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In re Young Broadcasting

April 19, 2010

IN RE YOUNG BROADCASTING INC., ET AL., DEBTORS


The opinion of the court was delivered by: Arthur J. Gonzalez, United States Chief Bankrutpcy Judge.

CONFIRMATION OPINION

Before this Court are two proposed plans of reorganization. The Official Committee of Unsecured Creditors (the "Committee") of Young Broadcasting, Inc. ("YBI" or the "Debtor") and its affiliated debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors") move before this Court seeking confirmation of the Committee's Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated November 4, 2009 (the "Committee Plan") pursuant to section 1129 of title 11 of the United States Code (the "Bankruptcy Code"). In the event that the Court denies confirmation of the Committee Plan, the Debtors *fn1 move for confirmation of the joint plan of Young Broadcasting, Inc. and its subsidiaries under chapter 11 of the Bankruptcy Code (as the same may be subsequently amended or supplemented and including all exhibits and supplements thereto, the "Debtors Plan"). For the reasons set forth below, the Court denies confirmation of the Committee Plan and grants confirmation of the Debtors Plan.

Background

On February 13, 2009 (the "Commencement Date"), the Debtors filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 16, 2009, Young Broadcasting Capital Corp. and Young Communications, Inc., two of the original Debtors' affiliates, each filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to the Orders dated February 17, 2009 and October 29, 2009, these cases were jointly administered.*fn2

The Debtors' Business

YBI, a Delaware corporation that is currently headquartered in New York, was founded in 1986 by Vincent Young ("Young") and his father, Adam Young. Thereafter, affiliated entities were formed and acquired. The Debtors own and operate ten television stations in geographically diverse markets *fn3 and a national television sales representation firm, Adam Young, Inc.*fn4

YBI is the borrower under a Fourth Amended and Restated Credit Agreement, dated as of May 3, 2005 (as subsequently amended and supplemented, and together with related loan and security documents, the "Credit Agreement"), among YBI, the Lenders (the "Lenders") from time to time party thereto, Wachovia (as administrative agent, collateral agent and issuing bank), Lehman Commercial Paper Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as syndication agents), BNP Paribas (as documentation agent), and Wachovia Capital Markets, LLC, Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as joint lead arrangers and joint lead book-runners). The Credit Agreement originally provided for a $300 million term loan that matures in November 2012. Subsequent amendments increased the term loan to $350 million. *fn5 The YBI's obligations under the Credit Agreement are secured by a first priority security interest in and liens upon substantially all of the Debtors' assets. As of the Commencement Date, the allowed amount of secured obligations owed to the Lenders was $338,451,923.85.*fn6

On March 1, 2001, YBI completed a private offering of $500 million of 10% senior subordinated notes due 2001. On December 23, 2003, YBI completed another private offering of $140 million of 8 3/4 % senior subordinated notes due 2014. These two series of notes are collectively referred to as the "Senior Subordinated Notes" and have an aggregate face amount of $640 million. The Senior Subordinated Notes are general unsecured obligations of the YBI, subordinated in right of payment to all senior debt, including all of the YBI's indebtedness under the Credit Agreement. The Senior Subordinated Notes are guaranteed by each of the Debtors. As of December 31, 2008, the principal amount outstanding under the Senior Subordinated Notes was approximately $484.3 million.

Events Leading Up to the Debtors' Chapter 11 Filing

During the years leading up to the Commencement Date, the Debtors were burdened with debt and suffered a decline in revenue as a result of the general decrease in advertising budgets in the current recession. The Debtors also encountered increased competition from other television stations as well as alternate advertising vehicles such as newspapers, radio stations, magazines, cable networks, and internet portals. In particular, the Debtors' largest station, KRON-TV ("KRON"), suffered severe cash flow losses. The Debtors explored various options prior to filing Chapter 11, including cost savings initiatives, attempts to sell KRON, and discussions of out-of-court restructuring with the holders of the Senior Subordinated Notes (the "Noteholders"). These efforts were unsuccessful at solving the Debtors' dire financial problems. In February 2009, the Debtors' board of directors appointed David Pauker of Goldin Associates, LLC as the Debtors' Chief Restructuring Officer ("CRO") to effect a recapitalization and deleveraging through a Chapter 11 plan or a section 363 sale.

