10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 333-110122

LBI MEDIA HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	05-05849018
(State or other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

1845 West Empire Avenue

Burbank, California 91504

(Address of principal executive offices, excluding zip code) (Zip code)

Registrant’s Telephone Number, Including Area Code: (818) 563-5722

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨    Accelerated Filer  ¨    Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 14, 2007, there were 100 shares of common stock, $0.01 par value per share, of LBI Media Holdings, Inc. issued and outstanding.

LBI MEDIA HOLDINGS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	32
PART II. OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3. Defaults upon Senior Securities	33
Item 4. Submission of Matters to a Vote of Security Holders	34
Item 5. Other Information	34
Item 6. Exhibits	35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LBI MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	June 30, 2007			December 31, 2006
	(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	263		$	1,501
Accounts receivable (less allowance for doubtful accounts of $1,900 as of June 30, 2007 and $1,954 as of December 31, 2006)		19,601			17,496
Current portion of program rights, net		436			578
Amounts due from related parties		10			25
Current portion of employee advances		98			106
Prepaid expenses and other current assets		1,201			1,395
Total current assets		21,609			21,101
Property and equipment, net		93,316			91,570
Broadcast licenses, net		357,904			357,870
Deferred financing costs, net		6,064			6,665
Notes receivable from related parties		2,754			2,721
Employee advances, excluding current portion		1,161			1,161
Program rights, excluding current portion		356			536
Other assets		1,553			439
Total assets	$	484,717		$	482,063
Liabilities and stockholder’s equity
Current liabilities:
Accounts payable and accrued expenses	$	6,007		$	10,548
Accrued interest		7,123			8,506
Current portion of long-term debt		1,235			1,057
Current portion deferred compensation		3,003			8,329
Total current liabilities		17,368			28,440
Long-term debt, excluding current portion		372,759			412,770
Fair value of interest rate swap		657			1,784
Deferred and other income taxes		49,957			875
Other liabilities		1,910			940
Total liabilities		442,651			444,809
Commitments and contingencies
Stockholder’s equity:
Common stock, $0.01 par value:
Authorized shares — 1,000
Issued and outstanding shares — 100		—			—
Additional paid-in capital		64,811			16,865
Retained earnings (deficit)		(22,745	)		20,389
Total stockholder’s equity		42,066			37,254
Total liabilities and stockholder’s equity	$	484,717		$	482,063

See accompanying notes.

1

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Net revenues	$	32,515		$	29,291		$	57,660		$	51,533
Operating expenses:
Program and technical, exclusive of deferred compensation expense (benefit) of $0 and $(94) for the three months ended June 30, 2007 and 2006, respectively, $0 and $(15) for the six months ended June 30, 2007 and 2006, respectively, and depreciation and amortization shown below		5,855			4,937			11,469			9,438
Promotional, exclusive of depreciation and amortization shown below		719			501			1,108			838
Selling, general and administrative, exclusive of deferred compensation expense (benefit) of $(2,820) and $(67) for the three months ended June 30, 2007 and 2006, respectively, $(3,952) and $129 for the six months ended June 30, 2007 and 2006, respectively, and depreciation and amortization shown below		10,207			8,527			19,869			16,654
Deferred compensation expense (benefit)		(2,820	)		(161	)		(3,952	)		114
Depreciation and amortization		2,227			1,632			4,527			3,263
Impairment of broadcast licenses		—			1,600			—			1,600
Total operating expenses		16,188			17,036			33,021			31,907
Operating income		16,327			12,255			24,639			19,626
Interest expense, net of amount capitalized		(8,494	)		(7,703	)		(17,650	)		(15,304	)
Interest rate swap income		1,407			—			1,127			—
Interest and other income		66			28			105			58
Income before provision for income taxes		9,306			4,580			8,221			4,380
Provision for income taxes		(2,377	)		(125	)		(49,318	)		(175	)
Net income (loss)	$	6,929		$	4,455		$	(41,097	)	$	4,205

See accompanying notes.

2

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2007			2006
Operating activities
Net income (loss)	$	(41,097	)	$	4,205
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,527			3,263
Amortization of deferred financing costs		601			496
Accretion on senior discount notes		3,108			2,792
Deferred compensation expense (benefit)		(3,952	)		114
Impairment of broadcast licenses		—			1,600
Interest rate swap income		(1,127	)		—
Provision for doubtful accounts		521			483
Changes in operating assets and liabilities:
Accounts receivable		(2,626	)		(3,253	)
Deferred compensation payment		(1,374	)		—
Program rights		322			424
Amounts due to related parties		15			(138	)
Prepaid expenses and other current assets		194			55
Employee advances		8			(327	)
Accounts payable and accrued expenses		(1,321	)		(1,163	)
Accrued interest		(1,383	)		182
Deferred taxes payable		49,082			—
Other assets and liabilities		134			61
Net cash provided by operating activities		5,632			8,794
Investing activities
Purchase of property and equipment		(8,543	)		(7,670	)
Acquisition of selected radio and television station assets (including amounts deposited in escrow)		(1,075	)		(85	)
Net cash used in investing activities		(9,618	)		(7,755	)
Financing activities
Proceeds from issuance of long-term debt and bank borrowings		15,000			125,000
Payments of deferred financing costs		(307	)		(1,888	)
Payments on long-term debt and bank borrowings		(57,941	)		(123,037	)
Payment of amounts due to related parties		—			(1,800	)
Capital contributions from Parent		47,946			—
Distributions to Parent		(1,950	)		(798	)
Net cash provided by (used in) financing activities		2,748			(2,523	)
Net decrease in cash and cash equivalents		(1,238	)		(1,484	)
Cash and cash equivalents at beginning of period		1,501			1,797
Cash and cash equivalents at end of period	$	263		$	313
Supplemental disclosure of cash flow information:
Noncash amounts included in accounts payable:
Purchase of property and equipment	$	350		$	—
Cash paid during the period for:
Interest	$	15,622		$	11,792
Income taxes	$	—		$	—

See accompanying notes.

3

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

LBI Media Holdings, Inc. (“LBI Media Holdings”) was incorporated in Delaware on June 23, 2003 and is a wholly owned subsidiary of Liberman Broadcasting, Inc., a Delaware corporation (successor in interest to LBI Holdings I, Inc.) (the “Parent” or “Liberman Broadcasting”). Pursuant to an Assignment and Exchange Agreement dated September 29, 2003, between the Parent and LBI Media Holdings, the Parent assigned to LBI Media Holdings all of its right, title and interest in 100 shares of common stock of LBI Media, Inc. (“LBI Media”) (constituting all of the outstanding shares of LBI Media) in exchange for 100 shares of common stock of LBI Media Holdings. Thus, upon consummation of the exchange, LBI Media became a wholly owned subsidiary of LBI Media Holdings.

LBI Media Holdings is not engaged in any business operations and has not acquired any assets or incurred any liabilities, other than the acquisition of stock of LBI Media, the issuance of Senior Discount Notes (see Note 4) and the operations of its subsidiaries. Accordingly, its only material source of cash is dividends and distributions from its subsidiaries, which are subject to restriction by LBI Media’s 2006 Senior Credit Facilities and the indenture governing LBI Media’s 2007 Senior Subordinated Notes and previously, LBI Media’s 2002 Senior Subordinated Notes (see Note 4). The condensed financial information of LBI Media Holdings on a stand-alone basis is presented in Note 11.

LBI Media Holdings and its wholly owned subsidiaries (collectively referred to as the “Company”) own and operate radio and television stations located in California and Texas. In addition, the Company owns television production facilities that are used to produce programming for Company-owned television stations. The Company sells commercial airtime on its radio and television stations to local and national advertisers. In addition, the Company has entered into time brokerage agreements with third parties for three of its radio stations. As more fully described in Note 5, certain of LBI Media Holdings’ indirect, wholly owned subsidiaries have entered into agreements to purchase selected assets of a television station in Ogden, Utah and a radio station in San Jacinto, California, which acquisitions are subject to customary closing conditions and regulatory approval by the Federal Communications Commission.

The Company’s KHJ-AM, KVNR-AM, KWIZ-FM, KBUE-FM, KBUA-FM and KEBN-FM radio stations service the Los Angeles, California market, its KQUE-AM, KJOJ-AM, KSEV-AM, KEYH-AM, KJOJ-FM, KTJM-FM, KQQK-FM, KIOX-FM and KXGJ-FM radio stations service the Houston, Texas market, and its KNOR-FM, KZMP-AM, KTCY-FM, KZZA-FM, KZMP-FM and KBOC-FM radio stations service the Dallas-Fort Worth, Texas market.

The Company’s television stations, KRCA, KZJL, KMPX and KSDX, service the Los Angeles, California, Houston, Texas, Dallas Fort-Worth, Texas and San Diego, California markets, respectively.

The Company’s television studio facilities in Burbank, California, Houston, Texas, and Dallas, Texas are owned and operated by its indirect, wholly owned subsidiaries, Empire Burbank Studios LLC (Empire), Liberman Television of Houston LLC and Liberman Television of Dallas LLC, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. The condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2006 consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K (the “Annual Report”). All terms used but not defined elsewhere herein have the meanings ascribed to them in the Annual Report.

4

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheet at December 31, 2006 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The condensed consolidated financial statements include the accounts of LBI Media Holdings and its subsidiaries. All significant intercompany amounts and transactions have been eliminated. The accounts of the Parent, including certain indebtedness (see Note 4), are not included in the accompanying unaudited condensed consolidated financial statements.

2. Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 159 - “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115” (“SFAS 159”). Issued in February 2007, SFAS 159 is effective for fiscal years beginning after November 15, 2007. SFAS 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. The Company is currently evaluating what impact, if any, the adoption of SFAS 159 will have on its financial position, results of operations and cash flows.

3. Broadcast Licenses

The Company’s broadcast licenses are intangible assets with indefinite lives and are reviewed for impairment during the third quarter of each fiscal year, with additional evaluations performed if potential impairment indicators are noted. The Company believes its broadcast licenses have indefinite useful lives given that they are expected to indefinitely contribute to the future cash flows of the Company and that they may be continually renewed without substantial cost to the Company. In certain prior years, the broadcast licenses were considered to have finite lives and were subject to amortization. Accumulated amortization of broadcast licenses totaled approximately $17.7 million at June 30, 2007 and December 31, 2006.

If indicators of impairment are identified and the fair value estimated to be generated from these assets are less than the carrying value, an adjustment to reduce the carrying value to the fair market value of the assets would be recorded. The fair value of the Company’s broadcast licenses is determined by assuming that entry into the particular market took place as of the valuation date and considering the signal coverage of the related stations as well as the projected advertising revenues for the particular market(s) in which each station operates. The Company completed its annual impairment review of its broadcast licenses in the third quarter of 2006 and conducted a review of the fair value of some of its broadcast licenses in the second quarter of 2006. The Company adjusted the projected total advertising revenues in those markets in 2006, which was partially due to greater competition for revenues from non-traditional media, and determined the fair value of each broadcast license primarily from projected total advertising revenues for a given market without taking into consideration the Company’s format or management capabilities. As a result, the downward adjustment in projected revenues resulted in a decrease in the fair value of certain of the Company’s broadcast licenses. In 2006, the Company recorded a total of $2.8 million in noncash impairment write-downs, or $1.6 million and $1.2 million in the second and third quarters, respectively. No adjustments to the carrying amounts of broadcast licenses for impairments were required during the three and six months ended June 30, 2007.

5

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Long-Term Debt

Long-term debt consists of the following (not including the debt of the Parent—see discussion below):

	June 30, 2007			December 31, 2006
	(In thousands)
2006 Revolver	$	53,500		$	96,000
2006 Term Loan		108,625			109,000
2002 Senior Subordinated Notes		150,000			150,000
Senior Discount Notes		59,608			56,500
2004 Empire Note		2,261			2,327
		373,994			413,827
Less current portion		(1,235	)		(1,057	)
	$	372,759		$	412,770

LBI Media’s 2004 Revolver

On June 11, 2004, LBI Media amended and restated its then existing senior revolving credit facility (as amended and restated, the “2004 Revolver”). The 2004 Revolver included an initial $175.0 million revolving loan and a $5.0 million swing line sub-facility and was subsequently increased to a total of $220.0 million. There were no scheduled reductions of commitments under the 2004 Revolver.

Borrowings under the 2004 Revolver bore interest at the election of LBI Media based on either the prime rate or the LIBOR rate plus the stipulated applicable margin based on LBI Media’s total leverage ratio, which ranged from 0.25% to 1.75% per annum for base rate loans and 1.50% to 3.00% per annum for LIBOR loans.

LBI Media’s 2006 Revolver and 2006 Term Loan

On May 8, 2006, LBI Media refinanced the 2004 Revolver with a new $110.0 million senior term loan credit facility (the “2006 Term Loan”) and a $150.0 million senior revolving credit facility (the “2006 Revolver”, and together with the 2006 Term Loan, the “2006 Senior Credit Facilities”). The 2006 Revolver includes a $5.0 million swing line sub-facility and allows for letters of credit up to the lesser of $5.0 million and the available remaining revolving commitment amount. LBI Media, however, has the option to request its lenders to increase the aggregate amount of the 2006 Senior Credit Facilities by an additional $50.0 million to $310.0 million (but the lenders are not obligated to increase the amount of the Senior Credit Facilities). The 2006 Term Loan and 2006 Revolver mature on March 31, 2012.

LBI Media must pay 0.25% of the original principal amount of the 2006 Term Loan each quarter ($275,000 quarterly or $1.1 million annually) plus 0.25% of any additional principal amount incurred in the future under the 2006 Term Loan. There are no scheduled reductions of commitments under the 2006 Revolver.

Borrowings under the 2006 Senior Credit Facilities bear interest based on either, at the option of LBI Media, the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin stipulated in the senior credit agreements. The base rate is the higher of (i) Credit Suisse’s prime rate and (ii) the Federal Funds Effective Rate (as published by the Federal Reserve Bank of New York) plus 0.50%. The applicable margin for loans under the 2006 Revolver, which is based on LBI Media’s total leverage ratio, will range from 0% to 1.00% per annum for base rate loans and from 1.00% to 2.00% per annum for LIBOR loans. The applicable margin for the 2006 Term Loan is 0.50% for base rate loans and 1.50% for LIBOR loans. The applicable margin for any future term loans will be agreed upon at the time those term loans are incurred. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable either monthly, bimonthly or quarterly depending on the interest period elected by LBI Media. All amounts that are not paid when due under either the 2006 Revolver or 2006 Term Loan will accrue interest at the rate otherwise applicable plus 2.00% until such amounts are paid in full. Borrowings under the 2006 Senior Credit Facilities bore interest at rates between 6.57% and 6.82%, including the applicable margin, at June 30, 2007.

6

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Borrowings under the 2006 Senior Credit Facilities are secured by substantially all of the tangible and intangible assets of LBI Media and its wholly owned subsidiaries, including a first priority pledge of all capital stock of each of LBI Media’s subsidiaries. The 2006 Senior Credit Facilities also contain customary representations, affirmative and negative covenants and defaults for a senior credit facility, including restrictions on LBI Media’s ability to pay dividends. At June 30, 2007, LBI Media was in compliance with all such covenants.

LBI Media will pay quarterly commitment fees on the unused portion of the 2006 Revolver based on its utilization rate of the total borrowing capacity. Under certain circumstances, if LBI Media borrows less than 50% of the revolving credit commitment, it must pay a quarterly commitment fee of 0.50% times the unused portion. If LBI Media borrows 50% or more of the total revolving credit commitment, it must pay a quarterly commitment fee of 0.25% times the unused portion.

In connection with the 2006 Senior Credit Facilities, LBI Media entered into an interest rate swap agreement with a notional principal amount of $80.0 million for three years and $60.0 million for the subsequent two years. LBI Media will receive interest at a fixed rate of 5.56% and pay interest at the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin specified in the agreements governing the 2006 Senior Credit Facilities. As this swap agreement did not meet the requirements for hedge accounting at its inception, changes in its fair value are recorded into earnings each period, with an offsetting asset or liability reflecting the fair value of the interest rate swap, related to the difference between the fixed rate and the floating rate of interest on the swap, recorded in the consolidated balance sheets. During the three months and six months ended June 30, 2007, the Company recognized interest rate swap income of $1,127,000 and $1,407,000, respectively, in its consolidated statements of operations and, at June 30, 2007, the Company recorded a $1,127,000 reduction to long-term liability in its consolidated balance sheet.

LBI Media’s 2002 Senior Subordinated Notes

In July 2002, LBI Media issued $150.0 million of senior subordinated notes due 2012 (the “2002 Senior Subordinated Notes”). The 2002 Senior Subordinated Notes bear interest at the rate of 10.125% per annum, and interest payments are to be made on a semi-annual basis each January 15 and July 15. All of LBI Media’s subsidiaries are wholly owned and provide full and unconditional joint and several guarantees of the 2002 Senior Subordinated Notes.

The indenture governing the 2002 Senior Subordinated Notes contains certain restrictive covenants that, among other things, limit LBI Media’s ability to borrow under the 2006 Revolver and previously, the 2004 Revolver, and pay dividends. LBI Media could borrow up to $150.0 million under the 2006 Revolver (subject to certain reductions under certain circumstances) without having to meet the restrictions contained in the indenture, but any amount over $150.0 million (subject to certain reductions under certain circumstances) would be subject to LBI Media’s compliance with a specified leverage ratio (as defined in the indenture of the 2002 Senior Subordinated Notes). At June 30, 2007, LBI Media was in compliance with all such covenants.

On July 23, 2007, LBI Media requested U.S. Bank National Association, as trustee, to notify the holders of its 2002 Senior Subordinated Notes that LBI Media has elected to redeem all of the outstanding 2002 Senior Subordinated Notes on August 22, 2007(the “Redemption Date”) at a redemption price of 105.0625% of the outstanding principal amount, plus accrued and unpaid interest to the Redemption Date (the “Redemption”). The Redemption will result in a loss in the third quarter of 2007 of approximately $7.6 million (including the write off of $2.2 million of unamortized deferred financing costs). The redemption notice to the trustee is irrevocable by LBI Media.

In connection with the Redemption, on July 23, 2007, LBI Media fully deposited the amount of the Redemption (approximately $159.2 million) into an irrevocable trust, the funds of which will be released to the holders of the 2002 Senior Subordinated Notes on the Redemption Date. As a result of LBI Media’s notification to the trustee and holders of the 2002 Senior Subordinated Notes of the Redemption and deposit of funds into an irrevocable trust for the benefit of such holders, as well as satisfaction of certain other procedural requirements, the indenture relating to the 2002 Senior Subordinated Notes has been discharged and it is no longer in effect as to the 2002 Senior Subordinated Notes issued thereunder.

7

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LBI Media’s 2007 Senior Subordinated Notes

On July 23, 2007, LBI Media issued approximately $228.8 million aggregate principal amount of 8 ¹/2% Senior Subordinated Notes due 2017 (the “2007 Senior Subordinated Notes”). The 2007 Senior Subordinated Notes were sold at 98.350% of the principal amount, resulting in gross proceeds of approximately $225.0 million. All of LBI Media’s subsidiaries are wholly owned and provide full and unconditional joint and several guarantees of the 2007 Senior Subordinated Notes.

The 2007 Senior Subordinated Notes bear interest at a rate of 8.5% per annum. Interest payments are to be made on a semi-annual basis each February 1 and August 1, commencing on February 1, 2008. The 2007 Senior Subordinated Notes will mature on August 1, 2017.

The indenture governing the 2007 Senior Subordinated Notes limits, among other things, LBI Media’s ability to borrow under the 2006 Revolver and pay dividends. LBI Media could borrow up to $150.0 million under the 2006 Revolver (subject to certain reductions under certain circumstances) without having to comply with specified leverage ratios contained in the indenture, but any amount over $150.0 million (subject to certain reductions under certain circumstances) would be subject to LBI Media’s compliance with a specified leverage ratio (as defined in the indenture of the 2007 Senior Subordinated Notes).

The indenture governing the 2007 Senior Subordinated Notes also prohibits the incurrence of certain indebtedness, the proceeds of which would be used to repay, redeem, repurchase or refinance any of LBI Media Holdings’ Senior Discount Notes (defined below) earlier than one year prior to the stated maturity of the Senior Discount Notes unless such indebtedness is (i) unsecured, and (ii) pari passu or junior in right of payment to any outstanding subordinated indebtedness of LBI Media, and (iii) otherwise permitted to be incurred under the indenture governing the 2007 Senior Subordinated Notes.

Senior Discount Notes

On October 10, 2003, LBI Media Holdings issued $68.4 million aggregate principal amount at maturity of senior discount notes that mature in 2013 (the “Senior Discount Notes”). The notes were sold at 58.456% of principal amount at maturity, resulting in gross proceeds of approximately $40.0 million and net proceeds of approximately $38.8 million after certain transaction costs. Under the terms of the Senior Discount Notes, cash interest will not accrue or be payable on the notes prior to October 15, 2008, and instead, the value of the notes will be increased each period until it equals $68.4 million on October 15, 2008; such accretion (approximately $1.6 million and $1.4 million, for the three months ended June 30, 2007 and 2006, respectively, and $3.1 million and $2.8 million for the six months ended June 30, 2007 and 2006, respectively), is recorded as additional interest expense by LBI Media Holdings. After October 15, 2008, cash interest on the notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that LBI Media Holdings may make a cash interest election on any interest payment date prior to October 15, 2008. If LBI Media Holdings makes a cash interest election, the principal amount of the notes at maturity will be reduced to the accreted value of the notes as of the date of the cash interest election and cash interest will begin to accrue at a rate of 11% per year from the date LBI Media Holdings makes such election. The Senior Discount Notes may be redeemed by LBI Media Holdings at any time on or after October 15, 2008 at redemption prices specified in the indenture governing the Senior Discount Notes, plus accrued and unpaid interest.

The indenture governing the Senior Discount Notes contains certain restrictive covenants that, among other things, limit LBI Media Holdings’ ability to incur additional indebtedness and pay dividends. As of June 30, 2007, LBI Media Holdings was in compliance with all such covenants. The Senior Discount Notes are structurally subordinated to LBI Media’s 2006 Senior Credit Facilities and LBI Media’s 2002 Senior Subordinated Notes.

2004 Empire Note

On July 1, 2004, Empire, an indirect, wholly owned subsidiary of LBI Media Holdings, issued an installment note for approximately $2.6 million (the “2004 Empire Note”). The 2004 Empire Note bears interest at 5.52% per annum and is payable in monthly principal and interest payments of approximately $21,000 through maturity in July 2019. The borrowings under the 2004 Empire Note are secured primarily by all of Empire’s real property.

8

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Scheduled Debt Repayments

As of June 30, 2007, the Company’s long-term debt had scheduled repayments for each of the next five fiscal years as follows:

Fiscal Year	(in thousands)
2007	$	617
2008		1,239
2009		1,247
2010		1,255
2011		1,264
Thereafter		368,372
	$	373,994

The above table does not include any repayment premium or any deferred compensation amount the Company may ultimately pay. Prior to the termination and payoff of the debt of the Parent (including redemption of the warrants) on March 30, 2007, interest payments and scheduled repayments relating to the debt of the Parent (including redemption of the warrants) were not included in the Company’s financial statements pursuant to SEC guidelines.

The debt of the Parent, which was repaid in full on March 30, 2007, is described more fully below.

Liberman Broadcasting, Inc.’s Parent Subordinated Notes

On March 20, 2001, the Parent entered into an agreement whereby in exchange for $30.0 million, it issued junior subordinated notes (the “Parent Subordinated Notes”) and warrants to the holders of the Parent Subordinated Notes to initially acquire 14.02 shares (approximately 6.55%) of the Parent’s common stock at an initial exercise price of $0.01 per share. Based on the relative fair values at the date of issuance, the Parent allocated $13.6 million to the Parent Subordinated Notes and $16.4 million to the warrants. The Parent Subordinated Notes bore interest at 9% per year and interest was not payable until maturity.

On March 30, 2007, third party investors purchased shares of the Parent’s Class A common stock from the Parent and the stockholders of the Parent. The net proceeds received by the Parent were used to repay in full the Parent Subordinated Notes and to redeem all of the related warrants to purchase shares of LBI Holdings I’s (predecessor in interest to the Parent) common stock.

The Parent Subordinated Notes were to be accreted through January 31, 2014, up to their $30 million redemption value; such accretion (approximately $0.3 million and $0.5 million during the three months and six months ended June 30, 2006, respectively, and $0.3 million during the six months ended June 30, 2007) was recorded as additional interest expense by the Parent. In the financial statements of the Parent, the warrants were stated at fair value each reporting period with subsequent changes in fair value being recorded as interest expense.

Interest Paid and Capitalized

The total amount of interest paid (net of amounts capitalized) was approximately $4.7 million and $2.0 million, for the three months ended June 30, 2007 and 2006, respectively, and approximately $15.6 million and $11.8 million for the six months ended June 30, 2007 and 2006, respectively. Interest is capitalized on individually significant construction projects during the construction period. The amount of interest capitalized was approximately $0.2 million and $0.4 million for the three and six months ended June 30, 2007, respectively. No interest was capitalized for the three and six months ended June 30, 2006.

