third party is entitled to rely on any of the representations, warranties or agreements of Buyer or Sellers contained in this Agreement; and -44- (b) Buyer and Sellers assume no liability to any third party because of any reliance on the representations, warranties or agreements of Buyer and Sellers contained in this Agreement. 11.14 Judicial Interpretation. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be construed more strictly against the party which itself or through its agent prepared the same, it being agreed that the agents of each party have participated in the preparation hereof. 11.15 Saturdays, Sundays and Legal Holidays. If the time period by which any acts or payments required hereunder must be performed or paid expires on a Saturday, Sunday or legal holiday, then such time period shall be automatically extended to the close of business on the next regularly scheduled business day. 11.16 Governing Law. This Agreement shall be construed and interpreted according to the laws of the State of Delaware, without regard to the conflict of law principles thereof. -45- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. "BUYER" MISSION BROADCASTING OF JOPLIN, INC. By: /s/ David J. Smith ------------------------------ Name: David J. Smith Title: President "SELLERS" GOCOM BROADCASTING OF JOPLIN, LLC GOCOM OF JOPLIN LICENSE SUB, LLC By: /s/ Richard L. Gorman ------------------------------ Name: Richard L. Gorman Title: President The undersigned joins in the execution of this Agreement for the purpose of jointly, severally and directly guaranteeing to Buyer the full and prompt payment and performance of all of the indemnity obligations of Sellers under and with respect to this Agreement and the TBA Agreement. GOCOM BROADCASTING OF HUNTSVILLE, LLC By: /s/ Richard L. Gorman ------------------------------ Name: Richard L. Gorman Title: President EX-10.25 7 dex1025.txt TIME BROKERAGE AGREEMENT EXHIBIT 10.25 Execution Copy TIME BROKERAGE AGREEMENT By and Between GOCOM BROADCASTING OF JOPLIN, LLC, GOCOM OF JOPLIN LICENSE SUB, LLC and MISSION BROADCASTING OF JOPLIN, INC. December 31, 2001 TABLE OF CONTENTS 1. Overall Purpose and Term...............................................2 2. Station's Facilities...................................................2 3. Revenue................................................................3 4. Compensation...........................................................3 5. Responsibilities.......................................................4 (a) Broker's Responsibilities........................................4 (b) Owners' Responsibilities.........................................5 (c) Additional Responsibilities......................................6 (d) Renewal, Modification and Cancellation of Contracts..............6 6. Revenues and Deposits..................................................6 (a) Receipts from Broadcast Time Sales and Uses of Station's Studio/ Production Facilities............................................6 (b) Revenues; Bank Accounts..........................................6 7. Owners' Compliance With FCC Rules and Policies.........................7 8. Programming and the Public Interest....................................7 9. Special Programs.......................................................8 10. Station Identification.................................................8 11. Station Facilities.....................................................9 (a) Operation of Station.............................................9 (b) Interruption of Normal Operations................................9 (c) Studio Location..................................................9 12. Political Advertising..................................................9 13. Children's Programming.................................................9 14. Handling of Communications............................................10 15. Force Majeure.........................................................10 16. Trade Secrets and Proprietary Information.............................11 17. Payola and Conflicts of Interest......................................11 18. Broker's Compliance with Law..........................................12 19. Indemnification; Broker's Action......................................12 (a) Broker's Indemnification of the Owners..........................12 (b) The Owners' Indemnification of Broker...........................12 (c) Broker's Activities.............................................13 (d) Indemnification Procedures......................................13 (e) Insurance.......................................................13 20. Events of Default.....................................................13 (a) Insolvency......................................................13 (b) Breach or Default in Representations and Covenants..............14 (c) Non-Payment.....................................................14 (a) Termination Upon Event of Default...............................14 (b) Termination Upon Order of Governmental Authority................14 (c) Termination Upon Sale of Station................................15 22. Effect of Termination Other Than at Closing...........................15 (a) Reimbursement of Capital Expenditures...........................15 (b) Collection of Post-Commencement, Pre-Termination Receivables and Payment of Post-Commencement, Pre-Termination Payables......15 (c) Billing and Performance by Owners...............................16 (d) Collection and Application by Owners............................16 (e) Non-Interference................................................16 (f) Payment of Pre-Termination Payables.............................17 (g) Adjustment Amount...............................................17 (h) Reports: Adjustment Procedures.................................18 (i) Proration.......................................................19 (j) Condition of Property...........................................19 23. Advanced Television/High Definition Television........................19 24. Billing; Records......................................................19 25. Notices...............................................................20 26. Modification and Waiver...............................................21 27. Construction..........................................................21 28. Headings..............................................................21 29. Assignment; Change of Control.........................................21 30. Counterparts..........................................................21 31. Entire Agreement......................................................22 32. No Partnership or Joint Venture Created...............................22 33. Severability..........................................................22 34. Legal Effect..........................................................22 35. No Party Deemed Drafter...............................................22 36. Further Assurances....................................................22 EXHIBIT A -- Payment of Time Brokerage Fee EXHIBIT B -- Programming Standards EXHIBIT C -- ANTI-PAYOLA/PLUGOLA AFFIDAVIT TIME BROKERAGE AGREEMENT This TIME BROKERAGE AGREEMENT (this "Agreement") is entered into this 31st day of December, 2001, by and between GOCOM Broadcasting of Joplin, LLC, a Delaware limited liability company ("Operating Company"), GOCOM of Joplin License Sub, LLC, a Delaware limited liability company ("License Company") (each an "Owner" and collectively the "Owners") and Mission Broadcasting of Joplin, Inc., a Delaware corporation ("Broker"). Capitalized terms used but not otherwise defined shall have the meaning set forth in the Purchase Agreement (defined below). WHEREAS, the Owners are the owners and operators of television broadcast station KODE-TV, Joplin, Missouri, and assets relating thereto (the "Station"), pursuant to authorization(s) issued by the Federal Communications Commission ("FCC") to License Company; WHEREAS, the parties hereto have carefully considered the Communications Act of 1934, as amended (the "Communications Act"), and the FCC's rules and policies adopted pursuant thereto, and intend that this Agreement in all respects comply with said Communications Act and FCC rules and policies; WHEREAS, the Owners desire to enter into this Agreement to provide a regular source of diverse programming and income to sustain the operations of the Station; WHEREAS, Broker desires to provide an over-the-air program service to the Joplin, Missouri area using the facilities of the Station and personnel employed by Broker; WHEREAS, the Owners agree to provide time on the Station exclusively to Broker on terms and conditions that conform to policies of the Owners and the FCC for time brokerage arrangements and that are as set forth herein; WHEREAS, Broker agrees to provide broadcast programming of Broker's selection that conforms with the policies of the Owners and with all rules, regulations and policies of the FCC, and as set forth herein; WHEREAS, the Owners maintain, and shall continue to maintain during the term of this Agreement, ultimate control over the Station's facilities including control over the Station's finances and programming and the Owners' personnel; and WHEREAS, the parties hereto have entered into a Purchase and Sale Agreement dated as of the date of this Agreement (the "Purchase Agreement"), pursuant to which, subject to FCC approval, Broker is purchasing substantially all of the assets of the Station; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which the Owners and Broker hereby acknowledge, the Owners and Broker, intending to be bound legally, hereby agree as follows: 1. Overall Purpose and Term. In accordance with the terms and subject to the limitations set forth herein: (a) Broker shall provide certain programming to the Owners for the Station, promote the Station and its programming, sell commercial and other time on the Station and bill for and collect the payments for time sales on the Station; and (b) subject to direction and control by management personnel of the Owners, Broker will maintain the Station's transmitting and microwave relay facilities, and the Owners shall make such facilities available to Broker for purposes of its activities contemplated by this Agreement. Subject to the terms of this Agreement, each party hereby warrants and covenants that it will fulfill said obligations, and their other obligations specified herein, to the fullest extent permitted by law (including the FCC's rules and policies) in a diligent, reasonable manner. Broker shall begin its time brokerage activities with regard to the Station pursuant to this Agreement at 12:01 AM, Joplin, Missouri time, on the date hereof, and said date shall be referred to herein as the "Commencement Date" and such time shall be referred to as the "Commencement Time." Unless otherwise terminated pursuant to the terms hereof, the term of this Agreement shall be the period from the Commencement Date until the earlier of the Closing or the termination of the Purchase Agreement in accordance with its terms (the "Term"). 2. Station's Facilities. During the Term, the Owners shall make the Station's television broadcasting transmission facilities available to Broker for broadcast on the Station of programs required to be broadcast under the Contracts (subject to the terms and conditions of this Agreement, including, without limitation, the second paragraph of this Section 2), programs selected by Broker in accordance with the terms and conditions hereof and advertising/commercial announcements sold by Broker, which may originate from the Station's studios or from other sources contracted for by Broker. In addition, the Owners will make available to Broker, at no additional cost, during the Term, exclusive use (other than the Owners' own use for the Station consistent with this Agreement) of all of the Owners' studio and production facilities for Broker's use in its activities with regard to the Station pursuant to this Agreement. The Owners shall have the right to use such facilities as they deem appropriate in their sole discretion in connection with (i) the satisfaction of License Company's obligations as the FCC licensee of the Station (including the use of such facilities and adequate office space for the employees of the Owners that are required for the Owners to comply with their obligations under Section 5(b)(i)), (ii) the satisfaction of the Owners' obligations under the Affiliation Agreement (as defined in the Purchase Agreement), and (iii) the satisfaction of Owners' obligations under this Agreement, including the provision of Leased Employees (as defined below) as set forth in Section 5(b)(ii). Broker shall use due care in the use of any assets, property or facilities of the Owners, shall not commit waste or cause any damage with respect thereto or permit any other person or entity to commit waste or damage with respect thereto, and shall not remove, and shall not permit any other person or entity to remove, any of the Owners' assets, properties or facilities from the current locations thereof. Subject to the terms of this Agreement, and to applicable rules and policies of the FCC, Owners hereby sell and Broker hereby purchases up to one hundred and sixty eight (168) hours per week of programming or broadcast time on the Station commencing on the Commencement Date. The Owners shall broadcast the programming, including commercial 2 announcements, supplied, selected or procured by Broker without interruption, deletion, or addition of any kind, subject to the terms of this Agreement and Owners' obligations under the Communications Act and the FCC's rules and policies adopted pursuant thereto. All such programming supplied, selected or procured by Broker, including commercial announcements and programming which is the subject of the Contracts (other than the Affiliation Agreement), is sometimes referred to herein as the "Broker's Programming." Anything to the contrary in this Agreement notwithstanding, (i) Broker's Programming shall not include any programming provided to the Station by ABC under the Affiliation Agreement, and (ii) this Agreement and the transactions contemplated hereunder shall not effect an assignment of the rights or privileges of the Owners under the Affiliation Agreement, all of which remain with and inure to the benefit of the Owners (including all network compensation payments made by ABC pursuant thereto). Notwithstanding the foregoing paragraph, Owners shall produce or present up to two (2) hours per week of public affairs programming ("Owners' Public Affairs Programming") to be aired on the Station according to a schedule to be mutually established. Owners' Public Affairs Programming may be produced, presented or broadcast jointly by Owners and Broker. Owners' Public Affairs Programming shall respond to the issues, needs and interests of the Joplin, Missouri area, which Owners have ascertained. Notwithstanding anything herein to the contrary, until such time as the FCC has released public notice of its grant of assignment of the Station's FCC licenses to Broker under the Purchase Agreement and the parties have obtained the consents from SpectraSite as contemplated by the last paragraph of Section 11.1 of the Purchase Agreement, Broker shall not combine or consolidate any of the Station's operations or activities (including, without limitation, sales or programming efforts or activities) with any person or entity (including any other television station), except with the prior written consent of the Owners. 3. Revenue. Broker shall be entitled to all revenues resulting from the sale of advertising and other time on the Station during the Term, including, without limitation, all revenue from the sale of advertising and other time during the Owners' Public Affairs Programming or other programming provided by the Owners pursuant to Sections 8(b) or 9 hereof (collectively, "Owners' Programming"), or otherwise resulting from the operation of the Station during the Term other than in connection with the Affiliation Agreement. All accounts receivable of the Owners as of Commencement Time and all proceeds and collections thereof shall be collected and accounted for as provided in Sections 2.9 and 11.2 of the Purchase Agreement. 4. Compensation. As consideration for the Owners permitting Broker to broadcast Broker's Programming on the Station pursuant to the terms of this Agreement and receiving the revenues generated therefrom as provided in this Agreement, Broker shall pay to the Owners the amounts described on Exhibit A attached hereto (collectively, the "Time Brokerage Fees"). 3 5. Responsibilities. (a) Broker's Responsibilities. (i) Broker shall employ and be responsible for paying the salaries, commissions, payroll taxes, insurance and all other related costs for employees of Broker engaged in Broker's time brokerage activities hereunder, including, without limitation, the employees of the Station hired from Owners under Section 10.2 of the Purchase Agreement. (ii) Broker shall acquire, compile, develop, produce, provide, broadcast and sell, and deliver to the Station, the Broker's Programming and commercial messages and shall be responsible for and shall pay any and all expenses incurred in connection therewith, including, without limitation, (i) all ASCAP, BMI, SESAC and other copyright fees associated with the delivery of such programming, (ii) all expenses incurred in connection with the sale of advertising time (including, without limitation, sales commissions) on the Station, and (iii) the salaries, taxes, insurance and related costs and expenses for all personnel (other than Owners' personnel) used in production of programming and all sales personnel (including, without limitation, salespeople, account executives, traffic personnel and programming staff). The Owners shall not incur any liability on account of Broker's employees. (iii) Subject to the last sentence of Section 19(a) and the terms and conditions of this Agreement (including, without limitation, the second paragraph of Section 2), in performing its obligations hereunder, Broker shall use commercially reasonable efforts to, or to cause the Owners and the Station to, adhere to and fulfill all of the terms, conditions and obligations under all Contracts and Leases. Subject to the last sentence of Section 19(a) and the terms and conditions of this Agreement (including, without limitation, the second paragraph of Section 2), and without limiting the generality of the foregoing sentence, Broker (i) agrees to utilize the films and programs subject to the Contracts in compliance with the terms, conditions and obligations of such Contracts, and (ii) shall use commercially reasonable efforts to not cause a breach of the Affiliation Agreement by Owners or the Station. Broker shall enter into all new programming agreements and arrangements in its own name and not in the name of the Owners or the Station. 4 (b) Owners' Responsibilities. Without limiting Broker's obligation to pay the Time Brokerage Fees: (i) The Owners shall employ and be responsible for paying the salaries, commissions, payroll taxes, insurance and all other related costs of their employees necessary to fulfill License Company's obligations as licensee of the Station under the Communications Act, including a general or station manager for the Station and such other personnel (not less than one) as the Owners determine may be necessary to fulfill such obligations. (ii) In addition to the Owners' employment of certain employees as provided in Section 5(b)(i) above, from and after the Commencement Date through the earlier of such time as Broker employs and hires or is required to employ and hire Eligible Employees (as defined in Section 10.2 of the Purchase Agreement) pursuant to the terms and provisions of Section 10.2 of the Purchase Agreement (the "Leased Employee Period"), the Owners will use commercially reasonable efforts to make available to Broker all Eligible Employees (each of whom shall be a "Leased Employee" and collectively the "Leased Employees") until the earlier of (x) the date such Leased Employee's employment with the Licensee terminates, whether because of the hiring and employment of Leased Employees as provided in Section 10.2 of the Purchase Agreement or otherwise, or (y) the termination of this Agreement as provided in Section 21 below. Notwithstanding the employer/employee relationship that exists between the Leased Employees and the Owners, Broker will, subject to applicable FCC rules, regulations and policies, have the authority to supervise, direct and control the Leased Employees to the extent necessary for Broker to fulfill its rights and obligations under this Agreement; provided, however, that the Owners shall have sole discretion to make and effectuate all staffing and personnel decisions involving employees or independent contractors employed or retained by the Owners in connection with the operation of the Station, and Broker shall have no control or right of review whatsoever over any decision by the Owners to hire or to dismiss or terminate any Leased Employee. During the Leased Employee Period, each Leased Employee shall receive substantially the same benefits and other consideration from the Owners to which such employee was entitled to from the Owners prior to the Leased Employee Period (provided that if the Owners and their affiliates make changes to the benefits offered to all of their employees, such changes shall apply to the Leased Employees as well. 5 (iii) The Owners shall be responsible for the payment of all expenses of operating and maintaining the Station during the Term and as necessary for the Owners to maintain licensed transmitting capability of the Station and to fulfill License Company's obligations as an FCC licensee. (c) Additional Responsibilities. (i) Each of the Owners and Broker shall be fully responsible for the supervision and direction of their respective employees. (ii) Broker and the Owners shall pay their respective expenses with regard to the Station and in no event will any such payable remain unpaid for more than thirty (30) days after it is due unless such payable is being disputed in good faith. (d) Renewal, Modification and Cancellation of Contracts. The Owners will comply with all reasonable requests of Broker with respect to the renewal and cancellation of Contracts (in accordance with their terms) other than the Affiliation Agreement, or the entry into or the modification of such Contracts, which affect Broker's time brokerage activities with regard to the Station pursuant to this Agreement. Notwithstanding anything herein to the contrary, with respect to the Affiliation Agreement, the Owners and the Broker agree that if at any time during the Term the Affiliation Agreement terminates, the Owners and the Broker shall use their reasonable good faith best efforts to cooperate with each other in the procurement of, negotiation of, and the agreement on, a new network affiliation agreement with respect to the Station. 6. Revenues and Deposits. (a) Receipts from Broadcast Time Sales and Uses of Station's Studio/ Production Facilities. During the Term of the Agreement, Broker shall have the exclusive right to sell, either directly or indirectly through sales representatives, all programs and commercials aired on the Station (whether during programming selected by Broker or programming selected by the Owners), and production fees for uses of the Station's studio/production facilities, whether aired or earned before or during the Term. Broker may contract and bill in its own name for the sale of broadcast time on the Station and uses of the Station's studio/production facilities. (b) Revenues; Bank Accounts. Broker may deposit any revenues it receives pursuant to Section 6(a) above or otherwise with respect to the Station into a bank account (or accounts) of Broker established by Broker, in Broker's name, for this purpose (the "Broker's Bank Account(s)"), and the funds in such Broker's Bank Account(s) shall be the property of Broker. Broker shall be authorized to endorse payments received in names other than Broker's (e.g., "KODE," or "KODE-TV") in order to deposit such payments into the Broker's Bank Account(s). 6 7. Owners' Compliance With FCC Rules and Policies. The Owners shall comply in all material respects with all FCC rules and policies applicable to the Station. In this regard, without limiting the foregoing sentence, the Owners shall be responsible for ascertaining the needs and interests of KODE's service area, maintaining its political broadcasting and public inspection files and maintenance logs, setting political advertising policies (subject to Section 12 below), preparing the quarterly issues/programs lists and children's programming reports and making all required FCC filings with regard to the Station. 