The Auction, the Credit Bid, and the Competing Plans

When the cases were first filed, the Debtors pursued a dual track process, exploring a sale of substantially all of their assets while attempting to reach a consensual "stand alone" plan with their major constituents. At the time, the Debtors believed that a section 363 sale would best suit the Debtors' situation and maximize value for the estate. In April 2009, this Court approved the Debtors' bidding procedures for the sale of substantially all of their assets, and after an extensive marketing process, the Debtors received three qualified bids, all seeking to purchase substantially all of the Debtors' assets, and an expression of interest from a potential purchaser who had not participated in the sale process or conducted due diligence.*fn7 The Lenders were selected as the stalking horse bidder and offered to credit bid $200 million of their secured debt towards the purchase of the Debtors' assets and to cause the purchasing entity to assume all allowed administrative costs and cure claims, resulting in a bid value of approximately $219.9 million (the "Credit Bid"). *fn8 After consultation with the Committee and the Lenders, the Debtors deemed the Credit Bid as the prevailing bid and the auction was canceled. *fn9

By this time, however, the Debtors' business had improved and had produced sufficient cash flow to operate until at least the end of 2009. Consequently, this Court found that the emergency conditions required to authorize a sale of substantially all of the Debtors' assets outside the plan process were not satisfied and ruled that it would only consider approval of a sale as part of a plan. The Court then entered an order authorizing the Debtors to execute the Asset Purchase Agreement (the "APA") with the Lenders, subject to a further order confirming a plan of reorganization. Meanwhile, the Debtors began negotiating with the Committee to develop an alternative plan of reorganization.

Further, after the Court denied the Debtors' request to approve the sale, the Debtors moved to extend exclusivity, at which time the Committee objected and sought a lifting of exclusivity to file the Committee Plan.*fn10 The Debtors, with the consent of the Lenders, agreed to a lifting of exclusivity to permit the Committee to propose a plan, provided that the Committee Plan remained on the same timeline towards confirmation as the Debtors Plan. On August 12, 2009, this Court entered an order extending exclusivity with a carve-out to allow the Committee to file a competing plan. The Debtors filed the joint plan of the Debtor and its debtor subsidiaries on September 24, 2009, an amended joint plan on November 4, 2009, and their Disclosure Statement for that plan on October 9, 2009. On October 9, 2009, the Committee filed its Disclosure Statement Supplement. On November 5, 2009, the Court approved both the Committee's Disclosure Statement Supplement for the Committee Plan and the Debtors' Disclosure Statement for the Debtors Plan. On November 6, 2009, the Court entered an order approving solicitation and voting procedures (the "Solicitation Order"). According to the Solicitation Order, the Debtors would solicit votes for the Debtors Plan and the Committee Plan on a single ballot. Creditors entitled to vote would receive a single ballot. On the ballot, creditors could vote for or against either plan and, if voting in favor of both plans, indicate a preference for one plan over the other. In November 2009, pursuant to the Solicitation Order, the Solicitation Package was mailed to creditors.

In December 2009, after a presentation of both plans to the Debtors' board of directors, it decided, exercising its fiduciary duties and business judgment, that it preferred the Committee Plan over the Debtors Plan. As a result, it seeks confirmation of the Debtors Plan only if the Court does not confirm the Committee Plan.

The Debtors Plan

The Debtors Plan, (1) fully compensates allowed administrative expenses, allowed priority claims, and secured claims other than the Lenders' claims; (2) creates a new company, New Young Broadcasting Holding Co., Inc. ("NewCo"), which would receive all of the common stock of the Reorganized Debtors (the "Company"), and in which the Lenders would receive all of the equity interests in complete satisfaction of their secured claims totaling $338 million as of the Commencement Date; (3) provides general unsecured creditors with their pro rata share of $1 million in the aggregate; (4) provides equity warrants in NewCo to the Noteholders if they voted to accept the Debtors Plan; and (5) provides no distribution to holders of equity interests in the Debtors. The Debtors Plan completely deleverages the Debtors as both the Senior Subordinated Notes and the Lenders' claim under the Credit Agreement are discharged and extinguished.

