-----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, SQkslOvXTAvkaz5AN2J2OGvq5WlE8uTnMrP8X8A3oe5gGqRA03RiTaPcxUriQyCt eAsIaKZDp3kJYntFf/Ailw== 0000950130-98-001348.txt : 19980323 0000950130-98-001348.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950130-98-001348 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: YOUNG BROADCASTING INC /DE/ CENTRAL INDEX KEY: 0000929144 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 133339681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25042 FILM NUMBER: 98569824 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127547070 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10022 10-K405 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-K ____________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-25042 YOUNG BROADCASTING INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3339681 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 599 Lexington Avenue 10022 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (212) 754-7070 -------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $.001 PAR VALUE (Title of class) -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock of registrant held by non- affiliates of the registrant as of February 27, 1998 was approximately $641,154,954. -------------------- Number of shares of Common Stock outstanding as of February 27, 1998: 12,410,595 shares of Class A Common Stock and 1,916,890 shares of Class B Common Stock. -------------------- DOCUMENTS INCORPORATED BY REFERENCE LOCATION IN FORM 10-K DOCUMENT IN WHICH INCORPORATED -------- --------------------- Registrant's Proxy Statement relating to Part III the 1998 Annual Meeting of Stockholders ================================================================================ YOUNG BROADCASTING INC. FORM 10-K Table of Contents
Page ---- PART I Item 1. Business............................................................... 1 Item 2. Properties............................................................. 23 Item 3. Legal Proceedings...................................................... 25 Item 4. Submission of Matters to a Vote of Security Holders.................... 26 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 28 Item 6. Selected Financial Data................................................ 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 30 Item 8. Financial Statements and Supplementary Data............................ 38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................... 59 PART III Item 10. Directors and Executive Officers of the Registrant..................... 59 Item 11. Executive Compensation................................................. 59 Item 12. Security Ownership of Certain Beneficial Owners and Management......... 59 Item 13. Certain Relationships and Related Transactions......................... 59 PART IV Item 14. Exhibits, Financial Statement, Schedules, and Reports on Form 8-K...... 59 SIGNATURES ....................................................................... 64
-i- FORWARD-LOOKING STATEMENTS THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT, CONCERNING, AMONG OTHER THINGS, INCREASES IN NET REVENUES AND BROADCAST CASH FLOW (AS DEFINED) AND REDUCTIONS IN OPERATING EXPENSES, INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES IN NATIONAL AND REGIONAL ECONOMIES, SUCCESSFUL INTEGRATION OF ACQUIRED TELEVISION STATIONS (INCLUDING ACHIEVEMENT OF SYNERGIES AND COST REDUCTIONS), PRICING FLUCTUATIONS IN LOCAL AND NATIONAL ADVERTISING AND VOLATILITY IN PROGRAMMING COSTS. PART I ITEM 1. BUSINESS. All market rank, rank in market, station audience rating and share, and television household data in this report are from the Nielsen Station Index Viewers and Profile dated November 1997, as prepared by A.C. Nielsen Company ("Nielsen"). Nielsen data provided herein refers solely to the United States television markets. As used herein, the "Company" means Young Broadcasting Inc. and, where the context requires, its subsidiaries (the "Subsidiaries"). GENERAL The Company owns and operates twelve television stations in geographically diverse markets. Six of the stations are affiliated with American Broadcasting Companies, Inc. ("ABC"), four are affiliated with CBS Inc. ("CBS"), one is affiliated with National Broadcasting Company, Inc. ("NBC"), and one is an independent station. Each of the Company's stations is owned and operated by a direct or indirect Subsidiary. The Company is presently the seventh largest ABC network affiliate group in terms of households reached and owns more ABC stations than any single operator other than ABC. The Company's sole independent television station, KCAL, Los Angeles, California ("KCAL"), is the only independent VHF television station operating in the Los Angeles market, which is ranked as the second-largest television market in terms of population and the largest in terms of estimated television revenue. The Company was founded in 1986 by Vincent Young and his father, Adam Young. Vincent Young, the Company's Chairman, has over 25 years of experience in the television broadcast industry, and Adam Young has over 50 years of experience in the industry. Ronald Kwasnick, the Company's President, has over 25 years of experience in the industry. The Company is a Delaware corporation that was formed in 1986. The Company's principal offices are located at 599 Lexington Avenue, New York, New York 10022, and its telephone number is (212) 754-7070. 1 RECENT DEVELOPMENTS Amended and Restated Senior Credit Facility. On November 25, 1997, the Company amended and restated its then existing $500.0 million senior credit facility to a reduced $300.0 million, five year non-reducing revolver senior credit facility (the "Senior Credit Facility"). The amendment, among other things, allows for more favorable interest rates and covenant flexibility. At the time of the amendment, there were advances outstanding of $82.3 million and commitments to make additional advances up to $217.7 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." Stock Repurchase. During April and May 1997, the Company repurchased 459,000 shares of its Class A Common Stock in open market purchases pursuant to a stock repurchase program for an aggregate price of approximately $12.3 million. The Company is authorized, subject to certain limitations, to effect up to an aggregate of $70.0 million of such purchases. June 1997 Notes Offering. On June 23, 1997, the Company completed the offering (the "June 1997 Notes Offering") of $200.0 million principal amount of its 8 3/4% Senior Subordinated Notes due 2007. The Company used the net proceeds of the June 1997 Notes Offering (approximately $198.2 million) to repay a portion of its then outstanding indebtedness, including accrued interest, under the Company's then outstanding senior credit facility. Adam Young Inc. Merger. On February 5, 1998, the Company entered into an Agreement and Plan of Merger with Adam Young Inc. ("AYI") and AYI Acquisition Corporation, a wholly-owned subsidiary of the Company ("Sub"), pursuant to which AYI was merged with and into Sub and became a wholly-owned subsidiary of the Company. The acquisition of AYI has been accounted for as a combination of companies under common control similar to a pooling-of-interests. The Company issued 476,307 shares of the Company's Class A Common Stock, with an approximate value of $19.3 million, to Vincent Young, the Company's Chairman and Adam Young, the Company's Treasurer, and his wife, in exchange for all of the outstanding stock of AYI. OPERATING STRATEGY The Company continually seeks to increase its revenues and broadcast cash flow, (as defined). The Company's operating strategy focuses on increasing the cash flow of its stations through advertising revenue growth and strict control of programming and operating costs. The components of this strategy include the following: Targeted Marketing. The Company seeks to increase its revenues and broadcast cash flow by expanding existing relationships with local and national advertisers and attracting new advertisers through targeted marketing techniques and carefully tailored programming. The Company works closely with advertisers to develop campaigns that match specifically targeted audience segments with the advertisers' overall marketing strategies. With this information, the Company regularly refines its programming mix among network, syndicated and locally- produced shows in a focused effort to attract audiences with demographic characteristics desirable to advertisers. The Company's success in increasing local advertising revenues is also attributable, in part, to the upgrading of its local sales staff, performance-based compensation arrangements and the implementation of systems of performance accountability. Each station also benefits from the ongoing exchange of ideas and experiences with the other stations. 2 The Company's stations utilize a variety of marketing techniques to increase advertising revenues, including the following: . Vendor Marketing. The Company's "vendor marketing" program has experienced a great deal of success in the Company's markets. Under this program, a station will contact the vendors of a particular store chain and arrange for the vendors to purchase advertising for the store chain in exchange for the store's commitment to purchase additional products from the vendors. The result is that both the vendors' products and the store chain are advertised, with the vendors collectively bearing the cost of the advertisement. . Live Remotes. Stations obtain premium advertising dollars by utilizing live remotes on location at the offices or facilities of an advertiser. The station will use its own staff and broadcasting equipment and, as a result, the expense to the station is relatively low. Live advertisements are broadcast continually over the course of a period of the day and tend to show immediate results with viewers being attracted to the live television event taking place within their community. . Research. Each station designates personnel to research the amount of advertising dollars expended in other media (such as radio, newspapers and magazines) by advertisers within its market. The station will then target individual advertisers seeking the same demographic groups sought by the station for particular dayparts and will illustrate to the advertisers the advantages of television advertising over other media which do not target specific demographic groups. An important element in determining advertising rates is the station's rating and share among a particular demographic group which the advertiser may be targeting. The Company believes that its success is attributable to its ability to reach desirable demographic groups with the programs it broadcasts. Strong Local Presence. Each station seeks to achieve a distinct local identity principally through the quality of its local news programming and by targeting specific audience groups with special programs and marketing events. Each station's local news franchise is the foundation of the Company's strategy to strengthen audience loyalty and increase revenues and broadcast cash flow for each station. Strong local news generates high viewership and results in higher ratings both for programs preceding and following the news. Strong local news product helps differentiate local broadcast stations from cable system competitors, which generally do not provide this service. The cost of producing local news programming generally is lower than other sources of programming and the amount of local news programming can be increased for very modest incremental increases in cost. Moreover, such programming can be increased or decreased on very short notice, providing the Company with greater programming flexibility. In each of its markets, the Company develops additional information- oriented programming designed to expand the Company's hours of commercially valuable local news and other news programming with relatively small increases in operating expenses. In addition to local news, each station utilizes special programming and marketing events, such as prime time programming of local interest or sponsored community events, to strengthen community relations and increase advertising revenues. The Company places a special emphasis on developing and training its local sales staff to promote involvement in community affairs and stimulate the growth of local advertising sales. Programming. The Company continually reviews its existing programming inventory and seeks to purchase the most profitable and cost-effective syndicated programs available for each time period. In developing its selection of syndicated programming, management balances the cost of available syndicated 3 programs, their potential to increase advertising revenue and the risk of reduced popularity during the term of the program contract. The Company seeks to purchase only those programs with contractual periods that permit programming flexibility and which complement a station's overall programming strategy and counter competitive programming. Programs that can perform successfully in more than one time period are more attractive due to the long lead time and multi- year commitments inherent in program purchasing. Cost Controls. Each station emphasizes strict control of its programming and operating costs as an essential factor in increasing broadcast cash flow. The Company relies primarily on its in-house production capabilities and seeks to minimize its use of outside firms and consultants. The Company's size benefits each station in negotiating favorable terms with programming suppliers and other vendors. In addition, each station reduces its overhead costs by utilizing the group benefits provided by the Company for all of the stations, such as insurance and other employee group benefit plans. Through its strategic planning and annual budget processes, the Company continually seeks to identify and implement cost savings opportunities at each of its stations. The Company closely monitors the expenses incurred by each of the stations and continually reviews the performance and productivity of station personnel. The Company has been successful in controlling its costs without sacrificing revenues through efficient use of its available resources. ACQUISITION STRATEGY The Company believes that its ability to manage costs effectively while enhancing the quality provided to station viewers gives the Company an important advantage in acquiring and operating new stations. In assessing acquisitions, the Company targets stations for which it has identified line item expense reductions that can be implemented upon acquisition. The Company emphasizes strict controls over operating expenses as it expands a station's revenue base with the goal of improving a station's broadcast cash flow. Typical cost savings arise from reducing staffing levels, substituting more cost-effective employee benefit programs, reducing dependence on outside consultants and research firms and reducing travel and other non-essential expenses. The Company also develops specific proposals for revenue enhancement utilizing management's significant experience in local and national advertising. The Company plans to pursue favorable acquisition opportunities as they become available. The Company is regularly presented with opportunities to acquire television stations which it evaluates on the basis of its acquisition strategy. The Company does not presently have any agreements to acquire or sell any television stations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." THE STATIONS The Company's stations are geographically diverse, which minimizes the impact of regional economic downturns. One station is located in the west region (KCAL-Los Angeles, California), six stations are located in the midwest region (WBAY-Green Bay, Wisconsin, KWQC-Quad Cities, KELO-Sioux Falls, South Dakota, WLNS-Lansing, Michigan, WKBT-La Crosse-Eau Claire, Wisconsin, and WTVO- Rockford, Illinois), four stations are in the southeast region (WKRN-Nashville, Tennessee, WRIC-Richmond, Virginia, WATE-Knoxville, Tennessee, and KLFY- Lafayette, Louisiana), and one station is in the northeast region (WTEN-Albany, New York). Six of the Company's twelve stations are affiliated with ABC, four are affiliated with CBS and one is affiliated with NBC. The Company believes that this network diversity reduces the potential impact of a ratings decline experienced by a particular network. KCAL is the only independent VHF television station operating in the Los Angeles market. 4 The following table sets forth general information for each of the Company's stations:
Station Commercial Rank Market Television Network Stations In In-Market Year Rank(1) Households(2) Channel Affiliation in DMA(3) Market(4) Share(5) Acquired ------- ------------- ---------- ----------- --------- --------- -------- -------- KCAL (Los Angeles, CA) 2 5,009,230 9 IND 11 6 9 1996 WKRN (Nashville, TN) 33 789,220 2 ABC 6 3 18 1989 WTEN (Albany, NY) 52 508,730 10(6) ABC 4 3 27 1989 WRIC (Richmond, VA) 59 457,980 8 ABC 5 3 27 1994 WATE (Knoxville, TN) 64 440,720 6 ABC 4 3 23 1994 WBAY (Green Bay, WI) 70 381,100 2 ABC 5 2 28 1994 KWQC (Quad Cities) 89 301,800 6 NBC 4 1 45 1996 WLNS (Lansing, MI) 105 236,150 6 CBS 4 1 44 1986 KELO (Sioux Falls, SD) 108 229,590 11(7) CBS 4 1 45 1996 KLFY (Lafayette, LA) 122 205,190 10 CBS 4 1 61 1988 WKBT (La Crosse- Eau Claire, WI) 129 179,050 8 CBS 4 2 24 1986 WTVO (Rockford, IL) 135 166,510 17 ABC 4 3 26 1988 - -------------------------
(1) Refers to the size of the television market or Designated Market Area ("DMA") as used by Nielsen. (2) Refers to the number of television households in the DMA as estimated by Nielsen. (3) Represents the number of television stations ("reportable stations") designated by Nielsen as "local" to the DMA, excluding public television stations and stations which do not meet minimum Nielsen reporting standards (weekly cumulative audience of less than 2.5%) for reporting in the Sunday through Saturday, 7:00 a.m. to 1:00 a.m. period ("sign-on to sign-off"). Does not include national cable channels. The number of reportable stations may change for each reporting period. "Weekly cumulative audience" measures the total number of different households tuned to a station at a particular time during the week. "Share" references used elsewhere herein measure the total daily households tuned to a station at a particular time during the week. (4) Station's rank relative to other reportable stations, based upon the DMA rating as reported by Nielsen sign-on to sign-off during November 1997. (5) Represents an estimate of the share of DMA households viewing television received by a local commercial station in comparison to other local commercial stations in the market ("in-market share"), as measured sign-on to sign-off. (6) WTEN has a satellite station, WCDC (Adams, Massachusetts), Channel 19, operating under a separate license from the FCC. (7) KELO has three satellite stations, KDLO (Florence, South Dakota), Channel 3, KPLO (Reliance, South Dakota), Channel 6, and KCLO (Rapid City, South Dakota), Channel 15, each of which operates under a separate license from the FCC. KCLO operates in a separate DMA from that of KELO and the other two satellites, wherein it ranks 172. The following is a description of each of the Company's stations: KCAL, Los Angeles, California. The Company acquired KCAL from KCAL Broadcasting, Inc., a subsidiary of the Walt Disney Company ("Disney") on November 22, 1996. KCAL has the distinction of being one of the first commercial stations in the country. KCAL's first broadcast was on December 23, 1931. It is now the only independent VHF station in the Los Angeles market. Los Angeles is the second largest DMA with an estimated 5,009,230 television households and the country's largest television market in terms of estimated advertising dollars spent on the medium. There are eleven reportable stations in the DMA. For the November 1997 ratings period, KCAL was ranked sixth after the local ABC, NBC, CBS, WB and Fox affiliates, with an overall sign-on to sign-off in-market share of 9%. KCAL ranked fifth in in-market revenue share in the fourth quarter of 1997. KCAL is a prominent news provider in the market, presenting 27 1/2 hours of such programming each week and up to 25 special one hour reports each year. In 1995, the station won the prestigious Edward R. Murrow Award as the "Best Local Newscast in the Country." In 1996, KCAL was honored with nine Golden Mikes, including Best 30 Minute Newscast and Best Daytime Newscast, ten Emmys, five Radio Television News Directors awards, ten New York Film Festival Awards, 17 Associated Press Awards and 31 Los Angeles Press Club Awards. In 1997, KCAL won five Golden Mikes. Since 1991, KCAL has been the most honored local station in Los Angeles for news. 5 KCAL is also the broadcast station of choice for premier local sports franchises with over 160 major televised sporting events each year. KCAL currently has long term agreements with the Los Angeles Lakers (2 years remaining), Anaheim Angels (3 years remaining), Mighty Ducks of Anaheim (5 years remaining), Los Angeles Clippers (3 years remaining) and Los Angeles Kings (2 years remaining). The station also has agreements to broadcast PAC 10 Football and certain boxing events. These contracts enable KCAL to offer advertisers year-round sports packages aimed at very attractive audience categories. As the largest market in the country's largest state, Los Angeles enjoys a diverse industry makeup ranging from entertainment and manufacturing to international trade and financial services. In addition to Los Angeles County, KCAL reaches Orange, Santa Barbara and other counties in Southern California. Orange County alone has ranked fifth, nationally, in both population and population growth over the last five years. According to Investing in Television Market Report '97 (4th Edition), published by BIA Publications, Inc. (the "BIA Guide"), the average household income in the Los Angeles market in 1995 was $43,390, with an effective buying income projected to grow at an annual rate of 0.9% through 2000. Historically, there has been a close correlation between retail sales and expenditures on broadcast television advertising in a given market. According to the BIA Guide, retail sales growth for the Los Angeles market is projected to average 0.4% annually through 2000. WKRN, Nashville, Tennessee. WKRN, acquired by the Company from Knight- Ridder Broadcasting, Inc. in June 1989, began operations in 1953 and is affiliated with ABC. The Nashville market is the 33rd largest DMA, with an estimated 789,220 television households. There are six reportable stations in the DMA. For the November 1997 ratings period, WKRN was rated third after the CBS and NBC affiliates, with an overall sign-on to sign-off in-market share of 18%. The station's syndicated programs include The Cosby Show, Roseanne, Coach, Full House, Jenny Jones, Entertainment Tonight, Live With Regis and Kathie Lee, Family Matters, Step by Step, Extra and Rosie. The quality of the station's newscasts has been regularly recognized by its broadcasting peers, highlighted by its winning of the prestigious Peabody Award for investigative journalism. During the last three years, the station won a combined 33 regional Emmy Awards. The Tennessee Associated Press awarded the station first place for Investigative, Feature and Spot News reporting. The station also has won a number of regional awards from the Radio and Television News Directors Association, including 1994 awards for Best Feature, Best News Operation and Best Investigative Reporting. Nashville is the capital of Tennessee and the center of local, state and federal government with three of its five largest employers being government related. Prominent corporations located in the area include Bridgestone- Firestone, Nissan, Saturn, Columbia/HCA, Shoney's, Service Merchandise, First American National Bank, Northern Telecom, Aladdin Industries and Willis Corroon plc. Nashville is the home of several universities, including Vanderbilt and Tennessee State. According to the BIA Guide, the average household income in the Nashville market in 1995 was $39,346, with effective buying income projected to grow at an annual rate of 6.5% through 2000. Historically, there has been a close correlation between retail sales and expenditures on broadcast television advertising in a given market. According to the BIA Guide, retail sales growth for the Nashville market is projected to average 6.3% annually through 2000. WKRN is a prime example of the Company's strategy to achieve a strong local presence. Its community activities range from raising food for the hungry of Middle Tennessee to focusing on the issues and concerns of children through its "Kids 2 Kids" campaign and "Schools Now" half million dollar fund raising effort. ABC affiliates in Bowling Green, Kentucky and Jackson, Tennessee have overlapping signals with WKRN on the north and west edges of the DMA, resulting in some loss of viewers in those areas. The 6 Company believes this overlap is responsible for the lower station share compared to the NBC and CBS affiliates. WTEN, Albany, New York. WTEN, acquired by the Company from Knight-Ridder Broadcasting, Inc. in October 1989, began operations in 1953 and is affiliated with ABC. WTEN added a satellite station, WCDC-TV Channel 19, in Adams, Massachusetts in 1963 to serve more adequately the eastern edge of the market. WCDC-TV was acquired concurrently with WTEN. (All references to WTEN include WCDC-TV.) The Albany market (which includes Schenectady and Troy) is the 52nd largest DMA, with an estimated 508,730 television households. There are four reportable stations in the DMA, three of which broadcast in the VHF spectrum. During the November 1997 ratings period, WTEN was third in the ratings, with a sign-on to sign-off in-market share of 27%, compared to 34% for WNYT, the NBC affiliate, and 29% for WRGB, the CBS affiliate, and 12% for WXXA, the Fox affiliate. The station's syndicated programs include Wheel of Fortune, Jeopardy, Rosie, and Jenny Jones. WTEN has won numerous awards in recent years for both local news and public affairs programming. Albany is the capital of New York. The largest employers are the New York State government, the State University of New York and the General Electric Company. Other prominent corporations located in the area include Lockheed Martin, Fleet Financial Group, State Farm Insurance, Metropolitan Life Insurance and Quad Graphics. These employers, which are dependent upon a well-educated and skilled labor force to remain competitive in their industries, are able to draw upon the nation's largest concentration per capita of professionals with doctoral and post-doctoral degrees. According to the BIA Guide, the average household income in the Albany market in 1995 was $37,951, with effective buying income projected to grow at an annual rate of 3.0% through 2000. Retail sales growth in this market is also projected by the BIA Guide to average 2.9% annually during the same period. The station has focused on its local newscasts, selective syndicated program acquisitions and client marketing programs to maximize revenues. Selective use of client incentive programs has generated over $1.3 million of new revenue in 1997. During 1997, WTEN added newscasts at 5:30 a.m. and 5:00 p.m. The 5:00 p.m. newscast was an immediate success with viewers, and has been the top rated show in the time period since inception. WRIC, Richmond, Virginia. WRIC, acquired by the Company in November 1994 from Nationwide Communications Inc. ("Nationwide"), began operations in 1955 and is affiliated with ABC. The Richmond market (which also includes Petersburg, Virginia) is the 59th largest DMA, with an estimated 457,980 television households. There are five reportable commercial television stations in the DMA, three of which are VHF stations. For the November 1997 ratings period, WRIC was in third place in the ratings, one point behind WTVR and WWBT, the CBS and NBC affiliates. In actual audience share, WRIC was slightly behind WTVR and WWBT, with a sign-on to sign-off in-market share of 27%, compared to 30% for WTVR and 32% for WWBT. The station's syndicated programming includes Wheel of Fortune, Jeopardy, Montel Williams, Rosie and Jerry Springer. WRIC has won numerous awards in recent years from state journalism organizations for its news operations. Richmond is the capital of Virginia and home to numerous colleges and universities, including the University of Richmond, Virginia Commonwealth University (VCU) and the VCU Medical College of Virginia. Philip Morris is the largest employer in the market, employing approximately 11,000 area residents. According to the BIA Guide, the average household income in the Richmond market in 1995 was $38,253, with effective buying income projected to grow at an annual rate of 3.5% through 2000. Retail sales growth is also projected by the BIA Guide to average 3.4% annually during the same period. 7 WATE, Knoxville, Tennessee. WATE, also acquired by the Company in November 1994 from Nationwide, began operations in 1953 and is also affiliated with ABC. The Knoxville, Tennessee market is the 64th largest DMA, with an estimated 440,720 television households. There are four reportable stations in the DMA, three of which are VHF stations. During the November 1997 ratings period, WATE ranked third, with a sign-on to sign-off in-market share of 23%. The station's syndicated programming includes Home Improvement, People's Court, Coach, Extra and Rosie. WATE has won numerous awards in recent years from state journalism organizations for its news operations. It also recently received its second Emmy Award for sports programming. According to the BIA Guide, the average household income in the Knoxville market in 1995 was $33,774 with effective buying income projected to grow at an annual rate of 5.6% through 2000. Retail sales growth is also projected by the BIA Guide to average 5.9% annually during the same period. WBAY, Green Bay, Wisconsin. WBAY, the third station acquired by the Company in November 1994 from Nationwide, began operations in 1953 and is also affiliated with ABC. The Green Bay market (which also includes Appleton, Wisconsin) is the 70th largest DMA, with an estimated 381,100 television households. There are five reportable stations in the DMA, three of which are VHF stations. For the November 1997 ratings period, WBAY was second in the ratings behind WFRV, the CBS affiliate. In audience share, WFRV led WBAY in the November 1997 ratings period, with a sign-on to sign-off in-market share of 30%, compared to 28% for WBAY. The station's syndicated programming includes Home Improvement, Seinfeld, Friends, Inside Edition, People's Court, Hard Copy and Martha Stewart. WBAY has won numerous awards in recent years from state journalism organizations for its news operations. According to the BIA Guide, the average household income in the Green Bay market in 1995 was $37,547, with effective buying income projected to grow at an annual rate of 5.4% through 2000. Retail sales growth is also projected by the BIA Guide to average 5.7% annually during the same period. KWQC, Quad Cities. The Company acquired KWQC from Broad Street Television, L.P. on April 15, 1996. The station began operations in 1949 and is affiliated with NBC. The Davenport market, referred to as the Quad Cities Market, is the 89th largest DMA serving an estimated 301,800 television households in eastern Iowa and western Illinois. There are four reportable stations in the DMA, three of which are VHF. During the November 1997 ratings period, KWQC retained its number one position in the market with a sign-on to sign-off in-market share of 45%. The station has retained the number one position for over twelve years and continues to expand news programming and increase market share. The station's syndicated programming includes Oprah, Jeopardy, Wheel of Fortune, Martha Stewart, American Journal and Cheers. KWQC places a strong emphasis on local news and community related events and broadcasts. The station annually produces several news specials in addition to providing 23 hours of local news and information programming per week. KWQC is involved in a variety of community events including Race For The Cure, Toys For Tots, Festival of Trees, The Student Hunger Drive, the United Way Drive, Bix 7 Race and Women's Lifestyle Fair. John Deere Corporation and Eagle Country Markets are both headquartered in the Quad Cities. Other major employers include the Rock Island Arsenal, Alcoa, Trinity Medical Center, Oscar Mayer, J.I. Case and Modern Woodman. Riverboat gambling has brought three boats to the market that have increased the tourism business. The market has also experienced an increase in convention business. According to the BIA Guide, the average household income in the Quad Cities market in 1995 was $36,840, with effective buying income projected to grow at an annual rate of 4.5% through 2000. Retail sales growth is also projected by the BIA Guide to average 4.0% annually during the same period. 8 WLNS, Lansing, Michigan. WLNS, acquired by the Company from Backe Communications, Inc. in September 1986, began operations in 1950 and is affiliated with CBS. The Lansing market is the 105th largest DMA, with an estimated 236,150 television households. WLNS is one of only two VHF network affiliates in the DMA. During the November 1997 ratings period, WLNS was the highest-rated station out of four reportable stations in its DMA, with a sign-on to sign-off in-market share of 44%. The station has consistently held the highest rating for several ratings periods. The station's syndicated programming includes Rosie, Entertainment Tonight, Hard Copy, Extra, The X-Files and Montel Williams. The station attributes its success to the experience of its local sales staff, which focuses on developing strong relationships with local advertisers. WLNS is also recognized as the dominant news station in the Lansing market. The station consistently wins by wide margins against competitors in its noon and 6:00 p.m. newscasts. For the November 1997 ratings period, WLNS's newscasts finished ahead of its closest competitor by 31 share points at noon and 18 share points at 6:00 p.m. The station also won at 11:00 p.m. by 12 share points. WLNS launched the market's first 5:30 p.m. newscast in 1989, which has since developed a solid audience share and has consistently held the greatest share in its time period. The station's recently added 6:00 a.m. newscast has surpassed its competition by wide margins. The station recognizes local news programming as the key to its success and produces 18 to 20 special news programs each year, including live town hall meetings in prime time on community topics such as youth violence and political debates in major election years. The quality of the news broadcasts at WLNS has resulted in numerous state journalism and public service awards. The economy of Lansing is dominated by three employers, the State of Michigan, General Motor's Buick-Oldsmobile-Cadillac Division ("B.O.C.") and Michigan State University, giving Lansing an advantage over other Michigan cities whose economies rely more heavily on, and are more prone to the cyclical nature of, the domestic automobile industry. Lansing is the capital of Michigan and its various government agencies employ an aggregate of approximately 15,500 people. B.O.C. has approximately 14,000 employees. Michigan State University has over 12,000 employees with a student enrollment of over 42,000. Other significant industry sectors in the area are plastics, non-electrical machinery, fabricated metal products, food processing and printing. Companies represented in these groups include Owens-Brockway, John Henry Co. and Dart Container. According to the BIA Guide, the average household income in the Lansing market in 1995 was $38,948, with effective buying income projected to grow at an annual rate of 3.4% through 2000. Retail sales growth in this market is also projected by the BIA Guide to average 3.5% annually during the same period. KELO, Sioux Falls, South Dakota. On May 31, 1996, the Company acquired KELO from a subsidiary of Midcontinent Media, Inc. The station began operations in 1953 and is affiliated with CBS. KELO added satellite station KDLO, Channel 3, in Florence, South Dakota in 1955 to serve the northern South Dakota area, and added satellite station KPLO, Channel 6, in Reliance, South Dakota in 1957 to serve the central South Dakota area. In 1988, KCLO, Channel 15, then operating as a translator facility, was added as a satellite station of KELO in Rapid City, South Dakota. KELO fully serves two DMAs, as Rapid City is a separate contiguous DMA. (All references to KELO include KDLO and KPLO. The following information pertains only to the Sioux Falls DMA.) The Sioux Falls market is the 108th largest DMA serving an estimated 229,590 television households encompassing counties in Minnesota, Iowa and Nebraska, as well as 52 counties within South Dakota. There are four reportable stations in the DMA, three of which are VHF. During the November 1997 ratings period, KELO was first in the market with a sign-on to sign-off in-market share of 45%, significantly ahead of the ABC, NBC and FOX/UPN affiliates, who had 28%, 17% and 10%, respectively. KELO's newscast finished ahead of each of the competing stations for every weekday newscast time period. Recognizing the importance of local news, the station presents live newscasts five times daily, with notable ratings and sales 9 success. The station's syndicated programming includes Entertainment Tonight, The Maury Povich Show, FX: The Series, Geraldo and Matlock. The largest employers in the market are Citibank and John Morrell. Sioux Falls is the largest city in South Dakota, with a population of 112,000. According to the BIA Guide, the average household income in the Sioux Falls market in 1995 was $36,329, with effective buying income projected to grow at an annual rate of 5.7% through 2000. Retail sales growth is also projected by the BIA Guide to average 6.0% annually during the same period. KLFY, Lafayette, Louisiana. KLFY, acquired by the Company from Texoma Broadcasters, Inc. in May 1988, began operations in 1955 as the market's first television station and is affiliated with CBS. KLFY is one of only two network- affiliated VHF stations serving the Lafayette market. The third commercial station in the market is a Fox affiliate operating on a UHF channel and a fourth Station, KLAF, is a lower power station affiliated with the Warner Brothers Network. The market is dominated by KLFY and the local ABC affiliate. The signals from the NBC affiliates in Lake Charles, Baton Rouge and Alexandria, Louisiana are available to households in the DMA. Currently the NBC affiliate in Lake Charles is selling advertising in the Lafayette market with minimal success. The Lafayette market is the 122nd largest DMA, with an estimated 208,300 television households. KLFY ranks first in the November 1997 ratings period with an overall sign-on to sign-off in-market share of 61%, and has ranked first in those viewership measurements consistently for prior ratings periods. KLFY leads its competition in audience share in 30 of 30 major Nielsen dayparts. KLFY is ranked number one during prime-time (7:00 p.m.-10:00 p.m., Monday-Saturday and 6:00 p.m.-10:00 p.m., Sunday), the most sought after advertiser demographic time period, with a sign-on to in-market share of 56%. The station's syndicated programs include The Maury Povich Show, Home Improvement, Cosby, Coach, Rosie, Sally Jessy Raphael, Hercules and Zena. Historically, KLFY has placed a strong emphasis on local news and community- related broadcasts. Each weekday begins with a 90-minute live production of "Passe Partout," a family-oriented program offering early morning news, weather, sports and interviews on subjects relevant to local residents. For the November 1997 ratings period, this program received a 6:00 - 7:00 a.m. in-market share of 62%. The first 30 minutes of "Passe Partout" are broadcast in French for the large French-speaking Cajun population in the area; the balance is in English. KLFY also has won numerous awards in recent years from state journalism organizations, including the 1995 and 1997 "Station of the Year" award from the Louisiana Broadcasters Association. KLFY has made community involvement an important part of its operations. The 12:00 noon news show is called "Meet Your Neighbor" and, in addition to an emphasis on local news reporting, is a platform for community service segments. In addition to ongoing commitments to blood drives, food and clothing drives, a big brother/big sister program and animal adoptions, the station has been the motivating force behind some unusual projects. "Wednesday's Child" is a nationally recognized weekly segment featuring a child in need of adoption, and the effort has had a significant success rate in placing children. The station has over the past eleven years raised over a thousand tons of food for the hungry with its annual "Food for Families" all-day live remote from 17 locations in the DMA. It has an annual "Coats for Kids" campaign to clothe needy children and has raised over $7.5 million for the Muscular Dystrophy Association's ("MDA") annual telethon. For its efforts, the station has received awards from state and national service organizations, including the MDA's special recognition award and Media of the Year awards from the Louisiana Special Olympics and the Black Advisory Adoption Committee. 10 According to the BIA Guide, the average household income in the Lafayette market in 1995 was $30,539, with effective buying income projected to grow at an annual rate of 5.5% through 2000. Retail sales growth in this market is also projected by the BIA Guide to average 5.8% annually during the same period. WKBT, La Crosse, Wisconsin. WKBT, acquired (together with WLNS) by the Company from Backe Communications Inc. in September 1986, began operations in 1954 and is affiliated with CBS. Although 90 miles apart, the cities of La Crosse and Eau Claire are considered a single market by Nielsen, and WKBT's signal covers both cities, reaching an eleven-county area that includes two Minnesota counties and most of western Wisconsin. There are four reportable stations in the DMA, but WKBT is one of only two local VHF stations. The La Crosse-Eau Claire market is the 129th largest DMA, with an estimated 179,050 television households. The highest-rated local stations in the DMA are WKBT and WEAU, the NBC affiliate. For the November 1997 ratings period, WKBT had a sign-on to sign-off in-market share of 24%, which places WKBT second to WEAU, which had a 37% share. The station's syndicated programming includes Hard Copy, Roseanne, Married with Children, The Cosby Show, Sally Jessy Raphael, Baywatch, The Simpsons and Montel Williams. The station's newscasts, collectively broadcast as NewsChannel 8, focuses on local coverage of news, weather and sports events. NewsChannel 8 offers 3 1/2 hours of local news each weekday. Over the past several years, WKBT has won awards for news coverage from state journalism organizations. Currently, WKBT is the only station in its market to provide closed-captioning of its local newscasts for its hearing impaired viewers. The station is also an active sponsor of many other local community events and programs, including Toys for Tots, CrimeStoppers, Salvation Army Operation Food Basket, Red Cross Disaster Relief, Weatherschool and Friday's Child. WKBT regularly contributes public service announcements and hundreds of hours of volunteer labor to the community throughout the year. The economy in the La Crosse-Eau Claire region is centered on skilled industry, medical services, agriculture and education. Prominent corporations located in the area include The Trane Company, the area's largest employer with approximately 2,600 employees, Fleming Foods, G. Heileman Brewing Company and La Crosse Footwear. Lutheran Hospital, Franciscan Health Systems and Gunderson Clinic have made La Crosse a health care hub for the entire western Wisconsin region and, combined, employ approximately 4,400 area residents. Local educational institutions draw a large student base to the market and include branches of the University of Wisconsin in La Crosse and Eau Claire, as well as Viterbo College and Western Wisconsin Technical College. According to the BIA Guide, the average household income in the La Crosse-Eau Claire market in 1995 was $32,849, with effective buying income projected to grow at an annual rate of 4.7% through 2000. Retail sales growth in this market is also projected by the BIA Guide to average 4.5% annually during the same period. WTVO, Rockford, Illinois. WTVO, the ABC affiliate in Rockford, Illinois began operations in 1953 under the ownership of Winnebago Television Corporation. The Company purchased Winnebago Television Corporation in September 1988. WTVO switched its affiliation from NBC to ABC, effective as of August 14, 1995. The Rockford market is the 135th largest DMA, with an estimated 166,510 television households. There are four reportable stations in the DMA, of which one is a VHF station and the others, including WTVO, are UHF stations. In the November 1997 ratings period, WTVO was number three in the market, with a sign- on to sign-off in-market share of 26%, compared to 28% and 33% for the CBS and NBC affiliates, respectively. The station's syndicated programs include Sally Jessy Raphael, Jenny Jones, Rosie, Entertainment Tonight and The Simpsons. The station produces local interest programs such as Spotlight 17. 11 Each year, the Northern Illinois Council of Advertising recognizes the production creativity of local advertising agencies and television stations by awarding "Raddys." Since 1990, WTVO has been the recipient of 18 Raddy awards which span the categories of broadcast division, original footage, and promotional (news) campaign. WTVO has won more Raddys than any other station in the Rockford market. WTVO's DMA encompasses a five-county area of northern Illinois, northwest of Chicago. Rockford is the second largest city in Illinois. Over 1,000 manufacturing firms employ a total of over 50,000 persons in the Rockford area, specializing in machine tool, automotive, aerospace, and consumer product industries. Prominent manufacturers in the area include Sundstrand Corporation, the area's largest employer, Ingersoll Milling Machine Company and Chrysler Corporation's new Neon subcompact facility. UPS has constructed a new $60.0 million midwestern freight hub at Rockford, and Motorola has begun construction on a cellular phone plant in nearby Harvard, Illinois. According to the BIA Guide, the average household income in the Rockford market in 1995 was $38,151, with effective buying income projected to grow at an annual rate of 3.1% through 2000. Retail sales growth in this market is also projected by the BIA Guide to average 2.9% annually during the same period. INDUSTRY BACKGROUND General. Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently there are a limited number of channels available for broadcasting in any one geographic area. Television stations can be distinguished by the frequency on which they broadcast. Television stations broadcast over the very high frequency ("VHF") band (channels 2-13) of the spectrum generally have some competitive advantage over television stations which broadcast over the ultra-high frequency ("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. See "Federal Regulation of Television Broadcasting" below. 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 Nielsen, a national audience measuring service, into approximately 210 generally recognized television markets that are ranked in size according to various formulae 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 percentage of the total potential audience in the market viewing a station (the station's "rating") and of the percentage of the audience actually watching television (the station's "share"). Nielsen provides such data on the basis of total television households and selected demographic groupings in the market. Nielsen uses two methods of 12 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. None of the Company's markets are metered. Whether or not a station is affiliated with one of the three major networks (NBC, ABC or CBS) 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 ("network compensation"), 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 affiliate retains the revenues from time sold during breaks in and between network programs and programs the affiliate produces or purchases from non-network sources. The Fox Broadcasting Company ("Fox") has established a network of independent stations whose operating characteristics are similar to the major network affiliate stations although the number of hours of network programming for Fox affiliates is less than that of the three major networks. In recent years, Fox has effectively evolved into the fourth network. A fully independent station such as KCAL purchases or produces all of the programming which it broadcasts, resulting in generally higher programming costs than those of major-network affiliates in the same market. However, under increasingly popular barter arrangements, a national program distributor may receive advertising time in exchange for programming it supplies, with the station paying a reduced fee or no cash fee at all for such programming. Because the major networks regularly provide first-run programming during prime time viewing hours, their affiliates generally (but do not always) achieve higher audience shares, but have substantially less inventory of advertising time to sell during those hours than independent stations, since the major networks use almost all of their affiliates' prime time inventory for network shows. The independent station is, in theory, able to retain its entire inventory of advertising and all of the revenue obtained therefrom. The independent stations' smaller audiences and greater inventory during prime time hours generally result in lower advertising rates charged and more advertising time sold during those hours, as compared with major affiliates' larger audiences and limited inventory, which generally allow the major-network affiliates to charge higher advertising rates for prime time programming. By selling more advertising time, the independent station typically achieves a share of advertising revenues in its market greater than its audience ratings. 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. Traditional network programming, and recently Fox programming, generally achieve higher audience levels than syndicated programs aired by independent stations. However, since greater amounts of advertising time are available for sale by independent stations and Fox affiliates, they typically achieve a share of the television market advertising revenues greater than their share of the market's audience. Public broadcasting outlets in most communities compete with commercial broadcasters for viewers. 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, however, this level of dominance began to change as more local stations were authorized by the Federal Communications Commission ("FCC") and marketplace choices expanded with the growth of independent stations and cable television services. See "-Federal Regulation of Television Broadcasting" below. 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, although no single cable programming network regularly 13 attains audience levels amounting to more than any major broadcast network. With the increase in cable penetration in the 1980s, the advertising share of cable networks has increased. Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass market television advertising. Basic cable penetration (the percentage of television households which are connected to a cable system) in the Company's television markets ranges from 54% to 67%. In acquiring programming to supplement network programming, network affiliates compete with independent stations and Fox affiliates in their 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, such programs would not likely have been acquired by such stations in any event. 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. 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 the Company's operations. Audience. Stations compete for audience on the basis of program popularity, which has a direct effect on advertising rates. A majority of the daily programming on the Company's stations is supplied by the network with which each station is affiliated. In those periods, the stations are totally dependent upon the performance of the network programs in attracting viewers. There can be no assurance that such programming will achieve or maintain satisfactory viewership levels in the future. Non-network time periods are programmed by the station with a combination of self-produced news, public affairs and other entertainment programming, including news and syndicated programs purchased for cash, cash and barter, or barter only. Independent stations, whose number has increased significantly over the past decade, have also emerged as viable competitors for television viewership share. Each of Time Warner, Inc. and Paramount Communications, Inc. has recently launched a new television network and have entered into affiliation agreements with certain independent commercial television stations. The programming made available by these new networks is presently limited. The Company is unable to predict the effect, if any, that such networks will have on the future results of the Company's operations. In addition, the development of methods of television transmission of video programming other than over-the-air broadcasting, and in particular the growth of cable television, has significantly altered competition for audience 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 and also by serving as a distribution system for non-broadcast programming originated on the cable system. 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. Although cable television systems were initially used to retransmit broadcast television programming to paid subscribers in areas with poor broadcast signal 14 reception, significant increases in cable television penetration 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 such audiences, and the increased competition could have an adverse effect on the Company's advertising revenues. Other sources of competition include home entertainment systems (including video cassette recorder and playback systems, videodisks and television game devices), "wireless cable" service, satellite master antenna television systems, low power television stations, television translator stations and, most recently, direct broadcast satellite video distribution services which transmit programming directly to homes equipped with special receiving antennas. 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. The Company is unable to predict the effect that these or other technological changes will have on the broadcast television industry or the future results of the Company's operations. Programming. Competition for programming involves negotiating with national program distributors or syndicators which sell first-run and rerun packages of programming. The stations compete against in-market broadcast station competitors for exclusive access to off-network reruns (such as Roseanne) 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. Competition for exclusive news stories and features is also endemic in the television industry. Time Warner, Inc. and Paramount Communications, Inc., each of which has recently launched a new television network, also own or control a major production studio. Outside production studios 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. Advertising. Advertising rates are based upon the size of the market in which the station operates, a program's popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, aggressive and knowledgeable 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, the Company's stations also compete for advertising revenues, which comprise the primary source of revenues for the Subsidiaries. The Company's stations compete for such advertising revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. Competition for advertising 15 dollars in the broadcasting industry occurs primarily within individual markets. Generally, a television broadcasting station in the market does not compete with stations in other market areas. The Company's television stations are located in highly competitive markets. NETWORK AFFILIATION AGREEMENTS Each of the Company's network-affiliated stations is affiliated with its network pursuant to an affiliation agreement (an "Affiliation Agreement"). WKRN, WTEN, WRIC, WATE, WBAY and WTVO are affiliated with ABC. KELO, WLNS, KLFY and WKBT are affiliated with CBS. The Quad Cities Station (KWQC) is affiliated with NBC. In October 1994, the Company and ABC entered into new Affiliation Agreements for five of the Company's ABC-affiliated stations. Effective August 14, 1995, the Company switched the affiliation of its then sole NBC affiliate to ABC. In addition, in October 1994, the Company and CBS entered into new Affiliation Agreements for three of the Company's CBS-affiliated stations. Such Affiliation Agreements with ABC and CBS provide for contract terms of ten years. The Affiliation Agreement for the Quad Cities Station provides for a ten-year term, with an expiration date of November 1, 2004. On April 3, 1996, the Company and CBS entered into new affiliation agreements for KELO and each of its satellite stations which expire on October 2, 2000. Each Affiliation Agreement is automatically renewed for successive terms subject to either party's right to terminate at the end of any term after giving proper notice thereof. Under the Affiliation Agreements, the networks also possess, under certain circumstances (such as a transfer of control or adverse changes in signal, operating hours or other mode of operation), the right to terminate the Affiliation Agreement on prior written notice ranging between 15 and 45 days depending on the Affiliation Agreement. In addition, ABC has the right upon 60 days prior notice to terminate the Affiliation Agreement with respect to an ABC-affiliated station in a particular market if it acquires a different station within such market. 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 such broadcasts. In addition, for each hour that the station elects to broadcast network programming, the network pays the station a fee, specified in each Affiliation Agreement, which varies with the time of day. Typically, "prime-time" programming (Monday through Saturday from 8:00 p.m.- 11:00 p.m., Eastern time, and Sunday from 7:00 p.m.-11:00 p.m., Eastern time) generates the highest hourly rates. Management believes that programming costs are generally lower for network affiliates than for independent television stations and prime-time network programs generally achieve higher ratings than non-network programs. Management believes that the Company's relationship with the networks is excellent and that all of its stations are highly valued affiliates. As an independent station, KCAL purchases all of its programming, resulting in proportionally higher programming costs for the station. In this regard, KCAL retains its entire inventory of advertising and all of the revenue obtained therefrom. Furthermore, KCAL enters into barter arrangements whereby program distributors may receive advertising time in exchange for the programming they provide. FEDERAL REGULATION OF TELEVISION BROADCASTING Existing Regulation. Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"), most recently amended in significant respects by the Telecommunications Act of 1996 (the "1996 Act"). The Communications Act empowers the FCC, among other things: to determine the frequencies, location and power of broadcast stations; to issue, modify, renew and revoke station licenses; to approve the assignment or transfer of control of broadcast licenses; to regulate the equipment used by stations; and to impose penalties for violations of the Communications Act or FCC regulations. The FCC has also adopted new children's 16 programming regulations for television broadcasters that effectively require most television broadcasters to air at least three hours per week of programming designed to meet the educational and informational needs of children age 16 and younger. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures or, for particularly egregious violations, the revocation of a license. The Company's business will be dependent upon its continuing ability to hold television broadcasting licenses from the FCC. License Grant and Renewal. As a result of the 1996 Act, broadcast licenses are now generally granted or renewed for terms of eight years, though licenses may be renewed for a shorter period upon a finding by the FCC that the "public interest, convenience and necessity" would be served thereby. The Company must apply for renewal of each broadcast license. At the time an application is made for renewal of a license, parties in interest may file petitions to deny, and such parties, as well as other members of the public, may comment upon the service the station has provided during the preceding license term and urge denial of the application. While broadcast licenses are typically renewed by the FCC, even when petitions to deny are filed against renewal applications, there can be no assurance that the licenses for the Company's television stations will be renewed at their expiration dates or, if renewed, that the renewal terms will be for the maximum eight-year period. The non-renewal or revocation of one or more of the Company's primary FCC licenses could have a material adverse effect on the Company's operations. The main station licenses for the Company's television stations expire on the following dates: WRIC, October 1, 2004; KLFY, June 1, 2005; WKRN, August 1, 2005, WATE, August 1, 2005; WLNS, October 1, 2005; WBAY, December 1, 2005; WKBT, December 1, 2005; WTVO, December 1, 1997; KWQC, February 1, 2006; KCLO, April 1, 1998; KELO, April 1, 1998; KDLO and KPLO (satellites of KELO), April 1, 1998; KCAL, December 1, 1998; WTEN, June 1, 1999; and WCDC, WTEN's satellite station, April 1, 1999. Applications for renewal of the licenses for WTVO, KCLO, KELO, KDLO and KPLO are now pending before the FCC; pursuant to Section 307(c)(3) of the Communications Act, a station's license continues in effect pending final action on the renewal application by the FCC. Multiple Ownership Restrictions. FCC regulations and the 1996 Act govern the multiple ownership of radio and television broadcast stations and certain other media. These rules or statutory standards include limits on the number of radio and television stations that may be owned both on a national and local basis. The 1996 Act eliminates the FCC's national ownership limits in the form of caps on the number of television and radio broadcast stations that may be commonly owned. Additionally, it raises the national audience coverage restriction on television station ownership from 25% to 35% of the national audience. On a local basis, FCC rules currently allow an entity to have an attributable interest (as defined below) in only one television station in a market (the so-called TV "duopoly" rule). In addition, FCC rules generally prohibit an individual or entity from having an attributable interest in a television station and a radio station, daily newspaper or cable television system that is located in the same local market area served by the television station. The 1996 Act leaves the television duopoly ban in place but directs the FCC to conduct a rulemaking to determine whether the restriction should be retained, modified, or eliminated. It also directs the FCC to modify its waiver policy with respect to the TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule) by extending it to radio-television combinations in the top 50 markets. In a pending rulemaking proceeding, the FCC is considering, among other things (i) whether to extend the presumptive waiver of the one-to-a- market rule from the top 25 to the top 50 markets; (ii) whether to modify the television duopoly rule to allow common ownership of two television stations in separate DMAs as long as the stations do not have overlapping Grade A contours; and (iii) whether to permit some exceptions to the duopoly rule in given markets and under certain circumstances involving UHF/UHF and UHF/VHF stations. In that same proceeding, the FCC also is considering whether to grandfather existing television Local Marketing Agreements ("LMAs") if 17 such agreements are deemed attributable in a companion proceeding (see below) proposing changes to the FCC's attribution rules. The FCC has promulgated rules that limit the ability of individuals and entities to own or have an ownership interest above a certain level (known as an "attributable" interest) in broadcast television stations and certain other media entities. These rules include limits on the number of radio and television stations in which an entity may have an "attributable" interest both on a local and on a national basis. In the case of corporations holding broadcast licenses, all officers and directors of a licensee, and stockholders who, directly or indirectly, have the right to vote 5% or more of the outstanding voting stock of a licensee, are generally deemed to have an "attributable" interest. Certain institutional investors who exert no control or influence over a licensee may own up to 10% of such outstanding voting stock before attribution occurs. Under FCC regulations, debt instruments, non-voting stock and certain limited partnership interests (where the licensee certifies that the limited partners are not "materially involved" in the management or operation of the subject media property), as well as voting stock held by non- minority stockholders in situations where there is a single majority stockholder are generally not subject to attribution. In addition, the FCC's cross-interest policy, which precludes an individual or entity from having a "meaningful" but not "attributable" interest in one media property and an "attributable" interest in a broadcast, cable or newspaper property in the same area, may be invoked by the FCC in certain circumstances to reach interests not expressly covered by the multiple ownership rules. In a rulemaking proceeding currently pending before the FCC regarding the attribution rules, the FCC is considering: (1) whether to make non-voting stock attributable in some instances; (2) whether to raise certain attribution thresholds; (3) whether to change the insulation standards for non-attribution of certain limited partnership interests or to develop new standards for certain members of limited liability companies; (4) whether a combination of debt and equity exceeding a certain threshold should be considered an attributable interest; and (5) the circumstances, if any, in which an LMA should be attributed to an entity holding the right to program more than 15% of the time of a television station. Alien Ownership Restrictions. The Communications Act restricts the ability of foreign entities to own or hold interests in broadcast licensees. Foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non- citizens, collectively, may directly or indirectly own up to one-fifth of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation of which more than one-fourth of its capital stock is owned or voted by non-citizens or their representatives, by foreign governments or their representatives, or by non -U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. Restrictions on alien ownership also apply, in modified form, to other types of business organizations, including partnerships. Proposed Legislation and Regulation. The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters which could, directly or indirectly, affect the operation and ownership of the Company's broadcast properties. In addition to the proposed changes noted above, such matters include, for example, the following: spectrum use fees; political advertising rates (including proposals for free time to some candidates); potential restrictions on the advertising of certain products (such as beer, wine and other alcoholic beverages); the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations; the standards to govern the evaluation of television programming and advertising directed toward children; and violent and indecent programming. The Company is unable to 18 predict the outcome of future federal legislation or the impact of any such laws or regulations on the Company's operations. The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). Some of its provisions, such as signal carriage and retransmission consent, have a direct effect on television broadcasting. Other provisions, some of which have been changed or substantially modified by the 1996 Act, are focused exclusively on the regulation of cable television but can still have an indirect effect on the Company because of the competition between over-the-air television stations and cable systems. The signal carriage, or "must-carry", provisions of the 1992 cable Act and FCC rules require cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television stations. The 1992 Cable Act also includes a retransmission consent provision that prohibits cable operators and other multichannel video programming providers from carrying broadcast stations without obtaining their consent in certain circumstances. The must carry and retransmission consent provisions are related in that television broadcasters, on a cable system-by-system basis, must make a choice once every three years whether to proceed under the must carry rules or to waive that right to mandatory but uncompensated carriage and, instead, to negotiate a grant of retransmission consent to permit individual cable systems to carry their signals in exchange for some form of consideration. Under rules adopted to implement these must carry and retransmission consent provisions, local television stations were required to make their initial elections of must carry or retransmission consent by June 17, 1993. Elections for the new three year period commencing January 1, 1997 and ending December 31, 1999 were made on or before October 1, 1996. On March 31, 1997, in a 5-4 decision, the U.S. Supreme court upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. As a result, the regulatory scheme promulgated by the FCC to implement the must-carry provisions of the 1992 Cable Act will remain in effect. Whether and to what extent such must-carry rights will extend to the new digital television signals (see below) to be broadcast by licensed television stations (including those owned by the Company) over the next several years is still a matter to be determined in a rulemaking proceeding likely to be initiated by the FCC in 1998. The 1992 Cable Act was amended in several important respects by the 1996 Act. Most notably, the 1996 Act repeals the cross-ownership ban between cable and telephone entities and the FCC's former video dialtone rules (permitting telephone companies to enter the video distribution services market under several new regulatory options). The 1996 Act also (a) eliminates the broadcast network/cable cross-ownership limitation and (b) lifts the statutory ban on TV/cable cross-ownership (without, however, eliminating the separate FCC regulatory restriction on TV/cable cross-ownership, which remains in place). Advanced Digital Television Service. On April 3, 1997, the FCC adopted new rules which will allow television broadcasters to provide advanced digital television ("DTV") service in the United States. Implementation of DTV will improve the technical quality of television signals receivable by viewers, and, if implemented as anticipated, will enable television broadcasters the flexibility to provide new services, including high-definition television ("HDTV") and data broadcasting. The FCC's action, affirmed and modified by further orders released on February 23, 1998, includes a new table of allotments for DTV by which all eligible existing broadcasters are assigned a second channel on which to provide DTV service. The allotment plan is based on a so- called "core spectrum" for DTV service, consisting of channels 2-51. However, because it was not technically feasible, at the outset, to assign DTV channels to all eligible stations within the "core spectrum", it will be necessary for some TV stations to initiate DTV service on a channel other than 2-51. Then, following the more complete 19 implementation of DTV service (in the year 2006 or beyond, when the FCC reclaims TV channels outside the core spectrum for other uses), such stations will have to move their DTV service to another channel that is within the "core spectrum" (i.e., either the channel on which they are currently broadcasting analog service or a new channel assigned by the FCC). Four of the Company's stations fall into this category (see chart below). Under the new service rules for DTV, television broadcasters will be allowed to use their DTV channels according to their best business judgment. Such uses can include multiple standard definition program channels, data transfer, subscription video, interactive materials and high-quality audio signals. Television broadcasters will, however, be required to provide a free digital video programming service that is at least comparable (in hours broadcast and in picture quality) to today's analog service. Broadcasters will not be required to air HDTV programming or, initially, to simulcast their analog programming on the digital channel. Affiliates of ABC, CBS, NBC and FOX in the top television markets will be required to be on the air with a digital signal by May 1, 1999 - - - although certain television licensees in these large markets have voluntarily committed to initiating DTV service by late 1998. Affiliates of the four major networks in markets 11-30 will be required to be on the air with a digital signal by November 1, 1999. For all remaining commercial television stations, including all of the Company's stations, the FCC's new mandated timetable for the construction of DTV facilities is May 1, 2002. 20
STATION (MARKET) ANALOG DTV FCC MANDATED CHANNEL CHANNEL TIMETABLE FOR CONSTRUCTION OF DTV FACILITIES - -------------------------------------------------------------------------------------------------- KCAL, Los Angeles, California 9 43 May 1, 2002 - -------------------------------------------------------------------------------------------------- WKRN, Nashville, Tennessee 2 27 May 1, 2002 - -------------------------------------------------------------------------------------------------- WTEN, Albany, New York 10 26 May 1, 2002 - -------------------------------------------------------------------------------------------------- WCDC, Adams, Massachusetts 19 36 May 1, 2002 (satellite of WTEN) - -------------------------------------------------------------------------------------------------- WRIC, Richmond, Virginia 8 22 May 1, 2002 - -------------------------------------------------------------------------------------------------- WATE, Knoxville, Tennessee 6 26 May 1, 2002 - -------------------------------------------------------------------------------------------------- WBAY, Green Bay, Wisconsin 2 23 May 1, 2002 - -------------------------------------------------------------------------------------------------- KWQC, Quad Cities 6 56 May 1, 2002 - -------------------------------------------------------------------------------------------------- WLNS, Lansing, Michigan 6 59 May 1, 2002 - -------------------------------------------------------------------------------------------------- KELO, Sioux Falls, South Dakota 11 32 May 1, 2002 - -------------------------------------------------------------------------------------------------- KDLO, Florence, South Dakota 3 25 May 1, 2002 (satellite of KELO) - -------------------------------------------------------------------------------------------------- KPLO, Reliance, South Dakota 6 14 May 1, 2002 (satellite of KELO) - -------------------------------------------------------------------------------------------------- KCLO, Rapid City, South Dakota 15 16 May 1, 2002 (satellite of KELO) - -------------------------------------------------------------------------------------------------- KLFY, Lafayette, Louisiana 10 56 May 1, 2002 - -------------------------------------------------------------------------------------------------- WKBT, La Crosse-Eau Claire, WI 8 53 May 1, 2002 - -------------------------------------------------------------------------------------------------- WTVO, Rockford, Illinois 17 16 May 1, 2002 - --------------------------------------------------------------------------------------------------
21 Although the 1996 Act generally does not address the FCC's DTV transition plan, it does direct the FCC to limit eligibility for DTV licenses to existing television broadcast licensees (which it has done) and to adopt regulations to permit licensees to offer ancillary or supplementary services on designated frequencies. Such regulations, still to be adopted by the FCC, must preserve DTV technology and quality and cover any ancillary or supplementary service regulations applicable to analogous services (except that no auxiliary or supplemental service shall have "must-carry" rights). Moreover, if a DTV licensee is directly or indirectly compensated for the provision of ancillary or supplementary services, the FCC is directed to collect an annual fee (or some other method of payment) that (1) recovers an amount that would have been recovered had such services been licensed pursuant to a spectrum auction and (2) avoids unjust enrichment. The 1996 Act also states that if broadcasters are issued a transition channel, either the original or additional license held by the broadcaster must be surrendered to the FCC for reallocation, reassignment, or both. Proposals have been advanced in Congress and within the current Administration to auction the returned channels for other uses. A further new development centers on whether the award of new DTV channels to all television broadcasters should be accompanied by certain newly defined public interest responsibilities. On March 11, 1997, President Clinton issued an executive order establishing a special advisory panel to make recommendations concerning specific public interest obligations that might be imposed on television licensees in exchange for the awarding of digital television licenses. The FCC's recent decision to assign DTV channels to all incumbent television station licensees notes that a further, separate proceeding will be undertaken to explore these issues. In the meantime, the FCC put all television broadcasters on notice that (a) existing public interest requirements continue to apply to all broadcast licensees and (b) the agency may adopt new or additional public interest responsibility rules for digital television. During the extended debate on these issues in Congress over the past two years, some members proposed authorizing the FCC to auction DTV channels, which would have required existing broadcasters to bid against other potential users of the spectrum. The more recent focus, however, has been on proposals to auction the analog channels once they have been returned by television broadcasters, as well as on such matters as whether to impose any type of spectrum fee on broadcasters for the use of the DTV channels and whether to establish discrete guidelines for the eventual cessation of analog television service. Such measures could be contained in budget legislation or a stand- alone spectrum law. Even without such legislative actions, the Company will incur significant costs in the conversion to DTV. The Company is unable to predict the extent or timing of consumer demand for any DTV services or the overall effect the transition to DTV might have on the Company's business. Non-FCC Regulation. Television broadcast stations may be subject to a number of other federal regulations, as well as numerous state and local laws, that can either directly or indirectly impact their operations. Included in this category are rules and regulations of the Federal Aviation Administration affecting tower height, location and marking, plus federal, state and local environmental and land use restrictions. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, the 1996 Act, or the 1992 Cable Act, nor of the regulations and policies of the FCC thereunder. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. 22 Employees Approximately 200 of the Company's employees are represented by collective localized bargaining agreements at various stations. ITEM 2. PROPERTIES. The Company's principal executive offices are located at 599 Lexington Avenue, New York, New York 10022. The Company leases approximately 9,546 square feet of space in New York (the "Master Lease"). The Master Lease expires in the year 2000 with respect to 7,600 square feet and in 2002 with respect to 1,946 square feet. The types of properties required to support television stations include offices, studios, transmitter sites and antenna sites. A station's studios are generally housed with its offices in downtown or business districts. The transmitter sites and antenna sites are generally located in elevated areas so as to provide maximum market coverage. The following table contains certain information describing the general character of the Company's properties.