9

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Acquisitions

On November 2, 2006, the Company completed its acquisition of the selected assets of five radio stations: KTCY-FM, licensed to Azle, TX, KZZA-FM, licensed to Muenster, TX, KZMP-FM, licensed to Pilot Point, TX, KZMP-AM, licensed to University Park, TX, and KBOC-FM, licensed to Bridgeport, TX, pursuant to an asset purchase agreement dated as of August 2, 2006, as amended. The aggregate purchase price was approximately $93.3 million, including acquisition costs of approximately $0.8 million. The Company has changed the format and customer base of some of the acquired stations. The Company allocated the purchase price as follows:

	(in thousands)
Broadcast licenses	$	82,188
Property and equipment		10,174
Intangible assets and other, net		945
	$	93,307

On May 15, 2007, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, KRCA Television LLC and KRCA License LLC, entered into an asset purchase agreement with Utah Communications, LLC pursuant to which such subsidiaries agreed to acquire selected assets of Utah Communications, LLC’s owned and operated television station, KPNZ-TV, Ogden, Utah. The selected assets include, among other things, (i) licenses and permits authorized by the Federal Communications Commission for or in connection with the operation of the television station, (ii) transmitter site facilities, and (iii) broadcast and other television studio equipment used to operate the television station. The total purchase price will be approximately $10.0 million, subject to certain adjustments, of which $0.5 million has been deposited in escrow. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the Federal Communications Commission.

On July 16, 2007, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC and LBI Radio License LLC, entered into an asset purchase agreement with KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc., pursuant to which such LBI Media subsidiaries agreed to acquire the selected assets of radio station KWIE-FM, 96.1 FM, licensed to San Jacinto, California. The selected assets include, among other things, (i) licenses and permits authorized by the Federal Communications Commission for or in connection with the operation of the station, (ii) antenna and transmitter facilities, and (iii) broadcast and other studio equipment used to operate the station. The total purchase price will be approximately $25.0 million in cash, subject to certain adjustments, of which $1.0 million has been deposited in escrow subsequent to June 30, 2007. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the Federal Communications Commission.

In connection with the transactions contemplated by the asset purchase agreement, Liberman Broadcasting of California LLC, KWIE, LLC and Magic Broadcasting, Inc. entered into a time brokerage agreement pursuant to which Liberman Broadcasting of California LLC will provide programming for KWIE-FM from August 1, 2007 until the earlier of the closing of the acquisition, termination of the asset purchase agreement or certain other events.

6. Commitments and Contingencies

Deferred Compensation

One of LBI Media Holdings’ indirect, wholly owned subsidiaries and the Parent have entered into employment agreements with certain employees. Services required under the employment agreements are rendered to the Company. Accordingly, the Company has reflected amounts due under the employment agreements in its financial statements. In addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the “net value” (as defined in the employment agreements) of the Parent over certain base amounts (“Incentive Compensation”). There are two components of Incentive Compensation: (i) a component that vests in varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures. The time vesting component is accounted for over the vesting periods specified in the employment agreements. Performance-based amounts are accounted for at the time it is considered probable that the performance measures will be attained. Any Incentive Compensation amounts due are required to be paid within thirty days after the date the “net value” of the Parent is determined. The employment agreements contain provisions, however, that allow for limited accelerated vesting in the event of a change in control of the Parent (as defined in the employment agreements).

10

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Until the “net value” of the Parent has been determined by appraisal as of each valuation date according to each employment agreement, the Company evaluates and estimates the deferred compensation liability under these employment agreements. As a part of the calculation of this Incentive Compensation, the Company uses the income and market valuation approaches to estimate the “net value” of the Parent. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. Each employee negotiated the base amount at the time the employment agreement was entered into. The estimated vested and unpaid amounts are shown as deferred compensation in the accompanying consolidated balance sheets; the related expense is shown as deferred compensation expense (benefit) in the accompanying consolidated statements of operations; and related cash payments are shown as deferred compensation payments in the consolidated statements of cash flows.

At June 30, 2007 and December 31, 2006, the Company estimated that certain employees had vested in approximately $3.0 million and $8.3 million, respectively, of unpaid Incentive Compensation. In the fourth quarter of 2006 and the first quarter of 2007, the Company satisfied its obligations under an employment agreement that had a December 31, 2005 “net value” determination date and an employment agreement that had a December 31, 2006 “net value” determination date with aggregate cash payments of approximately $3.0 million. On August 3, 2007 the Company made a payment of approximately $3.0 million under an employment agreement with a December 31, 2006 “net value” determination date. Amounts credited to operating expenses related to those agreements, net of payments, were $2.8 million and $4.0 million for the three and six months ended June 30, 2007 because the amounts ultimately paid to the employees, whose net value were determined as of December 31, 2006, were less than amounts accrued on that date. The Company also has an employment agreement with a “net value” determination date of December 31, 2009.

Litigation

On July 13, 2007, one of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC (“LBI Sub”) entered into a settlement agreement with class action representatives to settle, subject to court approval, a previously disclosed class action lawsuit related to LBI Sub’s classification of certain employees under California overtime laws and a recently filed class action lawsuit alleging, among other things, violations of California labor laws with respect to providing meal and rest breaks to LBI Sub’s current and former employees.

In June 2005, eight former employees of LBI Sub filed suit in Los Angeles County Superior Court alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI Sub. The complaint alleged, among other things, wage and hour violations relating to overtime pay, and wrongful termination and unfair competition under the California Business and Professions Code. Plaintiffs sought to recover, among other relief, unspecified general, treble and punitive damages, as well as profit disgorgement, restitution and their attorneys’ fees. In June 2007, two former employees of LBI Sub filed another suit in Los Angeles County Superior Court, alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI Sub. The complaint alleged, among other things, violations of California labor laws with respect to providing meal and rest breaks. Plaintiffs sought, among other relief, unspecified liquidated and general damages, declaratory, equitable and injunctive relief, and attorneys fees.

While LBI Sub denies the allegations in both lawsuits, it has agreed to the proposed settlement of both actions to avoid significant legal fees, other expenses and management time that would have to be devoted to the two litigation matters. The settlement, which is subject to final documentation and court approval, provides for a maximum settlement payment of $825,000 (including attorneys’ fees and costs and administrative fees). In the first quarter of 2007, the Company recorded a $350,000 reserve related to the complaint filed in June 2005. The Company recorded an additional $475,000 reserve in the second quarter of 2007 in connection with the settlement agreement.

11

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In consideration of the settlement payment, the plaintiffs in both cases agreed, upon final court approval, to dismiss the two class actions with prejudice and to release all known and unknown claims arising out of or relating to such claims. The parties have agreed to cooperate to obtain the court’s approval of the settlement. The settlement will become effective and binding only if approved by the court.

The Company is subject to pending litigation arising in the normal course of business. While it is not possible to predict the results of such litigation, management does not believe the ultimate outcome of these matters will have a materially adverse effect on the Company’s financial position or results of operations.

7. Related Party Transactions

The Company had approximately $2.7 million due from stockholders of the Parent and from affiliated companies at June 30, 2007 and December 31, 2006. The Company made loans of $146,590 and $75,000 on December 20, 2001 and July 29, 2002, respectively, to Jose Liberman and loans of $243,095, $32,000 and $1,916,563 on December 20, 2001, June 14, 2002 and July 9, 2002, respectively, to Lenard Liberman. Each of these loans bears interest at the alternative federal short-term rate published by the Internal Revenue Service for the month in which the advance was made, which rate was 2.48%, 2.91% and 2.84% for December 2001, June 2002 and July 2002, respectively. Each loan matures on the seventh anniversary of the date on which the loan was made.

The Company had approximately $690,000 due from one of its directors at June 30, 2007 and December 31, 2006. Except for one loan of $30,000 that does not bear interest or have a maturity date, the remainder of these loans to the director bear interest at 8.0% and mature on dates ranging from December 31, 2009 to December 31, 2010.

One of the Parent’s stockholders is the sole shareholder of L.D.L. Enterprises, Inc. (LDL), a mail order business. From time to time, the Company allows LDL to use, free of charge, unsold advertising time on its radio and television stations.

8. Segment Data

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” requires companies to provide certain information about their operating segments. The Company has two reportable segments – radio operations and television operations. Management uses operating income before deferred compensation expense (benefit), depreciation and amortization, and impairment of broadcast licenses as its measure of profitability for purposes of assessing performance and allocating resources.

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
			(in thousands)
Net revenues:
Radio operations	$	17,075	$	13,982	$	29,136	$	23,799
Television operations		15,440		15,309		28,524		27,734
Consolidated net revenues		32,515		29,291		57,660		51,533
Operating expenses, excluding depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):
Radio operations		7,154		5,652		13,706		10,762
Television operations		9,627		8,313		18,740		16,168
Consolidated operating expenses, excluding depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit)		16,781		13,965		32,446		26,930
Operating income before depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):
Radio operations		9,921		8,330		15,430		13,037
Television operations		5,813		6,996		9,784		11,566
Consolidated operating income before depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):		15,734		15,326		25,214		24,603

12

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
Depreciation and amortization expense:
Radio operations		1,079			598			2,231			1,196
Television operations		1,148			1,034			2,296			2,067
Consolidated depreciation and amortization expense:		2,227			1,632			4,527			3,263
Impairment of broadcast licenses:
Television operations		—			1,600			—			1,600
Consolidated impairment of broadcast licenses		—			1,600			—			1,600
Deferred compensation expense (benefit):
Radio operations		(2,820	)		(161	)		(3,952	)		114
Consolidated deferred compensation expense (benefit)		(2,820	)		(161	)		(3,952	)		114
Operating income:
Radio operations		11,662			7,893			17,151			11,727
Television operations		4,665			4,362			7,488			7,899
Consolidated operating income	$	16,327		$	12,255		$	24,639		$	19,626
Reconciliation of operating income before deferred compensation expense (benefit) and depreciation and amortization to income before income taxes:
Operating income before deferred compensation expense (benefit), depreciation and amortization	$	15,734		$	15,326		$	25,214		$	24,603
Depreciation and amortization		(2,227	)		(1,632	)		(4,527	)		(3,263	)
Impairment of broadcast licenses		—			(1,600	)		—			(1,600	)
Deferred compensation expense (benefit)		2,820			161			3,952			(114	)
Interest expense, net of amount capitalized		(8,494	)		(7,703	)		(17,650	)		(15,304	)
Interest rate swap income		1,407			—			1,127			—
Interest and other income		66			28			105			58
Income before income taxes	$	9,306		$	4,580		$	8,221		$	4,380

9. Parent Issuance of Class A Common Stock

On March 30, 2007, affiliates of Oaktree Capital Management LLC and Tinicum Capital Partners II, L.P. purchased approximately 113 shares of Class A common stock of the Parent and the stockholders of the Parent. The sale of Class A common stock by the Parent resulted in net proceeds to the Parent of approximately $117.3 million. A portion of these net proceeds were used to repay the Parent’s Subordinated Notes and to redeem the related warrants (as described in Note 4). Approximately $47.9 million of the net proceeds were contributed by the Parent to LBI Media (through LBI Media Holdings). The contribution of $47.9 million was used by LBI Media to repay outstanding amounts under the 2006 Revolver on April 5, 2007.

In connection with the sale of its Class A common stock, the Parent and the stockholders of the Parent entered into an investor rights agreement that defines certain rights and obligations of the Parent and its stockholders. Pursuant to this investor rights agreement, the minority stockholders of the Parent have the right to consent, in their sole discretion, to certain transactions involving LBI Media Holdings, subsidiaries of LBI Media Holdings, and the Parent, including, among other things, certain acquisitions or dispositions of assets by LBI Media Holdings, subsidiaries of LBI Media Holdings, and the Parent. The investor rights agreement also contains customary representations and affirmative and negative covenants. At June 30, 2007, the Parent was in compliance with all such covenants.

10. Income Taxes

As described in Note 9, third party investors purchased shares of the Parent’s Class A common stock from the Parent and the stockholders of the Parent on March 30, 2007. As a result, the Parent no longer qualifies as an “S corporation.” Because LBI Media Holdings was deemed for tax purposes to be part of the Parent, LBI Media Holdings is no longer a “qualified subchapter S subsidiary.” Therefore, the Company will be filing income tax returns as a C Corporation. Accordingly, the Company’s taxable income will be subject to a combined federal and state income tax rate of approximately 40% for periods after March 30, 2007.

13

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commencing March 31, 2007, the Company will be included with its Parent in the filing of a consolidated federal income tax return and various state income tax returns. With regard to the consolidated filings, the members of the consolidated group presently intend to allocate tax expenses among the members, as if they were not included in the consolidated return (i.e., “stand alone” basis), to the entity responsible for generating the corresponding tax liability. Accordingly, the amount of federal and state income taxes currently payable will be calculated and paid on a “stand alone” basis. Therefore, the Company will remit to its Parent only those taxes that would be due if the Parent were the taxing authority (e.g. Internal Revenue Service). Any deferred income taxes will be accounted for on the financial statements of the Company.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reporting amounts in the consolidated financial statements. As a result of the loss of S corporation status, the Company has recorded a one-time non-cash charge of $46.9 million to adjust its deferred tax accounts. The charge is included in its provision for income taxes on the accompanying condensed consolidated statements of operations. The Company’s deferred tax liabilities as of June 30, 2007 and December 31, 2006 were approximately $50.0 million and $0.9 million, respectively, and result primarily from book and tax basis differences of the Company’s indefinite-lived intangible assets that, for tax purposes, are amortized over fifteen years.

In addition to the deferred tax liability for its indefinite-lived intangible assets, the Company has net deferred tax assets for which it has provided a full valuation allowance. The valuation allowance on deferred taxes relate to future deductible temporary differences for which the Company has concluded it is more likely than not that these items will not be realized in the ordinary course of operations. As of June 30, 2007 and December 31, 2006, the net deferred tax asset and the related valuation allowance were approximately $0.5 million and $0.3 million, respectively.

Adoption of FIN 48

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The pronouncement prescribes a recognition threshold and measurement attribute criteria for the financial statement effect of a tax position taken, not taken, or expected to be taken in a tax return. FIN 48 also provides guidance on recording the reversal of the financial statement effects previously recorded, classification, interest and penalties, interim period and transitional reporting, and disclosure.

The Company files income tax returns in the U.S. federal jurisdiction, California and Texas. The Company is no longer subject to federal or state income tax examinations for years prior to 2003 and 2002, respectively. The Company’s policy is to recognize interest related to unrecognized tax benefits and penalties as additional tax expense. Accrued interest at June 30, 2007 related to unrecognized tax benefits is approximately $239,000, of which $18,000 and $34,000, respectively, is included in tax expense for the three and six months ended June 30, 2007.

The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on the financial position of the Company. The cumulative effect adjustment, as a result of a change in accounting principle, reduced beginning retained earnings by approximately $787,000 ($654,000 to record unrecognized tax benefits and $133,000 of the related accrued interest). Therefore, as of the adoption date, the Company had gross tax affected unrecognized tax benefits of approximately $996,000. Also, as of the adoption date, the Company had accrued interest related to the unrecognized tax benefits of approximately $205,000. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in the period they are recognized. There was no effect on the tax rate in the current period as the transition adjustment was recorded as a change in accounting principle and, accordingly, other than the current period interest expense, did not impact the results of operations for the period.

As a result of the expiration of the statute of limitations in certain jurisdictions, it is reasonably possible that the accrual for certain related unrecognized tax benefits for tax positions taken regarding previously filed tax returns will be decreased by approximately $400,000 over the next twelve months.

The Company believes that it has appropriate support for the income tax positions taken and presently expected to be taken on its tax returns. Additionally, the Company believes that its accruals for tax liabilities are adequate for all years open to income tax examinations based on an assessment of many factors including past experience, past examinations by taxing authorities and interpretations of tax law applied to the facts of each matter.

14

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s income tax provision for the six months ended June 30, 2007 is approximately $49.3 million and is primarily attributable to the one time charge of $46.9 million to adjust its deferred tax accounts (see discussion above), approximately $200,000 of current federal and state taxes, and approximately $2.2 million of deferred tax expense attributable to the tax amortization of the indefinite lived intangibles. The Company’s income tax provision for the three months ended June 30, 2007 is approximately $2.4 million and is primarily attributable to $120,000 of current federal and state taxes and approximately $2.2 million of deferred tax expense as previously discussed.

The Company’s effective tax rate differs from the statutory rate due to the discrete items related to deferred taxes discussed above, the impact of state taxes and other permanent differences and finally the release of approximately $2.0 million of valuation allowance, associated with deferred tax assets realized during the three months ended June 30, 2007.

11. LBI Media Holdings, Inc. (Parent Company Only)

The terms of LBI Media’s 2006 Senior Credit Facilities (and previously, the 2004 Revolver) and the indenture governing LBI Media’s 2007 Senior Subordinated Notes (and previously, LBI Media’s 2002 Senior Subordinated Notes) restrict LBI Media’s ability to transfer net assets to LBI Media Holdings in the form of loans, advances, or cash dividends. The following parent-only condensed financial information presents balance sheets and related statements of operations and cash flows of LBI Media Holdings by accounting for the investments in the owned subsidiaries on the equity method of accounting. The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

Condensed Balance Sheet Information:

(in thousands)

	As of
	June 30, 2007			December 31, 2006
Assets
Prepaid expenses and other current assets	$	1		$	—
Deferred financing costs		1,240			1,339
Investment in subsidiaries		100,419			92,404
Other assets		14			11
Total assets	$	101,674		$	93,754
Liabilities and stockholder’s equity
Long term debt	$	59,608		$	56,500
Stockholder’s equity:
Common stock		—			—
Additional paid-in capital		64,811			16,865
Retained earnings		(22,745	)		20,389
Total stockholder’s equity		42,066			37,254
Total liabilities and stockholder’s equity	$	101,674		$	93,754

15

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statement of Operations Information:

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Income (loss):
Equity earnings (losses) of subsidiaries	$	8,568		$	5,932		$	(37,890	)	$	7,098
Expenses:
Interest expense		(1,639	)		(1,477	)		(3,208	)		(2,893	)
Income before taxes		6,929			4,455			(41,098	)		4,205
Income tax (expense) benefit		—			—			1			—
Net income (loss)	$	6,929		$	4,455		$	(41,097	)	$	4,205

Condensed Statement of Flows Information:

(In thousands)

	Six Months Ended June 30,
	2007			2006
Cash flows provided by operating activities:
Net income (loss)	$	(41,097	)	$	4,205
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses (earnings) of subsidiaries		37,890			(7,098	)
Amortization of deferred financing costs		99			98
Accretion on senior discount notes		3,108			2,792
Change in prepaid expenses and other current assets		(1	)		—
Change in other assets		(3	)		3
Change in accounts payable and accrued expenses		—			—
Distributions from subsidiaries		1,908			798
Net cash provided by operating activities		1,904			798
Cash flows provided by (used in) financing activities:
Investment in subsidiary		(47,900	)		—
Capital contributions from Parent		47,946			—
Distributions to Parent		(1,950	)		(798	)
Net cash used in financing activities		(1,904	)		(798	)
Net change in cash and cash equivalents		—			—
Cash and cash equivalents at beginning of period		—			—
Cash and cash equivalents at end of period	$	—		$	—

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements for the year ended December 31, 2006, included in our Annual Report on Form 10-K (File No. 333-110122). This Quarterly Report contains, in addition to historical information, forward-looking statements, which involve risk and uncertainties. The words “believe”, “expect”, “estimate”, “may”, “will”, “could”, “plan”, or “continue”, and similar expressions are intended to identify forward-looking statements. Our actual results could differ significantly from the results discussed in such forward-looking statements.

Overview

We own and operate radio and television stations in Los Angeles, California, Houston, Texas and Dallas, Texas and a television station in San Diego, California. Our radio stations consist of four FM and two AM stations serving Los Angeles, California and its surrounding areas, five FM and four AM stations serving Houston, Texas and its surrounding areas, and five FM and one AM stations serving Dallas-Fort Worth, Texas and its surrounding areas. Our four television stations consist of three full-power stations serving Los Angeles, California, Houston, Texas and Dallas-Fort Worth, Texas and a low-power station serving San Diego, California. In addition, we operate a television production facility, Empire Burbank Studios, in Burbank, California that we use to produce our core programming for all of our television stations, and we have television production facilities in Houston and Dallas-Fort Worth that allow us to produce local programming in those markets as well.

We operate in two reportable segments, radio and television. We generate revenue from sales of local, regional and national advertising time on our radio and television stations, and the sale of time to brokered or infomercial customers on our radio and television stations. Advertising rates are, in large part, based on each station’s ability to attract audiences in demographic groups targeted by advertisers. Our stations compete for audiences and advertising revenue directly with other Spanish-language radio and television stations and we generally do not obtain long-term commitments from our advertisers. As a result, our management team focuses on creating a diverse advertiser base, producing cost-effective, locally focused programming, providing creative advertising solutions for clients, executing targeted marketing campaigns to develop a local audience, and implementing strict cost controls. We recognize revenues when the commercials are broadcast or the brokered time is made available to the customer. We incur commissions from agencies on local, regional and national advertising, and our net revenue reflects deductions from gross revenue for commissions to these agencies.

Our primary expenses are employee compensation, including commissions paid to our local and national sales staffs, promotion, selling, programming and engineering expenses, general and administrative expenses and interest expense. Our programming expenses for television consist of costs related to the production of original programming content, production of local newscasts and, to a lesser extent, the acquisition of programming content from other sources. Because we are highly leveraged, we will need to dedicate a substantial portion of our cash flow from operations to pay interest on our debt. We may need to pursue one or more alternative strategies in the future to meet our debt obligations, such as refinancing or restructuring our indebtedness, selling equity securities or selling assets.

We are organized as a Delaware corporation. Prior to March 30, 2007, we were a “qualified subchapter S subsidiary” as we were deemed for tax purposes to be part of our parent, an “S corporation” under federal and California state tax laws. Accordingly, our taxable income was reported by the stockholders of our parent on their respective federal and state income tax returns. As a result of the sale of Class A common stock of our parent (as described below under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”), Liberman Broadcasting, Inc., a Delaware corporation, no longer qualifies as an S Corporation, and none of its subsidiaries, including us, are able to qualify as qualified subchapter S subsidiaries. Thus, we have been taxed at regular corporate rates since March 30, 2007.

Sale and Issuance of Liberman Broadcasting’s Class A Common Stock

On March 30, 2007, our parent, Liberman Broadcasting, sold shares of its Class A common stock to affiliates of Oaktree Capital Management LLC and Tinicum Capital Partners II, L.P. The sale resulted in net proceeds to Liberman Broadcasting of $117.3 million. A portion of these net proceeds were used to repay Liberman Broadcasting’s 9% subordinated notes due 2014 and to redeem related warrants to purchase shares of common stock of the predecessor of Liberman Broadcasting. Liberman Broadcasting contributed approximately $47.9 million of the net proceeds to us, and we, in turn, contributed $47.9 million to LBI Media. LBI Media used the proceeds contributed to it to repay outstanding amounts borrowed under LBI Media’s senior revolving credit facility.

In connection with the sale of Liberman Broadcasting’s Class A common stock, Liberman Broadcasting and its stockholders entered into an investor rights agreement that defines certain rights and obligations of Liberman Broadcasting and the stockholders of Liberman Broadcasting. Pursuant to this investor rights agreement, the investors have the right to consent to certain transactions involving us, Liberman Broadcasting, and our subsidiaries, including:

17

• certain acquisitions or dispositions of assets by us, Liberman Broadcasting and our subsidiaries that are consummated on or after September 30, 2009;

• certain transactions between us, Liberman Broadcasting and our subsidiaries, on the one hand, and Jose Liberman, our chairman and president and chairman and president of LBI Media, Lenard Liberman, our executive vice president, chief financial officer and secretary and executive vice president, chief financial officer and secretary of LBI Media, or certain of their respective family members, on the other hand;

• certain issuances of equity securities to employees or consultants of ours, Liberman Broadcasting, and our subsidiaries;

• certain changes in the compensation arrangements with Jose Liberman, Lenard Liberman or certain of their respective family members;

• material modifications in our business strategy and the business strategy of Liberman Broadcasting and our subsidiaries;

• commencement of a bankruptcy proceeding related to us, Liberman Broadcasting, and our subsidiaries;

• certain issuances of new equity securities to the public prior to March 30, 2010;

• certain changes in our corporate form to an entity other than a Delaware corporation;

• any change in Liberman Broadcasting’s auditors to a firm that is not a big four accounting firm; and

• certain change of control transactions.

Acquisitions

On November 2, 2006, two of our indirect, wholly owned subsidiaries, Liberman Broadcasting of Dallas, Inc. (predecessor in interest to Liberman Broadcasting of Dallas LLC) and Liberman Broadcasting of Dallas License Corp. (predecessor in interest to Liberman Broadcasting of Dallas License LLC), purchased the selected assets of five radio stations owned and operated by Entravision Communications Corporation, or Entravision, and certain subsidiaries of Entravision pursuant to an asset purchase agreement dated as of August 2, 2006, as amended on November 2, 2006. Also in the fourth quarter of 2006, Liberman Broadcasting of Dallas purchased a building in Dallas, Texas to accommodate its growth in stations owned in the Dallas-Fort Worth market.