8. Programming and the Public Interest. (a) Broker acknowledges and agrees that Broker shall enter into all new permitted programming agreements and arrangements in its own name and not in the name of the Owners or the Station. Throughout the Term, unless otherwise agreed to by the parties hereto in writing, Broker shall, subject to the Contracts and the other terms and conditions of this Agreement, program the Station so as to maintain a general, advertiser-supported, national network-affiliated, entertainment/sports format, with some mix permitted of home shopping, religious, foreign language and infomercial programming. The Station shall not become predominantly a home shopping, religious, foreign language and/or infomercial television station. The programming selected by Broker or at its discretion shall consist of such materials as are determined by Broker to be appropriate and/or in the public interest including, without limitation, public affairs programming, public service announcements, entertainment, news, weather reports, sports, promotional material, commercial material and advertising. (b) Following the Commencement Date, Broker's management personnel as designated by Broker will meet at least weekly with Owners' Station Manager in order to help formalize the Owners' oversight over Broker's activities at the Station. At such meetings, the Owners will, among other things, (i) provide Broker with the results of Owners' ongoing efforts to ascertain the problems, needs and interests of KODE's service area, so that the programming and public service announcements selected and/or scheduled by Broker for the Station will be responsive thereto, (ii) inform Broker of all views, comments, suggestions and complaints concerning Broker's Programming actually received by the Owners, (iii) provide suggestions for future public service programs and public service announcement campaigns, and (iv) review Broker's Programming for children. In the event the Owners determine that additional attention should be directed to particular community needs, Broker will cooperate to assure that the Station's locally-produced programming serves those needs. If the Owners acquire syndicated programming in addition to Owners' Public Affairs Programming, then all expenses for such additional programming will be paid by the Owners and will not be included in the reimbursements due the Owners under this Agreement (as part of the Time Brokerage Fees). Such programs will be aired on the Station at a mutually agreeable time between 6:00 AM and 12:00 midnight Central time. Broker shall be entitled to any and all revenues received from time sales of or during any such programs to the extent such revenues exceed Owners' reasonable out-of-pocket costs of obtaining such additional syndicated programming. (c) Broker shall provide the Owners promptly with all documents Broker receives which are required to be placed in KODE's political or public inspection files. Broker shall, upon 7 reasonable request by Owners, provide Owners with information with respect to programs and public service announcements broadcast on the Station which are responsive to the problems, needs and issues facing the residents of the Station's service area and Broker's Programming for children, so as to assist the Owners in the preparation of required programming reports, and will assist Owners upon request in compiling such other information which is reasonably necessary to enable Owners to prepare other records and reports required by the FCC or other government agencies. (d) Anything in this Agreement to the contrary notwithstanding, the Owners shall have the full and unrestricted right to reject, delete and not broadcast any material contained in any part of Broker's Programming which the Owners in good faith determine would be contrary to law (including, without limitation, the rules, regulations and policies of the FCC) or the public interest. The Owners shall retain ultimate control over the Station's policies and standards, and, in that regard, shall adopt written standards, generally in accordance with industry standards for commercial television broadcast stations, in substantially the same form and substance as Exhibit B attached hereto, for the acceptance of programming material and commercial announcements. Broker hereby covenants, warrants and represents that with regard to the Station it will, at all times during the Term, comply in all material respects with such standards for acceptance of Broker's Programming, and, further, all Broker's Programming shall be in accordance with all applicable law, including, without limitation, the rules, regulations and policies of the FCC. 9. Special Programs. Anything in this Agreement to the contrary notwithstanding, the Owners reserve the right, in good faith, to preempt Broker's programs for the Station to broadcast special programs on occasion concerning issues or events of local, regional or national importance in the event that Broker does not broadcast the same on its own initiative or in the event that the Owners reasonably determine in good faith that the amount of Broker's coverage of such issues or events on the Station is inadequate; provided however, that in all such cases, the Owners will use their commercially reasonable efforts to give Broker reasonable notice of their intention to preempt programs scheduled by Broker. 10. Station Identification. The Owners will be responsible for the proper broadcast of FCC-required station identification announcements on the Station; provided, however, that Broker, while conducting its activities with regard to the Station pursuant to this Agreement, shall broadcast all required station identification announcements in form and content approved by the Owners with respect to the Station in full compliance with FCC rules, regulations and policies. 11. Station Facilities. (a) Operation of Station. Subject to Section 1(b), during the Term, the Owners shall maintain the Station at least at ninety percent (90%) of the Station's currently authorized effective radiated power, for the entire time that the Station is on the air, except for downtime occasioned by required maintenance and other interruptions contemplated by Section 11(b) below and events described in Section 15 of this Agreement. Any routine or non-emergency maintenance work affecting operation of the Station at full power shall be scheduled with at least forty-eight (48) hours prior notice to Broker, and, to the extent possible, shall not take place during a rating period; 8 and to the extent possible the Owners shall cause such maintenance work to be performed between the hours of 1:00 AM and 6:00 AM Central time. (b) Interruption of Normal Operations. If the Station suffers any loss or damage of any nature to its transmission or studio facilities which results in the interruption of service or the inability of the Station to operate with its maximum authorized facilities (other than damage or destruction caused by Broker), the Owners shall proceed to make such repairs as are necessary to restore full-time operation of such Station with its maximum authorized facilities as promptly as is commercially reasonable following the occurrence of any such loss or damage. If the Owners are unable to or do not commence such repairs as set forth above, Broker may undertake such repairs at its own expense. (c) Studio Location. The Owners shall maintain a main studio facility in accordance with the Communications Act and the FCC's rules and policies, and shall staff said main studio consistent with the FCC's rules and policies. 12. Political Advertising. Broker shall maintain and deliver to the Owners all records and information required by the FCC to be placed in the public inspection file of the Station pertaining to the broadcast of political programming and advertisements, and to the broadcast of programming addressing political issues, in accordance with Sections 73.1943 and 73.3526 of the FCC's rules. Broker shall consult and cooperate with the Owners and comply with all applicable statutes, and the rules, regulations and policies of the FCC, as announced from time to time, with respect to the carriage of political advertisements and programming and the charges therefor. Broker promptly shall supply to the Owners such information and documentation relating to such programming, political advertisements and the charges therefor as the Owners are required to maintain in their public inspection file or as they may reasonably request. In the Owners' sole discretion, Broker shall release advertising availabilities and program time as required by the FCC's rules and policies to permit the Station to comply with the reasonable access provisions of Section 312(a)(7) of the Communications Act and the equal opportunities provision of Section 315 of the Communications Act and the rules and policies of the FCC promulgated thereunder. 13. Children's Programming. (i) Broker agrees that it will not broadcast advertising on the Station within programs designed for children age twelve (12) years or under in excess of the amounts permitted under the FCC's rules, (ii) Broker will pre-screen children's programming broadcast on the Station during the hours it is providing such programming, to establish that advertising will not be broadcast in excess of the applicable FCC rules, and (iii) Broker agrees to broadcast sufficient children's programming on the Station to be in full compliance with the rules and policies of the FCC. Broker shall be responsible for providing all necessary information and documentation with respect to children's programming to the Owners to enable Owners to prepare all reports and certifications required to be placed in the Station's public inspection file. Such reports and certifications shall include, without limitation, the following: (a) a quarterly report on children's programming pursuant to Section 73.3526(e)(11)(iii) of the FCC's rules; and (b) a certificate with respect to compliance with advertising limits in children's programs pursuant to Section 73.3526(e)(11)(ii) of the FCC's rules. Broker shall provide the Owners with information 9 regarding the titles of all children's programs carried on the Station in the past quarter in which the advertising limits apply, both local and network, all program segments during which the allowed commercial limits were exceeded, and a separate memo explaining why any excesses occurred. In carrying out its obligations with respect to children's programming, Broker shall further maintain records with respect to commercial matter in children's programming either in the form of logs of programs reflecting the commercial time, tapes of the programs, lists of commercial minutes aired in identified children's programs, or appropriate certificates from networks and syndicators with respect to compliance with the FCC's requirements on commercial limits. 14. Handling of Communications. Broker and the Owners shall cooperate in promptly responding to all mail, emails, telegrams or telephone calls directed to the Station in connection with Broker's Programming, Broker or any other matter relevant to Broker's responsibilities and obligations under this Agreement. Broker shall promptly provide copies of all such correspondence that it receives to the Owners, and the Owners shall promptly provide copies of all such correspondence that they receive to Broker. Promptly upon receipt, Broker shall advise the Owners, and the Owners shall advise Broker, of any public or FCC complaint or inquiry known to Broker or the Owners, as applicable, concerning Broker's Programming, and each shall provide the other with copies of any letters from the public, including complaints concerning Broker's Programming. Upon the Owners' request, Broker shall broadcast material responsive to such complaints and inquiries relating to FCC complaints and any other matters required to be handled by the Owners under the rules and regulations of the FCC. 15. Force Majeure. If there occurs any failure or impairment of facilities for broadcast or any delay or interruption in the broadcast of programs, any failure at any time to furnish facilities for broadcast or any other failure by the Owners to perform any of their obligations under this Agreement, in each case due to causes beyond the control of the Owners (including, without limitation, by reason of any fire, strike, labor unrest, embargo, civil commotion, rationing or other order or requirement, act of civil or military authorities, act of God, or other contingencies beyond the control of the Owners), then such failure, impairment, delay or interruption, by itself, shall not constitute a breach of, a default or an Event of Default of the Owners under this Agreement and the Owners will not be liable to Broker for any such failure, impairment, delay or interruption so long as (if the Owners elect to remedy such failure, impairment, delay or interruption) the Owners undertake and continue reasonable efforts to remedy any such failure, impairment, delay or interruption by returning the Station to their condition prior to such damage. Promptly thereafter, if the Owners elect to do so by written notice to Broker, the Owners will obtain any applicable insurance proceeds and apply such proceeds to the cost of remedying such failure, impairment, delay or interruption; provided that, if the Owners determine that they will not do so, the Owners will give Broker prompt written notice of such determination. If the Owners elect not to remedy such failure, impairment, delay or interruption (or if the Owners make no election prior to the 10th day after such failure, impairment, delay or interruption occurs), then Broker may elect to obtain such insurance proceeds and effect such remedy by giving the Owners written notice to that effect. 16. Trade Secrets and Proprietary Information. In the event that: (a) any trade secrets or other proprietary information of Broker in connection with this Agreement become known to the 10 Owners, and (b) such trade secrets and/or proprietary information are not otherwise available in the public domain or known publicly, the Owners agree to maintain the confidentiality of such trade secrets and/or proprietary information and not to use or disclose any such trade secrets and/or proprietary information without the prior written consent of Broker (except as required by law, rule or regulation, or by order of any government agency or court or for filing tax returns or enforcing their rights and remedies under this Agreement). In the event that: (i) any trade secrets or other proprietary information of the Owners in connection with this Agreement become known to Broker, and (ii) such trade secrets and/or proprietary information are not otherwise available in the public domain or known publicly, Broker agrees to maintain the confidentiality of such trade secrets and/or proprietary information and not to use or disclose any such trade secrets and/or proprietary information without the prior written consent of the Owners (except as required by law, rule or regulation, or by order of any government agency or court or for filing tax returns or enforcing its rights and remedies under this Agreement). The provisions of this Section 16 shall continue in effect for two (2) years after the termination of this Agreement. 17. Payola and Conflicts of Interest. Each of Broker and the Owners agrees not to, and to use reasonable efforts to cause its employees who have the ability to cause the broadcast of programs and/or commercial matter on the Station not to, accept any consideration, compensation or gift or gratuity of any kind whatsoever, regardless of its value or form, including, but not limited to, a commission, discount, bonus, material, supplies or other merchandise, services or labor (collectively, "Consideration"), whether or not pursuant to written contracts or agreements between Broker, the Owners and merchants or advertisers, in consideration for the broadcast of any matter on the Station unless the payor is identified, in the broadcast for which Consideration was provided, as having paid for or furnished such Consideration, in accordance with Sections 317 and 507 of the Communications Act [47 U.S.C. ss.ss. 317 and 508] and the FCC's rules and policies. Broker agrees to execute, and, as a condition of each such employee's employment, to cause each of Broker's employees to execute, at least once every calendar year, a payola/conflict of interest affidavit in the form attached hereto as Exhibit C, and Broker agrees to deliver the originals of all such affidavits to the Owners as expeditiously as possible following their execution. 18. Broker's Compliance with Law. Broker agrees that all activities, actions, operations and transactions taken or entered into by Broker pursuant hereto will comply in all respects with the Communications Act of 1934, as amended, and the published rules and policies of the FCC (collectively, the "Communications Laws") and all other applicable federal, state and local laws, statutes, ordinances, rules and regulations, and all applicable court or administrative orders or processes, and Broker shall not take any action that would cause the Owners, the Station, or, in respect of the Station, the Broker to violate or conflict with any Communications Laws or any other such laws, statutes, ordinances, rules, regulations, orders or processes. 11 19. Indemnification; Broker's Action. (a) Broker's Indemnification of the Owners. Broker will indemnify and hold harmless the Owners and the Owners' employees, agents, officers, contractors and affiliates from and against any and all liability, claims, losses, damages and causes of action including but not limited to reasonable attorney's fees (collectively, "Losses") arising out of or related to (i) any material breach or default by Broker of any of its representations, warranties, covenants or agreements made in this Agreement, (ii) Broker's Programming and commercial advertisements provided, furnished or sold by Broker, and (iii) the conduct and activities of Broker, its employees, contractors or agents (including negligence and including conduct and activities of the Leased Employees except to the extent directed by the officers of the Owners or their affiliates). Without limiting the generality of the foregoing, Broker will indemnify and hold harmless the Owners and the Owners' employees, agents, officers, contractors and affiliates from and against any and all Losses for libel and slander, infringement of trademarks, service marks or trade names, invasion or violation of rights of privacy or infringement of copyrights and other proprietary rights resulting from Broker's Programming or commercial advertisements provided, furnished or sold by Broker. Broker's obligation to indemnify and hold harmless the Owners and the Owners' employees, agents, officers, contractors and affiliates from and against the Losses specified above shall survive any termination of this Agreement until the expiration of all applicable statutes of limitation. Notwithstanding anything herein to the contrary, Broker shall not be required to indemnify the Owners or their employees, agents, officers, contractors or affiliates with respect to Losses relating to the terms of this Agreement or any other Agreement approved by the Owners entered into in connection hereto being in conflict with, or resulting in a breach or default of, any contract or agreement to which the Owners or their affiliates are party to or bound by; provided further that no such conflict, breach or default shall be deemed to be a breach of any provision of this Agreement. (b) The Owners' Indemnification of Broker. Subject to Section 19(c) below, the Owners will indemnify and hold harmless Broker and Broker's employees, agents, officers, contractors and affiliates from and against any and all Losses arising out of or related to (i) any material breach or default by the Owners of any of their representations, warranties, covenants or agreements made in this Agreement, (ii) the Owners' Programming provided or furnished by the Owners under this Agreement, and (iii) the conduct and activities of the Owners, their employees, contractors or agents (including negligence) (except, with respect to Leased Employees, to the extent such employees' conduct and activities are not directed by officers of the Owners or their affiliates). Without limiting the generality of the foregoing, the Owners will indemnify and hold harmless Broker and the Broker's employees, agents, officers, contractors and affiliates from and against any and all Losses for libel and slander, infringement of trademarks, service marks or trade names, invasion or violation of rights of privacy or infringement of copyrights and other proprietary rights resulting from the Owners' Programming provided or furnished by the Owners under this Agreement. The Owners' obligation to indemnify and hold harmless Broker and Broker's employees, agents, officers, contractors and affiliates from and against the Losses specified above shall survive any termination of this Agreement until the expiration of all applicable statutes of limitation. 12 (c) Broker's Activities. Notwithstanding any provision of this Agreement to the contrary, none of the following shall be deemed a default, Event of Default (as defined below) or breach of the Owners' representations, warranties, covenants or agreements under this Agreement: (i) any fact or circumstance that occurs as a result of either any action or omission to act by Broker pursuant to this Agreement, or by virtue of Broker's activities or operations with respect to the Station, or (ii) without limiting the foregoing clause (i), any failure of the Owners to comply with the terms of this Agreement including, without limitation, Section 5(b)(iii), which is caused by Broker's failure to pay the Time Brokerage Fees as required by the terms of this Agreement. (d) Indemnification Procedures. The procedures for making a claim for indemnification under Sections 19(a) and 19(b) and defending and settling any third-party claim of this Agreement shall be governed by the provisions set forth in Sections 9.3 and 9.4 of the Purchase Agreement, as applicable. (e) Insurance. Broker and the Owners each shall maintain broadcasters' liability insurance policies covering libel, slander, invasion of privacy and the like, general liability, blanket crime, property damage, business interruption, automobile liability, and workers' compensation insurance in forms and amounts customary in the television broadcast industry (in Broker's case to the extent commercially reasonable, for example Broker shall not be required to get insurance specifically with respect to property it doesn't own), and each of the parties hereto shall name the other as an additional insured under such policies to the extent that their respective interests may appear and shall provide for notice to the other party prior to cancellation thereof. Upon request, each party shall provide the other with certificates evidencing such insurance, and shall further provide certificates evidencing renewal thereof prior to the expiration of such policies. 