The Committee Plan

The treatment of allowed administrative expenses, allowed priority claims, secured claims, and general unsecured claims are the same under the Committee Plan as they are under the Debtors Plan. Likewise, holders of equity interests will also receive no distribution.*fn11

However, under the Committee Plan, all $338 million of the debt owed to the Lenders under the Credit Agreement as of the Commencement Date, including accrued post petition interest and principal amortization payments, will be reinstated.*fn12 If the Credit Agreement is reinstated under the Committee Plan, at the time of the loan's maturity in November 2012, assuming timely payment of interest and quarterly principal amortization payments, a principal balance of $325,000,000 (the "Debt") will become due. The Committee Plan further provides the Noteholders with a pro rata share of 10% of the Company's common stock and the opportunity to participate in a rights offering under which the Noteholders can purchase a pro rata share of $45.6 million of preferred stock plus 80% of the common stock in the Company. A Plan Support Agreement filed by certain backstop parties (the "Backstop Parties") in support of the Committee Plan provides for a cash investment in the amount of $45.6 million, which will pay all monetary defaults under the Credit Agreement, fund payments under the Committee Plan, and meet the working capital and general corporate needs of the Debtors. In addition, Young will receive all of the Class B shares of common stock of the Company, which converts to 10% of the Class A common stock upon full repayment of the Debt in November 2012.

Balloting Results

On January 18, 2010, the Declaration of Jane Sullivan Regarding Voting on, and Tabulation of, Ballots Accepting and Rejecting (I) The Debtors' Joint Plan Under Chapter 11 of the Bankruptcy Code and (II) the Official Committee of Unsecured Creditors' Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code ("Ballot Declaration"), containing balloting results, was filed. Below are the balloting results for both plans:

Vote on Debtors PlanAmount Accepting (% of Amount Voted)Amount Rejecting (% of Amount Voted)Number Accepting (% of Amount Voted)Number Rejecting (% of Amount Voted) Lender Claims (Class B/Class 2)$295,448,513.35 (95.21%)$14,871,077.94 (4.79%)57 (81.43%)13 (18.57%) Noteholder Claims (Class D/Class 6)$197,281,000.00 (58.29%)$141,163,000.00 (41.71%)26 (27.96%)67 (72.04%) General Unsecured Claims (Class E/Class 7)$7,499,225.45 (88.68%)$957,656.85 (11.32%)33 (43.42%)43 (56.58%)

Vote on Committee PlanAmount Accepting (% of Amount Voted)Amount Rejecting (% of Amount Voted)Number Accepting (% of Amount Voted)Number Rejecting (% of Amount Voted) Lender Claims (Class B/Class 2)N/A (deemed accept)N/A (deemed accept)N/A (deemed accept)N/A (deemed accept) Noteholder Claims (Class D/Class 6)$338,291,000.00 (99.95%)$153,000.00 (0.05%)90 (96.77%)3 (3.23%) General Unsecured Claims (Class E/Class 7)$2,663,436.08 (31.49%)$5,793,446.22 (68.51%)52 (68.42%)24 (31.58%)

Preference ElectionAmount Preferring Debtors Plan (% of Amount Voted)Amount Preferring Committee Plan (% of Amount Voted)Number Preferring Debtors Plan (% of Amount Voted)Number Preferring Committee Plan (% of Amount Voted) Lender Claims (Class B/Class 2)$222,808,122.34 (78.26%)$61,908,799.41 (21.74%)22 (39.29%)34 (60.71%) Noteholder Claims (Class D/Class 6) [*fn13 ]$58,123,000.00 (31.47%)$126,551,000.00 (68.53%)8 (38.10%)13 (61.90%) General Unsecured Claims (Class E/Class 7)$918,422.90 (92.73%)$72,018.52 (7.27%)6 (60.00%)4 (40.00%)

See JX-56, Ex. A.

On December 30, 2009, the Lenders filed a motion in limine (the "Daubert Motion") seeking an order from the Court to exclude (1) the expert report and testimony of Tom Kuhn ("Kuhn") of Allen & Company ("A & C") on the issues of the Company's ability to sell or refinance in November 2012, and (2) Kuhn's expert report and testimony on the Debtors' valuation. On January 11, 2010, the Committee filed an opposition to the Daubert Motion.