The total purchase price of the selected radio station assets was approximately $92.5 million and was paid for in cash primarily through borrowings under LBI Media’s senior revolving credit facility. The assets that were acquired include, among other things, (i) licenses and permits authorized by the Federal Communications Commission, or FCC, for or in connection with the operation of each of the radio stations, (ii) tower and transmitter facilities, and (iii) broadcast and other studio equipment used to operate the following five stations: KTCY-FM (101.7 FM, licensed to Azle, TX), KZZA-FM (106.7 FM, licensed to Muenster, TX), KZMP-FM (104.9 FM, licensed to Pilot Point, TX), KZMP-AM (1540 AM, licensed to University Park, TX), and KBOC-FM (98.3 FM, licensed to Bridgeport, TX). The programming of KZMP-FM is now provided by a third-party broker.

On May 15, 2007, two of our indirect, wholly owned subsidiaries, KRCA Television LLC and KRCA License LLC, entered into an asset purchase agreement with Utah Communications, LLC pursuant to which our subsidiaries agreed to acquire selected assets of Utah Communications, LLC’s owned and operated television station, KPNZ-TV, Ogden, Utah. The selected assets include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the television station, (ii) transmitter site facilities, and (iii) broadcast and other television studio equipment used to operate the television station. The purchase of these assets marks our first entry into this market. The total purchase price will be approximately $10.0 million, subject to certain adjustments, of which $0.5 million has been deposited in escrow. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the FCC.

On July 16, 2007, two of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC and LBI Radio License LLC, entered into an asset purchase agreement with KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc. pursuant to which our subsidiaries agreed to acquire the selected assets of radio station KWIE-FM, 96.1 FM, licensed to San Jacinto, California, from KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc. The selected assets include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the station, (ii) antenna and transmitter facilities, and (iii) broadcast and other studio equipment used to operate the station. The total purchase price will be approximately $25.0 million in cash, subject to certain adjustments, of which $1.0 million has been deposited in escrow. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the FCC.

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In connection with the transactions contemplated by the asset purchase agreement, Liberman Broadcasting of California LLC, KWIE, LLC and Magic Broadcasting, Inc. entered into a time brokerage agreement pursuant to which Liberman Broadcasting of California LLC will provide programming for KWIE-FM from August 1, 2007 until the earlier of the closing of the acquisition, termination of the asset purchase agreement or certain other events.

We generally experience lower operating margins for several months following the acquisition of radio and television stations. This is primarily due to the time it takes to fully implement our format changes, build our advertiser base and gain viewer or listener support.

From time to time, we engage in discussions with third parties concerning our possible acquisition of additional radio or television stations or related assets. Any such discussions may or may not lead to our acquisition of additional broadcasting assets.

Legal Proceedings

On July 13, 2007, one of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC, or LBI, entered into a settlement agreement with class action representatives to settle, subject to court approval, a previously disclosed class action lawsuit related to LBI’s classification of certain employees under California overtime laws and a recently filed class action lawsuit alleging, among other things, violations of California labor laws with respect to providing meal and rest breaks to LBI’s current and former employees.

In June 2005, eight former employees of LBI filed suit in Los Angeles County Superior Court alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, wage and hour violations relating to overtime pay, and wrongful termination and unfair competition under the California Business and Professions Code. Plaintiffs sought to recover, among other relief, unspecified general, treble and punitive damages, as well as profit disgorgement, restitution and their attorneys’ fees. In June 2007, two former employees of LBI filed another suit in Los Angeles County Superior Court, alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, violations of California labor laws with respect to providing meal and rest breaks. Plaintiffs sought, among other relief, unspecified liquidated and general damages, declaratory, equitable and injunctive relief, and attorneys fees.

While LBI denies the allegations in both lawsuits, it has agreed to the proposed settlement of both actions to avoid significant legal fees, other expenses and management time that would have to be devoted to the two litigation matters. The settlement, which is subject to final documentation and court approval, provides for a maximum settlement payment of $825,000 (including attorneys’ fees and costs and administrative fees). In the first quarter of 2007, we recorded a $350,000 reserve related to the complaint filed in June 2005. In the second quarter of 2007, we recorded an additional $475,000 in connection with the settlement agreement.

In consideration of the settlement payment, the plaintiffs in both cases agreed, upon final court approval, to dismiss the two class actions with prejudice and to release all known and unknown claims arising out of or relating to such claims. The parties have agreed to cooperate to obtain the court’s approval of the settlement. The settlement will become effective and binding only if approved by the court.

Results of Operations

Separate financial data for each of our operating segments is provided below. We evaluate the performance of our operating segments based on the following:

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	Three Months Ended June 30,								Six Months Ended June 30,
	2007			2006			% Change		2007			2006			% Change
	(In thousands)
Net revenues:
Radio	$	17,075		$	13,982		22.1	%	$	29,136		$	23,799		22.4	%
Television		15,440			15,309		0.9	%		28,524			27,734		2.8	%
Total	$	32,515		$	29,291		11.0	%	$	57,660		$	51,533		11.9	%
Total operating expenses before deferred compensation expense (benefit), impairment of broadcast licenses and depreciation and amortization:
Radio	$	7,154		$	5,652		26.6	%	$	13,706		$	10,762		27.4	%
Television		9,627			8,313		15.8	%		18,740			16,168		15.9	%
Total	$	16,781		$	13,965		20.2	%	$	32,446		$	26,930		20.5	%
Deferred compensation expense (benefit):
Radio	$	(2,820	)	$	(161	)	1651.6	%	$	(3,952	)	$	114		(3566.7	)%
Total	$	(2,820	)	$	(161	)	1651.6	%	$	(3,952	)	$	114		(3566.7	)%
Impairment of broadcast licenses:
Television	$	—		$	(1,600	)			$	—		$	(1,600	)
Total	$	—		$	(1,600	)			$	—		$	(1,600	)
Depreciation and amortization:
Radio	$	1,079		$	598		80.4	%	$	2,231		$	1,196		86.5	%
Television		1,148			1,034		11.0	%		2,296			2,067		11.1	%
Total	$	2,227		$	1,632		36.5	%	$	4,527		$	3,263		38.7	%
Operating Income:
Radio	$	11,662		$	7,893		47.8	%	$	17,151		$	11,727		46.3	%
Television		4,665			4,362		6.9	%		7,488			7,899		(5.2	)%
Total	$	16,327		$	12,255		33.2	%	$	24,639		$	19,626		25.5	%
Adjusted EBITDA (1):
Radio	$	12,741		$	8,491		50.0	%	$	19,382		$	12,923		50.0	%
Television		5,813			6,996		(16.9	)%		9,784			11,566		(15.4	)%
Total	$	18,554		$	15,487		19.8	%	$	29,166		$	24,489		19.1	%

(1)                   We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), gain (loss) on sale of property and equipment, gain (loss) on sale of investments, net interest expense, interest rate swap expense, impairment of broadcast licenses, and depreciation and amortization. Management considers this measure an important indicator of our liquidity relating to our operations because it eliminates the effects of certain noncash items and our capital structure. This measure should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with U.S. generally accepted accounting principles, such as cash flows from operating activities, operating income and net income. In addition, our definition of Adjusted EBITDA may differ from those of many companies reporting similarly named measures.

In determining our Adjusted EBITDA in past years, we treated deferred compensation expense (benefit) as a noncash item, because we had the option and the intention to pay such amounts in the common stock of our parent after our parent’s initial public offering. Our first payment became due in 2006 and we have made additional payments in 2007. We have determined that we can no longer meet the conditions necessary to pay the deferred compensation in stock. Accordingly, we have settled our deferred compensation amounts in cash. We have presented prior periods’ Adjusted EBITDA to conform to this current treatment. As a result, Adjusted EBITDA for prior periods may appear as a different amount from what we have reported in prior periods.

We discuss Adjusted EBITDA and the limitations of this financial measure in more detail under “—Non-GAAP Financial Measures.”

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The table set forth below reconciles net cash provided by operating activities, calculated and presented in accordance with U.S. generally accepted accounting principles, to Adjusted EBITDA:

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(In thousands)
Net cash provided by operating activities	$	6,247		$	8,093		$	5,632		$	8,794
Add:
Income tax expense		2,377			125			49,318			175
Interest expense and other income, net		8,428			7,675			17,545			15,246
Less:
Amortization of deferred financing costs		(301	)		(247	)		(601	)		(496	)
Accretion on senior discount notes		(1,589	)		(1,427	)		(3,108	)		(2,792	)
Provision for doubtful accounts		(300	)		(276	)		(521	)		(483	)
Deferred compensation benefit (expense)		2,820			161			3,952			(114	)
Changes in operating assets and liabilities:
Accounts receivable		5,080			4,677			2,626			3,253
Deferred compensation payment		—			—			1,374			—
Program rights		(144	)		(208	)		(322	)		(424	)
Amounts due from related parties		(6	)		52			(15	)		138
Prepaid expenses and other current assets		(156	)		(193	)		(194	)		(55	)
Employee advances		(13	)		394			(8	)		327
Accounts payable and accrued expenses		565			687			1,321			1,163
Accrued interest		(2,088	)		(3,996	)		1,383			(182	)
Deferred taxes payable		(3,024	)		—			(49,082	)		—
Other assets and liabilities		658			(30	)		(134	)		(61	)
Adjusted EBITDA	$	18,554		$	15,487		$	29,166		$	24,489

Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006

Net Revenues. Net revenues increased by $3.2 million, or 11.0%, to $32.5 million for the three months ended June 30, 2007, from $29.3 million for the same period in 2006. The increase was primarily attributable to increased advertising revenue from our Los Angeles and Dallas radio markets. In Dallas, this revenue growth is attributable to an existing FM radio station and our recently acquired radio station assets. Our Texas television stations also contributed to our overall revenue growth for the three months ended June 30, 2007.

Net revenues for our radio segment increased by $3.1 million, or 22.1%, to $17.1 million for the three months ended June 30, 2007, from $14.0 million for the same period in 2006. Increases in revenue at our new and existing Dallas radio stations were augmented by an increase in revenues at our Los Angeles radio stations. The increase in our advertising revenue in Dallas was due to increases in our audience and the acceptance by advertisers of our newly formatted stations in Dallas.

Net revenues for our television segment increased by $0.1 million, or 0.9%, to $15.4 million for the three months ended June 30, 2007, from $15.3 million for the same period in 2006. This increase was attributable to increased advertising revenue in our Texas markets. We believe television revenues have increased as a result of wider acceptance by viewers and by advertisers of our innovative programming strategy.

We currently anticipate net revenue growth for the remainder of 2007 from both our radio and television segments due to increased advertising time sold and increased advertising rates. Our internally produced programming, focused sales strategy and the expected continued demand for Spanish-language advertising should continue to increase our advertising time sold and advertising rates in 2007 for both segments.

Total operating expenses. Total operating expenses decreased by $0.8 million, or 5.0%, to $16.2 million for the three months ended June 30, 2007 from $17.0 million for the same period in 2006. This decrease was primarily due to:

(1) a $2.7 million decrease in deferred compensation expense because the amount that was ultimately paid to an employee in August 2007 was less than the amount that had been accrued at March 31, 2007; and

(2) a $1.6 million decrease in impairment charges for a certain broadcast license that was recorded in the second quarter of 2006.

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These decreases in operating expenses were partially offset by:

(1) a $1.7 million increase in selling, general and administrative expenses due to higher salaries, commissions and other selling expenses, attributable to increased staffing associated with our growth in net revenues, additional expenses related to the Dallas radio stations that we acquired in November 2006, and a $0.4 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”);

(2) a $0.9 million increase in programming expenses primarily related to additional production of in-house television programs, and additional expenses related to our Dallas radio stations that we acquired in November 2006, and

(3) a $0.6 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties.

Of the above increases in operating expenses, approximately $1.6 million of the increase included expenses primarily attributable to our new Dallas stations, which we acquired in November 2006.

Our deferred compensation liability can increase in future periods based on changes in the employee’s vesting percentage, which is based on time and performance measures, and can increase or decrease in future periods based on changes in the net value of our parent, Liberman Broadcasting. See “—Critical Accounting Policies—Deferred Compensation.”

We believe that our total operating expenses, before consideration of any impairment charges, will increase through the end of 2007 due to increased programming costs related to our television segment and increased sales commissions and administrative expenses associated with our anticipated net revenue growth. In addition, we will incur additional expenses related to the operation of our newly acquired radio stations in Dallas, and, subject to closing and regulatory approvals, certain stations we are in the process of acquiring. Continued growth in expenses may also occur as a result of future acquisitions of radio and television assets. We anticipate that the growth rate of our 2007 total operating expenses, excluding any impairment charges, will be lower than the growth rate of our 2007 net revenue. This expectation could be negatively impacted by the acquisition of KPNZ-TV, KWIE-FM, and the number and size of additional radio and television assets that we acquire, if any.

Total operating expenses for our radio segment decreased by $0.7 million, or 11.1%, to $5.4 million for the three months ended June 30, 2007, from $6.1 million for the same period in 2006. This decrease was primarily the result of a $2.7 million decrease in deferred compensation expense because the amount that was ultimately paid to an employee in August 2007 was less than the amount that had been accrued at March 31, 2007. The decrease was partially offset by:

(1) a $0.9 million increase in selling, general and administrative expenses, due primarily to increased salaries, including new personnel and start up costs in connection with our new Dallas stations;

(2) a $0.5 million increase in depreciation and amortization due primarily to increased capital expenditures for new and existing properties; and

(3) a $0.4 million increase in programming expenses primarily attributable to the reformatting and programming of our new Dallas stations.

Of the above increases in operating expenses, approximately $1.6 million of the increase included expenses primarily attributable to our new Dallas stations, the assets of which were acquired in November 2006.

Total operating expenses for our television segment decreased by $0.1 million, or 1.6%, to $10.8 million for the three months ended June 30, 2007, from $10.9 million for the same period in 2006. This decrease was primarily due to a $1.6 million decrease in impairment charges related to a certain broadcast license that was recorded in the first quarter of 2006. The decrease was partially offset by:

(1) a $0.8 million increase in selling, general and administrative expenses related to higher sales salaries and commissions associated with our revenue growth and a $0.4 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”);

(2) a $0.5 million increase in programming expenses related to the additional production of in-house programming; and

(3) a $0.1 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties.

Interest expense, net. Interest expense, net, decreased by $0.7 million, or 8.5%, to $7.0 million for the three months ended June 30, 2007, from $7.7 million for the corresponding period in 2006. Interest expense decreased in the second quarter of 2007

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primarily due to repayment by LBI Media of approximately $47.9 million under its senior revolving credit facility in April 2007 from the contribution of net proceeds received by it from our parent as a result of the sale of Liberman Broadcasting’s Class A common stock, partially offset by additional accretion on our senior discount notes issued in October 2003.

Provision for income taxes. Our provision for income taxes increased by $2.3 million, to $2.4 million for the three months ended June 30, 2007, from $0.1 million for the corresponding period in 2006. As described above under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”, certain investors purchased shares of our parent’s Class A common stock. As a result, our parent no longer qualifies as an “S corporation” and we and our subsidiaries are no longer qualified as “qualified subchapter S corporations.”

Net income. We recognized net income of $6.9 million for the three months ended June 30, 2007, as compared to net income of $4.5 million for the same period of 2006, an increase of $2.4 million, or 55.5%. This increase was primarily attributable to a credit to deferred compensation expense as discussed above.

Adjusted EBITDA. Adjusted EBITDA increased by $3.1 million, or 19.8%, to $18.6 million for the three months ended June 30, 2007 as compared to $15.5 million for the same period in 2006 primarily as a result of increased revenues from our Dallas radio stations and a credit to deferred compensation expense because the amount ultimately paid to an employee in August 2007 was less than the amount that was accrued at March 31, 2007. See “—Non-GAAP Financial Measures.”

Adjusted EBITDA for our radio segment increased by $4.2 million, or 50.1%, to $12.7 million for the three months ended June 30, 2007, from $8.5 million for the same period in 2006. The increase was primarily the result of increased revenues in the Dallas market and a credit to deferred compensation expense as discussed above.

Adjusted EBITDA for our television segment decreased by $1.2 million, or 16.9% to $5.8 million for the three months ended June 30, 2007, from $7.0 million for the same period in 2006. The decrease was primarily the result of increased programming expense, partially offset by an overall increase in net revenues in our television segment.

Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006

Net Revenues. Net revenues increased by $6.2 million, or 12.0%, to $57.7 million for the six months ended June 30, 2007, from $51.5 million for the same period in 2006. The increase was primarily attributable to increased advertising revenue from our Los Angeles and Dallas radio markets. In Dallas, we own an existing FM radio station and five additional radio stations that we acquired in November 2006. Our television segment revenues also contributed an increase in net revenues for the six months ended June 30, 2007.

Net revenues for our radio segment increased by $5.3 million, or 22.4%, to $29.1 million for the six months ended June 30, 2007, from $23.8 million for the same period in 2006. Increases in revenue at our new and existing Dallas radio stations were augmented by an increase in revenues at our Los Angeles radio stations. The increase in our advertising revenue in Dallas was partially due to the acceptance by advertisers of our newly formatted stations in Dallas.

Net revenues for our television segment increased by $0.8 million, or 2.8%, to $28.5 million for the six months ended June 30, 2007, from $27.7 million for the same period in 2006. This increase was attributable to increased advertising revenue in our Texas markets. We believe television revenues have increased as a result of wider acceptance by viewers and by advertisers of our innovative programming strategy.

Total operating expenses. Total operating expenses increased by $1.1 million, or 3.5%, to $33.0 million for the six months ended June 30, 2007 from $31.9 million for the same period in 2006. This increase was primarily attributable to:

(1) a $3.2 million increase in selling, general and administrative expenses due to higher salaries, commissions and other selling expenses, attributable to increased staffing associated with our growth in net revenues, expenses related to our newly acquired Dallas radio stations and a $0.8 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”);

(2) a $2.0 million increase in programming expenses primarily related to additional production of in-house television programs; and

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(3) a $1.3 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties

The increases in operating expenses were partially offset by:

(1) a $4.1 million decrease in deferred compensation expense because the amounts that were ultimately paid to two employees in the first quarter of 2007 and in August 2007 were less than the amounts that had been accrued at December 31, 2006; and

(2) a $1.6 million decrease in impairment charges for a certain broadcast license that was recorded in the second quarter of 2006.

Of the above increases in operating expenses, approximately $3.2 million of the increase included expenses primarily attributable to our newly acquired Dallas stations, which we began operating in November 2006.

Total operating expenses for our radio segment decreased by $0.1 million, or 0.7%, to $12.0 million for the six months ended June 30, 2007, from $12.1 million for the same period in 2006. This decrease was primarily the result of a $4.1 million decrease in deferred compensation expense because the amounts that were ultimately paid to two employees in 2007 were less than the amounts that had been accrued at December 31, 2006. The decrease was partially offset by:

(1) a $1.8 million increase in selling, general and administrative expenses, due primarily to increased salaries, including new personnel and start up costs in connection with our new Dallas stations;

(2) a $1.0 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties; and

(3) a $0.9 million increase in programming expenses primarily attributable to the reformatting and programming of our new Dallas stations.

Of the above increases in operating expenses, approximately $3.2 million of the increase included expenses primarily attributable to our new Dallas stations, the assets of which were acquired in November 2006.

Total operating expenses for our television segment increased by $1.2 million, or 6.1%, to $21.0 million for the six months ended June 30, 2007, from $19.8 million for the same period in 2006. This increase was primarily due to:

(1) a $1.4 million increase in selling, general and administrative expenses related to higher sales salaries and commissions associated with our revenue growth and a $0.8 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”);

(2) a $1.1 million increase in programming expenses related to the additional production of in-house programming; and

(3) a $0.2 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties.

Interest expense, net. Interest expense, net, increased by $1.2 million, or 7.7%, to $16.4 million for the six months ended June 30, 2007, from $15.2 million for the corresponding period in 2006. Interest expense increased primarily due to (1) increased borrowings under LBI Media’s senior revolving credit facilities relating to the acquisition of the selected assets of our Dallas radio stations and (2) additional accretion on our senior discount notes issued in October 2003.

Provision for income taxes. Our provision for income taxes increased by $49.1 million, to $49.3 million for the six months ended June 30, 2007, from $0.2 million for the corresponding period in 2006. As described above under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”, certain investors purchased shares of our parent’s Class A common stock. As a result, our parent no longer qualifies as an “S corporation” and we and our subsidiaries are no longer qualified as “qualified subchapter S corporations.” Accordingly, we recorded a one-time non-cash charge of $46.9 million to adjust our deferred tax accounts in the first quarter of 2007.

Net income (loss). We recognized net loss of $41.1 million for the six months ended June 30, 2007, as compared to net income of $4.2 million for the same period of 2006, a decrease of $45.3 million. This change was primarily attributable to the one-time non-cash charge of $46.9 million to our deferred tax accounts.

Adjusted EBITDA. Adjusted EBITDA increased by $4.7 million, or 19.1%, to $29.2 million for the six months ended June 30, 2007 as compared to $24.5 million for the same period in 2006 primarily as a result of increased revenues from our radio stations and charges to deferred compensation expense because the amount ultimately paid to employees in 2007 was less than the amount that was accrued at December 31, 2006. See “—Non-GAAP Financial Measures.”

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Adjusted EBITDA for our radio segment increased by $6.5 million, or 50.0%, to $19.4 million for the six months ended June 30, 2007 as compared to $12.9 million for the same period in 2006. The increase was primarily the result of increased advertising revenue in our Los Angeles and Dallas markets and charges to deferred compensation expense as discussed above.

Adjusted EBITDA for our television segment decreased by $1.8 million, or 15.4% to $9.8 million for the six months ended June 30, 2007, from $11.6 million for the same period in 2006. This decrease was primarily the result of increased programming expense, partially offset by an overall increase in net revenues in our television segment.

Liquidity and Capital Resources

LBI Media’s Senior Credit Facilities. Our primary sources of liquidity are cash provided by operations and available borrowings under our subsidiary’s, LBI Media’s, $150.0 million senior revolving credit facility. On May 8, 2006, LBI Media refinanced its prior $220.0 million senior revolving credit facility with a $150.0 million senior revolving credit facility and a $110.0 million senior term loan facility. LBI Media has, however, the option to request its lenders to increase the aggregate amount of its senior credit facilities by $50.0 million to $310.0 million (but, LBI Media’s lenders are not obligated to so increase the amount of its senior credit facilities). Under the senior revolving credit facility, LBI Media has a swing line sub-facility equal to an amount of not more than $5.0 million. Letters of credit are also available to LBI Media under the senior revolving credit facility and may not exceed the lesser of $5.0 million or the available revolving commitment amount. There are no scheduled reductions of commitments under the senior revolving credit facility. Under the senior term loan facility, LBI Media must pay 0.25% of the original principal amount of the term loans each quarter, or $275,000, plus 0.25% of any additional principal amount incurred in the future under the senior term loan facility. The senior credit facilities mature on March 31, 2012.

As of June 30, 2007, LBI Media had $53.5 million aggregate principal amount outstanding under the senior revolving credit facility and $108.6 million aggregate principal amount of outstanding senior term loans. Since June 30, 2007, LBI Media has repaid, net of borrowings, approximately $53.5 million under its senior revolving credit facility primarily with the net proceeds received from the issuance of its 8 ¹/2% senior subordinated notes on July 23, 2007.

Borrowings under the senior credit facilities bear interest based on either, at LBI Media’s option, the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin stipulated in the senior credit agreements. The base rate is the higher of (i) Credit Suisse’s prime rate and (ii) the Federal Funds Effective Rate (as published by the Federal Reserve Bank of New York) plus 0.50%. The applicable margin for revolving loans, which is based on LBI Media’s total leverage ratio, will range from 0% to 1.00% per annum for base rate loans and from 1.00% to 2.00% per annum for LIBOR loans. The applicable margin for term loans is 0.50% for base rate loans and 1.50% for LIBOR loans. The applicable margin for any future term loans will be agreed upon at the time those term loans are incurred. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable either monthly, bimonthly or quarterly depending on the interest period elected by LBI Media. All amounts that are not paid when due under either the senior revolving credit facility or the senior term loan facility will accrue interest at the rate otherwise applicable plus 2.00% until such amounts are paid in full. In addition, LBI Media pays a quarterly unused commitment fee ranging from 0.25% to 0.50% depending on the level of facility usage. At June 30, 2007, borrowings under the senior credit facilities bore interest at rates between 6.57% and 6.82%, including the applicable margin.