20. Events of Default. There shall exist an "Event of Default" under this Agreement if (after the expiration of any applicable cure period): (a) Insolvency. Either party hereto (i) makes a general assignment for the benefit of creditors or (ii) files or has filed against it a petition for bankruptcy, for reorganization or for the appointment of a receiver, trustee or similar creditors' representative for the property or assets of such party under any federal or state insolvency law, which if filed against such party has not been dismissed or discharged within sixty (60) days thereafter; or (b) Breach or Default in Representations and Covenants. Broker or, subject to Section 19(c) above, the Owners breach any material representation or warranty made by it or them in this Agreement, or in any certificate or document furnished by any of them to the other pursuant to this Agreement, or default in the observance or performance of any material covenant, agreement, condition or undertaking contained in this Agreement; provided, however, that an Event of Default shall not be deemed to have occurred under this Section 20(b) until fifteen (15) days after the non-defaulting party has provided the defaulting party with written notice specifying the event or events that, if not cured, would constitute an Event of Default, and such event has not been cured within such time period. The 15-day period described above will be extended for a reasonable period of 13 time if the defaulting party is acting in good faith to cure and such delay is not materially adverse to the other party; or (c) Non-Payment. Broker's failure to timely pay any of the Time Brokerage Fees; provided, however, that an Event of Default shall not be deemed to have occurred under this Section 20(c) until five (5) days after the Owners have provided Broker with written notice specifying such non-payment that, if not cured, would constitute an Event of Default, and such non-payment has not been cured within such time period; or 21. Termination. In addition to any other remedies available to the parties hereto at law or in equity, this Agreement may be terminated as set forth below by either Broker or the Owners by written notice to the other party (if in the case of Section 21(a) below, the party seeking to terminate is not then in material default or breach hereof or of the Purchase Agreement): (a) Termination Upon Event of Default. Upon the occurrence of an Event of Default, the non-defaulting party may terminate this Agreement, provided that it is not also in material breach of this Agreement or the Purchase Agreement, and provided further that if the matter of whether an Event of Default has occurred is the subject of a dispute pursuant to this Agreement, then this Agreement will terminate on the thirtieth (30th) day after the final determination that such Event of Default has occurred. (b) Termination Upon Order of Governmental Authority. A "Governmental Termination Event" will occur if any court or federal, state or local government authority (including the FCC) orders or takes any action which becomes effective and which requires the termination or material curtailment of Broker's activities with respect to the Station pursuant to this Agreement; provided that such order or action will no longer constitute a Governmental Termination Event if such action or order is subsequently stayed or ceases to be effective. If any court or federal, state or local government authority announces or takes any other action or proposed action which is reasonably likely to result in a Governmental Termination Event, then either Broker or the Owners may seek administrative or judicial relief therefrom (in which event the other of them shall cooperate with such effort in any reasonable manner requested) and consult with such agency and its staff concerning such matters and, in the event that this Agreement is not terminated as provided herein, use their reasonable best efforts and negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portions hereof the validity of which are called into question. If the FCC designates the license renewal application of the Station for a hearing as a consequence of this Agreement or for any other reason, or initiates any revocation or other proceeding with respect to the authorizations issued to the Owners for the operation of the Station, then the Owners and Broker shall each use diligent, reasonable efforts to contest such action, and shall each be responsible for its own expenses incurred as a consequence of such FCC proceeding. Broker shall cooperate and comply with any reasonable request of the Owners to assemble and provide to the FCC information relating to Broker's performance under this Agreement. In the event of termination of Broker's activities with respect to the Station pursuant to this Agreement as a result of any Governmental Termination Event, the Owners shall cooperate 14 reasonably with Broker to the extent permitted to enable Broker to fulfill advertising or other programming contracts then outstanding. If a Governmental Termination Event occurs, then the Term will continue until the date upon which the activities of Broker and the Owners are required to be ceased, as mandated by the agency or authority which brought about such Governmental Termination Event. (c) Termination Upon Sale of Station. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall automatically terminate (except for the provisions of Sections 16, 19 and 22, which shall survive any such termination) upon the consummation of the Closing or the earlier termination of the Purchase Agreement. Anything to the contrary herein notwithstanding, no expiration or termination of this Agreement shall terminate the obligation of each party to indemnify the other as provided in this Agreement or limit or impair any party's rights to receive payments due and owing or accruing under this Agreement on or before the date of such termination (including, without limitation, Broker's obligation to pay all of the Time Brokerage Fees that have accrued or are owed on or before the date of such termination), which rights and obligations shall survive any such expiration or termination of this Agreement. 22. Effect of Termination Other Than at Closing. If this Agreement terminates other than at Closing: (a) Reimbursement of Capital Expenditures. Owners shall reimburse Broker, within twenty (20) days of notice and documentation from Broker, for capital expenditures for the Station (including those described in Section 23 below) which Broker paid pursuant to this Agreement or the Purchase Agreement, either directly (to the extent approved by Owners, which approval Owners will not unreasonably withhold) or by reimbursing Owners, and upon reimbursement thereof by the Owners, Broker shall assign, transfer and convey to the Owners good and marketable title to any property purchased with such capital expenditures free and clear of any and all liens, charges, security interests and encumbrances. (b) Collection of Post-Commencement, Pre-Termination Receivables and Payment of Post-Commencement, Pre-Termination Payables. The following procedures hereinafter set forth in this Section 22 will apply with respect to the accounts receivable of the Station pursuant to contracts pursuant to which commercial air time of the Station has been sold or traded in consideration for any property or services in lieu of or in addition to cash and cash equivalents (the "Trade Contracts") as of the time (the "Termination Time") at which this Agreement terminates other than at Closing (the "Pre-Termination Trade Receivables"), the other accounts receivable of the Station as of the Termination Time (the "Pre-Termination Receivables"), the accounts payable of the Station pursuant to Trade Contracts as of the Termination Time (the "Pre-Termination Trade Payables"), and the other current liabilities of Broker, with respect to the Station, as of the Termination Time (the "Pre-Termination Payables"), in each case excluding those accounts receivable and accounts payable existing as of the Commencement Time and in each case as determined in accordance with Section 2.4 of the Purchase Agreement and Section 22(i) of this 15 Agreement. The Time Brokerage Fee will not be a Pre-Termination Receivable or a Pre-Termination Payable. (c) Billing and Performance by Owners. From and after the Termination Time, on behalf of Broker, Owners, at no charge to Broker, will (in accordance with Owners' standard billing procedures for the Station) issue invoices for advertising time sold and provided by the Station prior to the Termination Time and not invoiced by Broker prior to the Termination Time, and will use their respective commercially reasonable efforts to cause the Station to perform Broker's obligations with respect to the Pre-Termination Trade Payables. (d) Collection and Application by Owners. Effective at the Termination Time, Broker shall assign to Owners the Pre-Termination Receivables and the Pre-Termination Trade Receivables. During the four months after the Termination Time (the "Collection Period"), Owners will use commercially reasonable efforts in accordance with their normal business practices (not including resorting to or threatening litigation) to collect the Pre-Termination Receivables. Owners will not be required to segregate the proceeds of the collection of the Pre-Termination Receivables from other funds of Owners. Collections from any Person which is a debtor with respect to a Pre-Termination Receivable (a "Pre-Termination Debtor") will be applied in the chronological order of Owners' and Broker's billings to such Pre-Termination Debtor (i.e., to the oldest unpaid billing first) except to the extent that (i) such Pre-Termination Debtor disputes its obligation to pay such billing or (ii) such Pre-Termination Debtor indicates that such payment is to be applied in another, specified manner (in which case it will be applied in such manner). Owners will take no action to encourage a Pre-Termination Debtor to dispute its obligation to pay any billing that relates to a Pre-Termination Receivable or encourage a Pre-Termination Debtor to specify that any payment from such Pre-Termination Debtor is to be applied to billings to such Pre-Termination Debtor other than in their chronological order. (e) Non-Interference. So long as Owners are in compliance with this Section 22, during the Collection Period, neither Broker nor any agent of Broker will make any direct solicitation of any Pre-Termination Debtor for purposes of collecting any Pre-Termination Receivable, except as may be agreed to by Owners and except with respect to Delinquent Accounts. "Delinquent Accounts" means those Pre-Termination Receivables which may be or become more than 180 days past due and those accounts with respect to which Owners have received written notice of a dispute from the related Pre-Termination Debtor (a copy of which notice Owners will promptly forward to Broker). Owners will not discourage any Pre-Termination Debtor from paying, or otherwise interfere with Broker's efforts in accordance with this Section 22 to collect, any Delinquent Account; provided that Owners will not be prohibited from ceasing or altering their methods of doing business with any such Pre-Termination Debtor or pursuing or taking any action in connection with the collection of any amount which may be owing by any such Pre-Termination Debtor to Owners or any of Owners' Affiliates. (f) Payment of Pre-Termination Payables. During the Collection Period, Owners will pay and discharge the Pre-Termination Payables as and when the same become due and payable. For this purpose, Owners may utilize the proceeds of the collection of the Pre-Termination 16 Receivables and/or other funds of Owners; provided that Owners shall not be required to expend in the payment or discharge of Pre-Termination Payables an amount in excess of the proceeds of the Pre-Termination Receivables actually received by them. (g) Adjustment Amount. The "Net Adjustment" means the following: (i) the aggregate amount of the proceeds of the Pre-Termination Receivables actually received by Owners during the Collection Period, reduced by (ii) the aggregate amount actually paid by Owners during the Collection Period in satisfaction of the Pre-Termination Payables, further reduced by (iii) the aggregate amount of the Pre-Termination Payables that have not become due and payable prior to the end of the Collection Period (e.g., any portion of the accrued vacation pay accrued following the Commencement Time and as of the Termination Time in respect of vacations that have not been taken as of the end of the Collection Period), and further reduced by (iv) the amount (if any) by which the excess (if any) of the Pre-Termination Trade Payables over the amount of the Pre-Termination Trade Receivables exceeds Fifteen Thousand Dollars ($15,000). At the end of the Collection Period, the Owners shall reassign to Broker the Pre-Termination Receivables, to the extent they have not been collected prior to the end of the Collection Period, and thereafter the Owners will turn over to Broker any proceeds of the Pre-Termination Receivables actually received by the Owners after the end of the Collection Period. (h) Reports: Adjustment Procedures. (i) Monthly Report. On or prior to the 30th day after the end of each month during the Collection Period, the Owners will prepare and submit to Broker a report providing reasonable detail with respect to the Owners' (A) collections of Pre-Termination Receivables, and (B) payments of Pre-Termination Payables, in each case pursuant to this Section 22. (ii) Report After End of Collection Period. Estimated Payment. On or prior to the 30th day after the end of the Collection Period, the Owners will prepare and submit to Broker a report (the "Owners' Report") setting forth the Owners' determination of the Net 17 Adjustment (the "Estimated Adjustment"). The Estimated Adjustment will become final and binding upon the Owners and Broker, and thus become the "Final Net Adjustment", on the fifteenth (15th) business day after the Owners' Report is delivered to Broker unless, prior to such date, Broker gives the Owners written notice stating that the Broker disagrees with such determination and, to the extent reasonably possible, stating in reasonable detail the nature, extent of, and basis for, Broker's disagreement. (iii) Mutual Resolution. If Broker timely gives the Owners such a dispute notice, then, during the 30 days after Broker gives such dispute notice, Broker and the Owners will attempt in good faith to resolve such disagreement, including paying the amounts agreed upon; and any mutual determination and payment of the Final Net Adjustment by Broker and the Owners will be final and binding upon the Owners and Broker on the date of such mutual determination. (iv) Resolution by Accounting Firm. If any such dispute cannot be resolved by the Owners and Broker on or prior to such 30th day, then such dispute will be referred to an independent public accounting firm of national stature which is designated and retained by the Owners and approved by Broker (which approval Broker will not unreasonably withhold) and which has not been employed by any party or any of its affiliates during any portion of the three years preceding the date of such retention, and such firm's determination of the Final Net Adjustment will be final and binding upon the Owners and Broker. The fees and expenses of the independent accounting firm shall be shared equally by the Owners, on the one hand, and Broker, on the other hand. (v) Final Settlement. Within five (5) business days after the Final Net Adjustment is finally determined in accordance with this Section 22: subject to payments made pursuant to clause (iii) above (x) if the Final Net Adjustment is greater than zero, then the Owners will pay to Broker the amount by which the Final Net Adjustment exceeds zero, and (y) if the Final Net Adjustment is less than zero, then Broker will pay to the Owners the amount by which the Final Net Adjustment is less than zero. The amount to be paid will be paid by wire transfer of immediately available funds to an account of the recipient specified by notice to the paying party. (i) Proration. In the event of termination of this Agreement (other than by reason of the Closing), the parties shall pro rate the revenues, expenses, and liabilities attributable to the Station, including the power and utilities, ad valorem property taxes (upon the basis of the most 18 recent assessment available), rents, income and sales taxes, and similar accruing, prepaid and deferred items, in accordance with the principles that the Broker will be allocated revenues earned or accrued, and expenses, costs and liabilities incurred in or allocable, with respect to the business and operation of the Station from the Commencement Time through the Termination Time and the Owners will be allocated revenues earned or accrued, and expenses, costs and liabilities incurred in or allocable, with respect to the business and operation of the Station after the Termination Time. (j) Condition of Property. Broker shall return the Owners' assets, properties and facilities in the condition such assets, properties and facilities were in as of the date of this Agreement, ordinary wear and tear excepted. 23. Advanced Television/High Definition Television. The FCC has authorized additional spectrum for digital television service and has assigned to the Owners a specific channel on which KODE may transmit digital television broadcasts (the "DTV Channel"). To the extent that the DTV Channel is operational prior to the Closing, Broker shall have the right to utilize the DTV Channel and the facilities authorized with respect thereto under the terms and conditions set forth herein. In the event that the FCC assesses the Owners any spectrum fees or other charges for the Broker's use of the DTV Channel, such FCC fees and other charges shall be subject to reimbursement by Broker pursuant to Exhibit A hereof. 24. Billing; Records. Broker shall keep written records relating to the sale of commercial advertising on the Station and Broker's Programming consistent with Broker's or its affiliates' past practices. The parties hereto and their authorized agents, officers and representatives, upon prior written request, shall have reasonable access to the appropriate books and records of the other parties hereto to conduct such examination and investigation as the requesting party or parties deem reasonably necessary to assure compliance with the terms and provisions of this Agreement and to permit the parties hereto to comply with their tax reporting compliance requirements, provided that such examination and investigation shall be at the requesting party's or parties' sole cost and expense and shall be during the Station's normal business hours. 25. Notices. All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be (a) in writing, (b) delivered to the recipient by telecopy or facsimile machine, in person or sent by commercial delivery service or registered or certified mail, postage prepaid and return receipt requested, (c) deemed to have been given on the date received by the recipient (if delivered in person, by telecopy or facsimile machine or by registered or certified mail) or on the date set forth in the records of the delivery service (if delivered by commercial delivery service) and (d) addressed as follows: 19 If to the Owners: c/o GOCOM Holdings, LLC 7621 Little Avenue, Suite 506 Charlotte, NC 28226 Attention: Ric Gorman Telecopy No.: (704) 341-0945 with a copy (which shall not constitute notice to the Owners) to: Wyrick Robbins Yates & Ponton LLP 4101 Lake Boone Trail Suite 300 Raleigh, NC 27607 Attention: Stephen Brissette Telecopy No.: (919) 781-4865 and Cohn and Marks 1920 N Street, NW Suite 300 Washington, DC 20036 Attention: Joseph M. Di Scipio, Esq. Telecopy No.: (202) 293-4827 If to Broker: Mission Broadcasting of Joplin, Inc. 544 Red Rock Drive Wadsworth, OH 44281 Attention: David S. Smith Telecopy No.: (330) 336-8454 with a copy (which shall not constitute notice to Broker) to: Arter & Hadden LLP 1801 K Street, N. W. Washington, DC 20006-1301 Attention: Howard M. Liberman Telecopy No.: (202) 857-0172 20 Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022 Attention: John Kuehn Telecopy No.: (212) 446-4900 or to any such other or additional Persons and addresses as the parties may from time to time designate in a writing delivered in accordance with this Section 25. 26. Modification and Waiver. No amendment, supplement or modification of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the party against whom enforcement of any such amendment, supplement or modification is sought, and then such amendment, supplement or modification shall be effective only in the specific instance and for the purpose for which given. 27. Construction. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 28. Headings. The headings in this Agreement are included for ease of reference only and will not control or affect the meaning or construction of the provisions of this Agreement. 29. Assignment; Change of Control. This Agreement and any rights, benefits, interests, obligations or liabilities or interests in this Agreement may not be assigned by either party (including by way of a transfer of a majority of the direct or indirect voting power of either Owner or the Broker) without the express written approval of the other party, which consent shall not be unreasonably withheld; provided that the Owners and the Broker shall be permitted to assign their respective rights hereunder to their respective lenders without obtaining any such written approval. 30. Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signature(s) on each such counterpart were upon the same instrument. This Agreement shall be effective as of the date first above written. This Agreement may be executed and delivered in counterpart signature pages executed and delivered via facsimile transmission, and any such counterpart executed and delivered via facsimile transmission shall be deemed an original for all intents and purposes. 31. Entire Agreement. This Agreement and the Purchase Agreement, and the documents referred to herein and therein contain the entire agreement between the parties with respect to the subject matter of this Agreement, and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way. 21 32. No Partnership or Joint Venture Created. Nothing in this Agreement shall be construed to create a partnership or joint venture between the Owners and Broker or to afford any rights to any third party other than as expressly provided herein. Neither the Owners nor Broker shall have any authority to create or assume in the name or on behalf of the other party any obligation, express or implied, or to act or purport to act as the agent or legally empowered representative of the other party hereto for any purpose. 33. Severability. Whenever possible each provision of this Agreement will be interpreted so as to be effective and valid under applicable law. Subject to the provisions of Section 22 above, if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise affecting the remainder or such provision or the remaining provisions of this Agreement. 34. Legal Effect. This Agreement shall be binding shall inure to the benefit of the parties hereto, their heirs, executors, personal representatives, successors and assigns. 35. No Party Deemed Drafter. No party will be deemed the drafter of this Agreement and if this Agreement is construed by a court of law such court should not construe this Agreement or any provision against any party as its drafter. 36. Further Assurances. Each of the Owners and the Broker agree that they shall use their reasonable efforts from time to time as is necessary and as is reasonably requested by another party to this Agreement to further effect the clear intent of this Agreement. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first written above. GOCOM BROADCASTING OF JOPLIN, LLC By: /s/ Richard L. Gorman ---------------------------- Name: Richard L. Gorman Title: President GOCOM OF JOPLIN LICENSE SUB, LLC By: /s/ Richard L. Gorman ---------------------------- Name: Richard L. Gorman Title: President MISSION BROADCASTING OF JOPLIN, INC. By: /s/ David S. Smith ---------------------------- Name: David S. Smith Title: President 23 TIME BROKERAGE AGREEMENT EXHIBIT A PAYMENT OF TIME BROKERAGE FEES In accordance with Section 4 of the Agreement, beginning on the Commencement Date Broker shall pay to Owners the following Time Brokerage Fees: A. For each calendar month during the Term, Broker shall pay a monthly fee (the "Monthly Fee") in the amount of Thirty-Five Thousand Dollars ($35,000). Such Monthly Fee shall be due and payable on the first business day of the next month after the month for which such payment is due. B. Within five (5) days after the conclusion of each calendar month during the Term, the parties shall review the documentation of the Owners' actual reasonable monthly operating costs and expenses (not including salaries which are addressed below) incurred by the Owners during the prior calendar month in connection with their ownership and operation of the Station in accordance with the terms and conditions of this Agreement (the "Monthly Costs"). Such operating costs and expenses of the Owners shall not be materially inconsistent with operating costs and expenses incurred by the Station in prior operating months (except for changes effected by this Agreement and the Purchase Agreement, including Broker's employment of the Eligible Employees under Section 10.2 thereof). Broker shall pay the Owners the amount of the Monthly Costs within ten (10) days of the provision by the Owners to the Broker of said documentation; provided that if Broker does not pay the Owners the full amount of the Monthly Costs within ten (10) days of such provision, the unpaid amount of such Monthly Costs shall accrue interest at a rate of 10% per annum from the day the documentation was provided to Broker until paid in full. In addition, Broker shall advance Owners the amounts needed for salaries for the Owners' Station employees, by wire transfer of funds, at least two (2) business days prior to the Station's regular employee pay days; provided that, in any case, Broker shall not be responsible for paying or reimbursing the Owners for compensation paid to employees of the Owners in excess of the amounts approved by the parties or if there shall be no such agreement, the amounts in effect as of the date of this Agreement. The Monthly Costs are in addition to the Monthly Fees. C. Notwithstanding anything in this Exhibit A or the Agreement to the contrary: (a) for any calendar month during which the Agreement is not in force for the entire month, the Time Brokerage Fee shall be prorated accordingly; (b) Broker shall not be responsible for any bonuses which Owners pay to their employees in return for their continual employment through the Closing under the Purchase Agreement; and (c) except as set forth in the Purchase Agreement, Broker shall not be responsible for any severance payments paid to the Owners' employees. D. Notwithstanding the foregoing, the amount of Time Brokerage Fees payable by Broker to Owners hereunder shall be reduced, on a dollar-for-dollar basis, by any revenues received by Owners for the carriage of programming on the Station or any other revenues received in A - 1 connection to the operation of the Station not including the Time Brokerage Fees (provided that for the purposes of avoiding "double-counting," revenues shall not be included for the purposes of this sentence to the extent such revenues are paid by the Owners to the Broker pursuant to any other provision of this Agreement or the Purchase Agreement); provided that to the extent such revenues exceed the Time Brokerage Fees, Owners shall pay the amount of such excess to Broker. Time is of the essence in Broker's payment of the Time Brokerage Fees to the Owners. A - 2 TIME BROKERAGE AGREEMENT EXHIBIT B Broker agrees to cooperate with Owners in the broadcasting of programs of the highest possible standard of excellence and for this purpose to observe the following regulations in the preparation, writing and broadcasting of its programs: I. Religious Programming. The subject of religion and references to particular faiths, tenants, and customs shall be treated with respect at all times. Programs shall not be used as a medium for attack on any faith, denomination, or sect or upon any individual or organization. II. Controversial Issues. Any discussion of controversial issues or public importance shall be reasonably balanced with the presentation of contrasting viewpoints in the course of overall programming; no attacks on the honesty, integrity, or like personal qualities of any Person or group of Persons shall be made during the discussion of controversial issues of public importance; and during the course of political campaigns, programs are not to be used as a forum for editorializing about individual candidates. If such events occur, Owner may require that responsive programming be aired. III. No Plugola or Payola. The mention of any business activity or "plug" for any commercial, professional, or other related endeavor, except where contained in an actual commercial message of a sponsor, is prohibited. IV. No Lotteries. Announcements giving any information about lotteries or games prohibited by federal or state law or regulation are prohibited. V. Election Procedures. At least ninety (90) days before the start of any primary or regular election campaign, Broker will clear with Owner's General Manager the rate Broker will charge for the time to be sold to candidates for public office and/or their supporters to make certain that the rate charged conforms to all applicable laws and the policy of the Station. VI. Spot Commercial Limitations. With respect to any given segment of air time hereunder, the amount of spot commercial matter shall not exceed 20 minutes during any sixty minute segment. Broker will provide, for attachment to the Station's logs, a list of all commercial announcements carried during its programming. VII. Required Announcements. Broker shall broadcast (a) an announcement in a form satisfactory to Owners at the beginning of each hour to identify Station KODE, (b) an announcement at the beginning and end of each program, and hourly, as appropriate, to indicate that program time has been purchased by Broker, and (c) any other announcement that may be required by law, regulation, or the policy of the Station. B - 1 VIII. Credit Terms Advertising. Pursuant to rules of the Federal Trade Commission, any advertising of credit terms shall be made over the Station in accordance with all applicable federal and state laws, including Regulations Z and M. IX. Commercial Record Keeping. Broker shall not receive any consideration in money, goods, services, or otherwise, directly or indirectly (including to relatives) from any Person for the presentation of any programming over the Station without reporting the same in advance to and receiving the prior written consent of Owners' Manager. No commercial messages ("plugs") or undo references shall be made in programming presented over the Station to any business venture, profit making activity, or other interest (other than noncommercial announcements for bona fide charities, church activities, or other public service activities) in which Broker (or anyone else) is directly or indirectly interested without the same having been approved in advance by Owners' Manager and such broadcast being announced and logged and sponsored. X. No Illegal Announcements. No announcements or promotion prohibited by federal or state law or regulation of any lottery or game shall be made over the Station. Any game, contest, or promotion relating to or to be presented over the Station must be fully stated and explained in advance to Owner, which reserves the right in its sole discretion to reject any game, contest, or promotion. XI. Owners Discretion Paramount. In accordance with the Owners' responsibility under the Communications Act of 1934, as amended, and the rules and regulations of the Federal Communications Commission, Owners reserve the right to reject or terminate any advertising proposed to be presented or being presented over the Station which is in conflict with the policy of the Station or which in the reasonable judgment of Owners or its General Manager would not serve the public interest. XII. Programming in Which Broker has a Financial Interest. Broker shall advise the General Manager of the Station with respect to any programming (including commercial(s) concerning goods or services in which Broker has a material financial interest. Any announcements for such goods and services shall clearly identify Broker's financial interest. XIII. Programming Prohibitions. Broker shall not broadcast any of the following programs or announcements: A. False Claims. False or unwarranted claims for any product or service. B. Unfair Imitation. Infringements of another advertiser's rights through plagiarism or unfair imitation or either program idea or copy, or any other unfair competition. C. Commercial Disparagement. Any disparagement of competitors or competitive goods. B - 2 D. Profanity. Any programs or announcements that are slanderous, obscene, profane, vulgar, repulsive or offensive, either in theme or treatment. E. Price Disclosure. Any price mentions except as permitted by Licensee's policies current at the time. F. Unauthenticated Testimonials. Any testimonials which cannot be authenticated. G. Descriptions of Bodily Functions. Any continuity which describes in a repellent manner internal bodily functions or symptomatic results or internal disturbances, and no reference to matters which are not considered acceptable topics in social groups. H. Conflict Advertising. Any advertising matter or announcement which may, in the reasonable opinion of Licensee, be injurious or prejudicial to the interests of the public, the Station, or honest advertising and reputable business in general. I. Fraudulent or Misleading Advertisement. Any advertisement matter, announcement, or claim which Broker knows to be fraudulent, misleading, or untrue. Licensees may waive any of the foregoing regulations in specific instances if, in its reasonable opinion, good broadcasting in the public interest will be served thereby. In any case where questions of policy or interpretation arise, Broker shall submit the same to Licensees for decision before making any commitments in connection therewith. B - 3 TIME BROKERAGE AGREEMENT EXHIBIT C County of _______________ State of ________________ ANTI-PAYOLA/PLUGOLA AFFIDAVIT (Name) , being first duly sworn, deposes and says as follows: 1. He is (Position) for [Broker] ("Broker"). 2. He has acted in the above capacity since (date) . 3. No matter has been broadcast by Station(s) ____ for which service, money or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted, by him from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 4. So far as he is aware, no matter has been broadcast by Station(s) ____ for which service, money, or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted by Station(s) by the Broker, or by any independent contractor engaged by the Broker in furnishing programs, from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 5. In the future, he will not pay, promise to pay, request, or receive any service, money, or any other valuable consideration, direct or indirect, from a third-party, in exchange for the influencing of, or the attempt to influence, the preparation or presentation of broadcast matter on Station(s) ____. 6. Except as may be reflected in paragraph 7 hereof, neither he, his spouse nor any member of his immediate family has any present direct or indirect ownership interest in any entity engaged in the following business or activities (other than an investment in a corporation whose stock is publicly held), serves as an officer or director of, whether with or without compensation, or serves as an employee of, any entity engaged in the following business or activities: 1. The publishing of music; C - 1 2. The production, distribution (including wholesale and retail sales outlets), manufacture or exploitation of music, films, tapes, recordings or electrical transcriptions of any program material intended for radio broadcast use; 3. The exploitation, promotion, or management of persons rendering artistic, production and/or other services in the entertainment field; 4. The ownership or operation of one or more radio or television Stations; 5. The wholesale or retail sale of records intended for public purchase; 6. The sale of advertising time other than on Station(s) ____ or any other Station owned by the Broker. 7. A full disclosure of any such interest referred to in paragraph 6, above, is as follows: ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------- Affiant Subscribed and sworn to before me this ____ day of _________, 2001. - --------------------------------- Notary Public My commission expires: __________ C - 2 EX-10.26 8 dex1026.txt OUTSOURCING AGREEMENT EXHIBIT 10.26 OUTSOURCING AGREEMENT WYZZ, Inc. and WYZZ Licensee, Inc. (collectively "WYZZ") and Nexstar Broadcasting of Peoria, L.L.C. ("NEXSTAR") hereby enter into this Agreement (this "Agreement") dated November 28, 2001. WYZZ and Nexstar are sometimes referred to herein individually as a "Party" and collectively as the "Parties". RECITALS WHEREAS, WYZZ is the licensee, pursuant to authorizations issued by the Federal Communications Commission (the "FCC"), of Broadcast Television Station WYZZ ("WYZZ-TV") licensed in the Peoria-Bloomington, Illinois market and is experienced as an FCC licensee in the management and operation of commercial television stations; and WHEREAS, NEXSTAR is the licensee, pursuant to authorizations issued by the FCC, of Broadcast Television Station WMBD-TV ("WMBD-TV ") licensed in the Peoria-Bloomington, Illinois market and is experienced as an FCC licensee in the management and operation of commercial television stations; and WHEREAS, WMBD-TV and WYZZ-TV are sometimes referred to herein collectively as the "Stations;" and WHEREAS, during the term of this Agreement, WYZZ wishes to retain Nexstar to provide certain non-programming related operational and managerial services on its behalf, subject to the terms and conditions of this Agreement and all in conformity with the policies and procedures of WYZZ (as they relate specifically to WYZZ-TV) and the rules, regulations, and policies of the FCC; and WHEREAS, none of the services to be provided by Nexstar to WYZZ hereunder are intended to abrogate WYZZ's exclusive authority and duty, as the FCC licensee of WYZZ-TV, to manage and control programming on WYZZ-TV; and WHEREAS, Nexstar agrees to provide the services to WYZZ in conformity with the policies and procedures of WYZZ (as they relate specifically to WYZZ-TV) and all rules, regulations, and policies of the FCC; and WHEREAS, it is the Parties' expectation that by entering into this Agreement the operational efficiencies of each of the Stations will improve and economies of scale will be achieved, resulting in an increase in the Broadcast Cash Flow (as hereinafter defined) to each of the Parties from their respective Stations. NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, agree as follows: 1. Provision of Services. (a) Consistent with the rules, regulations, and policies of the FCC, Nexstar shall, during the Term (as hereinafter defined), provide to WYZZ-TV the following services (the "Services"): (i) sale of advertising time on WYZZ-TV; (ii) the performance of certain administrative, operational, and business functions other than with respect to programming but including the coordination of traffic and billing functions; (iii) consultation services regarding programming, including, where applicable, news and public affairs; (iv) the supplying of all accounting, bookkeeping and related services; (v) the monitoring, maintenance, repair, and replacement of WYZZ's technical equipment and facilities, including capital equipment replacement expenditures, in order to ensure that the technical facilities of WYZZ-TV are in compliance with the rules and regulations of the FCC; and (vi) assistance with the negotiation of retransmission consent with cable, satellite and other multi-channel video providers. (b) In order to accommodate the provision of the Services by Nexstar, WYZZ agrees to make available to Nexstar (subject to any lease and/or financing agreements applicable thereto) for use without fee or charge the facilities and equipment described on Exhibit A hereto (the "Equipment"), all of which Equipment shall be appropriately tagged indicating the ownership thereof. Nexstar shall maintain the Equipment in good order and repair in accordance with industry standards. Subject to the reduction of the Section 2(a) Amount in accordance with Section 2(a) hereof, Nexstar shall bear the cost of maintaining and repairing the Equipment. Nexstar shall provide the functions required by this Agreement subject to (i) each Party's absolute right and duty to control and manage its own programming, personnel and finances, (ii) the other provisions of this Agreement and (iii) the rules, regulations and policies of the FCC. 2 Notwithstanding anything to the contrary contained herein, the parties recognize that WYZZ is, and at all times shall be, responsible for programming WYZZ-TV and nothing in this Agreement is intended to detract from that responsibility. 2. Payment to WYZZ-TV. Notwithstanding anything herein to the contrary, WYZZ shall continue to be the owner of and shall be entitled to all revenues resulting from the sale of advertising and other time on WYZZ-TV before, during and/or after the Term; provided, however, in consideration of the Services, Nexstar shall be entitled to all revenues resulting from the sale of advertising and other time on the Stations during the Term remaining after the payment of the amounts set forth below: (a) Within seventy-five (75) days following the end of each month of a calendar year during the Term that "BCF" (as defined below) for such month, when combined with BCF for all prior months during such calendar year (other than any month which is outside the Term) is less than the Minimum BCF, Nexstar shall pay a fee to WYZZ in an amount equal to thirty-five percent (35%) of BCF for such month. Within seventy-five (75) days following the end of each month of a calendar year during the Term that BCF for such month, when combined with BCF for all prior months of such calendar year (other than any month which is outside the Term) is greater than the Minimum BCF, Nexstar shall pay a fee to WYZZ in an amount equal to 50% of BCF for such month; provided, in the first month of each calendar year in which this sentence applies, the fee with respect to the portion of BCF for such month which, when combined with BCF for all prior months during such year (other than any month which is outside the Term) is exactly equal to the Minimum BCF, shall equal thirty-five percent (35%) of such portion rather than fifty percent (50%). The amount payable pursuant to either of the prior two sentences (sometimes referred to as the "Section 2(a) Amount") shall be reduced by the sum of (A) 100% of any costs incurred by Nexstar during the applicable month in maintaining, replacing or purchasing capital equipment which is owned by WYZZ or which is used solely in connection with the operation of WYZZ-TV, which costs have not otherwise been deducted in calculating BCF, plus (B) 50% of the cost incurred by Nexstar during the applicable month in maintaining, replacing or purchasing capital equipment which is not owned by WYZZ and which is used in connection with the combined operation of both Stations ("Combined Capital Equipment)", which costs have not otherwise been deducted in calculating BCF. The Minimum BCF shall be Three Million Seven Hundred Thousand Dollars ($3,700,000) for calendar year 2002 and shall be increased on January 1, 2003 and on each January 1 thereafter in an amount equal to the percentage increase in the Consumer Price Index (published by the U.S. Department of Labor, Bureau of Labor Statistics, Philadelphia Regional Office - All Urban Consumers for the United States - All Items) (the "PI") over the prior year. During the Term, Nexstar shall calculate BCF (the "BCF Report") for each calendar month. The last day of each calendar month is referred to herein as an "End Date". During the Term, Nexstar shall, within thirty (30) days of each End Date deliver to WYZZ-TV the BCF Report for the month ending on such End Date. Within ninety (90) days following each 3 calendar year during the Term, Nexstar shall notify WYZZ of the BCF for such year (the "Final BCF Report") and, subject to clause (h) of this Section 2, within thirty (30) days after such notification either Nexstar shall make a payment to WYZZ or WYZZ shall make a payment to Nexstar, as appropriate to "true-up" the payments made hereunder based on (i) the final determination of the BCF for the entire year, and (ii) the principle that the aggregate Section 2(a) Amount for the calendar year should be equal to (x) thirty-five percent (35%) of BCF for such calendar year up to the Minimum BCF for such year, plus (y) fifty percent (50%) of BCF for such calendar year in excess of the Minimum BCF for such year, minus (z) the sum of one hundred percent (100%) of any costs incurred by Nexstar during such calendar year in maintaining, replacing or purchasing capital equipment which is owned by WYZZ or which is used solely in connection with the operation of WYZZ-TV, and fifty percent (50%) of any costs incurred by Nexstar during such calendar year in maintaining, replacing or purchasing capital equipment which is not owned by WYZZ and which is used in connection with the combined operation of both Stations (in each case to the extent such costs were not otherwise deducted in the calculation of BCF). Furthermore, for the purposes of clarification, to the extent the Section 2(a) Amount for the calendar year is less than zero, the "true-up" shall be done such that WYZZ shall have paid to Nexstar the amount by which the Section 2(a) Amount is less than zero. Notwithstanding anything to the contrary contained herein for purposes of the period commencing December 1, 2001 and ending December 31, 2001, the Minimum BCF shall be One Dollar ($1.00). (b) In addition to the payment of the Section 2(a) Amount, Nexstar agrees to pay WYZZ, within 30 days following each calendar month of the Term, the amount set forth on Exhibit B hereto with respect to such calendar month (c) On or before the 5th day of each calendar month during the Term, Nexstar shall pay to WYZZ the fair market value rent (as set forth on Exhibit C hereto) of any real property owned by WYZZ (or any affiliate thereof) and used by the Stations; provided, no rent shall be due to WYZZ, Nexstar or any affiliate thereof with respect to any period where the Stations are using corresponding real property owned by Nexstar (or any affiliate thereof). By way of example, no rent shall be due to WYZZ or Nexstar under this clause (c) for use by one of the Stations of a broadcast tower owned by WYZZ if the other Station is using a tower owned by Nexstar. (d) For purposes of this Agreement, the term "BCF" is defined as Net Income of the Stations, determined on a basis in accordance with GAAP, plus the sum of (X) (in each case to the extent deducted in calculating Net Income) (i) depreciation expense (ii) amortization expense (including amortization of program assets and amortization of deferred and stock based compensation) (iii) interest expense (iv) corporate overhead or management fees (v) income tax expense (vi) non-cash losses or expenses (including losses on disposals of assets and trade/barter expenses) (vii) Section 2(a) Amount expenses pursuant to Section 2(a) hereof (viii) any expenses (other than 4 electric costs relating to the digital transmission of either Station's primary commercial broadcast signal) related to either Station's "DTV Spectrum" (ix) costs or expenses arising from any claims relating to the period prior to the Effective Date, and (x) any expenses or costs identified on Exhibit D hereto less the sum of (Y) (i) cash payments for program contract rights relating to the Stations (ii) payments made by Nexstar to WYZZ pursuant to clause (b) of this Section 2, to the extent not otherwise taken into account in calculating Net Income, (iii) the aggregate fair market value rent (as set forth on Exhibit C hereto) of any real property owned by either Nexstar or WYZZ (or any affiliate of either) and used by the Stations to the extent the Stations are not using corresponding real property owned by each of the parties hereto (or any affiliate thereof) and which is not otherwise taken into account in calculating Net Income, (iv) any other rental income earned by either WYZZ or Nexstar from real property owned or leased thereby to the extent included in calculating Net Income (v) interest income to the extent included in calculating Net Income (vi) any rent paid with respect to any capital leases of the Stations (vii ) any revenues related to either Station's "DTV Spectrum" and (viii) any non-cash gains or revenues (including gains on disposals of assets and trade/barter revenue). (e) At all times during the Term and for six (6) months following the termination of this Agreement, WYZZ shall have the right, upon prior written request to Nexstar, to review all of the books and records of Nexstar relating to the BCF Report and the Distributions. Any such review must take place during normal business hours between Monday through Friday. (f) The parties agree that, to the extent permitted by law and by the rules, regulations and policies of the FCC, the Stations shall be operated in a manner consistent with industry standards for commercial broadcast television stations providing general entertainment programming and with a view toward maximizing the combined broadcast cash flow of the Stations. (g) Notwithstanding anything herein to the contrary, if, with respect to any month, the Section 2(a) Amount is a negative amount, then WYZZ shall pay such negative amount to Nexstar within seventy-five (75) days following the end of such month (and Nexstar shall make no payment of a Section 2(a) Amount to WYZZ with respect to such month); provided, with respect to each of the first three (3) months of the Term, the amount if any, payable pursuant to this clause (g) shall be reduced (but not below zero) by the