On January 19, 2010, a hearing (the "Confirmation Hearing") commenced on the issues of whether the Debtors Plan and the Committee Plan can be confirmed pursuant to Bankruptcy Rule 3017 and 3018 and sections 1126, 1128, and 1129 of the Bankruptcy Code.*fn14 The Confirmation Hearing continued on January 20, 2010, January 21, 2010, and concluded on January 25, 2010. As instructed by the Court, the parties filed post-hearing briefs, proposed findings of fact and conclusions of law, and post-trial reply briefs. The record of these proceedings was closed as of February 16, 2010.*fn15

Discussion

Reinstatement of the Credit Agreement

The Lenders argue that the Committee Plan cannot be confirmed because it is premised upon an impermissible reinstatement of the Debt. In that regard, the Lenders contend that the Committee's proposed allocation of voting rights would trigger an immediate change of control default under the Credit Agreement. The Lenders further argue that because that default is not being cured, the loan cannot be reinstated pursuant to section 1124(2).

The Committee contends that its proposed plan, as structured, complies with the Credit Agreement in all respects, including the provision that no event triggering a change of control occur. Alternatively, the Committee argues that if the Court determines that the primary structure for selecting directors for the board as set forth in the Committee Plan, contravenes the Credit Agreement, the secondary proposed structure, set forth in a footnote in the Supplemental Disclosure Statement, conforms to the Lenders' interpretation of the terms of the Credit Agreement. The Committee maintains that the alternative board structure is a technical fix and would not require re-solicitation under Bankruptcy Code section 1125 or Bankruptcy Rule 3019 because it does not alter any economic interest as it is neither material nor adverse to the only class (i.e., Noteholders) that had previously accepted Plan.

With respect to the alternate proposed board structure, the Lenders argue that the description of that proposal in the footnote of the Supplemental Disclosure Statement provides insufficient information to determine whether Mr. Young would retain the requisite percentage of Voting Stock or otherwise conform to the requirements of the Credit Agreement. The Lenders further argue that, to the extent the Committee seeks to further supplement its description of the structure, such modification would constitute a material change in the Committee Plan concerning the Backstop Parties' control of the board. Thus, it would require re-solicitation of the Committee Plan.

Of the provisions describing circumstances of default under the Credit Agreement, several describe the default that results from a transaction that precipitates a change of control. To avoid triggering the change of control provisions, section 6.01(j) of the Credit Agreement requires that Mr. Young, his immediate family members and certain persons controlled by Young (the "Affiliates" and together with Young and his immediate family members, the "Young group"), as well as members of management, have more than 40% of the Voting Stock by number of votes. Section 6.01(k)(i) of the Credit Agreement requires that if any person or group owns more than 30% of the total outstanding Voting Stock of the Debtors, then the Young group must own more than 30% or alternatively, the Young group must have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the Debtors' board of directors. Section 6.01(k)(ii) requires that during any two-year period, those individuals who were directors at the beginning of such period constitute the majority of directors at the end of such period. To meet the "continuing" director requirement, it is sufficient if such director was elected (or was a shareholder-nominated director who was approved) by the majority of the directors or any earlier elected "continuing" director.

In the Credit Agreement, Voting Stock of a Person *fn16 is defined as the

Capital Stock *fn17 of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect the board of directors, managers or trustee of such Person (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

Credit Agreement, § 1.01.

Under the Committee Plan, the board of directors is divided into two classes (A and B), and the Voting Stock to be issued is divided into two classes. There are a total of 5 million shares of New Common Stock in Class A and 500,000 shares of New Common Stock in Class B. The Class A stock represents 90% of the equity interests and the Class B stock represents 10% of the equity interests. Class A and Class B stockholders can vote for directors in both Class A and Class B in certain amounts. The Class A shareholders have a combined total of 105,000,000 director votes-with each of the 5 million shares entitled to 20 votes for Class A directors (100,000,000 votes) and 1 vote (5,000,000 votes) for class B directors. There are six Class A directors. There is only one Class B shareholder-Mr. Young, who can cast 500,500,000 director votes, as each of his 500,000 shares entitles him to 1000 votes (500,000,000 votes) for the Class B director and 1 vote (500,000 votes) for Class A directors.

