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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-61211
PROSPECTUS
RADIO UNICA CORP.
OFFER TO EXCHANGE
11 3/4% SENIOR DISCOUNT NOTES SERIES B DUE 2006
FOR ANY AND ALL OUTSTANDING
11 3/4% SENIOR DISCOUNT NOTES DUE 2006
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Radio Unica Corp., a Delaware corporation ("Radio Unica" or the "Company"),
hereby offers (the "Exchange Offer"), pursuant to a registration statement (the
"Registration Statement"), of which this Prospectus constitutes a part, and the
accompanying letter of transmittal (the "Letter of Transmittal"), to exchange
its issued 11 3/4% Senior Discount Notes due 2006 (the "Old Notes") of which an
aggregate of $158,088,000 principal amount at maturity is outstanding as of the
date hereof, for an equal principal amount at maturity of newly issued 11 3/4%
Senior Discount Notes Series B due 2006 (the "New Notes" and together with the
Old Notes, the "Notes"). The Exchange Offer will expire at 5:00 p.m., New York
City time, on January 20, 1999, unless extended.
Cash interest on the New Notes will not accrue or be payable prior to August
1, 2002. Thereafter, cash interest on the New Notes will accrue at a rate of
11 3/4% per annum on the principal amount at maturity of the Notes through and
including the maturity date, and will be payable semi-annually on August 1 and
February 1 of each year, commencing August 1, 2002. The New Notes will be issued
at a substantial discount to their principal amount at maturity, and the holders
of the New Notes will be required to include the accretion of the original issue
discount as gross income for U.S. federal income tax purposes prior to the
receipt of the cash payments to which such income is attributable. See
"Description of the Notes" and "Certain United States Federal Income Tax
Consequences."
The New Notes will be redeemable at any time and from time to time at the
option of the Company, in whole or in part, on or after August 1, 2002, at the
redemption prices set forth herein, plus accrued and unpaid interest to the date
of redemption. In addition, on or prior to August 1, 2001, the Company may
redeem, at its option, up to 35% of the aggregate principal amount at maturity
of the Notes with the net proceeds of one or more Equity Offerings (as defined
herein) at 111.75% of the Accreted Value (as defined herein) thereof, as long as
Notes representing at least $65.0 million of the aggregate initial Accreted
Value of the Notes originally issued remains outstanding after each such
redemption and any such redemption occurs within 90 days of the closing of any
such Equity Offering. See "Description of the New Notes-Optional Redemption."
Upon a Change of Control (as defined herein), the Company will be required
to offer to repurchase the Notes at a purchase price equal to (i) 101% of the
Accreted Value thereof, if the purchase date is on or prior to August 1, 2002,
or (ii) 101% of the principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date, if such date is after
August 1, 2002. See "Description of the Notes-Change of Control Offer." In
addition, the Company will be obligated in certain instances to make an offer to
repurchase the Notes at a purchase price equal to (i) 100% of the Accreted Value
thereof, if the purchase date is on or prior to August 1, 2002, or (ii) 100% of
the principal amount at maturity thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date, if such date is after August 1, 2002,
with the net cash proceeds of certain asset sales. See "Description of the
Notes-Certain Covenants-Limitation on Certain Asset Sales."
The New Notes will be general senior unsecured obligations of the Company
and will rank PARI PASSU in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the Company and senior in right of
payment to any subordinated indebtedness of the Company. The New Notes will be
effectively subordinated in right of payment to the Revolving Credit Facility
(as defined herein) and all other secured indebtedness of the Company and its
subsidiaries to the extent of the value of the assets securing such
indebtedness. The New Notes will be unconditionally guaranteed (the
"Guarantees"), on a senior unsecured basis, as to the payment of principal,
premium, if any, and interest, fully and unconditionally, jointly and severally,
by each of the Company's present and future Domestic Restricted Subsidiaries
(the "Guarantors"). As of the date hereof, the Company and the Guarantors have
no indebtedness outstanding that will rank senior to or PARI PASSU (except for
any Old Notes and the associated Guarantees that remain outstanding after the
consummation of the Exchange Offer) with the New Notes and the Guarantees,
respectively.
The New Notes are being offered hereby in order to satisfy certain
obligations of the Company under a Registration Rights Agreement, dated July 22,
1998 (the "Registration Rights Agreement"), between the Company, CIBC
Oppenheimer Corp. and Bear, Stearns & Co. Inc. (collectively, the "Initial
Purchasers"). The form and terms of the New Notes will be substantially the same
as the Old Notes, except that the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and hence will not be
subject to certain transfer restrictions, registration rights and related
liquidated damages provisions applicable to the Old Notes. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture (the "Indenture") dated as of July 27, 1998 by and between the
Company and Wilmington Trust Company, as trustee (the "Trustee"). The Indenture
provides for the issuance of both the Old Notes and the New Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all expenses incident to the Exchange Offer (which shall not
include the expenses of any holder in connnection with resales of the New
Notes). Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange any and all outstanding Old Notes validly
tendered and not withdrawn on or prior to the Expiration Date. As used herein,
the "Expiration Date" means 5:00 p.m., New York City Time, on January 20, 1999
or, if the Exchange Offer is extended, the latest date and time to which the
Exchange Offer is extended. Tenders of the Old Notes may be withdrawn at any
time prior to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. Old Notes
may be tendered only in integral multiples of $1,000 of principal amount of
maturity. For each Old Note accepted for exchange, the holders of such Old Notes
will receive a New Note having Accreted Value and principal amount at maturity
equal to that of the surrendered Old Note.
New Notes will be represented by permanent global notes in fully registered
form and will be deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of a nominee of DTC. Beneficial interests in
the permanent global notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about December 18, 1998 to all registered holders of the Old Notes
and to the beneficial holders of the Old Notes known to the Company.
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SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS DECEMBER 18, 1998.
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Based on interpretations contained in no-action letters of the Securities
and Exchange Commission (the "Commission"), the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold, and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased the Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person who is an affiliate of the Company (within the
meaning of Rule 405 under the Securities Act)), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the New Notes in its ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. The Noteholders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives the New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a Prospectus in connection with any resale of such New Notes. This Prospectus
has been prepared for use in connection with the Exchange Offer and may be used
by the Initial Purchasers in connection with offers and sales related to
market-making transactions in the Old Notes. The Initial Purchasers may act as a
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. The Letter of
Transmittal states that by so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the New Notes received in exchange for the Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will use
its reasonable best efforts to make this Prospectus available to any
broker-dealer for use in connection with any such resale for such period of time
as such persons may be required to comply with the prospectus delivery
requirements of the Securities Act (which period shall not exceed 180 days from
the date the Registration Statement becomes effective). See "Plan of
Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE
USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF NEW NOTES.
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market of the National
Association of Securities Dealers, Inc. Prior to this Exchange Offer, there has
been no public market for the New Notes. The Company does not intend to apply
for listing of the New Notes on any securities exchange or for quotation of the
New Notes on The Nasdaq Stock Market's National Market or otherwise. The Initial
Purchasers have previously made a market in the Old Notes and the Company has
been advised that the Initial Purchasers currently intend to make a market in
the New Notes, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. The Initial Purchasers are not obligated to
make a market in the Old Notes or the New Notes and any such market-making
activity may be discontinued at any time without notice at the sole discretion
of the Initial Purchasers. There can be no assurance as to the liquidity of the
public market for the New Notes or that any active public market for the New
Notes will develop or continue. If an active public market does not develop or
continue, the market price and liquidity of the New Notes may be adversely
affected. See "Risk Factors--Absence of Public Trading Market."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
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AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934 as amended
(the "Exchange Act"). The Company will become subject to such requirements upon
the effectiveness of the Registration Statement (defined below). The Company has
filed with the Commission a Registration Statement on Form S-4 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the New Notes offered hereby (the "Registration Statement"). This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
50 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
documents may be obtained from the Commission at its principal office in
Washington, D.C. upon the payment of the charges prescribed by the Commission.
Information on the operation of the public reference facilities may be obtained
by calling the Commission at 1-800-SEC-0330.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any of the
Notes remain outstanding, it will furnish to the holders of the Notes and file
with the Commission (unless the Commission will not accept such a filing) (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent auditors and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company was required to file such
reports. In addition, for so long as any of the Notes are restricted securities
within the meaning of Rule 144(c)(3) under the Securities Act, the Company has
agreed to make available to any prospective purchaser of the Notes or beneficial
owner of the Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words "believes," "anticipates," "expects"
and other words of similar import are used to identify "forward-looking
statements." All statements other than statements of historical fact included in
this Prospectus, including, without limitation, the statements under "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere herein, regarding the Company
or any of the transactions described herein, including the timing, financing,
strategies and effects of such transactions, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from expectations are disclosed in this
Prospectus, including, without limitation, in conjunction with the
forward-looking statements in this Prospectus and/or under "Risk Factors." The
Company does not intend to update these forward-looking statements.
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SOURCES OF INFORMATION
Unless otherwise indicated herein, all market revenue rankings and other
market radio advertising revenue information that are contained in this
Prospectus are based on information obtained from HISPANIC BUSINESS magazine.
Unless otherwise noted, references herein to the rank of a station among all the
stations within a market has been determined by reference to all radio stations
ranked by The Arbitron Company ("Arbitron") within the applicable market.
Designated Market Area ("DMA") information contained herein is derived from
Nielsen Media Research, Inc. DMA definitions. A "National Hispanic Arbitron
Rating" point, when used herein, is equivalent to 1% of U.S. Hispanic persons 12
years of age or older. Power ratio information used herein is based on the
Miller, Kaplan, Arase & Co., L.L.P., Spring 1998 POWER RATIO TRENDS BY FORMAT.
Unless otherwise indicated, all references to population and demographic
statistics in this Prospectus are derived from Strategy Research Corporation,
1998 UNITED STATES HISPANIC MARKET STUDY (the "SRC Study"), the United States
Census Bureau and HISPANIC BUSINESS magazine. The SRC Study is sponsored by
advertisers and other businesses targeting the Hispanic market.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS, AND
RELATED NOTES THERETO, AND OTHER DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
"RISK FACTORS" PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER OR
MAKING AN INVESTMENT IN THE NEW NOTES. EXCEPT AS OTHERWISE INDICATED BY THE
CONTEXT, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" INCLUDE THE COMPANY, ITS
SUBSIDIARIES AND ITS NATIONAL NETWORK OF RADIO STATIONS. UNLESS OTHERWISE
INDICATED HEREIN, REFERENCES IN THIS PROSPECTUS TO "HISPANICS" MEAN HISPANICS IN
THE U.S.
THE COMPANY
The Company is the only national long-form, Spanish-language news/talk,
sports and information AM radio network in the U.S., broadcasting 24-hours a
day, 7-days a week. The Company, which began broadcasting its network
programming on January 5, 1998, produces 19 hours of live and first-run
celebrity-based programming each weekday and 25 hours of such programming each
weekend. With ten Company-operated stations and, as of September 30, 1998, 47
affiliated stations, the Company's network reaches approximately 83% of the U.S.
Hispanic population. The Company-operated stations are located in ten of the top
twelve U.S. markets in terms of Spanish-language media spending. The markets in
which the Company maintains stations collectively account for approximately
57.5% of the total U.S. Hispanic population. Of these stations, six are
Company-owned (including those stations which the Company has contracted to
acquire) and four are operated under time brokerage agreements (also known as
local marketing agreements and referred to herein as "LMAs").
The Company believes that its strong programming line-up provides the
Company with a competitive advantage over other Spanish-language radio
broadcasters in appealing to U.S. Hispanic listeners. The Company's programming
line-up includes contemporary-themed talk shows hosted by internationally known
personalities such as Pedro Sevcec, Dr. Isabel Gomez-Bassols and Mauricio
Zeillic; sports-talk hosted by Jorge Ramos and other top names in sports
broadcasting; and newscasts on the hour, 24 hours a day. Many of the Company's
programs are interactive, allowing listeners nationwide to call in toll-free.
The Company believes that its programming is being well received. Company
research in the Miami market has shown that Radio Unica is the number two
Spanish-language news/talk station in the market, with 21% of respondents
preferring Radio Unica.
The Company's senior management team has extensive experience in
Spanish-language broadcasting. Joaquin F. Blaya, the Company's Chairman and
Chief Executive Officer, formerly the President and Chief Executive Officer of
Telemundo and the President of Univision, has over 30 years of industry
experience and played a key role in Spanish-language media becoming an important
part of the mainstream advertising mix. Jose C. Cancela, the President of the
Company, served as Executive Vice President of Telemundo for six years and as
the Vice President of the Univision Southwest Station Group for two years.
Steven E. Dawson, the Company's Chief Financial Officer, spent six years at
Telemundo, most recently as the Vice President of Finance and Controller.
In July 1998, the Company effected a holding company reorganization,
pursuant to which the Company became a wholly-owned subsidiary of Radio Unica
Holdings Corp. ("Holdings"). Holdings has no assets other than shares of the
Company's capital stock. Warburg, Pincus Ventures, L.P., a private equity
partnership ("Warburg Ventures, L.P."), owns approximately 98% of Holdings'
outstanding stock with members of senior management owning the remaining 2%.
Under additional time-vested and performance-based option plans, senior
management and key talent could increase their ownership of Holdings to
approximately 20%. E.M. Warburg, Pincus & Co., LLC ("Warburg") is the managing
entity of Warburg Ventures, L.P. Warburg has over 25 years of private equity
investment experience and has approximately 100 portfolio companies and over $7
billion under management. Warburg has significant experience in media investing,
including having been an investor in Renaissance Communications, Panavision and
ADVO, among others.
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RISK FACTORS
Prospective participants in the Exchange Offer should consider carefully the
information set forth under the caption "Risk Factors" beginning on page 10 and
all other information set forth in this Prospectus before tendering their Old
Notes in the Exchange Offer. This information includes: (i) the Company's high
degree of leverage and the Company's need to continue to generate cash flow that
is sufficient to service its debt obligations; (ii) the Company's limited
operating history and its history of net losses and negative cash flow from
operations; (iii) the restrictions imposed on the Company by the terms of the
Indenture and the Revolving Credit Facility; (iv) the Company's dependence on
certain key personnel; (v) risks associated with the Company's plan to acquire
additional radio stations, including existing restrictions on the Company's
ability to arrange financing for future acquisitions; (vi) the need for the
periodic renewal of the Company's broadcast licenses and the potential for
adverse regulatory changes; (vii) the highly competitive nature of the radio
broadcasting industry; (viii) that the Indenture will require the Company to
make an offer to purchase all of the outstanding Notes upon a Change of Control
and certain events that would constitute a Change of Control would also
constitute a default under the Revolving Credit Facility; and (ix) the lack of a
public market for the New Notes.
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THE EXCHANGE OFFER
The form and terms of the New Notes will be substantially identical to those
of the Old Notes except that the New Notes will have been registered under the
Securities Act, and hence will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to the
Old Notes.
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The Exchange Offer.................. The Company is offering to exchange an aggregate of
$158,088,000 principal amount at maturity of the New
Notes for a like principal amount at maturity of the
Old Notes. The Old Notes may be exchanged only in
multiples of $1,000 of principal amount at maturity.
The Company will issue the New Notes as soon as
practicable after the Expiration Date. See "The
Exchange Offer."
Issuance of the Old Notes;
Registration Rights............... The Old Notes were issued and sold on July 27, 1998
to the Initial Purchasers. In connection therewith,
the Company executed and delivered for the benefit of
the holders of the Old Notes the Registration Rights
Agreement, pursuant to which the Company agreed (i)
to commence an exchange offer under which the New
Notes, registered under the Securities Act with terms
substantially identical to those of the Old Notes,
will be exchanged for the Old Notes pursuant to an
effective registration statement (the "Exchange Offer
Registration Statement") or (ii) cause the Old Notes
to be registered under the Securities Act pursuant to
a resale shelf registration statement (the "Shelf
Registration Statement"). If the Company does not
comply with certain of its obligations under the
Registration Rights Agreement, certain damages will
accrue and be payable when cash interest becomes
payable on the Old Notes. See "The Exchange
Offer--Purpose of the Exchange Offer; Registration
Rights."
Expiration Date..................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on January 20, 1999, unless extended in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain conditions,
which may be waived by the Company in whole or in
part and from time to time in its reasonable
discretion. See "The Exchange Offer--Certain
Conditions to the Exchange Offer." The Exchange Offer
is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for
exchange.
Procedures for Tendering Old
Notes............................. Each holder of Old Notes desiring to accept the
Exchange Offer must complete and sign the Letter of
Transmittal, have the signature thereon guaranteed if
required by the Letter of Transmittal, and mail or
otherwise deliver the Letter of Transmittal, together
with the Old Notes or a Notice of Guaranteed Delivery
and any other required documents (such as evidence of
authority to act satisfactory to the Company in its
sole discretion, if the Letter of Transmittal is
signed by someone acting in a fiduciary or
representative capacity) or, in the case of Global
Notes deliver an Agent's Message (as defined herein)
together with a Book-Entry
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Confirmation (as defined herein), to the Exchange
Agent (as defined herein) at the address set forth
herein prior to the Expiration Date. Any beneficial
owner of the Old Notes whose Old Notes are registered
in the name of a nominee, such as a broker, dealer,
commercial bank or trust company and who wishes to
tender the Old Notes in the Exchange Offer, should
instruct such entity or person to promptly tender on
such beneficial owner's behalf. By executing the
Letter of Transmittal or delivering an Agent's
Message, each holder will represent to the Company,
among other things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the holder and any
beneficial owners of Old Notes are being obtained in
the ordinary course of business of the person
receiving such New Notes, (ii) at the time of the
consummation of the Exchange Offer neither the holder
nor such beneficial owner has an arrangement or
understanding with any person to participate in the
distribution of such New Notes in violation of the
Securities Act, (iii) neither the holder nor such
beneficial owner is an "affiliate," as defined under
Rule 405 promulgated under the Securities Act, of the
Company or any Guarantor or if it is an affiliate
that it will comply with the registration and
prospectus delivery requirements under the Securities
Act and (iv) that it is not acting on behalf of any
person who could not truthfully make the foregoing
representations. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or
other trading activities (other than Old Notes
acquired directly from the Company), may participate
in the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and,
therefore, must so acknowledge in the Letter of
Transmittal or will be deemed to have so acknowledged
by delivering an Agent's Message that it will deliver
a prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities
Act. See "The Exchange Offer--Procedures for
Tendering the Old Notes."
Guaranteed Delivery Procedures...... Holders who wish to tender their Old Notes and (i)
whose Old Notes are not immediately available or (ii)
who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date (or
complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according
to the guaranteed delivery procedures set forth in
the Letter of Transmittal. See "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights................... Tenders of the Old Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer-- Withdrawal Rights."
Acceptance of the Old Notes and
Delivery of the New Notes......... Upon the terms and subject to the conditions of the
Exchange
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Offer, the Company will accept for exchange any and
all Old Notes which are properly tendered in the
Exchange Offer prior to the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered as promptly as practicable following the
Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Resales of the New Notes............ Based on an interpretation by the staff of the
Commission set forth in Exxon Capital Holdings Corp.,
SEC No-Action Letter (available May 13, 1988), Morgan
Stanley & Co., Inc., SEC No-Action Letter (available
June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993), the Company believes
that the New Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such
holder's business and that such holder has no
arrangement or understanding with any person to
participate in the distribution of such New Notes,
and provided, further, that each broker-dealer that
receives the New Notes for its own account in
exchange for the Old Notes must acknowledge that it
will deliver a Prospectus in connection with any
resale of such New Notes. See "Plan of Distribution."
If a holder does not exchange such Old Notes for New
Notes pursuant to the Exchange Offer, such Old Notes
will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general,
the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. See "The Exchange Offer--
Consequences of Failure to Exchange."
Consequences of Failure to
Exchange.......................... Holders who do not exchange their Old Notes for the
New Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on
transfer of such Old Notes as set forth in the legend
thereon. In general, the Old Notes may not be offered
or sold, except pursuant to a registration statement
under the Securities Act or any exemption from
registration thereunder and in compliance with
applicable state securities laws. In the event the
Company completes the Exchange Offer, the holders of
Old Notes will have no further rights to registration
or liquidated damages pursuant to the Registration
Rights Agreement. See "The Exchange Offer-- Purpose
of the Exchange Offer; Registration Rights."
Certain Tax Considerations.......... There will be no Federal income tax consequences to
holders exchanging the Old Notes for the New Notes
pursuant to the Exchange Offer and a holder will have
the same adjusted basis and holding period in the New
Notes as in the Old Notes immediately before the
exchange.
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Registration Rights Agreement....... The Exchange Offer is intended to satisfy the
registration rights of holders of Old Notes under the
Registration Rights Agreement.
Exchange Agent...................... Wilmington Trust Company is the Exchange Agent. The
address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer--Exchange
Agent."
</TABLE>
DESCRIPTION OF THE NOTES
<TABLE>
<S> <C>
Issuer.............................. Radio Unica Corp.
New Notes........................... Up to $158,088,000 aggregate principal amount at
maturity of the Company's 11 3/4% Senior Discount
Notes Series B due 2006.
Maturity Date....................... August 1, 2006.
Original Issue Discount............. The Old Notes were issued at a substantial discount
to their principal amount at maturity, and the New
Notes will also bear original issue discount for U.S.
Federal income tax purposes. The issue price to
investors per Old Note was $632.56, which represents
a yield to maturity on the Old Notes of 11 3/4% from
July 27, 1998 (computed on a semi-annual bond
equivalent basis). The New Notes will have an initial
Accreted Value equal to the Accreted Value of the Old
Notes for which they were exchanged. Holders of the
New Notes will be required to include the accretion
of the original issue discount as gross income for
U.S. Federal income tax purposes prior to the receipt
of the cash payments to which such income is
attributable. See "Certain United States Federal
Income Tax Consequences."
Interest............................ Cash interest on the New Notes will not accrue or be
payable prior to August 1, 2002. Thereafter, cash
interest will accrue at a rate of 11 3/4% per annum
on the principal amount at maturity of the New Notes
through and including the maturity date, and will be
payable semiannually on August 1 and February 1 of
each year, commencing August 1, 2002.
Ranking............................. The New Notes will be general senior unsecured
obligations of the Company and will rank PARI PASSU
in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the
Company and senior in right of payment to any
subordinated indebtedness of the Company. The New
Notes will be effectively subordinated in right of
payment to the Revolving Credit Facility (as defined)
and all other secured indebtedness of the Company to
the extent of the value of the assets securing such
indebtedness. As of the date hereof, the Company has
no indebtedness outstanding which will rank senior to
or PARI PASSU (except for any Old Notes and the
associated Guarantees that remain outstanding after
the consummation of the Exchange Offer) with the New
Notes and the Guarantees, respectively. The Indenture
(as defined) permits the Company to incur additional
indebtedness (subject to certain limitations),
including certain indebtedness of its subsidiaries.
See "Description of the Notes."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Optional Redemption................. The New Notes will be redeemable at any time and from
time to time at the option of the Company, in whole
or in part on or after August 1, 2002, at the
redemption prices set forth herein, plus accrued and
unpaid interest thereon to the date of redemption. In
addition, on or prior to August 1, 2001, the Company
may redeem, at its option, up to 35% of the aggregate
principal amount at maturity of the Notes with the
net proceeds of one or more Equity Offerings at
111.75% of the Accreted Value thereof as long as
Notes representing at least $65.0 million of the
aggregate initial Accreted Value of the Notes
originally issued remains outstanding after each such
redemption and that such redemption occurs within 90
days of the closing of any such Equity Offering. See
"Description of the New Notes--Optional Redemption."
Change of Control................... Upon a Change of Control, the Company will be
required to offer to repurchase the Notes at a
purchase price equal to (i) 101% of the Accreted
Value thereof, if the purchase date is on or prior to
August 1, 2002, or (ii) 101% of the principal amount
at maturity thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date, if such date
is after August 1, 2002. See "Risk
Factors--Obligation to Purchase the Notes Upon a
Change of Control" and "Description of the
Notes--Change of Control Offer."
Asset Sale Proceeds................. The Company will be obligated in certain instances to
make an offer to repurchase the Notes at a purchase
price equal to (i) 100% of the Accreted Value
thereof, if the purchase date is on or prior to
August 1, 2002, or (ii) 100% of the aggregate
principal amount at maturity thereof, plus accrued
and unpaid interest thereon, if any, to the purchase
date, if such date is after August 1, 2002, with the
net cash proceeds of certain asset sales. See
"Description of the Notes--Certain
Covenants-Limitations on Certain Asset Sales."
Guarantees.......................... The Old Notes are, and the New Notes will be,
unconditionally guaranteed (the "Guarantees"), on a
senior unsecured basis, as to the payment of
principal, premium, if any, and interest, fully and
unconditionally, jointly and severally, by the
Guarantors which will consist of the Company's
Domestic Restricted Subsidiaries (as defined herein).
The Guarantee of each individual Guarantor ranks PARI
PASSU in right of payment with all existing and
future unsecured and unsubordinated indebtedness of
each such Guarantor and senior in right of payment to
any subordinated debt of each such Guarantor. As of
the date hereof, none of the Guarantors have any
outstanding indebtedness (other than the Guarantees).
Certain Covenants................... The indenture pursuant to which the New Notes will be
issued (the "Indenture") contains covenants for the
benefit of the holders of the Notes that, among other
things, restrict the ability of the Company to: (i)
incur additional Indebtedness (as defined herein);
(ii) pay dividends and make distributions; (iii)
issue stock and preferred stock of subsidiaries; (iv)
make certain investments; (v) repurchase stock; (vi)
create liens; (vii) enter into transactions with
affiliates; (viii) enter into sale and leaseback
transactions; (ix) merge or consolidate the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Company; and (x) transfer and sell assets. These
covenants are subject to a number of important
exceptions. See "Description of the Notes--Certain
Covenants."
Exchange Rights..................... Holders of New Notes will not be entitled to any
exchange rights with respect to the New Notes.
Holders of Old Notes are entitled to certain exchange
rights pursuant to the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company
is required to offer to exchange the Old Notes for
new notes having substantially identical terms which
have been registered under the Securities Act. This
Exchange Offer is intended to satisfy such
obligation. Once the Exchange Offer is consummated,
the Company will have no further obligations to
register any of the Old Notes not tendered by the
holders for exchange, except pursuant to a shelf
registration statement to be filed under certain
limited circumstances specified in "The Exchange
Offer--Purposes of the Exchange Offer; Registration
Rights." See "Risk Factors--Absence of Public
Market."
Absence of a Public Market for the
New Notes......................... The New Notes will be a new issue of securities with
no established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes.
Use of Proceeds..................... The Company will not receive any proceeds in
connection with the Exchange Offer. In consideration
for issuing the New Notes in exchange for the Old
Notes as described in this Prospectus, the Company
will receive the Old Notes, which will be retired and
canceled.
</TABLE>
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents (i) summary historical consolidated financial
data of the Company for the periods indicated and (ii) summary unaudited pro
forma financial data of the Company as of the dates and for the periods
indicated giving effect to the events described in "The Transactions" and
"Unaudited Pro Forma Combined Financial Data" included elsewhere herein as
though they had occurred on the dates indicated therein. The summary unaudited
pro forma financial data are not necessarily indicative of the operating results
or the financial condition that would have been achieved had these events been
consummated on the date indicated and should not be construed as representative
of future operating results or financial condition. The summary historical
consolidated and unaudited pro forma financial data should be read in
conjunction with the financial statements and related notes thereto, with the
"Unaudited Pro Forma Combined Financial Data" and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD PRO FORMA
FROM SEPTEMBER 12, -------------
1996 (INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30, YEAR ENDED
DECEMBER 31, DECEMBER 31, ------------------------- DECEMBER 31,
1996 1997 1997 1998 1997
------------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.............................. $ -- $ -- $ -- $ 6,418,719 $ 3,903,516
Operating expenses....................... 40,000 1,802,816 788,298 21,000,424 9,192,747
-------- ------------- ----------- ------------ -------------
Operating loss........................... (40,000) (1,802,816) (788,298) (14,581,705) (5,289,231)
Interest income (expense), net........... -- (12,765) -- (2,016,449) (12,597,980)
Other income............................. -- -- -- (14,867) --
-------- ------------- ----------- ------------ -------------
Loss before provision (benefit) for
income taxes........................... (40,000) (1,815,581) (788,298) (16,613,021) (17,887,211)
-------- ------------- ----------- ------------ -------------
Provision (benefit) for income taxes..... -- -- -- -- (11,318)
-------- ------------- ----------- ------------ -------------
Net loss................................. (40,000) (1,815,581) (788,298) (16,613,021) (17,875,893)
-------- ------------- ----------- ------------ -------------
-------- ------------- ----------- ------------ -------------
Net loss applicable to common
shareholders........................... $ (40,000) $(1,935,071) $ (788,298) $(18,530,100) $(19,518,728)
-------- ------------- ----------- ------------ -------------
-------- ------------- ----------- ------------ -------------
Net loss per common share applicable to
common shareholders--basic and
diluted................................ $ (13.33) $ (356.10) $ (132.11) $ (1,345.10) $(19,518.73)
-------- ------------- ----------- ------------ -------------
-------- ------------- ----------- ------------ -------------
Weighted average common shares
outstanding--basic and diluted......... 3,000 5,434 5,967 13,776 1,000
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents..............................................................................................