Metropolitan Area Owned or and Use Leased Approximate Size --------------------- -------- ---------------- KCAL................... Los Angeles, California ----------------------- Office and studio Owned 30,000 sq. ft. Office and studio Leased 16,432 sq. ft. Transmission tower site Leased 60,000 sq. ft. WKRN................... Nashville, Tennessee -------------------- Office and studio Owned 43,100 sq. ft. Land Owned 2.72 acres Transmission tower site Owned 49.33 acres WTEN................... Albany, NY ---------- Office and studio 39,736 sq. ft. Land 2.56 acres New Scotland, NY ----------------- Transmission tower site -Land Owned 5.38 acres Mt. Greylock, Adams, MA ----------------------- Transmission tower site -Land Leased 15,000 sq. ft. WRIC................... Richmond, VA ------------ Office and studio Owned 34,000 sq. ft. Land Owned 4 acres Petersburg, VA -------------- Transmission site Lease of space -- on tower Chesterfield Co., VA(1) ------------------------ Transmitter building Owned 900 sq. ft.
23
Metropolitan Area Owned or and Use Leased Approximate Size --------------------- -------- ---------------- WATE................. Knoxville, TN ------------- Office and studio Owned 34,666 sq. ft. Land Owned 2.65 acres Knox County, TN --------------- Transmission tower site Owned 9.57 acres House Mountain, TN ------------------ Prospective tower site Owned 5 acres WBAY................. Green Bay, WI ------------- Office and studio Owned 90,000 sq. ft. Land Owned 1.77 acres DePere, WI ----------- Transmission tower site Owned 3.54 acres KWQC................. Davenport, Iowa --------------- Office and Studio Owned 59,786 sq. ft. Land Owned 86,978 sq. ft. Alternate satellite dish site Leased 900 sq. ft Bettendorf, Iowa ---------------- Transmission tower site Owned 68.688 acres (2 parcels) KELO................. Sioux Falls, South Dakota ------------------------- Land, office and studio Owned 23,700 sq. ft. Transmission tower site Owned 58.23 acres Auxiliary transmission tower site Leased 26.42 acres Reliance, South Dakota ---------------------- Transmission tower site Owned 5.83 acres Rapid City, South Dakota ------------------------ Office and studio Leased 3,555 sq. ft. Transmission tower site Owned 1 acre Philip, South Dakota -------------------- Transmission tower Leased 8.23 acres Wall, South Dakota ------------------ Transmission tower site Leased 4 acres Beresford, South Dakota ----------------------- Transmission tower site Leased 2.1 acres DeSmet Township, South Dakota ------------------------------ Doppler radar tower site Owned 0.55 acres Garden City, South Dakota ------------------------- Transmission tower site Owned 1 acre Auxiliary transmission tower Owned 1 acre Farmer, South Dakota -------------------- Transmission tower site Owned 1 acre Mt. Vernon, South Dakota ------------------------ Transmission tower site Owned 1 acre
24
Metropolitan Area Owned or and Use Leased Approximate Size --------------------- -------- ---------------- White Lake, South Dakota ------------------------ Transmission tower site Owned 1 acre New Underwood, South Dakota --------------------------- Transmission tower site Leased 200 sq. ft. Huron, South Dakota ------------------- Doppler radar tower site Leased 480 sq. ft. WLNS................. Lansing, Michigan ----------------- Office and studio Owned 19,000 sq. ft. Land Owned 4.75 acres Meridian, Michigan ------------------ Transmission tower site Owned 40 acres KLFY................. Lafayette, Louisiana -------------------- Office and studio Owned 24,800 sq. ft. Land Owned 3.17 acres Maxie, Louisiana ---------------- Transmission tower site Leased 8.25 acres WKBT................. La Crosse, Wisconsin -------------------- Office and studio Owned 12,600 sq. ft. Gailesville, Wisconsin ---------------------- Transmission tower site Owned 133,600 sq. ft. WTVO................. Rockford, Illinois ------------------ Office and studio Owned 15,200 sq. ft. Land Owned 14 acres
- ---------------------- (1) Station owns tower structure and related building, with non-exclusive easement for access to underlying property, which is owned by a third party. ITEM 3. LEGAL PROCEEDINGS. The Company currently and from time-to-time is involved in litigation incidental to the conduct of its business. There are no pending legal proceedings to which the Company or any of the Subsidiaries is a party, or to which any of their respective properties is subject, which, in the opinion of Company management, is likely to have a material adverse effect on the Company's business or financial condition. 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company are as follows: Name Age Position ---- --- -------- Vincent J. Young 50 Chairman and Director Adam Young 84 Treasurer and Director Ronald J. Kwasnick 51 President and Director James A. Morgan 49 Executive Vice President and Secretary Deborah A. McDermott 43 Executive Vice President- Operations Vincent J. Young has been the Chairman and a director of the Company since its inception in 1986. Mr. Young is also a member of the Compensation and Audit Committees of the Company. Mr. Young co-founded the Company with Adam Young. Vincent Young is also a director and the Chairman of each of the corporate Subsidiaries. Prior to becoming the Chairman of the Company, he worked at Adam Young Inc. for ten years in various marketing and representative capacities, including Vice-President, General Sales Manager, Eastern Sales Manager and Manager of the Chicago office. Vincent Young is the son of Adam Young. Adam Young has been the Treasurer and a director of the Company since its inception. Mr. Young is also a director and an executive officer of each of the corporate Subsidiaries. Mr. Young founded Adam Young Inc. in 1944 and has been active in television station representation since that time. Prior to the formation of the Company, Mr. Young owned minority interests in two radio stations, and a 30% interest in a television station in Youngstown, Ohio. Mr. Young served on the Board of Directors of the Television Advertising Bureau from 1977 to 1979 and has twice been President of the Station Representative Association, initially from 1955 through 1957, then from 1978 through 1980. Ronald J. Kwasnick has been the President of the Company since its inception and became a director in December 1994. From 1986 to 1989, Mr. Kwasnick was also the General Manager of WLNS, the Company's station in the Lansing, Michigan market. Mr. Kwasnick joined the Company in 1986, after working as Executive Vice President/Television for Adams Communications since 1984, where he served as General Manager of a group of network-affiliated television stations. Previously, since 1980, he had been the General Manager and President of WILX in Lansing, Michigan. Prior to that, he spent ten years working in various television sales management positions. James A. Morgan joined the Company as its Executive Vice President in March 1993 and became the Secretary of the Company in September 1994. Mr. Morgan is also the Executive Vice President and Secretary of each of the corporate Subsidiaries. From 1984 until he joined the Company, he was a director and Senior Investment Officer at J.P. Morgan Capital Corporation involved in investing the firm's own capital in various leveraged and early growth stage companies. 26 Deborah A. McDermott became the Executive Vice President-Operations of the Company in May 1996, and has been General Manager of WKRN, the Company's ABC network affiliate serving the Nashville, Tennessee market, since 1990. From 1986 to 1989, when WKRN was acquired by the Company, and thereafter through February 1990, she was Station Manager of that station. All executive officers serve at the discretion of the Board of Directors. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Class A Common Stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol YBTVA. The following table sets forth the range of the high and low closing sales prices of the Class A Common Stock for the periods indicated as reported by Nasdaq: High Low ---- --- Quarters Ended March 31, 1996 $32.25 $25.00 June 30, 1996 38.25 27.75 September 30, 1996 41.50 29.00 December 31, 1996 36.00 26.25 March 31, 1997 $31.25 $22.13 June 30, 1997 34.63 24.00 September 30, 1997 38.50 30.50 December 31, 1997 41.25 32.00 At February 27, 1998, there were approximately 37 and 27 stockholders of record of the Company's Class A and Class B Common Stock, respectively. Such number does not include beneficial owners holding shares through nominee names. RECENT SALE OF UNREGISTERED SECURITIES On June 23, 1997, the Company sold $200.0 million aggregate principal amount of 8 3/4% Senior Subordinated Notes (the "June 1997 Notes") due 2007 to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Initial Purchaser") pursuant to a purchase agreement dated June 16, 1997 in a transaction not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption under Section 4(2) of the Securities Act as a transaction not involving a public offering. The Initial Purchaser subsequently resold the June 1997 Notes to qualified institutional buyers in reliance upon Rule 144A under the Securities Act of 1933. In July 1997, the June 1997 Notes were exchanged for substantially identical notes registered pursuant to an exchange offer filed under a Registration Statement on Form S-4 with the Securities and Exchange Commission. The net proceeds of the June 1997 Notes of approximately $198.2 million, after deducting the Initial Purchaser's discount, were used to repay certain outstanding indebtedness including accrued interest under the Company's then outstanding senior credit facility. DIVIDEND POLICY The Company has never paid a dividend on its Common Stock and does not expect to pay dividends on its Common Stock in the foreseeable future. The terms of the Senior Credit Facility and the Indentures relating to the Company's outstanding Senior Subordinated Notes (the "Indentures") restrict the Company's ability to pay cash dividends on its Common Stock. Under the Senior Credit Facility, the Company's ability to pay dividends on its Common Stock is limited. See Management's Discussion and Analysis-Liquidity. Under the Indentures, the Company is not permitted to pay any dividends on its Common Stock unless at the time of, and immediately after giving effect to, the dividend no default would result under the Indentures and the Company would continue to have the ability to incur indebtedness. In addition, under the Indentures, the dividend may not exceed an amount equal to the Company's cash flow less a multiple of the Company's interest expense, plus the net proceeds of the sale by the Company of additional capital stock. 28 ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated financial data of the Company for the five years ended December 31, 1997, which have been derived from the Company's audited consolidated financial statements. The information in the following table should be read in conjunction with "Management's Discussion and Analysis" and the Consolidated Financial Statements and the notes thereto included elsewhere herein. The Company has not paid dividends on its capital stock during any of the periods presented below.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ------------ -------------- ----------- ------------- ------------ (dollars in thousands, except per share amounts) STATEMENT OF OPERATIONS DATA: Net revenues (1)........................ $61,792 $78,788 $122,530 $154,343 $263,535 Operating expenses, including selling, general and administrative expenses 28,460 33,800 51,614 64,689 106,708 Amortization of program license rights 3,969 4,400 6,418 11,034 38,279 Depreciation and amortization........... 13,859 15,280 24,572 30,946 46,941 Corporate overhead...................... 1,350 2,052 3,348 4,344 7,150 Non-cash compensation paid in common stock (2)..................... - 6,497 1,167 848 967 ------------ -------------- ----------- ------------- ------------ Operating income........................ 14,154 16,759 35,411 42,482 63,490 Interest expense........................ 17,778 19,105 32,644 42,838 64,103 Other expenses (income), net............ 141 3 233 (1,261) 493 ------------ -------------- ----------- ------------- ------------ Net (loss) income before extraordinary item and cumulative effect of change in accounting principle.............. (3,765) (2,349) 2,534 905 (1,106) Extraordinary loss on extinguishment of debt (3).......................... - (6,027) (9,125) - (9,243) Cumulative effect of change in accounting principle (4)............. (1,520) - - - - ------------ -------------- ----------- ------------- ------------ Net (loss) income....................... $(5,285) $(8,376) $ (6,591) $905 $ (10,349) ============ ============== =========== ============= ============ Basic and diluted net (loss) income per common share before extraordinary item and cumulative effect of change in accounting principle (5)......... $(3.82) $(3.62) $0.23 $0.08 $(0.08) Basic and diluted net (loss) income per common share(5)...................... (4.50) (5.42) (0.61) 0.08 (0.74) Basic shares used in earnings per share calculation.......................... 2,234,370 3,339,794 10,838,972 11,379,298 13,989,969 Diluted shares used in earnings per share calculation.................... 2,234,370 3,339,794 11,071,154 11,783,122 13,989,969 OTHER FINANCIAL DATA: Cash flow provided by operating activities........................... $9,559 $8,527 $22,231 $24,707 $41,025 Payments for program license liabilities.......................... 4,003 4,170 6,747 10,385 38,610 Broadcast cash flow (6)................. 29,329 40,818 64,169 79,269 118,217 Broadcast cash flow margin.............. 47.5% 51.8% 52.4% 51.4% 44.9% Operating cash flow (7)................. 27,979 38,766 60,821 74,926 111,067 Capital expenditures.................... $686 $1,206 $4,484 $4,992 $9,034 BALANCE SHEET DATA (AS OF END OF PERIOD): Total assets............................ $158,231 $316,827 $296,098 $893,151 $845,966 Long-term debt (including current portion)............................... 196,156 305,050 297,993 678,927 657,672 Stockholders' (deficit) equity.......... $(51,686) $(11,654) $(25,544) $80,504 $59,846
29 (1) Net revenues are total revenues net of agency and national representation commissions. (2) Represents non-cash charges for the issuance to key employees in 1994, 1996 and 1997 of shares of Common Stock and in 1995 of shares of Common Stock and below-market options to purchase shares of Common Stock. (3) Extraordinary loss for the years ended December 31, 1994, 1995 and 1997 resulted from the early extinguishment of debt. See Note 5 to Notes to Consolidated Financial Statements. (4) Cumulative effect of change in accounting principle for the year ended December 31, 1993 resulted from a change in accounting principle for amortization of program license rights. (5) The earnings (loss) per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Standards No. 128, Earnings per Share ("Statement No. 128"). For further discussion of Earnings per Share and the impact of Statement No. 128, see Note 2 to Notes to the Consolidated Financial Statements. (6) "Broadcast cash flow" is defined as operating income before income taxes and interest expense, plus depreciation and amortization (including amortization of program license rights), non-cash compensation and corporate overhead, less payments for program license liabilities. The Company has included broadcast cash flow data because such data are commonly used as a measure of performance for broadcast companies and are also used by investors to measure a company's ability to service debt. Broadcast cash flow is not, and should not be used as, an indicator or alternative to operating income, net income or cash flow as reflected in the Consolidated Financial Statements, is not intended to represent funds available for debt service, dividends, reimbursement or other discretionary uses, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (7) "Operating cash flow" is defined as operating income before income taxes and interest expense, plus depreciation and amortization (including amortization of program license rights) and non-cash compensation, less payments for program license liabilities. The Company has included operating cash flow data because such data are used by investors to measure a company's ability to service debt and are used in calculating the amount of additional indebtedness that the Company may incur in the future under the Indentures. Operating cash flow does not purport to represent cash provided by operating activities as reflected in the Consolidated Financial Statements, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION The operating revenues of the Company's stations are derived primarily from advertising revenues and, to a much lesser extent, from compensation paid by the networks to the stations for broadcasting network programming. The stations' primary operating expenses are for employee compensation, news gathering, production, programming and promotion costs. A high proportion of the operating expenses of the stations are fixed. Advertising is sold for placement within and adjoining a station's network and locally originated programming. Advertising is sold in time increments and is priced primarily on the basis of a program's popularity among the specific audience an advertiser desires to reach, as measured principally by periodic audience surveys. In addition, advertising rates are affected by 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 highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a national television network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks. The Company estimates that at least 64% of the 1997 annual gross revenue of the Company's stations is generated from local advertising, which is sold by a station's sales staff directly to local accounts, and the remainder of the advertising revenue primarily represents national advertising, which is sold by a national advertising sales representative. The stations generally pay commissions to advertising agencies on local, regional and national advertising, and, on national advertising, the stations also pay commissions to the national sales representative. 30 The advertising revenues of the Company's stations are generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the Spring and retail advertising in the period leading up to and including the holiday season. In addition, advertising revenues are generally higher during even numbered election years due to spending by political candidates, which spending typically is heaviest during the fourth quarter. "Broadcast cash flow" is defined as operating income before income taxes and interest expense, plus depreciation and amortization (including amortization of program license rights), non-cash compensation and corporate overhead, less payments for program license liabilities. The Company has included broadcast cash flow data because such data are commonly used as a measure of performance for broadcast companies and are also used by investors to measure a company's ability to service debt. Broadcast cash flow is not, and should not be used as, an indicator or alternative to operating income, net income or cash flow as reflected in the Consolidated Financial Statements, is not intended to represent funds available for debt service, dividends, reimbursement or other discretionary uses, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. The following table sets forth certain operating data for the years ended December 31, 1995, 1996 and 1997:
Year Ended December 31, ----------------------- 1995 1996 1997 ---- ---- ---- (dollars in thousands) Operating Income................................................. $35,411 $ 42,482 $ 63,490 Add: Amortization of Program License Rights...................... 6,418 11,034 38,279 Depreciation and amortization............................... 24,572 30,946 46,941 Corporate Overhead.......................................... 3,348 4,344 7,150 Non-cash compensation paid in common stock.................. 1,167 848 967 Less: Payments for Program License Liabilities.................... (6,747) (10,385) (38,610) ------------ ------------- ------------ Broadcast Cash Flow.............................................. $64,169 $ 79,269 $118,217 ============ ============= ============
TELEVISION REVENUES Set forth below are the principal types of television revenues received by the Company's stations for the periods indicated and the percentage contribution of each to the Company's total revenues, as well as agency and national sales representative commissions:
Year Ended December 31, ----------------------- 1995 1996 1997 ------------ ---- ---- Amount % Amount % Amount % ----------- ---------- ---------- ----------- ------------ --------- (dollars in thousands) Revenues Local.......................... $ 77,980 54.3% $ 99,684 55.1% $197,519 63.7% National....................... 51,546 35.9 57,298 31.6 95,106 30.6 Network compensation........... 9,873 6.9 11,335 6.3 12,600 4.1 Political...................... 1,835 1.3 9,791 5.4 1,322 0.4 Production and other........... 2,321 1.6 2,849 1.6 3,725 1.2 ----------- ---------- ---------- ---------- ------------ --------- Total......... 143,555 100.0 180,957 100.0 310,272 100.0 Agency and sales representative commissions.................... (21,025) (14.6) (26,614) (14.7) (46,737) (15.1) ----------- ---------- ---------- ---------- ------------ --------- Net Revenues...................... $122,530 85.4% $154,343 85.3% $263,535 84.9% =========== ========== ========== ========== ============ =========
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 31 Actual ------ The following historical financial information includes the results of KWQC- TV, KELO-TV and KCAL-TV (the "Acquired Stations") which were acquired on April 15, 1996, May 31, 1996, and November 23, 1996, respectively, for the periods commencing upon their respective acquisition dates by the Company. Net revenues for the year ended December 31, 1997 were $263.5 million, an increase of $109.2 million, or 70.8% compared to $154.3 million for the year ended December 31, 1996, with the Acquired Stations accounting for $107.5 million of such increase. Local and national revenues were $197.5 million and $95.1 million for the year ended December 31, 1997, compared to $99.7 million and $57.3 million for the year ended December 31, 1996, increases of $97.8 million and $37.8 million, respectively. The Acquired Stations accounted for $93.0 million and $34.6 million of the local and national increases, respectively. Political revenue for the year ended December 31, 1997 was $1.3 million, a decrease of $8.5 million from the year ended December 31, 1996. The decrease was attributable to 1996 being a national election year with more state and local elections, while 1997 had only limited state and local elections. Operating expenses, including selling, general and administrative expenses for the year ended December 31, 1997 were $106.7 million, compared to $64.7 million for the year ended December 31, 1996, an increase of $42.0 million, or 64.9%. The Acquired Stations accounted for all of such increase. Amortization of program license rights for the year ended December 31, 1997 was $38.3 million, compared to $11.0 million for the year ended December 31, 1996, an increase of $27.3 million, or 248.2% with the Acquired Stations accounting for all of such increase. Depreciation of property and equipment and amortization of intangibles was $46.9 million for the year ended December 31, 1997, compared with $30.9 million for the comparable period in 1996, an increase of $16.0 million or 51.8%. The Acquired Stations accounted for all of such increase. The Company made payments for program license liabilities of $38.6 million during the year ended December 31, 1997, compared to $10.4 million for the year ended December 31, 1996, an increase of $28.2 million, or 271.1%. The Acquired Stations accounted for $27.8 million of this increase. Corporate overhead for the year ended December 31, 1997 was $7.2 million, compared to $4.3 million for the comparable period in 1996, an increase of $2.9 million, or 67.4%. This was the result of additional personnel, administrative costs and incentive compensation programs. Non-cash compensation paid in Common Stock for the year ended December 31, 1997 was $1.0 million, compared to $848,000 for the year ended December 31, 1996. Net interest expense for the year ended December 31, 1997 was $64.1 million, compared to $42.8 million for the comparable period in 1996, an increase of $21.3 million, or 49.8%. The increase is primarily attributable to the Company's higher debt level associated with the purchase of the Acquired Stations in 1996. On June 23, 1997, the Company completed an offering (the "June 1997 Notes Offering") of $200.0 million principal amount of its 8 3/4% Senior Subordinated Notes due 2007. The Company used the net proceeds of the June 1997 Notes Offering (approximately $198.2 million) to repay certain outstanding indebtedness including accrued interest under the then outstanding senior credit facility. On November 25, 1997, the Company amended and restated its then outstanding senior credit facility. Net deferred charges of $9.2 million were recorded as an extraordinary loss on early extinguishment of debt. As a result of the factors discussed above, the net loss for the Company was $10.3 million for the year ended December 31, 1997, compared with net income of $905,000 for the same period in 1996, a decrease of $11.2 million. The 1997 net loss includes an extraordinary item of $9.2 million as discussed above. 32 Broadcast cash flow for the year ended December 31, 1997 was $118.2 million, compared with $79.3 million for the year ended December 31, 1996, an increase of $38.9 million, or 49.1%. Broadcast cash flow margins (broadcast cash flow divided by net revenues) for the year ended December 31, 1997 decreased to 44.9% from 51.4% for the same period in 1996. The increase in broadcast cash flow was a direct result of the Acquired Stations and continued expense controls. The decrease in broadcast cash flow margins is attributable to the purchase of KCAL- TV, an independent station. Independent stations generally operate at lower margins than those associated with networks. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Actual ------ The following historical financial information include the results of the Acquired Stations since their respective dates of acquisition. Net revenues for the year ended December 31, 1996 were $154.3 million, an increase of $31.8 million, or 26.0%, compared to $122.5 million for the year ended December 31, 1995, with the Acquired Stations accounting for $29.4 million of such increase. Political revenue for the year ended December 31, 1996 was $9.8 million, compared to $1.8 million for the year ended December 31, 1995, an increase of $8.0 million. The increase was attributable to 1996 being a national election year with more state and local elections, while 1995 had only limited state and local elections. Network compensation in 1996 increased $1.5 million, or 14.8%, with $1.1 million attributable to the Acquired Stations. Operating expenses, including selling, general and administrative expenses, for the year ended December 31, 1996 were $64.7 million, compared to $51.6 million for the year ended December 31, 1995, an increase of $13.1 million, or 25.4%. The Acquired Stations accounted for $12.9 million and the remaining increase was primarily attributed to higher local sales commissions resulting from higher sales volume. Amortization of program license rights for the year ended December 31, 1996 was $11.0 million, compared to $6.4 million for the year ended December 31, 1995, an increase of $4.6 million, or 71.9%, with the Acquired Stations accounting for $3.9 million of such increase. Depreciation of property and equipment and amortization of intangible assets was $30.9 million for the year ended December 31, 1996, compared with $24.6 million for the comparable period in 1995, an increase of $6.3 million, or 25.6%. The increase results from depreciation and amortization at the Acquired Stations of $5.6 million, and the remaining increase was primarily attributable to increased capital expenditures in 1996. The Company made payments for program license liabilities of $10.4 million during the year ended December 31, 1996, compared to $6.7 million for the year ended December 31, 1995, an increase of $3.7 million, or 55.2%. Payments associated with the Acquired Stations were $3.5 million. Corporate overhead for the year ended December 31, 1996 was $4.3 million, compared to $3.3 million for the comparable period in 1995, an increase of $1.0 million, or 30.3%. This was the result of additional personnel, administrative and incentive compensation programs. Non-cash compensation paid in Common Stock for the year ended December 31, 1996 was $848,000 million, compared to $1.2 million for the year ended December 31, 1995. Net interest expense for the year ended December 31, 1996 was $42.8 million, compared with $32.6 million for the comparable period in 1995, an increase of $10.2 million, or 31.3%. The increase is primarily attributable to the Company's higher debt level following the January 1996 Senior Subordinated Note Offering (as defined) and the higher debt associated with the purchase of the Acquired Stations. The Company held a $25 million interest rate swap agreement which expired on April 18, 1996. The interest expense resulting from this swap agreement amounted to $315,000 in 1996 and $952,000 in 1995. 33 On June 12, 1995, the Company completed an offering (the "June 1995 Notes Offering") of $125 million principal amount of its 10 1/8% Senior Subordinated Notes due 2005. The Company used the net proceeds of the June 1995 Notes Offering (approximately $120.0 million) to repay certain of its then outstanding indebtedness under the Senior Credit Facility. Concurrently with the closing of the June 1995 Notes Offering, the Company entered into an amendment to its Senior Credit Facility. Net deferred charges of $9.1 million were recorded as an extraordinary loss on early extinguishment of debt in 1995. As a result of the factors discussed above, the net income for the Company was $905,000 for the year ended December 31, 1996, compared with a net loss of $6.6 million for the same period in 1995, an increase of $7.5 million. The 1995 net loss includes the extraordinary non-recurring loss of $9.1 million discussed above. Broadcast cash flow for the year ended December 31, 1996 was $79.3 million, compared with $64.2 million for the year ended December 31, 1995, an increase of $15.1 million, or 23.5%. Broadcast cash flow margins (broadcast cash flow divided by net revenues) for the year ended December 31, 1996 decreased to 51.4% from 52.4% for the same period in 1995. The increase in broadcast cash flow was a direct result of the Acquired Stations and continued expense controls. The decrease in broadcast cash flow margins is attributable to the purchase of KCAL, an independent station. Independent stations generally operate at lower margins than those associated with networks. Approximately $13.0 million of the increased broadcast cash flow in 1996 is attributable to the Acquired Stations. Pro Forma Financial Data The following unaudited pro forma information gives effect to the acquisitions of KWQC, KELO and KCAL (including annualized net expense reductions) and a new affiliation agreement for WTVO as if they had been effected on January 1, 1996. The pro forma information does not purport to represent what the Company's results of operations would have been if such transactions had been effected at such date and do not purport to project results of operations of the Company in any future period. Year Ended ---------- December 31, 1996(1) 1997(5) ---- ---- (in thousands) Net revenues (2)............................. $261,542 $263,535 Operating expenses, including selling, general and administrative expenses.......... 103,941 106,708 Amortization of program license rights....... 32,924 38,279 Depreciation and amortization................ 50,931 46,941 Corporate overhead........................... 4,643 7,150 Non-cash compensation paid in common stock... 848 967 ----------------------- Operating income............................. $ 68,255 $ 63,490 ======================= Broadcast cash flow (3)...................... $124,830 $118,217 Broadcast cash flow margin................... 47.7% 44.9% Operating cash flow (4)...................... $120,187 $111,067 Capital expenditures......................... 10,424 9,034 (1) Pro forma adjustments to net revenues include additional annualized network compensation payable to the Company under the new KELO affiliation agreement and a programming change at KWQC in the aggregate amount of $179,000 for the year ended December 31, 1996. Pro forma adjustments to net revenues also include a decrease of $803,000 for the year ended December 31, 1996 relating to seven sitcoms not purchased in connection with the KCAL Acquisition. Pro forma adjustments include expense reductions relating to the KWQC, KELO and KCAL acquisitions of approximately $22.8 million for the year ended December 31, 1996. (2) Net revenues are total revenues of agency and national representation commissions. (3) "Broadcast cash flow" is defined as operating income before income taxes and interest expense, plus depreciation and amortization (including amortization of program license rights), non-cash compensation and corporate overhead, less 34 payments for program license liabilities. The Company has included broadcast cash flow data because such data are commonly used as a measure of performance for broadcast companies and are also used by investors to measure a company's ability to service debt. Broadcast cash flow is not, and should not be used as, an indicator or alternative to operating income, net income or cash flow as reflected in the Consolidated Financial Statements, is not intended to represent funds available for debt service, dividends, reimbursement or other discretionary uses, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (4) "Operating cash flow" is defined as operating income before income taxes and interest expense, plus depreciation and amortization (including amortization of program license rights) and non-cash compensation, less payments for program license liabilities. The Company has included operating cash flow data because such data are commonly used by investors to measure a company's ability to service debt and will be used in calculating the amount of additional indebtedness that the Company may incur in the future under the Indentures relating to the Notes. Operating cash flow does not purport to represent cash provided by operating activities as reflected in the Consolidated Financial Statements, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (5) Actual results of operations for the year ended December 31, 1997. Impact of Year 2000 The Company is performing a review of its year 2000 compliance relative to all of its computer hardware and software. Management believes that no material costs will be incurred to become year 2000 compliant. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flow from operations and funds available under its senior credit facility. On November 25, 1997, the Company's senior credit facility was amended and restated to provide the Company with the ability to borrow up to $300.0 million in the form of five year revolving credit facility (the "Senior Credit Facility"). As of December 31, 1997, there was $82.3 million outstanding under the Senior Credit Facility. The Senior Credit Facility has a $285.0 million sublimit (the "Sublimit") for borrowings in connection with the acquisition of additional television stations (and businesses, if any, incidental thereto) pursuant to transactions which meet the following criteria: (i) each of the acquired stations will become a wholly- owned subsidiary of the Company and will become a part of the lenders' security package under the Senior Credit Facility, and (ii) the Company can demonstrate that after giving pro forma effect to each such acquisition (based upon assumptions, including identified cost savings, that the agents for the lenders find reasonable), the Company will be in compliance with all of the terms and conditions of the Senior Credit Facility. Pursuant to the Senior Credit Facility, the Company is prohibited from making investments or advances to third parties exceeding $7.5 million in the aggregate unless the third party becomes a guarantor of the Company's obligations. However, the Company may utilize up to $70.0 million of its borrowing availability under the Sublimit for the purpose of repurchasing shares of Common Stock and for paying dividends, subject to the limitations set forth in the Indentures. In addition, the Company may utilize the undrawn amounts under the Sublimit to retire or prepay subordinated debt, subject to the limitations set forth in the Indentures. Undrawn amounts under the Senior Credit Facility are available to the Company for working capital requirements and general corporate purposes. Interest under the Senior Credit Facility is payable at the LIBOR rate, "CD Rate" or "Base Rate." In addition to the index rates, the Company pays a floating percentage tied to the Company's ratio of total debt to operating cash flow; ranging, in the case of LIBOR rate loans, from 0.75% based upon a ratio under 4:1 to 2.00% based upon a 6:1 or greater ratio. 35 Each of the Subsidiaries has guaranteed the Company's obligations under the Senior Credit Facility. The Senior Credit Facility is secured by the pledge of all the stock of the Subsidiaries and a first priority lien on all of the assets of the Company and its Subsidiaries. The Senior Credit Facility imposes restrictions on the Company's ability to incur additional indebtedness. The Company will be permitted to incur, subject to the terms of the Indentures and satisfaction of the financial covenants of the Senior Credit Facility, unsecured subordinated debt, provided that the subordination and mandatory redemption provisions and the maturity of such indebtedness are comparable to the Company's existing Senior Subordinated Notes and that the net proceeds in excess of any permitted acquisition are used to repay the outstanding balance of the Senior Credit Facility by the amount of such excess. The Company is also restricted as to the amount of its capital lease obligations and guarantees. The Senior Credit Facility also restricts the ability of the Company to amend material terms of the Indentures. The Senior Credit Facility requires the Company to maintain certain financial ratios. The Company is required to maintain a total debt/operating cash flow ratio ranging from 6.25x to 5.00x depending on senior debt leverages. The Company is also required to maintain a senior debt/operating cash flow ratio ranging from 3.00x to 2.25x depending on senior debt leverages. Additionally, the Company is required to maintain an operating cash flow/total interest expense ratio ranging from 1.60x to 2.25x depending on senior debt leverages. The Company is also required to maintain an operating cash flow minus capital expenditures to pro forma debt service ratio of no less than 1.10x at any time. Such ratios must be maintained as of the last day of the quarter for each of the periods. The Company is required to apply the proceeds from permitted equity issuances and certain subordinated debt issuances, to the extent it exceeds the purchase price for permitted acquisitions or permitted redemptions of Senior Subordinated Debt, to reduce the Company's senior debt levels. The Senior Credit Facility also contains a number of customary covenants including, among others, limitations on investments and advances, mergers and sales of assets, liens on assets, affiliate transactions and changes in business. The Company may, subject to the financial covenants of the Senior Credit Facility, sell assets constituting less than 15% of its operating cash flow. Interest on the January 1996 Notes is payable semi-annually on January 15 and July 15, interest on the June 1995 Notes is payable semi-annually on February 15 and August 15, interest on the Company's 11 3/4% Senior Subordinated Notes due 2004 (the "November 1994 Notes") is payable semi-annually on May 15 and November 15, and interest on the June 1997 Notes is payable semi-annually on June 15 and December 15. The Indentures impose certain limitations on the ability of the Company and certain of its Subsidiaries to, among other things, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness that is subordinate in right of payment to any Senior Debt and senior in right of payment to the Notes, incur liens, impose restrictions on the ability of a Subsidiary to pay dividends or make certain payments to the Company, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. A $5.0 million portion of the purchase price in connection with the November 1994 acquisitions has been deferred (having a net present value as of December 31, 1997, discounted at 11.9%, of $1.7 million) and is payable over the remaining two-year-period, without interest, in equal annual installments, with three such installments having been paid on November 14, 1995, 1996 and 1997. The Company paid a $3.0 million portion of the purchase price in connection with the KELO Acquisition by delivery of a promissory note, which requires quarterly payments of interest accruing at the prime rate, and the principal amount of which will be payable in full on May 31, 1998. The Company regularly enters into program contracts for the right to broadcast television programs produced by others and program commitments for the right to broadcast programs in the future. Such programming commitments are generally made to replace expiring or canceled program rights. Payments under such contracts are made in cash or the concession of advertising spots to the program provider to resell, or a combination of both. The Company anticipates that its operating cash flow, together with the amounts available under the Senior Credit Facility, will be sufficient to finance the operating requirements of its stations, debt service requirements and anticipated capital expenditures. 36 The Company is regularly presented with opportunities to acquire television stations which it evaluates on the basis of its acquisition strategy. The Company does not presently have any agreements to acquire any television stations. See "Business-Acquisition Strategy." INCOME TAXES The Company and its Subsidiaries file a consolidated federal income tax return and such state or local tax returns as are required. The Company has $185.0 million of net operating loss ("NOL") carryforwards which are subject to annual limitations imposed by Internal Revenue Code Section 382. See Note 9 to Notes to Consolidated Financial Statements. 37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Consolidated Financial Statements ------------------------------------------
Page ---- Report of Independent Auditors 39 Consolidated Balance Sheets as of December 31, 1996 and 1997 40 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 41 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1995, 1996 and 1997 42 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 43 Notes to Consolidated Financial Statements 44 Schedule II - Valuation and Qualifying Accounts 58
38 Report of Independent Auditors Board of Directors and Stockholders Young Broadcasting Inc. We have audited the accompanying consolidated balance sheets of Young Broadcasting Inc. and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Young Broadcasting Inc. and subsidiaries at December 31, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. New York, New York February 6, 1998 39 Young Broadcasting Inc. and Subsidiaries Consolidated Balance Sheets
December 31, 1996 1997 ----------------------------- ASSETS Current assets: Cash and cash equivalents (Note 2) $ 7,004,744 $ 1,652,428 Trade accounts receivable, less allowance for doubtful accounts of $2,210,000 in 1996 and $1,872,000 in 1997 60,152,494 60,192,889 Current portion of loans receivable - officers (Note 12) 391,862 311,358 Current portion of program license rights (Notes 2 and 4) 21,678,077 23,327,160 Prepaid expenses 1,852,728 1,996,406 ----------------------------- Total current assets 91,079,905 87,480,241 Property and equipment, less accumulated depreciation and amortization of $79,497,810 in 1996 and $98,731,094 in 1997 (Notes 2 and 11) 147,301,955 112,750,987 Program license rights, excluding current portion (Notes 2 and 4) 2,436,121 1,220,121 Deposits and other assets 457,354 1,171,852 Loans receivable - officers, excluding current portion (Note 12) 1,040,445 600,000 Broadcasting licenses and other intangibles, less accumulated amortization of $73,462,193 in 1996 and $96,631,332 in 1997 (Note 2) 624,074,518 626,507,872 Deferred charges, less accumulated amortization of $4,338,888 in 1996 and $7,236,107 in 1997 (Notes 2, 3 and 5) 26,760,865 16,235,423 ----------------------------- Total assets $893,151,163 $845,966,496 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 23,392,064 $ 18,997,702 Accrued interest (Notes 6 and 7) 13,359,133 12,806,872 Accrued expenses 5,802,974 6,114,268 Current installments of program license liability (Notes 2 and 4) 17,312,771 18,026,986 Current installments of long-term debt (Note 6) 11,913,237 3,907,834 Current installments of obligations under capital leases (Note 11) 802,851 470,981 ------------------------------- Total current liabilities 72,583,030 60,324,643 Program license liability, excluding current installments (Notes 2 and 4) 2,403,121 1,052,659 Long-term debt, excluding current installments (Note 6) 295,535,960 83,076,951 Senior Subordinated Notes (Note 7) 370,000,000 570,000,000 Deferred tax liabilities (Note 9) 71,450,273 71,450,273 Obligations under capital leases, excluding current installments (Note 11) 674,556 216,362 ------------------------------- Total liabilities 812,646,940 786,120,888 ------------------------------- Stockholders' equity (Note 8): Class A Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and outstanding 12,208,127 shares at 1996 and 11,850,504 shares at 1997 12,209 11,851 Class B Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and outstanding 2,022,230 shares at 1996 and 1,997,340 shares at 1997 2,022 1,997 Additional paid-in capital 233,190,382 222,881,546 Accumulated deficit (152,700,390) (163,049,786) ------------------------------- Total stockholders' equity 80,504,223 59,845,608 ------------------------------- Total liabilities and stockholders' equity $ 893,151,163 $ 845,966,496 ===============================
See accompanying notes to consolidated financial statements. 40 Young Broadcasting Inc. and Subsidiaries Consolidated Statements of Operations
YEAR ENDED DECEMBER 31, 1995 1996 1997 ---------------------------------------------------------- Net operating revenue $122,529,927 $154,342,931 $263,534,581 ---------------------------------------------------------- Operating expenses 28,033,649 35,614,209 64,700,352 Amortization of program license rights 6,418,181 11,033,812 38,279,226 Selling, general and administrative expenses 23,580,352 29,074,947 42,007,903 Depreciation and amortization 24,572,388 30,945,622 46,940,592 Corporate overhead 3,347,931 4,343,449 7,150,096 Non-cash compensation (Notes 8 and 10) 1,166,651 848,469 967,112 ---------------------------------------------------------- Operating income 35,410,775 42,482,423 63,489,300 ---------------------------------------------------------- Interest income 378,380 2,098,939 263,351 Interest expense (32,644,274) (42,837,629) (64,102,237) Other expenses, net (611,138) (838,434) (756,682) ---------------------------------------------------------- (32,877,032) (41,577,124) (64,595,568) ---------------------------------------------------------- Income (loss) before extraordinary item 2,533,743 905,299 (1,106,268) Extraordinary loss on extinguishment of debt (Note 5) (9,125,000) - (9,243,128) ---------------------------------------------------------- Net (loss) income $ (6,591,257) $ 905,299 $(10,349,396) ========================================================== Income (loss) per common share-basic and diluted: Income (loss) before extraordinary item $.23 $.08 $(.08) Extraordinary loss on extinguishment of debt (.84) - (.66) ---------------------------------------------------------- Net (loss) income per common share-basic and diluted $(.61) $.08 $(.74) ========================================================== Weighted average shares-basic 10,838,972 11,379,298 13,989,969 ========================================================== Weighted average shares - diluted 11,071,154 11,783,122 13,989,969 ==========================================================