The combined total of director votes for both Class A and B is 605,500,000 and Mr. Young can cast 500,500,000 of those votes. The Committee argues that this calculation gives Mr. Young over 82% of the vote, substantially in excess of the 40% required by the Credit Agreement. The Committee contends that the allocation of votes to Mr. Young technically complies with the requirement that he have at least 40% of the votes "by number of votes."

The Lenders argue that the change of control provisions in the Credit Agreement are intended to ensure that Mr. Young *fn18 maintain control of the Company. The Lenders contend that the Committee's manipulation of the votes allocated to the Voting Stock is an effort to circumvent the protections negotiated by the Lenders. The Lenders note that the Committee Plan clearly indicates that Mr. Young only has a 10% equity interest in the Company. Through the issuance of the Class B stock, owned exclusively by Mr. Young, he is allocated more than 40% of the "votes" for the directors. However, Mr. Young only has a nominal number of votes in connection with the election of the Class A directors and the overwhelming number of votes for the one Class B director. As such, Mr. Young cannot elect the 40% of the directors. Instead, he can only control the election of one of the seven directors, the one director-himself-elected as the Class B director.

The Lenders argue that the interpretation advanced by the Committee would eliminate the protections negotiated by the Lenders to ensure that Mr. Young exert control over the board of directors. The Lenders contend that an entity acquiring control of the Company could always manipulate the voting rights of shareholders to provide that certain shareholders had the requisite votes while actually exerting no control, thereby eliminating the protection intended by a change of control provision.

The Lenders also maintain that the allocation does not even technically comply with the requirements set forth in the Credit Agreement to avoid triggering a change of control because the Credit Agreement specifically defines Voting Stock as "Capital Stock ... of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect the board of directors." (emphasis added). The Lenders argue that, pursuant to the Committee Plan, only Class A stock has general voting power that may be exercised under ordinary circumstances to elect the board of directors. The Lenders maintain that the capital stock granted to Mr. Young only grants him the right to elect himself as a member of the board of directors. Therefore, the Lenders contend that only the holders of Class A stock have the power to elect and control the board of directors. The Lenders note that "ordinary voting power" has been interpreted as the power to influence the composition of a board of directors. See JPMorgan Chase Bank, N.A. v. Charter Commc'ns Operating, LLC (In re Charter Commc'ns, 419 B.R. 221, 238, 248 (Bankr.S.D.N.Y.2009) (noting "that the ordinary voting power for the management of [a company] is exercised by means of shareholder votes for directors who in turn govern the management").

Each side cites to Charter to support their position. The Committee contends that it is sufficient if a plan allows for a "formalistic retention of control" notwithstanding a shift in the economic ownership. Charter, 419 B.R. at 248. The Lenders argue that, apart from the shift in economic ownership, the voting structure set forth in the Committee Plan does not allow for the Young group and members of management to retain the 40% control required by the Credit Agreement. The Lenders note that the structure set forth in the Charter plan complied with the specific terms of the credit agreement at issue there, which required that the relevant group retain the ability to control 35% of the board of directors. In Charter, because the structure set forth in the plan allowed the relevant group to elect 4 of the 11 directors, that group retained the power to elect over 36% of the directors and the condition requiring at least 35% control was met. Id. In the Committee Plan, by contrast, despite allocating all of the votes for the Class B shares to Mr. Young, he can only control the election of one director in Class B out of a total of seven directors in the combined Class A and B board of directors. Thus, for the combined board of directors, Mr. Young has less than 15% control while the terms of the Credit Agreement require that he, his family, the Affiliates, and the members of management retain 40%.