Working capital........................................................................................................
Total assets...........................................................................................................
Long-term debt.........................................................................................................
Series A redeemable preferred stock....................................................................................
Stockholders' deficit..................................................................................................
OTHER FINANCIAL DATA:
Depreciation and amortization............ $ -- $ -- $ -- $ 901,971 $ 3,535,890
EBITDA(1)................................ (40,000) (1,802,816) (788,298) (13,694,601) (1,753,341)
Ratio of earnings to fixed charges(2)....
Fixed charges coverage deficiency(2)..... (40,000) (1,815,581) (788,298) (16,613,021) (17,875,893)
Net cash used in operating activities.... (40,000) (2,209,553) (1,017,957) (15,275,702)
Net cash used in investing activities.... -- (2,238,585) (360,755) (48,677,402)
Net cash provided by financing
activities............................. 45,000 5,570,000 1,820,000 120,374,525
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.............................. $ 7,146,559
Operating expenses....................... 23,301,780
--------------
Operating loss........................... (16,155,221)
Interest income (expense), net........... (8,968,013)
Other income............................. --
--------------
Loss before provision (benefit) for
income taxes........................... (25,123,234)
--------------
Provision (benefit) for income taxes..... --
--------------
Net loss................................. (25,123,234)
--------------
--------------
Net loss applicable to common
shareholders........................... $(27,863,382)
--------------
--------------
Net loss per common share applicable to
common shareholders--basic and
diluted................................ $ (27,863.38)
--------------
--------------
Weighted average common shares
outstanding--basic and diluted......... 1,000
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................ $ 27,548,283
Working capital.......................... 29,153,652
Total assets............................. 132,002,021
Long-term debt........................... 106,237,895
Series A redeemable preferred stock...... 37,332,908
Stockholders' deficit.................... (20,146,409)
OTHER FINANCIAL DATA:
Depreciation and amortization............ $ 2,948,561
EBITDA(1)................................ (13,206,660)
Ratio of earnings to fixed charges(2)....
Fixed charges coverage deficiency(2)..... (25,123,234)
Net cash used in operating activities....
Net cash used in investing activities....
Net cash provided by financing
activities.............................
</TABLE>
- ------------------------
(1) EBITDA is defined as net income (loss) plus (i) provision for income taxes,
(ii) interest expense, net and (iii) depreciation and amortization. EBITDA
is presented not as an alternative measure of operating results or cash flow
from operations (as determined in accordance with generally accepted
accounting principles ("GAAP")), but because it is a widely accepted
supplemental financial measure of a company's ability to service debt. The
Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies since all companies do not calculate
this non-GAAP measure in the same fashion. The Company's EBITDA calculation
is not intended to represent cash used in operating activities, since it
does not include interest and taxes and changes in operating assets and
liabilities, nor is it intended to represent the net increase or decrease in
cash, since it does not include cash provided by (used in) investing and
financing activities.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt issuance costs and the
portion of rental expense that is representative of the interest factor.
Earnings were insufficient to cover fixed charges.
9
<PAGE>
RISK FACTORS
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company is highly leveraged. As of September 30, 1998, on an adjusted
pro forma basis after giving effect to the Old Note offering and the
Transactions (as defined herein) and the application of that portion of the net
proceeds from the Old Note offering to be used to retire debt, the Company would
have had approximately $100 million of outstanding long-term indebtedness
(consisting of the Old Notes) and no amounts would be outstanding under the
Revolving Credit Facility.
The Revolving Credit Facility and the Indenture permit the Company to incur
additional indebtedness, subject to certain limitations. The degree to which the
Company is leveraged could have important consequences to holders of the New
Notes, including the following: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest on the
Notes (when interest becomes payable thereon in cash) and other Indebtedness (as
defined), thereby reducing the funds available to the Company for other
purposes; (iii) all of the indebtedness outstanding under the Revolving Credit
Facility is secured by substantially all of the assets of the Company and the
Domestic Restricted Subsidiaries, and will mature prior to the Notes; (iv) the
Company is substantially more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (v) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; and
(vi) the Company may be more vulnerable in the event of a downturn in general
economic conditions or in its industry or business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Capitalization," "Description of Revolving Credit Facility"
and "Description of the Notes."
The Company's ability to pay the interest on and retire principal of the New
Notes and the Revolving Credit Facility is dependent upon its future operating
performance, which in turn is subject to general economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. The Company expects its annual interest expense related to the Notes to
be approximately $5 million to $19 million through August 1, 2006. In the event
that the Company is unable to generate cash flow that is sufficient to service
its obligations in respect of the New Notes and the Revolving Credit Facility,
the Company may be forced to adopt one or more alternatives, such as reducing or
delaying the acquisition of radio stations, attempting to refinance or
restructure its indebtedness, selling material assets or operations or selling
equity. There can be no assurance that any of such actions could be effected on
satisfactory terms or at all, that they would enable the Company to satisfy its
debt service requirements or that they would be permitted by the Revolving
Credit Facility or the Indenture. The failure to generate such sufficient cash
flow or to achieve such alternatives could significantly adversely affect the
market value of the New Notes and the Company's ability to pay the principal of
and interest on the New Notes.
LIMITED HISTORY OF OPERATIONS; NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
The Company commenced its broadcasting operations in January 1998 and has a
limited operating history. Accordingly, prospective investors have limited
operating history and limited historical financial information upon which to
base an evaluation of the Company's performance and an investment in the New
Notes. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development.
Since its inception, the Company has not generated significant revenue, has
incurred substantial net losses and has never generated positive cash flow from
operations. Earnings were insufficient to cover fixed charges by $40,000,
$1,815,581, $788,298 and $16,613,021 for the period from September 12, 1996
(inception) through December 31, 1996, the year ended December 31, 1997 and the
nine months ended September 30, 1997 and 1998, respectively. On a pro forma
basis after giving effect to the Transactions,
10
<PAGE>
earnings would have been insufficient to cover fixed charges by approximately
$17.9 million and $25.1 million for the year ended December 31, 1997 and the
nine months ended September 30, 1998, respectively. The Company had net losses
of $1.8 million for the year ended December 31, 1997 and a net loss of
approximately $16.6 million for the nine months ended September 30, 1998. The
Company believes that losses will continue while the Company pursues its
strategy of acquiring radio stations and developing its network. The Company
will also incur losses during the initial reformatting and assimilation process
with respect to the radio stations that it acquires. There can be no assurance
that an adequate revenue base will be established or that the Company's radio
stations will become profitable or generate positive cash flow. Combined losses
and negative cash flow may prevent the Company from pursuing its strategies for
growth and may have a material adverse effect on the Company.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, create liens on assets, enter into
transactions with affiliates, make investments, loans or advances, consolidate
or merge with or into any other person or convey, transfer or lease all or
substantially all of its assets or change the business conducted by the Company.
In addition, the Revolving Credit Facility contains certain other and more
restrictive covenants and prohibits the Company from prepaying certain
indebtedness, including the New Notes. A breach of any of these covenants could
result in a default under the Revolving Credit Facility or the Indenture. Upon
the occurrence of an event of default under the Revolving Credit Facility, the
lenders could elect to declare all amounts outstanding under the Revolving
Credit Facility to be due and payable, together with accrued and unpaid
interest, and could terminate their commitments to make further extensions of
credit under the Revolving Credit Facility. If the Company were unable to repay
its indebtedness under the Revolving Credit Facility, the lenders could proceed
against the collateral securing such indebtedness. If the indebtedness under the
Revolving Credit Facility were accelerated, there could be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the Company's other indebtedness, including the New Notes. Substantially all of
the assets of the Company and the Domestic Restricted Subsidiaries are pledged
as security under the Revolving Credit Facility. See "Description of Revolving
Credit Facility" and "Description of the Notes--Certain Covenants."
DEPENDENCE ON KEY PERSONNEL
The Company's business depends on the efforts, abilities and expertise of
its senior officers and other key employees. The loss of a combination of the
foregoing could have a material adverse effect on the Company. The Company
believes that its future success will depend on its ability to attract and
retain highly skilled and qualified personnel and to expand, train and manage
its employee base.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY; FUTURE CAPITAL REQUIREMENTS
One of the Company's growth strategies is to acquire additional radio
stations. Any future acquisitions, investments, strategic alliances or related
efforts will be accompanied by various associated risks, such as the difficulty
of identifying appropriate acquisition candidates, the competition among buyers
of radio stations, the difficulty of assimilating the operations of the
respective entities, the potential disruption of the Company's ongoing business,
the inability of management to capitalize on the opportunities presented by
acquisitions, investments, strategic alliances or related efforts, the failure
to successfully incorporate licensed or acquired technology and rights into the
Company's services, the inability to maintain uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management. There can be no assurance that
the Company will be successful in overcoming these risks or any other problems
encountered with such acquisitions, investments, strategic alliances or related
efforts. See "Business-Business Strategy." In
11
<PAGE>
addition, entities acquired by the Company may have liabilities, including
contingent liabilities, for which the Company may become responsible.
The Company expects to spend, in the aggregate, approximately $2.5 million
over the next two years for planned equipment purchases and for upgrades of
existing stations. The Company is unable to anticipate, at this time, the amount
of capital that it will require to complete future acquisitions. However,
additional debt or equity financing may be required in order to complete such
acquisitions. The Company's ability to arrange financing will be restricted by
the terms of the Indenture and the Revolving Credit Facility and the cost of
such financing would be dependent upon numerous factors, including general
economic and capital market conditions, conditions in the radio broadcasting
industry, regulatory developments, credit availability from banks or other
lenders, investor confidence in the industry and the Company, the success of the
Company's radio stations, and provisions of tax and securities laws that are
conducive to raising capital. There can be no assurance that financing will be
available to the Company on acceptable terms in the future. If the Company
cannot arrange such financing, it may be forced to curtail its acquisition of
additional radio stations which may have an adverse effect on its long-term
business strategy.
REGULATORY MATTERS AND DEPENDENCE ON LICENSES
Each of the Company's radio stations operates pursuant to one or more
broadcast licenses issued by the Federal Communication Commission (the "FCC"),
that presently have a maximum term of eight years. The Company's broadcast
licenses expire at various times in 2003 and 2005. Although the Company may
apply to renew these licenses, third parties may challenge the Company's renewal
applications. While the Company is not aware of facts or circumstances that
would prevent the Company from having its current licenses renewed, there can be
no assurance that the licenses will be renewed. Failure to obtain the renewal of
any of the Company's broadcast licenses, to obtain FCC approval for an
assignment or transfer to the Company of a license in connection with a radio
station acquisition or to obtain and comply with FCC authorization for the
construction of required facilities or modification of technical parameters or
specifications for operations may have a material adverse effect on the Company.
In addition, if the Company or any of its officers, directors or significant
stockholders violates the FCC's rules and regulations or the Communications Act
of 1934, as amended (the "Communications Act"), is convicted of a felony, or is
otherwise found to be disqualified from being a party to a FCC license, the FCC
may in response to a petition from a third party or on its own motion, in its
discretion, commence a proceeding to impose sanctions against the Company which
could involve the imposition of monetary penalties, the revocation of the
Company's broadcast licenses or other sanctions. In addition, the FCC has the
ability upon the occurrence of certain events to revoke outstanding licenses.
The radio broadcasting industry is subject to extensive and changing
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of stations that one individual or entity can own, or
in which that individual or entity can hold an attributable interest in a
market, and require FCC approval for transfers of control of FCC licensees and
assignments of FCC licenses. The filing of petitions or complaints against the
Company or other FCC licensees could result in the FCC delaying the grant of, or
refusing to grant, its consent to the assignment of FCC licenses to or from an
FCC licensee or the transfer of control of an FCC licensee. The Communications
Act and FCC rules operate to impose limitations on ownership by Aliens (as
defined in the Communications Act). No corporation owning a broadcast license
may be more than one-fifth directly, or one-fourth indirectly, owned by Aliens,
foreign governments or their representatives. The FCC rules also require, in
certain circumstances, prior approval for changes in voting rights of the
Company's common stock and changes in the Board of Directors of the Company.
While the current regulatory scheme has not had any negative effects on the
Company to date, there can be no assurance that there will not be changes in the
regulatory scheme, the imposition of additional regulations or the creation of
new regulatory agencies, which changes could restrict or curtail the ability of
the Company to acquire, operate and dispose of radio stations or, in general, to
compete
12
<PAGE>
profitably with other operators of radio and other media properties. Moreover,
there can be no assurance that there will not be other regulatory changes,
including aspects of deregulation, that will result in a decline in the value of
broadcast licenses held by the Company or adversely affect the Company's
competitive position. See "Business--Federal Regulation of Radio Broadcasting."
Furthermore, the Communications Act prohibits the assignment of a FCC
license or the transfer of control of a corporation holding such a license
without the prior approval of the FCC. Applications to the FCC for such
assignments or transfers are subject to petitions to deny by interested parties
and must satisfy requirements similar to those for renewal and new station
applications.
COMPETITION; DEPENDENCE ON AUDIENCE SHARE RATINGS AND TECHNOLOGY CHANGES
Radio broadcasting is a highly competitive business. The financial success
of each of the Company's radio stations will depend, to a significant degree,
upon its audience ratings, its share of the overall radio advertising revenue
within its geographic market and the economic health of the market. The audience
ratings and advertising revenue of the Company's individual stations are subject
to change and any adverse change in a particular market could have a material
adverse effect on the Company. Since the Company is in the early stages of its
operations, its network has not yet been rated by Arbitron. The Company's radio
stations compete for audience share and advertising revenue directly with other
FM and AM radio stations and with other media within their respective markets,
such as newspapers, broadcast and cable television, magazines, billboard
advertising, transit advertising, and direct mail advertising. Many of these
entities are larger and have significantly greater resources than the Company.
While the Company already competes with other radio stations with comparable
programming formats in each of its markets, if another radio station in the
market which currently does not have the same programming format as the
Company's stations were to convert its programming format to a format similar to
one of the Company's stations, if a new station were to adopt a competitive
format, or if an existing competitor were to strengthen its operations, the
Company's stations could suffer a reduction in ratings and/or advertising
revenue and could require increased promotional and other expenses. The
Telecommunications Act of 1996 (the "Telecom Act") facilitates the entry of
other radio broadcasting companies into the markets in which the Company
operates or may operate in the future, some of which may be larger and have more
financial resources than the Company. In addition, certain of the Company's
stations compete, and in the future other stations of the Company may compete,
with combinations of stations operated by a single operator. There can be no
assurance that the Company's radio stations will be able to develop, maintain or
increase their current audience ratings and radio advertising revenue. See
"Business--Competition."
Radio broadcasting is also subject to competition from new media
technologies that are being developed or have been introduced, such as digital
audio broadcasting ("DAB"). DAB may provide a medium for the delivery by
satellite (digital audio radio satellite service, or "DARS") or terrestrial
means of multiple multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs to local and national audiences. In
addition, cable television operators are introducing a new service commonly
referred to as "cable radio," which provides cable television subscribers with
several high quality channels of music, news and other information. The Company
cannot predict the effect, if any, that any such new technologies may have on
the radio broadcasting industry or on the Company. See "Business-- Competition."
The profitability of the Company's radio stations is subject to various
other factors which influence the radio broadcasting industry as a whole. The
Company's radio stations may be adversely affected by changes in audience
tastes, priorities of advertisers, new laws and governmental regulations and
policies, changes in broadcast technical requirements, proposals to limit the
tax deductibility of expenses incurred by advertisers and changes in the
willingness of financial institutions and other lenders to finance radio station
acquisitions and operations. The Company cannot predict which, if any, of these
factors might have a significant impact on the radio broadcasting industry in
the future, nor can it predict what impact, if any, the occurrence of these
events might have on the Company. In addition, the profitability of the
Company's
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<PAGE>
radio stations depends on its ability to produce, or otherwise obtain the right
to broadcast, programs that appeal to such stations' target audiences. There can
be no assurance that the Company will be able to produce or obtain such
programming in the future.
OBLIGATION TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of indebtedness. Upon the occurrence of a Change of Control, the holders
of the Notes would be entitled to require the Company to make an offer to
purchase all of the outstanding Notes at a purchase price in cash equal to 101%
of the Accreted Value of such Notes prior to August 1, 2002, or 101% of the
principal amount of such Notes thereafter, together with accrued and unpaid
interest, if any, to the date of purchase. The occurrence of certain of the
events that would constitute a Change of Control would also constitute a default
under the Revolving Credit Facility and might constitute a default under future
indebtedness of the Company. In addition, the Revolving Credit Facility
prohibits the purchase of the Notes by the Company in the event of a Change of
Control, unless and until such time as the indebtedness under the Revolving
Credit Facility is repaid in full. In the event of a Change of Control, there
can be no assurance that the Company would have sufficient resources available
to satisfy its obligations under the Revolving Credit Facility and to the
holders of the Notes. The Company's failure to purchase the Notes in such
instance would result in a default under the Indenture. The inability to repay
the indebtedness under the Revolving Credit Facility, if accelerated, could have
material adverse consequences to the Company and to the holders of the Notes.
Moreover, subject to the terms of the Notes and the Revolving Credit Facility,
the Company could enter into certain leveraged or other transactions that would
not constitute a Change of Control but would increase the amount of outstanding
indebtedness of the Company. Future indebtedness of the Company may also contain
prohibitions of certain events or transactions that could constitute a Change of
Control or require such indebtedness to be repurchased upon a Change of Control.
See "Description of Revolving Credit Facility" and "Description of the
Notes--Change of Control Offer."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDER'S CLAIMS
The Old Notes were issued at a discount from their principal amount at
maturity, and the New Notes will also bear original issue discount for U.S.
Federal income tax purposes. Consequently, holders of the New Notes generally
will be required to include amounts in gross income for U.S. Federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. See "Certain United States Federal Income Tax Consequences" for a
more detailed discussion of the U.S. Federal income tax consequences to the
holders of the New Notes resulting from the exchange of Old Notes pursuant to
the Exchange Offer.
If a bankruptcy case is commenced by or against the Company under the U.S.
Bankruptcy Code (as defined herein), the claim of a holder of New Notes with
respect to the principal amount thereof may be limited to an amount equal to the
sum of (i) the issue price of the Old Notes ($632.56 per Old Note) and (ii) that
portion of the original issue discount (as determined on the basis of such issue
price) which is not deemed to constitute "unmatured interest" for purposes of
the U.S. Bankruptcy Code. Any original issue discount that was not amortized as
of any such bankruptcy filing would constitute "unmatured interest."
FRAUDULENT TRANSFER CONSIDERATIONS
The Domestic Restricted Subsidiaries' obligations under the Guarantees may
be subject to review under state or Federal fraudulent transfer laws in the
event of a Domestic Restricted Subsidiary's bankruptcy or other financial
difficulty.
Under those laws, if in a lawsuit by an unpaid creditor or representative of
creditors of a Domestic Restricted Subsidiary, such as a trustee in bankruptcy
or the Domestic Restricted Subsidiary as a debtor in possession under the
Bankruptcy Code, a court were to find that (a) the Domestic Restricted
Subsidiary
14
<PAGE>
received less than fair consideration or reasonably equivalent value for its
Guarantee, and (b) when it entered into the Guarantee (or in some jurisdictions,
when it became obligated to make payments thereunder), it either (i) was
rendered insolvent, (ii) was engaged in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital, or (iii)
intended to incur or believed (or reasonably should have believed) that it would
incur debts beyond its ability to pay as they matured, the court could avoid its
obligations under the Guarantee, or subordinate those obligations to its other
obligations, and in either case direct the return of any amounts paid thereunder
to the Domestic Restricted Subsidiary or to a fund for the benefit of its
creditors. It should be noted that a court could avoid a Domestic Restricted
Subsidiary's obligations under the Guarantee without regard to factors (a) and
(b) above, if it found that it entered into the Guarantee with actual intent to
hinder, delay, or defraud its creditors.
A court will likely find that a Domestic Restricted Subsidiary did not
receive fair consideration or reasonably equivalent value for the Guarantee to
the extent that it does not benefit directly from the Notes' proceeds.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company is privately held. Warburg Ventures, L.P. owns approximately 98%
of the outstanding shares of the common stock, par value $.01 per share, of
Holdings (the "Holdings Common Stock") and the Series A Cumulative Redeemable
Preferred Stock, par value $.01 per share, of Holdings (the "Holdings Preferred
Stock"), which in turn owns 100% of the outstanding shares of common stock, par
value $.01 per share, of the Company (the "Company Common Stock"). The officers
and directors of the Company own the remainder of the Holdings Common Stock and
the Holdings Preferred Stock. Accordingly, Warburg Ventures, L.P. effectively
has the ability to elect the Company's directors and control the Company's
policies and affairs.
ABSENCE OF PUBLIC MARKET
The New Notes are new securities for which there presently is no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the New Notes, they are not obligated to do so and
any such market-making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes or the ability of the holders to sell the New Notes or
the price at which they can sell them. The Company does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System
("Nasdaq").
The liquidity of, and trading market for, the Old Notes or the New Notes
also may be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
a transaction not subject to the Securities Act and applicable state securities
laws. In general, the Old Notes
15
<PAGE>
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
CERTAIN FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words "believes," "anticipates," "expects"
and other words of similar import are used to identify forward-looking
statements. Discussions containing such forward-looking statements may be found
in the material set forth under "Business," as well as within this Prospectus
generally. Such statements are subject to a number of risks and uncertainties.
Actual results in the future could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth herein and
the matters set forth in this Prospectus generally. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
16
<PAGE>
THE TRANSACTIONS
HOLDING COMPANY REORGANIZATION. In July 1998, the Company effected a
holding company reorganization (the "Reorganization"). In the Reorganization,
the Company became a wholly owned subsidiary of Holdings and the Company's
stockholders received shares of Holdings Common Stock and Holdings Preferred
Stock bearing identical rights and preferences to the Company Common Stock and
Series A Cumulative Redeemable Preferred Stock of the Company ("Company
Preferred Stock") previously held by such stockholders. Options previously
granted by the Company were assumed by Holdings and are exercisable upon the
same terms and conditions as they were under the Company's stock option plan.
See "Certain Relationships and Related Transactions--Initial Investments in the
Company; Agreement Among Stockholders."
ACQUISITIONS OF RADIO STATIONS. On April 30, 1998, the Company purchased
all of the common stock of Oro Spanish Broadcasting, Inc. ("Oro") for $11.5
million, in order to acquire KIQI (AM) in San Francisco (the "Oro Acquisition").
In connection with this acquisition, the Company entered into a five year non-
compete agreement with the seller for $500,000. The total purchase price was
comprised of $6.0 million in cash and a five year $6.0 million note issued by
the Company bearing interest at 8% per annum. In July 1998, the Company repaid
$5.25 million of the $6.0 million note with borrowings under the Revolving
Credit Facility and issued a new note for $750,000 bearing interest at 8% per
annum that matures October 31, 1999. See "Business--Broadcasting Properties."
On May 13, 1998, the Company completed the acquisition of certain assets of
subsidiaries of One-on-One Sports, Inc. ("One-on-One") for $9.0 million, in
order to acquire WNMA (AM) and WCMQ (AM) in Miami (the "One-on-One
Acquisition"). See "Business--Broadcasting Properties."
On July 30, 1998, the Company completed the acquisition of certain assets of
subsidiaries of Sinclair Communications Inc. ("Sinclair") for $21.0 million in
cash, in order to acquire KBLA (AM) in Los Angeles (the "Sinclair Acquisition").
See "Business--Broadcasting Properties."
On September 11, 1998, the Company obtained 100% ownership of KXYZ (AM) in
Houston by acquiring the remaining 50.1% voting rights and 20% economic
ownership interest in Blaya, Inc. not previously owned by the Company for
$160,000 (the "Blaya Acquisition"). See "Business--Broadcasting Properties" and
"Certain Relationships and Related Transactions--Purchase of Radio Station KXYZ
(AM); Transactions Involving Blaya, Inc." As a result of the Blaya Acquisition,
Radio Unica of Houston License Corp., a wholly-owned subsidiary of Blaya, Inc.,
became an indirect, wholly-owned subsidiary of the Company.
On October 26, 1998, the Company entered into an asset purchase agreement to
acquire certain assets of subsidiaries of Children's Broadcasting Corporation
("CBC") for $29.25 million, in order to acquire KAHZ (AM) in Dallas/Fort Worth,
KIDR (AM) in Phoenix and WJDM (AM) and WBAH (AM) in New York (the "CBC
Acquisition" and together with the Oro Acquisition, the One-on-One Acquisition,
the Sinclair Acquisition and the Blaya Acquisition, the "Radio Station
Acquisitions"). The CBC Acquisition is expected to be finalized upon the receipt
of FCC approval and the approval required pursuant to the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the "HSR Act"). See "Business--
Broadcasting Properties."
In connection with the CBC Acquisition, the Company also agreed to pay
Christopher Dahl, President and Chief Executive Officer of CBC $750,000 upon the
closing of the CBC Acquisition in exchange for Mr. Dahl's agreement not to own,
operate or be employeed at any radio station broadcasting from a site within 100
miles of any of the acquired stations for a period of two years.
CONVERSION OF LOANS. In April, May and June 1998, Warburg Ventures, L.P.
loaned the Company approximately $21.8 million, in return for promissory notes
of the Company (the "Promissory Notes"). The funds from the Promissory Notes
were primarily used to finance the Oro Acquisition and the One-on-One
17
<PAGE>
Acquisition. See "Business--Broadcasting Properties." Each of the Promissory
Notes was due on demand and bore interest at the rate of 10% per annum. On June
30, 1998, the Company repaid $15.0 million of the Promissory Notes plus accrued
interest by issuing Warburg Ventures, L.P. 15,239 shares of Company Common Stock
and 150,865 shares of Company Preferred Stock (the "Promissory Notes
Conversion"). The remaining $6.8 million due under the Promissory Notes has been
repaid from amounts borrowed under the Revolving Credit Facility. See "Certain
Relationships and Related Transactions--Loans to the Company."
On April 17, 1998, the Company converted $365,000 in notes payable to
certain stockholders (the "Stockholder Notes") plus accrued interest into 3,835
shares of Company Preferred Stock and 387 shares of Company Common Stock (the
"Stockholder Notes Conversion" and, together with the Promissory Notes
Conversion, the "Stockholder Loan Conversions"). See "Certain Relationships and
Related Transactions--Loans to the Company."
REVOLVING CREDIT FACILITY. On July 8, 1998, the Company entered into a
credit agreement for a $20.0 million Senior Secured Revolving Credit Facility
(the "Revolving Credit Facility"). Prior to the consummation of the Old Notes
offering, the Company borrowed approximately $14.0 million from the Revolving
Credit Facility (the "Initial Revolver Borrowing") and used the proceeds to pay
down the remaining $6.8 million under the Promissory Notes and $5.25 million
under the note payable to Oro (the "Loan Repayments") described above. As of the
date hereof, there was no outstanding principal balance under the Revolving
Credit Facility. See "Description of Revolving Credit Facility."
The Reorganization, the Radio Station Acquisitions, the Stockholder Loan
Conversions, the Initial Revolver Borrowing and the Loan Repayments are
collectively referred to herein as the "Transactions."
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount at maturity, the form and terms of which are the same in all
material respects as the form and terms of the New Notes except that the New
Notes have been registered under the Securities Act and hence do not include
certain rights to registration thereunder and do not contain transfer
restrictions or terms with respect to certain payments applicable to the Old
Notes and relating to the Company's registration obligations. The Old Notes
surrendered in exchange for New Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the New Notes will not result in any increase
in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $96.8 million (after deducting discounts to the Initial Purchasers
and other expenses). Of the net proceeds of the offering of the Old Notes (the
"Old Notes Offering"), approximately $35.0 million was used to finance the
acquisition of radio station KBLA in Los Angeles and to repay amounts borrowed
under the Revolving Credit Facility. The Company intends to use the remaining
net proceeds of the Old Notes Offering for future acquisitions, including
approximately $30 million for the CBC Acquisition, and for general working
capital purposes.