See accompanying notes to consolidated financial statements. 41 Young Broadcasting Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Total ------------------------------- Paid-In Accumulated Stockholders' Class A Class B Class C Capital Deficit Equity (Deficit) --------- ------- ------- ------------ ------------- --------------- Balance at January 1, 1995 $ 4,825 $2,039 $ 3,955 $135,349,516 $(147,014,432) $(11,654,097) Contribution of shares into Company's defined contribution plan 22 - - 471,866 - 471,888 Issuance of stock options below market value - - - 366,094 - 366,094 Exercise of stock options 19 - - 49,981 - 50,000 Conversion of Class B and C Common Stock to Class A Common Stock 116 (10) (106) - - - Repurchase and retirement of Class A and C Common Stock (27) - (285) (8,186,433) - (8,186,745) Net (loss) for 1995 - - - - (6,591,257) (6,591,257) --------- ------- ------- ------------ ------------- --------------- Balance at December 31, 1995 4,955 2,029 3,564 128,051,024 (153,605,689) (25,544,117) Repurchase and retirement of Class A Common Stock (111) - - (2,923,693) - (2,923,804) Contribution of shares into Company's defined contribution plan 28 - - 728,641 - 728,669 Exercise of stock options 16 - - 313,495 - 313,511 Issuance of stock options below market value - - - 15,400 - 15,400 Conversion of Class C Common Stock to Class A Common Stock 2,064 - (2,064) - - - Issuance of Class A Common Stock 5,250 - - 161,772,765 - 161,778,015 Repurchase of Class C Common Stock - - (1,500) (54,767,250) - (54,768,750) Conversion of Class B Common Stock to Class A Common Stock 7 (7) - - - - Net Income for 1996 - - - - 905,299 905,299 --------- ------- ------- ------------ ------------- --------------- Balance at December 31, 1996 12,209 2,022 - 233,190,382 (152,700,390) 80,504,223 Contribution of shares into Company's defined contribution plan 53 - - 1,574,958 - 1,575,012 Exercise of stock options 23 - - 454,227 - 454,249 Repurchase and retirement of Class A Common Stock (459) - - (12,338,021) - (12,338,480) Conversion of Class B Common Stock to Class A Common Stock 25 (25) - - - - Net Loss for 1997 - - - - (10,349,396) (10,349,396) --------- ------- ------- ------------ ------------- --------------- Balance at December 31, 1997 $11,851 $1,997 $ - $222,881,546 $(163,049,786) $ 59,845,608 ========= ======= ======= ============ ============= ===============
See accompanying notes to consolidated financial statements. 42 Young Broadcasting Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31, 1995 1996 1997 ----------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ (6,591,257) $ 905,299 $ (10,349,396) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 13,640,551 16,832,919 19,522,619 Amortization of program license rights 6,418,181 11,033,812 38,279,226 Amortization of broadcasting licenses, other intangibles and deferred charges 10,931,837 14,112,703 27,417,973 Non-cash compensation paid in Common Stock 1,166,651 848,469 967,112 Non-cash interest expense on outstanding indebtedness 420,712 357,147 275,588 Loss on disposal of fixed assets - 106,601 467,920 Extraordinary loss on extinguishment of debt 9,125,000 - 9,243,128 Deferred acquisition and debt refinancing costs incurred (3,437,500) (13,125,000) (1,760,000) Payments on programming license liabilities (6,747,028) (10,384,982) (38,609,618) (Increase) decrease in trade accounts receivable (3,111,102) (4,367,243) 480,554 Increase in prepaid expenses (197,842) (703,641) (143,678) (Decrease) increase in trade accounts payable (713,168) 6,067,699 (5,133,300) Increase in accrued expenses 1,326,436 3,023,127 366,933 ----------------------------------------------- Net cash provided by operating activities 22,231,471 24,706,910 41,025,061 ----------------------------------------------- INVESTING ACTIVITIES Purchase of KCAL-TV - (387,508,018) - Purchase of KWQC-TV - (57,173,000) - Purchase of KELO-TV - (48,281,308) - Capital expenditures (4,484,478) (4,991,766) (9,033,690) (Increase) decrease in deposits and other assets (1,315,839) 1,113,231 (214,498) Increase in broadcast licenses and other intangibles - - (2,508,374) ----------------------------------------------- Net cash used in investing activities (5,800,317) (496,840,861) (11,756,562) ----------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt - 305,000,000 - Proceeds from issuance of public subordinated debt 125,000,000 125,000,000 200,000,000 Borrowings from working capital facility 17,000,000 25,400,000 - Principal payments on long-term debt (149,235,202) (79,164,798) (220,740,000) Deferred acquisition and debt refinancing costs incurred (3,694,868) (4,872,776) (1,206,520) Net proceeds from issuance of Class A Common Stock - 161,778,015 - Repurchase of Class A and Class C Common Stock (8,186,745) (57,692,555) (12,338,480) Proceeds from exercise of options 50,000 313,511 454,249 Principal payments under capital lease obligations (243,108) (48,335) (790,064) ----------------------------------------------- Net cash (used in) provided by financing activities (19,309,923) 475,713,062 (34,620,815) ----------------------------------------------- Net (decrease) increase in cash (2,878,769) 3,579,111 (5,352,316) Cash and cash equivalents at beginning of year 6,304,402 3,425,633 7,004,744 ----------------------------------------------- Cash and cash equivalents at end of year $ 3,425,633 $ 7,004,744 $ 1,652,428 =============================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 29,199,781 $ 35,980,944 $ 63,930,212
See accompanying notes to consolidated financial statements. 43 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. OPERATIONS OF THE COMPANY The business operations of Young Broadcasting Inc. and subsidiaries (the "Company") consist of eleven network affiliated (four with CBS, six with ABC, and one with NBC), and one independent commercial television broadcasting stations in the states of Michigan, Wisconsin, Louisiana, Illinois, Tennessee, New York, Virginia, Iowa, South Dakota and California. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of Young Broadcasting Inc., its wholly-owned subsidiaries and three limited partnerships. Significant intercompany accounts and transactions have been eliminated in consolidation. CONCENTRATION OF CREDIT RISK The Company provides advertising air time to national, regional and local advertisers within the geographic areas in which the Company operates. Credit is extended based on an evaluation of the customer's financial condition, and advance payment is not generally required. Credit losses are provided for in the financial statements and have consistently been within management's expectations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The principal areas of judgment relate to the allowance for doubtful accounts and the realizability of program license rights. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. PROGRAM LICENSE RIGHTS Program license rights are stated at cost, less accumulated amortization. Program license rights acquired as part of a station acquisition are recorded at their appraised value. Program rights with lives greater than one year, and when the Company has the right to multiple showings, are amortized using an accelerated method. Program rights expected to be amortized in the succeeding year and amounts payable within one year are classified as current assets and liabilities, respectively. Program rights with lives of one year or less are amortized on a straight-line basis. PROPERTY AND EQUIPMENT Property and equipment are stated on the basis of cost, less accumulated depreciation. Equipment under capital leases is stated at the present value of the future minimum lease payments at the inception of the lease, less accumulated depreciation. Major renewals and improvements are charged to the property and equipment accounts. Maintenance and repairs which do not improve or extend the lives of the respective assets are expensed currently. Depreciation and amortization of property and equipment are calculated on the straight-line basis over the estimated useful lives of the assets. Equipment held under capital leases is generally amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives of depreciable assets are as follows: 44 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) ESTIMATED CLASSIFICATION USEFUL LIVES ------------------------------------------------------------------- Land improvements 5-19 years Buildings and building improvements 5-40 years Broadcast equipment 3-10 years Office furniture, fixtures and other equipment 5-8 years Vehicles 3-5 years Property and equipment at December 31, 1996 and 1997 consist of the following: 1996 1997 ------------------------- (in thousands) Land and land improvements $ 6,169 $ 8,097 Buildings and building improvements 34,406 37,195 Broadcast equipment 174,108 152,096 Office furniture, fixtures and other equipment 8,175 10,174 Vehicles 3,942 3,920 ------------------------- $226,800 $211,482 ======================== BROADCASTING LICENSES AND OTHER INTANGIBLES Intangible assets, which include broadcasting licenses, network affiliation agreements, and other intangibles are carried on the basis of cost, less accumulated amortization. Cost is based upon appraisals. Intangible assets are amortized over varying periods, not exceeding 40 years. It is the Company's policy to account for broadcasting licenses and other intangibles at the lower of amortized cost or estimated realizable value. As part of an ongoing review of the valuation and amortization of broadcasting licenses and other intangibles of the Company and its subsidiaries, management assesses the carrying value of the broadcasting licenses and other intangibles if facts and circumstances suggest that there may be impairment. If this review indicates that the broadcasting licenses and other intangibles will not be recoverable as determined by a non- discounted cash flow analysis of the operating assets over the remaining amortization period, the carrying value of the broadcasting licenses and other intangibles would be reduced to estimated realizable value. DEFERRED CHARGES Deferred charges incurred during 1995 consisted primarily of debt issuance costs incurred in connection with the Company's 10 1/8% Senior Subordinated Notes issued on June 12, 1995 (see Note 7), concurrent with an amendment to its Senior Credit Facility (see Note 6). As a result of the amendment, approximately $9.1 million of net deferred charges incurred prior to 1995 were expensed in 1995 and included as part of the extraordinary item in the accompanying statements of operations (see Note 5). Deferred charges incurred during 1996 consisted primarily of debt issuance costs incurred in connection with the Company's 9% Senior Subordinated Notes issued on January 16, 1996 (see Note 7) and an amendment to and restatement of its Senior Credit Facility on November 15, 1996 (see Note 6). Deferred charges incurred during 1997 consisted primarily of debt issuance costs incurred in connection with the Company's 8 3/4% Senior Subordinated Notes issued on June 23, 1997 (see Note 7), and an amendment to its Senior Credit Facility (see Note 6). As a result of the amendment, approximately $9.2 million of net deferred charges incurred in 1996 were expensed in 1997 and included as part of the extraordinary item in the accompanying statements of operations (see Note 5). 45 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) REVENUE The Company's primary source of revenue is the sale of television time to advertisers. Revenue is recorded when the advertisements are broadcast. BARTER ARRANGEMENTS The Company, in the ordinary course of business, provides advertising air time to certain customers in exchange for products or services. Barter transactions are recorded on the basis of the estimated fair market value of the products or services received. Revenue is recognized as the related advertising is broadcast and expenses are recognized when the merchandise or services are consumed or utilized. Barter revenue transactions related to the purchase of equipment amounted to approximately $22,000, $36,000 and $681,000 in 1995, 1996, and 1997, respectively, and are depreciated in accordance with Company policy as stated above. The Company has entered into barter agreements with program syndicators for television programs with an estimated fair market value, recorded as assets and liabilities at December 31, 1996 and 1997, of $5.0 million and $5.7 million, respectively. INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return and separate state tax returns. In addition, partnership returns are filed for its three limited partnerships. Since the partners are all participants in the consolidation, all partnership income or losses are ultimately included in the consolidated federal income tax return. The future utilization of a significant portion of the Company's net operating losses for federal income tax purposes is subject to an annual limitation (see Note 9). EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, Earnings Per Share ("Statement 128"). Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. RECLASSIFICATION OF ACCOUNTS Certain prior year amounts have been reclassified to conform to current year's presentation. 3. ACQUISITION OF STATIONS On April 15, 1996, the Company acquired from Broad Street Television, L.P. the assets of KWQC-TV ("KWQC"), Channel 6, in Davenport, Iowa, for approximately $55 million plus outstanding receivables of the station. The acquisition was accounted for as a purchase. Based on the Company's allocation of the purchase price, intangible assets amounted to $44.3 million and are being amortized over their estimated lives which do not exceed 40 years. The KWQC acquisition was financed with approximately $56.2 million of net proceeds from the January 1996 $125 million 9% Senior Subordinated Notes Offering ("the January 1996 Notes") due 2006 (see Note 7). The operating results of KWQC are included in the Company's consolidated results of operations from the date of acquisition. On May 31, 1996, the Company acquired from Midcontinent Television of South Dakota, a wholly owned subsidiary of Midcontinent Media, Inc., the assets of KELO-TV ("KELO"), Channel 11, in Sioux Falls, South Dakota and its satellite stations for $50 million plus outstanding receivables of the stations. This acquisition was accounted for as a purchase. Based on the Company's allocation of the purchase price, intangible assets amounted to $25.0 million and are being amortized over their estimated lives which do not exceed 40 years. The KELO acquisition was financed with approximately $15.7 million of net proceeds from the January 1996 Notes, $25.4 million under the Senior Credit Facility, a $3.0 million promissory note and the remaining balance from cash 46 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) balances of the Company. The operating results of KELO are included in the Company's consolidated results of operations from the date of acquisition. On November 23, 1996, the Company acquired from a subsidiary of the Walt Disney Company the assets of KCAL-TV ("KCAL"), Channel 9, in Los Angeles, California, for $368 million plus working capital of approximately $19.5 million of the station. The acquisition was accounted for as a purchase. Based on the Company's final allocation of the purchase price, intangible assets amounted to approximately $328.5 million and are being amortized over their estimated lives which do not exceed 40 years. The final allocation resulted in an increase to intangibles and a similar decrease to property and equipment amounting to $21.8 million from amounts previously reported. The KCAL acquisition was financed with approximately $305.0 million under the Senior Credit Facility (see Note 6) and the remaining from an equity offering in 1996 (see Note 8). The operating results of KCAL are included in the Company's consolidated results of operations from the date of acquisition. The following unaudited pro forma information gives effect to the acquisitions of KWQC, KELO and KCAL (including expense reductions) as if they had been effected on January 1, 1996. The pro forma information for the year ended December 31, 1996 does not purport to represent what the Company's results of operations would have been if such transactions had been effected at such dates and do not purport to project results of operations of the Company in any future period. Year Ended December 31, --------------------------- (unaudited) 1996(1) 1997(3) ------- ---------- (dollars in thousands) Net operating revenue (2) $261,542 $263,535 Operating income 68,255 63,490 Income before extraordinary item 3,512 (1,106) Net income (loss) 3,512 (10,349) Net income (loss) per common share: Basic $0.31 $(0.74) Diluted $0.30 $(0.74) (1) Pro forma adjustments to net revenues include additional annualized network compensation payable to the Company under the KELO affiliation agreement and a programming change at KWQC in the aggregate amount of $179,000, for the year ended December 31, 1996. Pro forma adjustments to net revenues also include a decrease of $803,000, for the year ended December 31, 1996, relating to seven sitcoms not being purchased in connection with the KCAL acquisition. Pro forma adjustments include expense reductions relating to the KWQC, KELO and KCAL acquisitions of approximately $22.8 million, for the year ended December 31, 1996. (2) Net operating revenue is total revenue net of agency and national representation commissions. (3) Actual results of operations for the year ended December 31, 1997. 4. PROGRAM LICENSE RIGHTS AND LIABILITY The Company entered into agreements for program license rights which became available in 1996 and 1997 of approximately $7.4 million and $38.1 million, respectively. The unpaid program license liability, which is reflected in the December 31, 1997 balance sheet, is payable during each of the years subsequent to 1997 as follows: 1998, $18.0 million; 1999, $814,000; 2000, $101,000; 2001, $47,000; 2002, $41,000 and thereafter $50,000. 47 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) The obligation for programming that has been contracted for but not recorded in the accompanying balance sheets because the program rights were not currently available for airing aggregated approximately $12.8 million and $40.9 million at December 31, 1996 and 1997, respectively. 5. REFINANCING AND EXTRAORDINARY ITEMS Deferred financing costs, arising from the financing plan implemented in 1994, with a net carrying value of $9.1 million were charged to 1995 earnings as an extraordinary item in connection with the Company's completion of an amendment and restatement of its Senior Credit Facility on June 12, 1995. Deferred financing costs arising from an amendment to its Senior Credit Facility in 1996 (see Note 6), with a net carrying value of $9.2 million were charged to 1997 earnings as an extraordinary item in connection with the Company's completion of an amendment and restatement of its Senior Credit Facility. 6. LONG-TERM DEBT Long-term debt (excluding Senior Subordinated Notes) at December 31, 1996 and 1997 consisted of the following:
1996 1997 ------------------------------------- (dollars in thousands) Senior Credit Facility $302,000 $82,260 Nationwide Seller Note 2,449 1,725 Midcontinent Seller Note 3,000 3,000 ------------------------------------- Total long-term debt 307,449 86,985 Less: Scheduled current maturities 908 908 Midcontinent Seller Note - 3,000 Additional payments of excess cash required 11,005 - ------------------------------------- Long-term debt excluding all current installments $295,536 $83,077 =====================================
On November 25, 1997, the Company amended and restated its Senior Credit Facility ("Senior Credit Facility"). The amendment provides for borrowings of up to an aggregate amount of $300.0 million consisting of a five year revolving facility ("Revolver"). At December 31, 1997, the Company had outstanding borrowings of $82.3 million under the Revolver, which approximates its fair value as its interest rate floats with market conditions. The Company pays an annual commitment fee of 0.375% of the unused commitment. The Senior Credit Facility provides, at the option of the Company, that borrowed funds bear interest based upon the bank's base rate, London Interbank Offered Rate (LIBOR), the customary "CD Rate" or "Base Rate." In addition to the index rate, the Company pays a floating percentage on borrowings under the Revolver tied to the interest rate option and the Company's ratio of total debt to operating cash flow, ranging from 0.75% based upon a ratio under 4:1 to 2.00% based upon a 6:1 or greater ratio. For the year ended December 31, 1997, this floating percentage was 1.75%. At December 31, 1997, the effective interest rate for amounts outstanding under the Senior Credit Facility was 7.95%. The Senior Credit Facility contains, among other things, limitations on dividends and investments, and requires the Company to maintain certain financial ratios. At December 31, 1997, the Company was in compliance with all such covenants. The Senior Credit Facility is secured by a pledge of all the stock of the Company's subsidiaries and a first priority lien on substantially all of the assets of the Company. Each of the Company's subsidiaries guarantee the obligations under the Senior Credit Facility. The Company had an outstanding swap agreement in 1995 and 1996 with a commercial bank who was also a lender under the Senior Credit Facility. The net interest rate differential paid or received was recognized as an adjustment 48 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) to interest expense and amounted to approximately $1.0 million and $315,000 in additional interest expense for the years ended December 31, 1995, and 1996, respectively. At December 31, 1997, the Company did not hold any derivative instruments. The Midcontinent Seller Note bears interest at 8.25%, payable quarterly and matures in full on May 31, 1998. The aggregate fixed maturities, including accreted non-cash interest, under the Nationwide Seller Note for each year subsequent to December 31, 1997 are as follows: 1998, $1.0 million, and $1.0 million in 1999. 7. SENIOR SUBORDINATED NOTES Senior Subordinated Notes at December 31, 1996 and 1997 consisted of the following: 1996 1997 -------------------------------- (in thousands) 11.75% Senior Subordinated Notes $120,000 $120,000 10.125% Senior Subordinated Notes 125,000 125,000 9% Senior Subordinated Notes 125,000 125,000 8.75% Senior Subordinated Notes - 200,000 -------------------------------- $370,000 $570,000 ================================ On November 14, 1994, the Company issued 11 3/4% Senior Subordinated Notes due 2004 with an aggregate principal amount of $120.0 million (the "November 1994 Notes"). Interest on the November 1994 Notes is payable semi-annually on May 15 and November 15. The November 1994 Notes are redeemable, in whole or in part, at the option of the Company on or after November 15, 1999, at the redemption prices set forth in the Senior Subordinated Note Indenture ("Indenture") pursuant to which the November 1994 Notes were issued plus accrued interest to the date of redemption. On June 12, 1995, the Company issued 10 1/8% Senior Subordinated Notes due 2005 with an aggregate principal amount of $125.0 million (the "June 1995 Notes"). Interest on the June 1995 Notes is payable semi-annually on February 15 and August 15. 1995. The June 1995 Notes are redeemable, in whole or in part, at the option of the Company on or after February 15, 2000, at the redemption prices set forth in the Indenture pursuant to which the June 1995 Notes were issued plus accrued interest to the date of redemption. On January 16, 1996, the Company issued 9% Senior Subordinated Notes due 2006 with an aggregate principal amount of $125.0 million (the "January 1996 Notes"). Interest on the January 1996 Notes is payable semi-annually on January 15 and July 15. The January 1996 Notes are redeemable, in whole or in part, at the option of the Company on or after January 15, 2001, at the redemption prices set forth in the Indenture, pursuant to which the January 1996 Notes were issued, plus accrued interest to the date of redemption. In addition, at anytime before January 15, 1999, the Company, at its option, may redeem up to $42 million of the January 1996 Notes, with the net proceeds of one or more public equity offerings, at a redemption price equal to 109% of the principal amount thereof, plus accrued interest to the date of redemption. On June 23, 1997, the Company issued 8 3/4% Senior subordinated Notes due 2007 with an aggregate principal amount of $200.0 million (the "June 1997 Notes"). Interest on the June 1997 Notes is payable semi-annually on June 15 and December 15, commencing December 15, 1997. The June 1997 Notes are redeemable, in whole or in part, at the option of the Company on or after June 15, 2002, at the redemption prices set forth in the Indenture, pursuant to which the June 1997 Notes were issued, plus accrued interest to the date of redemption. In addition, at anytime before June 15, 2000, the Company, at its option, may redeem up to $67 million of the June 1997 Notes, with the net proceeds of one or more public equity offerings, at a redemption price equal to 108 3/4% of the principal amount thereof, plus accrued interest to the date of redemption. The Company's November 1994 Notes, June 1995 Notes, January 1996 Notes, and June 1997 Notes (collectively the "Notes") are general unsecured obligations of the Company and subordinated in right of payment to all senior 49 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) debt, including all indebtedness of the Company under the Senior Credit Facility. The Notes are guaranteed, jointly and severally, on a senior subordinated unsecured basis by all of the Company's subsidiaries. Upon a change of control, each holder of the Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of their principal amount plus accrued interest to the date of repurchase. In addition, the Company will be obligated to offer to repurchase Notes at 100% of their principal amount plus accrued interest to the date of repurchase in the event of certain asset sales. At December 31, 1997, the November 1994 Notes, June 1995 Notes, January 1996 Notes, and the June 1997 Notes were trading in the public market with ask prices of 111.3, 104.5, 100.0 and 99.0, respectively. 8. STOCKHOLDERS' EQUITY Common Stock ------------ The Company's stockholders' equity consists of three classes of common stock designated Class A, Class B and Class C which are substantially identical except for voting rights. The holders of Class A Common Stock are entitled to one vote per share. Holders of Class B Common Stock are entitled to ten votes per share. Holders of Class C Common Stock are not entitled to vote. Holders of all classes of Common Stock entitled to vote will vote together as a single class. Holders of Class C Common Stock may at any time convert their shares into the same number of shares of Class A Common Stock. At December 31, 1997, there were no holders of Class C Common Stock outstanding. Ownership of Class B Common Stock is restricted to members of management and by, or in trust for family members of management ("Management Group"). In the event any shares of Class B Common Stock held by a member of the Management Group are transferred outside of the Management Group, such shares will automatically be converted into shares of Class A Common Stock. In addition, if the total number of shares of Common Stock held by members of the Management Group falls below 10% of the total number of shares of Common Stock outstanding, all of the outstanding shares of Class B Common Stock automatically will be reclassified as Class A Common Stock. In any merger, consolidation or business combination, the consideration to be received per share by holders of Class A and Class C Common Stock must be identical to that received by holders of Class B Common Stock. On October 4, 1996, the Company completed an additional public offering of its Class A Common Stock, (the "Offering"). The Offering included 5,250,000 shares sold by the Company and 2,111,398 shares sold by selling stockholders of the Company. The net proceeds to the Company of $162.9 million were used to pay down $20.0 million under the Senior Credit Facility, repurchase the stock and warrants held by Capital Cities/ABC, Inc. for $54.8 million (see stock repurchases below), and $1.1 million of other related expenses. The Company used the remaining net proceeds, approximately $87.0 million, to partially finance the KCAL-TV acquisition. The terms of the Senior Credit Facility and the Indentures relating to the Company's outstanding Senior Subordinated Notes (the "Indentures") restrict the Company's ability to pay cash dividends on its Common Stock. Under the Indentures, the Company is not permitted to pay any dividends on its Common Stock unless at the time of, and immediately after giving effect to the dividend, no default would result under the Indentures and the Company would continue to have the ability to incur indebtedness. In addition, under the Indentures, dividends may not exceed an amount equal to the Company's cash flow less a multiple of the Company's interest expense, plus the net proceeds of the sale by the Company of additional capital stock. The Company regularly contributed Class A Common Stock into its defined contribution plan (see Note 10) for the years ended 1995, 1996, and 1997. 50 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) STOCK OPTION PLANS - ------------------ On May 22, 1995, the Company adopted the Young Broadcasting Inc. 1995 Stock Option Plan ("1995 Stock Option Plan"). The 1995 Stock Option Plan was adopted to provide incentives for independent directors, officers and employees. It may be administered by either the entire Board of Directors of the Company or a committee consisting of two or more members of the Board, each of whom is a disinterested person. The Board of Directors or committee, as the case may be, is to determine, among other things, the recipients of grants, whether a grant will consist of incentive stock options ("ISOs"), non-qualified stock options or stock appreciation rights ("SARs") (in tandem with an option or free-standing) or a combination thereof, and the number of shares to be subject to such options. ISOs may be granted only to officers and key employees of the Company and its subsidiaries. Non-qualified stock options and SARs may be granted to such officers and employees as well as to agents and directors of and consultants to the Company, whether or not otherwise employees of the Company. The 1995 Stock Option Plan provides for the granting of ISOs to purchase the Company's Common Stock at not less than the fair market value on the date of the option grant and the granting of non-qualified options and SARs with any exercise price. SARs granted in tandem with an option have the same exercise price as the related option. The total number of shares with respect to which options and SARs may be granted under the 1995 Stock Option Plan is currently 1,461,126. As of December 31, 1997, non-qualified and incentive stock options for an aggregate of 1,351,635 shares at various prices from $19.75 to $39.88 have been granted to various individuals, including various executive officers. Operating results for 1995 were charged $366,094 in connection with the non- qualified options. The 1995 Stock Option Plan contains certain limitations applicable only to ISOs granted thereunder. To the extent that the aggregate fair market value, as of the date of grant, of the shares to which ISOs become exercisable for the first time by an optionee during the calendar year exceed $100,000, the option will be treated as a non-qualified option. In addition, if an optionee owns more than 10% of the total voting power of all classes of the Company's stock at the time the individual is granted an ISO, the option price per share cannot be less than 110% of the fair market value per share and the term of the ISO cannot exceed five years. No option or SAR may be granted under the Stock Option Plan after February 5, 2005, and no option may be outstanding for more than ten years after its grant. The Company established a Directors Option Plan for its non-employee directors as part of their compensation. Under this plan, each of the current directors received an option to acquire 1,000 shares of Class A Common Stock on or before December 1, 1999 at a purchase price of $20.70 per share (such price being 120% of the closing price of the Company's stock on December 1, 1994, the initial grant date for these options). Those directors who are not also employees of the Company receive as an annual retainer five-year options, having a fair market value exercise price, to purchase 1,200 shares of Class A Common Stock, and also receive reimbursement of out-of-pocket expenses incurred for each Board or committee meeting attended. Non-employee directors also receive, upon becoming a director, a five-year option to purchase up to 1,000 shares of Class A Common Stock at an exercise price equal to 120% of the quoted price on the date of grant. No other directors are compensated for services as a director. Under the 1995 Stock Option Plan for the year ended December 31, 1997, independent directors, officers and employees were not granted options to purchase the Company's stock at less than the fair market value on the date of the option grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.123, (SFAS No. 123") "Accounting for Stock-Based Compensations." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plan been determined based on the fair market value at the grant date for awards in 1995, 1996, and 1997, consistent with the provisions of SFAS No. 123, the Company's net (loss) income and (loss) income per share would have been the pro forma amounts indicated below: 51 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
1995 1996 1997 ---- ---- --- (dollars in thousands) Net (loss) income - as reported $(6,591) $ 905 $(10,349) Net (loss) income - pro forma $(9,057) $(1,274) $(12,531) Net (loss) income per common share-as reported $ (0.61) $ 0.08 $ (0.74) Net (loss) income per common share-pro forma $ (0.82) $ (0.11) $ (0.90)
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The fair value for these options was estimated at the date of grant using the Black- Scholes model with the following assumptions: Expected dividend yield 0% Expected stock price volatility 25% Risk-free interest rate: 1995 7.45% 1996 5.92% 1997 5.60% Expected life of options 5 years The weighted average fair value of options granted during 1995, 1996, and 1997 was $6.98, $10.41, and $11.58 respectively. Changes during 1995, 1996 and 1997 in stock options are summarized as follows:
Stock Options Weighted Average Outstanding Exercise Price ----------- -------------- Outstanding at December 31, 1994 - $ - Granted 668,825 19.80 --------- Outstanding at December 31, 1995 668,825 19.80 Granted 475,400 30.67 Exercised (15,874) 19.75 Forfeited (12,563) 19.75 --------- Outstanding at December 31, 1996 1,115,788 $ 24.45 Granted 245,057 36.16 Granted 13,790 39.88 Exercised (23,000) 19.81 --------- Outstanding at December 31, 1997 1,351,635 $ 26.81 =========
Options for 93,137 shares, 446,937 shares, and 775,563 shares were exercisable at December 31, 1995, 1996, and 1997, respectively. 52 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Options Outstanding Options Exercisable --------------------------------------------------------- -------------------------------------- Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average Range of December 31, Contractual Exercise December 31, Exercise Exercise Prices 1997 Life Price 1997 Price --------------- ---- ---- ----- ---- ----- $19.75-$21.73 614,188 8.0 19.80 614,188 19.80 $28.00-$31.75 478,600 9.0 30.63 126,850 30.59 $34.00-$36.25 245,057 10.0 36.20 33,146 35.91 $39.875 13,790 10.0 39.88 1,379 39.88 --------------- ---------- ----------- -------------- --------------- 1,351,635 9.09 26.81 775,563 22.29 =============== ========== =========== ============== ===============
At December 31, 1997, the Company has reserved 19,200 shares of its Class A Common Stock and 1,332,435 shares of Class B Common Stock in connection with stock options. STOCK REPURCHASES - ----------------- On December 15, 1995, the Company reached an agreement with J.P. Morgan Capital Corporation to repurchase 138,008 shares and 285,251 shares of the Company's Class A and C Common Stock, respectively for approximately $11.1 million. On December 31, 1995, the Company repurchased 26,625 shares of Class A and 285,251 shares of Class C Common Stock for an aggregate price of $8.2 million. The remaining 111,383 shares of Class A Common Stock were repurchased on January 3, 1996 for an aggregate purchase price of $2.9 million. The Company repurchased 1.5 million shares of the Company's Class C Common Stock (the "ABC Stock") and warrants to purchase 750,000 shares of such Class C Common Stock (the "ABC Warrants") from Capital Cities/ABC, Inc., a wholly owned subsidiary of Disney, concurrently with the closing of the Offering. The Company repurchased the ABC Stock at a per share price equal to the difference between the public offering price per share ($32.50) of the Class A Common Stock, less the underwriting discount per share. The Company repurchased the ABC Warrants at a per share price equal to the difference between the public offering price per share of the Class A Common Stock and the per share exercise price of the ABC Warrants ($22.80), plus $2, less one-half of the underwriting discount per share. During April and May of 1997, the Company repurchased 459,000 shares of its Class A Common Stock in open-market purchases pursuant to a stock repurchase program for an aggregate price of approximately $12.3 million. The Company is authorized, subject to certain limitations, to effect up to an aggregate of $20.0 million of such purchases. 9. INCOME TAXES At December 31, 1997, the Company had net operating loss ("NOL") carryforwards for tax purposes of approximately $185.0 million expiring at various dates through 2012. The availability of NOL carryforwards to offset future income is subject to annual limitations imposed by Internal Revenue Code Section 382 as a result of successive ownership changes. These limitations are summarized as follows: Annual Limitation NOL Carryforwards or Usage ----------------- -------- $129 million $8.9 million 51 million $20.9 million 5 million No limit ------------ $185 million ============ 53 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) The amount of NOL carryforwards available to offset income in 1998 is approximately $25.9 million based upon carryforwards of annual limitations and NOLs with no limitations To the extent that an annual NOL limitation is not used, it carries and accumulates forward to future years. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1996 and 1997 are as follows:
1996 1997 ----------------------------------------- Deferred tax assets: Accounts Receivable $ 884,000 $ 744,000 Other 221,591 58,392 NOL Carryforwards 59,295,496 73,852,347 Less: Valuation allowance (60,123,499) (51,660,603) ----------------------------------------- Total deferred tax assets $ 277,588 $ 22,994,136 ----------------------------------------- Deferred tax liabilities: Fixed Assets $ 410,113 $ 3,727,957 Intangibles 71,268,168 90,666,871 Other 49,580 49,580 ----------------------------------------- Total deferred tax liabilities 71,727,861 94,444,409 ----------------------------------------- Net deferred tax liabilities $(71,450,273) $(71,450,273) =========================================
Based upon the standards set forth in Statement No. 109, the benefit of $51.6 million for the above deferred tax asset has been offset by a valuation allowance. 10. EMPLOYEE BENEFIT PLANS The Company sponsors defined contribution plans ("Plan") which provide retirement benefits for all eligible employees. Adam Young Inc. employees also participate in this Plan (see Note 12). The Plan participants may make pretax contributions from their salaries up to the maximum allowed by the Internal Revenue Code. For the year ended December 31, 1995, the Company accrued a non-matching contribution (27,685 shares of Class A Common Stock) equal to 3% of eligible employee compensation amounting to $729,000. The Company effected such contributions by issuing the shares on January 5, 1996. For the year ended December 31, 1996, the Company accrued a non-matching contribution (28,481 shares of Class A Common Stock) equal to 3% of eligible employee compensation amounting to approximately $833,000. The Company effected such contributions by issuing the shares on January 10, 1997. On January 1, 1997, the Company adopted and established a matching stock plan ("Matching Plan"). According to the Matching Plan, the Company will contribute one-half of every dollar a participant contributes, up to the first 3% of the participant's pay. For the year ended December 31, 1997, the Company paid and accrued a matching stock contribution (30,817 shares of Class A Common Stock) equal to 3% of eligible employee compensation amounting to $967,000. The Company effected such contributions by issuing the shares on a quarterly basis. The fourth quarter of 1997 was issued on January 16, 1998. 11. COMMITMENTS AND CONTINGENCIES The Company is obligated under various capital leases for certain broadcast equipment, office furniture, fixtures and other equipment that expire at various dates during the next three years. At December 31, 1996 and 1997, the net amount of property and equipment recorded under capital leases was $1,488,000 and $1,259,000 respectively. 54 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) Amortization of assets held under capital leases is included with depreciation and amortization of property and equipment. The Company also has certain non-cancelable operating leases, primarily for administrative offices, broadcast equipment and vehicles that expire over the next five years. These leases generally contain renewal options for periods up to five years and require the Company to pay all costs such as maintenance and insurance. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and the present value of future minimum capital lease payments as of December 31, 1997 are as follows:
CAPITAL LEASES OPERATING LEASES ---------------------------------------- (dollars in thousands) Year ending December 31: 1998 $471 $ 1,776 1999 216 761 2000 - 688 2001 - 648 2002 - 429 Thereafter - 39 ---------------------------------------- Total minimum lease payments $ 687 $4,341 ========================================
See Note 12 regarding sublease income from a related party. 12. RELATED PARTY TRANSACTIONS The Company has entered into agreements with Adam Young Inc. (a company owned by certain stockholders of the Company) whereby Adam Young Inc. will provide national sales representation for the Company's television stations. In return, Adam Young Inc. is paid a commission which approximated $3.8 million, $3.9 million, and $5.3 million, for the years ended 1995, 1996, and 1997, respectively. The Company believes that the commissions they pay Adam Young Inc. are equal to rates that they would have paid to other third party national sales representatives (See Note 14). At December 31, 1996 and 1997, the Company had accrued commissions payable of $718,000 and $494,000, respectively, to Adam Young Inc. During 1990, the Company began subleasing to Adam Young Inc. certain office space together with furnishings and equipment under an agreement which expires in the year 2000. The lease is accounted for under the operating method. The Company pays real estate taxes and maintenance while insurance is paid for by Adam Young Inc. The cost of the leasehold improvements, furnishings, and equipment subject to the sublease approximated $1.2 million, and related accumulated depreciation and amortization approximated $979,000 and $1.0 million, at December 31, 1996 and 1997, respectively. The rent charged to Adam Young Inc. exceeds the Company's cost of such facilities and improvements. The Company received lease income payments in connection with the aforementioned sublease arrangement of $537,000, $554,000 and $619,000, during 1995, 1996 and 1997, respectively. The approximate minimum noncancelable lease payments to be received for each of the years subsequent to December 31, 1997 if the Company does not recapture any of the subleased space and improvements as permitted under the sublease are as follows: 1998, $632,000; 1999, $632,000; 2000, $448,000; 2001 $78,000 and 2002, $39,000. During 1994 and 1995, the Company made loans to certain executive officers and other employees of the Company to satisfy the federal tax withholding requirements related to non-cash compensation paid in the form of shares of 55 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) the Company's Class B Common Stock. Such shares include shares issued pursuant to the Program in August 1994 and November 1994 and shares issued in March 1994 as part of the compensation under employment arrangements (see Note 8). The aggregate amount of such loans outstanding, including accrued interest at December 31, 1997 was approximately $1.2 million. The principal amount of the loans will bear interest, payable annually, at the rate of 7.21%. The loans are secured by each employee's shares of common stock and the principal is payable in five equal annual installments between 1995 and 1999. On November 8, 1995, the Board of Directors approved a loan forgiveness program (the "Loan Forgiveness Program") for the payment that was due on November 15, 1995 and the payments due in subsequent years. Under this program, participants that chose to participate will have their annual installments forgiven over the year following the scheduled payment date at the rate of one twelfth per month, as long as the employee continues to be employed by the Company. 13. QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes the Company's results of operations for each quarter of 1997 and 1996 (in thousands, except per share amounts). The (loss) income per common share computation for each quarter and the year are separate calculations. Accordingly, the sum of the quarterly (loss) income per common share amounts may not equal the (loss) income per common share for the year.
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (dollars in thousands, except per share amounts) 1997 Net revenues $61,279 $71,100 $57,939 $73,217 Operating income 10,038 21,136 9,991 22,325 Net (loss) income before extraordinary item (5,566) 5,212 (6,540) 5,788 Net (loss) income (5,566) 5,212 (6,540) (3,455) Net (loss) income per common share: Basic $ (0.39) $ 0.37 $ (0.47) $ (0.25) Diluted $ (0.39) $ 0.37 $ (0.47) $ (0.24) 1996 Net revenues $27,699 $36,060 $35,387 $55,197 Operating income 5,462 11,977 9,403 15,640 Net (loss) income before extraordinary item (3,338) 1,877 (1,043) 3,409 Net (loss) income (3,338) 1,877 (1,043) 3,409 Net (loss) income per common share: Basic $ (0.32) $ 0.18 $ (0.10) $ 0.24 Diluted $ (0.32) $ 0.17 $ (0.10) $ 0.24
Quarterly depreciation and amortization is provided based on estimates. The results of the fourth quarter of 1997 are net of a year-end adjustment for depreciation and amortization of $2.5 million. The results for the fourth quarter of 1997 include an extraordinary loss of approximately $9.2 million ($0.66 per share) related to the early extinguishment of debt (See Note 5). 14. SUBSEQUENT EVENT On February 5, 1998, the Company entered into an Agreement and Plan of Merger with Adam Young Inc. ("AYI") and AYI Acquisition Corporation, a wholly-owned subsidiary of the Company ("Sub"), pursuant to which AYI was merged with and into Sub and became a wholly-owned subsidiary of the Company. 56 Young Broadcasting Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) The acquisition of AYI has been accounted for as a combination of companies under common control similar to a pooling-of-interests. The Company issued 476,307 shares of the Company's Class A Common Stock, with an approximate value of $19.3 million, to Vincent Young, the Company's Chairman and to Adam Young, the Company's Treasurer and his wife in exchange for all of the outstanding stock of AYI. Historical information related to this acquisition was not included in the Company's historical results as the impact of this acquisition was not deemed to be material. 57 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YOUNG BROADCASTING INC.