The Lenders also argue that the Committee Plan violates section 6 .01(k)(i) of the Credit Agreement by ceding control of over 30% of the Voting Stock of the Company to a group other than the Young group. The Lenders note that, under the Committee Plan, the Backstop Parties will own more than 30% of the Voting Stock. Capital Research Group is an investment advisor that administers certain funds and together with those funds it constitutes a "group" under Section 13(d) of the Securities and Exchange Act.of 1934, which is the relevant definition for group under the Credit Agreement. The Lenders contend that Capital Research funds will control approximately 80% of the Voting Stock. The Lenders argue that the Committee Plan will also replace the board of directors in violation of section 6.01(k)(ii) of the Credit Agreement as the Backstop Parties and the Committee would control the election of the board of directors.

In disputing that the Young group would cede control of the board of directors to another group, the Committee again premises its argument on its interpretation of how the votes are calculated by number. Therefore, the Committee contends that because Mr. Young will have over 80% of the Voting Stock by number of votes, no other group can have more than 30%. With respect to the Lenders' argument concerning the replacement of the existing directors, the Committee notes that the terms of the Credit Agreement recognize that directors elected or approved by the current board of directors qualify towards the count of continuing directors. The Committee maintains that the requirement of the Credit Agreement is met because, although the Backstop Parties and the Committee would designate most of the directors, the board of directors has the discretion to nominate the directors.

Pursuant to section 1124(2) of the Bankruptcy Code, even if a holder of a claim or interest is entitled to accelerated payments of its claim after the occurrence of a default, a plan of reorganization can provide (with certain exceptions) that the default be cured, 11 U.S.C. § 1124(2)(A), and for reinstatement of the pre-default maturity, 11 U.S.C. § 1124(2)(B). This is all subject to the plan not altering any legal, equitable, or contractual rights to which the claim or interest is entitled. 11 U.S.C. § 1124(2)(E). *fn19

Therefore, if the Debtors seek to reinstate the maturity of the loan, the Committee Plan must cure any defaults. The Lenders argue that the new corporate governance provisions under the Committee Plan will result in a change of control that constitutes a default under the terms of the Credit Agreement that has not been cured, precluding the reinstatement of its loan.

Thus, it is necessary to analyze the change of control provisions of the Credit Agreement. Section 8.06 of the Credit Agreement provides that it is to be governed by, and construed, in accordance with the laws of the State of New York. Pursuant to New York law, in construing a contract, the plain meaning of the language controls. City of Hartford v. Chase, 942 F.2d 130, 134-35 (2d Cir.1991) (quoting Berger v. Heckler, 771 F.2d 1556, 1568 (2d Cir.1985). When interpreting the contract, the court's role is to "give effect to the intent of the parties as revealed by the language they chose to use." Seiden Assocs. Inc. v. ANC Holdings, Inc., 959 F.2d at 425, 428 (2d Cir.1992) (citing Slatt v. Slatt, 64 N.Y.2d 966, 488 N.Y.S.2d 645, 477 N.E.2d 1099 (1985)). The terms employed are given their ordinarily-attributed meanings unless that procedure would lead to an absurd result. Mastrovincenzo v. City of New York, 435 F.3d 78, 104 (2d Cir.2006) (citations omitted). Thus, "deference is to be paid to the plain meaning of the language ... and the normal usage of the terms selected." City of Hartford, 942 F.2d at 134 (omission in original) (quoting Berger, 771 F.2d at 1568. The Court's objective is to "give effect to the expressed intentions of the parties." Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir.1989). In addition, there is a presumption that every clause was intended to have an effect. City of Hartford, 942 F.2d at 135.

Where the language has a "definite and precise meaning," which cannot be misconstrued, and where a reasonable person could only draw one conclusion as to its meaning, the contract is unambiguous. Hunt, 889 F.2d at 1277. Under New York law, whether the language employed in a contract is ambiguous is a question of law. Seiden Assocs., 959 F.2d at 429. The court determines whether a contract is ambiguous by reference to the contract alone. See Goodheart Clothing Co. v. Laura Goodman Enters., 962 F.2d 268, 272 (2d Cir.1992). If it is determined that the contract is unambiguous, its meaning is determined from the contract without resorting to any type of extrinsic evidence. Goldman v. Comm'r of Internal Revenue, 39 F.3d 402, 406 (2d Cir.1994) (citing Goodheart, 962 F.2d at 268); see also Hunt, 889 F.2d at 1277 (citations omitted). "Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing." W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 443, 566 N.E.2d 639, 642 (1990). Extrinsic evidence is not admissible to create an ambiguity in a written agreement that is complete and clear and unambiguous on its face. W.W.W. Assocs., 77 N.Y.2d at 163, 565 N.Y.S.2d at 443, 566 N.E.2d at 642.