Pending any further application of the net proceeds of the Old Notes
Offering, the Company has placed such remaining net proceeds in interest-bearing
bank accounts or invested such proceeds in United States government securities
or other short-term, interest bearing, investment grade securities. The Company
is not currently subject to the registration requirements of the Investment
Company Act of 1940.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 (i) on an actual basis and (ii) on a pro forma basis for the
CBC Acquisition.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
<S> <C> <C>
ACTUAL PRO FORMA
-------------- --------------
Cash and cash equivalents........................................................ $ 57,548,283 $ 27,548,283
-------------- --------------
-------------- --------------
Long-term debt:
Revolving Credit Facility(1)................................................... -- --
Note Payable................................................................... $ 750,000 $ 750,000
Radio Broadcast Rights Obligation.............................................. 3,400,000 3,400,000
Notes offered hereby........................................................... 102,087,895 102,087,895
-------------- --------------
Total debt....................................................................... 106,237,895 106,237,895
-------------- --------------
Series A redeemable cumulative preferred stock of Radio Unica Holdings Corp.,
$.01 par value, 450,000 shares authorized, 353,065 shares issued and
outstanding.................................................................... 37,332,908 37,332,908
Stockholders' deficit:
Common stock, $.01 par value, 1,000 shares authorized, 1,000 shares issued and
outstanding.................................................................. 10 10
Capital deficiency............................................................. (1,677,817) (1,677,817)
Accumulated deficit............................................................ (18,468,602) (18,468,602)
-------------- --------------
Total stockholders' deficit.................................................. (20,146,409) (20,146,409)
-------------- --------------
Total capitalization............................................................. $ 123,424,394 $ 123,424,394
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) Upon consummation of the Old Notes Offering and the application of the
proceeds therefrom as described in "Use of Proceeds," the Company had $20.0
million available for borrowing under the Revolving Credit Facility.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following Unaudited Pro Forma Combined Financial Data gives effect to
the Transactions, and the Old Notes Offering as if they had been consummated:
(i) on September 30, 1998 with respect to the Unaudited Pro Forma Condensed
Combined Balance Sheet, (ii) on January 1, 1998 with respect to the Unaudited
Pro Forma Condensed Combined Statement of Operations for the nine months ended
September 30, 1998 and (iii) on January 1, 1997 with respect to the Unaudited
Pro Forma Condensed Combined Statement of Operations for the year ended December
31, 1997. The Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1997 is based on the audited statements of
operations of the Company and 13 Radio Corp. for the year ended December 31,
1997 and the unaudited statement of operations of Oro for the twelve months
ended November 30, 1997. The Unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 1998 is based on unaudited
statement of operations of the Company for the nine months ended September 30,
1998 and Oro's unaudited statement of operations for the four months ended April
30, 1998. The Unaudited Pro Forma Condensed Combined Balance Sheet has been
derived from the unaudited balance sheet of the Company as of September 30,
1998.
On March 11, 1998, Blaya, Inc. completed its acquisition of the assets used
in the operation of radio station KXZY (AM) from 13 Radio Corp. for a purchase
price of approximately $6.4 million. Approximately $0.6 million was allocated to
the value of tangible assets less liabilities acquired. The remaining $5.8
million of the total purchase price was allocated to the fair value of the
broadcast license which is being amortized over 30 years. Until September 11,
1998, the Company owned 49.9% of the voting rights and 80% of the economic
ownership rights of Blaya, Inc. and accounted for its investment in Blaya, Inc.
under the equity method of accounting. The operations of 13 Radio Corp. and
Blaya, Inc. are included in the Unaudited Pro Forma Condensed Combined
Statements of Operations because the Company acquired the remaining 50.1% voting
and 20% economic ownership rights in Blaya, Inc. on September 11, 1998 for
$160,000 pursuant to a June 9, 1998 stock purchase agreement with the majority
stockholder of Blaya, Inc.
The Radio Station Acquisitions have been or will be accounted for using the
purchase method of accounting. The total consideration of each such acquisition
has been or will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective estimated fair values. The
allocation of the aggregate total consideration included in the Unaudited Pro
Forma Combined Financial Data is preliminary, subject to adjustment when final
appraisals are received and estimates are finalized. Such allocation is not
expected to materially differ from the final allocation.
The Unaudited Pro Forma Combined Financial Data should be read in
conjunction with the financial statements of the Company, 13 Radio Corp. and
Oro, including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," appearing elsewhere in this
Prospectus. The Company believes that the assumptions used in the following
statements provide a reasonable basis on which to present pro forma financial
data. The Unaudited Pro Forma Combined Financial Data is presented for
illustrative purposes only and is not necessarily indicative of what the
Company's actual financial position or results of operations would have been had
the Transactions and the Old Notes Offering been consummated as of the
above-referenced dates or the financial position or results of operations of the
Company for any future period.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
RADIO PRO FORMA
UNICA CORP ADJUSTMENTS PRO FORMA
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 57,548,283 $ (30,000,000 (3) $ 27,548,283
Restricted cash........................................... 2,500,000 -- 2,500,000
Accounts receivable, net.................................. 2,716,048 -- 2,716,048
Prepaid expenses.......................................... 120,597 -- 120,597
Radio broadcasting rights................................. 757,616 -- 757,616
-------------- -------------- --------------
Total current assets.......................................... 63,642,544 (30,000,000) 33,642,544
Property and equipment, net................................... 10,112,514 2,250,000(4) 12,362,514
Broadcast licenses and other intangibles...................... 48,801,865 27,250,000(3) 76,051,865
Other assets.................................................. 9,195,098 750,000(4) 9,945,098
-------------- -------------- --------------
Total assets.................................................. $ 131,752,021 $ 250,000 $ 132,002,021
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 634,520 $ -- $ 634,520
Accrued expenses.......................................... 3,604,372 250,000(4) 3,854,372
-------------- -------------- --------------
Total current liabilities..................................... 4,238,892 250,000 4,488,892
Long-term debt................................................ 750,000 -- 750,000
Radio broadcasting rights obligation.......................... 3,400,000 -- 3,400,000
Deferred tax liability........................................ 4,088,735 -- 4,088,735
Senior discount notes......................................... 102,087,895 -- 102,087,895
Commitments and contingencies
Series A redeemable cumulative preferred stock................ 37,332,908 -- 37,332,908
Common stockholders' deficit:
Common stock.............................................. 10 -- 10
Additional paid-in capital (deficiency)................... (1,677,817) -- (1,677,817)
Accumulated deficit....................................... (18,468,602) -- ((18,468,602)
-------------- -------------- --------------
Total common shareholders' deficit............................ (20,146,409) -- (20,146,409)
-------------- -------------- --------------
Total liabilities and common shareholders' deficit............ $ 131,752,021 $ 250,000 $ 132,002,021
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
RADIO PRO FORMA
UNICA CORP ORO (1) ADJUSTMENTS PRO FORMA
-------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue......................................... $ 6,418,719 $ 727,840 $ -- $ 7,146,559
Operating expenses:
Direct operating expenses....................... 1,302,715 97,204 -- 1,399,919
Selling, general and administrative expenses.... 6,956,119 617,729 -- 7,573,848
Network expenses 9,798,561 -- (460,167 (5) 9,338,394
Corporate expenses.............................. 2,041,058 -- -- 2,041,058
Depreciation and amortization................... 901,971 32,400 116,377(5) 2,948,561
1,897,813(7)
-------------- ----------- ------------- --------------
21,000,424 747,333 1,554,023 23,301,780
Loss from operations................................ (14,581,705) (19,493) (1,554,023) (16,155,221)
Other Income (expense):
Interest income (expense), net...................... (2,016,449) (129,166) (264,230 (5) (8,968,013)
(6,558,168 (6)
Other income........................................ -- -- -- --
Equity in loss of equity investee................... (14,867) -- 14,867(5) --
-------------- ----------- ------------- --------------
Total other income (expense)........................ (2,031,316) (129,166) (6,807,531) (8,968,013)
Net loss............................................ (16,613,021) (148,659) (8,361,554) (25,123,234)
Accrued dividends on Series A redeemable cumulative
preferred stock................................... 1,917,079 -- 823,069(8) 2,740,148
-------------- ----------- ------------- --------------
Net loss applicable to common shareholders.......... $ (18,530,100) $ (148,659) $ (9,184,623) $ (27,863,382)
-------------- ----------- ------------- --------------
-------------- ----------- ------------- --------------
Net loss per comon share applicable to common
shareholders--basic and diluted................... $ (1,345.10) $ (27,863.38)
-------------- --------------
-------------- --------------
Weighted average common shares outstanding--basic
and diluted....................................... 13,776 1,000
-------------- --------------
-------------- --------------
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
RADIO
RADIO 13 RADIO PRO FORMA UNICA CORP.
UNICA CORP. ORO(2) CORP ADJUSTMENTS PRO FORMA
------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue....................... $ -- $ 2,297,315 $ 1,606,201 $ -- $ 3,903,516
Operating expenses:
Direct operating expenses....... -- 291,508 844,108 1,135,616
Selling, general and
administrative................ 31,124 1,628,633 1,089,792 2,749,549
Network......................... 812,654 -- -- 812,654
Corporate....................... 959,038 -- -- 959,038
Depreciation and amortization... -- 89,471 105,088 3,341,331(7) 3,535,890
------------- ------------ ------------ -------------- --------------
1,802,816 2,009,612 2,038,988 3,341,331 9,192,747
------------- ------------ ------------ -------------- --------------
Income (loss) from operations..... (1,802,816) 287,703 (432,787) (3,341,331) (5,289,231)
Interest expense, net............. (12,765) (345,876) -- (12,239,339 (6) (12,597,980)
------------- ------------ ------------ -------------- --------------
Loss before provision for income
taxes........................... (1,815,581) (58,173) (432,787) (15,580,670) (17,887,211)
Income tax provision (benefit).... -- 800 (12,118) -- (11,318)
------------- ------------ ------------ -------------- --------------
Net loss.......................... (1,815,581) (58,973) (420,669) (15,580,670) (17,875,893)
Accrued dividends on Company
Preferred Stock................. 119,490 -- -- 1,523,345(8) 1,642,835
------------- ------------ ------------ -------------- --------------
Net loss applicable to common
stockholders.................... $ (1,935,071) $ (58,973) $ (420,669) $ (17,104,015) $ (19,518,728)
------------- ------------ ------------ -------------- --------------
------------- ------------ ------------ -------------- --------------
Net loss per common share
applicable to common
stockholders--basic and
diluted......................... $ (356.10) $ (19,518.73)
------------- --------------
------------- --------------
Weighted average common shares
outstanding--basic and
diluted......................... 5,434 1,000
------------- --------------
------------- --------------
</TABLE>
23
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(1) Represents Oro's results of operations for the four months ended April
30, 1998.
(2) Represents Oro's results of operations for the twelve months ended
November 30, 1997.
(3) Reflects the allocation of the purchase price for the CBC Acquisition
which is expected to close in or about December 1998.
<TABLE>
<CAPTION>
CBC
-------------
<S> <C>
Aggregate Purchase Price:
Cash........................................................................... $ 30,000,000
-------------
Less:
Fair value of net tangible assets acquired..................................... 2,750,000
Broadcast licenses............................................................. 27,250,000
-------------
$ --
-------------
-------------
</TABLE>
(4) Adjustment to record the estimated fair value of net tangible assets
(liabilities) acquired in the CBC Acquisition:
<TABLE>
<CAPTION>
CBC
------------
<S> <C>
Property and equipment.......................................................... $ 2,250,000
Covenant not to compete......................................................... 750,000
Other liabilities............................................................... (250,000)
------------
$ 2,750,000
------------
------------
</TABLE>
(5) Reflects the adjustment to record the acquisition of the remaining 50.1%
of the voting rights and 20% of the economic ownership rights of Blaya,
Inc., in the Blaya Acquisition:
<TABLE>
<S> <C>
EFFECT ON RESULTS OF OPERATIONS:
Eliminate LMA charge............................................ $ 460,167
Eliminate loss in equity investee............................... 14,867
Depreciation and amortization................................... (116,377)
Eliminate interest income from equity investee.................. (264,230)
----------
$ 94,427
----------
----------
</TABLE>
(6) Represents the additional interest expense that would have been incurred
if the Notes and borrowings under the Revolving Credit Facility had been
outstanding for the entire period:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -----------------
<S> <C> <C>
Interest expense on the Notes*.............................. $ 11,750,000 $ 6,663,698
Revolving Credit Facility unused commitment fee*............ 100,000 75,000
Interest expense on existing indebtedness................... (304,411) (573,972)
Debt issuance cost amortization............................. 693,750 393,442
------------- -----------------
Net increase in interest expense............................ $ 12,239,339 $ 6,558,168
------------- -----------------
------------- -----------------
</TABLE>
----------------------------
(*) The interest rate for the Notes is 11.75%. For each increase or decrease
of 0.25% in the base interest rates under the Revolving Credit Facility,
assuming $20 million of aggregate borrowings
24
<PAGE>
outstanding under the Revolving Credit Facility, the annual interest
expense attributable to the Revolving Credit Facility would increase or
decrease by $50,000.
(7) Represents amortization and depreciation of the broadcasting licenses,
goodwill, property and equipment, and covenant not to compete acquired or
to be acquired in connection with the Transactions. The assets are
amortized or depreciated over a five to thirty year period and
depreciation and amortization of property and equipment and covenant not
to compete over a five to seven year period. The allocation of the
purchase price is preliminary, subject to adjustment when final
appraisals are received and estimates are finalized.
(8) Represents accrued dividends on the Company's preferred stock into which
the promissory notes and the stockholder notes were coverted. These
dividends have not been declared.
25
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below for, and as of the end of the
period from September 12, 1996 (inception) through December 31, 1996, for, and
as of the year ended December 31, 1997 and for, and as of the nine months ended
September 30, 1997 and 1998 have been derived from the consolidated financial
statements of the Company, of which (i) the consolidated financial statements
for, and as of the period from September 12, 1996 (inception) through December
31, 1996, and for, and as of the year ended December 31, 1997 were audited by
Ernst & Young LLP, independent certified public accountants and (ii) the
consolidated financial statements for, and as of the nine months ended September
30, 1997 and 1998 are unaudited. In the opinion of management, the consolidated
financial statements for, and as of the nine months ended September 30, 1997 and
1998 include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for, and the
financial position at the end of each of such periods. The results of operations
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year or any future period. The selected
historical financial data should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements, including the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM SEPTEMBER 12,
1996 (INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1996 1997 1997 1998
------------------ ------------- ----------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................... $ -- $ -- $ -- $ 6,418,719
Operating expenses............................. 40,000 1,802,816 788,298 21,000,424
-------- ------------- ----------- --------------
Operating loss................................. (40,000) (1,802,816) (788,298) (14,581,705)
Interest income (expense), net................. -- (12,765) -- (2,016,449)
Other income (loss)............................ -- -- -- (14,867)
-------- ------------- ----------- --------------
Loss before provision (benefit) for income
taxes........................................ (40,000) (1,815,581) (788,298) (16,613,021)
-------- ------------- ----------- --------------
Provision (benefit) for income taxes........... -- -- -- --
-------- ------------- ----------- --------------
Net loss....................................... $ (40,000) $ (1,815,581) $ (788,298) $ (16,613,021)
-------- ------------- ----------- --------------
-------- ------------- ----------- --------------
Net loss applicable to common shareholders..... $ (40,000) $ (1,935,071) $ (788,298) $ (18,530,100)
-------- ------------- ----------- --------------
-------- ------------- ----------- --------------
Net loss per common share applicable to common
shareholders-basic and diluted............... $ (13.33) $ (356.10) $ (132.11) $ (1,345.10)
-------- ------------- ----------- --------------
-------- ------------- ----------- --------------
Weighted average common shares oustanding-basic
and diluted.................................. 3,000 5,434 5,967 13,776
-------- ------------- ----------- --------------
-------- ------------- ----------- --------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, SEPTEMBER 30,
--------------------- ----------------------
1996 1997 1997 1998
--------- ---------- --------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 5,000 $1,126,862 $ 446,288 $57,548,283
Working capital............................ 5,000 1,047,193 280,306 59,403,652
Total assets............................... 5,000 6,678,088 3,487,684 131,752,021
Long-term debt............................. -- -- -- 106,237,895
Series A redeemable cumulative preferred
stock.................................... -- 5,316,990 -- 37,332,908
Stockholders' equity (deficit)............. 5,000 (1,922,571) 671,702 (20,146,409)
OTHER FINANCIAL DATA (FOR THE PERIOD ENDED):
Depreciation and amortization.............. $ -- $ -- $ -- $ 901,971
EBITDA(1).................................. (40,000) (1,802,816) (788,298) (13,694,601)
Ratio of earnings to fixed charges(2)...... -- -- -- --
Fixed charges coverage deficiency(2)....... (40,000) (1,815,581) (788,298) (16,613,021)
Net cash used in operating activities...... (40,000) (2,209,553) (1,017,957) (15,275,702)
Net cash used in investing activities...... -- (2,238,585) (360,755) (48,677,402)
Net cash provided by financing
activities............................... 45,000 5,570,000 1,820,000 120,374,525
</TABLE>
- ------------------------
(1) EBITDA is defined as net income (loss) plus (i) provision for income taxes
(ii) interest expense, net and (iii) depreciation and amortization. EBITDA
is presented not as an alternative measure of operating results or cash flow
from operations (as determined in accordance with generally accepted
accounting principles ("GAAP")), but because it is a widely accepted
supplemental financial measure of a company's ability to service debt. The
Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies since all companies do not calculate
this non-GAAP measure in the same fashion. The Company's EBITDA calculation
is not intended to represent cash used in operating activities, since it
does not include interest and taxes and changes in operating assets and
liabilities, nor is it intended to represent the net increase or decrease in
cash, since it does not include cash provided by (used in) investing and
financing activities.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt issuance costs and the
portion or rental expense that is representative of the interest factor.
Earnings were insufficient to cover fixed charges.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION IS BASED UPON THE HISTORICAL FINANCIAL STATEMENTS
INCLUDED ELSEWHERE HEREIN OF THE COMPANY FOR THE PERIOD FROM SEPTEMBER 12, 1996
THROUGH DECEMBER 31, 1996, FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND 1998.
GENERAL
Radio Unica Corp., incorporated on September 12, 1996 (inception), was
organized for the purpose of producing, broadcasting and distributing
Spanish-language radio programming in the United States. The Company's strategy
is to develop its radio network as a national advertising platform that is
attractive to national advertisers. The network is comprised of owned and
operated stations, stations operated under LMAs and affiliated stations. From
inception through the year ended December 31, 1997, the Company had no revenue
and had not commenced operations. The Company launched its network on January 5,
1998 with 30 affiliated stations and three stations operated under LMAs. The
Company expects to incur operating losses for the foreseeable future as the
Company develops its network and stations and establishes its base of
advertising revenues.
The Company generates revenue from sales of network advertising time and
sales of advertising time on the Company-owned stations and stations operated
under LMAs (collectively "O&Os"). Advertising rates are, in large part, based
upon the network's and each station's ability to attract audiences in
demographic groups targeted by advertisers. All revenues are stated net of any
agency commissions.
The Company's operating expenses consist of network programming expenses,
marketing and selling costs, including commissions paid to the Company's sales
staff, technical and engineering costs, and general and administrative expenses.
As is true of other radio operators, the Company's performance is
customarily measured by its earnings before net interest, taxes, depreciation
and amortization ("EBITDA"). EBITDA is defined as net income (loss) plus (i)
provision for income taxes (ii) interest expense, net and (iii) depreciation and
amortization. EBITDA is presented not as an alternative measure of operating
results or cash flow from operations (as determined in accordance with generally
accepted accounting principles ("GAAP")), but because it is a widely accepted
supplemental financial measure of a company's ability to service debt. The
Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies since all companies do not calculate this
non-GAAP measure in the same fashion. The Company's EBITDA calculation is not
intended to represent cash used in operating activities, since it does not
include interest and taxes and changes in operating assets and liabilities, nor
is it intended to represent the net increase or decrease in cash, since it does
not include cash provided by (used in) investing and financing activities.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
NET REVENUE. Net revenue for the nine months ended September 30, 1998 was
approximately $6.4 million relating to sales of network advertising and sales of
advertising on the Company's O&Os. The Company was not operating its network or
stations during the nine month period ended September 30, 1997 and as a result
had no revenues.
OPERATING EXPENSES. Operating expenses for the nine months ended September
30, 1998 were approximately $21.0 million as compared to approximately $788,000
for the nine months ended September 30, 1997.
28
<PAGE>
Direct operating expenses of approximately $1.3 million related to
engineering and programming costs of the Company's O&Os.
Selling, general and administrative expenses of approximately $7.0 million
related to the operations of the Company's O&Os.
Network expenses of approximately $9.8 million related to the operations of
the Company's network including engineering, programming, sales and
administration.
Corporate expenses for the nine months ended September 30, 1998 of
approximately $2.0 million related to the costs of executive management, legal
and professional fees and other costs, an increase of approximately $1.3 million
over the comparable period in the prior year. Corporate expenses for the nine
months ended September 30, 1997 included primarily legal and professional fees,
promotional costs and travel expenses incurred during the development stage.
EBITDA. EBITDA was approximately $(13.7) million for the nine months ended
September 30, 1998 as compared to approximately $(788,000) for the nine months
ended September 30, 1997. The decrease in EBITDA is a result of the increased
costs associated with the operations of the Company's network and O&Os.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1998 included interest income of approximately $832,000, interest
expense of approximately $2.8 million and equity loss of approximately $15,000.
Interest income primarily relates to interest earned on the remaining proceeds
from the Old Notes and on amounts held in escrow related to pending station
acquisitions. Interest expense relates primarily to the interest on the Old
Notes. The Company had no other income or expense during the nine months ended
September 30, 1997.
NET LOSS. The Company incurred a net loss of approximately $16.6 million
for the nine months ended September 30, 1998 as compared to approximately
$788,000 for the nine months ended September 30, 1997. The increase in the net
loss is a result of the increased costs associated with the operations of the
Company's network and O&Os as well as the increase in interest expense resulting
from the Notes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM SEPTEMBER 12, 1996
(INCEPTION) THROUGH
DECEMBER 31, 1996
NET REVENUE. During the year ended December 31, 1997 and for the period
from inception through December 31, 1996, the Company had no revenue and had not
begun operations.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1997
were approximately $1.8 million as compared to $40,000 for the period from
inception through December 31, 1996. The increase in costs was associated with
the Company's planned launching of its network and operations.
Selling, general and administrative expenses of $31,124 for the year ended
December 31, 1997 primarily related to sales personnel hired for the Company's
stations operated under LMAs.
Network expenses of $812,654 for the year ended December 31, 1997 included
costs related to the developing and launching of the network including
programming, sales, engineering and administration.
Corporate expenses of $959,038 for the year ended December 31, 1997
primarily related to the costs of personnel, legal and professional fees and
travel associated with the development of the Company. Corporate expenses for
the period from inception through December 31, 1996 were primarily related to
legal and professional fees and travel expenses.
EBITDA. EBITDA was approximately $(1.8) million for the year ended December
31, 1997 as compared to $(40,000) for the period from inception through December
31, 1996.
29
<PAGE>
INTEREST EXPENSE. Interest expense for the year ended December 31, 1997
related to certain promissory notes due to stockholders.
NET LOSS. The Company incurred a net loss of approximately $1.8 million for
the year ended December 31, 1997 and $40,000 for the period from inception
through December 31, 1996. The increase in the net loss was related to the
increased costs incurred in 1997 associated with the Company's planned launching
of its network and operations.
LIQUIDITY AND CAPITAL RESOURCES
Due to the developmental nature of the Company, the Company has had negative
cash flows since inception. Working capital and financing for the Company's
acquisitions to date have been provided primarily by the issuance of the Old
Notes and Promissory Notes, Company Common Stock and Company Preferred Stock to
the Company's principal shareholder.
The Company's primary sources of liquidity will be the Revolving Credit
Facility and the net proceeds from the Old Notes issued on July 27, 1998 (see
Note 4 to interim financial statements). The Revolving Credit Facility is a
senior secured revolver with $20.0 million of available borrowings subject to
certain conditions.
Net cash used in operating activities was approximately $15.3 million for
the nine months ended September 30, 1998 as compared to approximately $1.0
million for the nine months ended September 30, 1997. The increase in cash used
in operating activities during the nine month period ended September 30, 1998 is
due to the increased costs associated with the operations of the Company's
network and O&Os. Net cash used in operating activities for the year ended
December 31, 1997 and for the period from inception through December 31, 1996
was approximately $2.2 million and $40,000, respectively. Net cash used in
operating activities increased during 1997 as compared to 1996 as a result of
the Company's planned launching of its network and programming during 1997.
Net cash used in investing activities for the nine months ended September
30, 1998 was approximately $48.7 million as compared to approximately $361,000
for the nine months ended September 30, 1997. The increase in cash used in
investing activities during the nine month period ended September 30, 1998 is
due to the acquisition of radio stations, funding of escrow accounts related to
acquisitions and acquisitions of property and equipment for the Company's O&Os.
Net cash used in investing activities for the year ended December 31, 1997 was
approximately $2.2 million as the Company advanced funds to an equity investee
and acquired property and equipment related to its network and stations operated
under LMAs. No cash was used in investing activities in 1996.
Capital expenditures primarily related to the purchase of broadcast
equipment for the network and O&Os, leasehold improvements, computer equipment
and telecommunications equipment. For the nine months ended September 30, 1998,
capital expenditures were approximately $3.4 million as compared to
approximately $361,000 for the nine months ended September 30, 1997. For the
year ended December 31, 1997, capital expenditures were approximately $1.2
million. The Company expects to spend, in the aggregate, approximately $2.5
million over the next two years for planned equipment purchases and for upgrades
of existing stations.
Net cash provided by financing activities for the nine months ended
September 30, 1998 was approximately $120.4 million as compared to $1.8 million
for the nine months ended September 30, 1997. The increase in cash provided by
financing activities during the nine months ended September 30, 1998 is
primarily related to the net proceeds from the issuance of the Old Notes as well
as additional capital which was raised through the issuance of preferred and
common stock. In addition, the Company entered into promissory notes payable
with WPV of approximately $21.8 million. Net cash provided by financing
activities for the year ended December 31, 1997 was approximately $5.6 million
mostly as a result of the increase of $5.2 million in preferred and common
stock. The funds were mainly used to acquire radio
30
<PAGE>
stations, fund escrow accounts related to acquisitions, make investments and
advances to an equity investee and acquire property and equipment.
The Company believes that its current cash position, the proceeds from the
issuance of the Old Notes and the borrowing availability under the Revolving
Credit Facility will provide adequate resources to fund the Company's operating
expenses, working capital requirements, capital expenditures and acquisitions
until the implementation of its business strategy provides the Company with
sufficient operating cash flow. Upon the implementation of its business
strategy, the Company believes that cash from operating activities should be
sufficient to permit the Company to meet required cash interest obligations
(which will consist of cash interest expense on the Notes commencing August 1,
2002 of approximately $19.0 million annually), capital expenditures of
approximately $1.2 million per year for existing owned and operated stations,
and operating obligations. In the event that the Company is unable to generate
the cash flow that is sufficient to service its obligations, the Company may be
forced to adopt one or more alternatives, such as refinancing or restructuring
its indebtedness, selling material assets or operations or selling equity. There
can be no assurance that such business strategy will be successfully
implemented. Furthermore there can be no assurance that any such actions could
be effected on satisfactory terms or at all, that they would enable the Company
to satisfy its debt service requirements or that they would be permitted by the
terms of the Notes or the Revolving Credit Facility. The failure to generate
such sufficient cash flow or to achieve such alternatives could significantly
adversely affect the market value of the Notes and the Company's ability to pay
the principal of and interest on the Notes.
The known impact on future operating results related to the Notes will be an
annual interest expense through August 1, 2006 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------
(IN MILLIONS)
<S> <C>
1998 $ 5.0
1999 12.7
2000 14.2
2001 16.0
2002 17.9
2003 18.6
2004 18.6
2005 18.6
2006 10.8
</TABLE>
Expected interest payments under the terms of the Notes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------
(IN MILLIONS)
<S> <C>
2002 $ 9.3
2003 18.6
2004 18.6
2005 18.6
2006 9.3
</TABLE>
Amortization of deferred financing costs and intangibles resulting from the
Notes and the Transactions will be approximately $3.5 million annually.
YEAR 2000 ISSUES
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve the issue. The Year 2000 issue is
the result of computer programs being written using two digits rather than
31
<PAGE>
four to define the applicable year. Any of the Company's computer programs that
have time/date sensitive software and hardware may recognize a date using "00"
as the year and 1900 rather than the year 2000. This could result in a major
system failure or miscalculation. The Company presently believes that based on
the results of recent investigations, the Company's primary information and
communication systems are believed to be compliant with Year 2000 requirements.
The Company's cost of compliance has been minimal and any future costs are not
anticipated to be material to financial condition and results of operations.
The Year 2000 issue creates risk for the Company from unforeseen problems in
its own computer systems and from third parties on which the Company relies.
Accordingly, the Company is requesting assurances from all software vendors from
which it has purchased or from which it may purchased software that the software
sold to the Company correctly processes all date information at all times. In
addition, the Company is querying its customers and suppliers as to their
progress in identifying and addressing problems that their computer systems will
face in correctly processing date information as the Year 2000 approaches and is
reached. However, there are no assurances that the Company will identify all
date handling problems in its business systems or that the Company will be able
to successfully remedy Year 2000 compliance issue that are discovered. To the
extent that the Company is unable to resolve its Year 2000 issues prior to
January 1, 2000 operating results could be adversely affected. In addition, the
Company could be adversely affected if other entities (e.g., vendors or
customers) not affiliated with the Company do not appropriately address their
own Year 2000 compliance issues in advance of their occurrence.
32
<PAGE>
BUSINESS
INTRODUCTION
The Company is a wholly-owned subsidiary of Holdings. Holdings has no assets
other than shares of the Company's capital stock. Each of the Guarantors is a
direct or indirect wholly-owned subsidiary of the Company.