Under the indentures governing LBI Media’s 8 ¹/2% senior subordinated notes, our senior discount notes (described below), and previously, LBI Media’s 10 ¹/8% senior subordinated notes, LBI Media is limited in its ability to borrow under the senior revolving credit facility and to borrow additional amounts under the senior term loan facility. In addition to the $110.0 million that has already been borrowed under the senior term loan facility, LBI Media may borrow up to $150.0 million under the senior credit facilities (subject to certain reductions under certain circumstances) without having to comply with specified leverage ratios under the indentures governing its 8 ¹/2% senior subordinated notes and our senior discount notes, but any amount over such $150.0 million that LBI Media may borrow under the senior credit facilities (subject to certain reductions under certain circumstances) will be subject to LBI Media’s and our compliance with specified leverage ratios (as defined in the indentures governing LBI Media’s 8 ¹/ 2% senior subordinated notes and our senior discount notes). Also, the indenture governing LBI Media’s 8 ¹/ 2% senior subordinated notes prohibits borrowings under LBI Media’s senior credit facilities, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes earlier than one year prior to their stated maturity.

LBI Media’s senior credit facilities contain customary restrictive covenants that, among other things, limit its ability to incur additional indebtedness and liens in connection therewith and pay dividends. Under the senior revolving credit facility, LBI Media must also maintain a maximum senior secured leverage ratio (as defined in the senior credit agreement).

LBI Media’s 10 ¹/8% Senior Subordinated Notes. In July 2002, LBI Media issued $150.0 million of 10 ¹ /8% senior subordinated notes that mature in 2012. Under the terms of LBI Media’s 10 ¹/8% senior subordinated notes, it paid semi-annual interest payments of

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approximately $7.6 million each January 15 and July 15. The indenture governing its 10 ¹/8% senior subordinated notes contained certain restrictive covenants that, among other things, limited its ability to incur additional indebtedness and pay dividends. As of June 30, 2007, LBI Media was in compliance with these covenants. On July 23, 2007, LBI Media deposited amounts in trust to redeem all of its outstanding 10 ¹/8% senior subordinated notes at a redemption price of 105.0625% of the outstanding principal amount, plus accrued and unpaid interest to August 22, 2007, the redemption date, for approximately $159.2 million. As a result, the indenture relating to the 10 ¹/8% senior subordinated notes has been discharged and is no longer in effect as to the 10 ¹/8% senior subordinated notes issued thereunder.

LBI Media’s 8 ¹/2% Senior Subordinated Notes. On July 23, 2007, LBI Media issued approximately $228.8 million aggregate principal amount of 8 ¹/2% Senior Subordinated Notes that mature in 2017, resulting in gross proceeds of approximately $225.0 million and net proceeds of approximately $221.6 million after certain transaction costs. Under the terms of LBI Media’s 8 ¹/2% senior subordinated notes, it must pay semi-annual interest payments of approximately $9.7 million each February 1 and August 1, commencing February 1, 2008. LBI Media may redeem the 8 ¹/2% senior subordinated notes at any time on or after August 1, 2012 at redemption prices specified in the indenture governing its 8 ¹/2% senior subordinated notes, plus accrued and unpaid interest. At any time prior to August 1, 2012, LBI Media may redeem some or all of its 8 ¹/2% senior subordinated notes at a redemption price equal to a “make whole” amount as set forth in the indenture governing the senior subordinated notes. Also, LBI Media may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of certain equity offerings completed on or prior to August 1, 2010 at a redemption price of 108.5% of the principal amount of the notes, plus accrued and unpaid interest, if any, thereon to the applicable redemption date.

The indenture governing these notes contains restrictive covenants that limit, among other things, LBI Media’s and its subsidiaries’ ability to incur additional indebtedness, issue certain kinds of equity, and make particular kinds of investments. The indenture governing LBI Media’s 8 ¹/2% senior subordinated notes also prohibits the incurrence of certain indebtedness, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes earlier than one year prior to the stated maturity of the senior discount notes unless such indebtedness is (i) unsecured, and (ii) pari passu or junior in right of payment to any outstanding subordinated indebtedness of LBI Media, and (iii) otherwise permitted to be incurred under the indenture governing LBI Media’s 8 ¹/2% senior subordinated notes.

Senior Discount Notes. In October 2003, we issued $68.4 million aggregate principal amount at maturity of senior discount notes that mature in 2013. Under the terms of the senior discount notes, cash interest will not accrue or be payable on the senior discount notes prior to October 15, 2008 and instead the accreted value of the senior discount notes will increase until such date. Thereafter, cash interest on the senior discount notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that we may make a cash interest election on any interest payment date prior to October 15, 2008. If we make a cash interest election, the principal amount of the senior discount notes at maturity will be reduced to the accreted value of the senior discount notes as of the date of the cash interest election and cash interest will begin to accrue at a rate of 11% per year from the date we makes such election. We may redeem the senior discount notes at any time on or after October 15, 2008 at redemption prices specified in the indenture governing our senior discount notes, plus accrued and unpaid interest.

The indenture governing the senior discount notes contains certain restrictive covenants that, among other things, limit our ability to incur additional indebtedness and pay dividends to our parent, Liberman Broadcasting. Our senior discount notes are structurally subordinated to LBI Media’s senior credit facilities and senior subordinated notes.

Empire Burbank Studios’ Mortgage Note. On July 1, 2004, one of our indirect, wholly owned subsidiaries, Empire Burbank Studios LLC (successor in interest to Empire Burbank Studios, Inc.), issued an installment note for approximately $2.6 million. The loan is secured by Empire’s real property and bears interest at 5.52% per annum. The loan is payable in monthly principal and interest payments of approximately $21,000 through maturity in July 2019.

Summary of Indebtedness. The following table summarizes our various levels of indebtedness at June 30, 2007. As described below, the debt of our parent, Liberman Broadcasting’s 9% subordinated notes, was paid in full on March 30, 2007.

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Issuer	Form of Debt	Principal Amount Outstanding	Scheduled Maturity Date	Interest rate
LBI Media, Inc.	$150.0 million senior secured revolving credit facility	$53.5 million(1)	March 31, 2012	LIBOR or base rate, plus an applicable margin dependent on LBI Media’s leverage ratio
LBI Media, Inc.	$110.0 million senior secured term loan credit facility	$108.6 million	March 31, 2012	LIBOR plus 1.50% per annum, or base rate plus 0.50% per annum
LBI Media, Inc.	Senior subordinated notes	$150.0 million(2)	July 15, 2012	10.125%
LBI Media Holdings Inc.	Senior discount notes	$59.6 million	October 15, 2013	11%
Empire Burbank Studios LLC	Mortgage note	$2.3 million	July 1, 2019	5.52%

⁽¹⁾ LBI Media has repaid, net of borrowings, approximately $53.5 million under its senior secured revolving credit facility since June 30, 2007. This repayment was primarily from the net proceeds of the sale of approximately $228.8 million 8 ¹/2% senior subordinated notes that mature in 2017. See Note (2) below.

⁽²⁾ On July 23, 2007, LBI Media issued approximately $228.8 million 8 ¹/2% senior subordinated notes due 2017. The 8 ¹/2% senior subordinated notes mature on August 1, 2017. On July 23, 2007, LBI Media also elected to redeem all of the outstanding 10.125% senior subordinated notes for approximately $159.2 million. The redemption date is August 22, 2007.

Liberman Broadcasting’s 9% Subordinated Notes. In March 2001, our parent, Liberman Broadcasting, issued $30.0 million principal amount of 9% subordinated notes and issued warrants. The 9% subordinated notes were subordinate in right of payment to LBI Media’s senior credit facilities and senior subordinated notes and were structurally subordinated to our senior discount notes. Interest was not payable until maturity. In connection with these 9% subordinated notes, Liberman Broadcasting also issued warrants to purchase 14.02 shares of its common stock at an initial exercise price of $0.01 per share.

As described above under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”, on March 30, 2007, our parent sold shares of its Class A common stock to certain investors. The net proceeds from the sale of Liberman Broadcasting’s Class A common stock by Liberman Broadcasting were used in part to repay its 9% subordinated notes (including accrued interest) and to redeem the related warrants.

Cash Flows. Cash and cash equivalents were $0.3 million and $1.5 million at June 30, 2007 and December 31, 2006 respectively. Our cash balance at June 30, 2007 was lower as a result primarily of LBI Media’s repayments on its long term debt.

Net cash flow provided by operating activities was $5.6 million and $8.8 million for the six months ended June 30, 2007 and June 30, 2006, respectively. The decrease in our net cash flow provided by operating activities was primarily the result of a deferred compensation payment of approximately $1.3 million in March 2007 and decreases in our accounts payable.

Net cash flow used in investing activities was $9.6 million and $7.8 million for the six months ended June 30, 2007 and 2006, respectively. Capital expenditures were $8.5 million for the six months ended June 30, 2007 compared to $7.7 million in the same period in 2006. During the second quarter of 2007, capital expenditures for property and equipment were primarily related to the construction of new towers and transmitter sites for our Dallas-Fort Worth and Houston, Texas radio stations and the addition of studio equipment for our Los Angeles television station.

Net cash flow provided by financing activities was $2.7 million for the six months ended June 30, 2007 and net cash flow used in financing activities was $2.5 million for the six months ended June 30, 2006. The net cash flow provided by financing activities for the six months ended June 30, 2007 reflects a capital contribution (net of distributions) from our parent of $46.0 million, and, in turn, from us to LBI Media, and borrowings under LBI Media’s senior revolving credit facility, partially offset by LBI Media’s repayment of $57.9 million under LBI Media’s senior revolving credit facility. See “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”.

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Contractual obligations. We had no material changes in commitments for long-term debt obligations or operating lease obligations as of June 30, 2007, as compared to those disclosed in our table of contractual obligations included in our Annual Report on Form 10-K for the year ended December 31, 2006 On July 23, 2007, LBI Media (i) issued approximately $228.8 million of 8.5% Senior Subordinated Notes that mature in 2017, resulting in gross proceeds of approximately $225.0 million and (ii) deposited amounts into trust to redeem all of its 10 ¹/8% senior subordinated notes that mature in 2012 on August 22, 2007. We anticipate that funds generated from operations and funds available under LBI Media’s senior revolving credit facility will be sufficient to meet our working capital and capital expenditure needs in the foreseeable future.

Expected Use of Cash Flows. For both our radio and television segments, we have historically funded, and will continue to fund, expenditures for operations, selling, general and administrative expenses, capital expenditures and debt service from our operating cash flow and borrowings under LBI Media’s senior revolving credit facility. For our television segment, our planned uses of liquidity during the next twelve months will include the addition of production equipment for our Texas and Los Angeles television stations at an estimated cost of $3.0 million. For our radio segment, our planned uses of liquidity will include upgrading several of our radio stations and towers located in the Houston market, which we expect will cost approximately $1.0 million over the next twelve months. In connection with the purchase of the new radio stations from Entravision Communications Corporation, Liberman Broadcasting of Dallas, Inc. (predecessor in interest to Liberman Broadcasting of Dallas LLC), our wholly owned subsidiary also purchased a building in Dallas, Texas to accommodate our growth in stations owned and operated in the Dallas-Fort Worth market. We estimate we will spend approximately $3.0 million on improvements and equipment for our new Dallas building. We also made a payment in August 2007 of approximately $3.0 for deferred compensation under one of our employment agreements, for which we have accrued $3.0 million in deferred compensation liability as of June 30, 2007. We expect to use cash to fund the purchase price for the acquisition of KPNZ-TV and KWIE-FM.

We have used, and expect to continue to use, a significant portion of our capital resources to fund acquisitions. Future acquisitions will be funded from amounts available under LBI Media’s senior revolving credit facility, contributions from our parent, the proceeds of future equity or debt offerings and our internally generated cash flows. However, our ability to pursue future acquisitions may be impaired if we or our parent is unable to obtain funding from other capital sources. As a result, we may not be able to increase our revenues at the same rate as we have in recent years. We believe that our cash on hand, cash provided by operating activities and borrowings under LBI Media’s senior revolving credit facility will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months.

Seasonality

Seasonal net revenue fluctuations are common in the television and radio broadcasting industry and result primarily from fluctuations in advertising expenditures by local and national advertisers. Our first fiscal quarter generally produces the lowest net revenue for the year.

Non-GAAP Financial Measures

We use the term “Adjusted EBITDA” throughout this report. Adjusted EBITDA consists of net income (loss) plus income tax expense (benefit), gain (loss) on sale of property and equipment, gain on sale of investment, net interest expense, interest rate swap expense, depreciation and amortization, and impairment of broadcast licenses.

This term, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles, or GAAP.

In determining our Adjusted EBITDA in past years, we treated deferred compensation expense (benefit) as a noncash item, because we had the option and the intention to pay such amounts in the common stock of our parent after our parent’s initial public offering. Our first payment became due in 2006 and we have made additional payments in 2007. We have determined that we can no longer meet the conditions necessary to pay the deferred compensation in stock. Accordingly, we have settled our deferred compensation amounts in cash and expect to make the remaining 2007 payment in cash. We have presented prior periods’ Adjusted EBITDA to conform to this current treatment. As a result, Adjusted EBITDA for prior periods may appear as a different amount from what we have reported in prior periods.

Management considers this measure an important indicator of our liquidity relating to our operations, as it eliminates the effects of noncash items. Management believes liquidity is an important measure for our company because it reflects our ability to

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meet our interest payments under our substantial indebtedness and is a measure of the amount of cash available to grow our company through our acquisition strategy. This measure should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with GAAP, such as cash flows from operating activities, operating income and net income.

We believe Adjusted EBITDA is useful to an investor in evaluating our liquidity and cash flow because:

• it is widely used in the broadcasting industry to measure a company’s liquidity and cash flow without regard to items such as depreciation and amortization and impairment of broadcast licenses. The broadcast industry uses liquidity to determine whether a company will be able to cover its capital expenditures and whether a company will be able to acquire additional assets and broadcast licenses if the company has an acquisition strategy. We believe that, by eliminating the effect of noncash items, Adjusted EBITDA provides a meaningful measure of liquidity.

• it gives investors another measure to evaluate and compare the results of our operations from period to period by removing the impact of noncash expense items, such as depreciation and amortization and impairment of broadcast licenses. By removing the noncash items, it allows our investors to better determine whether we will be able to meet our debt obligations as they become due; and

• it provides a liquidity measure before the impact of a company’s capital structure by removing net interest expense items.

Our management uses Adjusted EBITDA:

• as a measure to assist us in planning our acquisition strategy;

• in presentations to our board of directors to enable them to have the same consistent measurement basis of liquidity and cash flow used by management;

• as a measure for determining our operating budget and our ability to fund working capital; and

• as a measure for planning and forecasting capital expenditures.

The Securities and Exchange Commission, or SEC, has adopted rules regulating the use of non-GAAP financial measures, such as Adjusted EBITDA, in filings with the SEC and in disclosures and press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP. We have included a presentation of net cash provided by operating activities and a reconciliation to Adjusted EBITDA on a consolidated basis under “—Results of Operations”.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowance for doubtful accounts, acquisitions of radio and television station assets, intangible assets, deferred compensation and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.

Acquisitions of radio and television station assets

Our radio and television station acquisitions have consisted primarily of Federal Communications Commission, or FCC, licenses to broadcast in a particular market (broadcast licenses). We generally acquire the existing format and change it upon acquisition. As a result, a substantial portion of the purchase price for the assets of a radio or television station is allocated to its broadcast license. The allocations assigned to acquired broadcast licenses and other assets are subjective by their nature and require our careful consideration and judgment. We believe the allocations represent appropriate estimates of the fair value of the assets acquired.

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Allowance for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables including our history of write-offs, relationships with our customers and the current creditworthiness of each advertiser. Our historical estimates have been a reliable method to estimate future allowances, with historical reserves averaging approximately 11% of our outstanding receivables. If the financial condition of our advertisers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The effect of an increase in our allowance of 3% of our outstanding receivables as of June 30, 2007, from 9.7% to 12.7% or $1.9 million to $2.5 million, would result in a decrease in pre-tax income of $0.6 million for the three months and six months ended June 30, 2007.

Intangible assets

We account for our broadcast licenses in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). We believe our broadcast licenses have indefinite useful lives given they are expected to indefinitely contribute to our future cash flows and that they may be continually renewed without substantial cost to us. As such, in accordance with SFAS 142, we review our broadcast licenses for impairment annually during the third quarter of each fiscal year, with additional evaluations performed if potential impairment indicators are noted.

We completed our annual impairment review of our broadcast licenses in the third quarter of 2005 and conducted an additional review of the fair value of some of our broadcast licenses in the second quarter of 2006. For purposes of our impairment testing, the unit of accounting is each individual FCC license or, in situations where there are multiple stations in a particular market that broadcast the same programming (that is, simulcast), it is the cluster of stations broadcasting the programming. We determined the fair value of each of our broadcast licenses by assuming that entry into the particular market took place as of the valuation date and considered the signal coverage of the related station as well as the projected advertising revenues for the particular market(s) in which each station operates. In 2006, we adjusted the projected total advertising revenues to be generated in certain of these markets downward due to a general slowdown in broadcast revenues in those markets, which was partially explained by greater competition for revenues from non-traditional media. We determined the fair value of each broadcast license primarily from projected total advertising revenues for a given market and did not take into consideration our format or management capabilities. As a result, the downward adjustment in projected revenues resulted in a decrease in the fair value of certain of our broadcast licenses. Our revenues are generated predominantly from local and regional advertisers and we believe the decrease in advertising in those markets will come primarily from national advertisers to general market (non-Hispanic) radio and television stations. We had no impairment write-down for the six months ended June 30, 2007 and an impairment write-down of $1.6 million for the six months ended June 30, 2006.

In assessing the recoverability of goodwill and indefinite life intangible assets, we must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets. Assumptions about future revenue and cash flows require significant judgment because of the current state of the economy and the fluctuation of actual revenue and the timing of expenses. We develop future revenue estimates based on projected ratings increases, planned timing of signal strength upgrades, planned timing of promotional events, customer commitments and available advertising time. Estimates of future cash flows assume that expenses will grow at rates consistent with historical rates. Alternatively, some stations under evaluation have had limited relevant cash flow history due to planned conversion of format or upgrade of station signal. The assumptions about cash flows after conversion reflect estimates of how these stations are expected to perform based on similar stations and markets and possible proceeds from the sale of the assets. If the expected cash flows are not realized, impairment losses may be recorded in the future. If we experienced a 10% decrease in the fair value of each of our broadcast licenses from that determined at September 30, 2006 (the most recent date a fair value determination was performed for each broadcast license), we would require an additional impairment write-down of approximately $5.5 million.

Deferred compensation

One of our indirect, wholly owned subsidiaries and our parent, Liberman Broadcasting, have entered into employment agreements with certain employees. In addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the “net value” of Liberman Broadcasting over certain base amounts.

Our deferred compensation liability can increase based on changes in the applicable employee’s vesting percentage and can increase or decrease based on changes in the “net value” of Liberman Broadcasting. We have two deferred compensation components that comprise the employee’s vesting percentage: (i) a component that vests in varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures (each unique to the individual agreements). We account for the time vesting component over the vesting periods specified in the employment agreements and account for the performance based component when we consider it probable that the performance measures will be attained.

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As part of the calculation of the deferred compensation liability, we use the income and market valuation approaches to determine the “net value” of Liberman Broadcasting. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. Based on the “net value” of Liberman Broadcasting as determined in these analyses, and based on the percentage of incentive compensation that has vested (as specified in the employment agreements), we record deferred compensation expense or benefit (and a corresponding credit or charge to deferred compensation liability). As such, estimation of the “net value” of Liberman Broadcasting requires considerable management judgment and the amounts recorded as periodic deferred compensation expense or benefit are dependent on that judgment.

The deferred compensation amounts earned under our employment agreement with a December 31, 2005 “net value” determination date and one of our employment agreements with a December 31, 2006 “net value” determination date were paid in cash during 2006 and the first quarter of 2007, respectively, and in August 2007, we made a payment of approximately $3.0 million under an employment agreement with “net value” determination date as of December 31, 2006. Because the amount paid in August 2007 was less than the amount accrued at December 31, 2006, deferred compensation expense decreased. We have one other employment agreement with a “net value” determination date of December 31, 2009.

If we assumed no change in the “net value” of Liberman Broadcasting from that at June 30, 2007, we would not expect to record any deferred compensation expense during 2007 relating solely to the time vesting portion of the deferred compensation. The agreements require us to pay the deferred compensation amounts in cash until Liberman Broadcasting’s common stock becomes publicly traded, at which time we may pay these amounts in cash or Liberman Broadcasting’s common stock, at our option.

Commitments and contingencies

We periodically record the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called “contingencies,” and our accounting for such events is prescribed by SFAS No. 5, “Accounting for Contingencies.”

The accrual of a contingency involves considerable judgment on the part of our management. We use our internal expertise, and outside experts (such as lawyers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. We currently do not have any material contingencies that we believe require loss accruals; however, we refer you to Note 6 of our condensed consolidated financial statements for discussion of other known contingencies.

Recent Accounting Pronouncement

Statement of Financial Accounting Standards No. 159—“The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115”. Issued in February 2007, Statement of Financial Accounting Standards No. 159, or SFAS 159, is effective for fiscal years beginning after November 15, 2007. SFAS 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. We are currently evaluating what impact, if any, the adoption of SFAS 159 will have on our financial position, results of operations and cash flows.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995 (the “Act”). You can identify these statements by the use of words like “may,” “will,” “could,” “continue,” “expect” and variations of these words or comparable words. Actual results could differ substantially from the results that the forward-looking statements suggest for various reasons. The risks and uncertainties include but are not limited to:

• our dependence on advertising revenues;

• general economic conditions in the United States;

• our ability to reduce costs without adversely impacting revenues;

• changes in the rules and regulations of the Federal Communications Commission, or FCC;

• our ability to attract, motivate and retain salespeople and other key personnel;

• our ability to successfully convert acquired radio and television stations to a Spanish-language format;

• our ability to maintain FCC licenses for our radio and television stations;

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• successful integration of acquired radio and television stations;

• potential disruption from natural hazards;

• our ability to protect our intellectual property rights;

• strong competition in the radio and television broadcasting industries;

• sufficient cash to meet our debt service obligations; and

• our ability to obtain regulatory approval for future acquisitions.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. The forward-looking statements in this Quarterly Report, as well as subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are hereby expressly qualified in their entirety by the cautionary statements in this Quarterly Report, the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2006 and other documents that we file from time to time with the Securities and Exchange Commission, particularly any Current Reports on Form 8-K. We are not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates and changes in general economic conditions. Please see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk”, contained in our Annual Report on Form 10-K for the year ended December 31, 2006 for further discussion on quantitative and qualitative disclosures about market risk.

Item 4. Controls and Procedures

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2007. Based on the foregoing, our President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On July 13, 2007, one of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC, or LBI, entered into a settlement agreement with class action representatives to settle, subject to court approval, a previously disclosed class action lawsuit related to LBI’s classification of certain employees under California overtime laws and a recently filed class action lawsuit alleging, among other things, violations of California labor laws with respect to providing meal and rest breaks to LBI’s current and former employees.

In June 2005, eight former employees of LBI filed suit in Los Angeles County Superior Court alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, wage and hour violations relating to overtime pay, and wrongful termination and unfair competition under the California Business and Professions Code. Plaintiffs sought to recover, among other relief, unspecified general, treble and punitive damages, as well as profit disgorgement, restitution and their attorneys’ fees. In June 2007, two former employees of LBI filed another suit in Los Angeles County Superior Court, alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, violations of California labor laws with respect to providing meal and rest breaks. Plaintiffs sought, among other relief, unspecified liquidated and general damages, declaratory, equitable and injunctive relief, and attorneys fees.

While LBI denies the allegations in both lawsuits, it has agreed to the proposed settlement of both actions to avoid significant legal fees, other expenses and management time that would have to be devoted to the two litigation matters. The settlement, which is subject to final documentation and court approval, provides for a maximum settlement payment of $825,000 (including attorneys’ fees and costs and administrative fees). In the first quarter of 2007, we recorded a $350,000 reserve related to the complaint filed in June 2005. In the second quarter of 2007, we recorded an additional $475,000 in connection with the settlement agreement.

In consideration of the settlement payment, the plaintiffs in both cases agreed, upon final court approval, to dismiss the two class actions with prejudice and to release all known and unknown claims arising out of or relating to such claims. The parties have agreed to cooperate to obtain the court’s approval of the settlement. The settlement will become effective and binding only if approved by the court.

We are subject to pending litigation arising in the normal course of its business. While it is not possible to predict the results of such litigation, we do not believe the ultimate outcome of these matters will have a materially adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

In addition to the other information in this report, you should carefully consider the factor below, which could materially affect our business, financial condition or future results. The risks described in this report and our Annual Report on Form 10-K for the year ended December 31, 2006 are not the only risks facing our company.

Some of our future actions may require the consent of minority stockholders of our parent.

In connection with the sale of Liberman Broadcasting’s Class A common stock, our parent, Liberman Broadcasting, and stockholders of Liberman Broadcasting entered into an investor rights agreement on March 30, 2007. Pursuant to this investor rights agreement, some of the minority stockholders of Liberman Broadcasting have the right to consent, in their sole discretion, to certain transactions involving us, Liberman Broadcasting, and our subsidiaries, including, among other things, certain acquisitions or dispositions of assets by us, our parent, or our subsidiaries. As a result, we may not be able to complete certain desired transactions if we are unable to obtain the consent of the required stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits

Exhibit Number	Exhibit Description
3.1	Restated Certificate of Incorporation of LBI Media Holdings, Inc.(1)
3.2	Amended and Restated Bylaws of LBI Media Holdings, Inc. (1)
4.1	Indenture, dated as of October 10, 2002, by and between LBI Media Holdings, Inc. and U.S. Bank National Association, as Trustee (2)
4.2	Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)
10.1	Asset Purchase Agreement, dated as of May 15, 2007, by and between KRCA Television LLC and KRCA License LLC, as buyers, and Utah Communications, LLC, as seller*
31.1	Certification of President pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934*

* Filed herewith.