Column A COLUMN B Column C Column D COLUMN E -------- -------- --------------------------------------- -------- -------- ADDITIONS --------------------------------------- BAL. AT BEGINNING CHARGED TO CHARGED TO BAL. AT END Description OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS (1) DEDUCTIONS (2) OF PERIOD ----------- --------- ------------------ ------------------ -------------- --------- Year ended December 31, 1995 Deducted from asset accounts: Allowance for doubtful accounts........... $ 665,000 751,000 - 631,000 $785,000 Year ended December 31, 1996 Deducted from asset accounts: Allowance for doubtful accounts........... $ 785,000 492,000 1,429,000 496,000 $2,210,000 Year ended December 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts............ $ 2,210,000 323,000 - 661,000 $1,872,000
_______ (1) Amount relates to Acquired Stations (2) Write-off of uncollectible accounts 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information called for by Item 10 is set forth under the heading "Executive Officers of the Registrant" in Part I hereof and in "Election of Directors" in the Company's Proxy Statement relating to the 1998 Annual Meeting of Stockholders (the "1998 Proxy Statement"), which is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION. Information called for by Item 11 is set forth under the heading "Executive Compensation" in the 1998 Proxy Statement, which is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information called for by Item 12 is set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" in the 1998 Proxy Statement, which is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by Item 13 is set forth under the heading "Election of Directors--Certain Transactions" in the 1998 Proxy Statement, which is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial statements and the schedule filed as a part of this report are listed on the "Index to Consolidated Financial Statements" at page 42 herein. All other schedules are omitted because either (i) they are not required under the instructions, (ii) they are inapplicable, or (iii) the information is included in the Consolidated Financial Statements. (b) The Company did not file any reports on Form 8-K during the fourth quarter of the year ended December 31, 1997. 59 EXHIBITS Exhibit Number Exhibit Description - ------ ------------------- 3.1(a) Restated Certificate of Incorporation of the Company* 3.1(b) Certificate of Amendment to Restated Certificate of Incorporation of the Company** 3.1(c) Certificate of Amendment to Restated Certificate of Incorporation of the Company*** 3.2 Second Amended and Restated By-laws of the Company* 3.3 Certificate of Incorporation of Young Broadcasting of La Crosse, Inc.* 3.4 By-laws of Young Broadcasting of La Crosse, Inc.* 3.5 Certificate of Incorporation of Young Broadcasting of Lansing, Inc.* 3.6 By-laws of Young Broadcasting of Lansing, Inc.* 3.7 Certificate of Incorporation of Young Broadcasting of Albany, Inc.* 3.8 By-laws of Young Broadcasting of Albany, Inc.* 3.9 Certificate of Incorporation of Winnebago Television Corporation* 3.10 By-laws of Winnebago Television Corporation* 3.11 Certificate of Incorporation of Young Broadcasting of Nashville, Inc.* 3.12 By-laws of Young Broadcasting of Nashville, Inc.* 3.13 Certificate of Incorporation of YBT, Inc.* 3.14 By-laws of YBT, Inc.* 3.15 Certificate of Limited Partnership of WKRN, L.P.* 3.16 Agreement of Limited Partnership of WKRN, L.P.* 3.17 Certificate of Incorporation of Young Broadcasting of Louisiana, Inc.* 3.18 By-laws of Young Broadcasting of Louisiana, Inc.* 3.19 Certificate of Incorporation of LAT, Inc.* 3.20 By-laws of LAT, Inc.* 3.21 Certificate of Limited Partnership of KLFY, L.P.* 3.22 Agreement of Limited Partnership of KLFY, L.P.* 3.23 Certificate of Incorporation of Young Broadcasting of Knoxville, Inc.* 3.24 By-laws of Young Broadcasting of Knoxville, Inc.* 3.25 Certificate of Incorporation of YBK, Inc.* 3.26 By-laws of YBK, Inc.* 3.27 Certificate of Limited Partnership of WATE, L.P.* 3.28 Agreement of Limited Partnership of WATE, L.P.* 3.29 Certificate of Incorporation of Young Broadcasting of Richmond, Inc.* 3.30 By-laws of Young Broadcasting of Richmond, Inc.* 3.31 Certificate of Incorporation of Young Broadcasting of Green Bay, Inc.* 3.32 By-laws of Young Broadcasting of Green Bay, Inc.* 3.33 Certificate of Incorporation of Young Broadcasting of Davenport, Inc.** 3.34 By-laws of Young Broadcasting of Davenport, Inc.** 3.35 Certificate of Incorporation of Young Broadcasting of Sioux Falls, Inc.**** 3.36 By-laws of Young Broadcasting of Sioux Falls, Inc.**** 3.37 Certificate of Incorporation of Young Broadcasting of Rapid City, Inc.**** 3.38 By-laws of Young Broadcasting of Rapid City, Inc.**** 3.39 Certificate of Incorporation of Young Broadcasting of Los Angeles, Inc.**** 3.40 By-laws of Young Broadcasting of Los Angeles, Inc.**** 3.41 Certificate of Incorporation of Fidelity Television, Inc.**** 3.42 By-laws of Fidelity Television, Inc.**** 60 9.1(a) Voting Trust Agreement, dated July 1, 1991, between Adam Young, and Vincent Young and Richard Young as trustees* 9.1(b) Amendment No. 1, dated as of July 22, 1994, to Voting Trust Agreement* 9.1(c) Amendment No. 2, dated as of April 12, 1995, to Voting Trust Agreement** 9.1(d) Amendment No. 3, dated as of July 5, 1995, to Voting Trust Agreement** 9.1(e) Amendment No. 4, dated as of September 11, 1996, to Voting Trust Agreement**** 9.1(f) Amendment No. 5, dated as of January 21, 1997, to Voting Trust Agreement**** 9.1(g) Voting Trust Agreement, dated October 1, 1996, between Adam Young, and Vincent Young as trustee **** 10.1 Subscription and Shareholders Agreement, dated May 26, 1988, between the Company and Ronald J. Kwasnick* 10.2(a) Employment Agreement, dated as of March 1, 1993, between the Company and James A. Morgan* 10.2(b) Amendment, dated as of March 27, 1995, effective as of February 15, 1995, to Employment Agreement, dated as of March 1, 1993, between the Company and James A. Morgan***** 10.3 Operating Agreement, dated December 29, 1989, between WKRN, L.P. and Young Broadcasting of Nashville, Inc.* 10.4 Operating Agreement, dated December 29, 1989, between KLFY, L.P. and Young Broadcasting of Louisiana, Inc.* 10.5 Operating Agreement between WATE, L.P. and Young Broadcasting of Knoxville, Inc.* 10.6 Agreement, dated July 1, 1991, between Adam Young Inc. and Young Broadcasting of Albany, Inc. (Agreement filed hereunder is representative of five other substantially similar agreements. See Schedule filed with this Exhibit)* 10.7 Affiliation Agreements, each dated October 10, 1994, between Young Broadcasting of Albany, Inc. and ABC (for WTEN and WCDC)* 10.8 Affiliation Agreement, dated October 10, 1994, between WKRN, L.P. and ABC* 10.9 Affiliation Agreement, dated September 19, 1994, between Young Broadcasting of La Crosse, Inc. and CBS* 10.10 Affiliation Agreement, dated September 19, 1994, between KLFY, L.P. and CBS* 10.11 Affiliation Agreement, dated May 17, 1995, between Winnebago Television Corporation and ABC** 10.12 Affiliation Agreement, dated September 19, 1994, between Young Broadcasting of Lansing, Inc. and CBS* 10.13 Affiliation Agreement, dated October 10, 1994, between Young Broadcasting of Richmond, Inc. and ABC* 10.14 Affiliation Agreement, dated October 10, 1994, between WATE, L.P. and ABC* 10.15 Affiliation Agreement, dated October 10, 1994, between Young Broadcasting of Green Bay, Inc. and ABC* 10.16 Affiliation Agreement, dated February 3, 1995, between Broad Street Television, L.P. and NBC** 10.17 Affiliation Agreement, dated April 3, 1996, between Young Broadcasting of Sioux Falls, Inc. and CBS (KELO); Affiliation Agreements (satellite), each dated April 3, 1996, between Young Broadcasting of Sioux Falls, Inc. and CBS (KPLO and KDLO); and Affiliation Agreement, dated April 3, 1996, between Young Broadcasting of Rapid City, Inc. and CBS (KCLO)****** 10.18(a)Lease, dated March 29, 1990, between Lexreal Associates, as Landlord, and the Company* 61 10.18(b) First Amendment to Lease, dated January 14, 1997**** 10.19(a) Master Equipment Lease Agreement, dated May 31, 1990, between First Chicago Leasing Corporation and Young Broadcasting of Albany, Inc.* 10.19(b) Lease Supplement No. 1, dated May 31, 1990* 10.19(c) Lease Supplement No. 2, dated August 24, 1990* 10.19(d) Guaranty of the Company* 10.20(a) Master Equipment Lease Agreement, dated May 31, 1990, between First Chicago Leasing Corporation and Young Broadcasting of Nashville, Inc.* 10.20(b) Supplement No. 1, dated May 31, 1990* 10.20(c) Supplement No. 2, dated August 24, 1990* 10.20(d) Guaranty of the Company* 10.21 Credit Agreement for the Senior Credit Facility 10.22 Asset Purchase and Sale Agreement, dated as of July 31, 1995, between the Company and Broad Street Television, L.P. (schedules omitted; Registrant agrees to furnish supplementally a copy of any schedule to the Commission upon request)** 10.23 Asset Purchase and Sale Agreement, dated as of January 11, 1996, between the Company and Midcontinent Television of South Dakota, Inc. (schedules omitted; Registrant agrees to furnish supplementally a copy of any schedule to the Commission upon request)******* 10.24 Acquisition Agreement, dated as of May 10, 1996, among the Company, KCAL Broadcasting, Inc., KCAL-TV, Inc. and Disney Enterprises, Inc. (schedules omitted; Registrant agrees to furnish supplementally a copy of any schedule to the Commission upon request)****** 10.25 Agreement and Plan to Merge, dated as of February 5, 1998, among the Company, AYI Acquisition Corporation, and Adam Young Inc. and its shareholders. 10.26 Subscription Agreement, dated October 10, 1994, between ABC and the Company with the form of Warrant to be issued to ABC and the form of Registration Rights Agreement attached thereto* 10.27 Indenture, dated November 14, 1994, among the Company, the Subsidiary Guarantors and The First National Bank of Boston, as Trustee, relating to the November 1994 Notes* 10.28 Indenture, dated June 1, 1995, among the Company, the Subsidiary Guarantors and The First National Bank of Boston, as Trustee, relating to the June 1995 Notes** 10.29 Indenture, dated January 1, 1996, among the Company, the Subsidiary Guarantors and State Street Bank and Trust Company, as Trustee, relating to the January 1996 Notes******* 10.30 Indenture, dated June 15, 1997, among the Company, the Subsidiary Guarantors and First Union National Bank, as Trustee, relating to the June 1997 Notes *** 10.31 Young Broadcasting Inc. 1995 Stock Option Plan***** 10.32 Purchase Agreement, dated June 6, 1995, among the Company, the Subsidiary Guarantors and BT Securities Corporation and J.P. Morgan Securities Inc.** 10.33 Registration Rights Agreement, dated as of June 12, 1995, among the Company, the Subsidiary Guarantors and BT Securities Corporation and J.P. Morgan Securities Inc.** 10.34 Purchase Agreement, dated January 6, 1996, among the Company, the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.******* 62 10.35 Registration Rights Agreement, dated as of June 12, 1995, among the Company, the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.******* 10.36 Purchase Agreement, dated June 16, 1997, among the Company, the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated*** 10.37 Registration Rights Agreement, dated June 23, 1997, among the Company, the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated*** 11.1 Statement re computation of per share earnings 18.1 Letter of Ernst & Young LLP regarding change in accounting principles* 21.1 Subsidiaries of the Company**** 23.1 Consent of Ernst & Young LLP, Independent Auditors 27.1 Financial Data Schedule - --------- * Filed as an Exhibit to the Company's Registration Statement on Form S-1, Registration No. 33-83336, under the Securities Act of 1933 and incorporated herein by reference. ** Filed as an Exhibit to the Company's Registration Statement on Form S-4, Registration No. 33-94192, under the Securities Act of 1933 and incorporated herein by reference. *** Filed as an Exhibit to the Company's Registration Statement on Form S-4, Registration No. 333-31429, under the Securities Act of 1933 and incorporated herein by reference. **** Filed as an Exhibit to the Company's Annual Report Form 10-K for the fiscal year ended December 31, 1996 under the Securities Exchange Act of 1934 and incorporated herein by reference. ***** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995 under the Securities Exchange Act of 1934 and incorporated herein by reference. ****** Filed as an Exhibit to the Company's Registration Statement on Form S-3, Registration No. 333-06241, under the Securities Act of 1933 and incorporated herein by reference. ******* Filed as an Exhibit to the Company's Registration Statement on Form S-4, Registration No. 333-2466, under the Securities Act of 1933 and incorporated herein by reference. 63 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. YOUNG BROADCASTING INC. Date: March 13, 1998 By /s/ Vincent J. Young ------------------------------- Vincent J. Young Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures TITLE DATE ---------- ----- ---- /s/ Vincent J. Young - -------------------- Vincent J. Young Chairman and Director March 13, 1998 (principal executive officer) /s/ Adam Young - -------------- Adam Young Treasurer and Director March 13, 1998 /s/ James A. Morgan - ------------------- James A. Morgan Executive Vice President and March 13, 1998 Chief Financial Officer (principal financial officer and principal accounting officer) /s/ Ronald J. Kwasnick - ---------------------- Ronald J. Kwasnick President and Director March 13, 1998 /s/ Bernard F. Curry - -------------------- Bernard F. Curry Director March 13, 1998 /s/ Alfred J. Hickey, Jr. - ------------------------- Alfred J. Hickey, Jr. Director March 13, 1998 /s/ Leif Lomo - ------------- Leif Lomo Director March 13, 1998 64 EX-10.21(A) 2 CREDIT AGREEMENT FOR THE SENIOR CREDIT FACILITY EXHIBIT 10.21 (a) 02. CONFORMED COPY $300,000,000 AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 25, 1997, among Young Broadcasting Inc., The Banks Listed Herein, Bankers Trust Company, as Administrative Agent and Issuing Bank, Canadian Imperial Bank of Commerce, as Documentation Agent, and Morgan Guaranty Trust Company of New York, as Syndication Agent Co-Arrangers: Bankers Trust Company Canadian Imperial Bank of Commerce J.P. Morgan Securities Inc. Managing Agent: First Union National Bank of North Carolina Co-Agents: Bank of America National Trust and Savings Association Bank of Tokyo - Mitsubishi Trust Company Fleet Bank, N.A. Heller Financial, Inc. Internationale Nederlanden (U.S.) Capital Corporation BankBoston, N.A.
TABLE OF CONTENTS ------------------------------ Page ---- ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms...............................................................................................2 SECTION 1.02. Computation of Time Periods........................................................................................32 SECTION 1.03. Accounting Terms...................................................................................................32 ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances.......................................................................................................33 (a) The Revolving Facility Advances....................................................................................33 (b) The Swingline Advances.............................................................................................33 (c) Refunding of Swingline Advances....................................................................................34 SECTION 2.02. Method of Borrowing................................................................................................35 SECTION 2.03. Notes..............................................................................................................37 SECTION 2.04. Assignment and Assumption of Obligations under Existing Credit Agreement; Recharacterization of Term Loan Advances Under Existing Credit Agreement and Increase in Revolving Facility Commitments..................................................................................................38 SECTION 2.05. Interest Rates.....................................................................................................41 SECTION 2.06. Fees...............................................................................................................43 (a) Commitment Fees....................................................................................................44 (b) Participation Fees.................................................................................................44 (c) Administrative Fees................................................................................................44 (d) Letter of Credit Fees..............................................................................................44 SECTION 2.07. Optional Termination or Reduction of Commitments...................................................................45 SECTION 2.08. Mandatory Termination of Commitments...............................................................................45 SECTION 2.09. Prepayments........................................................................................................45 (a) Optional Prepayments...............................................................................................45 (b) Mandatory Prepayments..............................................................................................45 (c) Notice of Prepayment...............................................................................................46 SECTION 2.10. Letters of Credit..................................................................................................47 SECTION 2.11. General Provisions as to Payments..................................................................................50 SECTION 2.12. Funding Losses.....................................................................................................51 SECTION 2.13. Computation of Interest and Fees...................................................................................51 SECTION 2.14. Taxes..............................................................................................................52 SECTION 2.15. Voluntary and Mandatory Conversion of Advances.....................................................................53 SECTION 2.16. Basis for Determining Interest Rate Inadequate or Unfair...........................................................54
PAGE SECTION 2.17. Illegality.........................................................................................................55 SECTION 2.18. Increased Cost and Reduced Return..................................................................................56 SECTION 2.19. Base Rate Advances Substituted for Affected Fixed Rate Advances...................................................................................................................57 SECTION 2.20. Use of Proceeds....................................................................................................58 ARTICLE 3 CONDITIONS PRECEDENT SECTION 3.01. Conditions Precedent to Closing Date...............................................................................58 SECTION 3.02. Conditions Precedent to Each Borrowing.............................................................................63 SECTION 3.03. Conditions Precedent to Borrowings in Connection with Permitted Acquisitions.....................................................................................................64 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower.....................................................................69 (a) Due Incorporation, Etc.............................................................................................69 (b) Due Authorization and Execution, Etc...............................................................................69 (c) Government Consents................................................................................................70 (d) Legal, Valid and Binding Nature....................................................................................70 (e) Capitalization and Subsidiaries....................................................................................71 (f) Financial Statements; No Material Adverse Change...................................................................71 (g) Solvency...........................................................................................................72 (h) Absence of Litigation; Litigation Description......................................................................72 (i) Ownership of Properties; Absence of Liens and Encumbrances.......................................................................................................72 (j) No Burdensome Agreements...........................................................................................73 (k) Payment of Taxes..........................................................................................73 (l) Accuracy of Information Given to Lenders...........................................................................74 (m) ERISA..............................................................................................................74 (n) List of Debt.......................................................................................................75 (o) Not a Purpose Credit...............................................................................................75 (p) Prohibited Securities Transactions.................................................................................75 (q) Investment Company Act.............................................................................................75 (r) Casualties.........................................................................................................75 (s) Executive Compensation Agreements..................................................................................75 (t) Collateral, Etc....................................................................................................76 (u) Consents...........................................................................................................76 (v) Security Agreements................................................................................................77 (w) Mortgages..........................................................................................................77 (x) Status Under Communications Act....................................................................................77
PAGE ---- (y) Compliance with Environmental Requirements; No Hazardous Materials................................................................................................77 (z) Compliance with Laws.........................................................................................79 (aa) Obligations are Senior Debt and Designated Senior Debt.............................................................79 ARTICLE 5 COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants..............................................................................................80 (a) Compliance with Laws, Etc..........................................................................................80 (b) Conduct of Business; Preservation of Corporate Existence..........................................................................................................80 (c) Visitation Rights..................................................................................................80 (d) Keeping of Books...................................................................................................81 (e) Maintenance of Insurance...........................................................................................81 (f) Payment of Taxes, Etc..............................................................................................81 (g) Maintenance of Properties, Etc.....................................................................................82 (h) Maintenance of FCC Licenses, Affiliation Agreements, Etc...........................................................82 (i) Arm's-Length Transactions..........................................................................................82 (j) Solvency...........................................................................................................83 (k) Plan Contribution..................................................................................................83 (l) Pro Forma Debt Service Coverage....................................................................................83 (m) Interest Coverage..................................................................................................83 (n) Senior Debt to Operating Cash Flow Ratio...........................................................................84 (o) Debt to Operating Cash Flow Ratio..................................................................................84 (p) Accuracy of Information Given to Lenders...........................................................................85 (q) Management.........................................................................................................85 (r) Further Assurances.................................................................................................85 (s) Management of Partnerships.........................................................................................85 (t) Hazardous Materials; Remediation...................................................................................86 (u) FCC Filings........................................................................................................86 SECTION 5.02. Negative Covenants.................................................................................................86 (a) Liens, Etc.........................................................................................................86 (b) Debt...............................................................................................................87 (c) Mergers............................................................................................................87 (d) Sales, Etc., of Assets.............................................................................................88 (e) Maintenance of Ownership of Subsidiaries; Issuance of Stock and Partnership Interests, Etc...............................................................................88 (f) Investments in Other Persons and Asset Purchases...................................................................88 (g) Restricted Payments................................................................................................89 (h) Prepayment of Debt.................................................................................................90 (i) Change in Business; Cease Broadcasting.............................................................................90 (j) Change of Accountants..............................................................................................90
PAGE ---- (k) Amendment of Charter or By-Laws....................................................................................91 (l) Termination of Licenses............................................................................................91 (m) Amendment, Etc. of Subordinated Debt Documents.....................................................................91 (n) Trade Debt.........................................................................................................91 (o) Employee Benefit Costs and Liabilities.............................................................................91 (p) Plan Amendments....................................................................................................92 (q) Limited Partners...................................................................................................92 (r) Limitation on Payment Restrictions Affecting Subsidiaries..........................................................92 (s) Interest Rate Protection...........................................................................................92 SECTION 5.03. Reporting Requirements.............................................................................................92 ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01. Events of Default..................................................................................................97 SECTION 6.02. Cash Cover........................................................................................................102 ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization.....................................................................................102 SECTION 7.02. Agents and Affiliates.............................................................................................102 SECTION 7.03. Actions by Agents.................................................................................................102 SECTION 7.04. Consultation with Experts.........................................................................................103 SECTION 7.05. Liability of Agents...............................................................................................103 SECTION 7.06. Indemnification...................................................................................................103 SECTION 7.07. Credit Decision...................................................................................................103 SECTION 7.08. Successor Agent...................................................................................................104 SECTION 7.09. Managing Agent and Co-agents......................................................................................104 SECTION 7.10. Notice of Default; Collateral Documents...........................................................................104 ARTICLE 8 MISCELLANEOUS SECTION 8.01. Amendments, Etc...................................................................................................105 SECTION 8.02. Notices, Etc......................................................................................................107 SECTION 8.03. No Waiver; Remedies...............................................................................................108 SECTION 8.04. Costs and Expenses; Indemnities...................................................................................108 SECTION 8.05. Right to Set-off..................................................................................................109 SECTION 8.06. BINDING EFFECT; GOVERNING LAW.....................................................................................110 SECTION 8.07. Successors and Assigns............................................................................................111 SECTION 8.08. Headings..........................................................................................................114 SECTION 8.09. Execution in Counterparts; Integration............................................................................114
Page ---- SECTION 8.10. Severability of Provisions........................................................................................114 SECTION 8.11. WAIVER OF JURY TRIAL..............................................................................................114 SECTION 8.12. Submission to Jurisdiction; Consent to Service of Process.........................................................114 SECTION 8.13. Consent to Amendment..............................................................................................115 SECTION 8.14. Survival..........................................................................................................115
Appendix I - Commitments Appendix II - Old Lender Term Loans and Revolving Facility Commitments SCHEDULES Schedule 1.01-1 - Collateral Documents Schedule 1.01-2 - Programming Cost Savings Schedule 4.01(a) - Subsidiaries of the Borrower Schedule 4.01(e) - Agreements Relating to Capital Stock Schedule 4.01(h) - Disclosed Litigation Schedule 4.01(m) - Plans and Multiemployer Plans Schedule 4.01(n) - Existing Debt Schedule 4.01(s) - Executive Compensation Agreements Schedule 4.01(t) - Descriptions and Locations of Real Property and Leasehold Interests Schedule 4.01(u) - Government and Third Party Consents Schedule 4.01(y) - Environmental Matters EXHIBITS Exhibit A-1 - Form of Revolving Facility Note Exhibit A-2 Form of Swingline Note Exhibit B - Form of 1997 Global Collateral Documents and Guaranty Agreement Amendment Exhibit C - Form of Mortgage Exhibit D - Form of Mortgage Amendment Exhibit E - Form of Assignment and Assumption Agreement Exhibit F - Form of Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. Exhibit G - Form of Local Counsel Opinion Exhibit H - Form of Opinion of Special FCC Counsel Exhibit I - Form of Opinion of Davis Polk & Wardwell Exhibit J - Form of Compliance Certificate Exhibit K - Form of Request for Issuance Exhibit L - Form of Borrower's Solvency Certificate Exhibit M - Form of Guarantor's Solvency Certificate AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 25, 1997 among YOUNG BROADCASTING INC., a Delaware corporation (the "BORROWER"), the banks and other financial institutions (the "BANKS") listed on the signature pages hereof, BANKERS TRUST COMPANY ("BTCO"), as Administrative Agent for the Lenders and the Issuing Bank hereunder, CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as Documentation Agent for the Lenders hereunder, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as Syndication Agent for the Lenders hereunder. W I T N E S S E T H: WHEREAS, the Borrower and certain financial institutions are parties to a $500,000,000 Credit Agreement dated as of November 15, 1996, as amended (as so amended and in effect on the date of this Amended Agreement immediately before the effectiveness of this Amended Agreement, the "EXISTING CREDIT AGREEMENT"); and WHEREAS, pursuant to the Existing Credit Agreement, the Old Lenders (as defined herein) have Term Loan Advances in the aggregate principal amount of $82,260,000 outstanding to the Borrower (the "Existing Term Loans") and have Revolving Facility Commitments to make Revolving Facility Advances in the aggregate amount of up to $200,000,000 ("Existing Revolving Facility Commitments") to the Borrower; and WHEREAS, at the request of the Borrower, the Banks have agreed to refinance the credit facilities provided under the Existing Credit Agreement, including the Existing Term Loans, by making available to the Borrower, subject to the terms and conditions of this Amended Agreement , Revolving Facility Commitments to make Revolving Facility Advances in the aggregate amount of up to $300,000,000; and WHEREAS, in order to effect such refinancing, the Old Lenders and the Banks have agreed that pursuant hereto and immediately prior to the occurrence of the Closing Time (as defined herein), the Old Lenders will assign, and the Banks will acquire and assume, all of their rights and obligations under the Existing Credit Agreement; and WHEREAS, the parties hereto, in addition to providing for the foregoing, wish to amend certain of the other provisions of the Existing Credit Agreement; and WHEREAS, in order to set forth in one document, for the convenience of the parties, the text of the Existing Credit Agreement as amended by the amendments to be made upon the effectiveness hereof, the parties wish to amend and restate the Existing Credit Agreement in its entirety as set forth below; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACQUISITION" means the Borrower's acquisition of television broadcast station KCAL-TV in Los Angeles, California. "ADJUSTED CD RATE ADVANCE" means an Advance which bears interest as provided in Section 2.05(B). "ADMINISTRATIVE AGENT" means BTCo in its capacity as Administrative Agent for the Lenders hereunder, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means (i) with respect to each Lender listed on the signature pages hereof, the administrative questionnaire in the form submitted to such Lender by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Lender on or before the Closing Date and (ii) with respect to each other Lender, the Assignment and Assumption Agreement for such Lender as an Assignee. "ADVANCE" means (i) a Revolving Facility Advance, each of which may be an Adjusted CD Rate Advance, a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "TYPE" of Advance), or (ii) a Swingline Advance, each of which shall be a Base Rate Advance. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. The term "CONTROL" means the possession, directly or indirectly, of the power, whether or not exercised, to direct or cause the direction of the management or policies of any Person, whether through ownership of voting securities, by contract or otherwise. 2 "AGENTS" means the Administrative Agent, the Documentation Agent and the Syndication Agent, or any combination of the foregoing as the context may require, and "AGENT" means any one of the foregoing. "AGREEMENT" means the Existing Credit Agreement, as amended by this Amended Agreement and as amended or otherwise modified from time to time. "AMENDED AGREEMENT" means this Amended and Restated Credit Agreement. "AMENDMENT DOCUMENTS" means this Agreement, the 1997 Global Collateral Documents and Guaranty Agreement Amendment and the Mortgage Amendments. "APPLICABLE LENDING OFFICE" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance, such Lender's CD Lending Office in the case of an Adjusted CD Rate Advance, and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "ASSET OPERATING CASH FLOW" means, with respect to each Asset Sale, the portion of Operating Cash Flow for the twelve months immediately preceding such Asset Sale that is attributable to the asset, property or business being disposed of pursuant to such Asset Sale. "ASSET PURCHASE" means an acquisition by the Borrower or any of its Subsidiaries of (i) all or substantially all of the assets of any Person (other than the Borrower or any of its Subsidiaries) or (ii) property and assets of any Person (other than the Borrower or any of its Subsidiaries), in each case comprising a television station or a business incidental thereto. "ASSET SALE" means any sale, lease, assignment, transfer or other disposition by the Borrower or any of its Subsidiaries of any asset, property or business (including, without limitation, receivables and leasehold interests) whether now owned or hereafter acquired, but excluding dispositions of inventory in the ordinary course of business. "ASSIGNEE" has the meaning specified in Section 8.07(C). "ASSIGNMENT AND ASSUMPTION AGREEMENT" means an Assignment and Assumption Agreement entered into by a Lender and an Assignee, and accepted by the Administrative Agent and consented to by the Borrower (if required), in substantially the form of Exhibit E. 3 "BANKS" has the meaning specified in the preamble to this Agreement. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE ADVANCE" means an Advance which bears interest as provided in Section 2.05(A). "BASE RATE MARGIN" means, for any day, the percentage set forth below opposite the applicable range for the Debt to Operating Cash Flow Ratio as specified in the most recent Notice of Debt to Operating Cash Flow Ratio received by the Administrative Agent on or before such day:
Debt to Operating Cash Flow Ratio - --------------------------------- Greater than But Base Rate or equal to less than Margin ----------- --------- ------ 6.0 N/A 1.000% 5.5 6.0 0.750% 5.0 5.5 0.500% 4.0 5.0 0.000% 0.0 4.0 0.000%
provided, however, that during any period in which an Event of Default shall have occurred and be continuing, the Base Rate Margin shall be the Base Rate Margin indicated in the above table plus 2% per annum. "BORROWER PLEDGE AGREEMENT" means the Borrower Pledge Agreement dated as of November 14, 1994 between the Borrower and the Administrative Agent, and each other pledge agreement entered into by the Borrower pursuant thereto or hereto, in each case as the same has been or may be amended or otherwise modified from time to time, including as amended by the 1997 Global Collateral Documents and Guaranty Agreement Amendment on the Closing Date. "BORROWER SECURITY AGREEMENT" means the Borrower Security Agreement dated as of November 14, 1994 between the Borrower and the Administrative Agent and each other security agreement entered into by the Borrower pursuant thereto or hereto, in each case as the same has been or may be amended or otherwise modified from time to time, including as amended by the 1997 Global Collateral Documents and Guaranty Agreement Amendment on the Closing Date. 4 "BORROWING" means a borrowing consisting of Revolving Facility Advances made or Converted on the same day by the Lenders. "BTCo" has the meaning specified in the preamble to this Agreement. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures by the Borrower and its Subsidiaries for property, plant and equipment (including renewals, improvements, replacements and capitalized repairs) during such period, and all Capital Leases entered into during such period, which would be reflected as additions to property, plant or equipment (other than as a result of a Permitted Acquisition) on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with generally accepted accounting principles. "CAPITAL LEASE" means any lease which is or should be, in accordance with generally accepted accounting principles, recorded as a capital lease. "CAPITAL LEASE OBLIGATIONS" means, with respect to any lease of property which in accordance with generally accepted accounting principles should be capitalized on the lessee's balance sheet or for which the amount of the assets and liabilities thereunder, if so capitalized, should be disclosed in a note to such balance sheet, the amount of the liability which should be so capitalized or disclosed. "CD LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "CD LENDING OFFICE" opposite its name in its Administrative Questionnaire (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "CD RATE MARGIN" means, for any day during any Interest Period, the percentage set forth below opposite the applicable range for the Debt to Operating Cash Flow Ratio as specified in the most recent Notice of Debt to Operating Cash Flow Ratio received by the Administrative Agent on or before such day:
Debt to Operating Cash Flow Ratio - --------------------------------- Greater than But CD Rate or equal to less than Margin ------------ --------- ------ 6.0 N/A 2.125% 5.5 6.0 1.875% 5.0 5.5 1.625% 4.0 5.0 1.125% 0.0 4.0 0.875%
5 provided, however, that during any period in which an Event of Default shall have occurred and be continuing, the CD Rate Margin shall be the CD Rate Margin indicated in the above table plus 2% per annum. "CD REFERENCE BANKS" means BTCo, CIBC and Morgan Guaranty. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as amended from time to time, and regulations promulgated thereunder. "CIBC" has the meaning specified in the preamble to this Agreement. "CLOSING DATE" means the date on which the conditions set forth in Section 3.01 shall have been satisfied or waived in accordance with Section 8.01; provided that such date shall be no later than December 31, 1997. "CLOSING DATE TRANSACTIONS" means, collectively, the effectiveness of this Agreement and the other Amendment Documents. "CLOSING TIME" means the time on the Closing Date at which the amendment and restatement of the Existing Credit Agreement to be effected by this Amended Agreement shall become effective, in accordance with the provisions of Section 3.01. "CO-ARRANGERS" means BTCo, CIBC and J.P. Morgan Securities Inc. "CODE" means the Internal Revenue Code of 1986, as the same may be amended from time to time. "COLLATERAL" means, collectively, the "COLLATERAL" as defined in the Security Agreements, the "COLLATERAL" as defined in the Pledge Agreements, the "TRUST PROPERTY" and "MORTGAGED PROPERTY" described in the Mortgages and all other property and assets of the Borrower or any Guarantor to which any Collateral Document relates. "COLLATERAL DOCUMENTS" means the Security Agreements, the Pledge Agreements and the Mortgages, including without limitation the agreements, documents and instruments listed on Schedule 1.01-1. "COMMUNICATIONS ACT" means the Communications Act of 1934, as amended from time to time, and the regulations promulgated thereunder. 6 "CONSOLIDATED" refers to the consolidation of accounts of the Borrower and its Subsidiaries in accordance with generally accepted accounting principles, including principles of consolidation. "CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.15 or 2.17. "CTSI" means Community Television Service, Inc., a South Dakota corporation. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money or to pay the deferred purchase price of property or services (including, without limitation, all obligations, contingent or otherwise, of such Person in connection with letter of credit facilities, acceptance facilities or other similar facilities and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any capital stock of such Person, but excluding all amounts payable with respect to Programming Liabilities), (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all obligations of such Person under Capital Leases, (v) all Debt of any other entity of the type referred to in clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt, (vi) all equity securities of such Person subject to repurchase or redemption other than at the sole option of such Person, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (vii) all Guaranteed Debt of such Person, (viii) all liabilities incurred by the Borrower or any ERISA Affiliate to the PBGC upon the termination under Section 4041 or Section 4042 of ERISA of any Plan, (ix) all Withdrawal Liabilities of such Person or any of its ERISA Affiliates, (x) all increases in the amount of contributions required to be made by the Borrower and its ERISA Affiliates in each fiscal year of the Borrower to Multiemployer Plans, due to the reorganization or termination of any such Multiemployer Plan within the meaning of Title IV of ERISA, over the average annual amount of such contributions required to be made during the last 3 years preceding such reorganization or termination and (xi) the aggregate amount of Derivatives Obligations of such Person; provided that for the purposes of calculating Debt to 7 determine the Debt to Operating Cash Flow Ratio and of calculating Senior Debt to determine compliance with Section 5.01(N), Debt shall be reduced by the aggregate amount of Temporary Cash Investments held by the Borrower or any Guarantor (excluding Permitted Acquisition Deposits) on the date of determination, to the extent that such amount exceeds the greater of (A) $5,000,000 and (B) the product of (x) $400,000 and (y) the sum of (X) the number of television broadcast stations owned by the Subsidiaries of the Borrower as of such date and (Y) the number one. "DEBT TO OPERATING CASH FLOW RATIO" means, as of any day, the ratio of (i) the aggregate unpaid Consolidated principal amount of all Debt of the Borrower and its Subsidiaries on such day to (ii) Operating Cash Flow of the Borrower and its Subsidiaries for the twelve consecutive calendar months then most recently ended or ending on such day. "DEFAULT" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DISCLOSED LITIGATION" has the meaning specified in Section 4.01(H). "DOCUMENTATION AGENT" means CIBC in its capacity as Documentation Agent for the Lenders hereunder, and its successors in such capacity. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "DOMESTIC LENDING OFFICE" opposite its name in the Administrative Questionnaire or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. 8 "ENVIRONMENTAL LAWS" means any and all applicable federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and governmental restrictions, whether now or hereafter in effect, relating to human health, the environment or to emissions, discharges or releases of pollutants, contaminants, Hazardous Materials or wastes into the environment, including ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Materials or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. References to sections or parts of ERISA as in effect on the date hereof include corresponding successor provisions after the date hereof. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) which is a member of a group of which the Borrower is a member or which is under common control with the Borrower within the meaning of Section 414 of the Code, and the regulations promulgated and rulings issued thereunder. "EURODOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "EURODOLLAR LENDING OFFICE" opposite its name in its Administrative Questionnaire (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EURODOLLAR MARGIN" means, for any day during any Interest Period, the percentage set forth below opposite the applicable range for the Debt to Operating Cash Flow Ratio as specified in the most recent Notice of Debt to Operating Cash Flow Ratio received by the Administrative Agent on or before such day:
Debt to Operating Cash Flow Ratio - --------------------------------- Greater than But Eurodollar or equal to less than Margin ----------- --------- ------ 6.0 N/A 2.00% 5.5 6.0 1.75% 5.0 5.5 1.50%
9
4.0 5.0 1.00% 0.0 4.0 0.75%
provided, however, that during any period in which an Event of Default shall have occurred and be continuing, the Eurodollar Margin shall be the Eurodollar Margin indicated in the above table plus 2% per annum. "EURODOLLAR RATE ADVANCE" means an Advance which bears interest as provided in Section 2.05(C). "EURODOLLAR REFERENCE BANKS" means the principal London offices of BTCo, CIBC and Morgan Guaranty. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXISTING CREDIT AGREEMENT" has the meaning specified in the preamble to this Agreement. "EXISTING FINANCING STATEMENTS" has the meaning specified in Section 3.01(f)(6)(A). "EXISTING GUARANTORS" means all of the Guarantors on the Closing Date. "EXISTING NOTES" means the "TERM LOAN NOTES", the "REVOLVING FACILITY NOTES" and the "SWINGLINE NOTES" (each such term as defined in the Existing Credit Agreement), delivered by the Borrower pursuant to the Existing Credit Agreement to the Old Lenders before the Closing Date. "EXISTING SUBORDINATED DEBT" means the 1994 Subordinated Notes, the 1995 Subordinated Notes, the 1996 Subordinated Notes and the 1997 Subordinated Notes. "FCC" means the Federal Communications Commission and any successor thereto. "FCC LICENSE" means any license, permit, certificate of compliance, franchise, approval or authorization granted or issued by the FCC and owned or held by the Borrower or any of its Subsidiaries in order to conduct the broadcast operations of a television station. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by 10 the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day and so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "FIDELITY" means Fidelity Television, Inc., a California corporation. "FILM EXPENSE" means, with respect to any accounting period, all amounts which become due and payable by the Borrower or any of its Subsidiaries during such period in respect of Programming Liabilities of the Borrower or any of its Subsidiaries, as determined in accordance with generally accepted accounting principles. "FISCAL QUARTER" means a fiscal quarter of the Borrower consisting of a calendar quarter ending on March 31, June 30, September 30 or December 31, as the case may be. "FISCAL YEAR" means a fiscal year of the Borrower consisting of a calendar year ending on December 31. "FIXED RATE ADVANCES" means Adjusted CD Rate Advances or Eurodollar Rate Advances or any combination thereof. "FIXED RATE BORROWING" means a borrowing consisting of Adjusted CD Rate Advances or Eurodollar Rate Advances made on the same day by the Lenders. "GUARANTEED DEBT" of any Person means all Debt referred to in clause (i), (ii), (iii) or (iv) of the definition of "DEBT" in this section guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss. 11 "GUARANTOR" means each of the Subsidiaries of the Borrower listed on Schedule 4.01(a) and each of the Subsidiaries of the Borrower which shall become a Guarantor in accordance with this Agreement (including Section 5.02(F)). "GUARANTOR PLEDGE AGREEMENTS" means, collectively (i) the Guarantor Pledge Agreement dated as of November 15, 1996 between YB of Los Angeles and the Administrative Agent, (ii) the Guarantor Pledge Agreement dated as of May 31, 1996 between YB of Sioux Falls and the Administrative Agent and (iii) each other pledge agreement entered into by any Guarantor pursuant thereto or hereto (which shall be substantially in the form of the other Guarantor Pledge Agreements as in effect at such time), in each case as the same has been or may be amended or otherwise modified from time to time, including as amended by the 1997 Global Collateral Documents and Guaranty Agreement Amendment on the Closing Date. "GUARANTOR SECURITY AGREEMENTS" means, collectively (i) the Guarantor Security Agreements dated as of November 15, 1996 between each of YB of Los Angeles and Fidelity, respectively, and the Administrative Agent, (ii) each of the Guarantor Security Agreements dated as of April 15, 1996 between each of YB of Davenport, YB of Sioux Falls and YB of Rapid City, respectively, and the Administrative Agent and (iii) each of the Guarantor Security Agreements dated as of November 14, 1994, between each of the Existing Guarantors other than YB of Davenport, YB of Sioux Falls, YB of Rapid City, YB of Los Angeles and Fidelity, and the Administrative Agent and (iv) each other security agreement entered into by any of the Guarantors pursuant thereto or hereto (which shall be in substantially the form of the other Guarantor Security Agreements as in effect at such time), in each case as the same has been or may be amended or otherwise modified from time to time, including as amended by the 1997 Global Collateral Documents and Guaranty Agreement Amendment on the Closing Date. "GUARANTY AGREEMENT" means the Amended and Restated Guaranty Agreement dated as of April 15, 1996, among the Borrower, each of the Existing Guarantors and the Administrative Agent, as the same has been or may be amended or otherwise modified from time to time, including as amended by the 1997 Global Collateral Documents and Guaranty Agreement Amendment on the Closing Date. "HAZARDOUS MATERIALS" means (i) any "HAZARDOUS SUBSTANCE" as defined in CERCLA; (ii) asbestos; (iii) polychlorinated biphenyls; (iv) petroleum, its derivatives, by-products and other hydrocarbons; and (v) any other toxic, radioactive, caustic or otherwise hazardous substance regulated under Environmental Laws. 12 "INDEPENDENT PUBLIC ACCOUNTANTS" means (i) Ernst & Young LLP, (ii) another 'Big Six' independent public accounting firm or (iii) another independent public accounting firm of nationally recognized standing reasonably acceptable to the Majority Lenders. "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, by which the present value of the accrued benefits under such Plan, as determined using the actuarial assumptions then used for the purpose of determining the contributions to be made to such Plan, exceeds the fair market value of the assets of such Plan allocable to such benefits. "INTEREST PERIOD" means: (i) with respect to each Eurodollar Rate Advance, the period commencing on the date of such Borrowing and ending 1, 3, 6 or, if the Administrative Agent determines that deposits in such maturity are available in the London interbank market for such period, 12 months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; and (b) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (ii) with respect to each Adjusted CD Rate Advance, the period commencing on the date of such Borrowing and ending 30, 90, 180 or, if the Administrative Agent determines that certificates of deposit in such maturity are available in accordance with the definition of CD Base Rate for such period, 360 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day. "INTEREST RATE PROTECTION AGREEMENT" means any interest rate cap agreement, interest rate swap agreement and any other interest rate protection agreement between the Borrower and any Person that is a Lender or any Affiliate of any Lender on conditions acceptable to the Agents (such acceptance of the Agents not to be unreasonably denied) and in accordance with Section 5.02(S), as 13 such agreement may be amended from time to time with the consent (not to be unreasonably withheld) of the Agents. "ISSUING BANK" means BTCo, as the issuer of a Letter of Credit. "KLFY PARTNERSHIP" means KLFY, L.P., a Delaware limited partnership of which YB of Louisiana is the sole general partner and of which LAT is the sole limited partner and which is governed by the KLFY Partnership Agreement. "KLFY PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of KLFY, L.P. dated as of December 29, 1989 by and among YB of Louisiana and LAT, as the same may be amended from time to time. "LAT" means LAT, Inc., a Delaware corporation and wholly owned subsidiary of the Borrower. "LEASEHOLDS" means all of the right, title and interest of the Borrower or any of its Subsidiaries in, to and under any leases, licenses or other agreements granting to the Borrower or any of its Subsidiaries, directly or indirectly, rights to enter, occupy or use any land, improvements and fixtures, including, without limitation, the "GROUND LEASES" as described in certain of the Mortgages. "LENDER SHARE" means, with respect to any Lender, an amount equal to such Lender's Revolving Facility Commitment or, if the Revolving Facility Commitment shall have been terminated, the aggregate outstanding amount of such Lender's Revolving Facility Advances and Letter of Credit Obligations. "LENDERS" means the Banks listed on the signature pages hereof and each Assignee that shall become a party hereto pursuant to Section 8.07, including without limitation the Swingline Lender. "LETTER OF CREDIT OBLIGATIONS" means, for any Lender and at any time, the sum of (x) the amounts then owing to such Lender (including in its capacity as the Issuing Bank) under Section 2.10 to reimburse it in respect of amounts drawn under Letters of Credit and (y) such Lender's ratable participation in the aggregate amount then available for drawing under all Letters of Credit, calculated in accordance with Section 2.10. "LETTERS OF CREDIT" has the meaning specified in Section 2.10. "LIEN" means, with respect to any asset, any mortgage, deed of trust, pledge, lien, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest in respect of such asset. For the purposes of this Agreement, the 14 Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN DOCUMENTS" means this Agreement, the Amendment Documents, the Notes, the Guaranty Agreement, the Collateral Documents, any Interest Rate Protection Agreements and all agreements, documents and instruments executed and delivered in connection with any Letters of Credit, in each case as the same may hereafter be amended or otherwise modified from time to time, including without limitation the Amendment Documents. "LOAN PARTY" means the Borrower and each Guarantor. "MAJOR CASUALTY PROCEEDS" means (i) the aggregate insurance proceeds received in connection with one or more related events by the Borrower or any of its Subsidiaries under any insurance policy maintained to cover losses with respect to tangible real or personal property or improvements or losses from business interruption or (ii) any award or other compensation with respect to any condemnation of property (or any transfer or disposition of property in lieu of condemnation) received by the Borrower or any of its Subsidiaries, if the amount of such aggregate insurance proceeds or award or other compensation exceeds $1,000,000. "MAJORITY LENDERS" means Lenders having at least 51% of the aggregate amount of the Lender Shares for all Lenders. "MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $1,000,000. "MORGAN GUARANTY" has the meaning specified in the preamble to this Agreement. "MORTGAGE AMENDMENT" means, with respect to each Mortgage executed pursuant to the Existing Credit Agreement, an amendment thereto dated as of the Closing Date substantially in the form of Exhibit D. "MORTGAGES" means the mortgages and deeds of trust listed on Schedule 1.01-1, in each case as amended on the Closing Date by the relevant Mortgage Amendment, and any other mortgages, deeds of trust or similar instruments in substantially the form of Exhibit C executed from time to time pursuant hereto, as the same may be amended or otherwise modified from time to time. 15 "MULTIEMPLOYER PLAN" means a "MULTIEMPLOYER PLAN" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, including for these purposes any Person that ceased to be an ERISA Affiliate during such five year period. "MULTIPLE EMPLOYER PLAN" means an employee benefit plan, other than a Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or any ERISA Affiliate, and at least one employer other than the Borrower or an ERISA Affiliate, are making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan, including for these purposes any Person that ceased to be an ERISA Affiliate during such five year period. "NET INCOME" means, for any accounting period, net income (or net deficit, as the case may be), as determined in accordance with generally accepted accounting principles. "NET PROCEEDS" means, with respect to any issuance by the Borrower of any equity securities or Permitted Subordinated Debt or any Permitted Asset Sale by any Loan Party, an amount equal to the net cash proceeds received by the Borrower or such Loan Party with respect to such equity securities or Permitted Subordinated Debt or pursuant to such Permitted Asset Sale, as the case may be, less (without duplication) any expenses relating thereto reasonably incurred by the Borrower or such Loan Party in connection therewith. "NET WORKING INVESTMENT" means at any date (x) the Consolidated current assets of the Borrower and its Subsidiaries (excluding cash, short-term investments and Television Film Exhibition Rights) minus (y) the Consolidated current liabilities of the Borrower and its Subsidiaries (excluding Programming Liabilities and principal of and interest on Debt), all determined as of such date. Net Working Investment at any date may be a positive or negative number. Net Working Investment increases when it becomes more positive or less negative and decreases when it becomes less positive or more negative. "1995 SUBORDINATED NOTE DOCUMENTS" means the 1995 Subordinated Notes and the Indenture dated as of June 1, 1995, as supplemented, among the Borrower, as issuer, each of the Subsidiaries of the Borrower named therein as the Initial Guarantors, as guarantors thereunder, and State Street Bank and Trust Company, as successor trustee. 