The Company is the only national long-form, Spanish-language news/talk,
sports and information AM radio network in the U.S., broadcasting 24-hours a
day, 7-days a week. The Company, which began broadcasting its network
programming on January 5, 1998, produces 19 hours of live and first-run
celebrity-based programming each weekday and 25 hours of such programming each
weekend. With ten Company-operated stations and, as of September 30, 1998, 47
affiliated stations, the Company's network reaches approximately 83% of the U.S.
Hispanic population. The Company-operated stations are located in ten of the top
twelve U.S. markets in terms of Spanish-language media spending. The markets in
which the Company maintains stations collectively account for approximately
57.5% of the total U.S. Hispanic population. Of these stations, six are
Company-owned (including those stations the Company has contracted to acquire)
and four are operated under LMAs. On the strength of its celebrity-based
programming line-up, the Company launched its network with thirty affiliated
stations and added another seventeen affiliated stations in the six-month period
following launch. The majority of the Company's affiliated stations broadcast
more programming than the required eight-hour minimum and nine have branded
themselves Radio Unica stations, broadcasting substantially all of the Company's
programming.
The Company believes that its strong programming line-up provides the
Company with a competitive advantage over other Spanish-language radio
broadcasters in appealing to U.S. Hispanic listeners. The Company's programming
line-up includes contemporary-themed talk shows hosted by internationally known
personalities such as Pedro Sevcec, Dr. Isabel Gomez-Bassols and Mauricio
Zeillic; sports-talk hosted by Jorge Ramos and other top names in sports
broadcasting; and newscasts on the hour, 24 hours a day. Many of the Company's
programs are interactive, allowing listeners nationwide to call in toll-free.
The Company believes that its programming is being well received. Company
research in the Miami market has shown that Radio Unica is the number two
Spanish-language news/talk station in the market, with 21% of respondents
preferring Radio Unica. In addition, since the Company began tracking phone
calls in March 1998, the Company's talk shows have been averaging 5,000 to 6,000
calls per day during the Company's three hours of fully interactive programming,
implying a 1 to 2 point National Hispanic Arbitron Rating based on an
independent radio industry consultant's estimate. The Company acquired the
exclusive Spanish-language radio broadcast rights in the U.S. to the 1998 World
Cup, the most popular sporting event among U.S. Hispanics. In conjunction with
the 1998 World Cup, the Company began a broad media campaign to promote the
Radio Unica network.
MARKET OPPORTUNITY
The Hispanic population is currently one of the fastest growing segments of
the U.S. population, growing at approximately five times the rate of the
non-Hispanic population, and represents the fifth largest Hispanic population in
the world. The Hispanic population, which consisted of 23.7 million people (9.5%
of the U.S. population) in 1990, is estimated to be 30.5 million people (11.3%
of the U.S. population) in 1998, and is expected to grow to 45.8 million people
(15.4% of the U.S. population) by 2010. Approximately 55% of the Hispanic
population is concentrated in the top eight markets, making the group relatively
easy to reach with broadcast media. Hispanic households on average are larger
and younger and spend a larger percentage of their total household income on
consumer products than non-Hispanic households. Furthermore, approximately 69%
of all Hispanics, regardless of income or educational level, use Spanish as the
language most frequently spoken at home. This percentage is expected to remain
relatively constant through 2010. Consequently, the aggregate number of
Hispanics speaking Spanish in the home is expected to increase significantly in
the foreseeable future.
33
<PAGE>
According to published reports, total advertising expenditures targeting
Hispanics grew from $730 million in 1992 to approximately $1.4 billion in 1997,
representing a compound annual growth rate of 14%. Radio is an increasingly
important medium for advertisers targeting the Hispanic market. Approximately
27% of the $1.4 billion in advertising expenditures in 1997 targeting Hispanics
was spent on Spanish-language radio, compared with 8% for all U.S. media
advertising. The Company believes that advertiser interest in the Hispanic
population will continue to grow primarily because Hispanic consumer spending,
which is expected to total approximately $380 billion in 1998, is expected to
grow at an annual rate of 7.8% over the next 12 years to $939 billion in 2010,
far outpacing the expected growth in total U.S. consumer spending. In addition,
Hispanic consumer spending currently represents approximately 6.6% of all U.S.
consumer spending while Hispanic-targeted advertising expenditures represent
approximately 1% of all U.S. advertising expenditures. The Company believes that
this disparity will narrow and fuel growth in Hispanic-targeted advertising as
major advertisers continue to find that Spanish-language advertising is a more
effective means to target the growing Hispanic audience than English-language
advertising.
The Company was formed in 1996 by Joaquin F. Blaya, a former senior
executive of Univision Holdings, Inc. (together with its predecessors and
affiliates, "Univision") and Telemundo Group, Inc. (together with its
predecessors and affiliates, "Telemundo") with over 30 years of experience in
Spanish-language broadcasting. Mr. Blaya was instrumental in establishing those
Spanish-language television networks, and he established the Company on the
belief that nationwide advertisers would support a national Spanish-language
radio network with appealing, original programming reaching large numbers of
Hispanics on a cost-effective basis. The Company believes that prior to the
Company's formation, Univision and Telemundo were the only alternatives for
advertisers seeking to reach a large portion of the national Hispanic population
cost-effectively and that Univision and Telemundo have been able to obtain
advertising rate increases as a result.
BUSINESS STRATEGY
To capitalize on the apparent market opportunity, the Company has created a
national, Spanish-language AM radio network based on the following business
strategy:
PROVIDE HIGH QUALITY, POPULAR PROGRAMMING. The Company produces a strong
line-up of news, information, sports, talk and entertainment programs hosted by
internationally known personalities such as Pedro Sevcec, Dr. Isabel
Gomez-Bassols, Mauricio Zeillic and Jorge Ramos. Certain of these celebrities,
who are well known in the Hispanic world and have hosted or are currently
hosting popular shows on the Univision and Telemundo networks, create exclusive
shows for the Company and are compensated through revenue-sharing and/or equity
participation contracts with the Company. Two of the Company's most popular
shows are "Sevcec en Vivo," a three-hour talk show devoted to in-depth coverage
of the top news stories of the day, issues of importance to the Hispanic
population and interviews with prominent figures and "Dra. Isabel," an advice
program hosted by Dr. Isabel Gomez-Bassols that focuses on such issues as
personal relationships, child rearing and adapting to a new culture. With their
many years of Spanish-language broadcasting experience, the Company's senior
management believes that the Company is well positioned to continue to create
and produce high quality programming that will appeal to the Hispanic market and
establish strong brand-name recognition for the Radio Unica network. The
Company's exclusive radio coverage of the 1998 World Cup drew significant
listener interest and was a major promotional tool for the Company's ongoing
network programming.
FOCUS ON AM RADIO NEWS/TALK FORMAT. News/talk radio is a proven concept
with broad listener appeal and attractive economics. News/talk radio is the #1
program format in both the U.S. and Mexico and typically allows twice as many
commercial minutes per hour compared to a typical FM music format. As a result,
according to industry sources, news/talk radio in the general market on average
commands approximately 1.47% of a market's radio advertising dollars for every
1.0% of audience share. In addition, AM stations typically have lower purchase
prices than FM stations, resulting in lower costs of entry to a market for the
Company.
34
<PAGE>
CONTROL TOP HISPANIC MARKETS WITH COMPANY-OPERATED STATIONS. The Company
currently operates stations in ten of the top twelve markets in the U.S. in
terms of Spanish-language media spending. The Company has contracted to acquire
a station in New York to replace its current station operated under an LMA and
has options to acquire stations in Los Angeles, Chicago and San Antonio
currently operated under LMAs. In addition, the Company has contracted to
acquire stations in other key Hispanic markets such as Dallas and Phoenix. The
Company believes that by having Company-operated stations in the key Hispanic
markets, it can deliver to advertisers a large portion of the U.S. Hispanic
population more cost effectively than what they could achieve by contracting on
a local basis.
EXPAND NETWORK REACH THROUGH USE OF AFFILIATED STATIONS. The Company
reaches markets outside of the top tweleve through its network of 47 affiliated
stations. By using affiliated stations in smaller Hispanic markets, the Company
reduces its initial capital requirements while still having the reach of a
nationwide network. Affiliated stations receive the benefits of reduced
programming costs and access to the Company's strong programming line-up, which
recently included the 1998 World Cup. Substantially all of the affiliated
stations are under two-year contracts, the majority of which require the
affiliated stations to broadcast at least eight-hours per day of the Company's
network programming. The Company does not pay the affiliated stations to
broadcast its programming.
TARGET TOP 50 NATIONAL HISPANIC ADVERTISERS WITH IN-HOUSE SALES FORCE. The
Company's sales strategy is to target the top 50 national Hispanic advertisers
who control approximately 75% of Spanish-language advertising. The Company
believes that by using its in-house sales force of 43 people, with offices in
eight key markets, it will have better control and accountability over the sales
process. The Company believes that its sales strategy has been effective. For
the Company's 1998 World Cup coverage, AT&T, MoneyGram and Corona, among others,
purchased national sponsorship and advertising packages. For the Company's
ongoing network programming, Proctor & Gamble, the largest Hispanic advertiser,
has committed to purchase advertising for certain of its brands. Negotiations
are ongoing with other national advertisers.
MAINTAIN LOW-COST STRUCTURE AND MODERN NETWORK TECHNOLOGY. The Company's
programming is delivered via satellite to the Company-operated and affiliated
stations nationwide. Each station receives the programming through a decoder
system controlled by the Company. Through a relationship with a satellite
services provider, the satellite delivery system has full redundancy and back-up
capabilities. The Company's modern network production studio located in Miami
has the ability to easily produce and distribute programming, commercials and
promotional recordings to each of the Company-operated stations via a wide area
network. Stand-alone digital systems are being installed at each
Company-operated station to record the data distributed by the network. As a
result, the Company-operated stations are able to maintain minimal staff to
operate production equipment. In addition, the Company's network technology
allows the Company to broadcast different versions of commercials directed at
different geographic regions.
CREATE A STRONG BRAND IDENTITY. The Company is establishing a highly
professional and recognized brand identity by promoting the Radio Unica name
on-air, utilizing music for station imaging and launching other marketing
efforts, including its website at www.unicaweb.com, which are intended to
increase Radio Unica's brand recognition. Twelve of the Company's affiliated
stations have branded themselves Radio Unica stations. The Company has hired
experienced personnel at the corporate level for these marketing efforts and
similar services that would not otherwise be available on a cost-efficient basis
to its Company-operated and affiliated stations on an individual basis.
THE HISPANIC AUDIENCE IN THE UNITED STATES
Management believes that Spanish-language radio, in general, and the
Company, in particular, have benefitted and will continue to benefit from a
number of factors, including projected Hispanic population
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growth, high Spanish-language retention among Hispanics, increasing Hispanic
buying power and greater advertiser spending on Spanish-language media.
HISPANIC POPULATION GROWTH AND CONCENTRATION. The Company's audience
consists almost exclusively of Hispanics, one of the most rapidly growing
segments of the U.S. population. The 1998 Hispanic population is estimated to be
30.5 million (11.3% of the total U.S. population), an increase of 28.7% from
23.7 million (9.5% of the total U.S. population) in 1990. The overall Hispanic
population is growing at approximately five times the rate of the non-Hispanic
U.S. population and is expected to grow to 32.4 million and 45.8 million (11.8%
and 15.4% of the total U.S. population) in 2000 and 2010, respectively.
Approximately 55% of all Hispanics are located in the eight U.S. cities with the
largest Hispanic populations. Radio Unica broadcasts in each of these cities.
SPANISH-LANGUAGE USE. Approximately 69% of all Hispanics, regardless of
income or educational level use Spanish as the language most frequently spoken
at home. This percentage is expected to remain relatively constant through 2010.
Consequently the number of Hispanics speaking Spanish in the home is expected to
increase significantly in the foreseeable future, growing from 16.2 million in
1990 to 22.4 million in 2000 and 27.8 million in 2010. The Company believes that
the strong Spanish-language retention among Hispanics indicates that the
Spanish-language media has been and will continue to be an important source of
news, sports and entertainment for Hispanics.
GREATER HISPANIC BUYING POWER. The Hispanic population represents estimated
total consumer expenditures of $380 billion in 1998 (6.6% of the total U.S.
consumer expenditures), an increase of 76.4% since 1990. Hispanics are expected
to account for $443 billion (7.0% of the U.S. total consumer expenditures) by
2000, and $939 billion (8.9% of the U.S. total consumer expenditures) by 2010,
far outpacing the expected growth in total U.S. consumer expenditures.
In addition to the anticipated growth of the Hispanic population, the
Hispanic audience has several other characteristics that the Company believes
make it attractive to advertisers. The Company believes the larger size
(averaging 3.6 persons per household compared to the general public's average of
2.6 persons per household) and younger age of Hispanic households leads
Hispanics to spend more per household on many categories of goods. The average
Hispanic household spends approximately 28% more per year on food at home,
approximately 100% more on children's clothing, approximately 35% more on
footwear, approximately 11% more on phone services, and approximately 23% more
on laundry and household cleaning products than the average non-Hispanic
household. Hispanics are expected to continue to account for a disproportionate
share of growth in spending nationwide in many important consumer categories as
the Hispanic population and its disposable income continue to grow. These
factors make Hispanics an attractive target audience for many major U.S.
advertisers.
INCREASED SPANISH-LANGUAGE ADVERTISING. According to published sources,
$1.4 billion of total advertising expenditures were directed towards
Spanish-language media in 1997, representing an annual compound growth rate of
14% since 1993. Of these amounts, approximately 27% of the $1.4 billion in
advertising expenditures in 1997 targeting Hispanics was directed towards
Spanish-language radio advertising. The Company believes that major advertisers
have found that Spanish-language radio advertising is a more effective means to
target the growing Hispanic audience than English-language broadcast media. See
"--Advertising."
BROADCASTING PROPERTIES
The Company broadcasts its programming through stations owned and operated
by the Company, through stations owned by third parties that are operated by the
Company under LMAs, and through stations owned and operated by third parties
under affiliation agreements ("AFAs").
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OWNED AND OPERATED STATIONS
The Company owns or has contracted to acquire radio stations in Los Angeles,
Miami, San Francisco, Houston, Dallas/Fort Worth, Phoenix and New York.
LOS ANGELES. The Company's station KBLA(AM), operating on 1580 kHz, serves
the Los Angeles market, which has a population of approximately 16.3 million, of
which approximately 6.3 million or 38.7% are Hispanic. Spanish-language radio
advertising spending in the market was approximately $94.8 million in 1997. The
Company acquired substantially all of the assets used in the operation of KBLA
from Sinclair for a purchase price of $21 million on July 30, 1998. The acquired
assets include the broadcast license, the transmitter site and related
transmitter equipment. Radio Korea U.S.A. Inc. currently operates the station,
broadcasting in the Korean language, pursuant to an LMA with Sinclair (the
"Radio Korea Agreement"). The Radio Korea Agreement will terminate on January 1,
1999. KBLA is licensed at 50,000 watts during the daytime. KBLA's transmitter
site is located in Los Angeles and enables this station to reach substantially
all of the Los Angeles DMA.
MIAMI. The Company's station WNMA(AM), operating on 1210 kHz, serves the
Miami market, which has a population of approximately 3.7 million, of which
approximately 1.4 million or 38.1% are Hispanic. Spanish-language radio
advertising spending in the market was approximately $53.4 million in 1997. The
Company acquired substantially all of the assets used in the operation of WNMA
from subsidiaries of One-on-One in May 1998 for a purchase price of $9 million.
The acquired assets included the broadcast license, the transmitter site and
related transmitter equipment. Prior to the acquisition, One-on-One operated the
station with an English language sports talk format. WNMA is licensed at 25,000
watts during the daytime. WNMA's transmitter site is located in Miami Springs,
Florida and enables this station to reach substantially all of the Miami DMA.
In connection with the acquisition of WNMA, the Company acquired WCMQ (AM),
operating on 1700 kHz. This station, which operates in the expanded band, is
time brokered to a third party. Based on current FCC guidelines, the license of
either WNMA or WCMQ must be relinquished by the Company by October 8, 2002.
SAN FRANCISCO. The Company's station KIQI(AM), operating on 1010 kHz,
serves the San Francisco/ San Jose market, which has a population of
approximately 6.8 million, of which approximately 1.2 million or 18.4% are
Hispanic. Spanish-language radio advertising spending in the market was
approximately $18.3 million in 1997. The Company acquired all of the issued and
outstanding shares of Oro, the licensee of KIQI, in April 1998 for a purchase
price of $12 million. Oro is currently operated as a wholly-owned subsidiary of
the Company. Prior to the acquisition, Oro operated the station for
approximately 17 years with a Spanish-language format. KIQI is licensed at
10,000 watts during the daytime. KIQI's transmitter site is located in Oakland,
California and enables this station to reach substantially all of the San
Francisco DMA.
HOUSTON. The Company's station KXYZ(AM), operating on 1320 kHz, serves the
Houston market, which has a population of approximately 4.7 million, of which
approximately 1.1 million or 24.2% are Hispanic. Spanish-language radio
advertising spending in the market was approximately $18.4 million in 1997. The
Company acquired an 80% economic interest in substantially all of the assets
used in the operation of KXYZ in March 1998 from 13 Radio Corp. ("13 Radio"),
through an investment in Blaya, Inc., and acquired the remaining interest from
Joaquin F. Blaya in September 1998. See "Certain Relationships and Related
Transaction." Blaya, Inc. acquired substantially all of the assets of 13 Radio
for $6.4 million. The acquired assets included the broadcast license, the
transmitter site, related transmitter equipment, studios and related studio
equipment. Prior to the acquisition, 13 Radio operated the station for
approximately 13 years with a Spanish-language format. KXYZ is licensed at 5,000
watts during the daytime. KXYZ's transmitter site is located in Pasadena, Texas
and enables this station to reach substantially all of the Houston DMA.
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DALLAS/FORT WORTH. The Company has contracted to acquire substantially all
of the assets used in the operation of station KAHZ(AM), operating on 1360 kHz.
The station serves the Dallas/Fort Worth market which has a population of
approximately 5.3 million, of which approximately 787,000 or 14.9% are Hispanic.
Spanish-language radio advertising spending in the market was approximately
$10.2 million in 1997. The acquired assets will include the broadcast license,
the transmitter site and related transmitter equipment. The transaction is
subject to FCC approval and to approval under the HSR Act. KAHZ is licensed at
5,000 watts during the daytime. KAHZ's transmitter is located in Fort Worth,
Texas and enables this station to reach a significant portion of the
Dallas/Forth Worth DMA.
PHOENIX. The Company has contracted to acquire substantially all of the
assets used in the operation of station KIDR(AM), operating on 740 kHz. The
station serves the Phoenix market which has a population of approximately 3.6
million, of which approximately 668,000 million or 18.7% are Hispanic.
Spanish-language radio advertising spending in the market was approximately $6.0
million in 1997. The acquired assets will include the broadcast license, the
transmitter site and related transmitter equipment. The transaction is subject
to FCC approval and to approval under the HSR Act. KIDR is licenced at 1,000
watts during the daytime. KIDR's transmitter is located in Phoenix, Arizona and
enables this station to reach a significant portion of the Phoenix DMA.
NEW YORK. The Company has contracted to acquire substantially all of the
assets used in the operation of station WJDM(AM), operating on 1530 kHz. The
station serves the New York market which has a population of approximately 30.5
million, of which approximately 3.6 million or 12% are Hispanic.
Spanish-language radio advertising spending in the market was approximately
$42.7 million in 1997. The acquired assets will include the broadcast license
and related transmitter equipment. The transaction is subject to FCC approval
and to approval under the HSR Act. WJDM is licensed at 1,000 watts during the
daytime. WJDM's transmitter is located in Elizabeth, New Jersey and enables this
station to reach a significant portion of the New York DMA.
In connection with the acquisition of WJDM, the Company will acquire
WBAH(AM), operating on 1660 kHz. WBAH is licensed at 10,000 watts during the
daytime. WBAH's transmitter is located in Secaucus, New Jersey. Based on current
FCC guidelines, the license of either WJDM or WBAH must be relinquished by the
Company by October 8, 2002.
Pending the closing of the CBC Acquisition, the Company is currently
operating WBAH(AM) and expects to begin operating KAHZ(AM) and KIDR(AM) by
December 1, 1998 pursuant to an LMA dated October 26, 1998, which provides for
the payment of an aggregate fee of $200,000 per month.
LOCAL MARKETING AGREEMENTS
The Company has entered into LMAs with respect to radio stations in Los
Angeles, San Antonio, Dallas and Chicago. Pursuant to these LMAs, the Company
operates, and supplies all programming for, the stations.
LOS ANGELES. The Company operates station KVCA(AM), operating on 670 kHz,
in Los Angeles pursuant to a LMA with Lotus Oxnard Corp. ("Lotus"). The term of
this LMA is through December 31, 2001 and the Company's annual LMA payment is $2
million in 1998 and increases $200,000 per year thereafter. The Company has an
option to purchase the assets of KVCA. The option is exercisable from June 24,
2001 through September 30, 2001. KVCA is licensed at 5,000 watts during the
daytime. KVCA's transmitter site is located in Simi Valley, California and
enables this station to reach a significant portion of the Los Angeles DMA.
SAN ANTONIO. The Company operates station KZDC(AM), operating on 1250 kHz,
in San Antonio pursuant to a LMA with Lotus. Spanish-language radio advertising
spending in the market was approximately $19.2 million in 1997. The term of this
LMA is through December 31, 2001 and the Company's annual LMA payment ranges
from $200,000 in 1998 to $275,000 in 2001. The Company has an option to
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purchase the assets of KZDC. The option is exercisable from June 24, 2001
through September 30, 2001. KZDC is licensed at 5,000 watts during the daytime.
KZDC's transmitter site is located in San Antonio and enables this station to
reach substantially all of the San Antonio DMA.
CHICAGO. The Company operates station WYPA(AM), operating on 820 kHz, in
Chicago pursuant to a LMA with Achievement Radio Holdings, Inc. ("Achievement").
Spanish-language radio advertising spending in the market was approximately
$22.5 million in 1997. The term of this LMA is through June 8, 1999 and may be
extended at the Company's option for an additional twelve months (the "Renewal
Term"). The Company's annual LMA payment for the first year is $1,416,000 and
$1,458,480 for the second year. The Company has an option to purchase the assets
of WYPA. The option is exercisable from June 9, 1998 through June 9, 1999 and
will be exercisable for the Renewal Term if the LMA is extended. After January
8, 1999, Achievement may offer the station for sale and must give written notice
to the Company if it desires to accept an offer to purchase from a third party.
The Company may exercise its option and purchase the station under the terms and
conditions of the option or for the consideration specified in the offer, if
lower. If the Company declines to exercise the option in the event of a third
party offer, the LMA terminates 6 months from the date of delivery of the third
party purchase agreement. WYPA is licensed at 5,000 watts during the daytime.
WYPA's transmitter site is located just outside of Chicago and enables the
station to reach substantially all of the Chicago DMA.
DALLAS. The Company operates station KDFT(AM), operating on 540 kHz, in
Dallas pursuant to a LMA with The Freedom Network, Inc. Spanish-language radio
advertising spending in the market was approximately $10.2 million in 1997. The
term of this LMA is through May 18, 2000 and the Company's LMA payment is
approximately $44,786 per month through May 30, 1999 and $56,546 per month
thereafter. KDFT is licensed at 1,000 watts during the daytime. KDFT's
transmitter site is located in Ferris, Texas and enables this station to reach
substantially all of the Dallas DMA.
AFFILIATION AGREEMENTS
The Company has entered into AFAs with substantially all of its affiliated
radio stations. Pursuant to the AFAs, the Company supplies programming for the
affiliated stations which are typically required to carry a minimum of eight
hours per day of the Company's network programming. The AFAs typically provide
that the Company's programming will include a certain number of minutes per hour
of network advertising to be sold by the Company and a certain number of minutes
per hour for local advertising to be sold by the station. The terms of the AFAs
are generally one to two years, subject to earlier termination under certain
circumstances. Some of the AFAs grant the Company a right of first refusal in
the event the station owner offers to sell the station.
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The following tables set forth certain information concerning the stations
owned and/or operated by the Company and the stations covered by LMAs or AFAs
and their respective markets:
COMPANY-OPERATED STATIONS AND MARKETS
<TABLE>
<CAPTION>
HISPANIC
POPULATION IN HISPANIC HISPANIC
RANK BY PURCHASE MARKET POPULATION POPULATION
HISPANIC MARKET COMPANY-OWNED PRICE (IN AS A % OF AS A % OF
POPULATION SERVED/STATION OR LMA (IN MILLIONS) THOUSANDS) TOTAL MARKET U.S. HISPANICS
- ------------- ------------------------------- --------------- ------------- ------------- ----------------- ---------------
<C> <S> <C> <C> <C> <C> <C>
1 Los Angeles
KBLA(AM) Owned $ 21.0 6,326 38.7% 20.8%
KVCA(AM) LMA N/A
2 New York
WJDM(AM) Owned* $ 19.0 3,645 18.1% 12.0%
WBAH(AM) Owned* N/A
3 Miami
WNMA(AM) Owned $ 9.0 1,423 38.1% 4.7%
WCMQ(AM) Owned N/A
4 San Francisco/ San Jose
KIQI(AM) Owned $ 12.0 1,243 18.4% 4.1%
5 Chicago
WYPA(AM) LMA N/A 1,198 12.0% 3.9%
6 Houston
KXYZ(AM) Owned $ 6.4 1,141 24.2% 3.7%
7 San Antonio
KZDC(AM) LMA N/A 1,065 51.6% 3.5%
9 Dallas/ Ft. Worth
KAHZ(AM) Owned* $ 5.1 787 14.9% 2.6%
KDFT(AM) LMA N/A
12 Phoenix
KIDR(AM) Owned* $ 5.1 688 18.7% 2.2%
----- ------ -----
Totals $ 77.6 17,496 57.5%
----- ------ -----
----- ------ -----
</TABLE>
- ------------------------
* Pending the consummation of the acquisition of the stations from CBC.
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AFFILIATED STATIONS IN THE TOP 50 MARKETS
<TABLE>
<CAPTION>
HISPANIC
POPULATION HISPANIC HISPANIC
RANK BY IN MARKET POPULATION POPULATION
HISPANIC (IN AS A % OF AS A % OF
MARKET SERVED STATIONS* POPULATION THOUSANDS) TOTAL MARKET U.S. HISPANICS
- --------------------------------------------- ----------------- ---------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
McAllen/Brownsville/Harlingen (TX) KVJY(AM) 8 824 89.5% 2.7%
San Diego (CA) XEMMM(AM) 10 706 25.3% 2.3%
Fresno (CA) KGST(AM) 11 680 41.6% 2.2%
El Paso (TX) KSVE(AM) 13 667 74.5% 2.2%
Albuquerque (NM) KALY(AM) 14 656 38.4% 2.2%
Sacramento (CA) KZAC(AM) 15 612 17.9% 2.0%
KLNA(FM)
Denver (CO) KBNO(AM) 16 398 13.0% 1.3%
Washington (DC) WACA(AM) 18 361 6.4% 1.2%
Tucson (AZ) KNXN(AM) 21 305 30.4% 1.0%
Tampa (FL) WLUV(AM) 22 280 7.8% 0.9%
Austin (TX) KTAE(AM) 23 276 22.9% 0.9%
Salinas/Monterey (CA) KCTY(AM) 24 246 35.6% 0.8%
KRAY(FM)
Laredo (TX) KLAR(AM) 27 193 98.4% 0.6%
Yuma/El Centro (CA) KICO(AM) 31 164 62.6% 0.5%
KQVO(FM)
Portland (OR) KWIP(AM) 35 133 5.0% 0.4%
Colorado Springs (CO) KXRE(AM) 37 128 17.5% 0.4%
Detroit (MI) WKVD(FM) 43 110 2.3% 0.4%
Providence (RI) WPMZ(AM) 46 87 5.7% 0.3%
New Orleans (LA) KGLA(AM) 48 69 4.0% 0.2%
Springfield (MA) WSPR(AM) 50 64 9.7% 0.2%
</TABLE>
- ------------------------
* Bold stations brand themselves as Radio Unica stations.
As of the date hereof, the Company had an additional 17 affiliated stations
in markets ranked 51 and higher. These markets collectively account for less
than 2.5% of the Hispanic population.
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PROGRAMMING
The Company's network programming is broadcast 24 hours a day, seven days a
week, and includes talk, information, news, sports and entertainment programs
which are designed to appeal to the general Hispanic audience. The radio
news/talk format is a proven English-language formula used by several major
networks, including ABC Radio Networks, Jones Satellite Networks and Westwood
One, which has experienced increasing audience share over the last several years
and is the #1 radio format in both the U.S. and Mexico.