(1) Incorporated by reference to LBI Media Holdings, Inc.’s Quarterly Report on Form 10-Q filed on May 17, 2007.

(2) Incorporated by reference to LBI Media Holdings, Inc.’s Registration Statement on Form S-4 (Registration No. 333-110122) filed on October 30, 2003, as amended.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LBI MEDIA HOLDINGS, INC.
By:	/s/ Lenard D. Liberman
	Lenard D. Liberman Executive Vice President, Chief Financial Officer and Secretary

Date: August 14, 2007

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EX-10.1

Exhibit 10.1

Execution Version

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”) is dated May 15, 2007, by and between KRCA TELEVISION LLC, a California limited liability company (“KTL”), and KRCA LICENSE LLC, a California limited liability company (“License Sub” and together with KTL, “Buyer”), and UTAH COMMUNICATIONS, LLC, a California limited liability company (“Seller”). Seller and Buyer are sometimes referred to herein as the “Parties” and each as a “Party.”

R E C I T A L S:

A. Seller is the licensee of and owns and operates certain assets used in connection with the business and operations of television station KPNZ(TV), Ogden, Utah (the “Station”).

B. Seller owns, leases, or otherwise has the right to use and operate the Assets (as defined herein) used in the operation of the Station.

C. Seller desires to convey, and Buyer wishes to acquire, all of the Assets on the terms and conditions hereinafter set forth.

A G R E E M E N T S:

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:

Section 1: DEFINITIONS

1.1 Terms Defined in this Section. The following terms, as used in this Agreement, have the meanings set forth in this Section:

“Action” means, for any Person, any action, counterclaim, suit, litigation, arbitration, governmental investigation or other legal, administrative or Tax proceeding, or Judgment, claim, or complaint by or against such Person, excluding any litigation affecting the television broadcasting industry generally in which such Person is not a named party, and any rule-making proceedings.

“Affiliate” of a Person means any Person, which directly or indirectly controls, is controlled by or is under common control with, such Person. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Ancillary Agreements” means the Escrow Agreement and the Indemnity Agreement.

“Assets” means all real and personal properties, assets, rights, benefits and privileges both tangible and intangible, of every kind, nature and description, of Seller used or useful by Seller in the operation of the Station (other than the Excluded Assets), including the following assets existing on the date of this Agreement and all such assets acquired between the date hereof and the Closing as permitted by and subject to the terms of this Agreement (in each case other than such assets that constitute Excluded Assets): (i) the Real Property, (ii) Equipment, (iii) FCC Licenses, any other Licenses and any pending applications for new Licenses, (iv) Assumed Contracts and all of Seller’s rights thereunder relating to periods and events occurring on and after the Closing Date, (v) Intellectual Property and Technology, (vi) Books and Records, (vii) all of Seller’s construction permits and applications for UHF translators set forth on Schedule 3.7 except as set forth thereon, (viii) all prepaid rentals, security deposits and other prepaid expenses and receivables and any other current assets arising in connection with the Business with respect to which Seller received the benefit of an adjustment to the Purchase Price in accordance with Section 2.3 hereof, (ix) any rights, claims or causes of action of Seller against third parties in connection with or relating to the Business other than those relating to Excluded Assets or Non-Assumed Liabilities, (x) all rights and claims relating to any other Assets or any Assumed Liability, including all guarantees, warranties, indemnities and similar rights in favor of Seller in respect of any Assumed Liability, (xi) all other assets or properties not referenced above that are reflected on the Financial Statements or acquired by Seller in the ordinary course of business after March 31, 2007, other than Excluded Assets, (xii) all of Seller’s goodwill in, and going concern value of, the Station and (xiii) all other assets of Seller used or useful by Seller in connection with the Business.

“Assignment Application” means the application filed jointly by Seller and Buyer with the FCC relating to the assignment of the FCC Licenses by Seller to License Sub in the manner contemplated by this Agreement.

“Assumed Contracts” means (i) the Contracts listed on Schedule 3.8, (ii) any other Contracts in effect on the date hereof that Buyer specifically agrees in writing to assume, and (iii) any Contracts entered into by Seller in the ordinary course of business between the date hereof and the Closing Date that Buyer specifically agrees in writing to assume.

“Books and Records” means all of the written and electronic books and records of Seller related to the Business (other than any included in the Excluded Assets).

“Business” means the business and operations of Seller relating to the Station.

“Business Day” means any day of the year on which banks are not required or authorized to be closed in the State of California.

“Closing” means the consummation of transactions contemplated by this Agreement, including the assignment, transfer, conveyance and delivery of the Assets and the Purchase Price as contemplated hereunder.

“Closing Date” means the date of Closing, which shall occur on a date to be mutually agreed to by Buyer and Seller which shall not be later than five (5) Business Days after the satisfaction or waiver of all of the conditions set forth in Sections 7.3, 8.3 and 8.4 herein.

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“Closing Place” means the offices of Seller’s counsel in Washington, D.C., or such other location agreed upon by the Parties.

“Code” means the Internal Revenue Code of 1986, as amended.

“Compensation Arrangement” means any plan or compensation arrangement other than an Employee Plan, whether written or unwritten, which provides to Employees, former Employees, officers, directors or shareholders of Seller or any ERISA Affiliate, any compensation or other benefits, whether deferred or not, in excess of base salary, sales commissions or wages (excluding overtime pay), including any bonus or incentive plan, stock rights plan, deferred compensation arrangement, life insurance, stock purchase plan, severance pay plan, employment or consulting agreement and any other employee fringe benefit plan.

“Consents” means the consents, permits or approvals of Government Authorities and other third parties required by Seller to transfer the Assets to Buyer or otherwise for Seller to consummate the transactions contemplated hereby.

“Contracts” means the leases, contracts, commitments, understandings and agreements relating to the Station to which Seller is a party, whether oral or written.

“Court” means the Superior Court of the County of Los Angeles or the Arbitrator appointed thereby in the JAMS Arbitration between Arthur Kralowec, as Trustee of the Kralowec Children’s Family Trust, derivatively on behalf of Utah Communications, LLC, Plaintiff, and Lawrence Rogow, et al., Defendants (J.A.M.S. Ref. No. 1220030766).

“Employee Plan” means any pension, retirement, profit-sharing, deferred compensation, vacation, severance, bonus, incentive, medical, vision, dental, disability, life insurance or other employee benefit plan as defined in Section 3(3) of ERISA (whether or not subject to ERISA) to which any ERISA Affiliate contributes or has contributed or which either of Seller or any ERISA Affiliate sponsors or maintains (or has sponsored or maintained), or pursuant to which Seller or any ERISA Affiliate has any Liability and which provides benefits to any Employee, director or consultant of Seller.

“Employees” means the persons employed by Seller on a full or part-time basis with respect to the Business.

“Enforceability Exceptions” means the exceptions or limitations to the enforceability of contracts under bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and by the application of general principles of equity.

“Environmental Laws” means the Legal Requirements relating to health, safety or the environment, including the Handling of Hazardous Substances, the presence of Hazardous Substances on any Real Property, or any antipollution requirements.

“Equipment” means the television studio and transmitter site equipment, furniture, fixtures, furnishings, machinery, computer hardware, antennas, transmitters, inventory, office materials and supplies, spare parts and other personal property of Seller used or useful by Seller in the operation of the Station as of March 31, 2007, plus such additions, improvements or

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replacements thereto or deletions therefrom that may occur in the normal course of business between March 31, 2007, and the Closing Date, in accordance with the terms of this Agreement.

“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) a member of a “controlled group of corporations” with or under “common control” with Seller as defined in Section 414(b) or (c) of the Code.

“Escrow Agent” means the Escrow Agent named in the Escrow Agreement, and any successors thereto pursuant to the terms of the Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement being entered into among KTL, Seller and the Escrow Agent on the date hereof.

“Escrow Amount” means the sum of the Escrow Deposit, plus all interest or other earnings thereon.

“Escrow Deposit” means the sum of Five Hundred Thousand Dollars ($500,000) which is being deposited by KTL with the Escrow Agent in immediately available funds on the date hereof to secure the obligations of Buyer to close under this Agreement, with such deposit being held by the Escrow Agent in accordance with the Escrow Agreement.

“Excluded Assets” means (i) all cash and cash equivalents of Seller, (ii) all Receivables, (iii) all refunds or credits (including interest thereon or claims therefrom) of Taxes paid by Seller prior to the Closing Date, (iv) all refunds of premiums paid on, and rights and claims under, insurance policies relating to events occurring prior to the Closing Date (subject to Section 6.12), (v) bonds, letters of credit, surety instruments and other similar items (other than amounts posted by parties to Assumed Contracts as deposits or other security held by Seller, all of which are set forth in Schedule 3.8), (vi) Seller’s company and tax records and the account books of original entry, general ledger and financial records used in connection with the Station (provided that Seller shall provide Buyer with a copy of any such records related to the Business of the Station that Buyer shall reasonably request), (vii) all Employee Plans, Compensation Arrangements, insurance Contracts, programming Contracts, and other Contracts except for those Contracts that are included in the Assumed Contracts (including those Contracts set forth in Schedule 1.1A), (viii) all rights and claims of Seller to the extent relating to any other Excluded Asset, any Non-Assumed Liability or any obligation of Seller to indemnify Buyer, including all guarantees, warranties, indemnities and similar rights in favor of Seller in respect of any other Excluded Asset, any Non-Assumed Liability or any obligation of Seller to indemnify Buyer, (ix) the construction permit for K56IQ, Park City, UT, and (x) such additional assets as are set forth in Schedule 1.1A hereto.

“FCC” means the Federal Communications Commission.

“FCC Consent” means action by the FCC (including action duly taken by the FCC’s staff pursuant to delegated authority) granting its consent to the assignment of the FCC Licenses by Seller to License Sub as contemplated by this Agreement.

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“FCC Licenses” means the licenses, permits or other authorizations, including any applications therefor, issued or granted by the FCC to Seller used or intended to be used in the operation of the Station, including those set forth on Schedule 3.7 and those that may hereafter be obtained in compliance with Schedule 5.1(i).

“Final Order” means the FCC Consent that has not been reversed, stayed, enjoined, set aside, annulled, or suspended, and with respect to which no requests or applications are pending for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such request or application and the time for the FCC to set aside the action on its own motion have expired.

“GAAP” means United States generally accepted accounting principles as currently in effect.

“Governmental Authority” means any court or any federal, state, county, local or foreign governmental, legislative or regulatory body, agency, department, authority, instrumentality or other subdivision thereof, including the FCC.

“Handling” means the production, use, generation, storage, treatment, recycling, disposal, discharge, release or other handling or disposition of any kind of any Hazardous Substances.

“Hazardous Substance” means any pollutant, contaminant, hazardous or toxic substance, material, constituent or waste or any pollutant that is labeled or regulated as such by any Governmental Authority pursuant to an Environmental Law.

“Indemnity Agreement” means the Indemnity Agreement to be executed and delivered at the Closing by KTL, Seller and the Escrow Agent, substantially in the form of Exhibit A.

“Intellectual Property” means all trademarks, trademark applications, patents, patent applications, service marks, service mark applications, trade names, copyrights, copyright applications, licenses, domain names, call letters and other intellectual property rights owned, licensed or otherwise held by Seller and used or useful by Seller in connection with the Station, other than Intellectual Property directly related to the Excluded Assets.

“Judgment” means any judgment, writ, order, injunction, determination, award or decree of or by any court, judge, justice or magistrate, including any bankruptcy court or judge, and any order of or by a Governmental Authority.

“knowledge” or “to the knowledge” of a Party (or similar phrases) means actual knowledge of a fact, or constructive knowledge if a reasonably prudent person in a like position would have known or should have known, the fact; and the “actual knowledge” of a Party means such Party’s actual knowledge of a fact.

“Legal Requirement” means any statute, ordinance, code, law, rule, regulation, permit or permit condition, Judgment, or other requirement, standard, policy or procedure enacted, adopted or applied by any Governmental Authority.

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“Liabilities” means claims, obligations, commitments or liabilities of a Person of any nature, absolute, accrued, contingent or otherwise, known or unknown, whether matured or unmatured, and whether or not required to be disclosed on a balance sheet prepared in accordance with GAAP.

“Licenses” means the licenses, permits, franchises, registrations, authorizations, consents or approvals issued by the FCC or any other Governmental Authority to Seller with respect to the operation of the Station.

“Lien” means any lien, pledge, charge, easement, security interest, mortgage, deed of trust, right-of-way or other encumbrance.

“Material Adverse Effect” means any event, circumstance or condition that, individually or when aggregated with all other similar events, circumstances or conditions, would reasonably be expected to have a material adverse effect on: (i) with respect to Seller, the property, operations, condition (financial or otherwise) or results of operations of the Business or the Station, or the ability of Seller to consummate the transactions contemplated by this Agreement, and (ii) with respect to Buyer, the ability of Buyer to consummate the transactions contemplated by this Agreement; provided, however, that Material Adverse Effect shall not include any effect arising out of or resulting from (w) the transactions contemplated by this Agreement, including the effects of taking any action expressly required, or not taking any action expressly prohibited, by this Agreement, and the effects of programming changes made by Seller prior to Closing as it reduces its programming obligations and any effects of the anticipated changes in Station operations and programming that Buyer plans to make subsequent to Closing (including any departures by Employees prior to Closing), (x) general economic, financial, competitive or market conditions, (y) changes affecting the television broadcasting industry generally, except to the extent the Station or the Assets are affected in a disproportionate manner as compared to other television broadcast companies, or (z) new or changed legislation, rules or regulations imposed or adopted by Governmental Authorities.

“Office Lease” means the Wiley Post Plaza Lease dated January 11, 2001, and amended April 21, 2006, between Wiley Post Plaza LC, successor in interest to Green/Praver et al., and Seller.

“Permitted Liens” means the following: (i) statutory landlord’s liens and liens for current Taxes not yet due and payable (or being contested in good faith); (ii) zoning laws and ordinances and similar land use Legal Requirements; (iii) rights reserved to any Governmental Authority to regulate the affected property; (iv) as to interests in Real Property, any easements, rights-of-way, servitudes, permits, restrictions and minor imperfections or irregularities in title that are reflected in the public records (if and to the extent applicable to a leasehold interest in accordance with the terms thereof) and that do not individually or in the aggregate materially interfere with the right or ability to use, lease or operate the Real Property as presently utilized; and (v) any Liens set forth in Schedule 1.1B.

“Person” means any person or entity, whether an individual, trustee, corporation, general partnership, limited partnership, trust, unincorporated organization, business association, firm, joint venture or Governmental Authority.

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“Real Property Leases” means the Tower Lease and the Office Lease.

“Receivables” means all promissory notes or other similar obligations payable to Seller, and all accounts receivable and other receivables of Seller relating to or arising out of the operation of the Station prior to the Closing Date.

“Taxes” means any taxes, charges, fees, levies or other assessments, including income, excise, use, transfer, payroll, occupancy, property, sales, franchise, unemployment and withholding taxes, penalties and interest imposed by the United States or any state, county, local or foreign government or subdivision or agency thereof.

“Technology” means any trade secrets, inventions, know-how, formulae, processes, procedures and computer software.

“Tower Lease” means the Sublease and Lease Agreement dated as of September 1, 2001 between DTV Utah, LLC, and Seller.

1.2 Terms Defined Elsewhere in this Agreement. In addition to (i) the defined terms in the preamble, recitals and Section 1.1 hereof, or (ii) certain defined terms used solely within a single section hereof, the following is a list of terms used in this Agreement and a reference to the section hereof in which such term is defined:

Term	Section
Adjustments	2.3(b)
Assumed Liabilities	2.4
Auditor	2.3(d)
Buyer’s Indemnified Parties	10.2
Buyer’s Calculation	2.3(c)
Claimant	10.4
Claim Notice	10.4
Closing Cash Payment	2.2
Collection Period	6.8(a)
Discovery Period	2.3(d)
Financial Statements	3.12
Indemnity Fund	10.6
Indemnity Period	10.1
Indemnitor	10.4
Losses	10.2
MVPD	3.9
Non-Assumed Liabilities	2.4
Overbid Agreements	6.3(b)
Overbid Notice	6.3(b)
Overbid Proposal	6.3(d)
Purchase Price	2.2
Real Property	3.5
Seller’s Estimate	2.3(b)
Seller’s Indemnified Parties	10.3

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1.3 Clarifications. Words used in this Agreement, regardless of the gender and number specifically used, shall be deemed and construed to include any other gender and any other number as the context requires. As used in this Agreement, the word “including” is not limiting, and the word “or” is both conjunctive and disjunctive. Except as specifically otherwise provided in this Agreement in a particular instance, a reference to a section, schedule or exhibit is a reference to a section of this Agreement or a schedule or exhibit hereto, and the terms “hereof,” “herein,” and other like terms refer to this Agreement as a whole, including the Schedules and Exhibits to this Agreement, and not solely to any particular part of this Agreement. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

Section 2: PURCHASE OF ASSETS

2.1 Agreement to Sell and Buy. Subject to the terms and upon satisfaction of the conditions contained in this Agreement, at the Closing, (i) Seller shall sell, convey, transfer, assign and deliver to KTL all of Seller’s right, title and interest in and to the Assets (other than the FCC Licenses), and KTL shall purchase, acquire and accept from Seller all of Seller’s right, title and interest in and to the Assets (other than the FCC Licenses), free and clear of all Liens other than Permitted Liens and (ii) Seller shall assign and deliver to License Sub, and License Sub shall accept assignment from Seller of, the FCC Licenses.

2.2 Purchase Price. The purchase price for the Assets shall be Ten Million Dollars ($10,000,000) (the “Purchase Price”), as adjusted preliminarily as of Closing and finalized subsequent to Closing pursuant to Section 2.3. The preliminary determination of the Purchase Price that shall be payable by Buyer on the Closing Date (the “Closing Cash Payment”), less the amount of the Indemnity Fund, shall be paid by Buyer at the Closing by wire transfer of immediately available funds in U.S. dollars, to Seller or another designee of Seller and to an account thereof designated in writing by Seller. At Buyer’s election, LBI Media, Inc. may pay some or all of the Purchase Price on buyer’s behalf, but Buyer shall remain obligated for the payment of the full amount of the Purchase Price as adjusted hereunder.

(a) Concurrently with the execution and delivery of this Agreement, KTL and Seller are executing and delivering the Escrow Agreement, and KTL is depositing the Escrow Deposit with the Escrow Agent to be held pursuant thereto. Upon the Closing, KTL and Seller shall instruct the Escrow Agent to pay the amount of the Escrow Deposit plus all interest and income earned on the Escrow Deposit prior to Closing to Seller or another designee of Seller, by wire transfer of immediately available funds in U.S. dollars to an account designated by Seller, which amount shall be credited against the payment by Buyer of the Purchase Price. If this Agreement is terminated prior to the Closing, the Escrow Deposit shall be disbursed in accordance with Sections 11.2 and 11.4.

(b) At the Closing, KTL and Seller shall execute and deliver the Indemnity Agreement, and KTL shall deposit the Indemnity Fund with the Escrow Agent to be held pursuant thereto.

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2.3 Adjustments and Prorations.

(a) Subject to the terms of this Agreement, all revenues and all expenses arising from the Business, including tower rental, business and license fees, utility charges and all other fees or charges arising under the Real Property Leases, real and personal property Taxes and assessments levied against the Assets, property and Equipment rentals, applicable copyright or other fees (including program license payments), sales and service charges, Taxes (except for Taxes arising from the transfer of the Assets hereunder), annual regulatory fees, amounts owing in respect of unlicensed software, music license fees and similar prepaid and deferred items, shall be prorated between Seller and Buyer in accordance with GAAP and subject to the general principle that Seller shall receive the benefit of all revenues, and be responsible for all costs, expenses and Liabilities, allocable to the Station for the period prior to the Closing Date, and Buyer shall receive the benefit of all revenues, and be responsible for all costs, expenses and Liabilities, allocable to the Station on or after the Closing Date, including that Seller shall receive a credit for all prepaid expenses (including prepaid tower rent) incurred by Seller with respect to the Station on and after the Closing Date; subject, however, to the following:

(1) There shall be no proration for program barter or for goods or services to be received by the Station under its trade or barter agreements as of the Closing Date.

(2) Seller shall be entitled to all revenue and bear all expenses and Liabilities related to the Excluded Assets and the Non-Assumed Liabilities both prior to and after the Closing Date, except as provided in Section 5.2(c) hereof.

(b) Seller shall prepare and submit to Buyer, not later than five (5) Business Days prior to the Closing Date, a good faith written estimate of the adjustments and prorations set forth in subsection (a) above and in Schedule 5.1(i) and any reimbursement under Section 5.2(c) that remains unpaid as of Closing (the “Adjustments”) in accordance with this Section 2.3, along with Seller’s estimate of the Purchase Price resulting from the Adjustments (“Seller’s Estimate”). After delivery of Seller’s Estimate, including all supporting documentation of any proposed Adjustments, Buyer and Seller shall in good faith attempt to resolve prior to Closing any disputes between them with respect to the determination of the Closing Cash Payment. If as of Closing any items shall be in dispute between them with respect to the Closing Cash Payment, Seller’s Estimate, as adjusted to reflect any changes to the Adjustments agreed to by the Parties, shall be used as the amount of the Closing Cash Payment payable by Buyer on the Closing Date, with such disputed items to be settled between the Parties following Closing pursuant to subsections (c) and (d) below, and the size of the Indemnity Fund shall be increased by the amount in dispute, which increase shall be disbursed to Seller or returned to Buyer, as appropriate, as part of the settlement between the Parties upon the completion of the adjustment process pursuant to subsection (c) and if applicable, subsection (d) below.

(c) Buyer shall prepare and submit to Seller, not later than thirty (30) days following the Closing Date, Buyer’s written good faith determination of the Adjustments, including any changes to the preliminary Adjustments used to determine the Closing Cash Payment and all supporting documentation of any additions or modifications to the preliminary Adjustments, along with a calculation of the Purchase Price resulting from the Adjustments as determined by Buyer (“Buyer’s Calculation”). After delivery of Buyer’s determination of the

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Adjustments and Buyer’s Calculation to Seller, Seller may furnish Buyer, within fifteen (15) Business Days following delivery of Buyer’s Calculation, with written notification setting forth in reasonable detail any disputes Seller has with Buyer’s determination of the Adjustments and Buyer’s Calculation. In the event that Seller does not provide such a written notification within such thirty (30) day period, Seller shall be deemed to have accepted the Adjustments and Buyer’s Calculation, which shall be final, binding and conclusive for all purposes hereunder. In the event any such written notification is timely provided, then Buyer and Seller shall, for a period of ten (10) Business Days (or such longer period as they may mutually agree), in good faith attempt to resolve any disputes between them with respect to the determination of the Purchase Price, with each Party claiming an adjustment to its credit providing the other with any documentation reasonably requested by the other Party to determine the appropriateness of such claimed Adjustment. In no event shall Buyer or Seller be permitted to dispute any item or amount that was agreed to prior to Closing in the determination of the Closing Cash Payment.

(d) If, following such ten (10) Business Day period, the Parties cannot agree on the amount of the final Adjustments, the determination shall be made by a national or regional accounting firm jointly designated by the Parties (the “Auditor”). The Auditor shall make the determination based on GAAP in effect on the Closing Date. Either Party may invoke the use of the Auditor by notifying the other Party in writing. In the event that either Party invokes the use of the Auditor, there shall be a thirty (30) day period (the “Discovery Period”) when the Parties may request of and shall provide to each other in writing or computer format where appropriate any documentation or records in the possession of the other Party that are related to a claim or defense to be made to the Auditor. Fifteen (15) Business Days after the expiration of the Discovery Period, the Parties shall have the opportunity to present their claims and supporting documentation to the Auditor. The Parties shall use their commercially reasonable efforts to cause the Auditor to render a decision within fifteen (15) Business Days after each Party shall have presented (or have foregone the opportunity to present) its claims and supporting documentation to the Auditor. The decision of the Auditor shall be final and binding on the Parties and shall not be subject to any judicial challenge by either Party. Within five (5) Business Days after the Auditor provides the determination to the Parties, payment in accordance with that determination shall be made by the appropriate Party by wire transfer of immediately available funds in U.S. dollars, to an account designated by the Party entitled to receive such payment. The expenses of the Auditor shall be paid by the Party which, based on the Auditor’s resolution of the disputed item(s), is not the prevailing Party.