In determining whether a contract is ambiguous, a court examines the entire contract and the circumstances surrounding its implementation, including the relationship of the parties. Kass v. Kass, 91 N.Y.2d 554, 566 696 N.E.2d 174, 180-81(1998). Moreover, words are not viewed in isolation but in context. Id. Thus, the terms of the contract are considered in the context of the obligation as a whole and the intention of the parties as shown by the words selected. Id. A court must discern "a sensible meaning" for the words selected. Id. (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524, 159 N.E. 418 (1927)).

Therefore, although it has been observed that where a contract is unambiguous, a contract is formed, regardless of whether the parties had any "unexpressed intention," Hunt, 889 F.2d at 1277, nevertheless, "where the document makes clear the parties' over-all intention, courts examining isolated provisions should then choose that construction which will carry out the plain purpose and object of the [agreement]." Kass, 91 N.Y.2d at 567, 673 N.Y.S.2d 350, 696 N.E.2d at 181 (alteration in original) (citations and internal quotations omitted).

Where the language in the contract is plain, it does "not become ambiguous merely because the parties urge different interpretations." Hunt, 889 F.2d at 1277. If the parties do not agree on the interpretation of contract clauses, the court must decide if the contract clauses are ambiguous when analyzed in "the context of the entire integrated agreement and ... cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." JA Apparel Corp. v. Abboud, 568 F.3d 390, 396-97 (2d Cir.2009) (citations and internal quotations omitted).

The Credit Agreement defines Voting Stock as "general voting power under ordinary circumstances to elect the board of directors...." As noted by the Charter court, "ordinary voting power for the management of [a company] is exercised by means of shareholder votes for directors who in turn govern the management ." Charter, 419 B.R. at 238. As such, general voting power must involve the power to influence the composition of the board of directors. Thus, if section 6.01(j) of the Credit Agreement requires that the Young group, together with members of management have 40% of the Voting Stock, the plain meaning of the provision requires that this group have the power to influence 40% of the composition of the entire board. Under the proposed plan, Mr. Young only retains the power to control less than 15% of the entire board.

The Committee relies on Charter to argue that the voting can be manipulated to technically conform to the requirements of the agreement. However, in Charter, the credit agreement at issue required that the incumbent group have 35% of the voting power for the management of the relevant company in that case. In accordance with that contractual requirement, even after the "manipulation" of the voting stock, the group was entitled to appoint 4 of the 11 directors of its board and therefore retained more than 35% of the voting power for the management. Thus, the relevant Charter group retained the minimum amount of control to comply with the credit agreement. As previously noted, the Young group only retains the power to control less than 15% of the entire board.

Thus, the Charter case is distinguishable because that court was addressing the separation of economic interests from voting power. Although the relevant control person in Charter only retained 10% of the economic interest, he continued to exert the requisite 35% general voting power. In the instant matter, however, the proposed structure will utilize two classes to dilute the general voting power of the current control group.

The Committee asserts that the only general voting power that the Voting Stock must have is the "general voting power to elect the board of directors" and that the Young group has power to elect members of the board of directors. The Committee contends that the structure complies with the 40% requirement because the Young group has 40% of the votes to elect directors even though those votes only allow them to elect one director in class B. The Committee further asserts that there is no control requirement because where the election of a majority of the board of directors is required elsewhere in the Credit Agreement, the terms of the agreement expressly provide for it. The Committee also argues that the Charter case noted that a credit agreement should be construed narrowly to enable a borrower to engage in permissible corporate engineering.