The Company currently produces 19 hours per day of live and first run
programming Monday through Friday and 26 hours of such programming each weekend
at its network production studio in Miami. The Company's daily program schedule
begins with a three-hour talk and information program focusing on current events
followed by an hour of world news. From mid-morning until late afternoon the
Company broadcasts a series of talk and information shows that focus on topics
including personal and family problem solving, immigration law and policy, and
entertainment news. During the evening commute, the Company broadcasts
entertainment programming, including sports news and talk shows. The Company's
evening programming contains talk and information programs whose subjects range
from entertainment to the paranormal. In addition, during the 1998 World Cup,
the Company broadcasted live, play-by-play coverage of the matches and a daily
program with 1998 World Cup news and interviews with 1998 World Cup
participants.
TALK AND INFORMATION PROGRAMS. Three of the most popular programs produced
by the Company are "Sevcec en Vivo", a three-hour talk show hosted by Pedro
Sevcec devoted to in-depth coverage of the top news stories of the day, issues
of importance to the Hispanic population and interviews with prominent figures;
"Dra. Isabel", an advice program hosted by Dr. Isabel Gomez-Bassols that focuses
on such issues as personal relationships and child rearing; and
"Inmigracion . . . Preguntas y Respuestas", a program hosted by Fulvia Peimbert
that focuses on the rules of the U.S. immigration system. The format of these
programs allows listeners to participate via toll-free phone lines.
NEWS. The Company produces newscasts on the hour, 24 hours a day, including
an hour-long late morning newscast, all of which focus on events of interest to
Hispanic audiences. The Company also produces a three-hour national morning news
program Monday through Saturday, "Esta Manana en Unica", that allows local
stations the opportunity to insert local segments of news, weather, sports and
other information. In addition, the Company has a five-year agreement with the
publisher of El Nuevo Herald newspaper, the Spanish-language version of the
Miami Herald (the "Herald"), under which the Company and the Herald jointly
produce and sell advertising for the local segments inserted in "Esta Manana en
Unica" broadcast Monday through Friday mornings on the Company's Miami station.
El Nuevo Herald is the number one Spanish-language newspaper in Miami and the
U.S. in terms of circulation.
SPORTS. The Company's regular sports programming includes "Unica en
Deportes" a sports talk show hosted by Jorge Ramos which features sports news
and interviews appealing to Hispanic audiences. In addition, under an agreement
with Univision Network Limited Partnership, the Company obtained exclusive
Spanish-language radio broadcasting rights in the U. S. for all of the 1998
World Cup soccer matches. The purchase price for such rights was $2.65 million.
These rights allowed the Company to produce its own play-by-play description of
each of the 56 matches in the 1998 World Cup, an estimated total of
approximately 168 hours of programming. The Company has recently acquired radio
broadcasting rights for several large soccer events including Copa America 1999
and 2001, Copa Oro 2000 and 2002, and elimination games for the 2002 World Cup.
ENTERTAINMENT. The Company also produces afternoon entertainment
programming featuring comedians, entertainment-world news, gossip and interviews
with major Hispanic celebrities. The show is hosted by Mauricio Zeilic and
others. Mauricio Zeilic has been hosting entertainment shows for more than 20
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years and is currently the host of an entertainment segment of Telemundo's daily
afternoon magazine show.
ON-AIR TALENT. The Company has contracts with some of the Hispanic world's
best known media personalities to host its programs. Pedro Sevcec was the host
of Telemundo's popular TV newsmagazine, "Ocurrio Asi," and currently hosts his
own talk show on Telemundo called "Sevcec." "Sevcec" is one of Telemundo's
highest rated shows. Prior to joining Telemundo, Mr. Sevcec was the editor of El
Nuevo Herald. Dr. Isabel Gomez-Bassols is a noted psychologist and educator and
makes regular appearances on such popular television shows as "Cristina,"
"Sevcec" and "Miami Ahora." Jorge Ramos has served as sports anchor for
Telemundo since 1994 and in his career has broadcast four World Cups. All of
these personalities are under contracts with the Company that include revenue
sharing and/or equity participation agreements.
ADVERTISING
The Company believes that radio is one of the most efficient and cost
effective means for advertisers to reach targeted demographic groups.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract listeners in a given market and on the
attractiveness to advertisers of the station's listener demographics. Rates vary
depending upon a program's popularity among the listeners an advertiser is
seeking to attract, the number of advertisers vying for available air time and
the availability of alternative media in the market. Radio advertising rates
generally are highest during the morning and afternoon drive-time hours. The
Company believes that its rates are somewhat below the rates charged by
similarly-rated and even lower-rated English-language stations in the Company's
markets although the Company believes this differential will narrow and that the
Company should be able to increase its rates as advertisers recognize the
desirability of targeting the growing Hispanic population in the United States.
The Company employs its own sales representatives to obtain advertising
revenues and currently does not use third party national representatives or
"rep" firms. As a result, the Company has more control over and greater
accountability from its sales force. The Company believes that its sales force
is important in maintaining relationships with key advertisers and agencies and
identifying new advertisers. The Company pays sales commissions to its sales
staff upon the receipt from advertisers of the payments related to such sales.
The Company offers assistance to advertisers by providing them with content and
production advice and services and with studio facilities to produce
commercials.
Virtually all of the Company's revenue is derived from advertising sales.
Advertising revenue is broken down into two categories: station and network.
STATION ADVERTISING. Station advertising consists of local and national
advertising. Local advertising time is sold by the Company's local sales force
to the local community. The Company generates its local advertising revenues
primarily from local merchants and service providers. National advertising time
is sold by the Company's national sales force to clients outside the local
community. The Company generates its national advertising revenues primarily
from regional and national businesses which wish to reach Hispanic audiences in
particular local market(s) but not all of the markets in which the Company's
programming is broadcast.
NETWORK ADVERTISING. Network revenue is earned by sales of advertising time
by the Company's national sales force on the Company's network programming. The
Company attracts network advertising expenditures from diverse industries, with
advertising for food and beverages, personal care products, automobiles, other
household goods and telephone services representing the majority of network
advertising. Network advertisers typically wish to target the entire U.S.
Hispanic audience.
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COMPETITION
The radio broadcasting business is highly competitive. Competition for
advertising revenues is based on the size of the applicable market, the cost of
such advertising and the effectiveness of such advertising. The Company believes
that it is competitive in the size of market it reaches and the cost and
effectiveness of advertising time it sells.
The Company competes for listeners and revenues with other Spanish-language
and English-language radio stations. The Company also competes for viewers and
revenues with television stations, other video media, suppliers of cable
television programs, direct broadcast systems, newspapers, magazines and other
forms of entertainment and advertising.
SEASONALITY
The Company's revenues and cash flow are expected to be typically lowest in
the first calendar quarter and highest in the fourth calendar quarter. Seasonal
fluctuations are common in the radio broadcasting industry and are due primarily
to fluctuations in consumer spending.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, trade
names and service marks, including its logos, in its advertising and promotions.
The Company believes the strength of its trademarks, trade names and service
marks are important to its business and intends to continue to protect and
promote its marks as appropriate. The Company does not hold or depend upon any
material patent, government license, franchise or concession, except the
broadcast licenses granted by the FCC.
EMPLOYEES
As of the date hereof, the Company employed approximately 153 full-time
employees. As of such date, none of the Company's employees were represented by
unions. Management believes that its relations with its employees are good.
STATION AND OFFICE FACILITIES
The Company's corporate headquarters are located in Miami, Florida. The
types of properties required to support each of the Company's owned and operated
stations and stations operated under LMAs include offices, studios and towers
where broadcasting transmitters and antenna equipment are located. The Company
leases space in the building housing its corporate headquarters under a lease
expiring in 2004. The studios and offices of the Company's owned and operated
stations and of the stations operated by the Company under LMAs are located in
leased facilities with lease terms expiring from 2000 to 2007. The Company owns
the transmitter, building and equipment for each of its owned and operated
stations.
The transmitter sites for the Company's stations are material to the
Company's overall operations. Management believes that the Company's properties
are in good condition and are suitable for its operations; however, the Company
continually seeks opportunities to upgrade its properties.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and power of
stations; issues, renews, revokes and modifies station licenses; determines
whether to approve changes in ownership or control of station licenses;
regulates equipment used by stations; imposes regulations and takes other action
to prevent harmful interference between stations; adopts and implements
regulations and policies
44
<PAGE>
that directly or indirectly affect the ownership, management, programming,
operation and employment practices of stations; and has the power to impose
penalties for violations of its rules or the Communications Act. In February
1996, Congress enacted the Telecom Act to amend the Communications Act. The
Telecom Act, among other measures, directed the FCC, which has since conformed
its rules, to (a) eliminate the national radio ownership limits; (b) liberalize
the local radio ownership limits as specified in the Telecom Act; (c) issue
broadcast licenses for periods of up to eight years; and (d) eliminate the
opportunity for the filing of competing applications against broadcast license
renewal applications.
Congress, via the Balanced Budget Act of 1997, authorized the FCC for the
first time to conduct auctions for the awarding of construction permits for
commercial radio and television stations. To facilitate the settlement without
auctions of already pending mutually exclusive applications, Congress directed
the FCC to waive existing rules as necessary. The FCC has initiated a rulemaking
proceeding to implement these provisions. While the Company is not a participant
in any such proceeding, this recent action should result in the awarding of
construction permits for additional radio stations, some of which might have the
potential to compete with the Company's radio stations.
LICENSE GRANTS AND RENEWALS
The Communications Act provides that a broadcast license may be granted to
an applicant if the grant would serve the public interest, convenience and
necessity, subject to certain limitations referred to below. In making licensing
determinations, the FCC considers the legal, technical, financial and other
qualifications of the applicant, including compliance with the Communications
Act's limitations on alien ownership, compliance with various rules limiting
common ownership of broadcast, cable and newspaper properties, and the
"character" of the licensee and those persons holding "attributable" interests
in the licensee. Broadcast licenses are granted for specific periods of time
and, upon application, are renewable for additional terms. The Telecom Act
amended the Communications Act to provide that broadcast licenses be granted,
and thereafter renewed, for a term not to exceed eight years, if the FCC finds
that the public interest, convenience, and necessity would be served.
Generally, the FCC renews broadcast licenses without a hearing. The Telecom
Act amended the Communications Act to require the FCC to grant an application
for renewal of a broadcast license if: (i) the station has served the public
interest, convenience and necessity; (ii) there have been no serious violations
by the licensee of the Communications Act or the rules and regulations of the
FCC; and (iii) there have been no other violations by the licensee of the
Communications Act or the rules and regulations of the FCC which, taken
together, would constitute a pattern of abuse. Competing applications against
broadcast license renewal applications are therefore not entertained. The
Telecom Act provided that if the FCC, after notice and an opportunity for a
hearing, decides that the requirements for renewal have not been met and that no
mitigating factors warrant lesser sanctions, it may deny a renewal application.
Only thereafter may the FCC accept applications by third parties to operate on
the frequency of the former licensee. The Communications Act continues to
authorize the filing of petitions to deny against broadcast license renewal
applications during particular periods of time following the filing of renewal
applications. Petitions to deny can be used by interested parties, including
members of the public, to raise issues concerning the qualifications of the
renewal applicant.
None of the Company's licenses are currently subject to renewal proceedings.
The Company does not anticipate any material difficulty in obtaining license
renewals for full terms in the future.
The action of the FCC or its staff granting a renewal application may be
reconsidered during specified time periods by the FCC or its staff on their own
motion or by request of the petitioner, and the petitioner may also appeal
within a certain period actions by the FCC to the U.S. Court of Appeals. If the
FCC does not, on its own motion, or upon a request by an interested party for
reconsideration or review, review a staff grant or its own action within the
applicable time periods, and if no further reconsideration, review or
45
<PAGE>
appeals are sought within the applicable time periods, an action by the FCC or
its staff becomes a "Final Order."
LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL
The Communications Act prohibits the assignment of an FCC license or the
transfer of control of a corporation holding such a license without the prior
approval of the FCC. Applications to the FCC for such assignments or transfers
are subject to petitions to deny by interested parties and must satisfy
requirements similar to those for renewal and new station applications. Many
transactions involving radio stations provide, as a waivable pre-condition to
closing, that the FCC consent to the transaction has become a "Final Order."
OWNERSHIP RULES
Rules of the FCC limit the number and location of broadcast stations in
which one licensee (or any party with a control position or attributable
ownership interest therein) may have an attributable interest. The FCC, pursuant
to the Telecom Act, eliminated the previously existing "national radio ownership
rule." Consequently, there now is no limit imposed by the FCC to the number of
radio stations one party may own nationally.
The "local radio ownership rule" limits the number of stations in a radio
market in which any one individual or entity may have a control position or
attributable ownership interest. Pursuant to the Telecom Act, the FCC revised
its rules to set the local radio ownership limits as follows: (a) in markets
with 45 or more commercial radio stations, a party may own up to eight
commercial radio stations, no more than five of which are in the same service
(AM or FM); (b) in markets with 30-44 commercial radio stations, a party may own
up to seven commercial radio stations, no more than four of which are in the
same service; (c) in markets with 15-29 commercial radio stations, a party may
own up to six commercial radio stations, no more than four of which are in the
same service; and (d) in markets with 14 or fewer commercial radio stations, a
party may own up to five commercial radio stations, no more than three of which
are in the same service, provided that no party may own more than 50% of the
commercial stations in the market. FCC cross-ownership rules also prohibit one
party from having attributable interests in a radio station as well as in a
local television station or daily newspaper, although such limits are waived by
the FCC under certain circumstances. In addition, the FCC has a "cross interest"
policy that may prohibit a party with an attributable interest in one station in
a market from also holding either a "meaningful" non-attributable equity
interest (e.g., non-voting stock, voting stock, limited partnership interests)
or key management position in another station in the same market, or which may
prohibit local stations from combining to build or acquire another local
station. The FCC is presently evaluating its radio/television, radio/newspaper
and cross-interest rules and policies as well as policies governing attributable
ownership interests. The Company cannot predict whether the FCC will adopt any
changes in these policies or, if so, what the new policies will be or how they
might affect the Company.
ATTRIBUTION RULES
All holders of attributable interests must comply with, or obtain waivers
of, the FCC's multiple and cross-ownership rules. Under the current FCC rules,
an individual or other entity owning or having voting control of 5% or more of a
corporation's voting stock is considered to have an attributable interest in the
corporation and its stations, except that banks holding such stock in their
trust accounts, investment companies, and certain other passive interests are
not considered to have an attributable interest unless they own or have voting
control over 10% or more of such stock. The FCC is currently evaluating whether
to raise the foregoing benchmarks to 10% and 20%, respectively. An officer or
director of a corporation or any general partner of a partnership also is deemed
to hold an attributable interest in the media license. At present, when a single
shareholder holds a majority of the voting stock of a corporate licensee, the
FCC considers other shareholders, unless they are also officers or directors,
exempt from attribution. The FCC
46
<PAGE>
has asked for comments as to whether it should continue the single majority
shareholder exemption. Holders of non-voting stock generally will not be
attributed an interest in the issuing entity, and holders of debt and
instruments such as warrants, convertible debentures, options, or other
non-voting interests with rights to conversion to voting interests generally
will not be attributed such an interest unless and until such conversion is
effected. The FCC is currently considering whether it should expand its
attribution rules to reach certain of these interests in certain circumstances.
The Company cannot predict whether the FCC will adopt these or any other
proposals to change its attribution policies.
Under current FCC rules, any stockholder of the Company with 5% or more of
the outstanding votes (except for qualified institutional investors, for which
the 10% benchmark is applicable), will be considered to hold attributable
interests in the Company. Such holders of attributable interests must comply
with or obtain waivers of the FCC's multiple and cross-ownership rules. At
present, none of the attributable stockholders, officers or directors of the
Company have any other media interests besides those of the Company that
implicate the FCC's multiple ownership limits except that affiliates of Warburg
Ventures, L.P. hold interests in several daily newspapers none of which is
published in communities served by the Company's stations.
The FCC will consider a radio station providing programming and sales on
another local radio station pursuant to a LMA to have an attributable ownership
interest in the other station for purposes of the FCC's radio multiple ownership
rules. In particular, a radio station is not permitted to enter into a LMA
giving it the right to program more than 15% of the broadcast time, on a weekly
basis, of another local radio station which it could not own under the FCC's
local radio ownership rules.
ALIEN OWNERSHIP LIMITS
Under the Communications Act, broadcast licenses may not be granted,
transferred or assigned to any corporation of which more than one-fifth of the
capital stock is owned of record or voted by non-U.S. citizens or foreign
governments or their representatives or by foreign corporations (collectively,
"Aliens"). Where the corporation owning the license is controlled by another
corporation, the parent corporation cannot have more than one-fourth of the
capital stock owned of record or voted by Aliens, unless the FCC finds it in the
public interest to allow otherwise. The FCC has issued interpretations of
existing law under which the Alien ownership restrictions in slightly modified
form apply to other forms of business organizations, including general and
limited partnerships. The FCC also prohibits a licensee from continuing to
control broadcast licenses if the licensee otherwise falls under Alien influence
or control in a manner determined by the FCC to be in violation of the
Communications Act or contrary to the public interest. At present, none of the
Company's officers, directors or stockholders are known to be Aliens.
PROGRAMMING REQUIREMENTS
While the FCC has relaxed or eliminated many of its regulatory requirements
related to programming and content, radio stations are still required to
broadcast programming responsive to the problems, needs and interests of the
stations' service areas and must comply with various rules promulgated under the
Communications Act that regulate political broadcasts and advertisements,
sponsorship identifications, indecent programming and other matters. Affirmative
action requirements also exist. The U.S. Court of Appeals for the D.C. Circuit,
however, recently found that these requirements are unconstitutional. The rules
remain in effect pending action on the FCC's request for rehearing. Failure to
observe these or other FCC rules can result in the imposition of monetary
forfeitures, in the grant of a "short" (less than full term) license term or,
where there have been serious or a pattern of violations, license revocation.
AGREEMENTS WITH OTHER BROADCASTERS
Over the past several years a significant number of broadcast licensees,
including the Company, have entered into cooperative agreements with other
stations in their markets. One typical example is an LMA
47
<PAGE>
between two separately or co-owned stations, whereby the licensee of one station
programs substantial portions or all of the broadcast day on the other
licensee's station, subject to ultimate editorial and other controls being
exercised by the latter licensee, and sells advertising time during such program
segments for its own account. The FCC has held that LMAs do not per se
constitute a transfer of control and are not contrary to the Communications Act
provided that the licensee of the station maintains ultimate responsibility for
and control over operations of its broadcast station. As is the case of the
Company in certain circumstances the LMA is entered into in anticipation of the
sale of the station, with the proposed acquirer providing programming for the
station while the parties are awaiting the necessary regulatory approvals to the
transaction.
The FCC's rules also prohibit a radio licensee from simulcasting more than
25% of its programming on other radio stations in the same broadcast service
(i.e., AM-AM), whether it owns both stations or operates one or both through a
LMA, where such stations serve substantially the same geographic area as defined
by the stations' principal community contours. The Company-operated stations in
the Los Angeles market are subject to this limitation. Once the Sinclair
Acquisition is completed and the Company begins broadcasting on KBLA, the
Company intends to lease the station to a third party under an LMA or sell its
option in KVCA to a third party.
PROPOSED REGULATORY CHANGES
The FCC has not yet formally implemented certain of the changes to its rules
necessitated by the Telecom Act. Moreover, the Congress and the FCC have under
consideration, and may in the future consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could, directly or
indirectly, (i) affect the operation, programming, technical requirements,
ownership and profitability of the Company and its radio broadcast stations,
(ii) result in the loss of audience share and advertising revenues of the
Company's radio broadcast stations, (iii) affect the ability of the Company to
acquire additional radio broadcast stations or finance such acquisitions, (iv)
affect cooperative agreements and/or financing arrangements with other radio
broadcast licensees, or (v) affect the Company's competitive position in
relationship to other advertising media in its markets. Such matters include,
for example, changes to the license, authorization and renewal process;
proposals to revise the FCC's equal employment opportunity rules and other
matters relating to minority and female involvement in broadcasting; proposals
to alter the benchmark or thresholds for attributing ownership interest in
broadcast media; proposals to change rules or policies relating to political
broadcasting; changes to technical and frequency allocation matters, including
those relative to the implementing of digital audio broadcasting on both a
satellite and terrestrial basis; proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on radio; changes in the
FCC's cross-interest, multiple ownership, Alien ownership and cross-ownership
policies; and proposals to limit the tax deductibility of advertising expenses
by advertisers.
Although the Company believes the foregoing discussion is sufficient to
provide the reader with a general understanding of all material aspects of FCC
regulations that affect the Company, it does not purport to be a complete
summary of all provisions of the Communications Act or FCC rules and policies.
Reference is made to the Communications Act, FCC rules, and the public notices
and rulings of the FCC for further information.
LITIGATION
The Company is not currently involved in any material litigation and is not
aware of any such litigation threatened against it.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company and certain key employees of Radio Unica
Network, Inc. as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --------- ----------------------------------------------------
<S> <C> <C>
Joaquin F. Blaya.................................... 52 Chairman of the Board and Chief Executive Officer
Jose C. Cancela..................................... 40 President
Steven E. Dawson.................................... 34 Chief Financial Officer, Secretary and Director
Andrew C. Goldman................................... 50 Executive Vice President, Business Affairs and
Director
Blaine R. Decker.................................... 46 Executive Vice President, Network Sales
Omar Marchant....................................... 63 Vice President, Programming of Radio Unica Network,
Inc.
Adriana Grillet..................................... 45 Vice President, Affiliate Relations of Radio Unica
Network, Inc.
Roy Pressman........................................ 44 Vice President, Engineering of Radio Unica Network,
Inc.
John D. Santoleri................................... 34 Director
Sidney Lapidus...................................... 60 Director
</TABLE>
JOAQUIN F. BLAYA. Mr. Blaya has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since August 1997. From 1995 through
1996, Mr. Blaya served as the President of Solomon International Latino, the
Latin American division of Solomon International Enterprises, an international
telecommunications company. From 1992 through 1995, Mr. Blaya was the President,
Chief Executive Officer and a member of the Board of Directors of Telemundo, the
second largest U.S. Spanish-language television network. Prior to that, Mr.
Blaya was employed by Univision since 1971 in various positions, the latest
being President and a member of Univision's Board of Directors.
JOSE C. CANCELA. Mr. Cancela has been President of the Company since
September 1998. He initially joined the Company in July 1998 serving as
President, Network. From 1992 through 1998, Mr. Cancela served as Executive Vice
President of Telemundo, responsible for the overall management of Telemundo's
owned and operated television stations in Puerto Rico and Miami. From 1990 to
1992, Mr. Cancela was the Vice President of the Univision Southwest Station
Group.
STEVEN E. DAWSON. Mr. Dawson has been Chief Financial Officer, Secretary
and a Director of the Company since August 1997. From 1991 through 1997, Mr.
Dawson was employed by Telemundo in several positions, the most recent being
Vice President, Finance and Controller. Prior to that, Mr. Dawson was employed
at Coopers & Lybrand since 1986. Mr. Dawson is a Certified Public Accountant.
ANDREW C. GOLDMAN. Mr. Goldman has been a Director and Executive Vice
President, Business Affairs of the Company since August 1997. Mr. Goldman served
in different capacities for Univision from 1981 to 1993 including as Executive
Vice President and President of Galavision. Prior to joining Univision, Mr.
Goldman was the Senior Vice President of Marketing at Teleprompter Corporation.
Mr. Goldman has
49
<PAGE>
served as President and Director of Cable Television Administration and
Marketing Society (CTAM), and as Founder and Director of the Cable Advertising
Bureau (CAB).
BLAINE R. DECKER. Mr. Decker has served as the Company's Executive Vice
President, Network Sales since October 1997. He was previously employed by
KWHY-TV--Los Angeles as General Sales Manager from November 1995 through October
1997. From February 1984 through February 1995, Mr. Decker was employed by
Univision as Senior Vice President, Network Sales and in other management
positions. Prior to joining Univision, Mr. Decker was employed by Arbitron
Ratings Company as Vice President of Sales and Marketing from January 1980
through February 1984.
OMAR MARCHANT. Mr. Marchant has served as Radio Unica Network, Inc.'s Vice
President, Programming and as Creative Director since September 1997. Mr.
Marchant has been employed in various media-related capacities including TV
host, radio disc jockey, radio director, producer and creator of jingles, and
producer of TV specials for the Latin and general market. Additionally, Mr.
Marchant served as Senior Vice President and Creative Director for Telemundo
from June 1992 through July 1994 and as Vice President and Director of
Promotions and Special Events or in other capacities for Univision from
September 1972 through July 1994.
ADRIANA GRILLET. Ms. Grillet has served as Radio Unica Network, Inc.'s Vice
President, Affiliate Relations since August 1997. Ms. Grillet had previously
served as Director of Affiliate Relations for Caracol (Latino Broadcasting
Company) from April 1996 through July 1997 and CBS--Americas from February 1992
through April 1996. From 1992 through 1996 Ms. Grillet also served as a program
production consultant at WADO-NY and from 1988 through 1992 as Senior Program
Producer.
ROY PRESSMAN. Mr. Pressman has served as Radio Unica Network, Inc.'s Vice
President, Engineering since December 1997. Mr. Pressman has over 20 years of
experience in building and managing radio station facilities. From August 1997
to December 1997, Mr. Pressman served as Director of Engineering at Clear
Channel Communications, Inc. ("Clear Channel"). He was employed as Vice
President, Engineering at Paxson Communications Corp., the predecessor to Clear
Channel, from August 1993 to July 1997. Prior to that, Mr. Pressman was employed
as Director of Engineering at Gilmore Broadcasting, Inc.
JOHN D. SANTOLERI. Mr. Santoleri has been a Director of the Company since
August 1997. Mr. Santoleri is a Managing Director and a member of Warburg, where
he has been employed since 1989. Warburg is the managing entity of Warburg
Ventures, L.P., the Company's controlling stockholder. Prior to joining Warburg,
Mr. Santoleri was a Vice President of the New York based real estate consulting
firm, The Harlan Company, Inc. Mr. Santoleri is also a director of Axxess
Technologies, Inc., Grubb & Ellis Company, NexCycle, Inc., and Petrie Retail,
Inc.
SIDNEY LAPIDUS. Mr. Lapidus, a Director of the Company since September
1998, is a Managing Director and a member of Warburg, where he has been employed
since 1967. Mr. Lapidus is also a director of Caribiner International, Inc.,
Grubb & Ellis Company, Information Holdings Inc., Journal Register Company,
Knoll Inc., Lennar Corp. and several private companies.
NON-COMPETE AGREEMENTS
Joaquin F. Blaya and Steven E. Dawson each entered into separate
Non-Competition and Confidentiality Agreements on August 13, 1997 pursuant to
which they have each agreed, among other things, that: (i) until the later of
(a) August 13, 2002 or (b) two years after the termination of their respective
employment (if terminated for cause or if voluntarily resigned) they will not
engage directly or indirectly in any business directly competitive to that of
the Company or any of its subsidiaries; (ii) during the two year period after
their respective termination (if terminated for cause or if voluntarily
resigned) they will not hire, offer to hire or entice away any of the Company's
officers, employees, affiliates or agents; and (iii)
50
<PAGE>
they will not at any time divulge, furnish, use, publish or make accessible to
others any confidential information about the Company.
EXECUTIVE COMPENSATION
The following sets forth all compensation awarded to, earned by or paid for
services rendered to the Company and its subsidiaries in all capacities during
the year ended December 31, 1997 by the Company's Chief Executive Officer and
the four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
COMPENSATION(A) SECURITIES
------------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#) (B) ($)(C)
- ------------------------------------------------------------ ---------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Joaquin F. Blaya............................................ $ 145,834 -- 2,590.4763 $ 4,375
Chairman of the Board and Chief Executive Officer
Herbert M. Levin(d)......................................... $ 114,583 -- 2,057.1428 $ 2,005
Chief Operating Officer and President
Steven E. Dawson............................................ $ 88,667 -- 609.5238 $ 2,065
Chief Financial Officer and Secretary
Andrew C. Goldman........................................... $ 50,000 -- 874.6666 --
Executive Vice President--Business
Blaine R. Decker............................................ $ 52,500 -- 304.7623 --
Executive Vice President, Network Sales
</TABLE>
- ------------------------
(a) The compensation reflected in this chart represents the partial year amounts
paid during fiscal year 1997. Messrs. Blaya, Levin, Dawson and Goldman each
began employment at the Company in August 1997. Mr. Decker began employment
at the Company in October 1997.
(b) This column represents the number of shares of Company Common Stock
underlying options granted to each Named Executive Officer during fiscal
year 1997.
(c) Amounts in this column represent the Company's matching contributions to a
401k Plan.
(d) Mr. Levin resigned from his positions as Chief Operating Officer, President
and Director of the Company in August 1998.
STOCK OPTION PLANS/ARRANGEMENTS
Prior to the consummation of the Reorganization, each of the Named Executive
Officers held options to purchase shares of Company Common Stock (the
"Options"). Upon consummation of the Reorganization, each Option was converted
into an option to purchase Holdings Common Stock (the "Holdings' Options"). See
"The Transactions." The following table sets forth certain information
concerning Options granted to the Named Executive Officers during the year ended
December 31, 1997.