2.4 Assumed Liabilities. At and after the Closing, Buyer shall assume and timely pay, discharge and perform when due those Liabilities attributable to periods after the Closing under or with respect to the Licenses, Assumed Contracts and other Assets (collectively, the “Assumed Liabilities”). All Liabilities not expressly assumed by Buyer hereunder are collectively referred to herein as “Non-Assumed Liabilities” and shall remain and be the obligations and liabilities solely of Seller. Without limiting the generality of the foregoing, the Non-Assumed Liabilities shall include the following: (i) any Liabilities arising from or related to the ownership, operation or use of the Business and/or the Assets prior to Closing, (ii) all Liabilities relating to any of the Excluded Assets, (iii) any debts, obligations or other Liabilities owing from Seller or any of its Affiliates to Seller or any of its Affiliates, (iv) any Liability of Seller or any Affiliate of Seller for Taxes relating to periods prior to Closing, whether or not shown on a Tax Return, (v) any Liability for Taxes payable with respect to Seller’s transfer of

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the Assets to Buyer and Seller’s consummation of the other transactions contemplated by this Agreement, except to the extent of Buyer’ obligation to pay such Liability under Section 12.2 of this Agreement; (vi) any claims or other Liabilities of Seller arising out of the operation of the Business prior to Closing under or relating to pre-Closing violations of Environmental Laws or pre-Closing releases of Hazardous Substances, (vii) Liabilities under any Non-Assumed Contract, except to the extent of Buyer’s obligation to pay such Liability under Section 5.2(c) of this Agreement; (viii) any Liability to or in respect of, or arising out of or in connection with, the employment or cessation of employment by Seller of, any Employees or former Employees of Seller, including (A) any employment or consulting agreement, whether or not written, between Seller and any person, (B) any Liability under any Compensation Arrangement and any Employee Plan, (C) any claim of an unfair labor practice or grievance or any claim under any unemployment compensation, employment standards, pay equity or worker’s compensation law or regulation or under any federal, state or provincial employment discrimination law or regulation, which shall have been asserted by any Employee or former Employee based on acts or omissions which occurred during the period of or relating to such Employee’s employment by Seller, whether or not such Employee is hired by Buyer or any of its Affiliates, (D) any Liability relating to payroll, vacation, personal day or sick pay for any current or former employee, director, officer, consultant or independent contractor of Seller (except with respect to liabilities for any Employee employed by Buyer for any period after the Closing Date), (E) with respect to any actual or alleged agreements or promises to current or former employees, directors, officers, consultants or independent contractors regarding stock options, equity or equity based compensation plans, programs or arrangements maintained by Seller or any of its Affiliates, and (F) any Liability arising out of or relating to any stay bonus, severance plan or arrangement, special waiting bonus or special retention plan or agreement, (ix) any Liabilities for legal, accounting or broker’s fees incurred by Seller and its Affiliates in connection with this Agreement and the consummation of the transactions contemplated hereby, and (x) all Liabilities of Seller arising under this Agreement.

Section 3: REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer as follows:

3.1 Organization and Authority. Seller is a limited liability company, duly organized, validly existing and in good standing under the laws of California and qualified to do business in Utah and any other jurisdiction in which the nature of the business conducted by the Station or the ownership of the Assets requires such qualification. Seller has all requisite limited liability company power and authority (i) to execute, deliver and perform this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby, and (ii) to own, lease and operate the Station and the Assets owned by it and to carry on the Business as now being conducted.

3.2 Authorization and Binding Obligations. The execution, delivery and performance of this Agreement by Seller and each Ancillary Agreement to which Seller is or will be a party have been duly and validly authorized by all necessary limited liability company action of Seller or Court action. This Agreement and each Ancillary Agreement has been (or when delivered will be) duly executed and delivered by Seller and constitutes (or will constitute) a valid and

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binding agreement of Seller enforceable against it in accordance with its terms, except as its enforceability may be limited by Enforceability Exceptions.

3.3 No Contravention; Consents. Subject to obtaining the Consents set forth on Schedule 3.3, the execution, delivery and performance of this Agreement and each Ancillary Agreement, the consummation of the transactions contemplated hereby and thereby and the compliance with the provisions hereof and thereof by Seller will not, after the giving of notice, or the lapse of time, or otherwise (i) violate any provisions of the organizational documents of Seller, (ii) result in the breach of, constitute a default under, or result in the creation of any Lien upon any of the Assets under the provisions of, any Assumed Contract, or (iii) violate any Legal Requirements applicable to Seller or any of the Assets. Except for the Consents set forth in Schedule 3.3, no material consent, approval, or authorization of any Governmental Authorities or other third party is required by Seller in connection with the execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller or the consummation by Seller of the transactions contemplated hereby and thereby.

3.4 Title to Assets. Seller has good and marketable title to or a valid leasehold interest in, or otherwise has the right to use, all of the Assets, free and clear in each case of any Liens except for Permitted Liens. The Assets include all assets necessary to conduct the Business and operations of the Station as presently conducted, except for any necessary assets included in the Excluded Assets.

3.5 Real Property. Seller does not own or otherwise hold any fee estates in real property. Schedule 3.5 sets forth an accurate and complete list of all leasehold interests held by Seller, together with a general description of any structures, improvements and fixtures located thereon that are owned or leased by Seller, and all easements and other rights and interests appurtenant thereto held or leased by Seller with respect to the Business or the operation of the Station (collectively, the “Real Property”). All Real Property is in good condition and repair adequate for its use in the operation of the Station and the conduct of the Business as presently conducted. Each Real Property lease is in full force and effect, and Seller has complied in all material respects with all commitments and obligations on its part to be performed or observed under each Real Property lease. No event or condition has occurred and presently exists that constitutes under the terms of any Real Property lease a material default by Seller, or to Seller’s knowledge other third party bound thereby. Seller has received no written notice of noncompliance with any Lien encumbering the Real Property. Seller has no knowledge of any complaints regarding the Real Property or any of the Assets located at the Real Property. There is no pending or, to Seller’s knowledge, threatened Action that would reasonably be expected to interfere with the quiet enjoyment or operation of the Real Property and the Assets located at the Real Property. As of the Closing Date, Buyer will have reasonable access, subject to weather conditions, to the Real Property and a means of ingress and egress (i) by public roads to the Real Property leased pursuant to the Office Lease, and (ii) by a private access road to the Real Property leased under the Tower Lease pursuant to the terms thereof.

3.6 Equipment. Schedule 3.6 contains an accurate and complete list of all items of Equipment owned or leased by Seller as of March 31, 2007 that relates to the program, production, generation or transmission of the Station’s television broadcast signal, or otherwise having an original acquisition cost of at least $2,500 (provided that the acquisition cost of some

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items of equipment listed on Schedule 3.6 was less than $2,500). Seller has good and marketable title to or a valid leasehold interest in, or otherwise has the right to use, all items of Equipment listed in Schedule 3.6, free and clear of all Liens except for Permitted Liens. Except as specified on Schedule 3.6, all Equipment is (i) in good operating condition and repair, subject to normal wear and tear, adequate for its current use, and available for use, in the operation of the Station and the conduct of the Business as presently conducted, and (ii) maintained in compliance with good engineering practice, industry practices and all applicable FCC rules and policies.

3.7 Licenses. Schedule 3.7 is a list of all FCC Licenses and other material Licenses held as of the date of this Agreement (and, subject to modifications made in compliance with Schedule 5.1(i), as of the Closing Date), all of which taken in the aggregate constitute all licenses, permits, franchises, registrations, authorizations, consents and approvals from all Governmental Authorities necessary to operate the Station as currently operated. All FCC Licenses and other material Licenses are validly issued in the name of Seller, are in full force and effect, are not subject to any conditions that would require operation of the Station in a manner materially different than their operations as of the date of this Agreement, and to Seller’s knowledge are not subject to any conditions outside the ordinary course other than those set forth on the face of such FCC Licenses or on Schedule 3.7, or that affect the television broadcast industry, or substantial segments thereof, generally. No waiver of FCC rule or policy is required for Seller to be the holder of any of the FCC Licenses. The Station has not been assigned, and does not operate, a second channel for digital television service. Except as set forth in Schedule 3.7, Seller has complied in all material respects with all the terms of the Licenses, and there are no pending applications filed by Seller seeking to modify any License, and no pending revocations of any License.

3.8 Assumed Contracts. Schedule 3.8 is a list of all Assumed Contracts as of the date of this Agreement. Each Assumed Contract set forth on Schedule 3.8 is in full force and effect, and is valid, binding and enforceable against the Seller and, to Seller’s knowledge, each other party thereto in accordance with its terms. Except as set forth on Schedule 3.3, no Assumed Contract requires the Consent of any other contracting party to the transactions contemplated by this Agreement. Seller is not (and, to Seller’s knowledge, no other party is) in breach or default under, any Assumed Contract, and no event has occurred and no condition exists which, with the passage of time or the giving of notice or both would constitute such a breach or default by Seller or, to Seller’s knowledge, any other party thereto. True and complete copies of each Assumed Contract (including all related amendments, modifications and waivers) have been delivered to Buyer.

3.9 Must Carry Rights. Schedule 3.9 hereto sets forth, as of the date hereof (i) a list of all multichannel video programming distributors (each, an “MVPD”) that to Seller’s knowledge, carry the Station’s analog signal, and (ii) a list of all Contracts entered into with any MVPD retransmitting the Station’s signal(s). Except as set forth on Schedule 3.9, (i) no MVPD has notified Seller of such MVPD’s intention to delete the Station from carriage, change the channel position of the Station, or alleging that the Station does not deliver an adequate quality signal, and (ii) to Seller’s knowledge there are no pending must carry complaints or petitions for special relief to modify the areas in which the Station is entitled to demand must carry.

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3.10 Intellectual Property. Schedule 3.10 contains a description of the Intellectual Property and Technology, excluding those which are required to be listed in Schedule 3.7 or which pertain to the Excluded Assets, all of which are, to Seller’s knowledge, valid and in full force and effect and uncontested. Seller is not infringing upon or otherwise acting adversely to any trademarks, trade names, copyrights or similar intellectual property rights owned by any other Person. To Seller’s knowledge, no other Person is infringing upon or otherwise acting adversely with respect to any Intellectual Property or Technology.

3.11 Personnel Matters.

(a) Employees. Schedule 3.11 contains an accurate schedule listing all Employees, and showing each such Employee’s present position, start date, annual salary or wages and any other compensation. Schedule 3.11 also contains a list of any consultants or independent contractors providing services to Seller in the day-to-day operations of the Station and a description of any Contracts of Seller therewith.

(b) Employee Plans and Compensation Arrangements. Schedule 3.11 contains a list of all Employee Plans and Compensation Arrangements. Except as described in Schedule 3.11, Seller has no written or oral contracts of employment with any Employee of the Station other than oral employment agreements terminable at will without penalty. Seller is not and has never been required to contribute to any “multiemployer plan,” as defined in ERISA Section 3(37), nor has Seller withdrawn from such a “multiemployer plan.” Except as required under Code Section 4980B or ERISA Sections 601-609, no Employee Plan provides health or medical coverage to former Employees of Seller. Seller has furnished or made available to Buyer true and complete copies of all Employee Plans and all Compensation Arrangements listed in Schedule 3.11 and all employee handbooks, employee rules and regulations, if any. Each Compensation Arrangement and each Employee Plan has been operated and maintained in material compliance with its terms and with the requirements prescribed by all applicable Legal Requirements (including ERISA and the Code).

(c) Qualified Plans. With respect to each Employee Plan, (i) such Employee Plan that is intended to be tax-qualified, and each amendment thereto, is the subject of a favorable determination letter except as described in Schedule 3.11, and no Employee Plan amendment that is not the subject of a favorable determination letter would affect the validity of such Employee Plan’s letter; (ii) no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Seller to be incurred with respect to any Employee Plan; (iii) no Employee Plan is subject to Title IV of ERISA; (iv) no prohibited transaction, within the definition of Section 4975 of the Code or Title 1, Part 4 of ERISA, has occurred which would subject Seller to any liability.

(d) Labor Unions. Seller is not a party to any collective bargaining agreement. As of the date hereof, to Seller’s knowledge, (i) none of the Employees is presently a member of any collective bargaining unit related to his or her employment, and (ii) no collective bargaining unit has filed a petition for representation of any of the Employees.

3.12 Financial Information. Schedule 3.12 comprises a true and complete copy of the unaudited balance sheet, statement of income and statement of cash flow of the Station as at the

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end of and for the twelve-month period ended December 31, 2006 and as at the end of and for the three-month period ended March 31, 2007 (the “Financial Statements”). Except as disclosed on Schedule 3.12, the Financial Statements have been prepared in accordance with GAAP, are based on the Books and Records of Seller and present fairly, in all material respects, the financial condition of Seller at the end of and for the twelve-month period ended December 31, 2006 and the three-month period ended March 31, 2007. Seller is not subject, with respect to the Assets, to any Liability required in accordance with GAAP to be disclosed on a balance sheet of the Business, which is not shown or reserved for in the March 31, 2007 balance sheet included in the Financial Statements, other than (i) Liabilities incurred in the ordinary course of business since March 31, 2007, and (ii) Liabilities set forth on Schedule 3.12.

3.13 Taxes. Seller has filed, or caused to be filed, with the appropriate Governmental Authority, all required Tax returns, and Seller has paid, caused to be paid or accrued all Taxes shown to be due and payable or claimed to be due and payable thereon, except where the failure to file such returns or pay or accrue such Taxes could not reasonably be expected to result in a Lien on the Assets or in the imposition of transferee liability on Buyer for the payment of such Taxes. Seller has no Liability material in amount for any Taxes due and owing, and there are no proceedings pending pursuant to which Seller is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to Buyer as transferee of the Assets or as operator of the Station following the Closing.

3.14 Claims and Litigation. Except as set forth on Schedule 3.14, there are no Actions pending or, to Seller’s knowledge, threatened by or against Seller relating to the Assets, the Business or the transactions contemplated by this Agreement. Except as described on Schedule 3.7, to Seller’s knowledge, there is (i) no complaint or other proceeding pending, threatened or outstanding before the FCC as a result of which an investigation, notice of apparent liability or order of forfeiture may be issued from the FCC relating to the Station, (ii) no FCC notice of apparent liability or order of forfeiture pending, threatened or outstanding against Seller or the Station, and (iii) no investigation pending, threatened or outstanding with respect to any violation or alleged violation of any FCC rule, regulation or policy by Seller.

3.15 No Interference With Signal. Except as set forth on Schedule 3.15, to Seller’s knowledge, there currently exists no interference to the Station’s signal from other broadcast stations, or by the Station’s signal to other broadcast stations, in each case beyond that permitted by the FCC’s rules and, to Seller’s knowledge, there are no applications pending at the FCC the grant of which would cause objectionable interference to the Station other than what might arise as a result of proceedings that generally affect the television broadcast industry.

3.16 Compliance with Laws. Except as set forth in Schedule 3.16, (i) Seller is in compliance in all material respects with all applicable FCC Legal Requirements and the FCC Licenses and (ii) Seller is in compliance with all Legal Requirements and Licenses (other than those covered by the foregoing clause (i)) relating to the Station, the Business and the Assets, except where the failure to be in compliance would not have a Material Adverse Effect.

3.17 Environmental Matters. Except in compliance in all material respects with Environmental Laws, there is no (and there has not previously been any) (i) Handling of any Hazardous Substances at, on, from or around any Real Property or on any properties surrounding

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or adjacent to any Real Property, (ii) presence of Hazardous Substances on or around any Real Property, (iii) underground tanks, PCBs or asbestos-containing materials located on or around any Real Property, and (iv) asbestos, mold, or other indoor air quality issues on or around any Real Property; provided, however, that the foregoing representations with respect to “around” or “on any properties surrounding or adjacent to” any Real Property, or with respect to any time period prior to the start date of Seller’s leasehold interest for such Real Property shall be qualified by Seller’s actual knowledge. To Seller’s knowledge, neither Seller nor any Person acting on behalf of Seller has released any other Person from any claims Seller might have, or have had, for any matter relating to the presence or Handling of Hazardous Substances on any Real Property. No Liens have been, or are, imposed on any of the Assets under any Environmental Laws. Seller has obtained any permits, licenses, registrations and other approvals and has filed all reports and notifications required under any Environmental Laws in connection with the Assets, and is in compliance in all material respects with all applicable Environmental Laws. Seller has not received any notice of or, to Seller’s knowledge, is not the subject of, any Action by any person alleging liability under or noncompliance with any Environmental Law. Seller has delivered to Buyer copies of all reports, notices, or other documentation relating to Hazardous Substances on or around the Real Property in Seller’s possession.

3.18 Conduct of Business in Ordinary Course. Between March 31, 2007, and the date hereof, Seller has conducted the business and operations of the Station in the ordinary and usual course consistent with past practice, and has not (i) made any increase in compensation payable or to become payable to any of the Employees, or any change in personnel policies, insurance benefits or other Compensation Arrangements or Employee Plans affecting the Employees except as reflected in the information disclosed on Schedule 3.11, (ii) made any sale, assignment, lease or other transfer of, or mortgaged or pledged, or imposed or suffered any Lien (other than Permitted Liens) on, any of the Assets, other than obsolete or worn-out Assets no longer necessary for the operation of the Station, or other Assets sold or disposed of in the normal course of business with suitable replacements being obtained therefor; (iii) suffered any material damage or destruction (whether or not covered by insurance) to any Assets which Assets have not been repaired or replaced, or (iv) experienced any Material Adverse Effect.

3.19 Brokers. Except for Media Venture Partners, LLC, for whose fees or commission it shall be responsible, Seller has not engaged any agent, broker or other Person acting pursuant to the express or implied authority of Seller which is or may be entitled to a commission or broker or finder’s fee in connection with the transactions contemplated by this Agreement or otherwise with respect to the sale of the Assets or the Business.

3.20 Insurance. Schedule 3.20 hereto sets forth a true and correct list of all insurance policies maintained by or for the benefit of Seller related to the Business, all of which are in full force and effect as of the date hereof.

3.21 Disclosure. No representation or warranty made by Seller in this Agreement contains any untrue statement of a material fact or knowingly omits or fails to state any material fact or information necessary to make such representation or warranty not materially misleading.

3.22 Absence of Other Express or Implied Representations. Except for the representations and warranties contained in this Section 3, any Ancillary Agreement or any

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certificate or instrument delivered pursuant hereto or thereto, neither Seller nor any other Person makes any express or implied representation or warranty on behalf of Seller.

Section 4: REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer (which term shall refer for purposes of this Section 4 to each of KTL and License Sub) hereby represents and warrants to Seller as follows:

4.1 Organization and Authority. Each Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of California, and as of the Closing Date will be qualified to do business in Utah. Each Buyer has all requisite limited liability company power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby.

4.2 Authorization and Binding Obligations. The execution, delivery and performance of this Agreement by each Buyer and each Ancillary Agreement to which a Buyer is or will be a party have been duly and validly authorized by all necessary corporate action. This Agreement and each Ancillary has been (or when delivered will be) duly executed and delivered by each Buyer that is a party hereto or thereto and constitutes (or will constitute) a valid and binding agreement of such Buyer, enforceable against such Buyer in accordance with its terms, except as its enforceability may be limited by Enforceability Exceptions.

4.3 No Contravention; Consents. Subject to obtaining the Consents, the execution, delivery and performance of this Agreement and each Ancillary Agreement, the consummation of the transactions contemplated hereby and thereby and the compliance with the provisions hereof and thereof by each Buyer that is a party hereto or thereto will not (i) violate any provisions of the organizational documents of such Buyer, (ii) violate any Legal Requirements applicable to such Buyer, or (iii) require the consent of any third party, or violate, or be in conflict with, or constitute a default under any contract or agreement to which such Buyer is a party, such that such Buyer cannot perform its obligations hereunder. Except for the Consents set forth in Schedule 4.3, no material consent, approval, license or authorization of any Governmental Authorities or other third party is required by Buyer in connection with the execution, delivery and performance of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby.

4.4 Compliance with Law. There are no violations by Buyer of any applicable Legal Requirements relating to any business of Buyer that would reasonably be expected to have a Material Adverse Effect on Buyer.

4.5 Qualifications. Buyer knows of no facts that would, under applicable Legal Requirements, disqualify License Sub with respect to the assignment or transfer of the FCC Licenses. Buyer has not engaged in any course of conduct that would impair the ability of License Sub to be the holder of the FCC Licenses. No waiver of FCC rule or policy is required on the part of Buyer for License Sub to be the holder of the FCC Licenses.

4.6 Claims and Litigation. There are no Actions pending, or to Buyer’s knowledge, threatened by or against Buyer that would reasonably be expected to have a Material Adverse Effect on Buyer.

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4.7 Availability of Funds. At Closing, Buyer will have available the necessary funds to enable it to pay the Purchase Price and to consummate the transactions contemplated hereby.

4.8 Brokers. Buyer has not engaged any agent, broker or other Person acting pursuant to the express or implied authority of Buyer which is or may be entitled to a commission or broker or finder’s fee in connection with the transactions contemplated by this Agreement or otherwise with respect to the sale of the Assets or the Business.

4.9 Disclosure. No representation or warranty made by Buyer in this Agreement contains any untrue statement of a material fact or knowingly omits or fails to state, any material fact or information necessary to make such representation or warranty not materially misleading.

4.10 Absence of Other Express or Implied Representations. Except for the representations and warranties contained in this Section 4, any Ancillary Agreement or any certificate or instrument delivered pursuant hereto or thereto, neither Buyer nor any other Person makes any express or implied representation or warranty on behalf of Buyer.

Section 5: PRE-CLOSING COVENANTS OF THE PARTIES

5.1 Covenants of Seller. Seller covenants and agrees from and after the execution and delivery of this Agreement to and including the Closing Date as follows; provided, however, that each of such covenants or agreements are subject to the terms of any prior written consents that may be given by Buyer with respect thereto:

(a) Commercially Reasonable Efforts. Seller shall use its commercially reasonable efforts to cause the transactions contemplated by this Agreement to be consummated in accordance with the terms hereof, and, without limiting the generality of the foregoing, use its commercially reasonable efforts to obtain all necessary Consents required in connection with this Agreement and the transactions contemplated hereby, including the FCC Consent and any required Consents of other Governmental Authorities with lawful jurisdiction over Seller. Seller shall use commercially reasonable best efforts and proceed with diligence to obtain the estoppels and consents (and the new lease), as described in Section 8.5, and Buyer agrees to cooperate in such efforts. Seller shall make all filings with and give all notices to third parties that may be reasonably necessary of Seller in order to consummate the transactions contemplated hereby. Notwithstanding any provision contained in this Agreement to the contrary, Seller shall not be required to make any payments to Persons who are parties to the Assumed Contracts in order to obtain their Consents, except that subject to Section 12.2 Seller shall pay any administrative or application fees customarily payable to such Persons in connection with requests for their Consent.

(b) Control of the FCC Licenses and the Station. Notwithstanding any provision of this Agreement to the contrary, pending the Closing, Seller shall maintain actual (de facto) and legal (de jure) control over the FCC Licenses and the Station.

(c) Must Carry and Related Matters. Between the date hereof and the Closing Date, Seller will promptly provide Buyer with copies of all correspondence between the Station and/or Seller and MVPDs concerning the Station’s signal carriage. Seller will use its commercially reasonable efforts to ensure that the Station meets the standards for delivery of a

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good quality signal, as provided in the FCC’s rules, to each cable system on which its signal is carried on the date hereof.

(d) Access. Seller shall give to Buyer and its agents reasonable access during normal business hours to all of Seller’s personnel, premises, properties, assets, financial statements and records, books, contracts, documents and commitments of or relating to the Station that are in Seller’s possession or control, and shall furnish Buyer with all such information concerning the affairs of the Station as Buyer reasonably may request. This shall specifically include access to billing, customer service and maintenance personnel and records.

(e) Ordinary Course. Seller shall operate the Station and preserve and maintain the Assets in good working order and condition, subject to normal wear and tear, in the ordinary course of business consistent with past practice, including maintaining existing insurance policies on the Assets as in effect on the date hereof; provided, however, (i) that regarding those items of Equipment that are not in good working order or condition as disclosed on Schedule 3.6, Seller has no obligation to repair such items and maintain them in good working order or condition except to the extent required pursuant to Section 5.1(i); (ii) that regarding each of Seller’s construction permits and applications for UHF translators set forth on Schedule 3.7, Seller has no obligation to expend any funds to construct any of the facilities; (iii) that Seller may effect programming changes, and (iv) that Seller may take any actions that it deems appropriate with respect to Excluded Assets not needed for the operation of the Station. At Buyer’s request, Seller and Buyer shall put in place a commercially reasonable arrangement whereby construction of any such UHF translators may be initiated and, if desired by Buyer, completed prior to Closing at Buyer’s expense with Buyer having title to any equipment installed thereat and the right to repossess such equipment if for any reason the Closing shall not occur. Seller agrees to file promptly with the FCC such applications for television translator authorizations to be associated with the Station as Buyer may reasonably request, and to grant its consent to the filing by Buyer of such applications as may be permitted pursuant to Section 73.3517 of the FCC’s Rules, on the condition that Buyer prepare any such applications for Seller’s review and bear the costs and expenses associated with the preparation and filing of any such applications. Subject to the foregoing, Seller shall use commercially reasonable efforts to keep its organization intact, (provided that changes in and a reduction in the number of Employees may occur), to preserve the Business, and to preserve the goodwill of suppliers, customers, landlords, Governmental Authorities and others dealing with Seller. Seller’s financial Books and Records shall be maintained in accordance with GAAP, in the usual manner on a basis consistent with prior years.