The Lenders, however, are not arguing that the Young group should be empowered to control a majority of the board of directors. Rather, the Lenders maintain that, to comply with the Credit Agreement, the Young group and members of management have to control the election for 40% of the board of directors. Further, the Lenders argue that such an interpretation would accord with the purpose of the change of control provisions. According to the Lenders, those provisions are intended to protect the Lenders from a situation in which an outside party takes over the Company and holds the ability to dividend-out value from the Company and otherwise squeeze out value for the short term gain, leaving the Lenders with security worth less than the outstanding debt. The Lenders argue that the Committee Plan will allow such conduct because it does not bar the issuance of dividends. According to the Lenders, the Backstop Parties are financial institutions with a short-term investment plan.

In interpreting the Credit Agreement, all of the provisions must be read as part of an integrated agreement and each clause must be intended to have some effect. In analyzing all of the change of control provisions, the Court finds that their purpose is to preclude another group from gaining more control than the Young group and current management. Section 6.01(j) requires that 40% of the voting power be retained by the Young group and management. Section 6.01(k)(i) of the Credit Agreement provides that if another group acquires more than 30% of the Voting Stock, then the Young group is required to own at least that percentage. In a public company, a block acquiring 30% of the voting power could influence management. Reading sections 6.01(j) and 6.01(k)(i) together, it is clear that the intent of the change of control provisions was to insure that no one person or group would have more control than the Young group and management. Thus, by allowing Mr. Young to control a large number of votes that have no power to influence the composition of the entire board of directors, the proposed structure would not accord with the purpose of precluding another group from gaining more control than the Young group. The purpose of section 6 .01(j) of the Credit Agreement is to provide the Young group and members of management with power to influence the composition of the board of directors and the voting structure proposed by the Committee Plan would not accord with that purpose. By creating the different classes of directors and only allowing Mr. Young to elect one director of the total of 7-directors board, the Committee's interpretation undermines the intent of those two sections.

As the proposed corporate governance structure precludes compliance with section 6.01 of the Credit Agreement, which requires retention of 40% of the Voting Power by the Young group and management, the loan cannot be reinstated under that structure.*fn20 The Committee, however, has also proposed an alternate structure that it maintains complies with the Lenders' interpretation of the change of control provisions.

The alternate board of directors structure proposed by the Committee provides for two classes of new common stock (A and B) but only one class of directors. The Class A New Common Stock still represents 90% of the equity of the Company and the Class B New Common Stock represents 10% of the equity of the Company. Mr. Young will hold all of the class B common stock. The new class A and Class B common stock would vote together as a single class in all matters (other than certain class specific matters), including the election of directors. The class A shares would have 60% (by number of votes) and the class B shares would have 40% (by number of votes).

There would be seven directors on the board of directors and Mr. Young would be one of the directors as the Company's Chief Executive Officer. All of the directors would be nominated by the existing board of directors. Five of the new directors on the board would be designated by the Backstop Parties holding a majority of the equity commitment, three of which would be independent. An additional independent board member would be approved by the Committee. The board will be staggered with three classes of directors. The first of which would include the CEO. Upon the Class B conversion described in the Plan or the expiration of the two year employment term set forth in Mr. Young's employment Agreement, whichever occurs later, at the director's option, Mr. Young would be required to resign. Thereafter, the first class would have a one-year term. The second class would include the Committee board nominee and have a two-year term. The third class would include the remaining board members and have a three year term. The Amended and Restate By-laws or Amended and Restated Certificate of Incorporation or any Stockholders' Agreement would provide that Permitted Holders (as defined in the Credit Agreement) would have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the board of directors.

The Committee maintains that there would be no default of the change of control provisions of the Credit Agreement because Mr. Young would continue to hold record and beneficial title to at least 40% (by number of votes) of the Voting Stock. In addition, the Committee asserts that no person, other than Mr. Young, would beneficially own more than 30% (by number of votes) of the Voting Stock.

The Lenders contend that the disclosure statement did not provide sufficient information concerning the alternative board structure to determine whether it complies with the change of control provisions of the Credit Agreement. The Lenders also argue that even if the proposed structure does comply, it is a material change to the Committee Plan and would require re-solicitation.

Pursuant to section 1127(a) of the Bankruptcy Code, with certain limitations, a proponent of a plan may modify its plan prior to confirmation and such modified plan then becomes its proposed plan. However, the disclosure requirements of section 1125 must be met, 11 U.S.C. ยง 1127(c). Moreover, Federal Rule of ...


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