51
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMPANY COMMON PERCENT OF TOTAL
STOCK OPTIONS GRANTED TO EXERCISE GRANT DATE
UNDERLYING EMPLOYEES IN LAST PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE VALUE(H)
- -------------------------- -------------------- --------------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Joaquin F. Blaya.......... 695.6522 (a) $ 10.00 8/18/04 $ 1,801.74
530.4015 (b) $ 10.00 8/18/04 1,373.74
507.2797 (c) $ 10.00 8/18/04 1,313.85
400.0000 (d) (e) 8/17/07(f) 1,036.00
457.1429 (d) (e) 8/17/07 (f) 1,184.00
-------------------- ---------------
2,590.4763 33.8 % 6,709.33
Herbert M. Levin(g)....... 521.7391 (a) $ 10.00 8/18/04 1,351.30
336.4984 (b) $ 10.00 8/18/04 871.53
475.0958 (c) $ 10.00 8/18/04 1,230.50
373.3333 (d) (e) 8/17/07 (f) 966.93
350.4762 (d) (e) 8/17/07 (f) 907.73
-------------------- ---------------
2,057.1428 26.8 % 5,327.99
Steven E. Dawson.......... 224.0000 (c) $ 10.00 8/18/04 580.16
228.2667 (d) (e) 8/17/07 (f) 591.21
157.2571 (d) (e) 8/17/07 (f) 407.30
-------------------- ---------------
609.5238 7.9 % 1,578.67
Andrew C. Goldman......... 347.8261 (a) $ 10.00 8/18/04 900.87
233.3233 (b) $ 10.00 8/18/04 604.31
50.8506 (c) $ 10.00 8/18/04 131.70
113.2444 (d) (e) 8/17/07 (f) 293.30
129.4222 (d) (e) 8/17/07 (f) 335.20
-------------------- ---------------
874.6666 11.4 % 2,265.38
Blaine R. Decker.......... 133.3333 (c) $ 10.00 8/18/04 345.33
80.0000 (d) (e) 8/17/07 (f) 207.20
91.4290 (d) (e) 8/17/07 (f) 236.80
-------------------- ---------------
304.7623 4.0 % 789.33
</TABLE>
- ------------------------
(a) Represents Options which were fully vested at the time of grant.
(b) Represents Options which vest at a rate of 20% per year.
(c) Represents Options which vest based on the Company's achievement of certain
EBITDA targets established by the Board of Directors of the Company.
(d) Represents Options which vest upon the occurrence of: (a) the sale by the
Company of all or substantially all of its assets, (b) an initial public
offering, or (c) an issuance of capital stock of the Company if as a result
thereof Warburg Ventures, L.P. and/or one of its affiliates in the aggregate
would cease to own more of the Company Common Stock than any other single
stockholder.
(e) The exercise prices of these options are based on a formula specified in the
option certificate.
(f) These options expire on the earlier of the date indicated or the day
following the closing of a sale or an initial public offering.
(g) Mr. Levin resigned from his positions as Chief Operating Officer, President
and Director of the Company in August 1998. Pursuant to the terms of his
severance agreement, all of his Options, both vested and non-vested, have
been cancelled.
(h) The Black Scholes model was used to calculate the grant date present value.
None of the Named Executive Officers exercised Options during the year ended
December 31, 1997.
52
<PAGE>
PRINCIPAL STOCKHOLDERS OF HOLDINGS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial ownership of Holdings' voting stock by (i)
each person known to the Company and/or Holdings to own beneficially more than
5% of any class of Holdings' outstanding voting stock, (ii) each director and
each named officer of the Company and/or Holdings and (iii) all directors and
executive officers of the Company and/or Holdings as a group. Except as
otherwise indicated, each stockholder listed below has sole voting and
investment power with respect to shares beneficially owned by such person. Prior
to the Reorganization, the stockholders listed below held shares of Company
Common Stock and Company Preferred Stock, which were converted into shares of
Holdings Common Stock and Holdings Preferred Stock, respectively, upon
consummation of the Reorganization. See "The Transactions."
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK (A) VOTING POWER
--------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL
ISSUED % (B) ISSUED % VOTES % (B)
---------- --------- ------------ --------- ---------- ---------
Warburg, Pincus Ventures, L.P. (c) (d)........... 35,269.43 98.9 349,167.33 98.9 3,526,943 98.8
Joaquin F. Blaya................................. 1,120.90(e) 3.0 2,109.53 0.6 22,216 0.6
Andrew C. Goldman................................ 539.31(f) 1.4 971.74 0.3 10,257 0.3
Steven E. Dawson................................. 0(g) 0.0 0 0 0 0.0
Blaine R. Decker................................. 0(h) 0.0 0 0 0 0.0
John D. Santoleri (c) (d)........................ 35,269.43 98.9 349,167.33 98.9 3,526,943 98.8
Sidney Lapidus (c) (d)........................... 35,269.43 98.9 349,167.33 98.9 3,526,943 98.8
All Directors and Officers as a Group............ 35,663.14 100.0 353,065.12 100.0 3,368,169 100.0
</TABLE>
- ------------------------
(a) The holders of Holdings' Preferred Stock have the right to cast 10 votes for
each share.
(b) Shares issuable upon exercise of Holdings' Options that are exercisable
currently or within the next sixty days are deemed to be outstanding for the
purpose of computing the percentage ownership and overall voting power of
persons beneficially owning such Holdings' Options, but have not been deemed
to be outstanding for the purpose of computing the percentage ownership of
overall power of any other person.
(c) The business address for such person is 466 Lexington Avenue, New York, New
York 10017.
(d) The sole general partner of Warburg Ventures, L.P. is Warburg, Pincus & Co.
("WP"), a New York general partnership. Warburg manages Warburg Ventures,
L.P. The members of Warburg are substantially the same as the partners of
WP. WP, as the sole general partner of Warburg Ventures, L.P., has a 15%
interest in the profits of Warburg Ventures, L.P. Mr. Santoleri and Mr.
Lapidus are each Managing Directors and members of Warburg and general
partners of WP. As such, Mr. Santoleri and Mr. Lapidus may each be deemed to
have an indirect pecuniary interest in an indeterminate portion of the
shares beneficially owned by Warburg Ventures, L.P.
(e) Includes 907.81 shares issuable upon exercise of Holdings' Options that are
currently exercisable or exercisable within sixty days of this Prospectus
and does not include 1,682.66 shares issuable upon exercise of Holdings'
Options that have not yet vested.
(f) Includes 441.16 shares issuable upon exercise of Holdings' Options that are
currently exercisable or exercisable within sixty days of this Prospectus
and does not include 433.51 shares issuable upon exercise of Holdings'
Options that have not yet vested.
(g) Does not include 609.52 shares issuable upon exercise of Holdings' Options
that have not yet vested.
(h) Does not include 304.76 shares issuable upon exercise of Holdings' Options
that have not yet vested.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASE OF RADIO STATION KXYZ(AM); TRANSACTIONS INVOLVING BLAYA, INC.
Blaya, Inc., a Delaware corporation, was formed in October 1997 to
facilitate the purchase of radio station KXYZ (AM) located in Houston, Texas
("KXYZ"). Upon such formation, the Company acquired 499 shares of Blaya Inc.'s
common stock (which represented a 49.9% interest in Blaya, Inc.) and Joaquin F.
Blaya acquired 501 shares of Blaya, Inc.'s common stock (which represented a
50.1% interest in Blaya, Inc.). On December 24, 1997, Blaya, Inc. entered into
an asset purchase agreement with 13 Radio to acquire substantially all of the
assets necessary to operate KXYZ for a cash purchase price of $6.4 million. In
connection with the purchase, the Company advanced $1,016,590 to Blaya, Inc.
On March 6, 1998, the Company acquired 800 shares of Blaya, Inc.'s Class B
common stock, representing 49.9% of the voting rights and 80% of the economic
ownership rights in Blaya, Inc., in exchange for its 499 shares of Blaya, Inc.'s
common stock and $640,000. On the same day, the Company loaned Mr. Blaya
$160,000 in exchange for a 10 year 9% promissory note. These proceeds were used
by Mr. Blaya (together with the surrender of 501 shares of Blaya, Inc.'s common
stock then held by him) to acquire 200 shares of Blaya, Inc.'s Class A common
stock, representing 50.1% of the voting rights and 20% of the ownership rights
in Blaya, Inc.
On March 10, 1998, the Company loaned $5.7 million to Blaya, Inc. in
exchange for a promissory note. The proceeds were used to complete the asset
purchase agreement with 13 Radio and to pay related closing costs. The
promissory note bore interest at 9%, compounded quarterly and payable annually,
and was secured by substantially all of the assets of Blaya, Inc.
On September 11, 1998, the Company purchased all of Mr. Blaya's interest in
Blaya, Inc. for $160,000 and Mr. Blaya repaid the $160,000, plus interest, he
owed to the Company pursuant to the 10 year 9% promissory note. Upon the
Company's purchase of Mr. Blaya's shares, Blaya, Inc. became a wholly-owned
subsidiary of the Company and Radio Unica of Houston License Corp., a
wholly-owned subsidiary of Blaya, Inc., became an indirect, wholly-owned
subsidiary of the Company. Effective September 11, 1998, the $5.7 million
promissory note was cancelled by the Company and accounted for as a contribution
to Blaya, Inc.'s capital.
INITIAL INVESTMENTS IN THE COMPANY; AGREEMENTS AMONG STOCKHOLDERS
On August 11, 1997, Warburg Ventures, L.P., Joaquin F. Blaya, Herbert M.
Levin, Andrew C. Goldman, Alan Stess, Barrett Alley (collectively, the
"Investors") and the Company, entered into a Securities Purchase Agreement (the
"Purchase Agreement") pursuant to which the Investors purchased (the "Initial
Investment") an aggregate of 21,000 shares of the Company Common Stock and
207,900 shares of the Company Preferred Stock. The purchase price for the
Company Common Stock was $10 per share and the purchase price for the Company
Preferred Stock was $100 per share. In addition, Warburg Ventures, L.P. was
given the option at any time on or prior to three years from the date of the
Purchase Agreement and upon the request of the Chief Executive Officer ("CEO")
of the Company, to purchase an additional 198,000 shares of the Company
Preferred Stock and 20,000 shares of the Company Common Stock (the "Additional
Shares") on the same terms as the shares purchased in the Initial Investment.
Each of the other Investors and the Senior Executives (as defined in the
Purchase Agreement) of the Company had the right to acquire its pro rata shares
(based on the original shares and vested options owned by such Investor or
Senior Executive) of the Additional Shares on the same terms and conditions.
For so long as Warburg Ventures, L.P. owned more than 5% of the Company
Preferred Stock, the Company agreed to (among other things) furnish certain
financial reports to the Investors and to cause each of its significant
employees to enter into agreements relating to non-disclosure of information and
confidentiality and not to compete with the Company. The Company also agreed to
use its reasonable best efforts to cause its Board of Directors to consist of
six persons, who were to be designated jointly by
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Warburg Ventures, L.P. and the CEO. However, Warburg Ventures, L.P. had the
right at any time, in its sole discretion, to designate a majority of the
directors, provided, further, however, that if Warburg Ventures, L.P. designated
a majority of the directors, it agreed not to make any material change in the
nature of the business conducted by the Company without the consent of the CEO.
Pursuant to the Purchase Agreement the Company also agreed that for so long
as any Company Preferred Stock remained outstanding, it would not, without the
prior approval of Warburg Ventures, L.P., (i) become a party to a merger or
consolidation, sell or lease any of its assets other than in the ordinary course
of business or voluntarily dissolve, liquidate or wind up, (ii) engage in any
business other than the operation or ownership of the Network (as defined in the
Purchase Agreement), (iii) purchase or redeem any shares of its capital stock,
(iv) declare or pay any dividends except for dividends declared and paid on the
Company Preferred Stock, (v) create, incur, or assume any additional
indebtedness, except for commitments of up to an aggregate of $200,000 in any
fiscal year, (vi) make any capital expenditures in excess of that set forth in
the budget prepared according to the Purchase Agreement, (vii) acquire any
properties, assets or stock of another entity, except in the ordinary course of
business, (viii) amend its Articles of Incorporation or Bylaws, (ix) create or
issue any series or shares of capital stock, options, warrants or other rights
to purchase or acquire its capital stock, (x) hire, fire or change the
compensation of any of the Chief Executive Officer, Chief Financial Officer or
Chief Operating Officer, (xi) engage in any transactions with any of its
officers, directors or stockholders or any Affiliate or Associate of such
person, (xii) create, incur or suffer to exist any mortgage, pledge, lien,
security interest or other encumbrance except as provided in the annual budget
or (xiii) engage or discharge its independent certified public accountants or
legal counsel.
Additionally, the Purchase Agreement provided that the Company would not
make a registered public offering of its securities without the prior consent of
Warburg Ventures, L.P. Warburg Ventures, L.P. had demand registration rights and
the other Investors could have registered their Shares with Warburg Ventures,
L.P.'s demand registration statement. All of the Investors had piggy-back
registration rights with respect to any registration statement initiated by the
Company. The Investors also had preemptive rights to purchase any new securities
offered by the Company on the same terms as such new securities were offered
until there is a public offering of the Company's securities.
All of the stockholders or holders of Options (including Warburg Ventures,
L.P. and the Investors) entered into a Stockholders' Agreement, dated as of
August 11, 1997 (the "Stockholders' Agreement") to remain in effect until the
Company completed an initial public offering which resulted in aggregate gross
proceeds of at least $21 million. Pursuant to the Stockholders' Agreement, each
of the stockholders agreed (i) not to sell, offer to sell or otherwise dispose
of its shares of Company Common Stock and Company Preferred Stock, other than
those included in such public offering, for a period of at least 180 days from
the effective date of a registration statement in connection with such public
offering and (ii) for a period of five years, to grant the Company a right of
first refusal with respect to any of its shares of Company Common Stock and
Company Preferred Stock that the stockholder proposed to sell or otherwise
dispose of. If Warburg Ventures, L.P. had decided to sell the Company, each of
the stockholders would have been obligated to sell its stock pursuant to such
sale. If the employment of any stockholder terminated, the Company and then
Warburg Ventures, L.P. and Messrs. Blaya and Levin had the option to purchase
any stock owned by such stockholder.
As part of the Reorganization, Holdings assumed the rights and obligations
of the Company with respect to the agreements described above with the Company's
stockholders, (who became stockholders of Holdings), on the same terms and
conditions as the Stockholder Agreement.
LOANS TO THE COMPANY
On July 15, 1997, Joaquin F. Blaya, Herbert M. Levin and Andrew C. Goldman,
each a Named Executive Officer of the Company, and Barrett Alley, a stockholder
of the Company, loaned the Company
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<PAGE>
an aggregate of $100,000. The loan was due upon demand and bore interest at a
rate of 9% per annum. In April 1998, the Company fully repaid the loan by
issuing Messrs. Blaya, Levin, Goldman and Alley 40.584, 40.584, 18.156 and 7.476
shares of Company Common Stock, respectively, and 401.7816, 401.7816, 179.7444
and 74.0124 shares of Company Preferred Stock, respectively.
On July 24, 1997, Warburg Ventures, L.P. loaned the Company $265,000. The
loan was due upon demand and bore interest at a rate of 8% per annum. The funds
from the loan were used to pay a deposit to Univision Network Limited
Partnership ("Univision Network L.P.") pursuant to the Radio Broadcasting Rights
Agreement, dated as of July 30, 1997(the "World Cup Rights Agreement"), entered
into by and between Univision Network L.P. and the Company for the exclusive
Spanish-language radio broadcast rights in the United States for the 1998 World
Cup. Warburg Ventures, L.P. also arranged for the issuance of a letter of credit
(the "Original Letter of Credit") in the amount of $2,385,000 to Univision
Network L.P. on behalf of the Company to secure the Company's payments under the
World Cup Rights Agreement. In April 1998, the Company fully repaid the loan by
issuing Warburg Ventures, L.P. 280.5231 shares of Company Common Stock and
2,777.1788 shares of Company Preferred Stock. On July 9, 1998, the Original
Letter of Credit was replaced by a letter of credit issued by Canadian Imperial
Bank of Commerce (the "CIBC Letter of Credit") for the remaining amount of
$795,000.
On April 3, April 27, May 19 and June 16, 1998, Warburg Ventures, L.P.
loaned the Company $5,000,000, $11,000,000, $5,000,000 and $795,000 in exchange
for the Promissory Notes. The funds from the Promissory Notes were primarily
used to finance the Oro Acquisition and the One-on-One Acquisition. See "The
Transactions." Each of the Promissory Notes was due upon demand and bore
interest at the rate of 10% per annum. On June 30, 1998, the Company repaid
$15,000,000 of the Promissory Notes plus accrued interest by issuing Warburg
Ventures, L.P. 15,238.9041 shares of Company Common Stock and 150,865.1507
shares of Company Preferred Stock. The remaining $6,795,000 due under the
Promissory Notes has been repaid from amounts borrowed under the Revolving
Credit Facility.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
On July 8, 1998, the Company entered into a credit agreement for a senior
secured revolving credit facility (the "Revolving Credit Facility") providing
for up to $20.0 million of availability with Canadian Imperial Bank of Commerce
or an affiliate ("CIBC") under specified circumstances. The Revolving Credit
Facility will mature on the earlier of 91 days before the first cash interest is
due on the Notes or September 30, 2002. Amounts outstanding under the Revolving
Credit Facility bear interest at a rate of either (i) the higher of (x) CIBC's
prime rate and (y) the Federal Funds Rate plus 0.50% plus, in the case of clause
(x) or (y) 1.25% or (ii) LIBOR plus 2.50%. The Company's obligations under the
Revolving Credit Facility have been guaranteed by Holdings and all of the
subsidiaries of the Company. The Company's and guarantors' obligations under the
Revolving Credit Facility have been secured by: (i) first priority and perfected
liens on and security interests in all of the present and future assets of and
the ownership interests (including all equity) in the Company and any of its
subsidiaries; (ii) first priority and perfected liens on and security interests
in all of the present and future assets of Holdings; and (iii) a pledge of the
stock of all of the wholly-owned subsidiaries of the Company which hold the
broadcast licenses of the radio stations which are owned and operated by the
Company and its subsidiaries. The Company will pay certain fees in connection
with the Revolving Credit Facility, including a commitment fee of 0.50% per
annum on the aggregate unused portion of the Revolving Credit Facility. The
Revolving Credit Facility provides that any amounts drawn on the CIBC Letter of
Credit shall be deducted from the total amount available to the Company under
the Revolving Credit Facility.
The Revolving Credit Facility contains certain financial and operational
covenants and other restrictions with which the Company must comply, including,
among others, (i) limitations on indebtedness, guarantees, liens, negative
pledges, sales and leasebacks, mergers, acquisitions and dispositions,
transactions with affiliates, dividends, investments, changes in business lines
and amendments of material agreements and (ii) requirements to maintain certain
minimum loan-to-value and senior leverage ratios.
The Revolving Credit Facility contains customary events of default,
including, among others, payment defaults and default in the performance of
other covenants, breach of representations or warranties, cross-default to other
indebtedness, certain bankruptcy or ERISA defaults, the entry of certain
judgments against the Company or any subsidiary, and any security interest or
guarantee ceases to be in effect. The Revolving Credit Facility also provides
that an event of default will occur upon the occurrence of a "change of control"
(as defined in the Revolving Credit Facility).
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER; REGISTRATION RIGHTS
The Old Notes were sold by the Company on July 27, 1998 (the "Issue Date")
to the Initial Purchasers. The Company has entered into the Registration Rights
Agreement pursuant to which it has agreed, for the benefit of the holders of the
Old Notes, that it will, at its cost, (i) within 60 days after the Issue Date,
file a registration statement (the "Exchange Offer Registration Statement") with
the Commission with respect to a registered offering to exchange the Old Notes
for the New Notes, which will have terms substantially identical in all material
respects to the Old Notes (except that the New Notes will not contain terms with
respect to transfer restrictions), and (ii) within 150 days after the Issue
Date, use its reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the New Notes in exchange for surrender of the Old Notes. The Company will use
its best reasonable efforts to keep the Exchange Offer open for not less than 30
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Notes. For each Old Note
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Old Note will receive a New Note having a principal amount at maturity and
Accreted Value equal to that of the surrendered Old Note. The Registration
Statement, of which this Prospectus is part, is intended to constitute the
Exchange Offer Registration Statement and otherwise to satisfy certain of the
Company's obligations under the Registration Rights Agreement summarized below.
Under existing Commission interpretations, the New Notes would in general be
freely transferable after the Exchange Offer without further registration under
the Securities Act; provided that in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act must be delivered as required.
The Company has agreed for a period of 180 days after consummation of the
Exchange Offer to make available a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such New Notes acquired as described below. A broker-dealer which delivers such
a prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of the Old Notes that wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) at the time of the
consummation of the Exchange Offer it will have no arrangement or understanding
with any person to participate in the distribution of the New Notes in violation
of the Securities Act, (iii) it is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company or any of the Guarantors, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, and (iv) it is not
acting on behalf of any person who could not truthfully make the foregoing
representations.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for the Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the Issue Date,
the Company will, at its own expense, (a) as promptly as practicable, file the
Shelf Registration Statement covering resales of the Old Notes (the "Shelf
Registration Statement"), (b) use its reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its reasonable best efforts to keep effective the Shelf Registration
Statement
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<PAGE>
until two years after its effective date. The Company will, in the event of the
Shelf Registration Statement, provide to each holder of the Old Notes copies of
the prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement for the Old Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Notes. A holder of the Old Notes that sells such Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification rights and
obligations).
The Registration Rights Agreement provides that if (i) the Exchange Offer
Registration Statement or Shelf Registration Statement is not filed within 60
days after the Issue Date; (ii) an Exchange Offer Registration Statement or
Shelf Registration Statement is not declared effective within 150 days after the
Issue Date; or (iii) either (A) the Company has not exchanged the New Notes for
all Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 180 days after the Issue Date or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time that
the Exchange Offer is consummated as to all Old Notes validly tendered or (C) if
applicable, the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior to
the second anniversary of its effective date (each of such events referred to in
clauses (i) through (iii) above is a "Registration Default"), the Company will
pay as additional interest to each holder of the Old Notes an amount (the
"Damage Amount") equal to 0.5% per annum of the average Accreted Value of the
Old Notes for the first 90-day period following the occurrence of a Registration
Default and increased by an additional 0.25% per annum of the average Accreted
Value of the Old Notes for each subsequent 90-day period during which the
Registration Default remains uncured, up to a maximum rate of 2.0% per annum.
Damage Amounts and the interest payable with respect thereto (the "Assessed
Damage Amounts") will not be payable prior to the time cash interest is payable
on the Old Notes. Assessed Damage Amounts will bear interest at the same rate as
the Old Notes. Although Assessed Damage Amounts will continue to accrue interest
as described in the preceding sentence, Damage Amounts will cease to accrue
after the date on which such Registration Default is cured.
If the Exchange Offer is made and the Initial Purchasers continue to hold
Old Notes, the Initial Purchasers may exchange such Old Notes for other notes
identical to the New Notes except for transfer restrictions ("Private Exchange
Notes"). If they receive Private Exchange Notes, the Initial Purchasers
thereafter will have the right for a period after consummation of the Exchange
Offer to request the Company to file a shelf registration statement covering the
Private Exchange Notes. If such requested shelf registration is not filed or
does not become effective by the times provided in the Registration Rights
Agreement, the Company will pay as liquidated damages to holders of Private
Exchange Notes the Damage Amount as provided above until such time as it does
become effective.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit hereto.
As used in this Prospectus, the term "holder" means a person in whose name
Old Notes are registered on the books of the Company or any person who has
obtained a properly completed bond power or proxy from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all the Old
Notes validly tendered and not withdrawn prior to the Expiration Date. As of the
date of this Prospectus, $158.088 million aggregate principal amount at maturity
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first
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<PAGE>
being sent on or about December 18, 1998, to all registered holders of Old Notes
and to all beneficial holders of Old Notes known to the Company. The Company's
obligation to accept the Old Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions as set forth under "--Certain Conditions to the
Exchange Offer" below. The Company will issue $1,000 principal amount at
maturity of New Notes in exchange for each $1,000 principal amount at maturity
of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer. See "--Consequences of
Failure to Exchange." However, the Old Notes may be tendered only in integral
multiples of $1,000 of principal amount at maturity.
The New Notes will evidence the same debt as the Old Notes for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of
Regulation 14E under the Exchange Act.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, such unaccepted Old Notes will be returned, without expense to the
holder thereof, as promptly as practicable after the Expiration Date.
Holders whose Old Notes are not tendered or are tendered but not accepted in
the Exchange Offer will continue to hold such Old Notes and will be entitled to
all the rights and preferences, subject to the limitations applicable thereto,
under the Indenture. Following consummation of the Exchange Offer, the holders
of Old Notes will continue to be subject to the existing restrictions upon
transfer thereof and the Company will have no further obligation to such holders
to provide for the registration under the Securities Act of the Old Notes held
by them. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected. See "Risk Factors--Consequences of Failure to
Exchange Old Notes."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
January 20, 1999, unless the Company extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice (such notice, if given orally,
to be confirmed in writing) and will make a public announcement thereof, each
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Company reserves the right at its reasonable discretion (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate
the Exchange Offer and not accept any Old Notes if
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any of the conditions set forth below under "--Certain Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (iv) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a Prospectus supplement that will be distributed to all
holders of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to holders of Old Notes, if the Exchange
Offer would otherwise expire during such five to ten business day period. During
any extension of the Expiration Date, all Old Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company.
The Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
Cash interest will not accrue on the New Notes prior to August 1, 2002. No
interest will be paid on the Old Notes accepted for exchange. The New Notes will
have principal amount at maturity and Accreted Value equal to the Old Notes for
which they are exchanged.
PROCEDURES FOR TENDERING THE OLD NOTES
Only a registered holder of Old Notes or a person who has received a bond
power or proxy from a registered holder may tender such Old Notes in the
Exchange Offer. The tender to the Company of the Old Notes by a holder thereof
pursuant to one of the procedures set forth below and the acceptance by the
Company thereof will constitute a binding agreement between the tendering holder
of Old Notes and the Company upon the terms and subject to the conditions set
forth in this Prospectus and the Letter of Transmittal.
Except as set forth below, a holder who wishes to tender the Old Notes for
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes into the Exchange Agent's account at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder of Old Notes must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS THEREOF. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of Old Notes who has
not completed the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii)
for the account of an Eligible Institution (as defined below). In the event that
a signature on a Letter of Transmittal or a notice of withdrawal, as the case
may be, is required to be guaranteed, such guarantee must be by a firm which is
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a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (collectively, "Eligible Institutions"). If the Old Notes
are registered in the name of a person other than the person signing the Letter
of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or
be accompanied by, a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by the Company in its reasonable discretion,
duly executed by the registered holder thereof with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders, such Old Notes must be endorsed by the registered
holder thereof with signature guaranteed by an Eligible Institution or
accompanied by appropriate powers of attorney with signature guaranteed by an
Eligible Institution, in either case signed exactly as the name or names of the
registered holder or holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of its authority so to act
must be submitted with the Letter of Transmittal.
By tendering, each holder will represent to the Company that, among other
things, (i) any New Notes to be received by it will be acquired in the ordinary
course of its business, (ii) at the time of the consummation of the Exchange
Offer it will have no arrangement or understanding with any person to
participate in the distribution of the New Notes in violation of the Securities
Act, (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company or any of the Guarantors, or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, and (iv) it is not acting on behalf of
any person who could not truthfully make the foregoing representations. If the
tendering holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY OR THE COMPANY DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Old Notes tendered for exchange will be
determined by the Company in its discretion, which determination shall be final
and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
discretion to waive any defects or irregularities or conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with the tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
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Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
ACCEPTANCE OF THE OLD NOTES FOR EXCHANGE; DELIVERY OF THE NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, and if the Company has given oral or
written notice (such notice, if given orally, to be confirmed in writing)
thereof to the Exchange Agent.