(f) Compliance with Laws. Seller shall comply in all material respects with all Legal Requirements and Licenses applicable to Seller, the Station or the conduct of the Business.

(g) Contracts and Liens. Seller shall (i) not default under, or breach any term or provision of, or suffer or permit to exist any condition or event that, after notice or lapse of time, or both, would constitute a default under, any Assumed Contract, (ii) not create, assume, consent to or suffer to exist any Lien on any of its Assets (other than Permitted Liens); and (iii) not cause the termination, nor shall it permit the termination, of any Assumed Contract except that such termination may be permitted upon (x) the expiration of the full term thereof or

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in accordance with its terms; or (y) the termination by the other party thereto if such right to terminate does not arise from Seller’s breach thereof; provided that other than with respect to any contracts for sale of time on the Station Seller shall provide Buyer (1) prompt (but in any event within two Business Days) written notice of such party’s exercise of its termination right, (2) with at least 30 days’ prior written notice of the date of termination of any Assumed Contract terminating in accordance with its terms prior to August 1, 2008 (excluding any Contracts that Buyer specifically agrees in writing to assume after the date hereof that at the time of such agreement have fewer than 30 days remaining in the terms thereof), and (3) with respect to any terminating Assumed Contract, the opportunity to renew or otherwise negotiate the terms of a new agreement, modification or amendment of any Assumed Contract. Unless Buyer shall have given its prior written consent, Seller shall not enter into any new Contract or incur any obligation (including obligations arising from the amendment of any existing Contract) that will be binding on Buyer after the Closing.

(h) No Solicitation. Except pursuant to Section 6.3, Seller shall not, and shall cause its officers, directors, Employees, agents, representatives, equity holders and Affiliates not to (i) sell, transfer, lease, assign or otherwise dispose of or distribute any of the Assets (other than the disposal of worn out or obsolete Assets in the ordinary course of business consistent with past practice) or any equity interests of Seller (whether pursuant to merger, acquisition, consolidation, reorganization, recapitalization or otherwise) to any Person (other than Buyer), (ii) solicit, encourage, entertain, negotiate or enter into with any Person any such transaction or agreement of the nature described in clause (i) above, or (iii) provide any non-public information about the Station to any Person other than pursuant to the terms of an Assumed Contract listed in Schedule 3.8 or a Contract included in the Excluded Assets. Upon gaining knowledge thereof, Seller shall promptly (but in any event within two (2) Business Days) notify Buyer if any discussions or negotiations regarding a transaction of the nature described in clause (i) above are sought to be initiated, or if a Person makes any inquiry or proposal, or requests information, with a view, as reasonably determined by Seller, toward making such a proposal or offer with respect to the Assets or the Seller, in each case together with the identity of the Person making such proposal or offer and the material terms thereof.

(i) Equipment. Seller shall, at its expense, use commercially reasonable efforts to complete the Equipment repairs and/or replacements, and to apply for and obtain pursuant to applicable FCC rules and policies “temporary conditional authority” for the new or modified FCC Licenses, that are described on Schedule 5.1(i) as soon as practicable. In the event that the repairs and/or replacements regarding the STL/TSL interference problem described on such schedule shall not have been completed, and temporary conditional authority obtained for the new or modified FCC Licenses, prior to the Closing Date so that the Equipment that shall then be in use in microwave link operations between the studio and transmitter site shall not be operating in compliance in all material respects with good engineering practice and applicable FCC rules and policies, Seller shall promptly notify Buyer in writing of the circumstances, and the Closing Date shall be postponed until such time as those Equipment repairs have been completed in all material respects and such temporary conditional authority granted for such FCC Licenses.

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5.2 Covenants of Buyer. Buyer covenants and agrees that from and after the execution and delivery of this Agreement to and including the Closing Date as follows:

(a) Commercially Reasonable Efforts. Buyer shall use its commercially reasonable efforts to cause the transactions contemplated by this Agreement to be consummated in accordance with the terms hereof, and, without limiting the generality of the foregoing, use its commercially reasonable efforts to obtain all necessary Consents, FCC Consents, and any other consents of any other Governmental Authorities with lawful jurisdiction over Buyer and other authorizations required in connection with this Agreement and the transactions contemplated hereby. Buyer shall make all filings with and give all notices to third parties that may be necessary or reasonably required in order to consummate the transactions contemplated hereby. Notwithstanding any provision contained in this Agreement to the contrary, Buyer shall not be required to make any payments to persons who are not parties to the Assumed Contracts in order to obtain their consents.

(b) No Control. Notwithstanding any provision of this Agreement to the contrary, pending the Closing, Buyer shall do nothing to interfere with Seller’s actual (de facto) and legal (de jure) control over the FCC Licenses and the Station. Buyer acknowledges and agrees that the responsibility for the operation of the Business and the Station shall, pending the Closing, reside with Seller, including responsibility for those matters set forth in Section 5.1(b).

(c) Non-Assumed Contracts. Buyer acknowledges and agrees that Seller may, at its discretion, take such actions as it deems appropriate to effect a termination of any Contract that is not included in the Assumed Contracts. Buyer shall (i) cooperate with Seller in its termination of such Contracts that are not Assumed Contracts, and (ii) reimburse Seller for one half of the costs and expenses incurred by Seller in terminating each non-assumed programming Contract as well as the two Contracts on Schedule 1.1A that are identified on such schedule as being subject to such reimbursement obligation, provided that Buyer’s aggregate reimbursement obligation under this Section 5.2(c) shall not exceed One Hundred Thousand Dollars ($100,000). At Buyer request, Seller shall provide reasonable documentation evidencing the costs and expenses for which Buyer is requested to provide reimbursement under this Section 5.2(c).

(d) No Inconsistent Agreements. Buyer shall not purchase or agree to purchase any television station or licenses or enter into any other agreement or transaction that would prohibit or materially interfere with or materially delay the transactions contemplated hereby.

(e) Title Policy. If and to the extent Buyer wishes to obtain title insurance with respect to the Master Lease and/or the Tower Site Sublease as defined in Schedule 3.5, Seller agrees to provide its reasonable cooperation with such efforts, including signing customary affidavits and memoranda and delivering reasonable documentation, provided such affidavits and memoranda shall not require Seller to expand Seller’s indemnity obligations beyond providing confirmation to the title company of Seller’s knowledge of the state of title to the property and applicable exceptions to title.

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Section 6: JOINT COVENANTS

6.1 Consultations regarding Consents of Governmental Authorities. The Parties shall consult with one another as to the approach to be taken with any Governmental Authority with respect to obtaining any necessary Consent of such Governmental Authority to the transactions contemplated hereby, including the FCC Consent, and each Party shall keep the other Party reasonably informed as to the status of any communications by it with any Governmental Authority. No Party hereto shall make any material commitments relating to any Consent of any Governmental Authority, including the FCC Consent, that would alter in any material way any application or request filed jointly by the Parties with respect to the transactions contemplated hereby without the other Party’s prior written consent.

6.2 Joint Filings. Seller and Buyer shall cooperate in the preparation and joint filing of the Assignment Application with the FCC no later than five (5) Business Days following the date hereof, and with any other applicable Governmental Authority as soon as practicable following the date hereof, requesting the approval of the assignment and transfer of the Licenses (as appropriate) and the other Assets and the Business to Buyer. Each of the Parties hereto shall diligently take or cooperate in the taking of all steps that are reasonably necessary or appropriate to expedite the prosecution and favorable consideration of such applications. The Parties shall undertake all actions and file such materials as shall be reasonably necessary or required to obtain any necessary waivers or other authority in connection with the foregoing applications. Buyer acknowledges that the Station has not been assigned, and does not operate, a second channel for digital television service. To the extent reasonably necessary to expedite grant of the Station’s license renewal application and thereby facilitate grant of the Assignment Application, Seller shall enter into a tolling agreement with the FCC to extend the statute of limitations for the FCC to determine or impose a forfeiture penalty against the Seller in connection with any pending complaints or in connection with any matter disclosed in the Station’s license renewal application. Any such tolling agreement and any forfeiture resulting therefrom shall comprise, respectively, an Excluded Asset and a Non-Assumed Liability with respect to which Buyer shall have no liability.

6.3 Receipt of Overbid.

(a) If prior to Closing Seller receives an unsolicited offer from a third party to purchase the Assets which did not result from a breach of Section 5.1(h) and which Seller determines in good faith would reasonably be likely to result in an Overbid Proposal, then Seller may furnish information regarding the Assets to such Person and engage in discussions or negotiations with such Person regarding such offer; provided that Seller shall provide Buyer with regular updates regarding the status of such discussions or negotiations.

(b) If prior to Closing Seller desires to enter into one or more agreements with a third party to consummate an Overbid Proposal (the “Overbid Agreements”), then Seller shall provide written notice to Buyer of its desire to enter into the Overbid Agreements (the “Overbid Notice”), together with forms of the final Overbid Agreements to be executed by the parties thereto. For a period of ten (10) Business Days after its receipt of the Overbid Notice, Buyer shall have an irrevocable right to elect to purchase the Assets for an aggregate amount of consideration and on the material terms and conditions set forth in the Overbid Agreements, in

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which case the parties agree to negotiate in good faith to amend this Agreement to reflect such election. If Buyer declines to exercise its rights under this Section 6.3(b) or otherwise fails to respond to the Overbid Notice within such ten (10) Business Day period, then Seller shall have the right to terminate this Agreement; provided that concurrently with such termination Seller shall enter into the Overbid Agreements, the forms of which must be substantially similar to those previously delivered to Buyer; and provided, further, that such termination shall not be effective unless and until Seller has satisfied its obligation to pay the “break-up” fee pursuant to Section 6.3(c)).

(c) In the event Seller elects to terminate this Agreement pursuant to Section 6.3(b), then within two (2) Business Days of such termination, (i) the Escrow Amount (together with all interests and other income accrued thereon) shall be returned to KTL and (ii) Seller or its designee shall pay to Buyer a “break-up” fee of Five Hundred Thousand Dollars ($500,000) in immediately available funds, at which point the termination of this Agreement shall be deemed effective.

(d) For purposes of this Section 6.3, an “Overbid Proposal” means any bona fide written offer that did not result from a breach of Section 5.1(h) from a third party to acquire all of the Assets (i) for an aggregate amount of cash consideration (or in the event that such third party is acquiring assets of the Station in addition to the Assets, that portion of the cash consideration that is attributable to the Assets) that exceeds the aggregate amounts paid or to be paid by Buyer pursuant to this Agreement by at least $1,000,000 and, (ii) on terms and conditions that are not less favorable to Seller than those contained in this Agreement.

6.4 Employee Matters.

(a) Seller and its group health plan are not subject to the requirements of Section 4980B of the Code and Section 601 et seq. of ERISA or any similar state Legal Requirement.

(b) Seller acknowledges that Buyer has no obligation to employ any of Seller’s Employees and that Seller shall be responsible for satisfying in full all amounts owed to such Employees, including wages, salaries, severance pay, sick pay, accrued vacation, any employment, incentive, compensation or bonus agreements or other benefits or payments relating to the period of employment by Seller and pursuant to the terms of any Compensation Arrangement and Employee Plan. Seller may, at its option and expense, provide stay bonuses to its Employees.

(c) Buyer shall, at such times as shall be arranged by Buyer with Seller, meet with Seller’s Employees prior to the Closing Date and provide appropriate information to such Employees regarding Buyer’s prospective operation of the Station and opportunities for employment on and after the Closing Date.

(d) Buyer shall offer group health plan coverage to all of Seller’s Employees who become employed by Buyer on or after the Closing Date on terms and conditions generally applicable to Buyer’s similarly situated employees, to the extent such Employees are eligible for coverage under Seller’s group health plan immediately prior to the Closing Date. For purposes

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of providing such coverage, Buyer shall, to the extent possible under Buyer’s plans, (i) waive all preexisting condition limitations for all such Employees of Seller (and their dependents) who were covered by the Seller’s health care plan as of the day prior to the Closing Date, and (ii) provide such health care coverage effective as of the Closing Date without the application of any eligibility period for coverage.

(e) In the event that any of the Station’s employees leaves the employ of the Station (whether voluntarily or involuntarily) prior to the Closing Date, Seller shall promptly notify Buyer of such departure.

6.5 Notice of Breach. Buyer and Seller shall give prompt notice to one another of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which has caused or would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date, and (ii) any material failure of Buyer or Seller, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.5 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the Party receiving such notice.

6.6 Confidentiality. Except as necessary for the consummation of the transaction contemplated by this Agreement, and except as and to the extent required by applicable Legal Requirements, each Party will keep confidential all information obtained from the other Party in connection with the transactions contemplated by this Agreement (unless such information thereafter becomes generally available to the public, is otherwise available to it on a non-confidential basis from another source, or has been developed independently by it). If this Agreement is terminated, each Party will, upon request, return to the other Party all information obtained by the first Party from the other Party in connection with the transactions contemplated by this Agreement.

6.7 Press Releases. No Party hereto will issue any press release or make any other public announcements concerning this Agreement or the transactions contemplated hereby except with the prior approval (not to be unreasonably withheld) of the other Party hereto regarding the timing and content of such announcement; provided that any Party hereto may make any disclosure that it in good faith determined to be necessary to comply with applicable Legal Requirements so long as such Party shall give prior written notice to the other Party of such disclosure.

6.8 Receivables.

(a) As soon as practicable after the Closing Date, Seller shall deliver to Buyer a reasonably detailed list of all Receivables remaining uncollected as of the Closing Date. For the period from the Closing Date until one hundred twenty (120) days after the Closing Date (the “Collection Period”), Buyer, as agent for Seller, shall collect on behalf of Seller all Receivables with the same care and diligence as Buyer uses with respect to its own accounts receivable, except that Buyer shall not, nor shall it be required to, incur any out-of-pocket expenses in connection with its obligations under this Section 6.8(a), refer any of the Receivables to a

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collection agency or to an attorney for collection, or compromise, settle or adjust the amount of any Receivable.

(b) During the Collection Period all payments received from account debtors shall first be applied in reduction of the oldest outstanding balance due from such account debtor, except to the extent that any account debtor directs otherwise, in which case, all payments received shall be applied as directed by such account debtor. Buyer will promptly provide Seller a copy of any written notice of any dispute received from any account debtor.

(c) Buyer shall remit all payments owed to Seller (as set forth in this Section 6.8) on the last day of each month, together with a list of the accounts and amounts collected during the relevant period to which such payments pertain.

(d) So long as Buyer is in compliance with this Section 6.8, during the Collection Period neither Seller nor any of its representatives or agents, shall make any direct solicitation of the account debtors for collection purposes with respect to the Receivables or other direct attempts to collect such Receivables from account debtors during such Collection Period except (i) as may be agreed to by Buyer, (ii) with respect to those Receivables that shall have become more than ninety (90) days past due, and (iii) those Receivables from which Buyer has received written notice of a dispute from the account debtor. Buyer shall have no further obligations with respect to any Receivable for which Seller assumes collection responsibility pursuant to this Section 6.8(d).

(e) Upon the conclusion of the Collection Period, Buyer shall remit to Seller all amounts collected by Buyer from account debtors not previously remitted to Seller and furnish Seller with a compilation of the accounts and amounts collected during such period and all files concerning any uncollected Receivables, and Buyer shall have no further responsibilities under the Section 6.8 except to remit promptly to Seller any amounts subsequently received by it on account of the Receivables.

6.9 Allocation of Purchase Price. Prior to the Closing, Buyer and Seller shall agree on the allocation of the Purchase Price in accordance with the rules under Section 1060 of the Code. No filings made by either Party with any taxing or other authority shall reflect an allocation other than in the manner agreed upon and each Party shall timely make all filings required by any taxing authority, including the filing of Internal Revenue Service Form 8594.

6.10 Bulk Sales. Seller and Buyer hereby waive compliance by the other with bulk sales Legal Requirements applicable to the transactions contemplated hereby.

6.11 Risk of Loss.

(a) The risk of any loss, damage, impairment, confiscation or condemnation of (i) any of the tangible Assets shall be borne by Seller at all times prior to the Closing Date and by Buyer at all times from and after the Closing Date, except for any loss or damage of any of the tangible Assets as a result of acts or omissions of Seller. In the event of any such loss or damage to the Assets occurring prior to the Closing Date, Seller shall use commercially reasonable efforts to repair, replace and restore the Assets. It is understood and agreed that all insurance proceeds with respect thereto will be applied to such repair, replacement or restoration.

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If Seller reasonably concludes that such repair, replacement and restoration is sufficiently substantial so that any representation or warranty of Seller shall not to be true and correct in all material respects at the Closing Date (after giving consideration to any repairs, restoration or replacement to occur prior to the Closing Date), Seller shall promptly notify Buyer in writing of the circumstances, and Buyer, at any time within ten days after receipt of such notice, may elect by written notice to Seller either to (i) waive such defect and proceed toward consummation of the transactions contemplated by this Agreement in accordance with the terms hereof (provided that Seller will promptly remit to Buyer any insurance proceeds received by Seller following the Closing with respect to such defect), (ii) terminate this Agreement, or (iii) postpone the Closing Date until such time as those Assets which are the subject of the loss, damage, impairment, confiscation or condemnation have been repaired, replaced and restored. If Buyer elects to so terminate this Agreement prior to the Closing Date, Buyer and Seller shall stand fully released and discharged of any and all obligations hereunder.

(b) Seller shall give prompt written notice to Buyer if the regular broadcast transmission of the Station is interrupted or discontinued, including the operation of the Station at a power level less than 50% of its maximum authorized facilities. If any such interruption persists for more than 72 consecutive hours, or for more than an aggregate of 120 hours within any consecutive 30-day period, then Buyer shall have the option to terminate this Agreement. If Buyer elects to so terminate this Agreement, Buyer and Seller shall stand fully released and discharged of any and all obligations hereunder. This Section 6.11(b) shall expire and be of no further force or effect after the Closing Date.

6.12 Further Assurances. On and after the Closing Date, the Parties will take all appropriate and commercially reasonable actions and execute all documents, instruments or conveyances of any kind that may be reasonably necessary or advisable to put Buyer in possession and operating control of the Assets and the Station, or to otherwise carry out any of the provisions hereof.

6.13 Cooperation with Financings. Seller agrees to reasonably cooperate with Buyer and its Affiliates in connection with any financings undertaken by Buyer in connection with the transactions contemplated by this Agreement and/or any filings, registration statements or reports of Buyer or any of its Affiliates with the Securities and Exchange Commission, including any filings by Liberman Broadcasting, Inc., LBI Media, Inc. or LBI Media Holdings, Inc. with the Securities and Exchange Commission. At Buyer’s request, such cooperation shall include making available such financial information with respect to the Station as may reasonably be required in connection with any such financing, filing, registration statement or report, including using commercially reasonable efforts to facilitate Buyer’s access to Seller’s independent accountants with respect to the Station and the ability to request that Seller’s independent accountants complete an audit of the station for any pre-Closing period. Any fees or expenses charged by Seller’s independent accountants arising from Buyer’s access thereto or the preparation of any such financial information or audit shall be borne by Buyer.

6.14 Pre-Final Order Consummation. If the consummation of the transactions contemplated by this Agreement occur prior to the receipt of a Final Order and the FCC Consent is reversed or otherwise set aside pursuant to a final order of the FCC or the final, unappealable order of a court of competent jurisdiction, then the Parties shall comply with such order in a

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manner that otherwise complies with applicable Legal Requirements and returns the Parties to the status quo ante in all material respects, including the return of the Purchase Price to Buyer and the return of the Stations to Seller. In connection therewith, the Parties shall seek any required additional consent of the FCC in a manner consistent with Sections 6.1 and 6.2.

Section 7: CONDITIONS PRECEDENT TO OBLIGATION OF SELLER TO CLOSE

The obligations of Seller to sell the Assets and to otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, on or prior to the Closing Date, of each of the following conditions:

7.1 Representations, Warranties and Covenants. All representations and warranties of Buyer contained in this Agreement shall be true and complete at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date except for (i) any inaccuracy that could not reasonably be expected to have a Material Adverse Effect on Buyer, (ii) any representation or warranty that is expressly stated only as of a specified earlier date, in which case such representation or warranty shall be true as of such earlier date, or (iii) changes in any representation or warranty that are permitted by this Agreement; and Buyer shall have performed all agreements and covenants required hereby to be performed by Buyer prior to or on the Closing Date in all material respects.

7.2 Closing Deliveries. Seller shall have received from Buyer the documents and other items to be delivered to Seller by Buyer pursuant to Section 9.3 of this Agreement.

7.3 FCC Consent. The FCC Consent shall have been issued.

7.4 No Injunction. No material Legal Requirement shall have been promulgated, enacted, entered or enforced, and no other action in any court proceeding shall have been taken, by any Governmental Authority that has the effect of making illegal or of restraining or prohibiting the consummation of the transactions contemplated hereby.

Section 8: CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE

The obligations of Buyer to purchase the Assets and to otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, on or prior to the Closing Date, of each of the following conditions:

8.1 Representations, Warranties and Covenants. All representations and warranties of Seller contained in this Agreement shall be true and complete at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date except for (i) any inaccuracies that could not reasonably be expected to have a Material Adverse Effect, (ii) any representation or warranty that is expressly stated only as of a specified earlier date, in which case such representation or warranty shall be true as of such earlier date, (iii) changes in any representation or warranty that are permitted by this Agreement, or (iv) changes in any representation or warranty as a result of any act or omission of Buyer or its agents; and Seller shall have performed all agreements and covenants required hereby to be performed by Seller prior to or on the Closing Date in all material respects (except for the covenants set forth in Section 5.1(i) and in Schedule 1.1B, which shall have been performed in all respects).

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8.2 Closing Deliveries. Buyer shall have received from Seller the documents and other items to be delivered by Seller pursuant to Section 9.2 of this Agreement.

8.3 FCC Consent.

(a) The FCC Consent shall have been issued without the imposition of any condition that is reasonably likely to adversely affect, in any material respect, the financial condition of the Station as contemplated to be operated by Buyer after the Closing, other than any such condition that arises due to any failure by Buyer or its Affiliates to have complied with the FCC’s Legal Requirements; provided that (i) Buyer shall have no obligation to close if the FCC Consent is conditioned upon the divestiture by Buyer or its Affiliates of any broadcasting station owned thereby on the date hereof due to the application of the FCC’s ownership rules and policies or if the FCC has not granted the Station’s renewal application for a term expiring on the date that licenses for television stations licensed to communities in Utah normally expire and without the imposition of a condition outside the ordinary course and (ii) if the FCC Consent shall be then subject to any petition for reconsideration, application for review, sua sponte review by the FCC staff or other similar proceeding seeking a stay, appeal, review, reconsideration or rehearing of the FCC Consent, then the Buyer shall have no obligation to close until the FCC Consent shall have become a Final Order.

(b) Seller shall have the right to operate the modified microwave facilities described on Schedule 5.1(i) pursuant to temporary conditional authority or new or modified FCC Licenses.

8.4 Material Consents. Each Consent that is designated by Buyer and Seller on Schedule 3.3 as being a “required consent” shall have been obtained without any material adverse change in the terms or conditions of each License or Contract to which such Consent relates from those in effect on the date hereof.

8.5 Landlord Estoppels and Consents. All lessors under the Real Property Leases shall have executed and delivered to Buyer estoppels and consents (and, for the digital transmitter site and extended tower use, a legally binding commitment to enter into a new lease) substantially in the form of (or embodying the terms and conditions set forth on) Exhibit B with respect to each such lease.

8.6 No Injunction. No Legal Requirement shall have been promulgated, enacted, entered or enforced, and no other action in any court proceeding shall have been taken, by any Governmental Authority that has the effect of making illegal or of restraining or prohibiting the consummation of the transactions contemplated hereby.

8.7 Material Adverse Effect. Between the date hereof and the Closing Date, Seller shall not have experienced any Material Adverse Effect.

Section 9: THE CLOSING

9.1 The Closing. On the Closing Date and at the Closing Place, Seller shall make such deliveries as are set forth in Section 9.2, and Buyer shall make such deliveries as are set forth in Section 9.3. All transactions at the Closing are deemed to have taken place

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simultaneously and no transaction shall be deemed to have been completed, nor shall any document be deemed to have been delivered, until all transactions shall have been completed and all documents, delivered.

9.2 Deliveries by Seller to Buyer. Seller shall deliver to Buyer:

(a) One or more deeds, bills of sale, assignments and other appropriate instruments of conveyance duly executed by Seller, transferring to Buyer all of the Assets in form and substance reasonably satisfactory to Buyer;

(b) The Indemnity Agreement duly executed by Seller and the Escrow Agent;

(c) A copy of each instrument evidencing any Consent that shall have been obtained prior to Closing;

(d) A certificate of Seller attesting to its fulfillment of the conditions set forth in Section 8.1;

(e) A copy of the resolutions of Seller or an order of the Court, approving the transactions contemplated by this Agreement; and

(f) Such other documents reasonably requested by Buyer to give effect to the transactions contemplated by this Agreement.