amount of accounts receivable retained by Buyer during such month pursuant to the first proviso to the last sentence of Section 10(d)(i). (h) On or prior to the 30th day after WYZZ's receipt of the Final BCF Report, WYZZ may give Nexstar a written notice (an "Objection Notice") indicating its objections to the Final BCF Report. If WYZZ does not give Nexstar an Objection Notice within such 30-day period, then the Final BCF Report will be conclusive and binding upon the parties hereto. If WYZZ gives a timely Objection Notice, then Nexstar and 5 WYZZ will negotiate in good faith to resolve their disputes regarding the Final BCF Report. If Nexstar and WYZZ are unable to resolve all disputes regarding the Final BCF Report on or prior to the 30th day after the Objection Notice is given, then Nexstar and WYZZ will retain a "big five" accounting firm (either by mutual agreement or by random choice after eliminating any such firm which is conflicted or otherwise unable to participate) (the "Independent Accounting Firm") to resolve the dispute as soon as practicable, and in any event within thirty (30) days. The BCF for the applicable year as determined by the Independent Accounting Firm will be conclusive and binding upon the parties hereto and will constitute the BCF for such year for all purposes of this Section 2; provided, the parties will use reasonable efforts to limit the scope of the Independent Accounting Firm's review. The fees and expenses of the Independent Accounting Firm in connection with its review of the Final BCF Report shall be paid one-half by Nexstar and one-half by WYZZ. (i) Notwithstanding anything to the contrary contained herein, cash payments for program content rights relating to the Stations which were contractually due prior to the Effective Date shall for all purposes be treated as relating to the period following the Effective Date if, and only if, such payments were ninety days or less past due as of the Effective Date. 3. Material Considerations. Except to the extent inconsistent with law or the rules and regulations of any governmental agency, during the Term, each of the following considerations and undertakings (the "Material Considerations") by Nexstar shall require the prior consent of, and prior consultation with, WYZZ: a. the setting of annual budgets (the "Annual Budgets") for the operation of the Stations (as more specifically addressed in Section 11 hereof); b. determining the necessity for, and amount of, any single capital expenditure for either of the Stations to the extent not provided for in the applicable Annual Budget; provided, WYZZ's consent shall not be required for Nexstar to make unbudgeted capital expenditures in any calendar year which is necessary to maintain or restore the normal operations and transmission of the Station and which in the aggregate are not in excess of Fifty Thousand Dollars ($50,000) c. the hiring and firing of key employees of the Stations, consisting of general sales managers, national sales managers, and local sales managers (collectively, the "Key Employees"); provided, WYZZ's consent shall not be required for Nexstar to fire any Key Employee if circumstances exist which would give WYZZ the right to withhold its consent to the retention of such Key Employee under clause (e) of this Section 3; provided further, WYZZ must be reasonable in determining whether or not to consent to the hiring of any Key Employee to replace a former Key Employee who was not retained 6 as a result of WYZZ's failure to consent to the retention of such former Key Employee pursuant to clause (e) of this Section 3; d. the retention of any outside consultants not provided for in the applicable Annual Budget; e. the retention of any Key Employee if (i) the combined share of market revenue (excluding political) for both Stations in any fiscal quarter (the "First Quarter") is ten percent (10%) or more below the combined share of market revenue (excluding political) for both Stations in the immediately preceding fiscal quarter (the "Baseline Quarter") and (ii) the combined share of market revenue (excluding political) for both Stations in either (x) the fiscal quarter immediately succeeding the First Quarter or (y) each of any two or more fiscal quarters out of the five fiscal quarters immediately succeeding the First Quarter, is ten percent (10%) or more below the combined share of market revenue for both Stations in the Baseline Quarter; provided, that Nexstar shall only be required to obtain a consent with respect to a Key Employee who WYZZ has requested be terminated); and; provided further, that WYZZ shall not be permitted to exercise its rights under this clause (e) more than once in any eighteen (18) month period with respect to any particular Key Employee position; f. any material alteration or modification in or to the broadcast signal or the transmission of either of the Stations. 7 4. Expenses and Capital Expenditures. Each Party shall make a payment to the other with respect to certain mutually agreed upon expenses and capital expenditures incurred (or to be incurred) as a result of the relationship created by this Agreement, such payments to be made promptly following the incurrence of any expenses and/or expenditures. Such expenses and capital expenditures, which are intended to be shared equally by WYZZ and Nexstar, may include, but shall not be limited to: lease termination fees, employee severance costs, and transmitter and studio facility modifications, and equipment costs. The maximum amount of, and purpose for, such expenses are specifically set forth and identified on Exhibit D hereto. 5. Term. The term of this Agreement (the "Term") shall commence on December 1, 2001, which date shall be deemed the effective date of this Agreement (the "Effective Date"). Unless earlier terminated in accordance with the terms hereof, the term of this Agreement shall end on the seventh anniversary of the date hereof. 6. Stations Operations. a. WYZZ-TV Operations. (i) During the Term, notwithstanding the Services rendered by Nexstar, WYZZ shall retain exclusive authority, power and control over WYZZ-TV's programming, personnel, and finances. (ii) During the Term and subject to any change in applicable law, WYZZ shall employ at WYZZ-TV's main studio location at least two full-time employees, including a station manager and a staff level employee, who will report and be accountable to WYZZ. The names of employees anticipated to fulfill these functions at the commencement of the Term are set forth on Exhibit E hereto. (iii) During the Term, WYZZ shall retain responsibility for the selection, development, acquisition, and broadcast of any and all programming to be broadcast over WYZZ-TV, as well as the payment therefor. To that end, WYZZ shall (A) have exclusive authority for the negotiation, preparation, execution and implementation of any and all programming agreements for WYZZ-TV, and (B) hire or utilize whatever employees WYZZ deems appropriate or necessary to fulfill those programming functions. Nexstar shall have no involvement in the determination of such programming decisions and activities (except to the extent of providing commercial matter to be broadcast over WYZZ-TV and such other administrative support functions described in this Agreement). 8 (iv) When at WYZZ's premises, any employees of Nexstar shall be subject to the supervision of WYZZ's management personnel. b. WYZZ's Responsibilities. (i) WYZZ Authority. During the Term, WYZZ shall take all necessary actions to maintain and preserve WYZZ-TV's FCC authorizations. By way of example and not limitation, WYZZ shall be responsible for WYZZ-TV's compliance with all applicable provisions of the Communications Act of 1934, as amended (the "Act"), the rules, regulations and policies of the FCC and all other applicable laws. Nexstar shall cooperate with WYZZ in taking such actions as WYZZ may reasonably request to assist WYZZ in maintaining WYZZ-TV's compliance with the Act, the rules, regulations and policies of the FCC, and all other applicable laws. Notwithstanding any other provision of this Agreement, Nexstar recognizes that WYZZ has certain obligations to operate WYZZ-TV in the public interest and to broadcast programming to meet the needs and interests of WYZZ-TV's community of license and service area. Nothing in this Agreement shall abrogate or limit the unrestricted responsibility of WYZZ to discharge its obligations to the public and to comply with the Act and the rules, regulations and policies of the FCC, and WYZZ shall have no liability or obligation to Nexstar for taking any action that WYZZ deems necessary or appropriate to discharge such obligations or comply with such laws, rules, regulations or policies. (ii) Provision of Advertising Information. Nexstar shall, upon request by WYZZ, promptly provide WYZZ with such information concerning advertising as is necessary to assist WYZZ in the fulfillment of WYZZ's obligations under the Act or FCC's rules, regulations and policies or to enable WYZZ to verify independently WYZZ-TV's compliance with any and all laws, rules, regulations or policies applicable to WYZZ-TV's operations. (iii) Suitability of Commercial Matter. All advertising spots and promotional material or announcements produced by Nexstar and utilized at WYZZ-TV shall comply with all applicable federal, state and local regulations and policies and shall be produced in accordance with quality standards established by Nexstar. If WYZZ determines that commercial announcement or promotional material supplied by Nexstar to WYZZ-TV is for any reason, in the exercise of WYZZ's sole discretion, unsatisfactory or unsuitable or contrary to the public interest, WYZZ may, upon written notice to Nexstar, suspend or cancel such commercial announcement or promotional material or delete any material contained in such commercial matter or promotional materials, and if WYZZ requests, Nexstar shall promptly provide suitable substitute commercial announcements or other announcements or promotional materials. (iv) Political Advertising. WYZZ shall oversee and shall take ultimate responsibility for WYZZ-TV's compliance with the political broadcasting rules of the 9 FCC and Sections 312 and 315 of the Act, or any similar provision which may be enacted during the term hereof imposing a duty upon broadcast station WYZZ with respect to broadcast of political advertising, including but not limited to the provision of equal opportunities, compliance with lowest unit charge requirements, and the provision of reasonable access to federal political candidates. Nexstar shall cooperate and consult with WYZZ, at Nexstar's expense, to assist WYZZ in complying with the Act and the political broadcasting rules of the FCC. Nexstar shall supply such information promptly to WYZZ as WYZZ reasonably deems necessary or useful to comply with the lowest unit charge and other applicable political broadcast requirements of federal law. To the extent that WYZZ deems it necessary or appropriate, Nexstar shall release advertising availabilities to WYZZ to permit WYZZ to comply with the political broadcasting rules of the FCC and Sections 312 and 315 of the Act, or any similar provision which may be enacted during the term hereof imposing a duty upon broadcast station licensees with regard to the broadcast of political advertising or programming. 7. Representations and Warranties of the Parties. Each Party agrees to give to the other the representations and warranties as set forth on Exhibit F to this Agreement. 8. WYZZ Covenants. WYZZ covenants that after the Effective Date and at all times during the Term: a. Licenses, Permits, and Authorizations. WYZZ shall hold and maintain all licenses and other permits and authorizations necessary for the operation of WYZZ-TV, including, but not limited to WYZZ-TV's FCC authorizations and licenses, and such licenses, permits, and authorizations are and will be in full force and effect throughout the Term. b. Actions. Except as otherwise permitted by this Agreement, WYZZ shall not take any action or omit to take any action which would have a material adverse effect upon either of the Parties, their assets, their respective Stations, or upon either Party's ability to perform this Agreement. c. Reports. WYZZ shall file all reports and applications required to be filed by WYZZ with the FCC or any other governmental body in a timely and complete manner. d. Facilities. The facilities of WYZZ-TV will be maintained in accordance with good engineering practice and will comply in all material respects with the engineering requirements set forth in the FCC authorizations, permits, and licenses for WYZZ-TV, and WYZZ will insure that WYZZ-TV broadcast a high quality signal to its service area 10 (except at such time of reduction of power as required for routine or emergency maintenance). e. Title. WYZZ shall maintain good and marketable title to all of the assets and properties used and useful prior to the date hereof (together with replacements, thereof) in the operation of WYZZ-TV. f. Insurance. WYZZ shall maintain replacement cost casualty and liability insurance and property insurance on all of its assets and properties used and useful in the operation of WYZZ-TV, general liability insurance and workers compensation insurance in such amounts and on such terms and conditions that are ordinary and customary in the broadcast industry and that are reasonably acceptable to Nexstar. g. FCC License Holder. WYZZ shall remain as the holder of the FCC licenses necessary for the operation of WYZZ-TV. h. WYZZ-TV Operation. WYZZ shall use all reasonable efforts to operate WYZZ-TV at its maximum authorized power, with its antenna center of radiation at its full authorized height above ground and above average terrain. i. Proprietary Information. WYZZ shall not disclose any sales or other proprietary information of Nexstar to any third party. j. Annual Budget. WYZZ shall cause the management of WYZZ-TV to meet with Nexstar's management on at least a monthly basis (or at such longer intervals as WYZZ may elect) to review the performance of the Stations and to discuss any necessary modifications to the Stations' annual budget as may become necessary due to changing market conditions or otherwise. k. Employees. Except as provided otherwise in this Agreement, WYZZ shall pay, discharge, and be responsible for (i) all salary and wages arising out of or relating to the employment of the employees of WYZZ-TV prior to and after the Effective Date, and (ii) any employee benefits arising under the benefit plans of WYZZ during the period prior to and after the Effective Date. 9. Nexstar Covenants. Nexstar covenants that after the Effective Date and at all times during the Term: a. Licenses, Permits, and Authorizations. Nexstar shall hold and maintain all licenses and other permits and authorizations necessary for the operation of WMBD-TV, including, but not limited to WMBD-TV's FCC authorizations and licenses, and 11 such licenses, permits, and authorizations are and will be in full force and effect throughout the Term. b. Actions. Except as otherwise permitted by this Agreement, Nexstar shall not take any action or omit to take any action which would have a material adverse effect upon either of the Parties, their assets, their respective Stations, or upon either Party's ability to perform this Agreement. c. Reports. Nexstar shall file all reports and applications required to be filed by Nexstar with the FCC or any other governmental body in a timely and complete manner. d. Facilities. The facilities of WMBD-TV will be maintained in accordance with good engineering practice and will comply in all material respects with the engineering requirements set forth in the FCC authorizations, permits, and licenses for WMBD-TV, and Nexstar will insure that WMBD-TV broadcasts a high quality signal to its service area (except at such time of reduction of power as required for routine or emergency maintenance). e. Title. Nexstar shall maintain good and marketable title to all of the assets and properties used and useful (together with replacement, thereof) in the operation of WMBD-TV. f. Insurance. Nexstar shall maintain replacement cost casualty and liability insurance and property insurance on all of its assets and properties used and useful in the operation of WMBD-TV, general liability insurance, workers compensation insurance, and broadcast liability insurance, all in such amounts and on such terms and conditions that are ordinary and customary in the broadcast industry and that are reasonably acceptable to WYZZ. g. FCC License Holder. Nexstar shall remain as the holder of the FCC licenses necessary for the operation of WMBD-TV. h. WMBD-TV Operation. Nexstar shall use all reasonable efforts to operate WMBD-TV at its maximum authorized power, with its antenna centers of radiation at its full authorized height above ground and above average terrain. i. Proprietary Information. Nexstar shall not disclose any sales or other proprietary information of WYZZ to any third party. j. Annual Budget. Nexstar shall provide monthly financial projections and copies of quarterly market revenue reports to WYZZ and shall cause the management of WMBD-TV to meet with WYZZ's management on at least a monthly basis (or such longer intervals as WYZZ may elect) to review the performance of the Stations and to 12 discuss any necessary modifications to the Stations' annual budget as may become necessary due to changing market conditions or otherwise. k. Employees. Except as provided otherwise in this Agreement, Nexstar shall pay, discharge, and be responsible for (i) all salary and wages arising out of or relating to the employment of the employees of WMBD-TV prior to and after the Effective Date, and (ii) any employee benefits arising under the benefit plans of Nexstar during the period prior to and after the Effective Date. 10. Additional Covenants a. Prior Contract Commitments. Schedule 10.a. contains a list and amount of all non-programming contractual commitments made by WYZZ prior to the Effective Time (other than cash commitments for commercial advertising time), but which are continuing obligations of WYZZ during the Term. In providing the Services, Nexstar shall honor all such commitments, as well as commitments for commercial advertising time to be aired on WYZZ-TV during the Term (for cash or trade) (collectively "WYZZ Contracts"); provided, Nexstar shall not honor any trade liabilities of either Station to the extent the aggregate trade liabilities of such Station as of the Effective Time exceeds by more than Twenty-Five Thousand Dollars ($25,000) the trade receivables of such Station as of the Effective Time. b. Sale Forces. In providing the Services, except upon notice to, and after consultation with WYZZ, Nexstar shall, at all times, maintain two separate sales forces (one for each of the Stations), each of which shall include account executives and sales managers, to sell national, regional, and local spot announcements and long form advertising programs. c. Employees. (i) Upon the earlier of (A) the date on which the operation of the Stations are consolidated in a single location and (B) January 1, 2002 (such earlier date sometimes referred to as the "Hire Date"), Nexstar shall offer employment to those employees of WYZZ-TV listed on Exhibit G hereto, at a comparable salary, position, and place of employment as held by each such employee immediately prior to the Effective Date (such employees who are given and accept such offers of employment are referred to herein as the "Transferred Employees"). (ii) Nexstar shall cause all Transferred Employees as of the Hire Date to be eligible to participate in any "employee welfare benefit plans" and "employee pension benefit plans" (as defined in Section 3(1) and 3(2) of ERISA, respectively) of Nexstar in which similarly situated employees of Nexstar are generally eligible to participate; provided, however, that, subject to length of service requirement waiting periods, vesting 13 periods or similar requirements, all Transferred Employees and their spouses and dependents shall be eligible for coverage immediately after the Hire Date (and shall not be excluded from coverage on account of any preexisting condition) to the extent provided under such Plans with respect to the Transferred Employees. (iii) For purposes of any length of service requirements, waiting periods, vesting periods, or differential benefits based on length of service in any such plan for which a Transferred Employee may be eligible after the Hire Date, Nexstar shall insure that, to the extent permitted by law, service by such Transferred Employee with WYZZ shall be deemed to have been service with Nexstar. In addition, Nexstar shall insure that each Transferred Employee receives credit under any welfare benefit plan of Nexstar for any deductibles or co-payments paid by such Transferred Employee and his/her dependents for the current plan year under a plan maintained by WYZZ. Nexstar shall grant credit to each Transferred Employee for all sick leave in accordance with the policies of Nexstar applicable generally to its employees after giving effective service for WYZZ as service for Nexstar. (iv) From and after the Hire Date, Nexstar shall pay, discharge, and be responsible for all salary, wages, and benefits arising out of or relating to the employment of the Transferred Employees by Nexstar on and after the Hire Date. (d) Accounts Receivable. (i) As soon as practicable after the Effective Date hereof, WYZZ shall deliver to Nexstar a complete and detailed list of all the rights of WYZZ as of the Effective Date hereof to payment for the sale of advertising time and other goods and services by WYZZ-TV prior to the Effective Date hereof (the "Accounts Receivable"). During the one hundred eighty (180) day period following the Effective Date (the "Collection Period"), Nexstar shall use commercially reasonable efforts to collect the Accounts Receivable in the usual and ordinary course of business, using Nexstar's credit, sales and other appropriate personnel in accordance with customary practices, which are not required to include referral to a collection agency. Notwithstanding the foregoing, Nexstar shall not be required to institute legal proceedings on WYZZ's behalf to enforce the collection of any Accounts Receivable. Nexstar shall not adjust any Accounts Receivable or grant credit with respect thereto without WYZZ's written consent, and Nexstar shall not pledge, secure or otherwise encumber such Accounts Receivable or the proceeds therefrom. Within twenty (20) days following the end of each full calendar month during the Collection Period, Nexstar shall furnish WYZZ with a report of all amounts collected, together with its check for payment thereof, with respect to the Accounts Receivable during such month; provided, that Nexstar shall be entitled to retain the first Three Hundred Ten Thousand Dollars ($310,000) (the "Working Capital Amount") of amounts collected on the Accounts Receivable for the purpose of funding WYZZ-TV's share of the initial working capital needs of the Stations; provided further, 14 that not later than the ninetieth (90th) day following the Effective Date, Nexstar shall pay to WYZZ the excess of the aggregate amount retained pursuant to the immediately preceding proviso over the aggregate reduction in payments otherwise due with respect to the first three months of the Term from WYZZ as a result of the proviso to Section 2(g) hereof. (ii) Any payments received by Nexstar during the Collection Period from any Person that is an account debtor with respect to any account disclosed in the list of Accounts Receivable delivered by WYZZ to Nexstar shall be applied (A) first against the invoice, if any, as specified by the account debtor and (B) second against an account disclosed in such list, unless and to the extent that the account is disputed by the account debtor; provided, with respect to clause (B) above, payments on any accounts specified on WYZZ's list which relate to account debtors with respect to which Nexstar also has accounts, shall be applied first against the oldest accounts of WYZZ and Nexstar. Except to the extent resulting from Nexstar's willful breach of the terms of this Section 10(d), Nexstar shall incur no liability to WYZZ for any uncollected account. During the Collection Period, neither WYZZ nor any other agent of WYZZ shall make any direct solicitation without Nexstar's written consent of the account debtors for payment. e. Proration. For purposes of this Agreement, revenues, expenses, and liabilities attributable to the Stations, including power and utilities charges, ad valorem property taxes, rents, income and sales taxes, and similar accruing, prepaid and deferred items, will be allocated in accordance with the principles that, as applicable pursuant to the terms of this Agreement, (A) Nexstar and WYZZ will be allocated revenues earned or accrued, and expenses, costs and liabilities incurred in or allocable, with respect to the business and operation of the such entity's Station through but not including the Effective Date and following the last day of the Term, and (B) revenues earned or accrued, and expenses, costs and liabilities incurred in or allocable, with respect to the business and operation of the Stations on and after the Effective Date through the last day of the Term shall be allocated to the operation of the Stations under this Agreement and the calculation of BCF; provided, film costs relating to the period prior to the Effective Date shall be allocated to the period after the Effective Date to the extent such obligations were less than 90 days past due as of the Effective Date. f. Payment of Liabilities and Obligations. Except to the extent provided to the contrary herein, as of the Effective Date and during the Term Nexstar shall undertake to pay, discharge and perform on WYZZ's behalf all obligations and liabilities of WYZZ under the WYZZ Contracts to the extent that the obligations and liabilities relate to the time after the Effective Date with respect to WYZZ-TV, as well as WYZZ's obligation to any Transferred Employees for vacation time. Nexstar shall not be required to pay, discharge or perform any other obligations or liabilities of WYZZ including (i) any obligations or liabilities under the WYZZ Contracts relating to the period prior to the Effective Date for WYZZ-TV, (ii) any claims (whether asserted or not) or pending 15 litigation or proceedings relating to the operation of WYZZ-TV prior to the Effective Date, (iii) any obligations or liabilities of WYZZ under any management incentive, employee pension, retirement, or other benefit plans, (iv) any obligations or liabilities of WYZZ under any collective bargaining agreements, (v) any obligation to any employee of WYZZ-TV for severance benefits or sick leave accrued prior to the Effective Date, (vi) any credit agreements, note purchase agreements, indentures, capital leases, or other financing arrangements, (vii) any agreements entered into other than in the ordinary course of business of WYZZ-TV, or (viii) any obligations or liabilities caused by, arising out of, or resulting from any action or omission of WYZZ prior to the Closing, and all such obligations and liabilities shall continue to be paid, discharged and performed by WYZZ. Notwithstanding anything herein to the contrary, Nexstar shall be responsible pursuant to its reimbursement obligation hereunder for all film payments for programming which airs on WYZZ-TV to the extent such payments are not more than 90 days past due as of the Effective Date. g. Consultation on Material Contractual Obligations. In addition to the other restrictions contained herein, Nexstar shall not enter into any material contractual obligation with respect to WYZZ-TV without first consulting with WYZZ to determine whether or not WYZZ (or its affiliates) is able to obtain more favorable terms with respect to the subject matter of such contract. 