16 "1995 SUBORDINATED NOTES" means the Borrower's 10-1/8% Senior Subordinated Notes due 2005. "1994 SUBORDINATED NOTE DOCUMENTS" means the 1994 Subordinated Notes and the Indenture dated as of November 14, 1994, as supplemented, among the Borrower, as issuer, each of the Subsidiaries of the Borrower named therein as the Initial Guarantors, as guarantors thereunder, and State Street Bank and Trust Company, as successor trustee. "1994 SUBORDINATED NOTES" means the Borrower's 11-3/4% Senior Subordinated Notes due 2004. "1997 GLOBAL COLLATERAL DOCUMENTS AND GUARANTY AGREEMENT AMENDMENT" means the 1997 Global Collateral Documents and Guaranty Agreement Amendment among the Borrower, the Existing Guarantors and the Administrative Agent substantially in the form of Exhibit B. "1997 SUBORDINATED NOTE DOCUMENTS" means the 1997 Subordinated Notes and the Indenture dated as of June 15, 1997, as supplemented, among the Borrower, as issuer, each of the Subsidiaries of the Borrower named therein as the Initial Guarantors, as guarantors hereunder, and First Union Nation Bank, as trustee. "1997 SUBORDINATED NOTES" means the Borrower's 8-3/4% Senior Subordinated Notes due 2007. "1996 SUBORDINATED NOTE DOCUMENTS" means the 1996 Subordinated Notes and the Indenture dated as of January 1, 1996, as supplemented, among the Borrower, as issuer, each of the Subsidiaries of the Borrower named therein as the Initial Guarantors, as guarantors thereunder, and State Street Bank and Trust Company, as trustee. "1996 SUBORDINATED NOTES" means the Borrower's 9% Senior Subordinated Notes due 2006. "NON-CASH CHARGES" means, for any accounting period, charges properly attributable to such period for depreciation, amortization and other non-cash items as determined in accordance with generally accepted accounting principles; provided that Non-Cash Charges shall include amortization of transaction fees and expenses incurred in connection with the Closing Date Transactions (as defined herein and in the Existing Credit Agreement) and non-cash compensation provided to employees of the Borrower or any of its Subsidiaries. 17 "NONPERMITTED SWINGLINE ADVANCE" means an advance made by the Swingline Lender to the Borrower that purports to be a Swingline Advance but which advance (i) does not comply with the limitations contained in the proviso to the first sentence of Section 2.01(B), or (ii) was made during a period described in Section 2.01(C)(V). For purposes of determining compliance with the limitations contained in the proviso to the first sentence of Section 2.01(B), the Swingline Lender may rely on information received by it from the Administrative Agent; provided that the Administrative Agent shall have no obligation (except upon a request made by the Swingline Lender) to inform the Swingline Lender with respect to such limitations. "NOTES" means the Revolving Facility Notes and the Swingline Note. "NOTICE OF BORROWING" has the meaning specified in Section 2.02. "NOTICE OF DEBT TO OPERATING CASH FLOW RATIO" means (i) until the Borrower delivers a Notice of Debt to Operating Cash Flow Ratio pursuant to Section 5.03(A), the certificate delivered by the Borrower pursuant to Section 3.01(F)(17) and (ii) thereafter, a Notice of Debt to Operating Cash Flow Ratio delivered pursuant to Section 5.03(A). "NOTICE OF SWINGLINE REFUNDING" has the meaning specified in Section 2.01(C)(II). "OBLIGATIONS" means all obligations described in any Loan Document. "OLD LENDERS" means the Lenders under the Existing Credit Agreement as in effect immediately before the effectiveness of this Amended Agreement; the principal amount of the Existing Term Loans and the Existing Revolving Facility Commitment of each Old Lender on the date of this Amended Agreement are as set forth in Appendix II hereto. "OPERATING CASH FLOW" means, for any accounting period, the amount calculated as follows: Consolidated Net Income for such period, plus to the extent deducted in determining such Consolidated Net Income, Consolidated Non-Cash Charges and any other extraordinary non-cash losses (including any losses from the sale of assets) for such period, plus Consolidated interest expense, net of interest income, for such period (after giving effect to all costs of, and savings 18 realized by, each interest rate cap or other interest rate protection agreement which the Borrower may enter into with respect to interest payable on any Debt or any portion thereof), plus Consolidated income tax expense for such period, plus if such accounting period includes any one or more of the first twelve consecutive calendar months, following the Original Closing Date, the amount identified as "TOTAL COST SAVINGS" opposite the latest such month on Schedule 1.01- 2 (each, a "TOTAL COST SAVINGS ADD-BACK"), minus all cash payments in respect of income taxes by the Borrower or any of its Subsidiaries during such period, minus to the extent included in Consolidated Net Income for such period, any extraordinary non-cash gains (including gains from the sale of assets) for such period, minus Consolidated cash payments of Film Expense made during such period, all determined in accordance with generally accepted accounting principles; provided that if any Permitted Acquisition (including for purposes of this definition the Acquisition) occurs during such accounting period, the calculation of Operating Cash Flow for such accounting period shall give effect, on a Pro Forma Basis, to the items set forth above for periods during such accounting period but prior to the closing date for such Permitted Acquisition, to the extent such items are properly attributable to the acquired assets or properties, related costs or expenses or the financing therefor; and provided further that in calculating Operating Cash Flow on a Pro Forma Basis for any period which includes a period prior to the Original Closing Date, the following Television Film Exhibition Rights shall be deemed not to be attributable to the assets and properties acquired in the Acquisition or related costs or expenses: (i) the Television Film Exhibition Rights of YB of Los Angeles relating to Empty ----- Nest, Golden Girls and Perfect Strangers (because the liability related to such - ------------------ ----------------- Television Film Exhibition Rights shall be retained by KCAL Broadcasting, Inc. and not assumed by the Borrower or any of its Subsidiaries in the Acquisition) and (ii) the Television Film Exhibition Rights relating to George/Alana and ------------ 19 Marilyn Kagan (because these television shows have been canceled prior to the - ------------- Original Closing Date). "ORIGINAL CLOSING DATE" means the Closing Date under the Existing Credit Agreement, November 21, 1996. "PARENT" means, with respect to any Lender, any Person controlling such Lender. "PARTICIPANT" has the meaning specified in Section 8.07(B). "PAYMENT DATE" means the last day of each March, June, September and December (or, if such day is not a Domestic Business Day, the next succeeding Domestic Business Day), commencing with the first such date occurring after the Closing Date. "PBGC" means the Pension Benefit Guaranty Corporation. "PERMITTED ACQUISITION" means an acquisition by any one or more wholly-owned Subsidiaries of the Borrower of any one or more television stations or of any one or more businesses incidental to the ownership and operation of television stations (which shall include any television representation business), or an acquisition by the Borrower or any one or more wholly-owned Subsidiaries of the Borrower of all of the capital stock of a corporation owning one or more television stations or one or more businesses incidental to the ownership and operation of such television stations; provided that: (a) at least ten (10) days prior to the closing date for such acquisition, the Borrower shall have delivered to each of the Lenders (i) a compliance certificate, substantially in the form of Exhibit J, certifying the Borrower's compliance with the provisions of this Agreement set forth in Exhibit J, as of the most recent date for compliance prior to the date of such certificate, after giving effect on a Pro Forma Basis to such acquisition, and (ii) a report of the chief financial officer of the Borrower, in a form and providing sufficient detail and justification for the information provided therein, including assumptions, as shall be found to be reasonable by each of the Agents in its sole good faith discretion, after completion of reasonable due diligence, establishing that, after giving effect to such acquisition and the financing therefor, the Borrower shall be in compliance at the end of each fiscal year until the Termination Date with the covenants contained in Sections 5.01(L), 5.01(M), 5.01(N), 5.01(O), 5.02(A), 5.02(B), 5.02(D), 5.02(F), 5.02(G) and 5.02(H); 20 (b) at the time of such acquisition, no Default is then continuing or would result therefrom; and (c) at the time of such acquisition, the stock of any new Subsidiaries of the Borrower acquired or created in connection therewith or resulting therefrom shall be pledged to the Administrative Agent for its benefit and the benefit of the Lenders, each of such new Subsidiaries shall become a Guarantor hereunder and each of such new Subsidiaries shall grant liens and security interests in all of its assets to the Administrative Agent for its benefit and the benefit of the Secured Parties. "PERMITTED ACQUISITION DEPOSIT" means a deposit made by the Borrower or any of its Subsidiaries pursuant to any purchase agreement to which it is or is to be a party in connection with an acquisition that it proposes to make as a Permitted Acquisition; provided that at the time of the making of such deposit, no Default is then continuing or would result therefrom. "PERMITTED ACQUISITION MORTGAGE" has the meaning specified in Section 3.03(e)(5). "PERMITTED ASSET SALE" means any Asset Sale by the Borrower or any of its Subsidiaries (a) where the Net Proceeds of such Asset Sale, when added to the Net Proceeds of any related Asset Sales, are less than $500,000, unless such Asset Sale is the disposition of property and assets comprising a television station or a business incidental thereto; or (b) where the Net Proceeds of such Asset Sale are greater than or equal to $500,000 or such Asset Sale is the disposition of property and assets comprising a television station or a business incidental thereto, if (x) before and after giving effect thereto no Default shall have occurred and be continuing; (y) except in the case of a Qualifying FCC-Mandated Sale, the aggregate total amount of the Asset Operating Cash Flow with respect to all such Asset Sales since the Closing Date (excluding any Qualifying FCC-Mandated Sale) constitutes less than fifteen percent (15%) of the greatest amount of Operating Cash Flow for any consecutive twelve-month period commencing after the Original Closing Date; and (z) at least ten (10) days prior to the date of each such Asset Sale, the Borrower shall have delivered to each of the Lenders (i) a compliance certificate, substantially in the form of Exhibit J, certifying the Borrower's compliance with the provisions of this Agreement set forth in Exhibit J, as of the most recent date for compliance prior to the date of such certificate, after giving effect on a Pro Forma Basis to such Asset Sale, and (ii) a report of the chief financial officer of the Borrower, in a form and providing sufficient detail and justification for the information provided therein, including assumptions, as shall be found to be reasonable by each of the Agents in its sole good faith discretion, after completion of reasonable due diligence, establishing that after 21 giving effect to such Asset Sale, the Borrower shall be in compliance at the end of each fiscal year until the Termination Date with the covenants contained in Sections 5.01(L), 5.01(M), 5.01(N), 5.01(O), 5.02(A), 5.02(B), 5.02(D),5.02(F), 5.02(G) and 5.02(H). "PERMITTED HOLDERS" means (i) any of Adam Young or Vincent Young; (ii) the spouse, ancestors, siblings, descendants (including children or grandchildren by adoption) of any such siblings or the spouse of any of the Persons described in clause (i); (iii) in the event of the incompetence or death of any of the Persons described in clauses (i) and (ii), such Person's estate, executor, administrator, committee or other personal representative, in each case who at any particular date shall beneficially own or have the right to acquire, directly or indirectly, capital stock of the Borrower; (iv) any trusts created for the benefit of the Persons described in clause (i), (ii) or (iii) or any trust for the benefit of any such trust; or (v) any Person controlled by any of the persons described in clause (i), (ii), (iii), or (iv). "PERMITTED LIENS" means: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by Section 5.01(F); (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due or being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, if a reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor; (iii) Liens, other than Liens created by Section 4068 of ERISA, incurred or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety, customs and appeal bonds, bids, leases, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Liens, in an aggregate amount existing from time to time not to exceed $2,000,000, which Liens (A) arise in the ordinary course of business, (B) do not secure Debt or Derivatives Obligations and (C) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; 22 (v) leases or subleases granted to others in the ordinary course of business or existing on property at the time acquired and not interfering with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (vi) Permitted Encumbrances, as defined in each Mortgage, with respect to the Real Property covered thereby; (vii) purchase money Liens upon or in any property acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of such property, or Liens existing on such property at the time of its acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided that (A) the aggregate amount of Liens described in this clause (vii) that are outstanding or existing at any time shall not exceed $25,000,000 and (B) no such Lien shall extend to or cover any property other than the property being acquired, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; provided further that Liens on property acquired or held by the Borrower or any of its Subsidiaries to secure the purchase price of any Asset Purchase or Permitted Acquisition or to secure Debt incurred for the purpose of financing any Asset Purchase or Permitted Acquisition are understood not to be Liens described of a type in this clause (vii); (viii) Liens existing on the Original Closing Date and set forth in Schedule 4.01(i) of the Existing Credit Agreement; (ix) Liens created by the Collateral Documents; (x) one or more attachments or judgment Liens not exceeding $1,000,000 in the aggregate unless the judgment such Lien secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; and (xi) Liens created after the Original Closing Date upon any Real Property owned by the Borrower or any of its Subsidiaries; provided that (A) such Liens shall be junior and subordinate to the Liens created by or pursuant to the Loan Documents, (B) the aggregate amount of the obligations secured by such Liens shall not at any time exceed $5,000,000 23 and (C) each of such Liens and such Liens in the aggregate must not interfere with the ordinary conduct of business of the Borrower or any of its Subsidiaries; provided, however, that no Lien in favor of the PBGC shall, in any event, be a "PERMITTED LIEN"; and provided further that no Lien shall constitute a Permitted Lien on and after the commencement in respect thereof of any enforcement, collection, execution, levy or foreclosure proceeding where such Lien secures any obligation in an amount equal to or exceeding $50,000. "PERMITTED SUBORDINATED DEBT" means Debt other than Existing Subordinated Debt for which the Borrower is directly and primarily liable, but which may be guaranteed by any one or more Guarantors (provided that any obligations of any Guarantor in respect thereof are subordinate to such Guarantor's obligations under the Guaranty Agreement to the same extent and on similar terms as such Guarantor's obligations in respect of the Existing Subordinated Debt), and which (v) is subordinated in right of payment to the prior payment in full in cash of all of the obligations of the Borrower and the Guarantors to pay principal of and interest on the Notes, all Letter of Credit Obligations and all fees and other amounts payable hereunder or under any other Loan Document, pursuant to subordination provisions that are no less favorable to the Lenders than the subordination provisions for any Existing Subordinated Debt; (w) contains no mandatory redemption provisions which would require any redemption in circumstances in which the mandatory redemption provisions for any Existing Subordinated Debt would not require redemption of any Existing Subordinated Debt; (x) contains financial covenants and events of default that are no more onerous to the Borrower and its Subsidiaries than the financial covenants and events of default for any Existing Subordinated Debt; (y) has a maturity date no earlier than June 15, 2007; and (z) is not secured by any Lien; provided that at least fifteen (15) days prior to the incurrence of such Debt, the Borrower shall have delivered to each of the Lenders (i) a compliance certificate, substantially in the form of Exhibit J, certifying the Borrower's compliance with the provisions of this Agreement set forth in Exhibit J, as of the most recent date for compliance prior to the date of such certificate, after giving effect on a Pro Forma Basis to the incurrence of such Debt, and (ii) a report of the chief financial officer of the Borrower, in a form and providing sufficient detail and justification for the information provided therein, including assumptions, as shall be found to be reasonable by each of the Agents in its sole good faith discretion, after completion of reasonable due diligence, establishing that after giving effect to the incurrence of such Debt, the Borrower shall be in compliance at the end of each fiscal year until the Termination Date with the covenants contained in Sections 5.01(L), 5.01(M), 5.01(N), 5.01(O), 5.02(A), 5.02(B), 5.02(D), 5.02(F), 5.02(G) and 5.02(H). 24 "PERMITTED SUBORDINATED DEBT REPURCHASE" means a prepayment, redemption, defeasance or purchase of any Existing Subordinated Debt or Permitted Subordinated Debt to the extent permitted by clause (iv) of Section 5.02(H). "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PLAN" means an employee benefit plan, other than a Multiemployer Plan, (i) which is maintained for employees of the Borrower or any ERISA Affiliate and subject to Title IV of ERISA or (ii) which could subject the Borrower or any ERISA Affiliate to liability under Section 4069 of ERISA in the event that such plan has been or was to be terminated. "PLEDGE AGREEMENTS" means the Borrower Pledge Agreement and the Guarantor Pledge Agreements. "PLEDGED INSTRUMENTS" means the Pledged Instruments as defined in the Pledge Agreements and all Instruments as defined in the Security Agreements. "PLEDGED STOCK" has the meaning specified in the Pledge Agreements. "PRIME RATE" means the rate of interest publicly announced by BTCo in New York City from time to time as its Prime Rate. "PRO FORMA BASIS" means, at any time, a pro forma basis as agreed among the Borrower and the Agents at such time. "PRO FORMA DEBT SERVICE" means, at any date, the sum of (i) Total Interest Expense for the four consecutive Fiscal Quarters then most recently ended plus (ii) the aggregate amount of all scheduled principal payments (including mandatory principal payments (to the extent reasonably foreseeable) required by Section 2.09(B) on all Debt of the Borrower or any of its Subsidiaries, including the portion of any payments under Capital Leases that is allocable to principal, for the four consecutive Fiscal Quarters immediately following the Fiscal Quarter during which such date occurs. "PROGRAMMING LIABILITIES" means, as to any Person, all obligations of such Person under contracts for the acquisition of broadcast rights to television programs and films, as determined in accordance with generally accepted accounting principles. 25 "QUAD CITIES JOINT VENTURE" means PCI/RIBCO, the joint venture formed pursuant to the Joint Venture Agreement dated as of September 30, 1981, between YB of Davenport, as successor to Palmer Communications Incorporated, and Coronet Communications Company, as successor to Rock Island Broadcasting Co. "QUALIFYING FCC-MANDATED SALE" means an Asset Sale by the Borrower or any of its Subsidiaries (a) which is the disposition of property and assets comprising a television station or a business incidental thereto, (b) which is required by the FCC as a condition to or otherwise in connection with a Permitted Acquisition and (c) where Operating Cash Flow on a Pro Forma Basis for the twelve-month period immediately after the consummation of both such Asset Sale and the related Permitted Acquisition is at least ninety-five percent (95%) of the greatest amount of Operating Cash Flow for any consecutive twelve-month period commencing after the Original Closing Date (but prior to the earlier of such FCC- Mandated Sale and such related Permitted Acquisition). "REAL PROPERTY" means all of the Borrower's and its Subsidiaries' right, title and interest (including Leaseholds) in and to land, improvements and fixtures, including, without limitation, the "PROPERTY" described in each of the Mortgages. "REFERENCE BANKS" means the CD Reference Banks or the Eurodollar Reference Banks, as the context may require, and "REFERENCE BANK" means any one of such Reference Banks. "REFINANCING PERMITTED SUBORDINATED DEBT" means Permitted Subordinated Debt incurred by the Borrower, the Net Proceeds of which shall be used at the time of issuance thereof solely for the prepayment, redemption, defeasance or purchase of any Existing Subordinated Debt or Permitted Subordinated Debt to the extent permitted by clause (iv) of Section 5.02(H). "REGISTER" has the meaning specified in Section 8.07(E). "REGULATION G" means Regulation G of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUEST FOR ISSUANCE" has the meaning specified in Section 2.10. "RESTRICTED PAYMENT" means, (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares 26 of its capital stock of the same class) or (ii) any payment on account of the purchase, redemption, retirement, defeasance, acquisition, return or distribution with respect to (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock. "REVOLVING FACILITY ADVANCE" has the meaning specified in Section 2.01(A). "REVOLVING FACILITY COMMITMENT" means, with respect to each Lender, the amount set forth opposite such Lender's name on the Appendix hereto under the caption "REVOLVING FACILITY COMMITMENT", in each case as such amount may be reduced or terminated pursuant to Section 2.07, 2.08 or 6.01; provided that if at any time a Lender shall have entered into one or more Assignment and Assumption Agreements, such Lender's Revolving Facility Commitment thereafter shall be the amount set forth for such Lender as its Revolving Facility Commitment in the Register maintained by the Administrative Agent pursuant to Section 8.07(E), as such amount may be reduced or terminated pursuant to Section 2.07, 2.08, 2.09(B) or 6.01. "REVOLVING FACILITY NOTE" means the promissory note issued by the Borrower payable to the order of a Lender, in substantially the form of Exhibit A-1, evidencing the indebtedness of the Borrower to such Lender in respect of the Revolving Facility Advances made by such Lender. "REVOLVING FACILITY PERCENTAGE" means, with respect to each Lender at any time, the percentage that its Revolving Facility Commitment represents of the aggregate amount of the Revolving Facility Commitments of all Lenders at such time. "SECURED PARTIES" means the Secured Parties as defined in the Collateral Documents. "SECURITY AGREEMENTS" means the Borrower Security Agreement and the Guarantor Security Agreements. "SENIOR DEBT" means, as of any date, the aggregate unpaid principal amount on such date of all Debt of the Borrower and its Subsidiaries other than the Existing Subordinated Debt and Permitted Subordinated Debt. "SENIOR DEBT TO OPERATING CASH FLOW RATIO" means, as of any day, the ratio of Senior Debt as of the last day of the then ending or most recently ended Fiscal Quarter to Operating Cash Flow for the four consecutive Fiscal Quarters ending on such last day. 27 "SOLVENCY CERTIFICATE" has the meaning specified in Section 3.01(f)(12). "SOLVENT" means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of its liabilities (including, without limitation, liabilities on all claims, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured) of such Person, (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its existing debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in each respective industry in which such person is engaged. "SUBORDINATED DEBT DOCUMENTS" means the 1994 Subordinated Note Documents, the 1995 Subordinated Note Documents, the 1996 Subordinated Note Documents, the 1997 Subordinated Note Documents and any notes, indentures and other documents governing any other Permitted Subordinated Debt, and, in each case, all amendments thereto. "SUBSIDIARY" of any Person means (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries, or by one or more other Subsidiaries and (ii) any partnership, joint venture or similar entity of which the Borrower or any Subsidiary is, directly or indirectly, a general partner or of which the Borrower or any Subsidiary has the right, directly or indirectly, by law, contract or otherwise, to control or to manage the business and affairs, including without limitation the KLFY Partnership, the WKRN Partnership and the WATE Partnership; provided that no Tower Affiliate shall be deemed to be a Subsidiary of the Borrower or of any of its Subsidiaries. "SWINGLINE ADVANCE" has the meaning specified in Section 2.01(B). 28 "SWINGLINE COMMITMENT" means the commitment of the Swingline Lender to make Swingline Advances to the Borrower hereunder, in an aggregate amount not to exceed $10,000,000, as such amount may be reduced or terminated pursuant to Section 2.07, 2.08 or 6.01. "SWINGLINE LENDER" means First Union National Bank of North Carolina in its capacity as Swingline Lender hereunder, and its successors in such capacity. "SWINGLINE NOTE" means the promissory note issued by the Borrower payable to the order of the Swingline Lender, in substantially the form of Exhibit A-2, evidencing the indebtedness of the Borrower to the Swingline Lender in respect of the Swingline Advances made by the Swingline Lender. "SYNDICATION AGENT" means Morgan Guaranty in its capacity as Syndication Agent for the Lenders hereunder, and its successors in such capacity. "TELEVISION FILM EXHIBITION RIGHTS" means the asset on the Borrower's Consolidated balance sheet which, in accordance with generally accepted accounting principles, should represent contract rights of the Borrower and its Consolidated Subsidiaries relating to television film exhibition. "TEMPORARY CASH INVESTMENTS" means (i) commercial paper of any corporation incorporated under the laws of the United States of America or any State thereof rated (x) at least P-1 or its equivalent by Moody's Investors Service, Inc. or A1 or its equivalent by Standard and Poor's Corporation or (y)at least A3 or its equivalent by Moody's Investors Services, Inc. or P-3 or its equivalent by Standard and Poor's Corporation if the Senior Debt to Operating Cash Flow Ratio for the date of acquisition is less than 2.0, in either case maturing within 270 days, (ii) direct obligations of, or obligations the principal of or any interest on which are unconditionally guaranteed by, the United States of America, in each case maturing within one year from the date of acquisition thereof by the Borrower or any Subsidiary (as the case may be) and (iii) any time deposit with, including certificates of deposit issued by, a commercial bank of recognized standing operating in the United States of America having combined capital and surplus of at least $50,000,000. "TERMINATION DATE" means the earliest to occur of (i) September 30, 2002, (ii) the date of termination in whole of the Revolving Facility Commitments pursuant to Section 2.07 or 6.01 and (iii) the date when all Revolving Facility Advances and Letter of Credit Obligations shall have terminated or been repaid in full. 29 "TERMINATION EVENT" means (i) a "REPORTABLE EVENT", as such term is described in Section 4043 of ERISA (other than a "REPORTABLE EVENT" as to which the 30-day notice requirement has been waived by the PBGC), or an event described in Section 4068(f) of ERISA, or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "SUBSTANTIAL EMPLOYER", as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii) providing notice of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 or ERISA, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "TOTAL INTEREST EXPENSE" means, for any accounting period, the Consolidated amount of all interest charges, whether expensed or capitalized, including the portion of any obligation under Capital Leases allocable to interest expense in accordance with generally accepted accounting principles (after giving effect to all costs of, and savings realized by, each interest rate swap or cap agreement which the Borrower may enter into with respect to interest payable on any Debt or any portion thereof) and all premiums and other amounts that are amortized (other than interest charges and principal), in each case with respect to any Debt of the Borrower or any of its Subsidiaries during such period. "TOWER AFFILIATE" means (i) the Quad Cities Joint Venture, (ii) CTSI and (iii) any other Person (A) of which the Borrower or any Guarantor shall acquire an ownership interest as a result of a Permitted Acquisition and (B) of which the sole activity is the ownership and operation of a transmission tower or towers. "TRADE DEBT" means, for any accounting period, accounts payable accrued during such period for the deferred purchase price of property or services (but excluding Film Expense) to the extent such payables and obligations are not overdue by more than 6 months. "TYPE" has the meaning specified in the definition of the term "ADVANCE" contained in this Article 1. "VOTING STOCK" of any Person means stock of any class or classes (or equivalent interests), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar 30 functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "WATE PARTNERSHIP" means WATE, L.P., a Delaware limited partnership of which YB of Knoxville is the sole general partner and of which YBK is the sole limited partner and which is governed by the WATE Partnership Agreement. "WATE PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of WATE, L.P. dated as of November 10, 1994 between YB of Knoxville and YBK, as the same may be amended from time to time. "WITHDRAWAL LIABILITY" shall have the meaning given such term under Part I of Subtitle E of Title IV of ERISA. "WKRN PARTNERSHIP" means WKRN, L.P., a Delaware limited partnership of which YB of Nashville is the sole general partner and of which YBT is the sole limited partner and which is governed by the WKRN Partnership Agreement. "WKRN PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of WKRN, L.P. dated as of December 29, 1989 by and among YB of Nashville and YBT, as the same may be amended from time to time. "YB OF DAVENPORT" means Young Broadcasting of Davenport, Inc., a Delaware corporation. "YB OF KNOXVILLE" means Young Broadcasting of Knoxville, Inc., a Delaware corporation. "YB OF LOS ANGELES" means Young Broadcasting of Los Angeles, Inc., a Delaware corporation. "YB OF LOUISIANA" means Young Broadcasting of Louisiana, Inc., a Delaware corporation. "YB OF NASHVILLE" means Young Broadcasting of Nashville, Inc., a Delaware corporation. "YB OF RAPID CITY" means Young Broadcasting of Rapid City, Inc., a Delaware corporation. "YB OF SIOUX FALLS" means Young Broadcasting of Sioux Falls, Inc., a Delaware corporation. 31 "YBK" means YBK, Inc., a Delaware corporation and wholly owned subsidiary of the Borrower. "YBT" means YBT, Inc., a Delaware corporation and wholly owned subsidiary of the Borrower. SECTION 1.2. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "FROM" means "FROM AND INCLUDING" and the words "TO" and "UNTIL" each mean "TO BUT EXCLUDING". SECTION 1.3. Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Independent Public Accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lenders; provided that, if there is a change in generally accepted accounting principles at any time and the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article 5 (or the definition of any term used therein) to eliminate the effect of such change on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Majority Lenders wish to amend Article 1 or 5 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Majority Lenders. ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) The Revolving Facility Advances. Each Lender severally agrees, on the terms and conditions set forth herein, to make one or more advances (each such advance, a "REVOLVING FACILITY ADVANCE") to the Borrower from time to time during the period from the Closing Date until the Termination Date pursuant 32 to this Section 2.01(A); provided that immediately after each Revolving Facility Advance, the sum of the aggregate outstanding principal amount of all Revolving Facility Advances for such Lender, all Letter of Credit Obligations for such Lender and such Lender's Revolving Facility Percentage of the aggregate outstanding principal amount of all Swingline Advances (excluding any portion of the Swingline Advances to be repaid with the proceeds of such Revolving Facility Advance) does not exceed at any time such Lender's Revolving Facility Commitment. Each Borrowing shall be in an aggregate amount not less than $1,000,000 or an integral multiple of $100,000 in excess thereof and shall consist of Revolving Facility Advances of the same Type made or Converted on the same day by the Lenders ratably according to their respective Revolving Facility Commitments. Within the foregoing limits, the Borrower may borrow under this Section 2.01(A), and repay or, to the extent permitted by Section 2.09, prepay Revolving Facility Advances and reborrow under this Section 2.01(A) at any time until the Termination Date. (b) The Swingline Advances. The Swingline Lender agrees, on the terms and conditions set forth herein, to make one or more advances (each such advance, a "SWINGLINE ADVANCE") to the Borrower from time to time during the period from the Closing Date until the Termination Date pursuant to this Section 2.01(B); provided that, immediately after each Swingline Advance, (i) the aggregate principal amount of all Swingline Advances shall not exceed the Swingline Commitment and (ii) the sum of the aggregate principal amount of all Swingline Advances plus the aggregate principal amount of all Revolving Facility Advances and all Letter of Credit Obligations shall not at any time exceed the aggregate amount of the Revolving Facility Commitments. Each Swingline Advance shall be a Base Rate Advance and shall be in an aggregate amount not less than $50,000 or an integral multiple thereof. Within the foregoing limits, the Borrower may borrow under this Section 2.01(B), and repay or, to the extent permitted by Section 2.09, prepay Swingline Advances and reborrow under this Section 2.01(B) at any time until the earlier of the Termination Date and the date when the Swingline Commitment shall have been reduced to zero or terminated pursuant to Section 2.07, 2.08 or 6.01. (c) Refunding of Swingline Advances. (i) The Borrower shall pay to the Swingline Lender, on demand, the amount of any outstanding Swingline Advances. (ii) At any time and from time to time the Swingline Lender may, by written notice to the Administrative Agent, which the Administrative Agent shall promptly forward to each Lender with a Revolving Facility Commitment, require each Lender with a Revolving Facility Commitment 33 to pay to the Swingline Lender an amount equal to such Lender's Revolving Facility Percentage of the aggregate unpaid principal amount of the Swingline Advances (excluding any Nonpermitted Swingline Advances) then outstanding. Any such notice (a "NOTICE OF SWINGLINE REFUNDING") shall specify the date on which such payments are to be made, which date shall be the next Domestic Business Day after such Notice of Swingline Refunding is delivered to the Administrative Agent, the aggregate unpaid principal amount of such Swingline Advances and payment instructions for such payments. (iii) Not later than 3:00 p.m. (New York City time) on the date specified in the Notice of Swingline Refunding, each Lender with a Revolving Facility Commitment shall pay such Lender's Revolving Facility Percentage of the aggregate unpaid principal amount of the Swingline Advances (excluding any Nonpermitted Swingline Advances) then outstanding to the Swingline Lender in accordance with the payment instructions set forth in the Notice of Swingline Refunding, in Federal or other funds immediately available in Charlotte, North Carolina. The amount so paid by each Lender with a Revolving Facility Commitment shall constitute a Revolving Facility Advance to the Borrower which shall be a Base Rate Advance; provided that, if the Lenders with Revolving Facility Commitments are prevented from making such Revolving Facility Advances to the Borrower by the provisions of the United States Bankruptcy Code or otherwise, the amount so paid by each such Lender shall constitute a purchase by it of an assignment in the unpaid principal amount of the Swingline Advances (and interest accruing thereon after the date of such payment), and the Swingline Lender and each Lender with a Revolving Facility Commitment shall promptly execute and deliver to the Administrative Agent an Assignment and Assumption Agreement to evidence such assignment. (iv) Each Lender with a Revolving Facility Commitment acknowledges and agrees that its obligations to refund Swingline Advances in accordance with the terms of this Section 2.01(C) are absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) any set- off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against the Swingline Lender or the Borrower, (ii) the occurrence or continuance of a Default or an Event of Default or the termination of the Revolving Facility Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person, (iv) any breach of this Agreement by the Borrower or any other Lender (other than the Swingline Lender, in such capacity) or (v) any 34 other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that no Lender shall be obligated to make any payment to the Swingline Lender under this Section 2.01(C) with respect to any portion of any Nonpermitted Swingline Advance. (v) If at any time the Swingline Lender is given written notice by the Administrative Agent or the Borrower that any condition set forth in Section 3.02 is not then satisfied, the Lenders shall not have any obligations pursuant to this Section 2.01(C) to refund (or purchase any assignment in) any Swingline Advances made by the Swingline Lender during the period after it has received such written notice until the time when it receives written notice from the Administrative Agent that such condition has been satisfied. SECTION 2.02. Method of Borrowing. (a) The Borrower shall give the Administrative Agent notice (a "NOTICE OF BORROWING") of (i) each Borrowing to be made on the Closing Date no later than the Domestic Business Day prior to the Closing Date, (ii) each Borrowing thereafter (other than Borrowings made to refund Swingline Advances pursuant to Section 2.01(C)(III)) not later than 10:00 A.M. (New York City time) on the third Eurodollar Business Day before each Eurodollar Rate Advance, the third Domestic Business Day before each Adjusted CD Rate Advance and the Domestic Business Day before each Base Rate Advance and (iii) each Swingline Advance not later than 11:00 A.M. (New York City time) on the date of each Swingline Advance, specifying: (i) the date of such Borrowing or Swingline Advance, which shall be a Domestic Business Day in the case of an Adjusted CD Rate Advance or a Base Rate Advance or a Eurodollar Business Day in the case of a Eurodollar Rate Advance, (ii) the aggregate amount of such Borrowing or Swingline Advance, (iii) the Type of Advances comprising such Borrowing or that the advance will be a Swingline Advance, and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. The Borrower shall deliver a copy of each Notice of Borrowing for a Swingline Advance to the Swingline Lender not later than 11:00 A.M. (New York City time) on the date of such Swingline Advance. 35 (b) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (c) Not later than Noon (New York City time) on the date of each Borrowing, each Lender with a Revolving Facility Commitment shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 8.02. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. (d) Not later than Noon (New York City time) on the date of each Swingline Advance, the Swingline Lender will make available the amount of such Swingline Advance, in Federal or other funds immediately available to the Borrower at the Swingline Lender's address specified in or pursuant to Section 8.02. (e) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (c) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such share available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.05 and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance included in such Borrowing for purposes of this Agreement. Nothing herein shall affect any rights that the Borrower may have against such defaulting Lender. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, 36 hereunder to make its Advance on the date of such Borrowing,but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Notes. (a) On the Closing Date, each "TERM LOAN NOTE" (as defined in the Existing Credit Agreement) issued pursuant to the Existing Credit Agreement shall be of no further force and effect, each "REVOLVING FACILITY NOTE" (as defined in the Existing Credit Agreement) issued pursuant to the Existing Credit Agreement shall be amended and restated by a Revolving Facility Note substantially in the form of Exhibit A-1 and the "Swingline Note" (as defined in the Existing Credit Agreement) issued pursuant to the Existing Credit Agreement shall be amended and restated by a Swingline Note substantially in the form of Exhibit A-2. From and after the Closing Date, the Revolving Facility Advances and Swingline Advances of each Lender shall be evidenced, respectively, by a Revolving Facility Note and Swingline Note payable to the order of such Lender for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Lender's Revolving Facility Advances and Swingline Advances, respectively. (b) Upon receipt of each Lender's Notes from the Borrower pursuant to Section 3.01, the Administrative Agent shall mail such Notes to such Lender. Each Lender shall record the date, amount and maturity of each Advance made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and prior to any transfer of its Note shall endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Advance then outstanding; provided that the failure of any Lender to make any such recordation or endorsement, or any error in such recordation or endorsement, shall not affect the obligations of the Borrower hereunder or under the Notes. Each Lender is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.04. Assignment and Assumption of Obligations under Existing Credit Agreement; Recharacterization of Term Loan Advances Under Existing Credit Agreement and Increase in Revolving Facility Commitments. (a) Each Old Lender and each Bank hereby agrees (subject, in the case of each Old Lender, to receipt by such Old Lender of any payments required under Section 2.04(g)) that immediately prior to (and subject to the condition subsequent of) the occurrence of the Closing Time (such immediately prior moment being referred to herein as the "TIME OF ASSIGNMENT"), each Old Lender hereby sells and assigns to each Bank, and each Bank hereby purchases and assumes from each Old Lender, an interest in and to all of such Old Lender's rights and obligations under the 37 Existing Credit Agreement at the Time of Assignment (including without limitation, an interest in each Old Lender's Revolving Facility Commitment under the Existing Credit Agreement and all outstanding Advances owing to each Old Lender under the Existing Credit Agreement), pro rata in accordance with such Bank's Revolving Facility Percentage (determined by reference to its Revolving Facility Commitment under this Amended Agreement), such that from and after the Time of Assignment, (i) each Bank will have a pro rata interest (based on such Bank's Revolving Facility Percentage) in each Term Loan Advance outstanding (if any) at the Time of Assignment (which will, as provided herein, become an amount of Revolving Facility Advance outstanding for such Bank as of the Closing Time) and (ii) each Bank will have a pro rata interest (based on such Bank's Revolving Facility Percentage) in each Revolving Facility Advance outstanding (if any) under the Existing Credit Agreement at the Time of Assignment. Immediately after the occurrence of the foregoing, upon the occurrence of the Time of Closing, (a) the principal amount of each Bank's interest in such Term Loan Advance shall be recharacterized for all purposes of the Agreement as an amount of Revolving Facility Advance outstanding pursuant to such Bank's Revolving Facility Commitment under this Amended Agreement, (b) the principal amount of each Bank's interest in such Revolving Facility Advances shall continue outstanding as Revolving Facility Advances pursuant to such Bank's Revolving Facility Commitment under this Amended Agreement and (c) the interests of the Banks in the Revolving Facility Commitments of the Old Lenders under the Existing Credit Agreement shall be reconstituted as the Revolving Facility Commitments of the Banks under this Amended Agreement. In furtherance of the foregoing, the Borrower agrees that at, and as a further condition to the occurrence of, the Time of Assignment and the Time of Closing the aggregate principal amount of Term Loan Advances and Revolving Facility Advances outstanding under the Existing Credit Agreement will not exceed $300,000,000 and there will be no outstanding Letters of Credit or Letter of Credit Obligations. (b) As consideration for the assignment and sale contemplated by Section 2.04 (a), each Bank shall pay to the Administrative Agent, for the account of each Old Lender, an amount equal to the aggregate amount of the Term Loan Advances and Revolving Facility Advances assigned to such Bank (net of the aggregate amount to be received by such Bank in its capacity as an Old Lender hereunder), in immediately available funds by no later than 11:00 A.M. (New York City time) on the Closing Date. Upon receipt of such funds from the Banks, the Administrative Agent shall promptly pay the aggregate amount that each Old Lender is entitled to receive from the Banks to such Old Lender in immediately available funds. It is understood that commitment and all other fees and interest accrued under the Existing Credit Agreement to the Closing Date are 38 for the account of the Old Lenders and such fees and interest accruing from and including the Closing Date under the Existing Credit Agreement, as amended and restated by this Amended Agreement, are for the account of the Banks. Each of the Old Lenders and each of the Banks hereby agrees that if it receives any amount under the Existing Credit Agreement or this Amended Agreement which is for the account of another party, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly return the same to the Administrative Agent for distribution to such other party. (c) The Administrative Agent hereby waives the processing fee referred to in Section 8.07(c) of the Existing Credit Agreement that would otherwise be payable in connection with the assignments made pursuant to this Section 2.04. (d) Each Old Lender: (i) represents and warrants that it is the legal and beneficial owner of the interests being assigned by it hereunder and that such interests are free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Existing Credit Agreement or this Amended Agreement, the other Loan Documents or the execution, legality, validity, enforce ability, genuineness, sufficiency or value of the Existing Credit Agreement or this Amended Agreement, the other Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of its Subsidiaries or the performance or observance by the Borrower and its Subsidiaries of their respective obligations under the Existing Credit Agreement or this Amended Agreement, the other Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) is selling all interest being sold hereunder without recourse and, except as provided in the foregoing clause (i), without representation or warranty. (e) Each Bank that is not an Old Lender confirms (solely for the benefit of the Old Lenders and the Agents) that it has received a copy of the Existing Credit Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amended Agreement. (f) From and after the Time of Assignment, each Old Lender shall relinquish its rights and be released from its obligations under the Existing Credit Agreement (as distinct from those rights and obligations that it acquires by virtue of being an Bank under this Amended Agreement). Notwithstanding the foregoing, the obligations of the Borrower to each Old Lender contained in Sections 2.10(e), 2.12, 2.14, 2.18 and 8.04(b) of the Existing Credit Agreement 39 and as set forth in Section 2.04(g) shall survive the occurrence of the Time of Assignment, but only as they relate to the period when such Old Lender was, or to such Old Lender's former status as, a Lender under the Existing Credit Agreement. (g) By its execution hereof, the Borrower agrees that on the Closing Date it will pay to each Old Lender (i) all interest, commitment and all other fees and any expenses that are accrued but unpaid to the Closing Date and payable to such Old Lender at any time under the terms of the Existing Credit Agreement and (ii) to the extent (1) any Old Lender's Fixed Rate Advances under the Existing Credit Agreement exceed the Advances assumed by such Old Lender as a Bank pursuant to this Section 2.04 and (2) the Closing Date is not the last day of the Interest Period applicable to such Fixed Rate Advances, the Borrower shall reimburse such Old Lender promptly after the Closing Date for any resulting loss or expense incurred by it (or by any existing Participant in the related Advance), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow; provided that such Old Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive absent manifest error. (h) From and after the Time of Assignment, the Administrative Agent shall make all payments under the Existing Credit Agreement in respect of the interests assigned hereby (including, without limitation, all payments of principal, interest, letter of credit fees and commitment fees (if applicable) with respect thereto) to each Bank, as appropriate. SECTION 2.05. Interest Rates. (a) Each Base Rate Advance (including each Swingline Advance) shall bear interest on the outstanding principal amount thereof, for each day from the later of the Closing Date and the date such Advance is made until it becomes due, at a rate per annum equal to the sum of (i) the applicable Base Rate Margin plus (ii) the Base Rate for such day. Except as provided in Section 3.01(B) or 2.05(F), such interest shall be payable in arrears on each Payment Date and, with respect to the principal amount of any Base Rate Advance converted to a Fixed Rate Advance, on the date when such Base Rate Advance is so converted. (b) Each Adjusted CD Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and after the Closing Date during the Interest Period applicable thereto, at a rate per annum equal to the sum of (i) the applicable CD Rate Margin plus (ii) the applicable Adjusted CD Rate; provided that if any Adjusted CD Rate Advance or any portion thereof shall, 40 as a result of clause (ii)(b)(i) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Advances during such period. Except as otherwise provided in Section 3.01(B) or 2.05(F), such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. The "ADJUSTED CD RATE" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate - --------------------------- * The amount in brackets being rounded upwards, if necessary, to the next higher 1/100 of 1% The "CD BASE RATE" applicable to any Interest Period is the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the unpaid principal amount of the Adjusted CD Rate Advance of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "DOMESTIC RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 41 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "ASSESSMENT RATE" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.3(e) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Eurodollar Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and after the Closing Date during the Interest Period applicable thereto, at a rate per annum equal to the sum of (i) the applicable Eurodollar Margin plus (ii) the applicable Adjusted London Interbank Offered Rate. Except as otherwise provided in Section 3.01(B) or 2.05(F), such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Eurodollar Reserve Percentage. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Eurodollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Eurodollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Rate Advance of such Eurodollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "EURODOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal 42 Reserve System in New York City with deposits exceeding five billion dollars in respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. (d) The Administrative Agent shall determine each interest rate applicable to the Advances hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Lenders by telex or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated hereby. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 2.16 shall apply. (f) Any overdue interest on any Advance shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the rate of interest borne by such Advance for such day. SECTION 2.06. Fees. (a) Commitment Fees. The Borrower shall pay to the Administrative Agent, for the account of the Lenders ratably in proportion to their respective Revolving Facility Commitments on each day, a commitment fee for each day on the amount by which the aggregate amount of the Revolving Facility Commitments exceeds the sum of the aggregate outstanding principal amount of the Revolving Facility Advances and the aggregate amount of Letter of Credit Obligations on such day, at the rate of (i) if the Debt to Operating Cash Flow Ratio as specified in the most recent Notice of Debt to Operating Cash Flow Ratio received by the Administrative Agent on or before such day is greater than 4.0, 3/8 of 1% per annum, (ii) otherwise, 1/4 of 1% per annum. Such commitment fee shall accrue from the Closing Date to the Termination Date and shall be payable quarterly in arrears on each Payment Date. 43 (b) Participation Fees. On the Closing Date, the Borrower shall pay to the Administrative Agent, for the account of the Co-Arrangers and the Lenders as previously agreed among them, amendment fees in the amounts previously agreed among the Borrower and the Co-Arrangers (c) Administrative Fees. On each anniversary of the Original Closing Date, the Borrower shall pay to the Administrative Agent for its own account annual administrative fees in the amounts previously agreed between the Borrower and the Administrative Agent. (d) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent a letter of credit fee at a rate per annum equal to the Letter of Credit Fee Rate in effect from time to time on the aggregate amount available for drawing under any Letters of Credits issued from time to time, such fee to be payable for the account of the Lenders with Revolving Facility Commitments ratably in proportion to their participation therein. The "LETTER OF CREDIT FEE RATE" in effect on any day, for any Letter of Credit, shall be the rate set forth below opposite the applicable range for the Debt to Operating Cash Flow Ratio as specified in the most recent Notice of Debt to Operating Cash Flow Ratio received by the Administrative Agent prior to such day:
Debt to Operating Cash Flow Ratio - --------------------------------- Greater than But Letter of Credit or equal to less than Fee Rate ------------ --------- ---------------- 6.0 N/A 2.00% 5.5 6.0 1.75% 5.0 5.5 1.50% 4.0 5.0 1.00% 0.0 4.0 0.75%