9.3 Deliveries by Buyer to Seller. Buyer shall deliver to Seller:

(a) The Closing Cash Payment in accordance with the provisions of Section 2.2 hereof;

(b) One or more appropriate assumption agreements duly executed by Buyer, whereby Buyer assumes and agrees to perform the Assumed Liabilities in form and substance reasonably satisfactory to Seller;

(c) The Indemnity Agreement duly executed by KTL and the Escrow Agent;

(d) A certificate of Buyer attesting to its fulfillment of the conditions set forth in Section 7.1;

(e) A copy of the resolutions of Buyer approving the transactions contemplated by this Agreement; and

(f) Such other documents reasonably requested by Seller to give effect to the transactions contemplated by this Agreement.

Section 10: INDEMNIFICATION

10.1 Survival. The representations, warranties, covenants and agreements of either Party contained in this Agreement (or in any document delivered in connection herewith) shall (i) be deemed to have been made on the date of this Agreement, and on the Closing Date subject

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to any changes in any representation or warranty that are contemplated by this Agreement, (ii) be deemed to be material and to have been relied upon by the Parties notwithstanding any investigation made by the Parties, (iii) survive the Closing, and (iv) remain operative and in full force and effect until and including the first anniversary of the Closing Date, provided, however, that the representations and warranties set forth in (a) Sections 3.1, 3.2 and 4.2, and the first sentence of 3.4, shall survive without any time limitation and (b) Sections 3.11, 3.13 and 3.17 shall survive until 60 days after the expiration of the applicable statute of limitations. (The applicable period of such survival subsequent to Closing is referred to as the “Indemnity Period.”)

10.2 Seller’s Indemnity. During the Indemnity Period (or thereafter, solely with respect to any claim for indemnification for which a Claim Notice has been given prior to the expiration of the Indemnity Period), Seller shall indemnify and hold harmless Buyer, its Affiliates and their respective directors, officers, members, stockholders, employees and representatives (collectively the “Buyer Indemnified Parties”) from and against any and all demands, losses, Liabilities, Actions, assessments, damages, fines, Taxes, penalties, reasonable costs and expenses (including reasonable expenses of investigation, and reasonable fees and disbursements of counsel, accountants and other experts) (collectively, “Losses”) incurred or suffered by the Buyer Indemnified Parties arising out of, resulting from or relating to:

(a) Any breach of any of the representations or warranties made by Seller in this Agreement;

(b) Any failure by Seller to perform any of its covenants or agreements contained in this Agreement; or

(c) The Non-Assumed Liabilities and any Liabilities arising from Seller’s ownership and control of the Assets, the Business and the Station prior to the Closing, subject to the terms of Section 5.2(c).

10.3 Buyer’s Indemnity. During the Indemnity Period (or thereafter, solely with respect to any claim for indemnification for which a Claim Notice has been given prior to the expiration of the Indemnity Period), Buyer shall indemnify and hold harmless Seller, its Affiliates and their respective directors, officers, members, stockholders, employees and representatives (collectively the “Seller Indemnified Parties”) from and against any and all Losses incurred or suffered by the Seller Indemnified Parties arising out of, resulting from or relating to:

(a) Any breach of any of the representations or warranties made by Buyer in this Agreement;

(b) Any failure by Buyer to perform any of its covenants or agreements contained in this Agreement;

(c) Any Liability to or in respect of, or arising out of or in connection with, the employment or cessation of employment by Buyer of any persons employed by Buyer with respect to the operation of the Station on and after the Closing Date, including (A) any employment or consulting agreement, whether or not written, between Buyer and any person,

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(B) any Liability under any compensation arrangement and employee plan maintained by Buyer, (C) any claim of an unfair labor practice or grievance or any claim under any unemployment compensation, employment standards, pay equity or worker’s compensation law or regulation or under any federal, state or provincial employment discrimination law or regulation, which shall have been asserted by any person employed by Buyer based on acts or omissions of Buyer or its Agents which occurred on or after the date of such person’s employment by Buyer, (D) any Liability relating to payroll, vacation personal day or sick pay arising with respect to any employee, director, officer, consultant or independent contractor of or retained by Buyer based upon events and relating to periods occurring on or after the Closing Date, and (E) any Liability with respect to any actual or alleged agreements by Buyer with or promises by Buyer to employees, directors, officers, consultants or independent contractors of or retained by Buyer arising under any severance plans or arrangements, stock options, equity or equity based compensation plans, programs or arrangements maintained by Buyer or any of its Affiliates; or

(d) The Assumed Liabilities and any Liabilities arising from Buyer’s ownership and control of the Assets, the Business and the Station from and after the Closing.

10.4 Procedures. In the event that any Party hereto shall sustain or incur any Losses in respect of which indemnification may be sought by such Party pursuant to this Section 10, the Party seeking such indemnification (the “Claimant”) shall assert a claim for indemnification by giving prompt written notice thereof (a “Claim Notice”) which shall describe in reasonable detail the facts and circumstances upon which the asserted claim for indemnification is based, along with a copy of the claim or complaint, to the Party providing indemnification (the “Indemnitor”). For purposes of this paragraph, any Claim Notice that is sent within fifteen (15) days of the date upon which the Claimant actually learned of such Loss shall be deemed to have been “prompt notice”; provided that failure of the Claimant to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of any of its obligations hereunder except to the extent that the Indemnitor is materially prejudiced by such failure.

(a) Upon the receipt of such Claim Notice, the Indemnitor shall have the right to undertake (at its own expense), by counsel or representatives of its own choosing, the good faith defense, compromise or settlement to be undertaken on behalf of the Claimant and shall keep the Claimant reasonably informed with respect thereto, provided that the Indemnitor unconditionally agrees in writing that it shall be provided indemnity to the Claimant for all Losses relating to the claim disclosed in the Claim Notice. Indemnity for such Losses shall not be deemed an admission of liability on the part of the Indemnitor as against any such third party. If the Indemnitor elects to undertake such defense by its own counsel or representatives, the Indemnitor shall give notice to the Claimant within ten (10) Business Days of its receipt of the Claim Notice. Notwithstanding the foregoing, the Indemnitor may not assume or control the defense if the named parties to the action giving rise to the Claim Notice (including any impleaded parties) include both the Indemnitor and the Claimant and representation of both Parties by the same counsel would be inappropriate (based on a written opinion of outside counsel) due to actual or potential differing interests between them, in which case the Claimant shall have the right to defend the action and to employ counsel reasonably approved by the Indemnitor, and, to the extent the matter is determined to be subject to indemnification hereunder, the Indemnitor shall reimburse the Claimant for all reasonable costs associated with such defense.

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(b) The Claimant shall cooperate with the Indemnitor in such defense and provide the Indemnitor with all information and assistance reasonably necessary to permit the Indemnitor to settle and/or defend any such claim. Except as otherwise provided in the last sentence of Section 10.4(a), the Claimant may retain counsel (at the Claimant’s expense) to monitor or participate in the defense of such claim, but the Indemnitor shall be entitled to control the defense unless the Claimant unconditionally agrees in writing to relieve the Indemnitor from liability with respect to the particular matter. The Indemnitor shall have the right in good faith to settle or compromise any such claim, provided that (i) at least ten (10) Business Days prior notice of such settlement or compromise is given to the Claimant and (ii) such settlement or compromise must not require the Claimant to take or refrain from taking any action (provided that Claimant shall not unreasonably withhold its consent to the terms of a mutual release with respect to such claim with the third party making such claim), contain any admission by or on behalf of the Claimant, or otherwise fail to hold Claimant fully harmless with respect to such claim. Notwithstanding the foregoing, in connection with any such settlement or compromise negotiated by the Indemnitor, no Claimant shall be required by an Indemnitor to (i) enter into any settlement that does not include as an unconditional term thereof the delivery by the Claimant or plaintiff to the Claimant of a release from all liability in respect of such claim or litigation, or (ii) enter into any settlement that attributes by its terms any non-indemnified liability to the Claimant.

(c) If an Indemnitor fails, within ten (10) Business Days after the date of the Claim Notice to give notice to the Claimant of such Indemnitor’s election to assume the defense thereof, the Indemnitor shall be bound by any determination made in such action or any compromise or settlement thereof effected by the Claimant and shall reimburse the Claimant for all Losses (including reasonable attorney’s fees) incurred by the Claimant; provided, however, that the Claimant shall keep the Indemnitor advised on a timely basis of significant developments with respect to such defense and permit the Indemnitor to participate, at its own election and expense, at any time, in the defense thereof.

10.5 Qualifications and Limitations. Notwithstanding any provision contained in this Agreement to the contrary, the Indemnitor’s obligations to indemnify the Claimant pursuant to Section 10.2 or 10.3 shall be subject to the following qualifications and limitations:

(a) In the determination of whether a breach has occurred with respect to any representation or warranty contained in Section 3 or Section 4 of this Agreement for purposes of the exercise by Buyer or Seller, as the case may be, of its indemnity rights under Section 10.2(a) or 10.3(a) hereof, any exception for “Material Adverse Effect” and any qualification by “in all material respects” in any representation or warranty shall be disregarded as if such representation or warranty did not contain such exception or qualification, and the phrase “material breach” or “material default” in any representation or warranty shall be read as if the word “material” were not present therein.

(b) No indemnification shall be required to be made by Seller or Buyer, as Indemnitor, as the case may be, under Section 10.2(a) or 10.3(a) hereof, until the aggregate amount of Losses of Buyer or Seller as Claimant exceeds $100,000, and then, only with respect to the amount of such Losses in excess of $25,000.

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(c) In no event shall Buyer, as Claimant under Section 10.2(a), have any right to indemnity exceeding, in the aggregate, the amount of the Indemnity Fund, plus the amount of all interest or other earnings thereon.

(d) All of Buyer’s or Seller’s Losses sought to be recovered under Section 10.2 or 10.3 hereof shall be net of (i) any insurance proceeds received by Buyer or Seller as Claimant, as the case may be, with respect to the events giving rise to such Losses, and (ii) any tax benefits received by such Claimant in connection with such events.

(e) Following the Closing Date, except for claims based on fraud, the sole and exclusive remedy for either Party for any claim arising out of a breach of any representation, warranty, covenant or other agreement herein shall be a claim for indemnification pursuant to this Section 10.

10.6 Indemnity Agreement. At the Closing, KTL, Seller and the Escrow Agent shall execute the Indemnity Agreement, in accordance with which the sum of Seven Hundred Fifty Thousand Dollars ($750,000) (the “Indemnity Fund”) shall be deposited in immediately available funds by KTL with the Escrow Agent at Closing to provide a fund for the payment of any indemnity claims to which Buyer is entitled under this Section 10. The Indemnity Fund will be held until the first Business Day occurring after the first anniversary of the Closing Date, with a reserve being retained equal to the aggregate amount of all claims for indemnification of the Buyer Indemnified Parties under this Section 10 asserted but not resolved by such date and shall be administered and disbursed by the Escrow Agent in accordance with the provisions of the Indemnity Agreement.

Section 11: TERMINATION

11.1 Termination by the Parties. This Agreement may be terminated, and the purchase and sale of the Station abandoned, by mutual consent of Buyer and Seller, or if the terminating Party is not then in material default, upon written notice to the non-terminating Party, upon the occurrence of any of the following:

(a) Breach by Seller. By Buyer in the event of a material breach of this Agreement by Seller such that if the Closing Date were the date of determination of such breach, the condition in Section 8.1 would not be satisfied; provided that if such Seller’s breach is capable of being cured prior to all other applicable conditions to Closing being met and Seller is diligently seeking to cure such breach, such termination by Buyer shall be effective only when such other conditions are met and Seller’s breach has not been cured.

(b) Breach by Buyer. By Seller in the event of a material breach of this Agreement by Buyer such that if the Closing Date were the date of determination of such breach, the condition in Section 7.1 would not be satisfied; provided that if such Buyer’s breach is capable of being cured prior to all other applicable conditions to Closing being met and Buyer is diligently seeking to cure such breach, such termination by Seller shall be effective only when such other conditions are met and Seller’s breach has not been cured;

(c) Judgments. By Buyer or Seller if there shall be in effect any final and non-appealable Judgment that would prevent or make unlawful the Closing;

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(d) Outside Date. By Buyer or Seller if the Closing shall not have occurred prior to July 1, 2008;

(e) Damage to Assets. By Buyer if it shall elect to exercise its termination right pursuant to Section 6.11;

(f) Overbid Proposal. By Seller if it shall elect to exercise its termination right pursuant to Section 6.3(b); or

(g) Failure to Obtain Landlord Estoppels. If at any time after the date which is 60 days after the date hereof, unless Buyer shall already have provided written confirmation to Seller that the condition set forth in Section 8.5 shall have been, or shall be deemed to be, satisfied for purposes of the Closing hereunder, Seller shall provide written notice to Buyer to request such confirmation and provide copies of the estoppels and consents in whatever form they may have been agreed to, together with the new lease or lease commitment that the landlord is willing to enter into as of such time, then Buyer shall have the right, by giving written notice to Seller within fifteen (15) days of Buyer’s receipt of such notice from Seller, to terminate this Agreement and have no further obligations hereunder; provided, however, that if Buyer does not provide such notice of termination within the fifteen-day period, the condition set forth in Section 8.5 shall be deemed to have been satisfied.

11.2 Effect of Termination. Upon termination, this Agreement will forthwith become null and void and there will be no liability or obligation on the part of any Party hereto (or any of their respective officers, directors, employees, representatives or Affiliates); provided that (i) if this Agreement is terminated by Buyer pursuant to Section 11.1(a), Seller will remain liable to Buyer for any breach of this Agreement by Seller existing at the time of termination, and (ii) if this Agreement is terminated by Seller pursuant to Section 11.1(b), Buyer’s sole liability to Seller for any breach of this Agreement shall be satisfied by the release of the Escrow Deposit to Seller pursuant to Section 11.4. If this Agreement is terminated for any reason other than pursuant to Section 11.1(b), the Escrow Amount, less any compensation due the Escrow Agent, shall be paid to KTL.

11.3 Specific Performance. The Parties recognize that if Seller refuses to perform under the provisions of this Agreement or otherwise breaches its obligation to consummate this Agreement, monetary damages alone would not be adequate to compensate Buyer for its injury. Buyer shall therefore be entitled, in addition to any other remedies that may be available, to obtain specific performance of the terms of this Agreement. If any action is brought by Buyer to enforce this Agreement, Seller shall waive the defense that there is an adequate remedy at law, and Buyer shall not be required to pay or post any bond in connection with any such equitable relief.

11.4 Payment of Escrow Deposit to Seller as Liquidated Damages. If this Agreement is terminated by Seller pursuant to Section 11.1(b), then and in that event Seller shall have the right to receive and retain the Escrow Deposit, and KTL shall have the right to receive any interest or other income earned in respect of the Escrow Deposit. The Parties agree that the amount of the actual damages suffered by Seller as a result of a breach by Buyer are likely to be

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difficult or impractical to ascertain and, therefore, the payment of the Escrow Amount to Seller is fair and reasonable and does not constitute a penalty.

11.5 Surviving Obligations. The rights and obligations of the Parties described in Sections 6.6 and 6.7, Section 12, and this Section 11 shall survive any termination. If Seller shall terminate this Agreement pursuant to the terms of Section 11.1(f), Seller’s obligation to pay the “break-up” fee pursuant to the terms of Section 6.3(c) shall also survive such termination.

Section 12: MISCELLANEOUS

12.1 Notices. All notices, demands, and requests required or permitted to be given under the provisions of this Agreement shall be (i) in writing, may be sent by telecopy (with automatic machine confirmation), delivered by personal delivery, or sent by commercial delivery service or certified mail, return receipt requested, (ii) deemed to have been given on the date of actual receipt, which may be conclusively evidenced by the date set forth in the records of any commercial delivery service or on the return receipt, and (iii) addressed to the recipient at the address specified below, or with respect to any party, to any other address that such party may from time to time designate in a writing delivered in accordance with this Section 12.1:

If to Buyer:		c/o Liberman Broadcasting, Inc.     Attn: Lenard Liberman, Executive Vice President 1845 Empire Avenue Burbank, CA 91504 Telephone: 818-563-5722 Telecopy: 818-558-4244
	with a copy (which shall not constitute notice) to:	James F. Rogers, Esq. Latham & Watkins LLP 555 Eleventh Street, NW Washington, DC 20004 Telephone: 202-637-2200 Telecopy: 202-637-2201
If to Seller:		Utah Communications, LLC     Attn: Donald J. Tringali, Mediator 1551 East Paseo Pavon Tucson, AZ 85718 Telephone: 520-797-2585 Telecopy: 520-575-0159
	with copies (which shall not constitute notice) to:	John H. Pomeroy, Esq. Dow Lohnes PLLC 1200 New Hampshire Avenue, NW Washington, D.C. 20036 Telephone: 202-776-2539 Telecopy: 202-776-2222

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and to:	Arthur Kralowec 1077 W. Morton Ave. Porterville, CA 93257 Telephone: 559-782-1552 Telecopy: 559-782-0364
and to:	Lawrence Rogow Venture Technologies Group, LLC 5670 Wilshire Blvd., Suite 1300 Los Angeles, CA 90036 Telephone: 323-904-4090 Telecopy: 323-965-5411

12.2 Expenses. Buyer and Seller shall share equally and be responsible for (i) any sales and transfer Taxes, recording and transfer fees arising from the purchase and sale of the Assets pursuant to this Agreement, (ii) any fees associated with filing the Assignment Application for the FCC Consent, and (iii) any fees associated with any other filing or similar fees relating to applications for Consent required from any Governmental Authority. Except as otherwise provided in this Agreement, Seller and Buyer shall each be liable for its own fees and expenses incurred in connection with the negotiation, preparation, execution or performance of this Agreement and the consummation of the transactions contemplated herein.

12.3 Choice of Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.

12.4 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by Seller or Buyer without the prior written consent of the other Party hereto. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns, and no other person shall have any right, benefit or obligation hereunder.

12.5 Entire Agreement. This Agreement, all schedules and exhibits hereto, and all documents and certificates to be delivered by the Parties pursuant hereto, collectively represent the entire understanding and agreement between the Parties hereto with respect to the subject matter of this Agreement. All schedules and exhibits attached to this Agreement shall be deemed part of this Agreement and are incorporated herein, where applicable, as if fully set forth herein. This Agreement supersedes all prior negotiations, letters of intent or other writings between the Parties and their respective representatives with respect to the subject matter hereof and cannot be amended, supplemented, or modified except by an agreement in writing that makes specific reference to this Agreement or an agreement delivered pursuant hereto, as the case may be, and which is signed by the Party against which enforcement of any such amendment, supplement, or modification is sought.

12.6 Waivers of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, representation, warranty, covenant, agreement, or condition herein may be waived by the Party entitled to the

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benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, representation, warranty, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any Party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section.

12.7 Severability. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument and this Agreement shall be construed in a manner that, as nearly as possible, reflects the original intent of the Parties.

12.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, and all of which counterparts together shall constitute one and the same fully executed instrument.

[END OF PAGE. SIGNATURES FOLLOW.]

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto as of the date first above written.

BUYER:		SELLER:
KRCA TELEVISION LLC		UTAH COMMUNICATIONS, LLC
By:	/s/ Lenard Liberman	By:	/s/ Donald J. Tringali
Name:	Lenard Liberman		Donald J. Tringali, Mediator
Title:	Executive Vice President
KRCA LICENSE LLC
By:	/s/ Lenard Liberman
Name:	Lenard Liberman
Title:	Executive Vice President

38

TABLE OF CONTENTS

			Page
Section 1 DEFINITIONS			1
	1.1	Terms Defined in this Section	1
	1.2	Terms Defined Elsewhere in this Agreement	7
	1.3	Clarifications.	8
Section 2 PURCHASE OF ASSETS			8
	2.1	Agreement to Sell and Buy	8
	2.2	Purchase Price	8
	2.3	Adjustments and Prorations	9
	2.4	Assumed Liabilities.	10
Section 3 REPRESENTATIONS AND WARRANTIES OF SELLER			11
	3.1	Organization and Authority	11
	3.2	Authorization and Binding Obligations	11
	3.3	No Contravention; Consents	12
	3.4	Title to Assets	12
	3.5	Real Property	12
	3.6	Equipment	12
	3.7	Licenses	13
	3.8	Contracts	13
	3.9	Must Carry Rights	13
	3.10	Intellectual Property	14
	3.11	Personnel Matters	14
	3.12	Financial Information	14
	3.13	Taxes	15
	3.14	Claims and Litigation	15
	3.15	No Interference With Signal	15
	3.16	Compliance with Laws	15
	3.17	Environmental Matters	15
	3.18	Conduct of Business in Ordinary Course	16
	3.19	Brokers	16
	3.20	Insurance	16
	3.21	Disclosure	16

TABLE OF CONTENTS

(continued)

			Page
	3.22	Absence of Other Express or Implied Representations	16
Section 4 REPRESENTATIONS AND WARRANTIES OF BUYER			17
	4.1	Organization and Authority	17
	4.2	Authorization and Binding Obligations	17
	4.3	No Contravention; Consents	17
	4.4	Compliance with Law	17
	4.5	Qualifications	17
	4.6	Claims and Litigation	17
	4.7	Availability of Funds	18
	4.8	Brokers	18
	4.9	Disclosure	18
	4.10	Absence of Other Express or Implied Representations	18
Section 5 PRE-CLOSING COVENANTS OF THE PARTIES			18
	5.1	Covenants of Seller	18
	5.2	Covenants of Buyer	21
Section 6 JOINT COVENANTS			22
	6.1	Consultations regarding Consents of Governmental Authorities	22
	6.2	Joint Filings	22
	6.3	Receipt of Overbid	22
	6.4	Employee Matters	23
	6.5	Notice of Breach	24
	6.6	Confidentiality	24
	6.7	Press Releases	24
	6.8	Receivables	24
	6.9	Allocation of Purchase Price	25
	6.10	Bulk Sales	25
	6.11	Risk of Loss	25
	6.12	Further Assurances	26
	6.13	Cooperation with Financings	26
	6.14	Pre-Final Order Consummation	26

ii

TABLE OF CONTENTS

(continued)

			Page
Section 7 CONDITIONS PRECEDENT TO OBLIGATION OF SELLER TO CLOSE			27
	7.1	Representations, Warranties and Covenants	27
	7.2	Closing Deliveries	27
	7.3	FCC Consent	27
	7.4	No Injunction	27
Section 8 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE			27
	8.1	Representations, Warranties and Covenants	27
	8.2	Closing Deliveries	28
	8.3	FCC Consent	28
	8.4	Material Consents	28
	8.5	Landlord Estoppels and Consents	28
	8.6	No Injunction	28
	8.7	Material Adverse Effect	28
Section 9 THE CLOSING			28
	9.1	The Closing	28
	9.2	Deliveries by Seller to Buyer	29
	9.3	Deliveries by Buyer to Seller	29
Section 10 INDEMNIFICATION			29
	10.1	Survival	29
	10.2	Seller’s Indemnity	30
	10.3	Buyer’s Indemnity	30
	10.4	Procedures	31
	10.5	Qualifications and Limitations.	32
	10.6	Indemnity Agreement	33
Section 11 TERMINATION			33
	11.1	Termination by the Parties	33
	11.2	Effect of Termination	34
	11.3	Specific Performance	34
	11.4	Payment of Escrow Deposit to Seller as Liquidated Damages	34

iii

TABLE OF CONTENTS

(continued)

			Page
	11.5	Surviving Obligations	35
	11.6	Attorneys’ Fees	35
Section 12 MISCELLANEOUS			35
	12.1	Notices	35
	12.2	Expenses	36
	12.3	Choice of Law	36
	12.4	Assignment	36
	12.5	Entire Agreement	36
	12.6	Waivers of Compliance; Consents	36
	12.7	Severability	37
	12.8	Counterparts.	37

iv

LIST OF EXHIBITS

Exhibit A	–	Indemnity Agreement
Exhibit B	–	Form of Landlord Consent and Estoppel
LIST OF SCHEDULES
Schedule 1.1A	_	Excluded Assets
Schedule 1.1B	–	Permitted Liens
Schedule 3.3	–	Consents
Schedule 3.5	–	Real Property
Schedule 3.6	–	Equipment
Schedule 3.7	–	Licenses
Schedule 3.8	–	Assumed Contracts
Schedule 3.9	–	Must Carry Rights
Schedule 3.10	–	Intellectual Property
Schedule 3.11	–	Personnel Matters
Schedule 3.12	–	Financial Statements
Schedule 3.14	–	Claims and Litigation
Schedule 3.15	–	No Interference with Signal
Schedule 3.16	–	Compliance with Legal Requirements
Schedule 3.20	–	Insurance
Schedule 5.1(i)	–	Equipment Repairs

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION OF PRESIDENT

I, Jose Liberman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of LBI Media Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2007
	By:	/s/ Jose Liberman
		Jose Liberman President

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Lenard D. Liberman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of LBI Media Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2007
	By:	/s/ Lenard D. Liberman
		Lenard D. Liberman Executive Vice President, Chief Financial Officer and Secretary