11. Mutual Covenants. a. Budget. (i) Not later than November 30 of each calendar year during the Term of this Agreement, WYZZ and Nexstar shall agree upon (1) an Operating Budget for the Stations (each an "Annual Operating Budget") setting forth in reasonable detail the reasonable and necessary costs and expenses that Nexstar is expected to incur in performing its obligations hereunder during the upcoming calendar year, including, without limitation, the costs of all Nexstar personnel (including salaries, incentives, commissions, bonuses, benefits, and payroll services), property, equipment (including repairs and maintenance, office space, office space modifications, utilities, sales, marketing costs, and related costs, and (2) a revenue budget for the Stations (the "Annual Revenue Budget" and, together with the Annual Operating Budget, the "Annual Budget") setting forth the projected sales revenues with respect to advertisements for the upcoming calendar year, as well as the assumptions underlying those projections; provided, in no event shall Nexstar have any right to object to the inclusion in the Annual Operating Budget of the cost of any programming which WYZZ determines is to be broadcast on WYZZ-TV, and in no event shall WYZZ have any right to object to the inclusion in the Annual Operating Budget of any programming which Nexstar determines is to be broadcast on WMBD-TV. Without limiting the generality of the foregoing, a part of the above-referenced budget approval process shall be the inclusion of proposed 16 commissions or other incentive plans applicable to the sale of advertisements, which plans shall be subject to each Party's approval, as part of their approval of the Annual Operating Budget. The Annual Budget for the one month period beginning December 1, 2001 and Year 2002_ (the "Initial Budget"), is attached hereto as Exhibit H. (ii) For each year during the Term of this Agreement, the Parties shall cooperate in good faith and use their respective reasonable efforts to agree upon such changes, if any, to the Annual Budget for such year as are reasonably required to accurately reflect actual revenues generated and actual costs incurred during the six (6) month period ending June 30th. Each such revised Annual Budget, if required, shall be completed no later than October 31, of each year during the Term hereof. (iii) In the event that the Parties are unable to resolve any disputes regarding any Annual Budget by December 15 of each year during the Term hereof, and either Party has notified the other in writing of the basis for its inability to agree on such Annual Budgets, then, subject to the proviso to the first sentence of clause (i) of this Section 11(a), the disputed items in the Annual Budget for the next succeeding year shall be the same as such disputed items were in the Annual Budget for the immediately preceding year, except for costs (e.g., sales commissions) that vary as a result of revenue. b. Employees. Exhibit I contains a preliminary list of all employees, by position held by each, who are to be terminated from each of the Stations on such date as is mutually agreed by the parties on or after the Effective Time, but not later than March 1, 2002 (the "Terminated Employees"). All severance liabilities and all COBRA liabilities for any Terminated Employee terminated on or after the Effective Date shall be prorated between the Parties, in accordance with Section 4 hereof and Exhibit D hereto. c. Confidentiality. Each of the parties shall during and after the Term continue to be bound by the provisions of the Confidentiality Letter Agreement dated as of July 31, 2001. 12. Transmitter Changes. In the event that either of the Parties, at any time, intends to file an application with the FCC to change the transmitter location, antenna height, power, or to change the frequency or hours of operation of its respective Station, the Parties agree to give ten (10) days prior written notice to the other Party of such proposed filing. 13. Assignment. Except as otherwise provided by this Agreement or in the event that either Party sells or otherwise transfers its Station to another (in which case such Party shall be required to assign to the Buyer, and such Buyer shall be required to assume, this Agreement, in its entirety), neither Party hereto shall assign its rights or obligations under this Agreement to a third party without the express written consent of the other Party, which consent shall not be unreasonably withheld. 17 14. Entire Agreement. This Agreement constitutes the entire agreement between the Parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements, commitments, or any other understandings between WYZZ and the Nexstar with respect to such subject matter. No provision of this Agreement shall be changed or modified, nor shall this Agreement be discharged in whole or in part except by an agreement in writing signed by the Party against whom the change, modification, or discharge is claimed or sought to be enforced, nor shall any waiver of any of the conditions or provisions of this Agreement be effective and binding unless such waiver shall be in writing and signed by the Party against whom the waiver is asserted, and no waiver of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 15. Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each such counterpart were upon the same instrument. 16. Notices. All notices required under this Agreement shall be in writing and shall be deemed given to an addressee when mailed if mailed by prepaid, certified, first class United States mail to the address for notice of such addressee set forth below: If to WYZZ: Mr. David D. Smith c/o Sinclair Communications, Inc. 10706 Beaver Dam Road Cockeysville, Maryland 21030 Copy to: General Counsel Sinclair Communications, Inc. 10706 Beaver Dam Road Cockeysville, Maryland 21030 If to NEXSTAR: Mr. Perry Sook Nexstar Broadcasting Group 200 Abington Executive Park Suite 201 Clarks Summit, Pennsylvania 18411 18 Copies to: John L. Kuehn, Esq. Kirkland & Ellis Citicorp Center, 153 East 53rd Street New York, New York 10022-4675 and to: Howard M. Liberman, Esq. Arter & Hadden LLP 1801 K Street, NW Suite 400K Washington, DC 20006-1301 Either Party hereto may specify for itself a different address for the giving of notice hereunder by giving ten (10) days prior written notice to the other Party of such address change pursuant to this paragraph. 17. Governing Law. This Agreement shall be governed and construed in accordance with the laws of Maryland, without regard to its choice of law rules. 18. No Partnership or Joint Venture. This Agreement is not intended to be and shall not be construed as a partnership or joint venture agreement between the Parties. Except as otherwise specifically provided in this Agreement with regard to the services to be provided by Nexstar to WYZZ-TV, no Party to this Agreement shall be authorized to act as agent of or otherwise represent any other Party to this Agreement. 19. Cooperation. The Parties shall use their best efforts in the performance and fulfillment of the terms and conditions of this Agreement in effectuating the intent of such Parties as expressed under this Agreement. From time to time, without further consideration, the Parties shall execute and deliver such other documents and take such other actions as either Party hereto reasonably may request to effectuate such intent. 20. Arbitration. The Parties shall attempt in good faith to resolve all claims, disputes, and other disagreements arising out of or related to this Agreement. In the event that a dispute between the Parties cannot be resolved within thirty (30) days of written notice from one Party to the other Party, such dispute shall, at the request of either Party, after providing written notice to the other Party, be determined and settled by arbitration in Baltimore, Maryland, in accordance with the Commercial Rules of the American Arbitration Association then in effect, the Federal Arbitration Act, 9 U.S.C. 1 et seq., and the Maryland Uniform Arbitration Act, and judgment upon the award rendered by the arbitrator shall be entered in any court of competent jurisdiction. The notice of arbitration shall specifically describe the claims, disputes, or other matters in issue to be submitted to arbitration. The Parties shall jointly select a single arbitrator who shall have the authority to hold hearings and to render a decision in accordance with the 19 Arbitration Rules of the American Arbitration Association. If the Parties are unable to agree within ten (10) days, the arbitrator shall be selected by the Chief Judge of the Circuit Court for Baltimore City. The written decision of the arbitrator so appointed shall be conclusive and binding on the Parties and enforceable by a court of competent jurisdiction. The expenses of the arbitration shall be borne by the non-prevailing Party to the arbitration, including, but not limited to, the reasonable cost of experts, evidence, and legal counsel. Whenever the action is required to be taken under this Agreement within a specified period of time and the taking of such action is materially affected by a matter submitted to arbitration, such period shall automatically be extended by the number of days, plus ten (10), that are taken for the determination of that matter by the arbitrator. Notwithstanding the foregoing, the Parties agree to use their best reasonable efforts to minimize the costs and frequency or arbitration hereunder. In addition, both Parties agree to use their best efforts to cause a final decision to be rendered with respect to the matters submitted to arbitration within sixty (60) days after its submission. 21. Severability. It is the intent of the Parties that the transactions contemplated hereunder comply in all respects to applicable law, including, but not limited to, the Communications Act of 1934, and all applicable rules, regulations, and policies of the FCC. If any provision of this Agreement shall become void, illegal, or invalid because of a decision or other action by any governmental or judicial authority with jurisdiction thereof, the remainder of this Agreement shall remain in full force and effect without such offending provision so long as such remainder substantially reflects in all material respects the original agreement of the Parties. In such event, the Parties shall use commercially reasonable efforts to reach agreement promptly on lawful substitute provisions in place of said offending provision to effectuate as nearly as possible their intent as expressed by this Agreement. 22. Digital Spectrum. The FCC has authorized an additional 6 MHz of spectrum for digital television service ("DTV Spectrum") to Nexstar for WMBD-TV and to WYZZ for WYZZ-TV. Except to the extent necessary to comply with law and the rules and regulations of the FCC with regard to the digital broadcast of the Stations' commercial broadcast schedules, each of the Parties shall retain all rights to utilize its DTV Spectrum in accordance with the rules and regulations of the FCC and shall bear all costs in connection with such use including, without limitation, any costs of equipment necessary for digital broadcasting. 23. Further Assurances. WYZZ and Nexstar shall use commercially reasonable efforts in the performance and fulfillment of the terms and conditions of this Agreement in effectuating the intent of such Parties as expressed under this Agreement. From time to time, without further consideration, WYZZ and Nexstar shall execute and deliver such other documents and take such other actions as either Party hereto reasonably may request to effectuate such intent. 20 24. Termination. a. Termination by Nexstar. This Agreement may be terminated by Nexstar by written notice to WYZZ (i) any time upon six (6) months prior notice, (ii) on six (6) months prior notice following the sale of WYZZ-TV by WYZZ, and/or (iii) if Nexstar is not then in material default or breach hereof, and WYZZ is in material breach of its representations or its material obligations hereunder, and has failed to cure such breach within thirty (30) days of written notice from Nexstar; provided, no notice may be given pursuant to clause (i) of this section prior to the eighteen (18) month anniversary of the Effective Date. b. Termination by WYZZ. This Agreement may be terminated by WYZZ by written notice to Nexstar (i) at any time upon six (6) months prior written notice, (ii) on six (6) months prior notice following the sale of WMBD-TV by Nexstar and/or (iii) if WYZZ is not then in material default or breach hereof and if the Nexstar is in material breach of its representations or its material obligations hereunder, and has failed to cure such breach within thirty (30) days of notice from WYZZ; provided, no notice may be given pursuant to clause (i) of this section prior to the eighteen (18) month anniversary of the Effective Date. c. Termination due to invalidity or material change. Unless terminated pursuant to another provisions of this Agreement, this Agreement will terminate upon the first to occur of any of the following: (i) this Agreement is declared invalid or illegal in whole or substantial part by an order or decree of an administrative agency or court of competent jurisdiction and such order or decree has not been stayed or has become final and no longer subject to further administrative or judicial review; (ii) there has been a material change in FCC rules or policies that would cause this Agreement to be in violation thereof, and such change is in effect and not the subject of an appeal or further administrative or judicial review; provided, that in such event the Parties shall first negotiate in good faith and attempt to agree on an amendment to this Agreement that will provide the Parties with a valid, binding and enforceable agreement that conforms to the new FCC rules, policies or precedent; or (iii) the mutual, written consent of both Parties. d. Nexstar's Additional Termination Rights. Notwithstanding anything herein to the contrary and in addition to Nexstar's termination rights in Section 24.a. above, Nexstar shall have the right to terminate this Agreement upon the event that WYZZ makes a general assignment for the benefit of creditors, files or has filed against it a petition for bankruptcy, reorganization or an arrangement for the benefit of creditors, or 21 for the appointment of a receiver, trustee or similar creditor's representative for the property or assets of WYZZ under any federal or state insolvency law, which if filed against WYZZ, has not been dismissed within thirty (30) days thereof. e. WYZZ's Additional Termination Rights. Notwithstanding anything herein to the contrary and in addition to WYZZ's termination rights in Section 24.b. above, WYZZ shall have the right to terminate this Agreement upon the event that Nexstar makes a general assignment for the benefit of creditors, files or has filed against it a petition for bankruptcy, reorganization or an arrangement for the benefit of creditors, or for the appointment of a receiver, trustee or similar creditors' representative for the property or assets of Nexstar under any federal or state insolvency law, which if filed against Nexstar, has not been dismissed within thirty (30) days thereof. f. WYZZ's Rights following Termination. (i) If this Agreement is terminated for any reason, WYZZ may continue to use Nexstar's facility (to the extent of, and consistent with, the use immediately prior to the termination) for a period of six (6) months following the date of actual termination, without regard to any continuation which occurs as a result of the immediately succeeding sentence (the "Continuation Period"). If the Parties elect to continue the Services during the Continuation Period, then the Nexstar shall continue to provide the Services and pay the Section 2(a) Amount in accordance with this Agreement during the Continuation Period. If the Parties, or any one of them, elect(s) to discontinue the provision of Services during the Continuation Period, the WYZZ shall pay to the Nexstar a commercially reasonable rent (on a monthly basis in advance) for the use and occupancy of, or any part of, the Nexstar's facilities. WYZZ shall make all payments due to Nexstar hereunder within ten (10) days following receipt of an invoice from Nexstar for the payment of such rent. (ii) Notwithstanding the termination of this Agreement, any amounts due hereunder with respect to the period prior to the end of the Term shall be paid in accordance with the provisions hereof following the end of the Term. g. WYZZ's Right to Hire Certain Employees. Upon final termination of this Agreement, WYZZ shall have the obligation to hire any employee of Nexstar solely providing services to WYZZ-TV, including (without limitation) all of the account executives of Nexstar exclusively selling time on WYZZ-TV. The parties shall negotiate in good faith with respect to any rights of WYZZ to hire any other employees of Nexstar who are providing services to both Stations. For a period of one year from the termination of this Agreement, neither Party hereto (or any of its affiliates) will directly or indirectly solicit to employ or employ any of the employees of the other Party hereto if such employees were employed by either of the Stations at any time during the six month period immediately preceding the termination of this Agreement. h. Joint Capital Equipment. Upon the final termination of this Agreement, the parties shall negotiate in good faith regarding which party shall retain any Combined 22 Capital Equipment purchased during the term hereof for use on both Stations, as well as any payment to be made by the retaining party to the other party after taking into account the allocation among the parties during the term hereof of the cost of acquiring and maintaining such Combined Capital Equipment, as well as the benefit of any depreciation deductions received by Nexstar with respect thereto. 25. Indemnification. a. by Nexstar. Nexstar shall indemnify and hold harmless WYZZ from and against any and all claims, losses, costs, liabilities, damages, and expenses, including any FCC fines or forfeitures (including reasonable legal fees and other expenses incidental thereto), of every kind, nature and description (collectively "Damages") arising or resulting from or relating to (i) Nexstar's breach of any representation, covenant, agreement or other obligation of Nexstar contained in this Agreement and (ii) any action, which constitutes gross negligence, recklessness or willful misconduct taken by Nexstar or its employees and agents with respect to WYZZ-TV, or any failure by Nexstar or its employees and agents to take any action with respect to WYZZ-TV, including, without limitation, Damages relating to violations of the Act, or any rule, regulation or policy of the FCC, slander, defamation or other claims relating to the sale of advertising time on the Station (except where the Damages are caused by WYZZ's negligence, recklessness, willful misconduct, or breach of its representations or obligations under this Agreement), from and after the Effective Date of this Agreement. b. by WYZZ. WYZZ shall indemnify and hold harmless Nexstar from and against any and all Damages arising or resulting from or relating to (i) WYZZ's breach of any representation, covenant, agreement or other obligation of WYZZ contained in this Agreement and (ii) any action taken, which constitutes gross negligence, recklessness or willful misconduct by WYZZ or its employees and agents with respect to WMBD-TV, or any failure by WYZZ or its employees and agents to take any action with respect to WMBD-TV, including, without limitation, Damages relating to violations of the Act, or any rule, regulation or policy of the FCC, slander, defamation or other claims relating to programming provided by WYZZ or WYZZ's broadcast and sale of advertising time on WMBD-TV (except where the Damages were incurred by Nexstar's negligence, recklessness, willful misconduct, or breach of any representation, covenant, agreement or other obligation contained in this Agreement), from and after the Effective Date of this Agreement. c. Indemnification Procedure. Neither WYZZ nor Nexstar shall be entitled to indemnification pursuant to this Section unless such claim for indemnification is asserted in a written notice delivered to the other Party, together with a statement as to the factual basis for the claim and the amount of the claim. Together with such notice or promptly following the delivery thereof, the Party making the claim (the "Claimant") shall make available to the other Party (the "Indemnitor") information relied upon by the 23 Claimant to substantiate the claim. Such notice shall be given promptly following Claimant knowing or having reason to know about such claim; provided, the Indemnitor shall be relieved of a liability for Claimant's failure to provide notice only if, and to the extent, adversely impacted by such failure. The Indemnitor under this Section 26(c) shall have the right to conduct and control through counsel of its own choosing the defense of any third Party claim, action or suit (and the Claimant shall cooperate fully with the Indemnitor), but the Claimant may, at its election, participate in the defense of any such claim, action or suit at its sole cost and expense; provided, that, if the Indemnitor shall fail to defend any such claim, action or suit, then the Claimant may defend through counsel of its own choosing such claim, action or suit, and (so long as it gives the Indemnitor at least fifteen (15) days' notice of the terms of the proposed settlement thereof and permits the Indemnitor to then undertake the defense thereof), Claimant may settle such claim, action or suit, and, if Claimant is entitled to be indemnified by Indemnitor hereunder, Claimant may recover from the Indemnitor the amount of such settlement or of any judgment and the costs and expenses of such defense. The Indemnitor shall not compromise or settle any third Party claim, action or suit without the prior written consent of the Claimant, which consent will not be unreasonably withheld or delayed. 