In all cases, issuance of the New Notes for the Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal or
an Agent's Message and all other required documents. If any tendered Old Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if certificates representing the Old Notes are submitted for a
greater principal amount at maturity than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after receipt of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of the Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for transfer. However, the exchange for the Old Notes so
tendered will only be made after timely confirmation of such book-entry transfer
of Old Notes into the Exchange Agent's account, and timely receipt by the
Exchange Agent of a duly completed Letter of Transmittal or an Agent's Message
(as such term is defined in the next sentence) and any other documents required
by the Letter of Transmittal on or prior to the Expiration Date or pursuant to
the guaranteed delivery procedures described below. The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility and received by
the Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from a participant tendering Old Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible
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Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates of all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation and Agent's Message, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Old Notes to be withdrawn, identify
the Old Notes to be withdrawn (including the principal amount at maturity of
such Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from that
of the withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any note of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer procedures described above, such Old Notes will
be credited to an account maintained with the Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "Procedures for
Tendering the Old Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the Expiration Date, there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental
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authority, domestic or foreign, or any action shall have been taken, proposed or
threatened, by any government, governmental authority, agency or court, domestic
or foreign, that in the reasonable judgment of the Company might directly or
indirectly result in any of the consequences referred to in clause (i) or (ii)
above or, in the reasonable judgment of the Company, might result in the holders
of New Notes having obligations with respect to resales and transfers of New
Notes which exceed those described herein, or would otherwise make it
inadvisable to proceed with the Exchange Offer.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Old Notes and return all tendered
Old Notes to exchanging holders, (ii) extend the Exchange Offer and retain all
Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of holders to withdraw such Old Notes (see "--Withdrawal
Rights") or (iii) waive certain of such unsatisfied conditions with respect to
the Exchange Offer and accept all properly tendered Old Notes which have not
been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a Prospectus
supplement that will be distributed to all holders.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its discretion. The failure by the Company at any time to
exercise the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
By Registered or Certified Mail or Overnight Courier:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Operations
By Hand:
Wilmington Trust Company
c/o Harris Trust Co. of New York, as Agent
88 Pine Street, 19th Floor
Wall Street Plaza
New York, New York 10005
Attn: Corporate Trust Operations
By Facsimile:
(for Eligible Institutions only)
(302) 651-1079
Confirm by telephone:
(302) 651-1562
Kristin Long
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
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FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be $900,000 which
includes fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Old Notes for principal amounts at maturity
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holders tendered, or if a transfer tax is imposed for any reason other than the
exchange of the Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted to the Exchange
Agent, the amount of such transfer taxes will be billed directly to such
tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders in any jurisdiction in which the making
of the Exchange Offer or the acceptance thereof would not be in compliance with
the laws of such jurisdiction.
ACCOUNTING TREATMENT
The New Notes will be recorded by the Company at the same carrying value as
the Old Notes, as recorded in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The costs of the Exchange Offer will be expensed over the term of
the New Notes.
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DESCRIPTION OF THE NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated as of July 27, 1998 (the "Indenture"), by and between the Company, the
Guarantors and Wilmington Trust Company, as trustee (the "Trustee"). The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA") as in effect on the date of the Indenture. The Notes are subject to all
such terms, and holders of the Notes are referred to the Indenture and the TIA
for a statement of them. The following description sets forth the material terms
and provisions of the Indenture. A copy of the form of Indenture is filed as an
exhibit to the Registration Statement. Definitions relating to certain
capitalized terms are set forth under "-- Certain Definitions." Capitalized
terms that are used but not otherwise defined herein have the meanings ascribed
to them in the Indenture and such definitions are incorporated herein by
reference. As used in this "Description of the Notes," the "Company" refers to
Radio Unica Corp., but not its Subsidiaries.
GENERAL
The Notes are and will be limited to $158,088,000 million aggregate
principal amount at maturity. The Old Notes are, and the New Notes will be,
senior unsecured obligations of the Company and will rank PARI PASSU in right of
payment with all existing and future unsecured unsubordinated indebtedness of
the Company and senior in right of payment to any subordinated indebtedness of
the Company. The Old Notes are, and the New Notes will be, effectively
subordinated in right of payment to the Senior Credit Facility and all other
secured indebtedness of the Company to the extent of the value of the assets
securing such indebtedness. Based on the issue price of the Old Notes, the yield
to maturity of the New Notes is 11 3/4% per annum (computed on a semi-annual
bond equivalent basis).
The Old Notes are, and the New Notes will be, unconditionally guaranteed, on
a senior unsecured basis, as to payment of principal, premium if any, and
interest, jointly and severally by the Guarantors.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on August 1, 2006. Cash interest will not accrue or be
payable on the Notes prior to August 1, 2002. Thereafter, cash interest on the
Notes will accrue at the rate of 11 3/4% per annum and will be payable
semi-annually on each August 1 and February 1, commencing August 1, 2002, to the
holders of record of Notes at the close of business on the July 15 and January
15 immediately preceding such interest payment date. Cash interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 1, 2002. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole at any
time or in part from time to time, on or after August 1, 2002 at the following
redemption prices (expressed as percentages of the principal amount of maturity
thereof), together, in each case, with accrued and unpaid interest, if any, to
the redemption date, if redeemed during the twelve-month period beginning on
August 1 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 105.875%
2003.............................................................................. 102.938%
2004 and thereafter............................................................... 100.000%
</TABLE>
In addition, the Company may redeem in the aggregate up to 35% of the
aggregate principal amount at maturity of the Notes at any time and from time to
time prior to August 1, 2001 at a redemption price equal to 111.75% of the
Accreted Value thereof, out of the Net Proceeds of one or more Equity Offerings;
PROVIDED that Notes representing not less than $65.0 million of the aggregate
initial Accreted Value of
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Notes is outstanding immediately after the occurrence of any such redemption and
that any such redemption occurs within 90 days following the closing of any such
Equity Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
will select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee deems fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it appears on the register maintained by the Registrar
of the Notes. On and after any redemption date, Accreted Value will cease to
accrete or interest will cease to accrue, as the case may be, on the Notes or
portions thereof called for redemption unless the Company fails to redeem any
such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON ADDITIONAL INDEBTEDNESS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, incur (as defined) any Indebtedness (including
Acquired Indebtedness); PROVIDED that if no Default or Event of Default will
have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, the Company may incur Indebtedness (and the
Company and its Restricted Subsidiaries may incur Acquired Indebtedness) if
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the Company's Consolidated Leverage Ratio
is less than 7.0 to 1. The accretion of original issue discount (and any
accruals of interest) will not be deemed an incurrence of Indebtedness for
purposes of this covenant.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company will not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
matures prior to the Stated Maturity of the Notes or has an Average Life shorter
than the Notes; provided, further, that the Company will not incur any
Indebtedness owed to a Foreign Restricted Subsidiary unless such Indebtedness is
subordinated in right of payment to the Company's obligations under the Notes.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, incur any Indebtedness which by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated in right of payment to any other
Indebtedness of the Company or such Restricted Subsidiary unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate in right of payment to the Notes
pursuant to subordination provisions that are substantively identical to the
subordination provisions of such Indebtedness (or such agreement) that are most
favorable to the holders of any other Indebtedness of the Company or such
Restricted Subsidiary, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default will have occurred and be continuing at the
time of or immediately after giving effect to such Restricted Payment;
(b) immediately after giving PRO FORMA effect to such Restricted Payment, the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "-- Limitation on Additional Indebtedness"
above; and
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(c) immediately after giving effect to such Restricted Payment, the aggregate of
all Restricted Payments declared or made after the Issue Date does not
exceed the sum of (1) 100% of the Company's EBITDA from the Issue Date to
the date of determination minus 1.4 times the Company's Consolidated
Interest Expense from the Issue Date to the date of determination (or in the
event such amount shall be a deficit, minus 100% of such deficit) and (2)
100% of the aggregate Net Proceeds received by the Company from the issuance
or sale after the Issue Date (other than to a Subsidiary) of (A) Capital
Stock (other than Disqualified Capital Stock) of the Company or (B) any
Indebtedness or other securities of the Company that are convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company, which have been so converted, exercised or
exchanged, as the case may be; EXCLUDING, in the case of clause (c)(2), any
Net Proceeds from a Equity Offering to the extent used to redeem the Notes
in accordance with the second paragraph of "-Optional Redemption" above. For
purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed will be valued at the face amount
thereof and property other than cash will be valued at its fair market
value.
The provisions of this covenant will not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Company (other than Disqualified Capital Stock), or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Capital Stock of the Company (other than Disqualified Capital
Stock), (iii) the redemption, repayment or retirement of Indebtedness of the
Company subordinated to the Notes in exchange for, by conversion into, or out of
the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness of the Company (other than any Indebtedness owed to a Subsidiary)
that (A) is contractually subordinated in right of payment to the Notes to at
least the same extent as the Indebtedness being redeemed or retired, (B) is
scheduled to mature either (I) no earlier than the Stated Maturity of the
Indebtedness being redeemed or retired or (II) after the Stated Maturity of the
Notes, (C) the portion, if any, of which Indebtedness that is scheduled to
mature on or prior to the Stated Maturity of the Notes has an Average Life at
the time such Indebtedness is incurred that is equal to or greater than the
Average Life of the portion of the Indebtedness being redeemed or retired that
is scheduled to mature on or prior to the Stated Maturity of the Notes and (D)
is in an aggregate principal amount that is equal to or less than the sum of (x)
the aggregate principal then outstanding under the Indebtedness being redeemed
or retired, (y) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of preexisting prepayment provisions on such
Indebtedness being redeemed or retired and (z) the amount of customary fees,
expenses and costs related to the incurrence of such Indebtedness, (iv) the
retirement of any shares of Disqualified Capital Stock of the Company by
conversion into, or by exchange for, shares of Disqualified Capital Stock of the
Company, or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Disqualified Capital
Stock of the Company that (A) is subordinated to the Notes to at least the same
extent as the Disqualified Capital Stock being retired, (B) is scheduled to be
mandatorily redeemed, if at all, either (I) no earlier than the Disqualified
Capital Stock being retired or (II) after the Stated Maturity of the Notes, (C)
the portion, if any, of which Disqualified Capital Stock that is scheduled to be
mandatorily redeemed on or prior to the Stated Maturity of the Notes has a
weighted average life to mandatory redemption at the time such Disqualified
Capital Stock is issued that is equal to or greater than the weighted average
life to mandatory redemption of the portion of the Disqualified Capital Stock
being retired that is scheduled to be mandatorily redeemed on or prior to the
Stated Maturity of the Notes, and (D) has an aggregate liquidation preference
that is equal to or less than the sum of (a) the aggregate liquidation
preference then outstanding of the Disqualified Capital Stock being retired, (b)
the amount of accrued and unpaid dividends, if any, and premiums owed, if any,
not in excess of preexisting redemption provisions on such Disqualified Capital
Stock being retired and (c) the amount of customary fees, expenses and costs
related to the issuance of such Disqualified Capital Stock; PROVIDED that any
such Net Proceeds and the Fair Market Value of any Capital Stock issued in
exchange for
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such retired Disqualified Capital Stock are excluded from clause (c)(2) of the
immediately preceding paragraph (and were not included therein at any time) and
are not used to redeem the Notes pursuant to "--Optional Redemption" above, (v)
the purchase, redemption or other acquisition for value of shares of Capital
Stock (other than Disqualified Capital Stock) or options on such shares held by
the Company's officers or employees or former officers or employees (or their
estates or beneficiaries under their estates) upon the death, disability,
retirement or termination of employment of such current or former officers or
employees pursuant to the terms of an employee benefit plan or any other
agreement pursuant to which such shares of Capital Stock or options were issued
or pursuant to a severance, buy-sale or right of first refusal agreement with
such current or former officer or employee; PROVIDED that the aggregate cash
consideration paid, or distributions or payments made (which may include
distributions or dividends to Holdings for such purpose), pursuant to this
clause (v) shall not exceed $10,000,000 in the aggregate; PROVIDED that in
calculating the aggregate amount of Restricted Payments made subsequent to the
Issue Date for purposes of clause (c) of the immediately preceding paragraph,
amounts expended pursuant to clauses (i) and (v) (but not (ii), (iii), and (iv))
will be included in any subsequent calculation; and PROVIDED FURTHER, that,
except in the case of clauses (i) and (v) of this paragraph, no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth herein.
Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Company's latest available financial statements, and that no
Default or Event of Default has occurred and is continuing and no Default or
Event of Default will occur immediately after giving effect to any such
Restricted Payments.
Notwithstanding the foregoing, the Issuer may declare and make dividend
payments to Holdings as long as Holdings uses such amounts to pay (A) franchise
taxes and other fees required to maintain Holdings' corporate existence and (B)
taxes associated with operations of the Issuer and its subsidiaries, and such
amounts shall not be deemed Restricted Payments.
LIMITATION ON INVESTMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any Investment other than (i) a Permitted Investment or (ii) an
Investment that is made as a Restricted Payment in compliance with "--
Limitation on Restricted Payments" above, after the Issue Date.
LIMITATION ON LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any property or asset of the
Company or any of its Restricted Subsidiaries or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary of the Company which owns property or
assets, now owned or hereafter acquired, unless (i) if such Lien secures
Indebtedness which is PARI PASSU with the Notes, then the Notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligation is no longer secured by a Lien or (ii) if such Lien secures
Indebtedness which is subordinated to the Notes, any such Lien will be
subordinated to a Lien securing the Notes to the same extent as such
Indebtedness is subordinated to the Notes.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any Affiliate
(each an "Affiliate Transaction") or extend, renew, waive or otherwise modify
the terms of any Affiliate Transaction entered into prior to the Issue Date
unless (i) such Affiliate Transaction is between or among the Company and its
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Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are
fair and reasonable to the Company or such Restricted Subsidiary, as the case
may be, and the terms of such Affiliate Transaction are at least as favorable as
the terms which could be obtained by the Company or such Restricted Subsidiary,
as the case may be, in a comparable transaction made on an arm's-length basis
between unaffiliated parties. In any Affiliate Transaction (or any series of
related Affiliate Transactions which are similar or part of a common plan)
involving an amount or having a fair market value in excess of $1,000,000 which
is not permitted under clause (i) above, the Company must obtain a resolution of
the Board of Directors of the Company certifying that such Affiliate Transaction
complies with clause (ii) above. In any Affiliate Transaction (or any series of
related Affiliate Transactions which are similar or part of a common plan)
involving an amount or having a fair market value in excess of $5,000,000 which
is not permitted under clause (i) above, the Company must obtain a favorable
written opinion as to the fairness to the Company from a financial point of view
of such transaction or transactions, as the case may be, from an Independent
Financial Advisor.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "--Limitation on Restricted
Payments" above, (ii) reasonable fees, compensation and equity incentives in the
form of Capital Stock (other than Disqualified Capital Stock) paid to and
indemnity provided on behalf of, officers, directors or employees of the Company
or any Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management, (iii) any agreement as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous in any material respect to the holders
than the original agreement as in effect on the Issue Date or (iv) any standard
tax sharing agreement now or hereinafter in effect among any of Holdings, the
Issuer or any of the Guarantors.
LIMITATION ON CREATION OF SUBSIDIARIES
The Company will not create or acquire, and will not permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a
Restricted Subsidiary existing as of the Issue Date, (ii) a Restricted
Subsidiary that is acquired or created in connection with the acquisition by the
Company of one or more related businesses or assets, or (iii) an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that each Restricted Subsidiary acquired or
created pursuant to clause (ii) shall have executed a guarantee, satisfactory in
form and substance to the Trustee (and with such documentation relating thereto
as the Trustee shall require, including, without limitation, a supplement or
amendment to the Indenture and opinions of counsel as to the enforceability of
such guarantee), pursuant to which such Domestic Restricted Subsidiary will
become a Guarantor. As of the Issue Date, the Company had no Domestic Restricted
Subsidiaries other than the Guarantors. See "Description of the Notes
- --General."
LIMITATION ON CERTAIN ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless (i) the Company or such applicable
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the Board
of Directors of the Company, and evidenced by a board resolution); (ii) not less
than 85% of the consideration received by the Company or such applicable
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents other than in the case where the Company is undertaking a Permitted
Asset Swap; and (iii) the Asset Sale Proceeds received by the Company or such
Restricted Subsidiary are applied (a) first, to the extent the Company or any
such Subsidiary, as the case may be, elects, or is required, to prepay, repay or
purchase Indebtedness under the Senior Credit Facility within 180 days following
the receipt of the Asset Sale Proceeds from any Asset Sale; PROVIDED that any
such repayment will result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the
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extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another Person) used or useful in businesses
similar or ancillary to the business of the Company or any such Restricted
Subsidiary as conducted on the Issue Date; PROVIDED that (1) such investment
occurs or the Company or any such Restricted Subsidiary enters into contractual
commitments to make such investment, subject only to customary conditions (other
than the obtaining of financing), within 270 days following receipt of such
Asset Sale Proceeds and (2) Asset Sale Proceeds so contractually committed are
so applied within 360 days following the receipt of such Asset Sale Proceeds;
and (c) third, if on such 180th day in the case of clause (iii)(a), 270th day in
the case of clause (iii)(b)(1) or 360th day in the case of clause (iii)(b)(2)
with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $5
million, the Company will apply an amount equal to such Available Asset Sale
Proceeds to an offer to repurchase the Notes, at a purchase price determined as
described below (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes and such retained portion will not be
considered in the calculation of "Available Asset Sale Proceeds" with respect to
any subsequent offer to purchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
will mail, within 30 days following the date specified in clause (iii)(c) above,
a notice to the holders stating, among other things: (1) that such holders have
the right to require the Company to apply the Available Asset Sale Proceeds to
repurchase such Notes at a purchase price in cash equal to (x) 100% of the
Accreted Value thereof, if the applicable purchase date is on or prior to August
1, 2002, or (y) 100% of the principal amount at maturity thereof, plus accrued
and unpaid interest, if any, to the purchase date, if the purchase date is after
August 1, 2002; (2) the purchase date, which will be no earlier than 30 days and
not later than 45 days from the date such notice is mailed; (3) the instructions
that each holder must follow in order to have such Notes purchased; and (4) the
calculations used in determining the amount of Available Asset Sale Proceeds to
be applied to the purchase of such Notes.
In the event of the transfer of substantially all of the property and assets
of the Company and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation or Sale of Assets" below,
the successor Person will be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this covenant, and will comply with the provisions of this covenant with respect
to such deemed sale as if it were an Asset Sale.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Asset Sale" provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly Owned Subsidiary of the Company) to hold any such Preferred Stock unless
the Company or such Restricted Subsidiary would be entitled to incur or assume
Indebtedness in compliance with the "Limitation on Additional Indebtedness"
covenant in an aggregate principal amount equal to the aggregate liquidation
value of the Preferred Stock to be issued.
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary of the Company or (ii)
permit any of its Restricted Subsidiaries to issue
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any Capital Stock other than (A) to the Company or a Wholly Owned Subsidiary of
the Company, (B) issuances or sales to foreign nationals of shares of Capital
Stock of Foreign Restricted Subsidiaries, or (C) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary, so long as in the case of this clause (c)
such issuance and sale is made as a Restricted Payment in compliance with
"--Limitation on Restricted Payments" above and any remaining Investment in such
Unrestricted Subsidiary could be made at such time in compliance with
"--Limitation on Investments" above. The foregoing restrictions will not apply
to either (x) an Asset Sale made in compliance with "--Limitation on Certain
Asset Sales" above or the issuance of Preferred Stock in compliance with
"Limitation on Preferred Stock of Restricted Subsidiaries" above or (y) a
Permitted Lien.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of the Company to (a)(i) pay dividends or make any other
distributions to the Company or any Restricted Subsidiary of the Company (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits or (ii) repay any Indebtedness or any other
obligation owed to the Company or any Restricted Subsidiary of the Company, (b)
make loans or advances or capital contributions to the Company or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for Permitted Liens and
for such encumbrances or restrictions existing under or by reason of (i)
encumbrances or restrictions existing on the Issue Date to the extent and in the
manner such encumbrances and restrictions are in effect on the Issue Date, (ii)
the Indenture, the Notes and the Guarantees, (iii) applicable law, (iv) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person (including any
Subsidiary of the Person), so acquired, (v) customary non-assignment provisions
in leases or other agreements; (vi) Refinancing Indebtedness; PROVIDED that such
restrictions are no more restrictive than those contained in the agreements
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (vii) customary restrictions in security agreements or
mortgages securing Indebtedness of the Company or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements and mortgages, (viii) customary restrictions with respect to
a Restricted Subsidiary of the Company pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary or (ix) the Senior Credit
Facility.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted
Subsidiaries, to enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the fair market value of the property sold, as determined in good faith by
the Board of Directors of the Company and evidenced by a board resolution and
(ii) the Company could incur the Attributable Indebtedness in respect of such
Sale and Lease-Back Transaction in compliance with "--Limitation on Additional
Indebtedness" above.
LIMITATION ON CONDUCT OF BUSINESS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business which is not the same, similar or related to the
business in which the Company and its Restricted Subsidiaries are engaged on the
Issue Date.
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PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Company will be obligated to
make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase Price")
equal to (x) 101% of the Accreted Value thereof as of the Change of Control
Payment Date (as defined), if the Change of Control Payment Date is on or prior
to August 1, 2002, or (y) 101% of the principal amount at maturity, plus accrued
and unpaid interest, if any, to the Change of Control Payment Date, if the
Change of Control Payment Date is after August 1, 2002, in each case in
accordance with the procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Company will
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
will be a Business Day no earlier than 30 days nor later than 45 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrete Accreted Value
or accrue interest, as the case may be;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrete Accreted Value or accrue
interest, as the case may be, after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued Notes equal in principal amount at maturity to the unpurchased
portion of principal amount at maturity of the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
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(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment Notes or portions thereof validly tendered and
not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent money sufficient to pay the purchase price of all Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Company. The Paying Agent will promptly mail to
each holder of Notes so accepted payment in an amount equal to the purchase
price for such Notes, and the Company will execute and issue, and the Trustee
will promptly authenticate and mail to such holder, a new Note equal in
principal amount at maturity to any unpurchased portion of the Notes
surrendered; provided that each such new Note will be issued in an original
principal amount in denominations of $1,000 principal amount at maturity and
integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the preceding paragraph, but in any event within 20 days following
any Change of Control, the Company covenants to (i) repay in full all
obligations under or in respect of the Senior Credit Facility or offer to repay
in full all obligations under or in respect of the Senior Credit Facility and
repay the obligations under or in respect of the Senior Credit Facility of each
lender who has accepted such offer or (ii) obtain the requisite consent under
the Senior Credit Facility to permit the repurchase of the Notes as described
above. The Company must first comply with the covenant described in the
preceding sentence before being required to purchase Notes in the event of a
Change of Control; PROVIDED that the Company's failure to comply with the
covenant described in the preceding sentence constitutes an Event of Default
described in clause (iii) under "Events of Default" below if not cured within 60
days after the notice required by such clause. As a result of the foregoing, a
holder of the Notes may not be able to compel the Company to purchase the Notes
unless the Company is able at the time to refinance all of the obligations under
or in respect of the Senior Credit Facility or obtain requisite consents under
the Senior Credit Facility. Failure by the Company to make a Change of Control
Offer when required by the Indenture constitutes a default under the Indenture
and, if not cured within 60 days after notice, constitutes an Event of Default.
The Indenture provides that (A) if the Company or any of its Restricted
Subsidiaries has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and the Company or such
Restricted Subsidiary is required to make a change of control offer or to make a
distribution with respect to such subordinated indebtedness or Preferred Stock
in the event of a change of control, the Company will not consummate any such
offer or distribution with respect to such subordinated indebtedness or
Preferred Stock until such time as the Company will have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Company's Change of Control Offer and will otherwise have consummated the Change
of Control Offer made to holders of the Notes and (B) the Company will not issue
Indebtedness that is subordinated in right of payment to the Notes or Preferred
Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
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MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not sell, assign, transfer, lease, convey or otherwise
dispose of through a consolidation, amalgamation, merger or other transaction
all or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any Person
unless: (i) the Company shall be the continuing Person, or the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or to which the properties and assets of the Company, are sold, assigned,
transferred, leased, conveyed or otherwise disposed of is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and expressly assumes, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Company under the Indenture, the Notes and the
Guarantees and the obligations thereunder remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Consolidated Net Worth of the Company or such Person, as
the case may be, is at least equal to the Consolidated Net Worth of the Company
immediately before such transaction or series of transactions; and (iv)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or such Person, as the case may be, could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under "-- Certain Covenants -- Limitation on Additional Indebtedness" above;
PROVIDED, that a Person that is a Guarantor may merge into or amalgamate with
the Company or another Person that is a Guarantor and the Company and Holdings
may merge into or amalgamate with each other without complying with this clause
(iv).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company will be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
GUARANTEES
The Notes are guaranteed on a senior unsecured basis by each of the
Company's present and future Domestic Restricted Subsidiaries.
The obligations of each Guarantor are limited to the maximum amount that
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collection from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold, in each case in a
transaction in compliance with "--Certain Covenants--Limitation on Certain Asset
Sales" above, the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its assets in compliance with "Merger,
Consolidation or Sale of Assets" above, or the
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Guarantor is designated an Unrestricted Subsidiary in compliance with "--Certain
Covenants--Limitation on Restricted Payments," and such Guarantor has delivered
to the trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent herein provided for relating to such transaction
have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any Accreted Value, principal of, or premium,
if any, on the Notes whether at maturity, upon redemption or otherwise;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Restricted Subsidiary in the
observation or performance of the covenants set forth in the "Change of
Control Offer" covenant, or the "Merger, Consolidation or Sale of Assets"
covenant after written notice from the Trustee or the holders of not less
than 25% in aggregate principal amount at maturity of the Notes then
outstanding;
(iv) default by the Company or any Restricted Subsidiary of the Company
in the observance or performance of any other covenant in the Notes or the
Indenture for 30 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount at maturity of the Notes
then outstanding;
(v) default in the payment at final maturity of an aggregate amount of
$3,500,000 or more with respect to any Indebtedness of the Company or any
Restricted Subsidiary thereof, or the acceleration of any such Indebtedness
aggregating $3,500,000 or more which default is not cured, waived or
postponed pursuant to an agreement with the holders of such Indebtedness
within 60 days after written notice as provided in the Indenture, or such
acceleration is not rescinded or annulled within 30 days after written
notice as provided in the Indenture;
(vi) any final judgment or judgments (not covered by insurance) which
can no longer be appealed for the payment of money in excess of $3,500,000
is rendered against the Company or any Restricted Subsidiary thereof, and is
not discharged for any period of 60 consecutive days during which a stay of
enforcement is not in effect;
(vii) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Significant Restricted Subsidiary thereof; and
(viii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of a release of such
Guarantor in accordance with the terms of the Indenture).
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of Accreted Value or principal or
premium, if any, or interest on the Notes) if the Trustee considers it to be in
the best interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to either of the Company) will have occurred and be
continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount at maturity of the Notes then outstanding may declare the Notes
to be immediately due and payable in an amount equal to (x) the Accreted Value
of the Notes outstanding on the date of acceleration, if such declaration is
made on or prior to August 1, 2002 or (y) the entire principal amount at
maturity of the Notes outstanding on the date of acceleration plus accrued and
unpaid interest, if any, to the date of acceleration if such declaration is made
after August 1, 2002, and the same will become immediately due
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and payable; PROVIDED, that after such acceleration but before a judgment or
decree based on acceleration is obtained by the Trustee, the holders of a
majority in aggregate principal amount at maturity of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if (i) all
Events of Default, other than nonpayment of Accreted Value, principal, premium,
if any, or interest that has become due solely because of the acceleration, have
been cured or waived as provided in the Indenture, (ii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (iii) the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the above Events of
Default, the Trustee has received an Officers' Certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such rescission
will affect any subsequent Default or impair any right consequent thereto. In
case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization shall occur, the Accreted Value or principal and all premium
and interest with respect to all of the Notes will be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes.
The holders of a majority in principal amount at maturity of the Notes then
outstanding will have the right to waive any existing Default or compliance with
any provision of the Indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations provided for in the Indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder has
previously given to the Trustee written notice of a continuing Event of Default
and unless the holders of at least 25% in aggregate principal amount at maturity
of the outstanding Notes has made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless the
Trustee has not received from the holders of a majority in aggregate principal
amount at maturity of the outstanding Notes a direction inconsistent with such
request and has failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may elect either (a) to defease and
be discharged from any and all of its obligations with respect to the Notes
(except for the obligations to register the transfer or exchange of such Notes,
to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold monies for payment in
trust) ("defeasance") or (b) to be released from its obligations under certain
covenants contained in the Indenture ("covenant defeasance") upon the deposit
with the Trustee (or other qualifying trustee), in trust for such purpose, of
money and/or non-callable U.S. government obligations which through the payment
of accreted value and interest in accordance with their terms will provide
money, in an amount sufficient to pay the Accreted Value of, premium, if any,
and interest on the Notes, on the scheduled due dates therefor or on a selected
date of redemption in accordance with the terms of the Indenture. Such a trust
may only be established if, among other things, (i) the Company has delivered to
the Trustee an opinion of counsel (as specified in the Indenture) (A) to the
effect that neither the trust nor the Trustee will be required to register as an
investment company under the Investment Company Act of 1940, as amended, and (B)
to the effect that holders of the Notes or persons in their positions will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and discharge had not occurred (which
opinion shall, in the case of defeasance, describe either a private ruling
concerning the Notes or a published ruling of the Internal Revenue Service to
such effect), (ii) no Default or Event of Default shall have occurred and be
continuing on the date of
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such deposit or insofar as Events of Default from bankruptcy, insolvency or
reorganization events are concerned, at any time in the period ending on the
91st day after the date of deposit; (iii) such defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (iv) the Company will have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others; (v) the Company will have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for or relating to the
defeasance or the covenant defeasance have been complied with; (vi) the Company
will have delivered to the Trustee an opinion of counsel to the effect that (A)
the trust funds will not be subject to any rights of holders of Indebtedness
other than the Notes and (B) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (vii) certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, amend or supplement the Indenture for certain specified
purposes, including providing for uncertificated Notes in addition to
certificated Notes, and curing any ambiguity, defect or inconsistency, or making
any other change that does not adversely affect the rights of any holder. The
Indenture contains provisions permitting the Company and the Trustee, with the
consent of holders of at least a majority in principal amount at maturity of the
outstanding Notes, to modify or supplement the Indenture, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture, (ii) reduce the rate of or change the
time for payment of interest, including defaulted interest, on any Note, (iii)
reduce the Accreted Value or principal amount at maturity of or premium on or
change the stated maturity of any Note or change the date on which any Notes may
be subject to redemption or repurchase or reduce the redemption or repurchase
price therefor, (iv) make any Note payable in money other than that stated in
the Note or change the place of payment from New York, New York, (v) waive a
default on the payment of the Accreted Value or principal amount of, interest
on, or redemption payment with respect to any Note, (vi) make any change in
provisions of the Indenture protecting the right of each holder of Notes to
receive payment of Accreted Value or principal amount of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting holders of a majority in principal amount at maturity of Notes to
waive Defaults or Events of Default; or (vii) modify or change any provision of
the Indenture or the related definitions affecting the ranking of the Notes in a
manner which adversely affects the holders of Notes.