provided, however, that during any period in which an Event of Default shall have occurred and be continuing, the Letter of Credit Fee Rate shall be the Letter of Credit Fee Rate indicated in the above table plus 2% per annum. Such fee shall be payable in arrears on each Payment Date for so long as any Letter of Credit is outstanding. The Borrower shall also pay to the Issuing Bank fronting fees and issuance, payment, amendment and extension charges in the amounts and at the times as agreed between the Borrower and the Issuing Bank. 44 SECTION 2.7. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Revolving Facility Commitments if no Revolving Facility Advances, Swingline Advances or Letter of Credit Obligations are outstanding at such time, (ii) terminate the Swingline Commitment at any time if no Swingline Advances are outstanding at such time, (iii) ratably reduce from time to time, by an aggregate amount of $500,000 or any larger multiple of $100,000, the aggregate amount of the Revolving Facility Commitments in excess of the aggregate outstanding principal amount of the Revolving Facility Advances, Swingline Advances and Letter of Credit Obligations or (iv) reduce from time to time, by an aggregate amount of $50,000 or any integral multiple thereof, the amount of the Swingline Commitment in excess of the aggregate outstanding principal amount of the Swingline Advances. SECTION 2.8. Mandatory Termination of Commitments. The Revolving Facility Commitments and the Swingline Commitment shall terminate on the Termination Date, and any Revolving Facility Advances and Swingline Advances then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.9. Prepayments. (a) Optional Prepayments. The Borrower may, upon notice to the Administrative Agent in accordance with Section 2.09(C), prepay any Advance in whole at any time, or from time to time in part, in amounts aggregating $100,000 or any larger multiple thereof in the case of Revolving Facility Advances and in amounts aggregating $50,000 or any larger multiple thereof in the case of Swingline Advances by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and all amounts then owing under Section 2.12 in respect of such prepayment. Each such prepayment in respect of Revolving Facility Advances shall be applied to prepay ratably the Revolving Facility Advances of the several Lenders. (b) Mandatory Prepayments. (i) If on any date the Borrower has received the Net Proceeds from any issuance of equity securities (including, without limitation, any common stock, preferred stock, rights to subscribe for or to purchase, or any warrants or options to acquire any equity security or any instrument convertible into any equity security), and the aggregate amount of such Net Proceeds exceeds the amount, if any, of (A) the cash portion of the purchase price of any Permitted Acquisition and (B) the amount applied to redeem any Permitted Subordinated Debt (other than by application of the proceeds of any Refinancing Permitted Subordinated 45 Debt), in each case paid on or before the date 12 weeks after such date of issuance, then no later than such later date, the Borrower shall repay an outstanding principal amount of the Revolving Facility Advances equal to such excess. The Borrower shall pay the principal amount to be repaid together with accrued interest thereon to the date of prepayment and all amounts then owing under Section 2.12 in respect of such prepayment. (ii) If on any date the Borrower has received the Net Proceeds of the issuance of any Permitted Subordinated Debt (other than any Refinancing Permitted Subordinated Debt) , and the aggregate amount of such Net Proceeds exceeds the amount, if any, of the cash portion of the purchase price of any Permitted Acquisition paid on or before the date 12 weeks after such date of issuance, then no later than such later date the Borrower shall repay an outstanding principal amount of the Revolving Facility Advances by the amount of such excess. The Borrower shall pay the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and all amounts then owing under Section 2.12 in respect of such prepayment. (iii) If at any time the Borrower shall be required by clause (i) or (ii) of this subsection to repay Revolving Facility Advances by an amount that exceeds the amount of Revolving Facility Advances then outstanding, the Borrower shall forthwith, without any notice or demand or any other act by the Administrative Agent or any Lender, pay to the Administrative Agent in immediately available funds an amount equal to the lesser of such excess and the aggregate amount then available for drawing under all outstanding Letters of Credit, which amount shall be held as collateral for the benefit of the Lenders pursuant to arrangements satisfactory to the Administrative Agent; provided that if the amount of funds so held shall at any time exceed the Letter of Credit Obligations at such time, the Administrative Agent shall, if no Default has occurred and is continuing, promptly refund such excess to the Borrower. (c) Notice of Prepayment. In the case of any optional or mandatory prepayment pursuant to this Section 2.09, the Borrower shall give the Administrative Agent prior notice, of one Domestic Business Day in the case of the prepayment of Base Rate Advances and of three Domestic Business Days in the case of the prepayment of Eurodollar Rate Advances or Adjusted CD Rate Advances, stating the proposed date and aggregate principal amount of such prepayment. Upon receipt of a notice of prepayment pursuant to this Section 2.09, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrower. 46 SECTION 2.10. Letters of Credit. (a) Subject to the terms and conditions hereof, the Issuing Bank agrees to issue trade or standby letters of credit hereunder from time to time before the 30th day before the Termination Date upon the request of the Borrower (the "LETTERS OF CREDIT"); provided that, immediately after each Letter of Credit is issued, (i) the aggregate amount of the Letter of Credit Obligations shall not exceed the lesser of $5,000,000 and the aggregate amount of all Revolving Facility Commitments and (ii) the aggregate amount of the Letter of Credit Obligations plus the aggregate outstanding amount of all Revolving Facility Advances and Swingline Advances shall not exceed the aggregate amount of the Revolving Facility Commitments of all Lenders. Upon the date of issuance by the Issuing Bank of a Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Lender with a Revolving Facility Commitment, and each Lender with a Revolving Facility Commitment shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Obligations in proportion to its Revolving Facility Percentage. All Letters of Credit will be denominated in U.S. Dollars and will be issued on a sight basis only. (b) The Borrower shall give the Issuing Bank and the Administrative Agent written notice, in substantially the form of Exhibit K, at least two Domestic Business Days, or such shorter period as may be agreed to by the Issuing Bank in any particular instance, prior to the requested issuance of a Letter of Credit specifying the date such Letter of Credit is to be issued, and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby (such notice, including any such notice given in connection with the extension of a Letter of Credit, a "REQUEST FOR ISSUANCE"). Promptly after issuing a Letter of Credit, the Issuing Bank shall deliver to the Administrative Agent a copy of the Letter of Credit, and the Administrative Agent shall promptly deliver a copy of the Letter of Credit to each Lender with a Revolving Facility Commitment, and notify each such Lender of its participation in such Letter of Credit. The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article 3, be subject to the conditions precedent that such Letter of Credit shall be in such form and contain such terms as shall be satisfactory to the Issuing Bank and that the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested. The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit for all purposes of this Agreement. If any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Bank, the Issuing Bank (i) shall not be required to give such notice of termination unless the Borrower has timely requested such termination and (ii) may timely give such notice of termination unless it has theretofore timely received a Request for 47 Issuance and the other conditions to issuance of a Letter of Credit have also theretofore been met with respect to such extension. No Letter of Credit shall have a term of more than one year; provided that a Letter of Credit may contain a provision pursuant to which it is deemed to be extended for successive periods of up to one year unless notice of termination is given by the Issuing Bank; provided further that no Letter of Credit shall have a term extending or be so extendible beyond the Termination Date. (c) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Borrower, and the Administrative Agent shall promptly notify each Lender with a Revolving Facility Commitment, as to the amount to be paid as a result of such demand or drawing and the payment date. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Issuing Bank on such payment date for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit issued by it, without presentment, demand, protest or other formalities of any kind. All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate that would be applicable to a Revolving Facility Advance bearing interest at the Base Rate for such day. In addition, each Lender with a Revolving Facility Commitment will pay to the Administrative Agent, for the account of the Issuing Bank, immediately upon the Issuing Bank's demand at any time during the period commencing after such drawing until reimbursement therefor in full by the Borrower, an amount equal to such Lender's ratable share of the amount of such drawing remaining unpaid by the Borrower (in proportion to its participation therein), together with interest on such amount for each day from the date of the Issuing Bank's demand for such payment (or, if such demand is made after Noon (New York City time) on such date, from the next succeeding Domestic Business Day) to and including the date of payment by such Lender of such amount at a rate of interest per annum equal to the rate that would be applicable to a Revolving Facility Advance bearing interest at the Base Rate for such period. The Issuing Bank will pay to the Administrative Agent for the account of each Lender with a Revolving Facility Commitment ratably all amounts received from the Borrower for application in payment of its reimbursement obligations in respect of any Letter of Credit, but only to the extent such Lender has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto and the Administrative Agent will promptly distribute such amounts to such Lender in accordance with Section 2.11. (d) The obligations of the Borrower and each Lender with a Revolving Facility Commitment under Section 2.10(C) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of 48 this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforce ability of this Agreement or any Letter of Credit or any document related hereto or thereto; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto; (iii) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting); (iv) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), the Lenders (including the Issuing Bank) or any other Person, whether in connection with this Agreement or any Letter of Credit or any document related hereto or thereto or any unrelated transaction; (v) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment under a Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of such Letter of Credit; provided that the Issuing Bank's determination that documents presented under such Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct (as determined by a court of competent jurisdiction) of the Issuing Bank; or (vii) any other act or omission to act or delay of any kind by any Lender (including the Issuing Bank), the Administrative Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (vii), constitute a legal or equitable discharge of the Borrower's or the Lender's obligations hereunder. (e) The Borrower hereby indemnifies and holds harmless each Lender (including the Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Lender or the Administrative Agent may incur, and none of the Lenders (including the 49 Issuing Bank) nor the Administrative Agent nor any of their Affiliates or their respective officers or directors or employees or agents shall be liable or responsible therefor, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection (d) above, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of the Issuing Bank, including without limitation any government acts, or any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim for direct (but not consequential) damage suffered by it, to the extent found by a court of competent jurisdiction to have been caused by (x) the willful misconduct or gross negligence (as determined by a court of competent jurisdiction) of the Issuing Bank in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (y) the Issuing Bank's willful failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this subsection (e) is intended to limit the obligations of the Borrower under any other provision of this Agreement. SECTION 2.11. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Advances, of each Letter of Credit Obligation, and of all fees, expenses and other amounts payable hereunder, not later than Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 8.02. Payments received by the Administrative Agent on such date but after such time shall be deemed to have been received on the next Domestic Business Day. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of, or interest on, the Base Rate Advances or Adjusted CD Rate Advances or of any Letter of Credit or other fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Eurodollar Rate Advances shall be due on a day which is not a Eurodollar Business Day, the date for payment thereof shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Eurodollar 50 Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.12. Funding Losses. If the Borrower makes any payment (including any prepayment) of principal with respect to any Fixed Rate Advances (pursuant to this Article 2, Article 6 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or if the Borrower fails to borrow or Convert any Fixed Rate Advances after notice has been given to any Lender in accordance with Section 2.02(B) or Section 2.15, as the case may be, the Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Advance), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow; provided that such Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.13. Computation of Interest and Fees. Interest based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and commitment and letter of credit fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.14. Taxes. (a) For purposes of this Section 2.14, the following terms have the following meanings: 51 "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Lender and the Administrative Agent, taxes imposed on its net income, and franchise or similar taxes imposed on its net income, by a jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Lender, in which its Applicable Lending Office is located and (ii) in the case of each Lender, any United States withholding tax imposed on such payments but only to the extent that such Lender is subject to United States withholding tax at the time such Lender first becomes a party to this Agreement. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Lender or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Lender or the Administrative Agent (as the case may be) makes demand therefor. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this 52 Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form pursuant to Section 2.14(D) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 2.14(B) or (c) with respect to Taxes imposed by the United States; provided that if a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.14, then such Lender will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Lender, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Lender. SECTION 2.15. Voluntary and Mandatory Conversion of Advances. (a) On any Domestic Business Day after the third Domestic Business Day following the Closing Date, the Borrower may, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Domestic Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.15(B) and (c), 2.16 and 2.17, Convert all or a portion of each Lender's ratable share of Revolving Facility Advances of one Type comprising the same Borrowing into one or more Borrowings, each comprised of a ratable share of each Lender's Revolving Facility Advances of another Type; provided, however, that any Conversion of any Fixed Rate Advances into Advances of another Type shall be made on, and only on, the last day of an Interest Period for such Fixed Rate Advances; and provided further that during the three months prior to any date when any principal prepayment or repayment is payable, the Borrower may 53 Convert a portion of all Revolving Facility Advances comprising the same Borrowing into Base Rate Advances such that the aggregate principal amount of such Borrowing shall equal the principal prepayment or repayment payable on such date. Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Fixed Rate Advances, the duration of the Interest Period for each such Advance. (b) If the Borrower shall fail to select the duration of any Interest Period for any Adjusted CD Rate Advances or any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "INTEREST PERIOD" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances. (c) If the aggregate unpaid principal amount of Revolving Facility Advances comprising any Borrowing or Borrowings shall be reduced, by payment or prepayment or otherwise (including but not limited to a Conversion permitted by the second proviso of Section 2.15(A)), to less than $500,000, such Revolving Facility Advances shall, if they are Fixed Rate Advances, automatically Convert into Base Rate Advances on the last day of the Interest Period for such Fixed Rate Advances, and on and after such date the right of the Borrower to Convert such Advances into Revolving Facility Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such Revolving Facility Advance shall be of the same Type and have the same Interest Period as any other Revolving Facility Advances comprising another Borrowing and other Borrowings, and the aggregate unpaid principal amount of all such Revolving Facility Advances shall equal or exceed $500,000, the Borrower shall have the right to continue all such Revolving Facility Advances as, and to Convert all such Revolving Facility Advances into, Revolving Facility Advances of such Type having such Interest Period. SECTION 2.16. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Administrative Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) any Lender advises the Administrative Agent that the Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lender of funding its 54 Adjusted CD Rate Advance or Eurodollar Rate Advance, as the case may be, for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders to make Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be, shall be suspended. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be a Base Rate Advance Borrowing. SECTION 2.17. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Eurodollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Eurodollar Lending Office) to make, maintain or fund its Eurodollar Advances and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Eurodollar Advances shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Eurodollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such Lender shall determine that it may not lawfully continue to maintain and fund any of its outstanding Eurodollar Advances to maturity and shall so specify in such notice, (i) the obligation of such Lender to make Eurodollar Rate Advances and to Convert Advances into Eurodollar Rate Advances shall terminate and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of such Lender then outstanding, together with accrued interest thereon, unless the Borrower, within five Domestic Business Days of such notice and demand, Converts all Eurodollar Rate Advances of all Lenders then outstanding into Base Rate Advances in accordance with Section 2.15(A), except that such Conversion may occur, notwithstanding Section 2.15(A), other than on the last day of the respective Interest Periods for such Eurodollar Rate Advances, if the Borrower has paid any amounts payable under Section 2.12. 55 SECTION 2.18. Increased Cost and Reduced Return. (a) If on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any Adjusted CD Rate Advance any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Eurodollar Rate Advance any such requirement included in an applicable EuroDollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any Adjusted CD Rate Advance, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Advances, its Note or its obligation to make Fixed Rate Advances and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Fixed Rate Advance, or of issuing or maintaining any Letter of Credit or its obligations with respect thereto as the Issuing Bank or as a Lender participating therein, or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Lender to be material, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender on an after-tax basis for such increased cost or reduction. (b) If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or its Parent) as a consequence of such Lender's obligations hereunder to a level below that which such Lender (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Lender to be material, 56 then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its Parent) on an after-tax basis for such reduction. (c) Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. SECTION 2.19. Base Rate Advances Substituted for Affected Fixed Rate Advances. If (i) the obligation of any Lender to make Eurodollar Rate Advances had been suspended pursuant to Section 2.17 or (ii) any Lender has demanded compensation under Section 2.14 or 2.18(A) and the Borrower shall, by at least five Eurodollar Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Advances which would otherwise be made by such Lender as Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be, shall be made instead as Base Rate Advances (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Advances of the other Lenders), and (b) after each of its Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Advances shall be applied to repay its Base Rate Advances instead. SECTION 2.20. Use of Proceeds. The Borrower will use the proceeds of Borrowings and Swingline Advances on and after the Closing Date for working capital needs, Capital Expenditures, and general corporate purposes of the Borrower and the Guarantors; provided that (x) for this purpose, "GENERAL CORPORATE PURPOSES" includes Restricted Payments to the extent permitted by 57 clause (iii) or (iv) of Section 5.02(G) hereof, Permitted Acquisitions and Permitted Subordinated Debt Repurchases and (y) the aggregate amount of Borrowings that shall have been used for Capital Expenditures, Restricted Payments, Permitted Acquisitions, and Permitted Subordinated Debt Repurchases on and after the Closing Date shall not, in the aggregate, exceed $285,000,000 outstanding at any time minus the aggregate amount of all reductions in the Revolving Facility Commitments pursuant to Section 2.07 hereof. None of the proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "MARGIN STOCK" within the meaning of Regulation G or Regulation U, other than proceeds of Advances used to purchase shares of common stock of the Borrower to the extent permitted by Section 5.02(G) hereof. ARTICLE 3 CONDITIONS PRECEDENT SECTION 3.01. Conditions Precedent to Closing Date. Notwithstanding the execution and delivery of this Amended Agreement by all parties hereto, the Existing Credit Agreement shall remain in full force and effect and shall not be amended hereby unless and until the Closing Date occurs. The effectiveness of the amendment and restatement of the Existing Credit Agreement to be effected by this Amended Agreement, and the obligation of each Lender to make any Revolving Facility Advance and any Swingline Advance, if any, on the Closing Date shall occur at the Closing Time on the Closing Date and shall be subject to the conditions precedent that: (a) The Administrative Agent shall have received certified copies of the respective certificates of incorporation and bylaws of the Borrower and its corporate Subsidiaries and the respective certificates of limited partnership and agreements of limited partnership for the partnership Subsidiaries; (b) The Borrower shall have paid or caused to be paid, or the Administrative Agent shall have received evidence satisfactory to it in its sole good faith discretion that on the Closing Date the Borrower shall pay, or cause to be paid, (i) all interest and commitment fees that are accrued but unpaid to the Closing Date under the Existing Credit Agreement (whether or not then payable under the terms thereof), (ii) all fees and expenses (if any) payable under Section 8.04 of the Existing Credit Agreement, (iii) all accrued fees and expenses of the Administrative Agent, the Documentation Agent, the Syndication Agent, the Co- Arrangers and the Lenders, including without limitation the amendment fees 58 payable under Section 2.06(B), (iv) all amounts payable pursuant to Section 2.04(G) and (v) all fees and expenses of Davis Polk & Wardwell, in connection with the preparation, execution and delivery of this Agreement, the other Loan Documents and the consummation of the transactions contemplated hereby and thereby, in each case for which the Borrower has received a statement on or before the Closing Date; (c) There shall not have been any material adverse change in the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries since December 31, 1996; (d) Except for the Disclosed Litigation, there shall exist no pending or threatened action, suit, investigation, litigation or proceeding in any court or before any arbitrator or governmental instrumentality which, in the reasonable opinion of the Lenders, could have a material adverse effect on the condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries or which, in the reasonable opinion of the Majority Lenders, may adversely affect the legality, validity or enforce ability of this Agreement, any other Loan Document or any Related Document, the ability of any Loan Party to perform its obligations hereunder or thereunder, or the rights of any Lender hereunder or thereunder or the ability of any Lender to exercise such rights; (e) All material governmental and third party consents and approvals necessary or, in the opinion of the Majority Lenders, desirable or appropriate in connection with the Closing Date Transactions shall have been obtained (without the imposition of any conditions other than conditions that have been satisfied or waived on or before the Closing Date) and shall be in effect (it being understood that all Federal governmental consents and approvals are material); (f) The Administrative Agent shall have received the following, each effective on the Closing Date (unless otherwise indicated below), in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Lender (except for the Notes): (1) A Notice of Borrowing as required by Section 2.02(A) in respect of each Borrowing and Swingline Advance to be borrowed on the Closing Date, dated the date of its delivery; (2) Evidence of receipt by the Administrative Agent from each Lender of all amounts payable by such Lender pursuant to Section 2.04(B); (3) The Revolving Facility Notes and Swingline Note to the order of the respective Lenders; 59 (4) Duly executed counterparts of this Amended Agreement, signed by each of the parties hereto (or, in the case of any Lender as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such Lender of execution of a counterpart hereof by such Lender); (5) Duly executed counterparts of the 1997 Global Collateral Documents and Guaranty Agreement Amendment; and (6) Evidence (A) reasonably satisfactory to the Administrative Agent that financing statements (the "EXISTING FINANCING STATEMENTS") have previously been duly filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Administrative Agent, desirable or appropriate to perfect the security interests created by the Security Agreements, the Pledge Agreements and the Mortgages, as such agreements relate to the Borrower or any Existing Guarantors; and (B) that all other actions necessary or, in the opinion of the Administrative Agent, desirable or appropriate to perfect and protect the security interests and liens created by, and to reflect the fact that the Administrative Agent is the secured party under, the Pledge Agreements and the Security Agreements have been taken; (7) Duly executed counterparts of the Mortgage Amendments and: (A) with respect to each Mortgage an endorsement to the policy of title insurance issued under the Existing Credit Agreement with respect thereto confirming the insurance of the Lien of such Mortgage, as amended by the relevant Mortgage Amendment, and continuing the coverage of such policy to the Closing Date, in each case issued by the title company insuring the Lien of such Mortgage under the Existing Credit Agreement; and (B) evidence satisfactory to the Administrative Agent that arrangements shall have been made for the recording of each Mortgage Amendment; 60 (8) Certified copies of the resolutions of the Board of Directors of the Borrower approving each Amendment Document to which it is or is to be a party and of the resolutions of the Board of Directors of each Guarantor approving each Amendment Document to which it is or is to be a party; (9) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Guarantor certifying the names and true signatures of the officers of such Loan Party authorized to sign each Amendment Document to which it is or is to be a party and the other documents to be delivered by it hereunder; (10) Copies of all authorizations, consents and approvals of, evidence of other actions by, notices to and filings with all governmental authorities and regulatory bodies required for the due execution, delivery and performance by each of the Borrower and the Guarantors of the Amendment Documents; (11) Copies of the financial statements described in Section 4.01(F); (12) Evidence of insurance for the business and properties of the Borrower and its Subsidiaries, in form and substance satisfactory to the Administrative Agent (and if requested by the Administrative Agent, naming the Administrative Agent as insured and loss payee) with responsible and reputable insurance companies or associations satisfactory to the Majority Lenders in such amounts and covering such risks as are satisfactory to the Majority Lenders; (13) To the extent not previously delivered to the Administrative Agent under the Existing Credit Agreement, copies of each agreement, note, instrument or other document evidencing Debt listed on Schedule 4.01(n) having an unpaid principal amount in excess of $100,000, together with copies of all consents of the obligees of the Debt listed on Schedule 4.01(n) (regardless of principal amount) necessary or, in the judgment of the Majority Lenders, desirable; (14) A favorable opinion of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel for the Borrower and each Guarantor, in substantially the form of Exhibit F and as to such other matters as any Lender through the Administrative Agent may reasonably request, and a favorable opinion of special FCC counsel for the Borrower, in 61 substantially the form of Exhibit H, and such other opinions as any Lender through the Administrative Agent may reasonably request; (15) An opinion of Davis Polk & Wardwell, in substantially the form of Exhibit I; (16) A letter, in form and substance satisfactory to the Administrative Agent and the Lenders, from the Borrower to the Independent Public Accountants, advising such accountants that the Agents and the Lenders have been authorized to exercise all rights of the Borrower to require such accountants to disclose any and all financial statements and any other information of any kind that they may have with respect to the Borrower and each of its Subsidiaries, directing such accountants to comply with any request of any Agent or any Lender for such information and advising such accountants that the Lenders will rely on such information in making credit decisions with respect to the Borrower; (17) A certificate of the chief financial officer of the Borrower, in substantially the form of Exhibit J, determining the Debt to Operating Cash Flow Ratio as of September 30, 1997 and certifying the Borrower's compliance as of September 30, 1997 with the provisions of this Agreement set forth therein; (18) A certificate of the chief financial officer of the Borrower to the effect that both before and immediately after the making of the Borrowings to be made on the Closing Date, (i) no Default shall have occurred and be continuing and (ii) the representations and warranties of the Borrower made in this Agreement are true; (19) A copy of (i) a written notice delivered by the Borrower to the trustee under each of the indentures governing the Existing Subordinated Debt, that all of the obligations of the Borrower and the Guarantors under this Agreement, the Guaranty Agreement and the other Loan Documents are "DESIGNATED SENIOR DEBT" under each such indenture and (ii) written confirmation by each such trustee of receipt of such notice; (20) All Existing Notes, each of which shall be canceled and returned to the Borrower on the Closing Date; and 62 (21) Such other financial and non-financial information regarding the Borrower or any of its Subsidiaries and such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.2. Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including on the Closing Date), of the Issuing Bank to issue a Letter of Credit and of the Swingline Lender to make a Swingline Advance shall be subject to the further conditions precedent that on the date of such Borrowing, Letter of Credit issuance or Swingline Advance, the following statements shall be true (and each of the giving of the applicable Notice of Borrowing or Request for Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or Swingline Advance or the issuance of the Letter of Credit on behalf of the Borrower shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or of such Letter of Credit issuance, such statements are true): (a) the Administrative Agent shall have received a Notice of Borrowing with respect to such Borrowing or Swingline Advance (with a copy to the Swingline Lender, in the case of a Swingline Advance) as required by Section 2.02(A) or the Issuing Bank shall have received a Request for Issuance with respect to such Letter of Credit issuance as required by Section 2.10. (b) immediately after such Borrowing or Letter of Credit issuance or Swingline Advance, the aggregate outstanding principal amount of all Revolving Facility Advances, Swingline Advances and Letter of Credit Obligations will not exceed the aggregate amount of all Revolving Facility Commitments and the aggregate outstanding principal amount of all Swingline Advances will not exceed the Swingline Commitment; (c) the representations and warranties contained in this Agreement, the Guaranty Agreement, each Security Agreement, each Pledge Agreement and each Mortgage are correct on and as of the date of such Borrowing, Swingline Advance or Letter of Credit issuance, before and after giving effect to such Borrowing, Swingline Advance or Letter of Credit issuance, and to the application of the proceeds therefrom, as though made on and as of such date; (d) no event shall have occurred and be continuing, or would result from such Borrowing or Letter of Credit issuance or Swingline Advance, or from the application of the proceeds therefrom, which constitutes a Default or an Event of Default; 63 (e) if such Borrowing, Letter of Credit issuance or Swingline Advance is to be secured, directly or indirectly, by any "MARGIN STOCK" (within the meaning of Regulation G or Regulation U), the Administrative Agent shall have received (i) a duly executed Federal Reserve Form FR U-1 for each Lender that is a bank, for the Issuing Bank or for the Swingline Lender, as the case may be, and (ii) a duly executed Federal Reserve Form FR G-3 for each Lender that is not a bank, in each case signed and accepted by a duly authorized representative of the applicable Lender, the Issuing Bank or the Swingline Lender, as the case may be; and (f) the Administrative Agent, or the Issuing Bank in the case of a Letter of Credit issuance, shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.3. Conditions Precedent to Borrowings in Connection with Permitted Acquisitions. The obligation of each Lender to make an Advance on or after the date of any Permitted Acquisition shall be subject to the conditions precedent that: (a) The Borrower shall have demonstrated to the satisfaction of the Agents that the acquisition constitutes a Permitted Acquisition; (b) The Borrower shall have demonstrated to the satisfaction of the Agents in their sole good faith discretion that the closing of such Permitted Acquisition shall occur on such date; (c) Except for the Disclosed Litigation, there shall exist no pending or threatened action, suit, investigation, litigation or proceeding in any court or before any arbitrator or governmental instrumentality which, in the reasonable opinion of the Agents, could have a material adverse effect on the condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries, whether before or after giving effect to such Permitted Acquisition, or which, in the reasonable opinion of the Agents, may adversely affect the legality, validity or enforce ability of this Agreement or any other Loan Document, the ability of any Loan Party to perform its obligations hereunder or thereunder, or the rights of any Lender hereunder or thereunder or the ability of any Lender to exercise such rights; (d) All material governmental and third party consents and approvals necessary or, in the opinion of the Agents, desirable or appropriate in connection with the consummation of such Permitted Acquisition shall have been obtained (without the imposition of any material adverse conditions) and shall be in effect (it being understood that all Federal governmental consents and approvals are 64 material), and the Administrative Agent shall have received evidence satisfactory to it that the station licenses issued by the FCC relating to the television broadcasting operations of any television stations to be acquired pursuant to such Permitted Acquisition shall have been validly assigned to one or more Subsidiaries of the Borrower, and shall be in full force and effect; (e) The Administrative Agent shall have received the following, each dated the closing date for such Permitted Acquisition (unless otherwise indicated below), in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Lender (except for the certificates representing any Pledged Stock to be pledged to the Administrative Agent, the stock powers delivered in connection with such Pledged Stock, and any instruments representing Pledged Instruments to be pledged to the Administrative Agent): (1) A Notice of Borrowing as required by Section 2.02(A) in respect of any Borrowing to be borrowed on the closing date for such Permitted Acquisition, dated the date of its delivery; (2) Duly executed counterparts of an agreement pursuant to which each Subsidiary created or acquired in connection with such Permitted Acquisition shall become obligated as a Guarantor under the Guaranty Agreement; (3) Certificates and instruments representing any Pledged Stock or Pledged Instruments required to be delivered by the Borrower or any Subsidiary on or before the closing date for such Permitted Acquisition, including certificates representing all shares of capital stock of each Subsidiary created or acquired in connection with such Permitted Acquisition, accompanied by duly executed instruments of transfer or assignment in blank, in form and substance satisfactory to the Administrative Agent; (4) Duly executed counterparts of a Guarantor Security Agreement, and, if applicable, of a Guarantor Pledge Agreement with respect to each Subsidiary created or acquired in connection with such Permitted Acquisition, together with: (A) financing statements signed by each Subsidiary created or acquired in connection with such Permitted Acquisition, with evidence reasonably satisfactory to the Administrative Agent that such financing statements will be duly filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Administrative Agent, desirable or appropriate to 65 perfect the security interests created by the Security Agreements and the Mortgages, and (B) evidence that all other actions necessary or, in the opinion of the Administrative Agent, desirable or appropriate to perfect and protect the security interests and liens created by, and to reflect the fact that the Administrative Agent is the secured party under, the Borrower Pledge Agreement, any applicable Guarantor Pledge Agreement and the Security Agreements shall have been taken; (5) Duly executed counterparts of Mortgages (each, a "PERMITTED ACQUISITION MORTGAGE") with respect to any Real Property to be acquired by the Borrower or any of its Subsidiaries in connection with such Permitted Acquisition and, with respect to each Permitted Acquisition Mortgage: (A) a policy of title insurance dated the closing date for such Permitted Acquisition (or irrevocable commitments to issue such policy, with all conditions marked satisfied, dated and recertified the closing date for such Permitted Acquisition) insuring the perfection, enforce ability and first priority of the Lien created under such Permitted Acquisition Mortgage as a valid first mortgage Lien on the Real Property described therein in form and substance and in an amount satisfactory to the Administrative Agent (with all premiums, expenses and fees paid or caused to be paid by the Borrower), each of which policy or policies shall (w) be issued by a title company reasonably satisfactory to the Administrative Agent, (x) include such reinsurance arrangements (with provisions for direct access) as shall be reasonably acceptable to the Administrative Agent, (y) have been supplemented by such endorsements, or, where such endorsements are not available at commercially reasonable premium costs, opinion letters of special counsel, architects or other professionals, which counsel, architects or other professionals shall be reasonably acceptable to the Administrative Agent, as shall be requested by Administrative Agent (including, without limitation, endorsements or opinion letters on matters relating to usury, contiguity, variable rate, revolving credit, doing business, and so-called comprehensive coverage over covenants and restrictions) and (z) contain only such exceptions to title as shall be reasonably satisfactory to the Administrative Agent; 66 (B) with respect to the Real Property encumbered by each Permitted Acquisition Mortgage, an ALTA survey with respect to such Real Property, in form and substance reasonably satisfactory to the Administrative Agent; and (C) evidence satisfactory to the Administrative Agent that arrangements shall have been made for the recording of each Permitted Acquisition Mortgage; (6) Certified copies of the resolutions of the Board of Directors of the Borrower and each Subsidiary party hereto and thereto approving each agreement to which it is or is to be a party in connection with such Permitted Acquisition; (7) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Subsidiary certifying the names and true signatures of the officers of the Borrower or such Subsidiary who shall be authorized to sign each agreement to which it is or is to be a party in connection with such Permitted Acquisition and the other documents to be delivered by it hereunder or thereunder; (8) Copies of all authorizations, consents and approvals of, evidence of other actions by, notices to and filings with all governmental authorities and regulatory bodies required for the due execution, delivery and performance by the Borrower or any Subsidiary of each agreement to which it is or is to be a party in connection with such Permitted Acquisition and the other documents to be delivered by it thereunder; (9) Certificates of the chief financial officer of the Borrower and of each Subsidiary created or acquired in connection with such Permitted Acquisition in substantially the form of Exhibit L or M, as the case may be; (10) Evidence of insurance for the business and properties of each Subsidiary created or acquired in connection with such Permitted Acquisition, in form and substance satisfactory to the Administrative Agent (and if requested by the Administrative Agent, naming the Administrative Agent as additional insured and loss payee) with responsible and reputable insurance companies or associations satisfactory to the Co-Arrangers in such amounts and covering such risks as are satisfactory to the Agents; 67 (11) A favorable opinion of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel for the Borrower and each Guarantor, in substantially the form of Exhibit F (but expressing opinions with respect to such Permitted Acquisition) and as to such other matters as any Lender through the Administrative Agent may reasonably request. (12) Favorable opinions of local counsel for the Borrower with respect to each jurisdiction where any Real Property to be acquired in connection with such Permitted Acquisition shall be located, in each case in substantially the form of Exhibit G (but expressing opinions with respect to such Permitted Acquisition), and a favorable opinion of special FCC counsel for the Borrower, in substantially the form of Exhibit H (but expressing opinions with respect to such Permitted Acquisition), and such other opinions as any Lender through the Administrative Agent may reasonably request; (13) An environmental report, in each case in form and substance satisfactory to the Agents, with respect to properties to be acquired, leased or operated by the Borrower or any of its Subsidiaries in connection with such Permitted Acquisition; (14) The written consent of each party (other than the Borrower or any of its Subsidiaries) to any agreement to which it is or is to be a party in connection with such Permitted Acquisition to the assignment by the Borrower or any Guarantor of its rights and claims under such agreement to the Administrative Agent under the Borrower Security Agreement or a Guarantor Security Agreement; (15) A certificate of the chief financial officer of the Borrower, in substantially the form of Exhibit J, certifying the Borrower's compliance as of the most recent date for compliance prior to the date of such certificate, after giving effect on a Pro Forma Basis to such Permitted Acquisition, with the provisions of this Agreement set forth therein; and (16) Such other financial and non-financial information regarding the Borrower or any of its Subsidiaries and such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. ARTICLE 4 68 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) Due Incorporation, Etc. Each of the Borrower and its Subsidiaries that is a corporation is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated next to such corporation's name on Schedule 4.01(a) and has all requisite corporate powers and all FCC and all other material governmental licenses, authorizations, consents and approvals required to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted and to execute and deliver, and to perform all of its obligations under, the Loan Documents to which it is or will be a party. Each of the Borrower and each of its Subsidiaries that is a corporation is duly qualified or licensed to do business as a foreign corporation in good standing in all jurisdictions in which it owns or leases assets and property or in which the conduct of its business requires it to so qualify or be licensed, except for such jurisdictions in which the failure to so qualify or be licensed would not have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or such Subsidiary, as the case may be. Each of the Borrower's Subsidiaries that is a partnership is a partnership duly organized, validly existing and in good standing under the laws of the jurisdiction under which it is organized and has all requisite power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted and to execute and deliver, and to perform all of its obligations under, the Loan Documents to which it is or will be a party. Each of the Borrower's Subsidiaries that is a partnership is duly qualified or licensed to do business and has complied with all fictitious name statutes and other similar laws in all jurisdictions in which it owns or leases assets and property or in which the conduct of its business requires it to so qualify or be licensed or comply, except for such jurisdictions in which the failure to so qualify or be licensed or comply would not have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of such Subsidiary. (b) Due Authorization and Execution, Etc. The execution, delivery and performance by the Borrower and each of its Subsidiaries of each Loan Document to which it is or will be a party and the transactions contemplated by the Loan Documents are within the Borrower's and such Subsidiary's corporate powers (or its partnership powers, in the case of each Subsidiary that is a partnership), have been duly authorized by all necessary corporate action (or all necessary action of the partners, in the case of each Subsidiary that is a partnership) and do not and 69 will not (i) require any consent or approval of the stockholders or partners of the Borrower or such Subsidiary except such consents and approvals as shall have been duly obtained and shall be in full force and effect, (ii) contravene the Borrower's or such Subsidiary's certificate of incorporation or by-laws, in the case of each Subsidiary that is a corporation, or the partnership agreement governing such Subsidiary, in the case of each Subsidiary that is a partnership, (iii) violate any law, rule, regulation (including, without limitation, Regulations G, U and X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award or any contractual restriction binding on or affecting the Borrower or such Subsidiary, or any of their respective properties, or (iv) result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature (other than pursuant to the Loan Documents) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries is in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or restriction. (c) Government Consents. No authorization, consent, approval or other action by, and no notice to or filing with, any governmental, administrative or judicial authority or regulatory body is currently, or is reasonably expected to be, required for the due execution, delivery or performance by the Borrower or any of its Subsidiaries of any Loan Document to which it is or will be a party and the operation of the television broadcasting business of the Borrower and its Subsidiaries other than the filing of the Existing Financing Statements and the recording of the Mortgages, all of which have been made and are in full force and effect, and except for the filing of certain of the Loan Documents with the FCC within 30 days of their execution pursuant to 47 C.F.R. Section 73.3613. (d) Legal, Valid and Binding Nature. This Agreement is, and each other Loan Document and each Related Document to which the Borrower or any of its Subsidiaries is or will be a party will, when delivered, be a legal, valid and binding obligation of the Borrower and such Subsidiaries as are or will be parties thereto, enforceable against the Borrower and such Subsidiaries in accordance with its respective terms, except (other than in the case of Article X of the indentures governing the Existing Subordinated Debt and any similar provisions of any indentures governing any other Permitted Subordinated Debt) as such enforcement may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and general principles of equity. (e) Capitalization and Subsidiaries. On the Closing Date, the authorized capital stock of the Borrower will consist of: 20,000,000 shares of Class A Common Stock, par value $.001 per share; 20,000,000 shares of Class B 70 Common Stock, par value $.001 per share; and 20,000,000 shares of Class C Common Stock, par value $.001 per share. Set forth on Schedule 4.01(a) is a complete and accurate list of all of the Borrower's Subsidiaries as of the Closing Date, showing as of such date (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, the number of shares of each class of capital stock outstanding on the date hereof, the direct owner of the outstanding shares of each such class owned and the jurisdictions in which such Subsidiary is qualified to do business as a foreign corporation. All of the general and limited partnership interests of each Subsidiary that is a partnership are owned, legally and beneficially, by the Borrower or a wholly owned Subsidiary of the Borrower, in each case free and clear of all liens, security interests and other charges or encumbrances other than the liens and security interests under the Security Agreements. Except as set forth in Schedule 4.01(e), there are no outstanding options, warrants, rights of conversion or purchase, or similar rights to acquire capital stock or partnership interests of the Borrower or any of its Subsidiaries or other agreements of any character whatsoever relating to any shares of capital stock or partnership interests of the Borrower or any such Subsidiaries; all of the issued and outstanding capital stock of the Borrower and each of its Subsidiaries that is a corporation has been duly authorized, validly issued and is fully paid and non-assessable; all of the partnership interests of each Subsidiary that is a partnership have been validly issued pursuant to the terms of the applicable partnership agreement; all of the issued and outstanding capital stock of each Subsidiary of the Borrower that is a corporation is directly owned, legally and beneficially, by the Borrower, in each case free and clear of all liens, security interests and other charges or encumbrances other than the Liens created by the Pledge Agreements and Security Agreements. (f) Financial Statements; No Material Adverse Change. The consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1996 and the related consolidated statements of income and shareholders' equity and statement of changes in cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, fairly present, respectively, the consolidated financial condition of the Borrower and its Subsidiaries as at such date and the consolidated results of operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles. Copies of each of the financial statements described in this Section 4.01(F) have been furnished to each Lender. Since December 31, 1996 there has been no material adverse change in the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or of any of its Subsidiaries or of the Borrower and its Subsidiaries taken as a whole. 71 (g) Solvency. Each of the Borrower and the Borrower and its Subsidiaries taken as a whole and each Guarantor individually and taken as a whole with its Subsidiaries is and, after receipt and application of the Advances in accordance with the terms of this Agreement, will be Solvent. (h) Absence of Litigation; Litigation Description. (i) No actions, suits, investigations, litigation or proceedings are pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries or the properties of the Borrower or any such Subsidiary before any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (A) which may materially adversely affect the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any such Subsidiary, except as disclosed in Schedule 4.01(h) (the "DISCLOSED LITIGATION"), or (B) which purports to affect the legality, validity or enforce ability of this Agreement or any other Loan Document, the ability of any Loan Party to perform its obligations hereunder or thereunder, or the rights of any Lender hereunder or thereunder or the ability of any Lender to exercise such rights. (ii) Except for the Disclosed Litigation, no action, suit, investigation, litigation or proceeding is pending or, to the knowledge of the Borrower, threatened in any court or before any arbitrator or governmental entity specified above in connection with the Closing Date Transactions or in connection with the use of the proceeds hereof or thereof. (iii) On the Closing Date and at all times thereafter, there shall have been no change since the date of this Agreement in the status of any of the actions, suits, investigations, litigation or proceedings referred to in Schedule 4.01(h) that is materially adverse to the Borrower or any of its Subsidiaries, the Closing Date Transactions or the Loan Documents. (i) Ownership of Properties; Absence of Liens and Encumbrances. The Borrower and its Subsidiaries have good and marketable title to and are in lawful possession of, or have valid leasehold interests in, or have the right to use pursuant to valid and enforceable agreements or arrangements, all of their respective properties and other assets (real or personal, tangible, intangible or mixed), except where the failure to have or possess the same with respect to such properties or other assets would not, in the aggregate, have a material adverse effect on the business, condition (financial or otherwise), operations, properties or 72 prospects of the Borrower or any of its Subsidiaries. Except as disclosed on Schedule 4.01(i) of the Existing Credit Agreement, there are no material Liens on any property or asset of the Borrower or any of its Subsidiaries except for the security interests created under the Pledge Agreements, the Security Agreements and the Mortgages, it being understood that, for purposes only of this Section 4.01(I), any Lien having a value of $250,000 or more on property or assets is material. (j) No Burdensome Agreements. Neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or partnership agreement or other partnership restriction that would have a material adverse effect (i) on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries, or (ii) on the ability of the Borrower or any of its Subsidiaries to carry out its obligations under any of the Loan Documents to which it is or will be a party; provided that it is agreed that the indentures governing the Existing Subordinated Debt and any other indentures in substantially the same form as such indentures, do not have any such effect. (k) Payment of Taxes. The Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and franchise tax returns and information and other similar filings, and all material other tax returns and information and other similar filings, required to be filed, and paid all amounts of taxes, including interest and penalties, which have become due pursuant to such returns or pursuant to any assessments received by the Borrower or any of its Subsidiaries, except to the extent of any taxes being contested by or on behalf of the Borrower or such Subsidiary in good faith and by proper proceedings and for which adequate provision for payment has been made and adequate reserves are being maintained in accordance with generally accepted accounting principles consistently applied by the Borrower or such Subsidiary, as the case may be, and so long as the proceedings referred to above could not subject any Agent or any Lender to any civil or criminal penalty or liability or involve any risk of loss, sale or forfeiture of any material item of Collateral. The Borrower has no knowledge of any actual or proposed additional tax assessments against it or any of its Subsidiaries which, singly or in the aggregate, could have a material adverse effect on the Borrower or any of its Subsidiaries. (l) Accuracy of Information Given to Lenders. No information, exhibit, report, document, certificate or written statement, including without limitation this Agreement, furnished in writing to any Lender by or on behalf of the Borrower in connection herewith contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained therein, in light 73 of the circumstances under which such information, exhibit, report or other written information was or is to be used, not misleading, nor do such information, exhibits, reports, documents, certificates and statements, taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. There is no fact known to the Borrower or any officer of the Borrower which the Borrower has not disclosed to the Lenders in writing which in the reasonable judgment of the Borrower and its officers would materially adversely affect the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries or the ability of the Borrower or any of its Subsidiaries to perform its respective obligations under any Loan Document or any document contemplated hereby or thereby. The financial projections and forecasts of the Borrower delivered by the Borrower to any of the Agents, the Co-Arrangers and the Lenders were prepared on the basis of the assumptions stated therein and represented, at the time of delivery, the Borrower's best estimate of its future financial performance and such assumptions were fair in the light of business conditions existing at the time of such delivery of such projections and forecasts; and any such financial projections and forecasts, if prepared as of the date hereof, would contain estimates of the Borrower's future financial performance which would not materially adversely differ from the respective estimates contained in the financial projections and forecasts delivered by the Borrower to any of the Agents, the Co-Arrangers and the Lenders. (m) ERISA. Except as described in Schedule 4.01(m), no Plan or Multiemployer Plan exists as of the date of this Agreement. On and after the Closing Date with respect to each Plan described in Schedule 4.01(m), and on and after the first date on which any other Plan shall exist with respect to such other Plan: (i) no Termination Event has occurred or is reasonably expected to occur with respect to any Plan and (ii) no event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan. On and after the Closing Date with respect to each Multiemployer Plan described in Schedule 4.01(m), and on and after the first date on which any other Multiemployer Plan shall exist with respect to such other Multiemployer Plan: (i) neither the Borrower nor any ERISA Affiliate of the Borrower has incurred, or is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan and (ii) neither the Borrower nor any ERISA Affiliate of the Borrower has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA. (n) List of Debt. Set forth on Schedule 4.01(n) is a complete and accurate list of all Debt of the Borrower and its Subsidiaries that will be 74 outstanding as of the Closing Date following the Borrowings hereunder and the application of the proceeds thereof as contemplated hereby, other than (i) Debt arising under the Loan Documents and the Subordinated Debt Documents and (ii) Debt having a principal amount of less than $500,000. (o) Not a Purpose Credit. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying "MARGIN STOCK" (within the meaning of Regulation G or Regulation U), and no proceeds of any Advance, other than proceeds of Advances used to purchase shares of common stock of the Borrower to the extent permitted by Section 5.02(G) hereof, will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock; none of the Pledged Stock constitutes margin stock. (p) Prohibited Securities Transactions. No proceeds of any Advance will be used by the Borrower or any of its Subsidiaries to acquire any security in any transaction that is subject to Section 12 of the Securities Exchange Act of 1934, as amended, other than proceeds of Advances used to purchase shares of common stock of the Borrower to the extent permitted by clause (iv) of Section 5.02(G) hereof. (q) Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "INVESTMENT COMPANY" or a company "CONTROLLED" by an "INVESTMENT COMPANY", within the meaning of the Investment Company Act of 1940, as amended. (r) Casualties. Neither the business nor the properties of the Borrower or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty, materially adversely affecting the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any such Subsidiary. (s) Executive Compensation Agreements. Set forth in Schedule 4.01(s) is a complete and accurate list of all compensation arrangements in effect as of the date of this Amended Agreement between the Borrower or any of its Subsidiaries and the five most highly compensated executive officers of the Borrower and its Subsidiaries. (t) Collateral, Etc. 75 (i) Schedule 4.01(t) contains a complete and accurate description and list as of the Closing Date of the location, by state, county and street address and operating division, of all of the Real Property of the Borrower and its Subsidiaries, together with the lessors thereof, the status of any consent from the lessor with respect to any such Leasehold obtained or proposed to be obtained in connection with any Loan Document. (ii) The Borrower or a Guarantor is the record and beneficial owner of all of the presently existing Collateral covered by (A) the Security Agreements, (B) the Pledge Agreements and (C) the Mortgages, in each case free and clear of all mortgages, deeds of trust, pledges, liens, security interests, options and other charges or encumbrances, except for those created or permitted by this Agreement and the Collateral Documents. (iii) The Borrower or a Guarantor has good, marketable and insurable fee simple title to all Real Property and a valid and indefeasible leasehold interest in all Leaseholds, free and clear of all liens, charges and encumbrances of every kind and character, except for those created or permitted by this Agreement and the Collateral Documents. (iv) Each Ground Lease (as defined in the Mortgages) is a valid and subsisting lease in full force and effect in accordance with the terms thereof; the Borrower or a Guarantor, as the case may be, is in possession of all Real Property and the Leaseholds constituting part of the Collateral and no material default by the Borrower or such Guarantor, as the case may be, exists and neither the Borrower nor any Guarantor has knowledge of any other default under such Ground Lease or other agreement relating to any Real Property or Leaseholds constituting part of the Collateral; and no lien, charge or encumbrance of any kind or character exists on or with respect to the Borrower's or the Guarantor's, as the case may be, interest in any such Real Property or Leasehold, other than Permitted Liens. (u) Consents. Set forth in Schedule 4.01(u) is a complete and accurate list of all consents required in connection with the Closing Date Transactions and the Loan Documents (including, but not limited to, consents relating to all network affiliation contracts, power site leases and FCC matters), all of which will have been duly obtained and shall be in full force and effect on the Closing Date and at all times thereafter, except where the failure to obtain such consents will not have a material adverse effect, alone or in the aggregate, on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries. 76 (v) Security Agreements. As of the Closing Date and at all times thereafter, each Security Agreement will create valid and perfected first priority security interests in and liens on the Collateral covered thereby (except as provided therein), such security interests and liens being in each case enforceable against all third parties and securing the payment of all obligations purported to be secured thereby, and all filings and other actions necessary or advisable to perfect and protect such security interests shall have been duly made or taken. (w) Mortgages. From and after the recording of the Mortgage Amendments, each Mortgage will create a valid and enforceable first priority mortgage lien on and security interest in the Real Property covered thereby, enforceable against the Borrower or the Guarantor granting such Mortgage, as the case may be, and all third parties, and securing the payment of all obligations purported to be secured thereby, and all filings and other actions necessary or desirable to perfect and protect such mortgage lien and security interest will have been duly taken. (x) Status Under Communications Act. Each material license, permit and other authority issued, granted, approved or otherwise authorized by the FCC for the benefit of the Borrower or any of its Subsidiaries is in good standing, unimpaired by any act or omission of the Borrower or any of its Subsidiaries or any of their respective officers, directors, employees or agents. Neither the Borrower nor any of its Subsidiaries is the subject of any outstanding citation, order or, to the knowledge of the Borrower, investigation by the FCC which would have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries, and no such citation, order or investigation to the knowledge of the Borrower or any of its Subsidiaries is contemplated by the FCC. The Borrower and each of its Subsidiaries has filed all material reports and applications required to be filed by the FCC or the Communications Act and has paid all fees required to be paid by the FCC or the Communications Act. (y) Compliance with Environmental Requirements; No Hazardous Materials. Except as described on Schedule 4.01(y) and except to the extent the matters referred to below would result in liabilities for the Borrower and its Subsidiaries of less than $100,000 in the aggregate; (i) Other than in compliance with all applicable Environmental Laws, no Hazardous Materials are located on any properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries or have been released into the environment, or deposited, discharged, placed or disposed of at, on or under any of such properties. No portion of any such property is being used, or has been used at any 77 previous time, for the disposal, storage, treatment, processing or other handling of Hazardous Materials (other than processing or handling incidental to the generation of Hazardous Materials in compliance with all applicable Environmental Laws). (ii) No asbestos or asbestos-containing materials in airborne or friable form are present on any of the properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries. (iii) No polychlorinated biphenyls are located on or in any properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils or any other device or form. (iv) No underground storage tanks are located on any properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries, or were located on any such property and subsequently removed or filled. (v) No notice, notification, demand, request for information, complaint, citation, summons, investigation, administrative order, consent order and agreement, litigation or settlement with respect to Hazardous Materials has been received by the Borrower or any of its Subsidiaries or, to the Borrower's knowledge, is proposed, threatened or anticipated with respect to or in connection with the operation of any properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries. All such properties and their existing and prior uses comply and at all times have complied with any applicable governmental requirements relating to environmental matters or Hazardous Materials. There is no condition on any of such properties which is in violation of any applicable governmental requirements relating to Hazardous Materials, and neither the Borrower nor any of its Subsidiaries has received any communication from or on behalf of any governmental authority that any such condition exists. None of such properties nor any property to which the Borrower has, directly or indirectly, transported or arranged for the transportation of any material is listed or, to the Borrower's knowledge, proposed for listing on the National Priorities List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or cleanup, nor, to the knowledge of the Borrower, is any such property anticipated or threatened to be placed on any such list. 78 (vi) There has been no environmental investigation, study, audit, test, review or other analysis conducted of which the Borrower has knowledge in relation to the current or prior business of the Borrower or any property or facility now or previously owned, leased or operated by the Borrower or any of its Subsidiaries which has not been delivered to the Lenders or will not have been delivered to the Lenders at least five days prior to the Closing Date. For purposes of this Section 4.01(Y), (x) the terms "BORROWER" and "SUBSIDIARY" shall include any business or business entity (including a corporation) which is, in whole or in part, a predecessor of the Borrower or any Subsidiary if the Borrower or such Subsidiary, as a successor to such business or business entity, is or could be subject to successor liability under applicable law and (y) any representation made with respect to properties not presently owned, leased or operated by the Borrower or any of its Subsidiaries shall be limited to conditions, activities or requirements at or in connection with such properties for which the Borrower or any of its Subsidiaries is or could be subject to liability. (z) Compliance with Laws. The Borrower and its Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations, other than such laws, rules or regulations (i) the validity or applicability of which the Borrower or such Subsidiary is contesting in good faith or (ii) the failure to comply with which would not have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries (aa) Obligations are Senior Debt and Designated Senior Debt. All obligations of the Borrower and the Guarantors under this Agreement, the Notes, the Letters of Credit, the Guaranty Agreement, the other Loan Documents and any Interest Rate Protection Agreements are "SENIOR DEBT" and "DESIGNATED SENIOR DEBT" within the meaning of, and are entitled to the benefits of, Article X of the indentures governing the Existing Subordinated Debt and of any indentures governing any other Permitted Subordinated Debt. ARTICLE 5 COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Obligation hereunder or under any Loan Document shall remain unpaid, or any Letter of Credit shall be outstanding, or any Lender shall have any Revolving Facility Commitment 79 hereunder, the Borrower will, unless the Majority Lenders otherwise consent in writing: (a) Compliance with Laws, Etc. Perform and promptly comply, and cause each of its Subsidiaries to perform and promptly comply, in all material respects, and cause all property of the Borrower and each such Subsidiary to be maintained, used and operated in all material respects in accordance with all (i) present and future laws, ordinances, rules, regulations, orders and requirements (including, without limitation, the Communications Act, Environmental Laws and ERISA) of every duly constituted governmental or quasi-governmental authority or agency applicable to the Borrower, any of its Subsidiaries or any of their properties, (ii) similarly applicable orders, rules and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization or other body exercising similar functions, and (iii) similarly applicable duties or obligations of any kind imposed under any certificate of occupancy, Leasehold or otherwise by law, covenant, conditions, agreement or easement, public or private, in each case except where the failure to perform and promptly comply would not result in a material adverse affect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower, of any of its Subsidiaries or of the Borrower and its Subsidiaries taken as a whole. (b) Conduct of Business; Preservation of Corporate Existence. Continue, and cause each of its Subsidiaries to continue, to engage only in business of the same general type as now conducted by the Borrower and its Subsidiaries, and preserve and maintain, and cause each of its Subsidiaries that is a corporation to preserve and maintain, its corporate existence and corporate rights (charter and statutory), and those corporate franchises material to the business or operations of the Borrower or such Subsidiary and to cause each of its Subsidiaries that is a partnership to preserve and maintain its existence as a partnership and its rights (both under law and pursuant to its partnership agreement) as such, and those franchises material to the business or operations of such partnership. (c) Visitation Rights. At any reasonable time and from time to time, upon reasonable notice permit any Agent or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the business and financial affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with its independent certified public accountants and advise such accountants that the Agents and the Lenders have been authorized to exercise all rights of the Borrower to require such accountants to disclose any and all financial statements and other information of any kind that they may have with respect to 80 the Borrower and any of its Subsidiaries and direct such accountants to comply with any requirements of any Agent or any Lender for such information. (d) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each of its Subsidiaries in accordance with generally accepted accounting principles. (e) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts, with such deductibles and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. If the Borrower or any Subsidiary receives any Major Casualty Proceeds, notwithstanding any requirements contained in the Collateral Documents requiring that Major Casualty Proceeds must be paid directly to the Administrative Agent, the Borrower shall deliver, and shall cause each of its Subsidiaries to deliver, such Major Casualty Proceeds to the Administrative Agent, to be held, applied and distributed in accordance with Section 5 of the Security Agreement. Until so delivered, any such Major Casualty Proceeds shall be held in trust for the benefit of the Administrative Agent, the Documentation Agent, the Lenders and the Issuing Bank, and shall not be commingled with any other funds or property of the Borrower or any of its Subsidiaries. (f) Payment of Taxes, Etc. (i) File, and cause each of its Subsidiaries to file, all tax returns and information and other similar filings (Federal, state, local and foreign) required to be filed; (ii) pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (A) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (B) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and in respect of which adequate provision for payment has been made and adequate reserves are being maintained in accordance with generally accepted accounting principles and as long as the proceedings referred to above could not subject any Agent or any Lender to any civil or criminal penalty or liability or involve any risk of the sale, loss or forfeiture of any item of Collateral and, where applicable, in accordance with the Mortgages; and provided further that in the case of any item of the foregoing description involving in excess of $250,000, the appropriateness of the proceedings shall be supported by an opinion of the independent counsel responsible for such proceedings and the adequacy of such reserves, if any, shall 81 be supported by an opinion of the independent accountants of the contesting Person (which opinions shall be delivered to the Lenders); and (iii) maintain, and cause each of its Subsidiaries to maintain, appropriate reserves in respect of all taxes, assessments, governmental charges and levies imposed on it or upon its property. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, in good working order and condition, ordinary wear and tear excepted, all of its properties with respect to which failure to so maintain and preserve would have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any Subsidiary or on the value or utility to the Borrower or such Subsidiary of any property material to its business. (h) Maintenance of FCC Licenses, Affiliation Agreements, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, each license, franchise, permit and other authorization necessary or desirable under the Communications Act or otherwise with respect to which the failure to so maintain and preserve would have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any such Subsidiary or on the value or utility to the Borrower or such Subsidiary of any such authorization, including, but not limited to, performing and observing (except as otherwise provided by law) each term and provision of each network affiliation agreement to which it is a party and maintaining each such agreement in full force and effect, it being understood that failure to maintain any such network affiliation agreement in full force and effect shall be deemed to result in such a material adverse effect, such material adverse effect being deemed to occur at such time as programming ceases to be provided pursuant to such network affiliation agreement; provided that such material adverse effect shall not be deemed to occur if, prior to the time that such programming ceases, the Borrower or such Subsidiary shall have entered into a network affiliation agreement with another network which agreement and network are reasonably satisfactory to the Majority Lenders. (i) Arm's-Length Transactions. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of its Affiliates (including Adam Young Inc.) on terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower or any such Subsidiary, as the case may be, and, in each case in which Adam Young Inc. or another Affiliate of the Borrower acts as sales representative, commission agent or the like on behalf of the Borrower or any of its Subsidiaries, cause the arrangements with respect thereto to provide that such 82 Affiliate (i) shall not receive, directly or indirectly, compensation (including percentage of the sales price to be paid, time and terms of payment) or other benefits greater than that which is then typical in the industry for similar transactions, and (ii) shall deal at all times with the Borrower and its Subsidiaries at arm's length; provided that, so long as the Borrower owns (directly or indirectly) 100% of the capital stock or partnership interests of each Guarantor, transactions between the Borrower and any Guarantor or between any two Guarantors need not be on terms no less favorable than any such party would obtain in a comparable arm's-length transaction. (j) Solvency. Continue to be Solvent and cause each of its Subsidiaries to continue to be Solvent. (k) Plan Contribution. Make, and cause each Subsidiary to make, when due, all contributions required by law to be made to all Plans. (l) Pro Forma Debt Service Coverage. Cause, at all times, the ratio of (i) the excess of Operating Cash Flow over Capital Expenditures, in each case for the four consecutive Fiscal Quarters then most recently ended, to (ii) Pro Forma Debt Service at such time to be not less than 1.10 to 1. (m) Interest Coverage. Cause, (i) as of the Closing Date, the ratio of Operating Cash Flow to Total Interest Expense, in each case for the four consecutive Fiscal Quarters then most recently ended, to be not less than 1.60 and (ii) as of the last day of each Fiscal Quarter during any year set forth below, the ratio of Operating Cash Flow to Total Interest Expense, in each case for the four consecutive Fiscal Quarters ending on such day, to be not less than the required ratio set forth below opposite such year:
FISCAL QUARTER REQUIRED -------------------------- ---------------- 1997 1.60 1998 1.80 1999 1.95 Thereafter 2.25
provided that if as of the last day of any Fiscal Quarter the Senior Debt to Operating Cash Flow Ratio is less than 2.0, the required ratio for such day is 1.75. 83 (n) Senior Debt to Operating Cash Flow Ratio. Cause, (i) as of the Closing Date, the Senior Debt to Operating Cash Flow Ratio to be not greater than 3.00 and (ii) as of the last day of each Fiscal Quarter during any year set forth below, the Senior Debt to Operating Cash Flow Ratio to be not greater than the required ratio set forth below opposite the last day of such Fiscal Quarter:
FISCAL QUARTER REQUIRED -------------------------- ---------------- 1997 3.00 1998 2.75 1999 2.75 Thereafter 2.25
(o) Debt to Operating Cash Flow Ratio. Cause the Debt to Operating Cash Flow Ratio (i) as of the Closing Date to be equal to or less than 6.25 and (ii) as of the last day of each Fiscal Quarter during any year set forth below, to be equal to or less than the required ratio set forth below opposite the last day of such Fiscal Quarter:
FISCAL QUARTER REQUIRED -------------------------- ---------------- 1997 6.25 1998 6.00 1999 5.50 Thereafter 5.00
provided that if as of the last day of any Fiscal Quarter the Senior Debt to Operating Cash Flow Ratio is less than 2.0, the required ratio for such day is 6.25. (p) Accuracy of Information Given to Lenders. Use its best efforts to ensure that all written information, exhibits or reports furnished by the Borrower or any of its Subsidiaries to any Agent or any Lender will contain no untrue 84 statement of a material fact and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading. (q) Management. Retain as its chief executive officer its present Chairman. Notwithstanding anything to the contrary in this Agreement, all policy and operational decisions relating to the operations of any television broadcasting stations now or hereafter owned or operated by the Borrower or any of its Subsidiaries will remain within the exclusive control of the Borrower or its Subsidiaries. (r) Further Assurances. Promptly, upon request by any Agent or any Lender through the Administrative Agent, correct, and cause each party to a Loan Document to promptly correct, any defect or error that may be discovered in any Loan Document or in the execution, acknowledgment or recordation thereof. Promptly, upon request by any Agent or any Lender through the Administrative Agent, the Borrower also will, and will cause each Guarantor to, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, pledge agreements, security agreements, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments (including but not limited to subleases or other grants of rights with respect to the Leasehold interests) as any Agent or any Lender through the Administrative Agent may require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, (ii) to subject to the Liens created by any of the Loan Documents any of the Borrower's and its Subsidiaries' properties, rights or interests covered or now or hereafter intended to be covered by any of the Loan Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agents and the Lenders the rights granted or now or hereafter intended to be granted to the Agents and/or the Lenders under any Loan Document or under any other instrument executed in connection with any Loan Document to which the Borrower or any of its Subsidiaries is or may become a party. (s) Management of Partnerships. Cause the KLFY Partnership, the WKRN Partnership and the WATE Partnership to be managed and operated, and cause their respective affairs to be conducted, in accordance with the terms and conditions of the KLFY Partnership Agreement, the WKRN Partnership Agreement and the WATE Partnership Agreement, respectively. (t) Hazardous Materials; Remediation. Promptly give notice to the Lenders in writing of any complaint, order, citation, notice or other written 85 communication from any Person with respect to, or if the Borrower becomes aware of, (x) the existence or alleged existence of a violation of any applicable Environmental Law or the incurrence of any material liability, obligation, loss, damage, cost, expense, fine, penalty or sanction or the requirement to commence any material remedial action resulting from or in connection with any air emission, water discharge, noise emission, Hazardous Material or any other environmental, health or safety matter at, upon, under or within any of the properties now or previously owned, leased or operated by the Borrower or any of its Subsidiaries, or due to the operations or activities of the Borrower, any Subsidiary or any other Person on or in connection with any such property or any part thereof, in each case if the Borrower or any of its Subsidiaries is or could be subject to liability therefor or (y) any release on any of such properties of Hazardous Materials in a quantity that is reportable under any applicable Environmental Law; and (i) promptly comply with any governmental requirements requiring the removal, treatment or disposal of such Hazardous Materials and provide evidence satisfactory to the Majority Lenders of such compliance. (u) FCC Filings. Within 30 days of the execution hereof and thereof, file with the FCC a copy of this Agreement and of each other Loan Document required to be filed with the FCC pursuant to 47 C.F.R. Section 73.3613, and confirm in writing to the Administrative Agent that such copies have been duly and timely filed. SECTION 5.2. Negative Covenants. So long as any Obligation hereunder or under any Loan Document shall remain unpaid, or any Letter of Credit shall be outstanding, or any Lender shall have any Revolving Facility Commitment hereunder, the Borrower will not, without the written consent of the Majority Lenders or, in the case of Section 5.02(C) or Section 5.02(D), without the written consent of each Lender: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its assets or properties of any character (including, without limitation, accounts and shares of capital stock and partnership interests of the Borrower's Subsidiaries), whether now owned or hereafter acquired, or assign any right to receive income, or sign or file, or permit any of its Subsidiaries to sign or file, under the Uniform Commercial Code or any comparable statute of any jurisdiction a financing statement that names the Borrower or any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to sign, any security agreement authorizing any secured party thereunder to file such a financing statement, or assign, or permit any of its Subsidiaries to assign, any 86 accounts; excluding, however, from the operation of the foregoing restrictions --------- ------- the Liens created by or pursuant to the Loan Documents and Permitted Liens. (b) Debt. Create, incur, assume, guarantee or suffer to exist, or permit any of its Subsidiaries to create, incur, assume, guarantee or suffer to exist, any Debt, other than (i) Debt under the Loan Documents, (ii) Debt existing on the Original Closing Date and listed on Schedule 4.01(n) of the Existing Credit Agreement, (iii) Debt existing on the date of this Amended Agreement and not listed on Schedule 4.01(n) in an aggregate principal amount not to exceed $250,000, (iv) Existing Subordinated Debt, and (v) Debt incurred after the Original Closing Date when no Default is then continuing or would result therefrom as follows: (A) Debt incurred by the Borrower or any Subsidiary of the Borrower in the ordinary course of business, consistent with past practice, for the deferred purchase price of goods or services; (B) Permitted Subordinated Debt; (C) Debt of the Borrower or any Subsidiary of the Borrower secured by a Lien described in clause (vii) of the definition of Permitted Liens , in an aggregate principal amount outstanding at any time not to exceed $25,000,000; (D) Obligations of the Borrower or any Subsidiary under Capital Leases; (E) Guaranteed Debt in an aggregate principal amount outstanding at any time not to exceed $1,000,000; and (F) Obligations of the Borrower under any Interest Rate Protection Agreements and other Derivatives Obligations to the extent permitted by Section 5.02(S). (c) Mergers. Merge or consolidate with or into any Person, or permit any of its Subsidiaries to do so or agree to any such transaction; provided that if no Default shall have occurred and be continuing, and the Borrower or such Subsidiary is the surviving entity, the prior written consent of each Lender shall not be required but the prior written consent of the Majority Lenders shall be required. (d) Sales, Etc., of Assets. Unless the Borrower obtains the prior written consent of each Lender, sell, lease, transfer or otherwise dispose of, or permit any 87 of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, except (i) sales, leases, transfers and other dispositions of inventory and used, surplus or worn-out equipment (including abandonment of assets having no further useful life to the Borrower or such Subsidiary, as the case may be) made in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, (ii) transfers by the Borrower or a Guarantor to another Guarantor or the Borrower so long as the Borrower owns directly 100% of the capital stock of each Guarantor that is a corporation and directly or through one or more wholly owned Subsidiaries 100% of the partnership interests of each Guarantor that is a partnership, and (iii) Permitted Asset Sales. (e) Maintenance of Ownership of Subsidiaries; Issuance of Stock and Partnership Interests, Etc. Sell or otherwise dispose of, or commit to sell or otherwise dispose of, any shares of capital stock of or any partnership interests in any of its Subsidiaries unless such disposition constitutes a Permitted Asset Sale, or permit any of its Subsidiaries to issue, sell or otherwise dispose of, or commit to issue, sell or otherwise dispose of, any shares of its capital stock or any partnership interests or capital stock of or partnership interests in any other Subsidiary of the Borrower. (f) Investments in Other Persons and Asset Purchases. Make, or permit any of its Subsidiaries to make, any loan or advance to, or investment in, any other Person, or purchase or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise acquire, any shares of capital stock, obligations or other securities of, make any capital contribution to, or otherwise invest in, any other Person (an "INVESTMENT"), or make any Asset Purchase except for (i) Temporary Cash Investments, (ii) trade receivables created in the ordinary course of the business of the Borrower or its Subsidiaries, (iii) Investments in the Borrower by any Guarantor, Investments in any Guarantor by the Borrower or by any other Guarantor and purchases of shares of common stock of the Borrower to the extent permitted by clause (iv) of Section 5.02(G) hereof, (iv) Asset Purchases and Investments made after the date hereof in any one or more Persons, other than the Borrower or any Guarantor, in an aggregate amount of all Asset Purchases made since the Closing Date, together with Investments outstanding at any time, not exceeding $7,500,000, (v) Permitted Acquisitions, (vi) Permitted Acquisition Deposits and (vii) Investments in Tower Affiliates, to the extent incidental to the ownership and operation of the transmission towers owned by such Tower Affiliates. Without limiting the generality of the foregoing, the Borrower will not, and will not permit any Subsidiary to, acquire or create any Subsidiary, unless (x) arrangements satisfactory to the Agents shall have been made for (A) the pledge of the stock of such Subsidiary to the Administrative Agent for its benefit and the benefit of the Secured Parties, (B) such Subsidiary to become a Guarantor 88 hereunder and (C) the granting of liens and security interests in substantially all of the assets of such Subsidiary to the Administrative Agent for its benefit and the benefit of the Secured Parties or (y) such Subsidiary is created in anticipation of a Permitted Acquisition and, prior to the time of such Permitted Acquisition, neither the book value nor the fair market value of the assets of such Subsidiary (disregarding its rights, if any, under the related acquisition agreement) exceeds $50,000; provided that the provisions of clause (c) of the definition of "PERMITTED ACQUISITION" must be satisfied at the time of such Permitted Acquisition. (g) Restricted Payments. Declare or make any Restricted Payment, or return any capital to its stockholders as such, or make any distribution of assets, stock, warrants, rights, obligations or securities to its stockholders as such, or permit any of its Subsidiaries to declare or make any Restricted Payment, or return any capital to any of their stockholders or to any of the Borrower's stockholders, or make any distribution of assets to any of their stockholders or any of the Borrower's stockholders as such, except that (i) the Borrower's Subsidiaries may pay cash dividends to the Borrower, (ii) any Subsidiary of the Borrower that is a partnership may make distributions to its partners in accordance with the provisions of the partnership agreement governing such partnership, (iii) the Borrower may purchase shares of (or options to purchase shares of) its common stock from employees of the Borrower or any Subsidiary of the Borrower so long as (x) before and after giving effect to any such purchase, no Default shall have occurred and be continuing and (y) the aggregate number of shares (including the equivalent number of shares in the case of options) purchased by the Borrower from all employees since the Original Closing Date shall not exceed 2% of the aggregate number of shares of the Borrower's Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding on the Original Closing Date and (iv) the Borrower may purchase, or make distributions of cash dividends on, shares of its common stock so long as before and after giving effect to any such purchase or distribution, (A) no Default shall have occurred and be continuing, (B) the aggregate amount paid by the Borrower for all such purchases and distributions pursuant to this clause (iv) from and after the Closing Date shall not exceed, (1) at any time when, as of the last day of the immediately preceding month (provided that the Administrative Agent shall have received a certificate of the Borrower's chief financial officer for such period, substantially in the form of Exhibit J), the Senior Debt to Operating Cash Flow Ratio was less than or equal to 1.0, $70,000,000 and (2) at any other time, $35,000,000 , provided that any amount so paid by the Borrower in excess of $35,000,000 when the immediately preceding clause (1) was applicable shall not constitute a Default, and (C) before and after giving effect to any such purchase or distribution, the Borrower shall be in compliance with Section 4.05(a) of the indenture governing any Existing 89 Subordinated Debt as in effect on the Closing Date, and of any equivalent provisions of any indentures governing any Permitted Subordinated Debt. (h) Prepayment of Debt. Prepay, redeem, defease (whether actually or in substance) or purchase, in any manner (or deposit or set aside funds for the purpose of any of the foregoing), make any payment in respect of principal of or premium on, or make any payment in respect of interest on any Debt (including, without limitation, any Existing Subordinated Debt and any Permitted Subordinated Debt), or permit any of its Subsidiaries to prepay, redeem, defease (whether actually or in substance) or purchase in any manner, make any payment in respect of principal of or premium on, or make any payment in respect of interest on any Debt (including, without limitation, any Existing Subordinated Debt and any Permitted Subordinated Debt), in each case other than: (i) regularly scheduled repayments of principal or payments of interest required in accordance with the terms of the instruments governing the respective Debt; (ii) any repayments or prepayments of principal and any payments of interest in respect of the Notes; (iii) regularly scheduled rental payments in respect of Capital Leases; and (iv) any prepayment, redemption, defeasance or purchase of any Existing Subordinated Debt or Permitted Subordinated Debt in an unlimited amount, so long as before and after giving effect thereto, (A) no Default shall have occurred and be continuing and (B) the Borrower shall be in compliance with all Subordinated Debt Documents; (i) Change in Business; Cease Broadcasting. Engage, or permit any of its Subsidiaries to engage, in any business other than over-the-air television broadcasting and activities incidental or reasonably related thereto; or permit any broadcast station operated by the Borrower or any of its Subsidiaries to cease broadcasting for a period in excess of 10 consecutive days. (j) Change of Accountants. Replace its then current Independent Public Accountants unless the successor independent public accountants qualify as an Independent Public Accountant as defined in this Agreement and the Borrower shall have delivered to the successor independent public accountants a letter complying with the provisions of Section 3.01(F)(19). 90 (k) Amendment of Charter or By-Laws. Amend, modify or change in any manner, or permit any of its Subsidiaries to amend, modify or change in any manner, the provisions of its certificate of incorporation or by-laws or any agreement entered into by it or any of its Subsidiaries with respect to its capital stock or partnership interests, including the KLFY Partnership Agreement, the WKRN Partnership Agreement and the WATE Partnership Agreement, unless in each case such amendment, modification or change would not be disadvantageous to the Lenders and the Borrower shall have delivered prior written notice to the Lenders of such amendment, modification or change, with a copy thereof. (l) Termination of Licenses. Terminate, lose, fail to hold or fail to renew, or permit any of its Subsidiaries to terminate, lose, fail to hold or fail to renew, any license, permit or authorization granted by the FCC if such termination, loss or failure to hold or failure to renew would have a materially adverse effect upon the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any such Subsidiary. (m) Amendment, Etc. of Subordinated Debt Documents. Without the express prior written consent of the Majority Lenders, (i) cancel or terminate any Subordinated Debt Document or consent to or accept any cancellation or termination thereof (other than in connection with the repayment in full of the related Subordinated Notes in compliance with the provisions hereof), (ii) amend or otherwise modify any material term or provision of any Subordinated Debt Document or give any consent, waiver or approval with respect thereto (provided that the provisions of Article X of the indentures governing the Existing Subordinated Debt, any similar provisions of any indentures governing any other Permitted Subordinated Debt and the definitions of any defined terms used therein shall be deemed to be material), or (iii) take or fail to take any other action in connection with the Subordinated Debt Documents that would impair the interests or rights of any Agent or any Lender. (n) Trade Debt. Create, incur, assume, guarantee, or suffer to exist Trade Debt other than in the ordinary course of business. (o) Employee Benefit Costs and Liabilities. Create, incur, assume, guarantee or suffer to exist, or permit any ERISA Affiliate to create, incur, assume, guarantee or suffer to exist, (i) any Insufficiency with respect to a Plan or any obligation with respect to a Multiemployer Plan or (ii) any liability with respect to welfare plans (as defined in Section 3(1) of ERISA, but excluding medical plans established for the benefit of employees of the Borrower or any Subsidiaries) if, immediately after giving effect to such liability, the aggregate annualized cost (including, without limitation, the cost of insurance premiums) 91 with respect to such plans for which the Borrower is or may become liable in any fiscal year of the Borrower would exceed $250,000. (p) Plan Amendments. Adopt an amendment with respect to which security is required under Section 307 of ERISA to any Plan. (q) Limited Partners. Permit LAT, YBT or YBK (i) to conduct any business other than to acquire and hold a limited partnership interest in, respectively, the KLFY Partnership, the WKRN Partnership and the WATE Partnership and to exercise their rights and perform their obligations under the KLFY Partnership Agreement, the WKRN Partnership Agreement and the WATE Partnership Agreement, respectively, (ii) to cause or permit, or agree to cause or permit in the future (upon the happening of a contingency or otherwise), any consensual security interest, lien or other encumbrance upon any of its assets or (iii) to hold any interest whatsoever in any asset other than (A) a limited partnership interest in the KLFY Partnership, the WKRN Partnership or the WATE Partnership and (B) cash; provided that any cash in excess of $10,000 is distributed to the Borrower or paid to the KLFY Partnership, the WKRN Partnership or the WATE Partnership within 30 days of receipt thereof by LAT, YBT or YBK. (r) Limitation on Payment Restrictions Affecting Subsidiaries. Permit to exist, directly or indirectly, or create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary in existence on the Closing Date to: (i) pay any dividends or make any other distributions on its capital stock or partnership or other equity interests owned by the Borrower or any Subsidiary of the Borrower; (ii) pay any obligations owed to the Borrower or any other Subsidiary; (iii) make loans or advances to the Borrower or any other Subsidiary; or (iv) transfer any of its properties or assets to the Borrower or any other Subsidiary, except for encumbrances or restrictions existing under applicable law. (s) Interest Rate Protection. Enter into, or permit any of its Subsidiaries to enter into, interest rate cap agreements or other interest rate protection, except (i) Interest Rate Protection Agreements or (ii) other interest rate cap agreements or other interest rate protection that do not require or provide for the imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, and which contain conditions and are with financial institutions acceptable to the Agents (such acceptance of the Agents not to be unreasonably denied). SECTION 5.03. Reporting Requirements. So long as any Obligation hereunder or under any Loan Document shall remain unpaid, or any Letter of Credit shall be outstanding, or any Lender shall have any Term Loan Commitment 92 or Revolving Facility Commitment hereunder, the Borrower will furnish to each Lender (and, in the case of the Notice of Debt to Operating Cash Flow Ratio, also to the Administrative Agent) the following: (a) In a form reasonably acceptable to the Majority Lenders (i) on or before the 25th day after the end of each month that is not the last month of a Fiscal Quarter, Consolidated balance sheets of the Borrower and its Subsidiaries as of the last day of such month and Consolidated statements of income and retained earnings (including the sales and Operating Cash Flow components thereof) and Consolidated statements of changes in cash flow (including, without limitation, cash payments in respect of Capital Expenditures and Film Expense) of the Borrower and its Subsidiaries for such month and for the period commencing on the first day of such Fiscal Year and ending on the last day of such month (and, in the case of such statements of income, comparing the actual amounts thereof with the amounts budgeted therefor and with the actual amounts thereof in the equivalent periods of the immediately preceding Fiscal Year), in each case certified by the chief financial officer of the Borrower, together with (A) a certificate of the chief financial officer of the Borrower stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken or proposes to take with respect thereto and (B) a schedule (each, a "NOTICE OF DEBT TO OPERATING CASH FLOW RATIO") prepared by the chief financial officer of the Borrower, in form satisfactory to the Lenders, of the computations used by the Borrower to determine the Debt to Operating Cash Flow Ratio as of the last day of such month. (b) As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year of the Borrower, the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter, and the related Consolidated statements of income and retained earnings and Consolidated statements of changes in cash flow of the Borrower and its Subsidiaries for each of such quarters and the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, in each case in form and substance satisfactory to the Lenders, certified by the chief financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles, together with (i) a certificate of the chief financial officer of the Borrower, substantially in the form of Exhibit J and (ii) a schedule prepared by the chief financial officer of the Borrower, in form satisfactory to the Lenders, of the computations used by the Borrower in determining, as of the end of such fiscal quarter, compliance with the limitations contained in Sections 5.01(L), 5.01(M), 5.01(N), 5.01(O), 5.02(A), 5.02(B), 5.02(D), 5.02(F), 5.02(G), 5.02(H), 6.01(D), 6.01(G), 6.01(K), 6.01(M), 6.01(N) and 6.01(O). 93 (c) As soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, a copy of the annual report for such year for the Borrower and its Subsidiaries, including therein a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and retained earnings and a Consolidated statement of changes in cash flow, of the Borrower and its Subsidiaries for such Fiscal Year, certified in a manner acceptable to the Lenders by the Independent Public Accountants, together with (i) a certificate of such accounting firm to the Lenders stating that, in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a certificate of the chief financial officer of the Borrower substantially in the form of Exhibit J, (iii) a schedule prepared by the chief financial officer of the Borrower, in form satisfactory to the Lenders, of the computations used by the Borrower in determining, as of the end of such Fiscal Year, compliance with limitations contained in Sections 5.01(L), 5.01(M), 5.01(N), 5.01(O), 5.02(A), 5.02(B), 5.02(D), 5.02(F), 5.02(G), 5.02(H), 6.01(D), 6.01(G), 6.01(K), 6.01(M), 6.01(N) and 6.01(O) and the calculation of the Debt to Operating Cash Flow Ratio as of the last day of such Fiscal Year, and (iv) unaudited consolidating balance sheets as of the end of such Fiscal Year and statements of income and retained earnings and statements of the sources and uses of funds for such Fiscal Year for the Borrower and each of its Subsidiaries, certified by the chief financial officer of the Borrower; (d) As soon as available and in any event by the end of each Fiscal Year, a copy of the annual business and financial plan of the Borrower and its Consolidated Subsidiaries for the next ending Fiscal Year on a monthly basis (for each fiscal month) and for the subsequent Fiscal Year on an annual basis, in form and substance satisfactory to the Administrative Agent, which plan will include (i) projected Consolidated balance sheets of the Borrower for the next ending Fiscal Year; (ii) projected Consolidated cash flow analyses of the Borrower and each of its Subsidiaries for each of the twelve months following the end of such Fiscal Year, on a monthly basis, and for the next ending Fiscal Year on an annual basis; and (iii) projected Consolidated income statements of the Borrower and each of its Subsidiaries for each of the twelve months following the end of such Fiscal Year, on a monthly basis, and for the next ending Fiscal Year on an annual basis; (e) Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which the Borrower or any of its Subsidiaries sends to their respective shareholders and copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalent) which 94 the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (f) Promptly after the commencement thereof, notice of all actions, suits, hearings and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(H) or in Section 6.01(G); (g) As soon as possible and in any event within five days after the occurrence of any Default, a statement by the chief financial officer of the Borrower setting forth details of such Default and the action which the Borrower has taken or proposes to take with respect thereto; (h) Promptly upon becoming aware that any Termination Event with respect to any Plan has occurred, a statement by the chief financial officer of the Borrower describing such Termination Event and each action, if any, which the Borrower and each such ERISA Affiliate proposes to take with respect thereto; (i) Promptly and in any event within two Domestic Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the PBGC, copies of each notice received by the Borrower or any ERISA Affiliate from the PBGC stating the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; (j) Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan (k) At the time notice is given or required to be given to the PBGC under Section 302(f)(4)(A) of ERISA of the failure to make timely payments to a Plan, a copy of any such notice filed and a statement of the chief financial officer of the Borrower setting forth (A) sufficient information necessary to determine the amount of the lien under Section 302(f)(3), (B) the reason for the failure to make the required payments and (C) the action, if any, which the Borrower or its ERISA Affiliates proposes to take with respect thereto; (l) Promptly and in any event within five Domestic Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability by a Multiemployer Plan, (B) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (C) 95 the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (D) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (A), (B) or (C) above; (m) Promptly notify, and cause each of its Subsidiaries to promptly notify, the Administrative Agent (i) of any lapse, termination or relinquishment of any station license, permit or other authorization from the FCC held by the Borrower or any of its Subsidiaries or any failure by the FCC to renew or extend any such license, permit or other authorization for other than the usual period thereof, which lapse, termination, relinquishment, failure to renew or extend would have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower or any of its Subsidiaries; and (ii) of any complaint or other matter filed with or communicated to the FCC, of which the Borrower or any of its Subsidiaries has knowledge and which might have a materially adverse effect upon the renewal or extension of any station license, permit or other authorization held by the Borrower or any of its Subsidiaries, including, without limitation, (A) any complaint to which the FCC has requested an answer, (B) any petition to deny, or informal objection filed with regard to, an application filed by the Borrower or any of its Subsidiaries with the FCC or any mutually exclusive competing application filed for authority to broadcast on the frequencies or channels licensed to the Borrower or any of its Subsidiaries and (C) any citation or notice of violation or order to show cause or order to become a party to a proceeding issued by the FCC against the Borrower or any of its Subsidiaries; (n) Promptly after any significant change in accounting policies or reporting practices, notice and a description in reasonable detail of such change (o) Copies of any statement or report to be furnished to any other holder of the securities of the Borrower or any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 5.03, at such time as such statement or report is to be furnished to such other holder pursuant to such terms; (p) As soon as possible after the end of each Fiscal Year, a statement certified by the chief financial officer of the Borrower setting forth in reasonable detail any changes since the date of this Agreement, not previously reported pursuant to this paragraph (p), in the information set forth in Schedules 4.01(h), 4.01(m), 4.01(t) and 4.01(y), or stating that no such changes have occurred; 96 (q) Such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request; (r) Promptly after (i) the Borrower shall fail to make any payment when due under the Subordinated Debt Documents, (ii) there shall have been an acceleration of the maturity of any Existing Subordinated Debt or any Permitted Subordinated Debt, (iii) the trustee under the indenture for any Existing Subordinated Debt or any Permitted Subordinated Debt or any holder thereof shall have asserted in writing that an "EVENT OF DEFAULT" as defined therein shall have occurred and (iv) the commencement of any enforcement proceeding with respect to any Existing Subordinated Debt or any Permitted Subordinated Debt, notice thereof, including a description in reasonable detail of the circumstances, and a statement of the chief financial officer of the Borrower setting forth the action the Borrower has taken or proposes to take with respect thereto; and (s) Promptly after the expiration or any termination of any network affiliation agreements of the Borrower or any Subsidiary, notice thereof, including a description in reasonable detail of the circumstances, and a statement of the chief financial officer of the Borrower setting forth the action the Borrower has taken or proposes to take with respect thereto. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("EVENTS OF DEFAULT") shall occur and be continuing: (a) The Borrower shall fail to pay within two days of the due date any interest on any Note, shall fail to reimburse when due any drawing under any Letter of Credit or shall fail to pay when due any principal on any Note, any fees or other amounts payable under any Loan Document; or (b) Any representation or warranty made by any Loan Party in or in connection with any Loan Document or any amendment thereto to which it is a party or any certificate or financial information delivered pursuant to any Loan Document or any amendment thereto shall prove to have been incorrect in any material respect when made; or 97 (c) Any Loan Party (i) shall fail to perform or observe any term, covenant or agreement contained in Section 2.20, 5.01, 5.02 or 5.03(G) of this Agreement, in any Mortgage, in Sections 4, 6, 7, 8, 9 or 10 of any Security Agreement or in any other provision of any Collateral Document that is comparable to any such Section of any Security Agreement or (ii) shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or (d) The Borrower or any Subsidiary shall fail to make when due or within any applicable grace period any payment in respect of any Material Financial Obligations (other than the Notes); any event or condition shall occur which results in the acceleration of the maturity of any Debt (excluding Debt evidenced by the Notes) of the Borrower or any of its Subsidiaries (as the case may be) having an aggregate unpaid principal amount in excess of $1,000,000 or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; the Borrower or any of its Subsidiaries shall fail to pay when the same becomes due any rental payments in respect of any leases (other than payments with respect to Capital Lease Obligations) requiring in the aggregate, annual lease payments in excess of $1,000,000, and such failure shall continue after the applicable grace period, if any, specified in the lease or leases relating to such rental payment; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (e) Any "EVENT OF DEFAULT" as defined in any Subordinated Debt Document; or (f) The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in 98 such proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or any substantial part of its property) shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) One or more judgments or orders for the payment of money aggregating more than $1,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment(s) or order(s) or (ii) there shall be any period of 10 consecutive days (or, if such proceedings are in a state court, such longer period (not to exceed 30 days) following the entry of such judgement or order during which the Borrower shall be entitled under applicable state law to file an appeal as of right) during which a stay of enforcement of such judgment(s) or order(s), by reason of a pending appeal or otherwise, shall not be in effect; or (h) Any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that is materially adverse to the Borrower and its Subsidiaries taken as a whole, and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Any provision of any Loan Document after delivery thereof shall for any reason cease to be valid and binding on any Loan Party, or any Loan Party shall so state in writing; (j) Any Collateral Document after delivery thereof shall for any reason cease to create a valid and perfected first priority security interest in any Collateral purported to be covered thereby; or (k) Any Termination Event with respect to a Plan shall have occurred and, 30 days after notice thereof was required by the terms hereof to have been given to the Administrative Agent by the Borrower, (i) such Termination Event shall still exist and (ii) the sum (determined as of the date of occurrence of such Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and then exist (or, in the case of a Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $250,000; or 99 (l) The Borrower shall cease to own directly 100% of the issued and outstanding Voting Stock of each Subsidiary that is a corporation or shall cease to own, directly or through one or more wholly owned Subsidiaries, 100% of the partnership interests of each Subsidiary that is a partnership, except in the case of any Subsidiary of which the Borrower shall have disposed of all Voting Stock and all partnership interests pursuant to a Permitted Asset Sale; or (m) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date of such notification), exceeds $250,000; or (n) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the average annual amounts contributed to such Multiemployer Plans for the three most recent plan years which include the date hereof by an amount exceeding $250,000; or (o) The Borrower or any ERISA Affiliate shall have committed a failure described in Section 302(f)(1) of ERISA and the amount determined under Section 302(f)(3) of ERISA is equal to or greater than $250,000; or (p) The FCC shall designate for hearing any station license or permit held by the Borrower or any of its Subsidiaries (i) to determine whether the station license or permit should be revoked or modified in a materially adverse manner, (ii) to determine whether the station license should be renewed or (iii) to determine whether an application for renewal of a license for a station operated by the Borrower or any of its Subsidiaries should be granted or whether the application of another party for said frequency or channel should be granted and in each such case there is a reasonable possibility of an adverse decision which could adversely affect the condition (financial or otherwise), operations or properties of the Borrower or such Subsidiary; or (q) There shall occur a material adverse change in the condition (financial or otherwise), operations or properties of (i) the Borrower or (ii) any of its Subsidiaries or (iii) the Borrower and its Subsidiaries taken as a whole; or 100 (r) Vincent Young, Adam Young, members of their respective immediate families, Persons controlled (as defined in the definition of Affiliate) by Vincent Young, Adam Young or members of their respective immediate families and members of management of the Borrower shall fail to hold, in the aggregate for all such individuals and other Persons, record and beneficial title to at least 51% (by number of votes) of the Voting Stock of the Borrower; or (s) Either (i) any "person" or "group" (as such terms are used in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended), other than Permitted Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission under said Act, except that a Person shall be deemed to have beneficial owernership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 30% of the total outstanding Voting Stock of the Borrower; provided that the Permitted Holders "beneficially own" (as so defined) a lesser percentage of such Voting Stock than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Borrower; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Borrower (together with any new directors whose election to such board of directors, or whose nomination for election by the stockholders of the Borrower, was approved by a vote of 662/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) shall cease for any reason to constitute a majority of the board of directors of the Borrower then in office; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances and the obligation of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Notes, all interest thereon, all Letter of Credit Obligations, all Letter of Credit fees and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all interest thereon, all Letter of Credit Obligations, all Letter of Credit fees and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of the acceleration of the maturity of any Permitted Subordinated Debt or the commencement of any voluntary proceeding 101 or the taking of any corporate action referred to in subsection (f) above, or the actual or deemed entry of an order for relief with respect to the Borrower or any of its Subsidiaries under the Bankruptcy Reform Act of 1978, as amended, (A) the obligation of each Lender to make Advances (including Swingline Advances) and the obligation of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. Cash Cover. The Borrower agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of Lenders having more than 50% in aggregate amount of the Revolving Facility Commitments (or, if the Revolving Facility Commitments shall have been terminated, holding at least 50% of the Letter of Credit Obligations), pay to the Administrative Agent an amount in immediately available funds equal to the aggregate amount available for drawing under all Letters of Credit then outstanding at such time, and such funds shall be held as collateral pursuant to arrangements satisfactory to the Administrative Agent; provided that, upon the occurrence of any Event of Default specified in clause (f) of Section 6.01 with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or any Lender. ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization. Each Lender appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the Collateral Documents as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agents and Affiliates. Each Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising the same as though it were not an Agent. Each Agent and each of their respective affiliates may accept deposits from, lend money to, acquire equity interests in and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not an Agent hereunder. 102 SECTION 7.03. Actions by Agents. The obligations of the Agents hereunder are only those expressly set forth herein and neither the Agents nor the Co-Arrangers shall have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist with respect to the Agents or the Co-Arrangers. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default, except as expressly provided in Article 6 or Section 7.10. SECTION 7.04. Consultation with Experts. Each of the Agents may consult with legal counsel (who may be internal counsel or counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agents. No Agent or any of such Agent's affiliates nor any of their respective directors, officers, agents, or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Majority Lenders or (ii) in the absence of its own gross negligence or willful misconduct. No Agent nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Lender shall, ratably in accordance with its Lender Share, indemnify each of the Agents, their respective affiliates and the directors, officers, agents and employees of each of the Agents or of their respective affiliates (each an "INDEMNITEE") (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Indemnitee's gross negligence or willful misconduct) that the Indemnitee may suffer or incur in connection with this Agreement or any action taken or omitted by the Indemnitee hereunder. The provisions of this Section 7.06 shall survive any termination of this Agreement. 103 SECTION 7.07. Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent, any Co-Arranger, any Agent's affiliate, any Co-Arranger's affiliate, any other Lender or any of their respective directors, officers, agents or employees, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, any Co-Arranger, any Agent's affiliate, any Co-Arranger's affiliate, any other Lender or any of their respective directors, officers, agents or employees, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor to such Agent. If no such successor for such Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as an Agent hereunder by a successor Agent in the same capacity, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent. SECTION 7.09. Managing Agent and Co-agents. None of the Banks listed on the cover page hereof as Managing Agent or as Co-Agent, in its capacity as Managing Agent or Co-Agent, as the case may be, shall have any rights or responsibilities under this Agreement or any other Loan Documents in such capacity. This Section 7.09 shall not affect in any way the rights and responsibilities of any such Bank as a Lender (including as a Swingline Lender) hereunder. SECTION 7.10. Notice of Default; Collateral Documents. (a) The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower or any Guarantor referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "NOTICE OF DEFAULT". If the Administrative 104 Agent receives such a notice, it shall give prompt notice thereof to each of the Lenders. (b) Subject to Section 8.01, as to any matters not expressly provided for in the Collateral Documents (including the timing and methods of realization upon any Collateral), the Administrative Agent shall act or refrain from acting in accordance with written instructions from the Majority Lenders or, in the absence of such instructions, in accordance with its discretion; provided that the Administrative Agent shall not be obligated to take any action if the Administrative Agent believes that such action is or may be contrary to any applicable law or might cause the Administrative Agent to incur any loss or liability for which it has not been indemnified to its reasonable satisfaction. (c) The Administrative Agent shall not be responsible for the existence, genuineness or value of any Collateral or for the validity, perfection, priority or enforce ability of the security interests in any Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part under any Collateral Document. The Administrative Agent shall have no duty to ascertain or inquire as to the performance or observance of any terms of any Collateral Document by any Person. ARTICLE 8 MISCELLANEOUS SECTION 8.01. Amendments, Etc. (a) No amendment or waiver of any provision of this Agreement or of any Note, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders (and, if the rights or duties of any Agent or the Issuing Bank are affected thereby, by such Agent or the Issuing Bank, as the case may be), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall, unless in writing and signed by all Lenders, do any of the following: (a) waive any of the conditions specified in Article 3, (b) change the percentage of the Lender Shares or the percentage of any of the Revolving Facility Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder, 105 (c) amend this Section 8.01, or (d) change the definition of Majority Lenders; and provided further that no such amendment, waiver or consent shall, unless in writing and signed by all Lenders with Revolving Facility Commitments, do any of the following: (x) increase the Revolving Facility Commitments or subject such Lenders to any additional obligations, (y) reduce the principal of, the interest rate or accrued interest on, the Revolving Facility Advances or the amount of any Letter of Credit Obligations or any fees or other amounts payable to any such Lenders under any Loan Document, or (z) postpone the Termination Date or any date fixed for any payment of interest or fees in respect of any Revolving Facility Advance; and provided further that no such amendment, waiver or consent shall, unless in writing and signed by all Lenders with Revolving Facility Commitments and the Swingline Lender, do any of the following: (1) increase the Swingline Commitment or subject the Swingline Lender to any additional obligations, (2) reduce the principal of, the interest rate or accrued interest on, the Swingline Advances or any fees or other amounts payable to the Swingline Lender under any Loan Document, or (3) postpone any date fixed for any payment of principal, interest or fees in respect of any Swingline Advance; and provided further that no such amendment, waiver or consent shall postpone any date fixed for any repayment or prepayment of principal of any Revolving Facility Advance or Letter of Credit Obligation, or for any reduction in the Revolving Facility Commitments, or reduce the amount of any mandatory repayment or prepayment of any Revolving Facility Advance, unless it is in writing and signed by Lenders with at least 75% of the aggregate amount of the Revolving Facility Commitments; provided that no such date shall be postponed beyond the Termination Date unless it is in writing and signed by all Lenders with Revolving Facility Commitments. 106 (b) No amendment or waiver of any provision of any Mortgage, nor consent to any departure by the applicable Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the applicable Guarantor and the Administrative Agent with the written consent of the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, except as provided in Section 7.02 of the applicable Mortgage, no such amendment, waiver or consent shall release any of the Collateral unless in writing and signed by the applicable Guarantor and the Administrative Agent with the written consent of all of the Lenders; and provided further that no such amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent with the written consent of all of the Lenders, amend Section 7.02 of any Mortgage, Section 7.04 of any Mortgage that is a mortgage or Section 7.05 of any Mortgage that is a deed of trust. (c) No amendment or waiver of any provision of any other Loan Document, nor consent to any departure by the applicable Loan Party therefrom, shall be effective except in accordance with the terms thereof. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder or under any other Loan Document shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed (prepaid registered or certified mail, return receipt requested), telegraphed, telecopied, telexed, cabled or delivered (by hand or other courier service): if to the Borrower, at its address at 599 Lexington Avenue, New York, New York 10022, Attention: Vincent J. Young, Chairman, with a copy to Cooperman Levitt Winikoff Lester & Newman, P.C., 800 Third Avenue, New York, New York, 10022, Attention: Robert L. Winikoff, Esq.; if to any Guarantor, at its address c/o the Borrower, 599 Lexington Avenue, New York, New York 10022, Attention: Vincent J. Young, Chairman, with a copy to Cooperman Levitt Winikoff Lester & Newman, P.C., 800 Third Avenue, New York, New York 10022, Attention: Robert L. Winikoff, Esq.; if to any Bank, at its Domestic Lending Office specified in its Administrative Questionnaire; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Assumption Agreement pursuant to which it became a Lender; if to the Syndication Agent, at its address at 60 Wall Street, New York, New York 10260, Attention: R. Blake Witherington; if to the Documentation Agent, at its address at 425 Lexington Avenue, New York, New York 10017, Attention: Lorain C. Granberg; and if to the Administrative Agent, at its address at 130 Liberty Street, Mail Stop 2144, New York, New York 10006, Attention: Agency Services Group, Attention: Paul Raghunandan or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, be effective three days after being mailed and, when telegraphed, telecopied, telexed 107 or cabled, be effective when delivered to the telegraph company, sent by telecopy, confirmed by telex answer back or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article 2 shall not be effective until received by the Administrative Agent. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or any Agent to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs and Expenses; Indemnities. (a) The Borrower agrees to pay on demand all reasonable costs and expenses incurred by any Agent or any Affiliate of an Agent or by a Person acting upon the request or on behalf of any Agent or any Affiliate of an Agent in connection with the preparation, execution, delivery, filing, recording, administration, modification and amendment of the Loan Documents and the other documents to be delivered thereunder (such administration costs and expenses shall include, without limitation, reasonable costs incurred in connection with any audits of the Borrower and its Subsidiaries, all costs and expenses incurred in connection with appraisals, audits and search reports, all filing fees, and the fees and expenses of counsel that any Agent or any Affiliate of an Agent may consult, from time to time, in connection with the Loan Documents), including, without limitation, the reasonable fees and out-of-pocket expenses of Davis Polk & Wardwell, local counsel who may be retained by any of said counsel or by any Agent or any Affiliate of an Agent with respect thereto and with respect to advising any Agent or any Affiliate of an Agent as to its rights and responsibilities under the Loan Documents, and all reasonable costs and expenses, if any (including reasonable fees and out-of-pocket expenses of counsel to any Agent or Affiliate of an Agent, or any Lender or Affiliate of a Lender (including in-house counsel of any Lender or of such Affiliate of a Lender) and all other FCC fees), incurred by any Agent, any Affiliate of an Agent, any Lender or any Affiliate of a Lender or any Person acting upon the request or on behalf of any Agent, any Affiliate of an Agent, any Lender or any Affiliate of a Lender in connection with the enforcement of the Loan Documents and the other documents to be delivered under the Loan Documents. (b) The Borrower agrees to indemnify, pay and hold harmless each Agent, each Affiliate of an Agent, each Lender, each Affiliate of a Lender and their respective officers, directors, employees and agents (collectively called the "INDEMNITEES") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and 108 disbursements of counsel for such Indemnitee) in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitee shall be designated a party thereto, and the expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by or on behalf of any Agent or any Lender) asserting any right to payment for the transactions contemplated hereby, which may be imposed on, incurred by or asserted against such Indemnitee as a result of or in connection with the transactions contemplated hereby or by the other Loan Documents (including (i) (A) as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission or release from, any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries of any Hazardous Materials, (B) arising out of or relating to the offsite disposal of any materials generated or present on any such property or (C) arising out of or resulting from the environmental condition of any such property or the applicability of any governmental requirements relating to Hazardous Materials, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of the Borrower or any of its Subsidiaries, and (ii) proposed and actual extensions of credit under this Agreement) and the use or intended use of the proceeds of any Borrowing, except that the Borrower shall have no obligation hereunder to an Indemnitee with respect to any liability resulting from the gross negligence or wilful misconduct of such Indemnitee. To the extent that the undertaking set forth in the immediately preceding sentence may be unenforceable, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them. Without limiting the generality of any provision of this Section, to the fullest extent permitted by law, the Borrower hereby waives all rights for contribution or any other rights of recovery with respect to liabilities, losses, damages, costs and expenses arising under or relating to Environmental Laws that it might have by statute or otherwise against any Indemnitee. SECTION 8.05. Right to Set-off. (a) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes and the Letter of Credit Obligations due and payable pursuant to the provisions of Section 6.01, each Lender (and a Participant thereof) is hereby authorized, subject to the provisions of Section 8.05(B), at any time and from time to time, to the fullest extent permitted by law (without penalty, sanction or loss of collateral), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing to such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing 109 under any Loan Document, irrespective of whether or not such Lender shall have made any demand under such Loan Document and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after such set-off and application made by such Lender; provided that such failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it and Letter of Credit Obligations owed to it which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Lender and Letter of Credit Obligations owed to such other Lender, such adjustments shall be made as may be required so that all such payments of principal and interest with respect to the Notes held by the Lenders and Letter of Credit Obligations owed to all Lenders shall be shared by the Lenders pro rata. (b) The Lenders agree among themselves that, except upon the written consent of the Majority Lenders, no Lender shall, with respect to any Note or other obligation under any Loan Document, exercise any right described in Section 8.05(A). If a Lender breaches its obligation under the foregoing sentence, then such Lender shall be deemed to have waived any right to the benefits of the Collateral Documents, as against any other Lender. Each Lender waives all rights to enforce any rights under this Agreement, under the Notes or under any other Loan Document without the prior written consent of the Majority Lenders. Each Lender further agrees that all rights under the Collateral Documents shall be exercised only through the Administrative Agent. SECTION 8.06. BINDING EFFECT; GOVERNING LAW. THIS AGREEMENT SHALL BECOME EFFECTIVE WHEN IT SHALL HAVE BEEN EXECUTED BY THE BORROWER, EACH EXISTING GUARANTOR, THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, THE DOCUMENTATION AGENT AND THE SWINGLINE LENDER AND WHEN THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED BY EACH BANK (OTHER THAN THE SWINGLINE LENDER) THAT SUCH BANK HAS EXECUTED IT (WHICH NOTIFICATION MAY BE IN THE FORM OF DELIVERY OF AN EXECUTED SIGNATURE PAGE TO THE ADMINISTRATIVE AGENT BY FACSIMILE TRANSMISSION) AND THEREAFTER SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE BORROWER, THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, THE DOCUMENTATION AGENT AND EACH LENDER AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, 110 EXCEPT THAT THE BORROWER SHALL NOT HAVE THE RIGHT TO ASSIGN ITS RIGHTS HEREUNDER OR ANY INTEREST HEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF ALL LENDERS. IF THE CLOSING DATE SHALL NOT HAVE OCCURRED BY DECEMBER 31, 1997 THIS AGREEMENT SHALL TERMINATE AND CEASE TO BE OF ANY FORCE OR EFFECT. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 8.07. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Lenders. (b) Any Lender may at any time grant to one or more commercial banks, mutual funds, financial institutions or other "ACCREDITED INVESTORS" (as defined in Regulation D of the Securities Act of 1933, as amended) (each a "PARTICIPANT") participating interests in its Revolving Facility Commitment or any or all of its Advances. In the event of any such grant by a Lender of a participating interest to a Participant, whether or not any notice thereof is given to the Borrower or the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement described in clause (x) of the second proviso or clause (1) of the third proviso, to Section 8.01(A) (unless the participant's share of such Lender's Revolving Facility Commitment would not be increased and any additional obligations imposed on the Lenders would not be imposed upon the participant) or in clauses (y) or (z) of the second proviso or clauses (2) and (3) of the third proviso, of Section 8.01(A) without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Sections 2.10(E), 2.12, 2.14, 2.16, 2.17, 2.18, 2.19 and 8.04 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). 111 (c) Any Lender may at any time assign to one or more commercial banks, mutual funds, financial institutions or other "ACCREDITED INVESTORS" (as defined in Regulation D of the Securities Act of 1933, as amended) (each an "ASSIGNEE") all or any part (equivalent, except when the Assignee is either an Affiliate of such transferor Lender or already a Lender prior to such assignment, to at least $5,000,000) of its rights and obligations under this Agreement, and such Assignee shall assume such rights and obligations, in respect of its Revolving Facility Commitment, all of its outstanding Revolving Facility Advances, all of its outstanding Letters of Credit and all of its outstanding Letter of Credit Obligations. In addition, the Swingline Lender may at any time assign its rights in respect of outstanding Swingline Advances to Lenders with Revolving Facility Commitments in accordance with Section 2.01(C). When all of the following conditions shall have been satisfied, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Revolving Facility Commitment and/or Swingline Advances, as the case may be, as set forth in such Assignment and Assumption Agreement, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required: (x) delivery of an Assignment and Assumption Agreement executed by such Assignee and such transferor Lender, with the subscribed consent of the Borrower and the Administrative Agent, which consents shall not be unreasonably withheld or delayed; provided that (i) if the Assignee is either an Affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consents shall be required and (ii) if such assignment is made while any Default is continuing, the consent of the Borrower shall not be required; (y) payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee (or, in the case of the assignment of Swingline Advances, payment of the purchase price as set forth in Section 2.01(C)); and (z) except in the case of the assignments pursuant to Section 2.04 and assignments of Swingline Advances pursuant to Section 2.01(C), payment to the Administrative Agent of a non- refundable administrative fee for processing such assignment in the amount of $1,000 if the Assignee was a Lender immediately prior to such assignment, or $3,500 otherwise. 112 If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.14. (d) Any Lender may at any time assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder. (e) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Assumption Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Facility Commitment and Swingline Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of a completed Assignment and Assumption Agreement that has been executed and consented to in accordance with Section 8.07(C), together with any Note or Notes subject to such assignment, the Administrative Agent shall (i) accept such Assignment and Assumption Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Except in the case of assignments pursuant to Section 2.04, within five Domestic Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes, appropriate new Note or Notes, to the order of such Assignee and, if the assigning Lender has retained any Revolving Facility Commitment or any Advances, appropriate new Note or Notes to the order of the assigning Lender. Except in the case of the assignments pursuant to Section 2.04, as described in Section 2.03(A), and except in the case of assignments of Swingline Advances, such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Assumption Agreement and shall otherwise be in substantially the form of Exhibit A-1 or Exhibit A-2, as the case may be. (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information 113 relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. SECTION 8.08. Headings. Article and Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 8.09. Execution in Counterparts; Integration. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 8.10. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforce ability of such provision in any other jurisdiction. SECTION 8.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE SYNDICATION AGENT, THE DOCUMENTATION AGENT, THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. SECTION 8.12. Submission to Jurisdiction; Consent to Service of Process. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Each of the parties hereto irrevocably consents to service of process in the manner provided for notices in Section 8.02 (except that process may not be served by telecopy). 114 Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 8.13. Consent to Amendment. Each Lender hereby consents to, and hereby authorizes the Administrative Agent to execute and deliver, the 1997 Global Collateral Documents and Guaranty Agreement Amendment and the Mortgage Amendments. SECTION 8.14. Survival. The obligations of the Borrower under Sections 2.10(E), 2.12, 2.14, 2.18 and 8.04 hereof and the obligations of the Lenders under Section 7.06 hereof shall survive the repayment of the Advances and the Letter of Credit Obligations and the termination of the Revolving Facility Commitments, the Swingline Commitment and the Letters of Credit. 115 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. YOUNG BROADCASTING INC. By: /s/ James A. Morgan -------------------------------- Title: Executive Vice President and Chief Financial Officer BANKERS TRUST COMPANY, AS ADMINISTRATIVE AGENT AND AS ISSUING BANK By: /s/ Anthony Lo Grippo -------------------------------- Title: Vice President CANADIAN IMPERIAL BANK OF COMMERCE, AS DOCUMENTATION AGENT By: /s/ Lorain C. Granberg -------------------------------- Title: Authorized Signatory MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT By: /s/ R. Blake Witherington -------------------------------- Title: Vice President 116 BANKS - ----- BANKERS TRUST COMPANY By: /s/ Anthony Lo Grippo -------------------------------- Title: Vice Present BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Carl F. Salas -------------------------------- Title: Vice President THE BANK OF NEW YORK By: /s/ Debra L. McGarry -------------------------------- Title: Assistant Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Glenn B. Eckert -------------------------------- Title: Vice President 117 CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Lorain C. Granberg -------------------------------- Title: Authorized Signatory COMMERCIAL LOAN FUNDING TRUST I By: Lehman Commercial Paper Inc., not in its individual capacity but solely as administrative agent By: /s/ Michele Swanson -------------------------------- Title: Authorized Signatory COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: /s/ Brian O'Leary -------------------------------- Title: Vice President By: /s/ Marcus Edward -------------------------------- Title: Vice President 118 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ M. Christina Debler -------------------------------- Title: Vice President /s/ Ian Reece -------------------------------- Title: Senior Credit Officer CREDIT AGRICOLE INDOSUEZ By: /s/ Craig Welch -------------------------------- Title: First Vice President By: Richard Manix -------------------------------- Title: First Vice President THE DAI-ICHI KANGYO BANK, LTD. By: /s/ Frank A. Bertelle -------------------------------- Title: Assistant Vice President BANKBOSTON, N.A. By: /s/ Robert F. Milordi -------------------------------- Title: Managing Director 119 FIRST UNION NATIONAL BANK, AS SWINGLINE LENDER AND AS A BANK By: /s/ Bruce W. Loftin -------------------------------- Title: Senior Vice President FLEET BANK, N.A. By: /s/ Adam Bester -------------------------------- Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Janet Williams -------------------------------- Title: Duly Authorized Signatory HELLER FINANCIAL, INC. By: /s/ Patrick Hayes -------------------------------- Title: Vice President IMPERIAL BANK By: /s/ Ray Vadalma -------------------------------- Title: Senior Vice President 120 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ Tetsuo Kushiya -------------------------------- Title: Vice President LTCB TRUST COMPANY By: /s/ Shuichi Tajima -------------------------------- Title: Senior Vice President MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION By: /s/ Gregory D. Knudsen -------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ R. Blake Witherington -------------------------------- Title: Vice President 121 NATEXIS BANQUE BFCE By: /s/ Evan Kraus -------------------------------- Title: Associate By: /s/ Frederick K. Kammler -------------------------------- Title: Vice President THE SANWA BANK, LIMITED, NEW YORK BRANCH By: /s/ Shayn P. March -------------------------------- Title: Assistant Vice President SOCIETE GENERALE, NEW YORK BRANCH By: /s/ Aamer Shahab -------------------------------- Title: Vice President SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION By: /s/ Janet P. Sammons -------------------------------- Title: Vice President 122 OLD LENDERS ----------- BANK OF IRELAND GRAND CAYMAN By: /s/ Michael G. Doyle -------------------------------- Title: A.V.P. Corporate Banking BANQUE PARIBAS By: /s/ Lynne S. Randall -------------------------------- Title: Director By: /s/ William B. Schink -------------------------------- Title: Director MELLON BANK N.A. By: /s/ Nathan H. Kehm -------------------------------- Title: Assistant Vice President SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisors By: /s/ Scott H. Page -------------------------------- Title: Vice President 123 VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: /s/ Kathleen A. Zarn -------------------------------- Title: Vice President EACH OF THE UNDERSIGNED GUARANTORS HEREBY CONSENTS TO THE FOREGOING AMENDED AGREEMENT: YOUNG BROADCASTING OF LANSING, INC. YOUNG BROADCASTING OF LOUISIANA, INC. YOUNG BROADCASTING OF LA CROSSE, INC. YOUNG BROADCASTING OF NASHVILLE, INC. YOUNG BROADCASTING OF ALBANY, INC. WINNEBAGO TELEVISION CORPORATION KLFY, L.P. BY: YOUNG BROADCASTING OF LOUISIANA, INC., ITS GENERAL PARTNER WKRN, L.P. BY: YOUNG BROADCASTING OF NASHVILLE, INC., ITS GENERAL PARTNER LAT, INC. YBT, INC. YOUNG BROADCASTING OF RICHMOND, INC. YOUNG BROADCASTING OF GREEN BAY, INC. YOUNG BROADCASTING OF KNOXVILLE, INC. WATE, L.P. BY: YOUNG BROADCASTING OF KNOXVILLE, INC., ITS GENERAL PARTNER YBK, INC. YOUNG BROADCASTING OF DAVENPORT, INC. YOUNG BROADCASTING OF SIOUX FALLS, INC. YOUNG BROADCASTING OF RAPID CITY, INC. YOUNG BROADCASTING OF LOS ANGELES, INC. FIDELITY TELEVISION, INC. By: /s/ James A. Morgan -------------------------------- Title: Executive Vice President and Chief Financial Officer 124 EX-10.25 3 AGREEMENT AND PLAN TO MERGE EXHIBIT 10.25 EXECUTION COPY -------------- AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of February 5, 1998, by and among YOUNG BROADCASTING INC., a Delaware corporation ("Parent"), AYI ACQUISITION CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and ADAM YOUNG INC., a New York corporation ("Target", and together with Merger Sub, the "Constituent Corporations"), and Adam Young, Vincent J. Young and Margaret Young (collectively, the "Shareholders"). RECITALS -------- A. The Boards of Directors of Merger Sub and Target have approved the acquisition by Merger Sub of the business of Target through the merger of Target with and into Merger Sub (the "Merger"), as described more fully below. B. The Shareholders, as the owners of all of the outstanding shares of Common Stock, $5.00 par value ("Target Common Stock"), of Target, have approved and wish to consummate the Merger. C. Pursuant to authority conferred by its Board of Directors, Parent, as the sole shareholder of Merger Sub, has approved and wishes to consummate the Merger. D. For federal income tax purposes, it is intended by the parties hereto that the Merger qualify as a reorganization within the meaning of Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). E. Each of the parties hereto desires to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions thereto. F. Capitalized terms not defined in text are used as defined in Article VIII. AGREEMENT --------- For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER ---------- I.1 The Merger. (a) At the Effective Time (as defined in Section ---------- 1.2), and subject to the terms and conditions of this Agreement, Target shall be merged with and into Merger Sub and the separate existence of Target shall thereupon cease, in accordance with the applicable provisions of the General Corporation Law of the State of Delaware (the "DGCL") and the Business Corporation Law of the State of New York (the "NYBCL"). (b) Merger Sub will be the surviving corporation in the Merger (sometimes referred to herein as the "Surviving Corporation") and will continue to be governed by the laws of the State of Delaware, and the separate corporate existence of Merger Sub and all of its rights, privileges, immunities and franchises, public or private, and all its duties and liabilities as a corporation organized under the DGCL, will continue unaffected by the Merger. (c) The Merger will have the effects specified by the DGCL and the NYBCL. I.2 Effective Time. Subject to and in accordance with the laws of -------------- the State of Delaware and the State of New York, the Merger will become effective upon the later to occur of (a) the filing of this Agreement or a certificate of merger with the office of the Secretary of State of the State of Delaware pursuant to Section 252 of the DGCL and (b) the filing of a certificate of merger with the office of the Department of State of the State of New York pursuant to Section 907 of the NYBCL (the later to occur of such filings being the "Effective Time"). Each of the parties will use its reasonable commercial efforts to cause the Merger to be consummated as soon practicable following the execution and delivery hereof. ARTICLE II THE SURVIVING CORPORATION ------------------------- II.1 Certificate of Incorporation. The Certificate of Incorporation ---------------------------- of Merger Sub as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation after the Effective Time. II.2 By-Laws. The By-Laws of Merger Sub as in effect immediately ------- prior to the Effective Time shall be the By-Laws of the Surviving Corporation after the Effective Time. 2 II.3 Board of Directors. From and after the Effective Time, the ------------------ Board of Directors of Merger Sub shall be the Board of Directors of the Surviving Corporation. ARTICLE III CONVERSION OF SHARES -------------------- III.1 Conversion of Target Shares in the Merger. Target is authorized to issue 50,000 shares of Target Common Stock. There are outstanding 25,000 shares of Target Common Stock. The Target Common Stock is the only outstanding class of capital stock of Target. The number of outstanding shares of Target Common Stock is not subject to change prior to the Effective Time. At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any capital stock of Target, each issued and outstanding share of Target Common Stock shall, subject to Section 3.3(c), be converted into, and become exchangeable for, the number of shares of validly issued, fully paid and nonassessable Common Stock, $.001 par value, of Parent ("Parent Common Stock") equal to a fraction, the numerator of which shall be an amount (the "Aggregate Merger Consideration") equal to the sum of (i) $19,350,000, divided by an amount, no less than $40.00, equal to the average closing sale price of a share of Class A Parent Common Stock, as quoted by the Nasdaq National Market, for the five full trading days immediately preceding the third full trading day prior to the date hereof, plus (ii) the number of shares of Parent Common Stock owned by Target; and the denominator of which is equal to the number of shares of Target Common Stock issued and outstanding. III.2 Status of Merger Sub Shares. At the Effective Time, by virtue of --------------------------- the Merger and without any action on the part of any holder of any capital stock of Merger Sub, each issued and outstanding share of Common Stock, $.01 par value, of Merger Sub shall continue unchanged and remain outstanding as a share of common stock of the Surviving Corporation. 3 III.3 Exchange of Stock Certificates. (a) Concurrently with the ------------------------------ execution and delivery hereof, each Shareholder shall surrender to Parent certificate(s) ("Target Certificates") which represent such Shareholder's outstanding shares of Target Common Stock and, in exchange therefor, Parent shall (i) issue to each Shareholder a certificate or certificates representing the number of whole shares of Parent Common Stock into which such Shareholder's shares of Target Common Stock shall be converted pursuant to Section 3.1 and (ii) transfer cash in lieu of any fractional shares of such Parent Common Stock pursuant to Section 3.3(c). (b) Upon the surrender of Target Certificates as provided above, the Target Certificates so surrendered shall forthwith be canceled. (c) Notwithstanding any other provision of this Agreement, no certificates or scrip for fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Target Certificates pursuant to this Article III in the Merger. Each Shareholder who would otherwise have been entitled to a fraction of a share of Parent Common Stock upon surrender of Target Certificates for exchange pursuant to this Article III shall be entitled to receive from Parent a cash payment in lieu of such fractional share equal to such fraction multiplied by the closing sale price of a share of Class A Parent Common Stock, as quoted by the Nasdaq National Market, for the trading day immediately preceding the date hereof. III.4 Closing of Transfer Books. From and after the Effective Time, ------------------------- the stock transfer books of Target shall be closed and no transfer of shares of Target Common Stock shall thereafter be made. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ IV.1 Representations and Warranties of Parent and Merger Sub. Parent ------------------------------------------------------- and Merger Sub, jointly and severally, represent and warrant to each of Target and the Shareholders, as of the date hereof and as of the Effective Time, as follows: IV.1.1 Corporate Status. Each of Parent and Merger Sub is a ---------------- corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own or lease its properties and to carry on its business as presently conducted. There is no pending or threatened proceeding for the dissolution, liquidation 4 or insolvency of either Parent or Merger Sub. IV.1.2 Power and Authority. Each of Parent and Merger Sub has ------------------- the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each of Parent and Merger Sub has taken all corporate action necessary to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. IV.1.3 Enforceability. This Agreement has been duly executed -------------- and delivered by each of Parent and Merger Sub, and constitutes the legal, valid and binding obligation of them, enforceable against them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. IV.1.4 No Violation. The execution and delivery of this ------------ Agreement by Parent and Merger Sub, the performance by Parent and Merger Sub of their respective obligations hereunder and the consummation by Parent and Merger Sub of the transactions contemplated by this Agreement will not: (i) contravene any provision of their Organizational Documents; (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against either of them; (iii) conflict with, result in any breach of, constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, require any consent under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate, or adversely affect the rights and privileges under, any Contract which is applicable to, binding upon or enforceable against Parent or Merger Sub; (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets of Parent, Merger Sub or any subsidiary of either of them; (v) give to any individual or entity a right or claim against Parent, Merger Sub or any subsidiary of either of them; or (vi) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person other than (a) pursuant to the Securities Act and the Exchange Act and applicable listing requirements of The Nasdaq Stock Market, Inc. and (b) as have been obtained. 5 IV.1.5 No Brokers. Neither of Parent nor Merger Sub has ---------- incurred any obligation for any finder's, broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. IV.1.6 Reports and Financial Statements. Since January 1, 1997, -------------------------------- Parent has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC under the Securities Act and the Exchange Act, including, but not limited to, any Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Parent Reports"). As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Parent Reports complied in all material respects with all the rules and regulations promulgated by the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. IV.1.7 Opinion of Financial Advisors. Parent has received an ----------------------------- opinion from Bear, Stearns & Co. Inc. to the effect that the consideration to be paid by Parent in the Merger is fair to Parent's stockholders from a financial point of view and such opinion has not been modified or withdrawn. IV.2 Representations and Warranties of Target and Shareholders. --------------------------------------------------------- Target and the Shareholders, jointly and severally, represent and warrant to each of Parent and Merger Sub, as of the date hereof and as of the Effective Time, as follows: IV.2.1 Corporate Status. Target is a corporation duly organized, ---------------- validly existing and in good standing under the laws of the State of New York and has the requisite power and authority to own or lease its properties and to carry on its business as presently conducted. Target is legally qualified to do business as a foreign corporation in each of the jurisdictions where the nature of the properties and the conduct of its business require such qualification and is in good standing in each of the jurisdictions in which it is so qualified, except where the failure to so qualify would not cause a Material Adverse Effect to Target. There is no pending or threatened proceeding for the dissolution, liquidation or insolvency of Target. IV.2.2 Power and Authority. Target has the corporate power and ------------------- authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Target has taken all 6 corporate action necessary to authorize its execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. Each of the Shareholders has the requisite capacity and the power and authority to execute and deliver this Agreement, to perform such Shareholder's obligations hereunder and to consummate the transactions contemplated hereby. IV.2.3 Enforceability. This Agreement has been duly executed and -------------- delivered by Target and each of the Shareholders and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. IV.2.4 Capitalization. The authorized capital stock of Target -------------- consists solely of 50,000 shares of Target Common Stock, of which 25,000 shares are validly issued and outstanding, fully paid and non-assessable, and no shares are held in treasury. There are no (i) preemptive rights, rights of first refusal or similar rights with respect to the shares of capital stock of Target, and no such rights shall arise or become exercisable by virtue of or in connection with the transactions contemplated hereby; (ii) no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require Target to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock); (iii) no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to Target; (iv) no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of Target; and (v) no outstanding agreements, arrangements or understandings pursuant to which Target is obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. A correct and complete copy of the Organizational Documents of Target, as amended to date, were previously delivered to Parent and Merger Sub, and no changes therein will be made subsequent to the date hereof and prior to the Effective Time. IV.2.5 No Subsidiaries. Target does not own or hold, directly or --------------- indirectly, any shares of stock or any other securities, or otherwise have any interest, in any Person, other than 50,450 shares of Parent Common Stock, which upon 7 consummation of the Merger shall neither be entitled to vote nor be counted for quorum purposes in accordance with the DGCL. IV.2.6 No Violation. The execution and delivery of this ------------ Agreement by Target and the Shareholders, the performance by Target and the Shareholders of their respective obligations hereunder and the consummation by Target and the Shareholders of the transactions contemplated by this Agreement will not: (i) contravene any provision of the Organizational Documents of Target; (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment, ruling or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against Target or any Shareholder; (iii) conflict with, result in any breach of, constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, require any consent under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate, or adversely affect the rights and privileges under, any Contract which is applicable to, binding upon or enforceable against Target or any Shareholder; (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of Target; (v) give to any individual or entity a right or claim against Target, which would have a Material Adverse Effect on Target; or (vi) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except such filings as may be required to be made by Parent or Merger Sub. IV.2.7 Financial Statements. The financial statements of Target -------------------- attached hereto as Schedule 4.2.7 have been prepared in accordance with GAAP consistently applied during the periods presented (except as noted therein) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) in all material respects the financial position of Target as of the date thereof and the results of its operations and its cash flows for the periods shown therein. IV.2.8 Material Developments; Absence of Undisclosed Liabilities; ---------------------------------------------------------- Title to Assets. Except as disclosed on Schedule 4.2.8, since December 31, - --------------- 1997, (i) there has been no Material Adverse Change with respect to Target, and (ii) Target does not have any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except liabilities incurred in the ordinary course of business consistent with past practice, or other liabilities which would not have a reasonable likelihood of having a Material Adverse Effect on Target. Target has good and marketable title to all of its assets reflected in the balance sheet on Schedule 4.2.7 and all assets which were acquired 8 subsequent to the date thereof, which have not been disposed of in the ordinary and regular course of its business since the date thereof or since the date of acquisition of such assets, respectively, free and clear of all Liens. IV.2.9 Tax Matters. With respect to Taxes (as defined below): ------------ (a) Target has filed, within the time and in the manner prescribed by law, all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed under federal, state, local or any foreign laws by Target, and all such Returns are true, correct and complete in all material respects. (b) Target has within the time and in the manner prescribed by law, paid all Taxes that are due and payable. (c) Except for certain deferred taxes amounting to not more than $65,000 related to the conversion of Target from a "C Corporation" to an "S Corporation" on April 1, 1996, Target has established on its books and records reserves (to be specifically designated as an increase to current liabilities) that are adequate for the payment of all Taxes not yet due and payable. (d) There are no Liens for Taxes upon the assets of Target except Liens for Taxes not yet due. (e) Target has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of the subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by Target. (f) The statute of limitations for the assessment of federal income taxes has expired for all federal income tax returns of Target or such returns have been examined by the Internal Revenue Service for all periods through March 31, 1995; the statute of limitations for the assessment of state, local and foreign income taxes has expired for all applicable Returns of Target or such Returns have been examined by the appropriate tax authorities for all periods through March 31, 1995; and no deficiency for any Taxes has been proposed, asserted or assessed against Target which has not been resolved and paid in full. (g) There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Returns that have been given by Target. 9 (h) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Returns. (i) Target is not a party to any tax-sharing or allocation agreement, nor does Target owe any amount under any tax-sharing or allocation agreement. (j) No amounts payable under any Employee Benefit Plan (as defined in Section 4.2.11) will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. (k) Target has complied in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of the Code or similar provisions under any foreign laws) and has, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper Governmental Authorities all amounts required to be so withheld and paid over under all applicable laws. (l) Target has never been (or has any liability for unpaid Taxes because it once was) a member of an "affiliated group" within the meaning of Section 1502 of the Code. (m) Target was an "S Corporation" within the meaning of Section 1361 et seq. of the Code for the fiscal year ended December 31, 1997 and is and will - -- ---- continue to be an "S Corporation" until the Effective Time. At all times since April 1, 1996, Target has filed its tax returns as an "S Corporation" and Target has never received any notice that its "S Corporation" election is invalid. (n) For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupancy or property taxes, customs duties, fees, assessments or charges of any kind whatsoever (together with any interest and any penalties, additions to tax or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by Target. IV.2.10 Representation Agreements. (a) Schedule 4.2.10 hereto ------------------------- sets forth a list of the Representation Agreements. Each Representation Agreement is in full force and effect and is a legal, valid and binding obligation of Target, and there is not 10 (i) any breach by Target or, to their knowledge, any other party, in the performance of any obligation to be performed under any such Representation Agreement; (ii) to their knowledge, any written notice of cancellation or termination of any such Representation Agreement except as set forth on Schedule 4.2.10; or (iii) any Representation Agreement that has been canceled or terminated since December 31, 1997 (except as set forth on Schedule 4.2.10). (b) Except in each case where the failure would have no reasonable likelihood of having a Material Adverse Effect, (i) the information on Schedule 4.2.10 is true and correct in all respects; and (ii) true and correct copies of all Representation Agreements pertaining to the television broadcast companies listed on Schedule 4.2.10 have been made available to representatives of Parent. (c) Target makes no representation in this Section 4.2.10 regarding representation agreements with Parent or its Affiliates and the term "Representation Agreements" as used herein shall be deemed to exclude representation agreements with Parent or its Affiliates. IV.2.11 Employment Matters. Except as disclosed on Schedule ------------------ 4.2.11 and other than those Employee Benefit Plans of Parent which cover the employees of Target, there are no employee benefit plans or arrangements maintained, contributed to or sponsored by the Target or any ERISA Affiliate or under which Target or any ERISA Affiliate may incur any liability, including, but not limited to, employee pension benefit plans, as defined in Section 3(2) of ERISA, multiemployer plans, as defined in Section 3(37) or 4001(a)(3) of ERISA, employee welfare benefit plans, as in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, employment or consulting or termination agreements, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA ("Employee Benefit Plans"). Except as disclosed on Schedule 4.2.11, the employment of all persons presently employed or retained by Target is terminable at will. There is no contract, agreement, plan or arrangement covering any employee or former employee of Target that, individually or collectively, provides for the payment of any amount (i) that is not deductible under Section 162(a)(1) or 404 of the Code or (ii) that is an "excess parachute payment" pursuant to Section 280G of the Code. None of Target or any ERISA Affiliate has any announced plan or legally binding commitment to create any Employee Benefit Plan or other benefit arrangement which is intended to cover employees or former employees of Target. 11 IV.2.12 Environmental. Target is currently and has in the past ------------- been in compliance with all Environmental Laws, except where the failure to be or have been in compliance would not be reasonably likely to have a Material Adverse Effect on Target. There are no existing, and Target is not aware of any potential or threatened, Environmental Claims against Target which are reasonably likely to have a Material Adverse Effect on Target. There are no consent decrees, consent orders, judgments, judicial or administrative orders, agreements with (other than permits) or liens by, any Governmental Authority or quasi-governmental authority relating to any Environmental Laws which regulate, obligate or bind Target. IV.2.13 Litigation. There is no action, suit or other legal or ---------- administrative proceeding or governmental investigation pending, or, to their knowledge, threatened, anticipated or contemplated against, by or affecting Target or any of Target's properties or assets which question the validity or enforceability of this Agreement or the transactions contemplated hereby. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which Target is or was a party which have not been complied with in full or which continue to impose any obligations on Target (other than those that would not be reasonably likely to have a Material Adverse Effect). IV.2.14 Patents, Trademarks, Etc. To their knowledge, Target ------------------------ owns, or is licensed or otherwise has adequate right to use, all patents, patent rights, trademarks, trademark rights, service marks, service mark rights, trade names, trade name rights, copyrights, know-how, technology, trade secrets and other proprietary information (collectively, the "Intellectual Property") which are material to the conduct of the business of Target. To their knowledge, no claims have been asserted by any Person, and Target has not asserted a claim against any Person, with respect to any of the Intellectual Property owned or used by Target, challenging or questioning the validity or effectiveness of any license or agreement relating thereto to which Target is a party, in any case that would be reasonably likely to have a Material Adverse Effect on Target. IV.2.15 Compliance with Law. The business of Target is being ------------------- conducted and the properties and assets of Target are currently owned or operated in all material respects in compliance with all laws, ordinances, regulations, orders, judgments, injunctions, awards and decrees of Governmental Authorities. IV.2.16 Absence of Liens. Except for Liens that would not ---------------- interfere in any material respect with the use and 12 operation of Target's business, there are no Liens on any of the assets of Target to secure indebtedness for borrowed money. IV.2.17 No Brokers. Neither Target nor any of the Shareholders ---------- has incurred any obligation for any finder's, broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. ARTICLE V COVENANTS --------- V.1 Conduct of Business of Target Pending the Merger. Target agrees ------------------------------------------------ that, from the date hereof and prior to the Effective Time, the business of Target shall be conducted only in, and Target shall not take any action except in, the ordinary course of business consistent with past practice. Target shall use its reasonable commercial efforts to preserve intact Target's present lines of business, maintain its respective rights and preserve its respective present relationships with customers, suppliers and other persons with which it has significant business relations. V.2 Further Assurances. Each party shall execute and deliver such ------------------ additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. V.3 Cooperation. Each of the parties agrees to cooperate with the ----------- other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation in connection with the transactions contemplated by this Agreement and to use their respective reasonable commercial efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. V.4 Other Actions. Each of the parties hereto shall use its ------------- reasonable commercial efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein as soon as possible, including, without limitation, using its reasonable commercial efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with Target as are necessary for the consummation of the transactions contemplated hereby; provided, 13 however, in no event shall either party be required to divest or forfeit material incidents of control of any material assets in order to obtain approval of a Governmental Authority. Each of the parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. V.5 Access to Information. From the date hereof to the Effective --------------------- Time, Target shall afford the officers, employees, auditors, counsel, representatives and agents (the "Representatives") of Parent and Merger Sub reasonable access at all reasonable times to its officers, employees, agents, properties, offices and other facilities, books, records and tax returns, and shall furnish such Representatives with all financial, operating and other data and information as may be reasonably requested. V.6 Notification of Certain Matters. Each of the parties to this ------------------------------- Agreement shall give prompt notice to the other parties of the occurrence or non-occurrence of any event which would likely cause any covenant, condition or agreement contained herein not to be complied with or satisfied; provided, however, that, any such disclosure shall not in any way be deemed to amend, modify or in any way affect the representations, warranties and covenants made by any party in or pursuant to this Agreement. V.7 Publicity. The parties hereto will consult with each other --------- before issuing, and provide each other the opportunity to review, comment upon and concur with, any press release or other public statements with respect to the transactions completed by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation, except as either party may determine is required by applicable law, court process or by obligations pursuant to any listing agreement. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form agreed upon by the parties. V.8 FCC Filings. The parties shall make such filings as may be ----------- required to reflect changes in ownership as a result of the transactions contemplated hereby, as may be required by the rules and regulations of the Federal Communications Commission. 5.9 Listing of Additional Parent Shares. Parent shall take such ----------------------------------- actions as are necessary (including the filing with The Nasdaq Stock Market, Inc. of a notice for the listing of additional shares and payment of the requisite fee) for the 14 issuance of shares of Parent Common Stock pursuant to this Agreement. 5.10 Qualification as Reorganization. Each party agrees to refrain ------------------------------- from taking any action that could increase the likelihood of the transactions contemplated hereby becoming taxable to any party. 15 ARTICLE VI INDEMNIFICATION --------------- 16 VI.1 General Indemnification Covenants. Subject to the last sentence --------------------------------- of this Section 6.1, Target and the Shareholders, jointly and severally, agree to indemnify and hold harmless Parent and Merger Sub from and against, and to reimburse Parent and Merger Sub with respect to, any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees (collectively, "Losses"), incurred by Parent or Merger Sub by reason of or arising out of or in connection with (i) a breach of any representation or warranty contained in Sections 4.2, 7.3 or 7.10 or in any certificate delivered to Parent or Merger Sub pursuant to the provisions of this Agreement, (ii) the failure of Target or the Shareholders to perform any agreement required by this Agreement to be performed by them, unless such performance was or is prohibited by law or by court order, (iii) the alleged existence by any third party of any liability, obligation, lease, agreement, contract, other commitment or state of facts which if it existed would constitute a breach of any representation or warranty contained in said Sections 4.2, 7.3 or 7.10 or in any certificate delivered to Parent or Merger Sub pursuant to the provisions of this Agreement, or (iv) any actions, suits, proceedings or investigations involving Target arising out of any matter occurring or accruing prior to the Effective Time. Target and the Shareholders, jointly and severally, also agree (subject to the last sentence of this Section 6.1) to pay Parent or Merger Sub (as the case may be) interest on any amount paid by Parent or Merger Sub pursuant to this Section 6.1 from the date when such damage, liability, cost or expense was paid by Parent or Merger Sub or such loss was incurred by Parent or Merger Sub, at a rate per annum equal to the so-called "prime rate" as announced from time to time by Citibank N.A., but not higher than the maximum interest rate legally payable under the laws of the State of New York. Parent and Merger Sub agree to give prompt notice to the Shareholders of the alleged existence by any third party of any liability, obligation, lease, agreement, contract, other commitment or state of facts referred to in clause (iii) or clause (iv) above and the Shareholders shall have the right to participate in, and, with the consent of Parent and Merger Sub, which consent shall not be unreasonably withheld or delayed, to control the contest and defense of any such claim at their own cost and expense, including the cost and expense of attorneys' fees in connection with such contest and defense. Notwithstanding the foregoing, Target and the Shareholders shall not be liable for or with respect to such Losses (a) until the aggregate amount of all such Losses incurred by Parent and Merger Sub exceeds $100,000, at which point Target and the Shareholders shall be required to indemnify Parent and Merger Sub from any and all such Losses, including the first $100,000 of such Losses and (b) to the extent that the aggregate amount of all such Losses incurred by Parent and Merger Sub exceed the Aggregate Merger Consideration. 17 ARTICLE VII GENERAL PROVISIONS ------------------ VII.1 Notices. All notices, requests, demands, claims, and other ------- communications hereunder shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre- paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other party): (a) if to Target or any of the Shareholders to: Adam Young Inc. 599 Lexington Avenue New York, NY 10022 Attn: Adam Young Telecopy: (212) 758-5090 with a copy to: Kelly Drye & Warren 101 Park Avenue New York, NY 10178 Attn: Eugene D'Ablemont, Esq. Telecopy: (212) 808-7879 (b) if to Parent or Merger Sub to: Young Broadcasting Inc. 599 Lexington Avenue New York, NY 10022 Attn: Vincent J. Young Telecopy: (212) 758-1229 with a copy to: Cooperman Levitt Winikoff Lester & Newman, P.C. 800 Third Avenue New York, NY 10022 Attn: Robert L. Winikoff, Esq. Telecopy: (212) 755-2839 VII.2 Entire Agreement. This Agreement, the Schedules ---------------- 18 hereto and other documents delivered pursuant hereto contain the entire understanding of the parties in respect of its subject matters and supersedes all prior agreements and understanding (oral or written) between or among the parties with respect to such subject matter. VII.3 Expenses. Each of the parties hereto shall pay all the fees and -------- expenses incurred by it incident to preparing for, entering into and carrying into effect this Agreement and the transactions contemplated herein; provided that Target covenants and represents and warrants that such fees and expenses incurred by Target for services of attorneys, accountants and other advisors to Target associated with the transactions contemplated herein, will not exceed $150,000. VII.4 Amendment; Waiver. This Agreement may not be modified, amended, ----------------- supplemented, canceled, or discharged, except by written instrument executed by all parties. No failure to exercise and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. VII.5 Binding Effect; Assignment. The rights and obligations of this -------------------------- Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by Parent and Merger Sub, on the one hand, and Target and the Shareholders, on the other hand, without the prior written consent of the other. VII.6 Representations and Warranties. All of the representations and ------------------------------ warranties contained in this Agreement or any instrument or other document delivered pursuant to this Agreement shall survive the Effective Time and, except with respect to the representations and warranties set forth in Section 4.2.9 which shall terminate on the fourth anniversary of the date hereof, shall terminate on the first anniversary of the date hereof. VII.7 Counterparts. This Agreement may be executed in ------------ 19 any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. VII.8 Interpretation. When a reference is made in this Agreement to an -------------- article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever, the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." VII.9 Governing Law; Interpretation. This Agreement shall be construed ----------------------------- in accordance with and governed for all purposes by the laws of the State of New York without giving effect to the principles of conflicts of laws thereunder which would specify the application of the law of another jurisdiction. VII.10 Arm's length Negotiations. Each party hereto expressly ------------------------- represents and warrants to all other parties hereto that (i) before executing this Agreement, said party has fully informed himself or itself of the terms, contents, conditions, and effects of this Agreement; (ii) said party has relied solely and completely upon his or its own judgment in executing this Agreement; (iii) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (iv) said party has acted voluntarily and of his or its own free will in executing this Agreement; (v) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (vi) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. ARTICLE VIII DEFINITIONS ----------- VIII.1 Defined Terms. As used herein, the following terms shall have ------------- the following meanings: "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the Exchange Act, as in effect on the date hereof. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written 20 or oral, express or implied. "Environmental Claims" means all accusations, allegations, notices of violation, Liens, claims, demands, suits, or causes of action for any damage, including, without limitation, personal injury, property damage (including, without limitation, any depreciation or diminution of property values), lost use of property or consequential damages, arising directly or indirectly out of (i) Environmental Laws; or (ii) the presence, use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Substances at any location, whether or not owned, leased or operated by Target. "Environmental Laws" means all applicable federal, state, district, local and foreign laws, all rules or regulations promulgated thereunder, and all orders, consent orders, judgments, notices, permits or demand letters issued, promulgated or entered pursuant thereto, relating to pollution or protection of the environment (including, without limitation, ambient air, surface water, ground water, land surface, or subsurface strata), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act, the Atomic Energy Act of 1954, the Occupational Safety and Health Act and the Emergency Planning and Community- Right-to-Know Act, each as amended, and all analogous laws promulgated or issued by any Governmental Authority. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any entity which is (or at any relevant time was) (i) a Subsidiary of Target, or (ii) a member of a "controlled group of corporations" with, under "common control" with, or a member of an "affiliated service group" with, Target, as set forth in Section 414(b), (c), (m) or (o) of the Code. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or 21 government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Substances" means all pollutants, contaminants, chemicals, wastes, any other carcinogenic, ignitable, corrosive, reactive, toxic or otherwise hazardous substances or materials (whether solids, liquids or gases) and any other materials or substances subject to regulation, control or remediation under Environmental Laws. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. With respect to any Person, a Material Adverse Change (or Effect) refers to such Person and its Subsidiaries. "Organizational Documents" means, as to any entity, the certificate of incorporation, by-laws or other organizational documents of such entity. "Person" means any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Representation Agreement" means any agreement (including, without limitation, any agreement applicable to a specific television broadcast station (each, a "Station Agreement") or any master agreement, mutual agreement or letter agreement (each, a "Master Agreement") applicable to one or more television broadcast stations or Station Agreements) now in effect or hereafter entered into between Target and owners and operators of broadcast television stations pursuant to which Target sells advertising on such media, as such agreements may be 22 amended, supplemented or otherwise modified from time to time. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" shall mean, as to any Person, any corporation, joint venture, limited liability company, partnership, other business entity or Person of which at least a majority of voting securities or other ownership interests are, at the time as of which any determination is being made, owned directly or indirectly by such Person. [REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURES TO FOLLOW] 23 IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of Merger on the date first above written. PARENT: YOUNG BROADCASTING INC. By:/s/ James A. Morgan ------------------------------- Name: James A. Morgan Title: Executive Vice President MERGER SUB: AYI ACQUISITION CORPORATION By:/s/ James A. Morgan ------------------------------- Name: James A. Morgan Title: Executive Vice President TARGET: ADAM YOUNG INC. By:/s/ Adam Young ------------------------------- Name: Adam young Title: Treasurer SHAREHOLDERS: /s/ Adam Young - ---------------------------------- ADAM YOUNG /s/ Vincent J. Young - ---------------------------------- VINCENT J. YOUNG /s/ Margaret Young - ---------------------------------- MARGARET YOUNG 24 EX-11.1 4 STATEMENT OF SHARE EARNINGS EXHIBIT 11 YOUNG BROADCASTING INC. AND SUBSIDIARIES RE COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED --------------------------------------------- DEC. 31, DEC. 31, DEC. 31, 1995 1996 1997 --------------------------------------------- SHARES OF COMMON STOCK OUTSTANDING FOR THE ENTIRE PERIOD....................... 10,819,049 10,548,181 14,230,357 ISSUANCE OF 21,696, 27,685 AND 53,487 SHARES OF COMMON STOCK TO THE COMPANY'S DEFINED CONTRIBUTION PLAN IN 1995, 1996 AND 1997, RESPECTIVELY....................................................... 17,357 27,382 39,798 ISSUANCE OF 19,312, 15,874 AND 23,000 SHARES OF COMMON STOCK UPON EXERCISE OF OPTIONS IN 1995, 1996 AND 1997 RESPECTIVELY 11,111 10,398 10,304 REPURCHASE OF 311,876 AND 111,383 SHARES OF COMMON STOCK FROM J.P. MORGAN CAPITAL CORPORATION IN 1995 AND 1996........................ (8,545) (110,773) - ISSUANCE OF 3,750,000 PUBLICLY OFFERED STOCK................................... - 904,110 - REPURCHASE OF 459,000 SHARES OF COMMON STOCK IN 1997............................ - - (290,490) --------------------------------------------- WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING.................................................................. 10,838,972 11,379,298 13,989,969 DILUTIVE EFFECT OF 688,937 OPTIONS AND 750,000 WARRANTS IN 1995 AND 1996 EXPECTED TO BE EXERCISED UNDER THE TREASURY STOCK METHOD USING THE WEIGHTED AVERAGE MARKET PRICE OF THE COMPANY'S SHARES OF COMMON STOCK........................................................................ 232,182 403,824 - --------------------------------------------- TOTAL DILUTIVE WEIGHTED AVERAGE SHARES OF COMMON STOCK FOR THE PERIOD......................................................... 11,071,154 11,783,122 13,989,969 ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 2,533,743 $ 905,299 $ (1,106,269) ============ ============ ============ NET INCOME (LOSS) ($6,591,257) $ 905,299 $(10,349,397) ============ ============ ============ INCOME (LOSS) PER COMMON SHARE BASIC BEFORE EXTRAORDINARY ITEM................................................ $ 0.23 $ 0.08 $ (0.08) ============ ============ ============ NET INCOME (LOSS)....................................................... $ (0.61) $ 0.08 $ (0.74) ============ ============ ============ DILUTED BEFORE EXTRAORDINARY ITEM............................................... $ 0.23 $ 0.08 $ (0.08) ============ ============ ============ NET INCOME (LOSS)...................................................... ($0.61) $ 0.08 $ (0.74) ============ ============ ============
EX-23.1 5 AUDITORS CONSENT Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 333-26997) pertaining to the Young Broadcasting Inc. 1995 Stock Option Plan and 401(k) Plan of our report dated February 6, 1998, with respect to the consolidated financial statements and the financial statement schedule included in this Form 10-K of Young Broadcasting Inc. ERNST & YOUNG LLP New York, New York March 16, 1998 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1652 0 60193 1872 0 87480 211482 98731 845966 60325 570000 14 0 0 59,845 845966 0 263535 0 200046 757 0 63839 (1106) 0 (1106) 0 (9243) 0 (10349) (.74) (.74)
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