26. Damages; Specific Performance. a. In the event of a material breach by WYZZ of its obligations hereunder, Nexstar shall be entitled to seek monetary damages against WYZZ. The Parties recognize, however, that, given the unique nature of the Station and this Agreement, monetary damages alone will not be adequate to compensate Nexstar for any injury resulting from WYZZ's breach. Except to the extent such action would not be permitted by the rules and regulations of the FCC, Nexstar shall therefore be entitled, in addition to a right to seek and collect monetary damages, to obtain specific performance of the terms of this Agreement. If any action is brought by Nexstar to enforce this Agreement, WYZZ shall waive the defense that there is an adequate remedy at law. In addition, in the event of a material breach by WYZZ of its obligations hereunder, Nexstar shall be entitled to terminate this Agreement and exercise its rights pursuant to Section 25(b) hereof (except that Nexstar may not assert consequential, special or punitive damages or any claim for lost profits). b. In the event of a material breach by Nexstar of its obligations hereunder, WYZZ shall be entitled to seek monetary damages against Nexstar. The Parties recognize, however, that, given the unique nature of the Station and this Agreement, monetary damages alone will not be adequate to compensate WYZZ for any injury resulting from Nexstar's breach. Except to the extent such action would not be permitted by the rules and regulations of the FCC, WYZZ shall therefore be entitled, in addition to a right to seek and collect monetary damages, to obtain specific performance of the terms of this Agreement. If any action is brought by WYZZ to enforce this Agreement, Nexstar 24 shall waive the defense that there is an adequate remedy at law. In addition, in the event of a material breach by Nexstar of its obligations hereunder, WYZZ shall be entitled to terminate this Agreement and exercise its rights pursuant to Section 25(a) hereof (except that WYZZ may not assert consequential, special or punitive damages or any claim for lost profits). c. In the event any Party files a lawsuit or institutes other formal legal action to enforce its rights under this Agreement, the prevailing Party shall be reimbursed by the other Party for all reasonable expenses incurred thereby, including reasonable attorney's fees. THIS AGREEMENT CONTAINS THE BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. [Signatures on Following Page] 25 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. NEXSTAR BROADCASTING OF PEORIA, L.L.C. By: /s/ Perry A. Sook ------------------------------ Name: Perry A. Sook Title: President/CEO WYZZ, INC. By: /s/ David Smith ------------------------------ Name: David Smith Title: President WYZZ LICENSEE, INC. By: /s/ David Smith ------------------------------ Name: David Smith Title: President 26 EXHIBIT A [WYZZ's Facilities and Equipment] Schedules, 3L, 4L and 6L are hereby incorporated herein by reference. 27 EXHIBIT B Promptly following each month during the term, Nexstar shall reimburse WYZZ for salaries for WYZZ's employees, costs of WYZZ-TV's programming (which were not more than ninety (90) days past due as of the Effective Date) and other direct, reasonable, out-of-pocket expenses (including electric costs related to the digital transmission of WYZZ's primary commercial broadcast signal, but excluding all other expenses relating to WYZZ-TV's DTV Spectrum) incurred by WYZZ in the operation of WYZZ-TV, which expenses were incurred in the ordinary course of business consistent with standard industry practice and FCC requirements. 28 EXHIBIT C [Fair Market Rent Determination] The parties shall negotiate in good faith in an attempt to reach an agreement on the fair market value rent of any real property owned by either Nexstar or WYZZ (or any affiliate thereof). To the extent the parties are not able to reach such an agreement within fifteen (15) days prior to the time when such rental shall be deducted in computing BCF, the parties shall retain a mutually acceptable real estate appraiser in the Peoria/Bloomington market experienced in determining fair market value rents, who shall determine the rent payment. 29 EXHIBIT D [Start-Up Costs] The parties agree that the maximum start-up costs referred to in Section 4 shall not exceed Fifty Thousand Dollars ($50,000), in the case of relocation of a studio transmitter link, Two Hundred Ninety-Two Thousand Dollars ($292,000) in case of master control improvements, Thirty Thousand Dollars ($30,000) in the case of construction and furniture costs, One Hundred Ten Thousand Dollars ($110,000) in the case of a new traffic system, Forty-Five Thousand Dollars ($45,000) in the case of news related equipment, Twenty-Five Thousand Six Hundred Dollars ($25,600) in the case of termination of the lease for WYZZ-TV's Peoria sales office, Nine Thousand Nine Hundred Dollars ($9,900) in the case of termination of the lease for the WMBD-TV's Bloomington Sales Office, One Hundred Five Thousand Dollars ($105,000) in the case of Employee severance and Thirty-Three Thousand Dollars ($33,000) in the case of miscellaneous expenses, including, but not limited to, phone system upgrade costs all as reasonably determined by Nexstar. 30 EXHIBIT E [Licensee Employees] William Killian Lillian Rathburn Scott Parker* * To be retained for up to six months after the Effective Date of the Outsourcing Agreement. 31 EXHIBIT F REPRESENTATIONS AND WARRANTIES OF WYZZ WYZZ hereby represents and warrants to Nexstar as follows: 1L. Organization and Good Standing. WYZZ is a corporation duly organized, validly existing and in good standing under the laws of Maryland and has full corporate power and authority to carry on its business as it is now being conducted and to own and use the assets owned and used by it. WYZZ is qualified as a foreign corporation in the State of Illinois. WYZZ does not own any direct or indirect subsidiaries. 2L. No Conflicts. Except as described on Schedule 2L to this Exhibit, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the articles of incorporation or by-laws of WYZZ, (ii) violate any provision of applicable law, rule and regulation, or (iii) conflict with or result in a breach of, or give rise to a right of termination of, or accelerate the performance required by the terms of any judgment, court order or consent decree, or any material agreement, indenture, mortgage or instrument to which WYZZ is a Party or to which its property is subject, or constitute a default thereunder. 3L. Real Property. Schedule 3L to this Exhibit contains a complete description of all real property, whether owned or leased (the "Real Property Interests") (including street address, and WYZZ's use thereof) used in connection with the operation of WYZZ-TV. The Real Property Interests listed on Schedule 3L to this Exhibit comprise all interests in real property currently used by WYZZ and necessary to conduct the business and operations of WYZZ-TV as now conducted. Except as described on Schedule 3L to this Exhibit, WYZZ has good title to all Real Property Interests free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, encroachments, leases, charges, and other claims and encumbrances, which restricts WYZZ's interest in, or use of, the Real Property Interests, except for "Permitted Encumbrances" (as defined below). Each leasehold or subleasehold interest is included on Schedule 3L to this Exhibit and is legal, valid, binding, enforceable, and in full force and effect. WYZZ is not in default, violation, or breach under any lease or sublease, and no event has occurred and is continuing that constitutes (with notice or passage of time or both) a default, violation, or breach thereunder. To WYZZ's knowledge, WYZZ has not received any notice of a default, offset, or counterclaim under any lease or sublease with respect to any of the Real Property Interests. WYZZ enjoys peaceful and undisturbed possession of the Real Property Interests; and so long as WYZZ fulfills its obligations under the lease therefor, WYZZ has enforceable rights to nondisturbance and quiet enjoyment against its lessor or sublessor and, except as set forth in Schedule 3L to this Exhibit, no third Party holds any interest in the leased premises with the right to foreclose upon WYZZ's leasehold or subleasehold interest. To WYZZ's knowledge, WYZZ has legal and practical access to all of the Real Property Interests. Except as 1 otherwise disclosed in Schedule 3L to this Exhibit, all towers, guy anchors, ground radials, and buildings and other improvements included in the Real Property Interests are located entirely on the Real Property Interests listed in Schedule 3L to this Exhibit. All Real Property Interests (including the improvements thereon) (a) are in good condition and repair consistent with its current use, (b) are available for immediate use in the conduct of the business and operations of WYZZ-TV, and (c) comply in all material respects with all applicable material building or zoning codes and the regulations of any governmental authority having jurisdiction, except to the extent that the current use by WYZZ, while permitted, constitutes or would constitute a "nonconforming use" under current zoning or land use regulations. No eminent domain or condemnation proceedings are pending or, to WYZZ's knowledge, threatened with respect to any of the Real Property Interests. "Permitted Encumbrances" means (a) encumbrances of a landlord or other statutory liens not yet due and payable, (b) encumbrances arising in connection with equipment or maintenance financing or leasing under the terms of contracts disclosed pursuant to this Exhibit 1, (c) encumbrances for taxes not yet due and payable or which are being contested in good faith and by appropriate proceedings and with respect to which an appropriate reserve is maintained on the taxpayer's books and records in accordance with generally accepted accounting principles, (d) or encumbrances which do not materially detract from the value of any of the assets of License or Nexstar or materially interfere with the use thereof. 4L. Tangible Personal Property. Schedule 4L to this Exhibit contains a complete list and description of all of WYZZ's tangible personal property (the Personal Property") used or useful in the operation of WYZZ's Station. Except as noted on Schedule 4L, WYZZ owns and has good title to each item of Personal Property listed and described on Schedule 4L to this Exhibit. Except as otherwise noted on Schedule 4L to this Exhibit, none of the Personal Property owned by WYZZ and used in the operation of WYZZ-TV is subject to any security interest, mortgage, pledge, conditional sales agreement, or other lien or encumbrance, except for Permitted Encumbrances. With allowance for normal repairs, maintenance, wear and obsolescence, each material item of Personal Property is in good operating condition and repair, and is available for immediate use in the business and operation of WYZZ-TV. The Personal Property comprises all the tangible personal property currently used by WYZZ and necessary to conduct the business and operations of WYZZ-TV as now conducted. 5L. FCC. WYZZ-TV is operated in material compliance with all the terms and conditions of all WYZZ-TV FCC authorizations and licenses, the Act, and applicable rules, regulations and policies of the FCC. All WYZZ-TV FCC authorizations and licenses (a true and complete list of which is set forth on Schedule 5L to this Exhibit, and true and complete copies of each of which have been delivered to Nexstar) have been validly issued and are valid and in full force and effect. The FCC authorizations and licenses listed on Schedule 5L to this Exhibit comprise all of the licenses, permits, and other authorizations required 2 from any governmental or regulatory authority for the lawful conduct of the business and operations of WYZZ-TV in the manner and to the full extent as it is now conducted. Except as set forth on Schedule 5L to this Exhibit, no application, action, or proceeding is pending for the renewal or modification of any of the FCC authorizations or licenses, and there is not now before the FCC any investigation or complaint against WYZZ or relating to WYZZ-TV, the unfavorable resolution of which would impair the qualifications of WYZZ to hold any FCC authorizations or licenses. Except as set forth on Schedule 5L to this Exhibit, there is no proceeding pending before the FCC, and WYZZ has received no notice of violation from the FCC with respect to WYZZ. Except as set forth on Schedule 5L to this Exhibit, WYZZ has received no order or notice of violation issued by any governmental entity which permits revocation, adverse modification or termination of any FCC authorization or license. Except as set forth on Schedule 5L to this Exhibit, none of the FCC authorizations or licenses is subject to any restriction or condition that requires any material change in the operation of WYZZ-TV as currently operated. The FCC authorizations and licenses listed in Schedule 5L to this Exhibit are currently in effect and, except as disclosed on the Schedules, are not subject to any liens or other encumbrances. No renewal applications are pending with respect to any of the FCC authorizations or licenses. All documents required by 47 C.F.R. Section 73.3526 to be kept in WYZZ-TV's public inspection files are in such file, and such file will be maintained in proper order and complete during the Term. WYZZ has filed all material reports and filings with the FCC, has registered its antennas, and has paid all regulatory fees. 6L. Intellectual Property. Set forth on Schedule 6L to this Exhibit is a complete list of all trademarks, tradenames, patents, website URLs and other intellectual property used in connection with the operation of WYZZ-TV and owned by or licensed to WYZZ on the date hereof and, except as otherwise set forth on Schedule 6L to this Exhibit hereto, WYZZ owns such Intellectual Property free and clear of any royalty, lien, encumbrance or charge and does not interfere with the rights of others. WYZZ has not received any written notice or written claim that any such Intellectual Property is not valid or enforceable, or of any infringement upon or conflict with any patent, trademark, service mark, copyright or trade name of any third Party by WYZZ. Except as set forth on Schedule 6L to this Exhibit, WYZZ has not given any notice of infringement to any third Party with respect to any of the Intellectual Property, and no such infringement exists. 7L. Labor. With respect to employees of WYZZ-TV: (i) WYZZ is and has been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, the Immigration Reform and Control Act, and occupational safety and health requirements, and no claims or investigations are pending or, to WYZZ's knowledge, threatened with respect to such laws, either by private individuals or by governmental agencies, and all 3 employees are at-will except for those employees whose employment agreements have been provided to Nexstar. (ii) The employees of WYZZ-TV are not and have never been represented by any labor union in connection with employment by WYZZ, and no collective bargaining agreement is or has been binding and in force against, or currently being negotiated by, WYZZ. No labor representation organization effort currently exists nor has there been any such activity within the past three (3) years. No grievance or arbitration proceeding arising out of or under collective bargaining agreements or employment relationships is pending, and no claims therefore exist or have, to WYZZ's knowledge, been threatened; no labor strike, lock-out, slowdown, or work stoppage is or has ever been pending or threatened against or directly affecting WYZZ. (iii) WYZZ is not and has never been engaged in any unfair labor practice, and here is not now, nor within the past three (3) years has there been, any unfair labor practice complaint against WYZZ pending or, to WYZZ's knowledge, threatened before the National Labor Relations Board or any other comparable foreign or domestic authority or any workers' council. (iv) All Persons at WYZZ-TV classified by WYZZ as independent contractors do satisfy and have satisfied the requirements of law to be so classified, and WYZZ has fully and accurately reported WYZZ's payments to them on IRS Forms 1099 when required to do so. (v) WYZZ is and has been in compliance with all applicable domestic and foreign laws concerning employer contributions to any trade union, housing, unemployment, retirement, bonus and welfare funds and all other funds to which an employer is required by law to contribute. (vi) Schedule 7L(vi) to this Exhibit contains a complete list of WYZZ's Employees by position and the compensation paid to each. Except as otherwise disclosed on Schedule 7L(vi) to this Exhibit, since September 30, 2001, no employee of WYZZ-TV, or group of employees, the loss of whom would have a material adverse effect on the business of WYZZ-TV, has notified WYZZ of his or their intent to (A) terminate his or her relationship with WYZZ, or (B) make any demand for material payments or modifications of his or their arrangements with WYZZ. (vii) WYZZ has entered into all employment contracts, individual labor contracts, collective labor contracts, and similar agreements to the extent required by applicable domestic and foreign laws, and WYZZ has delivered to Nexstar prior to the date hereof true and complete copies of all employment contracts, individual labor contracts, collective labor contracts, and similar agreements, whether written or oral, to which WYZZ is a Party. 4 8L. Insurance. Schedule hereto contains a list of all insurance policies concerning the business and operation of WYZZ-TV, other than employee-benefit related insurance policies. All such policies are in full force and effect, there are no existing breaches or defaults by WYZZ with respect to such policies, and no notice of cancellation or termination has been received by WYZZ. During the past three (3) years, no insurance policy relating to WYZZ-TV has been cancelled by the insurer, and no application of WYZZ for insurance has been rejected by any insurer. 9L. Compliance with Laws. With respect to WYZZ-TV, except as set forth on Schedule 9L to this Exhibit, WYZZ is in compliance in all material respects with all applicable Federal, state and local laws, rules and regulations and, to WYZZ's knowledge, WYZZ has received no notice of any action threatened or pending alleging noncompliance therewith. 10L. Litigation. Except as set forth on Schedule 10L to this Exhibit hereto, there is no pending suit, claim, action, proceeding or arbitration relating to the business, or operations of WYZZ-TV or which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby or, to WYZZ's knowledge, threatened against WYZZ. WYZZ has received no citation, order, judgment, writ, injunction, or decree of any court, government, or governmental or administrative agency against or affecting the business of WYZZ or the operation of WYZZ-TV, except as disclosed on Schedule 10L to this Exhibit, and except for such FCC orders and other governmental orders, decrees and other actions which apply to the broadcasting industry generally. 11L. Environmental. (i) Environmental Compliance. Except as disclosed on Schedule 11L, (a) none of the Personal Property and, to the knowledge of WYZZ, none of the Real Property Interests contain (i) any asbestos, polychlorinated biphenyls, or any PCB contaminated oils; (ii) any Contaminants (as defined below); or (iii) any underground storage tanks; and (b) no underground storage tank disclosed on Schedule 11L has leaked and has not been remediated or leaks and such tank is in substantial compliance with all applicable Environmental Laws (as defined below). (ii) Definition of Contaminant. For purposes of this Agreement, "Contaminant" shall mean and include any pollutant, contaminant, hazardous material (as defined in any of the Environmental Laws), toxic substances (as defined in any of the Environmental Laws), asbestos or asbestos containing material, urea formaldehyde, polychlorinated biphenyls, regulated substances and wastes, radioactive materials, and petroleum or petroleum by-products, including oil or any fraction thereof. 5 (iii) Definition of Environmental Laws. "Environmental Laws" shall mean and include, but not be limited to, any applicable federal, state or local law, statute, charter, ordinance, rule, or regulation or any Governmental Body interpretation, policy, or guidance, including, without limitation, applicable safety/environmental/health laws, such as, but not limited to, the Resource Conservation and Recovery Act of 1976, Comprehensive Environmental Response Compensation and Liability Act, Federal Emergency Planning and Community Right-to-Know Law, the Clean Air Act, the Clean Water Act, and the Toxic Substance Control Act, as any of the foregoing have been amended, and any Governmental Authorization or Order applicable to or affecting the Property or any other property (real or personal) used by or relating to WYZZ-TV or issued pursuant to any Environmental Laws which pertains to, governs, or controls the generation, storage, remediation, or removal of Contaminants, or otherwise regulates the protection of health and the environment, including, but not limited to, any of the following activities, whether on site or off site if such could materially affect the site: (i) the emission, discharge, release, spilling, or dumping of any Contaminant into the air, surface water, ground water, soil or substrata; or (ii) the use, generation, processing, sale, recycling treatment, handling, storage, disposal, transportation, labeling, or any other management of any Contaminant. 12L. Tax Matters. Except as set forth on Schedule 12L to this Exhibit hereto: (i) All Tax Returns required to be filed by WYZZ have been filed when due in a timely fashion and all such Tax Returns are true, correct and complete in all material respects. (ii) WYZZ has paid in full on a timely basis all Taxes owed by it that were payable on or prior to the date hereof, whether or not shown on any Tax Return. (iii) The amount of WYZZ's liability for unpaid Taxes did not, as of September 30, 2001 exceed the amount of the current liability accruals for such Taxes (excluding reserves for deferred Taxes) reflected on the WYZZ Financial Statements. (iv) WYZZ has withheld and paid over to the proper governmental authorities all Taxes required to have been withheld and paid over (and complied in all material respects with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto) in connection with amounts paid to any employee, independent contractor, creditor, or other third Party. (v) WYZZ has received no notice of any Tax Proceeding currently pending with respect to WYZZ and WYZZ has not received notice from any Tax Authority that it intends to commence a Tax Proceeding. 6 (vi) There are no liens on the assets of WYZZ relating or attributable to Taxes (except liens for Taxes not yet due). 13L. Accounts Receivable. All accounts receivable of WYZZ that relate to WYZZ-TV and that are reflected on the WYZZ Financial Statements (as defined in these Schedules) or on the accounting records of WYZZ as of the date hereof (collectively, the "Accounts Receivable") represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Except as stated in Schedule 13L to this Exhibit, the Accounts Receivable are current and collectable, net of the reserves shown on the WYZZ Financial Statements (which reserves are adequate and calculated consistent with past practice) or on the accounting records of WYZZ. There is no contest, claim, or right of setoff, other than returns in the ordinary course of business, under any contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. WYZZ's financial records include a complete and accurate list of all Accounts Receivable. 14L. Financial Statements. WYZZ has delivered to Nexstar (and same are attached hereto as Schedule 14L to this Exhibit) the audited (or, if not available, unaudited) balance sheet, statement of operations and accumulated deficits, and statement of cash flows for WYZZ-TV for the two (2) fiscal years immediately preceding the date of this Agreement as well as the unaudited balance sheet, income statement and statement of cash flows for the interim period beginning at the close of WYZZ's most recent fiscal year and ending on September 30, 2001 (collectively, the "WYZZ Financial Statements"). The WYZZ Financial Statements are sufficient to determine the BCF of WYZZ-TV, which WYZZ Financial Statements, WYZZ acknowledges have been used to form the basis of the provisions of Section 2 hereof. The WYZZ Financial Statements submitted in connection with this Agreement (including, in all cases, the notes thereto, if any) (i) is accurate and complete in all material respects; (ii) is consistent in all material respects with the books and records of WYZZ; (iii) fairly presents in all material respects the financial condition and results of the operations of WYZZ-TV consistently applied; and (iv) have been prepared in accordance with GAAP (except, to the extent not audited, for the absence of footnote and certain year-end adjustments). None of the WYZZ Financial Statements understates in any material respect the normal and customary costs and expenses in conducting the business or operations of WYZZ-TV as currently conducted by WYZZ or otherwise materially inaccurately reflects the operations of WYZZ-TV. 15L. Contracts. Schedule 15L to this Exhibit lists all written Contracts and true and complete descriptions of all material oral contracts (including any amendments or other modifications to such Contracts). All of the Contracts are in full force and effect, and are valid, binding, and enforceable in accordance with their terms except as to the enforceability of such contracts may be effected by bankruptcy, insolvency, or similar 7 laws affecting creditors' rights generally and by judicial discretion in the enforcement of equitable remedies. WYZZ is not and, to the knowledge of WYZZ, no other party to such contracts is in default, violation, or breach in any material respect under any contract, and no event has occurred and is continuing that constitutes (with notice or passage of time or both) a default, violation, or breach in any material breach thereunder. To the knowledge of WYZZ, no party to any Contract has any intention to (a) terminate such Contract or amend the terms thereof; (b) refuse to renew any contract upon expiration of its term; or (c) renew the Contract upon expiration only on terms and conditions that are more onerous to those now existing. For purposes of this Agreement, "Contracts" means all contracts, consulting agreements, leases, non-governmental licenses and other agreements (including leases for personal or real property and employment agreements), written or oral (including any amendments and other modifications thereto), to which WYZZ is a party or that are binding upon WYZZ and that relate to or effect the assets, properties, business, or operations of WYZZ-TV that are in effect as of the Effective Date. 8 REPRESENTATIONS AND WARRANTIES OF NEXSTAR Nexstar hereby represents and warrants to WYZZ as follows: 1P. Organization and Good Standing. Nexstar is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has full corporate power and authority to carry on its business as it is now being conducted and to own and use the assets owned and used by it. Nexstar is qualified as a foreign corporation in the State of Illinois. Nexstar does not own any direct or indirect subsidiaries. 2P. No Conflicts. Except as described on Schedule 2P to this Exhibit, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the articles of incorporation or by-laws of Nexstar, (ii) violate any provision of applicable law, rule and regulation, or (iii) conflict with or result in a breach of, or give rise to a right of termination of, or accelerate the performance required by the terms of any judgment, court order or consent decree, or any material agreement, indenture, mortgage or instrument to which Nexstar is a Party or to which its property is subject, or constitute a default thereunder. 3P. Real Property. Schedule 3P to this Exhibit contains a complete description of all real property, whether owned or leased (the "Real Property Interests") (including street address or legal description, and Nexstar's use thereof) used in connection with the operation of WMBD-TV. The Real Property Interests listed on Schedule 3P to this Exhibit comprise all interests in real property currently used by Nexstar and necessary to conduct the business and operations of WMBD-TV as now conducted. Except as described on Schedule 3P to this Exhibit, Nexstar has good title to all Real Property Interests free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, encroachments, leases, charges, and other claims and encumbrances, which restricts Nexstar's interest in, or use of, the Real Property Interests, except for Permitted Encumbrances. Each leasehold or subleasehold interest is included on Schedule 3P to this Exhibit and is legal, valid, binding, enforceable, and in full force and effect. Nexstar is not in default, violation, or breach under any lease or sublease, and no event has occurred and is continuing that constitutes (with notice or passage of time or both) a default, violation, or breach thereunder. To Nexstar's knowledge, Nexstar has not received any notice of a default, offset, or counterclaim under any lease or sublease with respect to any of the Real Property Interests. Nexstar enjoys peaceful and undisturbed possession of the Real Property Interests; and so long as Nexstar fulfills its obligations under the lease therefor, Nexstar has enforceable rights to nondisturbance and quiet enjoyment against its lessor or sublessor and, except as set forth in Schedule 3P to this Exhibit, no third Party holds any interest in the leased premises with the right to foreclose upon Nexstar's leasehold or subleasehold interest. To Nexstar's knowledge, Nexstar has legal and practical access to all of the Real Property Interests. Except as otherwise disclosed in Schedule 3P to this Exhibit, all towers, guy anchors, ground radials, and buildings and other improvements included in the Real Property 1 Interests are located entirely on the Real Property Interests listed in Schedule 3P to this Exhibit. All Real Property Interests (including the improvements thereon) (a) are in good condition and repair consistent with its current use, (b) are available for immediate use in the conduct of the business and operations of the Nexstar Station, and (c) comply in all material respects with all applicable material building or zoning codes and the regulations of any governmental authority having jurisdiction, except to the extent that the current use by Nexstar, while permitted, constitutes or would constitute a "nonconforming use" under current zoning or land use regulations. No eminent domain or condemnation proceedings are pending or, to Nexstar's knowledge, threatened with respect to any of the Real Property Interests. 4P. Tangible Personal Property. Schedule 4P to this Exhibit contains a complete list and description of all of Nexstar's tangible personal property (the Personal Property") used or useful in the operation of Nexstar's Station. Except as noted on Schedule 4P, Nexstar owns and has good title to each item of Personal Property listed and described on Schedule 4P to this Exhibit. Except as otherwise noted on Schedule 4P to this Exhibit, none of the Personal Property owned by Nexstar and used in the operation of the Nexstar Station is subject to any security interest, mortgage, pledge, conditional sales agreement, or other lien or encumbrance, except for Permitted Encumbrances. With allowance for normal repairs, maintenance, wear and obsolescence, each material item of Personal Property is in good operating condition and repair, and is available for immediate use in the business and operation of WMBD-TV. The Personal Property comprises all the tangible personal property currently used by Nexstar and necessary to conduct the business and operations of WMBD-TV as now conducted. 5P. FCC. WMBD-TV is operated in material compliance with all the terms and conditions of all WMBD-TV FCC authorizations and licenses, the Act, and applicable rules, regulations and policies of the FCC. All WMBD-TV FCC authorizations and licenses (a true and complete list of which is set forth on Schedule 5P to this Exhibit, and true and complete copies of each of which have been delivered to WYZZ) have been validly issued and are valid and in full force and effect. The FCC authorizations and licenses listed on Schedule 5P to this Exhibit comprise all of the licenses, permits, and other authorizations required from any governmental or regulatory authority for the lawful conduct of the business and operations of WMBD-TV in the manner and to the full extent as it is now conducted. Except as set forth on Schedule 5P to this Exhibit, no application, action, or proceeding is pending for the renewal or modification of any of the FCC authorizations or licenses, and there is not now before the FCC any investigation or complaint against Nexstar or relating to WMBD-TV, the unfavorable resolution of which would impair the qualifications of Nexstar to hold any FCC authorizations or licenses. Except as set forth on Schedule 5P to this Exhibit, there is no proceeding pending before the FCC, and Nexstar has received no notice of violation from the FCC with respect to Nexstar. Except as set forth on Schedule 5P to this Exhibit, Nexstar has received no order or notice of violation issued by any governmental entity which permits revocation, adverse modification or termination of 2 any FCC authorization or license. Except as set forth on Schedule 5P to this Exhibit, none of the FCC authorizations or licenses is subject to any restriction or condition that requires any material change in the operation of WMBD-TV as currently operated. The FCC authorizations and licenses listed in Schedule 5P to this Exhibit are currently in effect and, except as disclosed on the Schedules, are not subject to any liens or other encumbrances. No renewal applications are pending with respect to any of the FCC authorizations or licenses. All documents required by 47 C.F.R. Section 73.3526 to be kept in WMBD-TV's public inspection files are in such file, and such file will be maintained in proper order and complete during the Term. Nexstar has filed all material reports and filings with the FCC, has registered its antennas, and has paid all regulatory fees. 6P. Intellectual Property. Set forth on Schedule 6P to this Exhibit is a complete list of all trademarks, tradenames, patents, website URLs and other intellectual property used in connection with the operation of WMBD-TV and owned by or licensed to Nexstar on the date hereof and, except as otherwise set forth on Schedule 6P to this Exhibit hereto, WYZZ owns such Intellectual Property free and clear of any royalty, lien, encumbrance or charge and does not interfere with the rights of others. Nexstar has not received any written notice or written claim that any such Intellectual Property is not valid or enforceable, or of any infringement upon or conflict with any patent, trademark, service mark, copyright or trade name of any third Party by Nexstar. Except as set forth on Schedule 6P to this Exhibit, Nexstar has not given any notice of infringement to any third Party with respect to any of the Intellectual Property, and no such infringement exists. 7P. Labor. Except as set forth on Schedule 7P, with respect to employees of WMBD-TV: (i) Nexstar is and has been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, the Immigration Reform and Control Act, and occupational safety and health requirements, and no claims or investigations are pending or, to the Nexstar's knowledge, threatened with respect to such laws, either by private individuals or by governmental agencies, and all employees are at-will. (ii) The employees of WMBD-TV are not and have never been represented by any labor union in connection with employment by Nexstar, and no collective bargaining agreement is or has been binding and in force against, or currently being negotiated by, Nexstar. No labor representation organization effort currently exists nor has there been any such activity within the past three (3) years. No grievance or arbitration proceeding arising out of or under collective bargaining agreements or employment relationships is pending, and no claims therefore exist or have, to Nexstar's 3 knowledge, been threatened; no labor strike, lock-out, slowdown, or work stoppage is or has ever been pending or threatened against or directly affecting Nexstar. (iii) Nexstar is not and has never been engaged in any unfair labor practice, and here is not now, nor within the past three (3) years has there been, any unfair labor practice complaint against Nexstar pending or, to Nexstar's knowledge, threatened before the National Labor Relations Board or any other comparable foreign or domestic authority or any workers' council. (iv) All Persons at WMBD-TV classified by Nexstar as independent contractors do satisfy and have satisfied the requirements of law to be so classified, and Nexstar has fully and accurately reported Nexstar's payments to them on IRS Forms 1099 when required to do so. (v) Nexstar is and has been in compliance with all applicable domestic and foreign laws concerning employer contributions to any trade union, housing, unemployment, retirement, bonus and welfare funds and all other funds to which an employer is required by law to contribute. (vi) Schedule 7P(vi) to this Exhibit contains a complete list of Nexstar's Employees by position and the compensation paid to each. Except as otherwise disclosed on Schedule 7P(vi), since September 30, 2001, no employee of WMBD-TV, or group of employees, the loss of whom would have a material adverse effect on the business of WMBD-TV, has notified Nexstar of his or their intent to (A) terminate his or her relationship with Nexstar, or (B) make any demand for material payments or modifications of his or their arrangements with Nexstar. (vii) Nexstar has entered into all employment contracts, individual labor contracts, collective labor contracts, and similar agreements to the extent required by applicable domestic and foreign laws, and Nexstar has delivered to WYZZ prior to the date hereof true and complete copies of all employment contracts, individual labor contracts, collective labor contracts, and similar agreements, whether written or oral, to which Nexstar is a Party. 8P. Insurance. Schedule 8P hereto contains a list of all insurance policies concerning the business and operation of WMBD-TV, other than employee-benefit related insurance policies. All such policies are in full force and effect, there are no existing breaches or defaults by Nexstar with respect to such policies, and no notice of cancellation or termination has been received by Nexstar. During the past three (3) years, no insurance policy relating to WMBD-TV has been cancelled by the insurer, and no application of Nexstar for insurance has been rejected by any insurer. 4 9P. Compliance with Laws. With respect to WMBD-TV, except as set forth on Schedule 9P to this Exhibit, WYZZ is in compliance in all material respects with all applicable Federal, state and local laws, rules and regulations and, to Nexstar's knowledge, Nexstar has received no notice of any action threatened or pending alleging noncompliance therewith. 10P. Litigation. Except as set forth on Schedule 10P to this Exhibit hereto, there is no pending suit, claim, action, proceeding or arbitration relating to the business, or operations of WMBD-TV or which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby or, to Nexstar's knowledge, threatened against Nexstar. Nexstar has received no citation, order, judgment, writ, injunction, or decree of any court, government, or governmental or administrative agency against or affecting the business of Nexstar or the operation of WMBD-TV, except as disclosed on Schedule 10P to this Exhibit, and except for such FCC orders and other governmental orders, decrees and other actions which apply to the broadcasting industry generally. 11P. Environmental. (i) Environmental Compliance. Except as disclosed on Schedule 11P to this Exhibit, (a) none of the Personal Property and, to the knowledge of Nexstar, none of the Real Property Interests contain (i) any asbestos, polychlorinated biphenyls, or any PCB contaminated oils; (ii) any Contaminants (as defined below); or (iii) any underground storage tanks; and (b) no underground storage tank disclosed on Schedule 11P to this Exhibit has leaked and has not been remediated or leaks and such tank is in substantial compliance with all applicable Environmental Laws (as defined below). (ii) Definition of Contaminant. For purposes of this Agreement, "Contaminant" shall mean and include any pollutant, contaminant, hazardous material (as defined in any of the Environmental Laws), toxic substances (as defined in any of the Environmental Laws), asbestos or asbestos containing material, urea formaldehyde, polychlorinated biphenyls, regulated substances and wastes, radioactive materials, and pretroleum or petroleum by-products, including credue oil or any fraction thereof. (iii) Definition of Environmental Laws. "Environmental Laws" shall mean and include, but not be limited to, any applicable federal, state or local law, statute, charter, ordinance, rule, or regulation or any Governmental Body interpretation, policy, or guidance, including, without limitation, applicable safety/environmental/health laws, such as, but not limited to, the Resource Conservation and Recovery Act of 1976, Comprehensive Environmental Response Compensation and Liability Act, Federal Emergency Planning and Community Right-to-Know Law, the Clean Air Act, the Clean Water Act, and the Toxic Substance Control Act, as any of the foregoing have been amended, and any Governmental Authorization or Order applicable to or affecting the Property or any other property (real or personal) used by or relating to WMBD-TV or 5 issued pursuant to any Environmental Laws which pertains to, governs, or controls the generation, storage, remediation, or removal of Contaminants, or otherwise regulates the protection of health and the environment, including, but not limited to, any of the following activities, whether on site or off site if such could materially affect the site: (i) the emission, discharge, release, spilling, or dumping of any Contaminant into the air, surface water, ground water, soil or substrata; or (ii) the use, generation, processing, sale, recycling treatment, handling, storage, disposal, transportation, labeling, or any other management of any Contaminant. 12P. Tax Matters. Except as set forth on Schedule 12P to this Exhibit hereto: (i) All Tax Returns required to be filed by Nexstar have been filed when due in a timely fashion and all such Tax Returns are true, correct and complete in all material respects. (ii) Nexstar has paid in full on a timely basis all Taxes owed by it that were payable on or prior to the date hereof, whether or not shown on any Tax Return. (iii) The amount of Nexstar's liability for unpaid Taxes did not, as of September 30, 2001 exceed the amount of the current liability accruals for such Taxes (excluding reserves for deferred Taxes) reflected on the Nexstar Financial Statements. (iv) Nexstar has withheld and paid over to the proper governmental authorities all Taxes required to have been withheld and paid over (and complied in all material respects with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto) in connection with amounts paid to any employee, independent contractor, creditor, or other third Party. (v) Nexstar has received no notice of any Tax Proceeding currently pending with respect to Nexstar and Nexstar has not received notice from any Tax Authority that it intends to commence a Tax Proceeding. (vi) There are no liens on the assets of Nexstar relating or attributable to Taxes (except liens for Taxes not yet due). 13P. Accounts Receivable. All accounts receivable of Nexstar that relate to WMBD-TV and that are reflected on Nexstar Financial Statements (as defined in these Schedules) or on the accounting records of WYZZ as of the date hereof (collectively, the "Accounts Receivable") represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Except as stated in Schedule 13P to this Exhibit, the Accounts Receivable are current and collectable, net of 6 the reserves shown on the Nexstar Financial Statements (which reserves are adequate and calculated consistent with past practice) or on the accounting records of Nexstar. There is no contest, claim, or right of setoff, other than returns in the ordinary course of business, under any contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Nexstar's financial records include a complete and accurate list of all Accounts Receivable. 14P. Financial Statements. Nexstar has delivered to WYZZ (and same are attached hereto as Schedule 14P to this Exhibit) the audited (or, if not available, unaudited) balance sheet, statement of operations and accumulated deficits, and statement of cash flows for WMBD-TV for the two (2) fiscal years immediately preceding the date of this Agreement as well as the unaudited balance sheet, income statement and statement of cash flows for the interim period beginning at the close of Nexstar's most recent fiscal year and ending on September 30, 2001 (collectively, the "Nexstar Financial Statements"). The Nexstar Financial Statements are sufficient to determine the BCF of WMBD-TV, which Nexstar Financial Statements, Nexstar acknowledges have been used to form the basis of the provisions of Section 2 hereof. The Nexstar Financial Statements submitted in connection with this Agreement (including, in all cases, the notes thereto, if any) (i) is accurate and complete in all material respects; (ii) is consistent in all material respects with the books and records of WYZZ; (iii) fairly presents in all material respects the financial condition and results of the operations of WMBD-TV consistently applied; and (iv) have been prepared in accordance with GAAP (except, to the extent not audited, for the absence of footnotes and certain year-end adjustments). None of the Nexstar Financial Statements understates in any material respect the normal and customary costs and expenses in conducting the business or operations of WMBD-TV as currently conducted by Nexstar or otherwise materially inaccurately reflects the operations of WMBD-TV. 15P. Contracts. Schedule 15P to this Exhibit lists all written Contracts and true and complete descriptions of all oral contracts (including any amendments or other modifications to such Contracts). All of the Contracts are in full force and effect, and are valid, binding, and enforceable in accordance with their terms except as to the enforceability of such contracts may be effected by bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by judicial discretion in the enforcement of equitable remedies. Nexstar is not and, to the knowledge of Nexstar, no other party to such contracts is in default, violation, or breach in any material respect under any contract, and no event has occurred and is continuing that constitutes (with notice or passage of time or both) a default, violation, or breach in any material breach thereunder. To the knowledge of Nexstar, no party to any Contract has any intention to (a) terminate such Contract or amend the terms thereof; (b) refuse to renew any contract upon expiration of its term; or (c) renew the Contract upon expiration only on terms and conditions that are more onerous to those now existing. For purposes of this Agreement, "Contracts" means all contracts, consulting agreements, leases, non-governmental 7 licenses and other agreements (including leases for personal or real property and employment agreements), written or oral (including any amendments and other modifications thereto), to which Nexstar is a party or that are binding upon Nexstar and that relate to or effect the assets, properties, business, or operations of the Nexstar Station that are in effect as of the Effective Date. 8 EXHIBIT G [List of Transferred Employees] Schedule 7L is hereby incorporated herein by reference except to the extent included on such Schedule are the names of those Employees listed on Exhibit E. 9 EXHIBIT H [Initial Operating Budget] See attached. 10 EXHIBIT I [Terminated Employees Positions] See Attached 11 -----END PRIVACY-ENHANCED MESSAGE-----