REPORTS TO HOLDERS
If the Company is subject to the periodic reporting requirements of the
Exchange Act, it will furnish the information required thereby to the Commission
and to the holders of the Notes. The Indenture provides that even if the Company
is entitled under the Exchange Act not to furnish such information to the
Commission or to the holders of the Notes, it will nonetheless continue to
furnish such information to the Commission and holders of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 105 days after the end
of the Company's fiscal year and on or before 60 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has
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occurred. If they do, the certificate will describe the Default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ACCRETED VALUE" means, as of any date prior to August 1, 2002, an amount
per $1,000 principal amount at maturity of Notes that is equal to the sum of (a)
the initial offering price of each Note and (b) the portion of the excess of the
principal amount at maturity of each Note over such initial offering price which
shall have been amortized on a daily basis and compounded semiannually on each
August 1 and February 1 at the rate of 11 3/4% per annum from the Issue Date
through the date of determination computed on the basis of a 360-day year of
twelve 30-day months; and, as of any date on or after August 1, 2002, the
Accreted Value of each Note shall mean the aggregate principal amount at
maturity of such Note.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such merger,
consolidation or acquisition.
"ADJUSTED NET ASSETS" of any Person at any date shall mean the lesser of the
amount by which (x) the fair value of the property of such Person exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee of such Person at such date and
(y) the present fair salable value of the assets of such Person at such date
exceeds the amount that will be required to pay the probable liability of such
Person on its debts (after giving effect to all other fixed and contingent
liabilities and after giving effect to any collection from any subsidiary of
such Person in respect of the obligations of such Person under the Guarantee of
such Person), excluding Indebtedness in respect of the Guarantee of such Person,
as they become absolute and matured.
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"AFFILIATE" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "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 or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise PROVIDED that, for purposes of the covenant described under "--
Certain Covenants -- Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprise any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Company or any of its Restricted
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of or other equity interest in any Restricted Subsidiary of
the Company or (b) any other property or assets of the Company or of any
Restricted Subsidiary thereof; PROVIDED that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1,000,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "-- Merger,
Consolidation or Sale of Assets," (iii) sales or other dispositions of
programming or advertising time, or inventory, receivables and other current
assets in the ordinary course of business and (iv) sales or other dispositions
of equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or its
Restricted Subsidiaries.
"ASSET SALE PROCEEDS" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary of the Company from such
Asset Sale (including cash received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset Sale),
after (a) provision for all income or other taxes measured by or resulting from
such Asset Sale, (b) payment of all brokerage commissions, underwriting and
other fees and expenses related to such Asset Sale, (c) provision for minority
interest holders in any Restricted Subsidiary of the Company as a result of such
Asset Sale, (d) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale and (e) deduction of appropriate amounts to be
provided by the Company or a Restricted Subsidiary of the Company as a reserve,
in accordance with GAAP, against any liabilities associated with the assets sold
or disposed of in such Asset Sale and retained by the Company or a Restricted
Subsidiary after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Company or any Restricted Subsidiary
of the Company from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or noncash consideration into cash.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement and (ii) the present value of the total
obligations (discounted at the rate borne by the Notes, compounded semi-
annually) of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
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"AVAILABLE ASSET SALE PROCEEDS" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of "-- Certain Covenants -- Limitation on Certain Asset Sales".
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"BOARD OF DIRECTORS" means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body or any authorized committee thereof responsible for the
management of the business and affairs of such Person.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"CAPITALIZED LEASE OBLIGATIONS" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $50,000,000; (v) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(ii) prior to the consummation of an Equity Offering as contemplated by the
first sentence in the definition thereof, the Permitted Holders shall cease
collectively to control at least a majority of the voting power of the Board of
Directors of the Company or Holdings, (iii) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of more than 50% of the total
voting power of the Common Stock of the Company or Holdings, (iv) there shall be
consummated any consolidation or merger of the Company or Holdings in which the
Common Stock of the Company or Holdings would be converted into cash, securities
or other property, other than a merger or consolidation of the Company or
Holdings in which the holders of the Common Stock of the Company or Holdings
outstanding immediately prior to the consolidation or merger
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hold, directly or indirectly, at least a majority of the Common Stock of the
surviving corporation immediately after such consolidation or merger, or (v)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company or Holdings
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company or Holdings has
been approved by 66 2/3% of the directors then still in office who either where
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors of the Company or Holdings.
"COMMON STOCK" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis (including, but not limited to, (i) Redeemable Dividends, but
only if paid or accrued and declared, on Preferred Stock, (ii) imputed interest
included in Capitalized Lease Obligations, (iii) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (iv) the net costs associated with hedging obligations,
(v) amortization of other financing fees and expenses, (vi) the interest portion
of any deferred payment obligation, (vii) amortization of discount or premium,
if any, and (viii) all other non-cash interest expense (other than interest
amortized to cost of sales)) plus, without duplication, all net capitalized
interest for such period and all interest incurred or paid under any guarantee
of Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, plus the amount of all dividends or distributions paid
on Disqualified Capital Stock (other than dividends paid or payable in shares of
Capital Stock of the Company) less the amortization of deferred financing costs.
"CONSOLIDATED LEVERAGE RATIO" means, with respect to any Person, the ratio
of (i) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Restricted Subsidiaries as of the date of calculation (the
"Transaction Date") on a consolidated basis determined in accordance with GAAP
to (ii) such Person's EBITDA for the four full fiscal quarters (the "Four
Quarter Period") ending on or prior to the date of determination for which
financial statements are available. For purposes of this definition, "EBITDA"
shall be calculated after giving effect on a pro forma basis to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, including
without limitation any incurrance or repayment under the Senior Credit Facility
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and (ii)
any Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
EBITDA attributable to the assets or Person which is the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period; provided that in connection with any such Asset Acquisition, such pro
forma
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calculation (i) may give effect to projected quantifiable savings in programming
costs and sales personnel (consistent with the savings actually achieved by the
Company in connection with prior acquisitions) adopted, in good faith, by the
Company or one of its Restricted Subsidiaries through a Board Resolution
certified by an Officers' Certificate filed with the Trustee and (ii) shall not
give effect to any operating losses of the acquired assets or Person. Such
Officers' Certificate shall be signed by the Chief Financial Officer and another
officer of the Company. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date, the preceding sentence shall
give effect to the incurrence of such guaranteed Indebtedness, so long as such
guaranteed Indebtedness is outstanding, as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, that (a) the Net Income of any Person (the "other Person") in which
the Person in question or any of its Restricted Subsidiaries has less than a
100% interest (other than a Restricted Subsidiary) and the Net Income of any
Unrestricted Subsidiary shall be excluded except to the extent of the amount of
dividends or distributions actually paid to the Person in question or any of its
Restricted Subsidiaries by the other Person or Unrestricted Subsidiary, as the
case may be, during such period, (b) the Net Income of any Restricted Subsidiary
of the Person in question that is subject to any restriction or limitation on
the payment of dividends or the making of other distributions to such Person
shall be excluded to the extent of such restriction or limitation, (c)(i) the
Net Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition and (ii) any net gain (but not
loss) resulting from an Asset Sale by the Person in question or any of its
Restricted Subsidiaries other than in the ordinary course of business shall be
excluded, (d) extraordinary gains and losses shall be excluded, (e) income or
loss attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued) shall be excluded, and (f) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets shall be excluded.
"CONSOLIDATED NET WORTH" means with respect to any Person at any date, the
consolidated stockholders' equity or members' capital of such Person less the
amount of such stockholders' equity or members' capital attributable to
Disqualified Capital Stock of such Person and its Subsidiaries, as determined
accordance with GAAP.
"DEFAULT" means any condition or event that is, or with the passage of time
or giving of any notice expressly required under the Indenture (or both) would
be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include any Preferred Stock of a Person or a Restricted
Subsidiary of such Person, with respect to either of which, under the terms of
such Preferred Stock, by agreement or otherwise, such Person or Restricted
Subsidiary is obligated to pay current dividends or distributions in cash during
the period prior to the maturity date of the Notes; PROVIDED, that Preferred
Stock of a Person or any Restricted Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of such Person or Restricted
Subsidiary which provisions have substantially the same effect as the provisions
of the Indenture described under "Change of Control," shall not be deemed to be
Disqualified Capital Stock solely by virtue of such provisions.
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"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of a Person
whose jurisdiction of incorporation or formation is the United States, any State
thereof or the District of Columbia.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to (a) the sum of (i) Consolidated Net Income
for such period, plus (ii) the provision for taxes for such period based on
income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense for such period (but only including Redeemable Dividends in the
calculation of such Consolidated Interest Expense to the extent that such
Redeemable Dividends have not been excluded in the calculation of Consolidated
Net Income), plus (iv) depreciation for such period on a consolidated basis,
plus (v) amortization of intangibles and radio programming obligations (net of
cash payments with respect to radio programming obligations) for such period on
a consolidated basis, plus (vi) any other non-cash items reducing Consolidated
Net Income for such period, minus (b) all non-cash items increasing Consolidated
Net Income for such period, all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP; PROVIDED, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person shall be included only (x) to the extent
cash income has been received by such Person with respect to such Investment
during each of the previous four fiscal quarters or (y) to the extent the cash
income derived from such Investment is attributable to Cash Equivalents.
"EQUITY OFFERING" means an initial public offering by the Company or
Holdings of shares of its Qualified Capital Stock (however designated and
whether voting or non-voting) and any and all rights, warrants or options to
acquire such Qualified Capital Stock, provided that such an initial public
offering includes shares of Common Stock of the Company or Holdings and with
respect to an initial public offering by Holdings, the net proceeds of such
Equity Offering are contributed to the Company as common equity. After an
initial public offering of Qualified Capital Stock of the Company or Holdings,
Equity Offering means any offering by Holdings or the Company of Qualified
Capital Stock (however designated and whether voting or non-voting) and any and
all rights, warrants or options to acquire such Qualified Capital Stock and with
respect to any offering by Holdings, the net proceeds of such Equity Offering
are contributed to the Company as common equity.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a resolution of the Board of
Directors of the Company delivered to the Trustee.
"FOREIGN RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of a Person
other than a Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles as in effect in the
United States as of the Issue Date.
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"GUARANTEE" means the Guarantee relating to the Notes, the Exchange Notes
and the Private Exchange Notes.
"HOLDINGS" means Radio Unica Holdings Corp., a Delaware corporation and the
Company's sole stockholder as of the Issue Date.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); PROVIDED that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"INDEBTEDNESS" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables or liabilities arising from distribution guarantees
entered into by the Company or any Restricted Subsidiary in the ordinary course
of business, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person, (ii) obligations secured by a lien
to which the property or assets owned or held by such Person is subject, whether
or not the obligation or obligations secured thereby shall have been assumed
(PROVIDED, that if such obligation or obligations shall not have been assumed,
the amount of such Indebtedness shall be deemed to be the lesser of the
principal amount of the obligation or the fair market value of the pledged
property or assets), (iii) guarantees of items of other Persons which would be
included within this definition for such other Persons (whether or not such
items would appear upon the balance sheet of the guarantor), (iv) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (v) Disqualified Capital
Stock of such Person or any Restricted Subsidiary thereof, and (vi) obligations
of any such Person under any currency agreement or any Interest Rate Agreement
applicable to any of the foregoing (if and to the extent such currency agreement
or Interest Rate Agreement obligations would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations described above, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; PROVIDED that (i)
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, (i) any trade payable arising
from the purchase of goods or materials or for services obtained and (ii)
ordinary recurring radio programming obligations entered into in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Company or
any of its Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"INDEPENDENT FINANCIAL ADVISOR" means an investment banking firm of national
reputation in the United States (i) which does not, and whose directors and
officers or Affiliates do not, have a direct or indirect financial interest in
the Company and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
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"INTEREST RATE AGREEMENT" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"INVESTMENTS" means, with respect of any Person, directly or indirectly, any
advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person, (ii)
the making of distribution guarantees in the ordinary course of business and
(iii) the repurchase of securities of any Person by such Person. For the
purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment"
shall include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of dividends
or distributions in connection with such Investment or any other amounts
received in respect of such Investment; PROVIDED that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce the
amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company will be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"ISSUE DATE" means July 27, 1998.
"LIEN" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"NET INCOME" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"NET INVESTMENT" means, with respect to any Person, the excess of (i) the
aggregate amount of all Investments in Unrestricted Subsidiaries or joint
ventures made by such Person on or after the Issue Date (in the case of an
Investment made other than in cash, the amount shall be the fair market value of
such Investment as determined in good faith by the Board of Directors of such
Person) over (ii) the sum of (A) the aggregate amount returned in cash on such
Investments whether through interest payments, principal payments, dividends or
other distributions and (B) the Net Proceeds received by such Person from the
disposition of all or any portion of such Investments (other than to a
Subsidiary of such Person); PROVIDED, that with respect to all Investments made
in an Unrestricted Subsidiary the sum of clauses (A) and (B) above with respect
to such Investments shall not exceed the aggregate amount of all such
Investments made in such Unrestricted Subsidiary.
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"NET PROCEEDS" means (a) in the case of any sale or issuance of Capital
Stock by or equity contribution to any Person, the aggregate net proceeds
received by such Person, after payment of expenses, commissions and the like
incurred in connection therewith, whether such proceeds are in cash or in
property (valued at the fair market value thereof, as determined in good faith
by the Board of Directors of such Person, at the time of receipt) and (b) in the
case of any exchange, exercise, conversion or surrender of outstanding
securities of any kind for or into shares of Capital Stock of the Company which
is not Disqualified Capital Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to such Person upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by such Person in connection therewith).
"NOTES" means the Old Notes, the New Notes and the Private Exchange Notes.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"PERMITTED ASSET SWAP" means any transfer of properties or assets by the
Company or any of its Subsidiaries in which at least 90% of the consideration
received by the transferor consists of properties or assets (other than cash)
that will be used in the business of the transferor; PROVIDED, that (i) the
aggregate fair market value (as determined in good faith by the Board of
Directors) of the property or assets being transferred by the Company or such
Subsidiary is not greater than the aggregate fair market value (as determined in
good faith by the Board of Directors) of the property or assets received by the
Company or such Subsidiary in such exchange and (ii) the aggregate fair market
value (as determined in good faith by the Board of Directors) of all property or
assets transferred by the Company and any of its Subsidiaries in connection with
exchanges in any period of twelve consecutive months shall not exceed 15% of the
total assets of the Company on the last day of the preceding fiscal year.
"PERMITTED HOLDERS" means (a) Warburg, Pincus Ventures, L.P. and any
successor funds, (b) Joaquin F. Blaya, Herbert M. Levin and Steven E. Dawson and
(c) any spouse and any trust, holding company, or similar entity established by
and controlled by any of (b) for the principal benefit of any of them or their
spouses, lineal descendents or other family members.
"PERMITTED INDEBTEDNESS" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising under
or in connection with the Senior Credit Facility in an aggregate principal
amount not to exceed $20.0 million outstanding at any time;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date;
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another Restricted
Subsidiary; PROVIDED that (A) if the Company is the obligor on such
Indebtedness, such Indebtedness (x) does not mature prior to the Stated Maturity
of the Notes and has an Average Life longer than the Notes and (y) is unsecured
and expressly subordinated to the payment in full in cash of all obligations in
respect of the Notes and (B)(I) any subsequent issuance or transfer of equity
interests that results in any such Indebtedness being held by a Person other
than the Company or a Restricted Subsidiary of the Company and (II) any sale or
transfer of any such Indebtedness to a Person other than the Company or a
Restricted Subsidiary of the Company will be deemed to constitute an incurrence
of Indebtedness by the Company or such Restricted Subsidiary not permitted by
this clause (iv);
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(v) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company or any of its Restricted Subsidiaries incurred to acquire property in
the ordinary course of business which Purchase Money Indebtedness and
Capitalized Lease Obligations do not in the aggregate exceed $5.0 million
outstanding at any time;
(vi) Interest Rate Agreements;
(vii) Refinancing Indebtedness;
(viii) fidelity, performance, appeal, surety or similar bonds incurred or
provided in the ordinary course of business;
(ix) any guarantee of Indebtedness of the Company or any Restricted
Subsidiary which Indebtedness is otherwise permitted to be incurred in
accordance with the Indenture;
(x) Contingent obligations of the Company or its Restricted Subsidiaries in
respect of customary indemnification and purchase price adjustment obligations
incurred in connection with an Asset Sale including transactions excluded from
clause (b)(i) of the definition of "Asset Sale"; PROVIDED, that the maximum
assumable liability in respect of all such obligations shall at no time exceed
the gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such Asset Sale; and
(xi) additional Indebtedness of the Company not to exceed $10.0 million in
aggregate principal amount at any one time outstanding.
For purposes of determining compliance with the covenant "Limitation on
Additional Indebtedness", in the event that an item of Indebtedness meets the
criteria of more than one of the categories of this definition described in
clauses (i) through (xi) above or is permitted to be incurred pursuant to the
first paragraph of the covenant "Limitation on Additional Indebtedness" and also
meets the criteria of one or more of the categories of this definition described
in clauses (i) through (xi) above, the Company shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with this
covenant and may from time to time reclassify such item of Indebtedness in any
manner in which such item could be incurred at the time of such
reclassification.
"PERMITTED INVESTMENTS" means Investments made on or after the Issue Date
consisting of
(i) Investments by the Company, or by a Restricted Subsidiary thereof, in
the Company or a Restricted Subsidiary of the Company;
(ii) Investments by the Company, or by a Subsidiary thereof, in a Person, if
as a result of such Investment (a) such Person becomes a Restricted Subsidiary
of the Company or (b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary thereof;
(iii) Investments in cash and Cash Equivalents;
(iv) reasonable and customary advances made to employees in connection with
their relocation or for travel or other expenses and loans to employees not to
exceed $1,500,000 in the aggregate at any one time outstanding;
(v) an Investment that is made by the Company or a Restricted Subsidiary
thereof in the form of any Capital Stock, bonds, notes, debentures, partnership
or joint venture interests or other securities that are issued by a third party
to the Company or such Restricted Subsidiary solely as partial consideration for
the consummation of an Asset Sale that is otherwise permitted under "--Certain
Covenants -- Limitation on Certain Asset Sales" above;
(vi) Interest Rate Agreements entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business;
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(vii) deposits made pursuant to agreements to acquire, or pursuant to
agreements with options to acquire, radio station licenses and related assets
(or Capital Stock of Persons owning such assets), in an amount not to exceed 10%
of the purchase price; provided that the station to be acquired will be owned by
the Company or a Restricted Subsidiary upon consummation of the contemplated
acquisition and provided, further, that deposits made under this clause shall
cease to be treated as Permitted Investments upon forfeit of such deposit for
any reason; and
(viii) additional Investments not to exceed $6.0 million at any one time
outstanding.
"PERMITTED LIENS" means (i) Liens on property or assets of, or any shares of
Capital Stock of or secured indebtedness of, any corporation existing at the
time such corporation becomes a Restricted Subsidiary of the Company or at the
time such corporation is merged into the Company or any of its Restricted
Subsidiaries; PROVIDED that such Liens are not incurred in connection with, or
in contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; PROVIDED that any such Lien does not
extend to or cover any Property, Capital Stock or Indebtedness other than the
Property, shares or debt securing the Indebtedness so refunded, refinanced or
extended, (iii) Liens in favor of the Company or any of its Restricted
Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure
Purchase Money Indebtedness; PROVIDED that (a) any such Lien is created solely
for the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property,
(b) the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of such costs and (c) such Lien does not extend to or cover any
Property other than such item of Property and any improvements on such item,
(vi) Liens securing Capitalized Lease Obligations; PROVIDED that such Lien does
not extend to any property other than that subject to the underlying lease,
(vii) statutory liens or landlords', carriers', warehousemens', mechanics',
suppliers', materialmens', repairmens' or other like Liens arising in the
ordinary course of business with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor, (viii) Liens for taxes, assessments or
governmental charges that are not delinquent or that are being contested in good
faith by appropriate proceedings, (ix) Liens incurred or deposits made in the
ordinary course of business in connection with workers-compensation,
unemployment insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business consistent
with past practice in connection therewith, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money), (x)
judgment Liens not giving rise to an Event of Default; (xi) easements,
rights-of-way, zoning restrictions and other similar charges or encumbrances in
respect of real property not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries, (xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof, (xiii)
Liens encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual, or warranty requirements of the Company or any of its
Subsidiaries, including rights of offset and set-off, (xiv) Liens securing
Interest Rate Agreements which Interest Rate Agreements relate to Indebtedness
that it otherwise permitted under this Indenture, (xv) Liens not covered by any
other clause of this definition which are existing on the Issue Date and (xvi)
Liens securing Indebtedness under the Senior Credit Facility.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
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"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"PROPERTY" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness incurred by a Person to
finance the cost (including the cost of construction) of an item of Property
purchased in the ordinary course of business, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REDEEMABLE DIVIDEND" means, for any dividend or distribution with regard to
Disqualified Capital Stock, the quotient of the dividend or distribution divided
by the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Capital Stock.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date
(including, without limitation, the Notes) or other Indebtedness permitted to be
incurred by the Company pursuant to the first paragraph of the covenant
described under "Certain Covenants -- Limitation on Additional Indebtedness" or
by the Company or its Restricted Subsidiaries pursuant to the definition of
"Permitted Indebtedness", but only to the extent that (i) the Refinancing
Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being refunded, refinanced or extended, if at all, (ii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Stated Maturity of the Indebtedness being refunded, refinanced or extended, or
(b) after the Stated Maturity of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the Stated
Maturity of the Notes has an Average Life at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the Average Life of
the portion of the Indebtedness being refunded, refinanced or extended that is
scheduled to mature on or prior to the Stated Maturity of the Notes, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly Owned Subsidiary of the Company.
"RESTRICTED PAYMENT" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
such Capital Stock (other than Disqualified Capital Stock) and (y) in the case
of Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Wholly Owned Subsidiary of the Company), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company or any of its Restricted Subsidiaries (other than Capital Stock
owned by the Company or a Wholly Owned Subsidiary of the Company, excluding
Disqualified Capital Stock) or any option, warrants or other rights to purchase
such Capital Stock, (iii) the making of any principal payment on, or the
purchase, defeasance, repurchase, redemption or other
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acquisition or retirement for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any Indebtedness which is
subordinated in right of payment to the Notes (other than subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), (iv) the making of any Investment (other than
a Permitted Investment) or guarantee of any Investment (other than a Permitted
Investment) in any Person, (v) any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (vi) forgiveness of any Indebtedness of an Affiliate
of the Company to the Company or a Restricted Subsidiary of the Company. For
purposes of determining the amount expended for Restricted Payments, cash
distributed or invested shall be valued at the face amount thereof and property
other than cash shall be valued at its fair market value.
"RESTRICTED SUBSIDIARY" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the direct or indirect Subsidiaries
of the Company existing as of the Issue Date. The Board of Directors of the
Company may designate any Unrestricted Subsidiary or any Person to be acquired
that is to become a Subsidiary as a Restricted Subsidiary if immediately after
giving pro forma effect to such action (and treating any Acquired Indebtedness
as having been incurred at the time of such action), (i) no Default or Event of
Default shall have occurred and be continuing (or would result therefrom) and
(ii) in the case of the designation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "-- Certain Covenants --
Limitation on Additional Indebtedness" above. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"SENIOR CREDIT FACILITY" means the Credit Agreement, dated as of July 8,
1998, among the Company, the guarantors party thereto, Canadian Imperial Bank of
Commerce, as agent and fronting lender, and the financial institutions party
thereto, as lenders, as amended as of the Issue Date, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Restricted Subsidiaries of the Company
as additional borrowers or guarantors thereunder (PROVIDED that such increase in
borrowings or adding Subsidiaries as additional borrowers or guarantors is
permitted by the applicable covenants under the Indenture) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"SUBSIDIARY" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof
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is held by such first-named Person or any of its Subsidiaries; or (ii) in the
case of a partnership, joint venture, association or other business entity, with
respect to which such first-named Person or any of its Subsidiaries has the
power to direct or cause the direction of the management and policies of such
entity by contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; PROVIDED, that neither the Company
nor its Restricted Subsidiaries has any Guarantee of any Indebtedness of such
Subsidiary outstanding at the time of such designation and such designation
would be permitted under the covenant described under "-- Limitation on
Restricted Payments." Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"WHOLLY OWNED SUBSIDIARY" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were offered and sold to qualified institutional buyers
("QIBs") in reliance on Rule 144A of the Securities Act" ("Rule 144A Notes"). In
addition, Old Notes may subsequently be transferred to institutional "accredited
investors" ("Other Notes") within the meaning of subparagraph (a)(1), (2), (3)
or (7) of Rule 501 of Regulation D of the Securities Act ("Institutional
Accredited Investors") in transactions exempt from registration under the
Securities Act or pursuant to Regulation S of the Securities Act ("Regulation
S").
New Notes initially will be represented by one or more Notes in registered,
global form without coupons (collectively, the "Global Note") and will be
deposited upon issuance with the Trustee as custodian for The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC, in each case for
credit to an account of a direct or indirect participant as described below.
Beneficial interests in the Global Note will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its participants.
Except as set forth below, the Global Note may be transferred, in whole but
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." In addition, transfer
of beneficial interests in the Global Note will be subject to the applicable
rules and procedures of DTC and its direct or indirect participants (including,
if applicable, those of Euroclear System ("Euroclear") and Cedel Bank, S.A.
("CEDEL"), which may change from time to time.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES. DTC has advised the Company that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between the Participants
through electronic book-entry changes in accounts of the Participants. The
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers,
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dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and the Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Note and (ii) ownership of such interests in the Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of the Participants, which in
turn act on behalf of the Indirect Participants and certain banks, the ability
of a person having beneficial interests in the Global Note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Exchange of Book-Entry
Notes for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on a Global Note registered in the name of DTC or its nominee will be payable to
DTC or its nominee in its capacity as the registered holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Notes, including the Global Note, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, none of the Company, the Trustee
nor any agent of the Company or the Trustee has or will have any responsibility
or liability for (i) any aspect or accuracy of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership or (ii) any other matter relating to the actions and practices of DTC
or any of the Participants or the Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount at maturity of beneficial interests in the relevant
security as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practices and will not be the responsibility
of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be
liable for any delay by DTC or any of the Participants in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
as the registered owner of the Global Note for all purposes.
Except for trades involving only Euroclear and CEDEL participants, interests
in the Global Notes will trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in such interests will therefore settle in
immediately available funds, subject in all cases to the rules and procedures of
DTC and the Participants.
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Transfers between Participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
accountholders in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the accountholders in DTC, on the one hand,
and directly or indirectly through Euroclear or CEDEL accountholders, on the
other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depository;
however, such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear and CEDEL accountholders may not deliver
instructions directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL accountholder purchasing an interest in the Global Note from an
accountholder in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of DTC. Cash received in Euroclear or CEDEL as a
result of sales of interests in a Global Note by or through a Euroclear or CEDEL
accountholder to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or CEDEL
cash account only as of the business day for Euroclear or CEDEL following DTC's
settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account with DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if any of the events described under "-Exchange of Book-Entry Notes for
Certificated Notes" occurs, DTC reserves the right to exchange the Global Note
for Notes in certificated form and to distribute such Notes to its Participants.
The information in this Section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Note among accountholders in DTC
and accountholders of Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee nor any agent of
the Company or the Trustee will have any responsibility for the performance by
DTC, Euroclear or CEDEL or their respective participants, indirect participants
or accountholders of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES. The Global Note is
exchangeable for definitive Notes in registered certificated form only if (i)
DTC (x) notifies the Company that it is unwilling or unable to continue as
depository for the Global Note and the Company thereupon fails to appoint a
successor depository or (y) has ceased to be a clearing agency registered under
the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of the Notes in certificated form
or (iii) there shall have occurred and be continuing a Default or an Event of
Default with respect to the Notes. In all cases, certificated Notes delivered in
exchange for any Global Note or beneficial interests therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of DTC (in accordance with its customary procedures).
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CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS
The following discussion is a general summary of certain United States
Federal income tax considerations associated with the exchange of Old Notes for
New Notes and the ownership and disposition of the Notes. This discussion is
based upon existing United States Federal income tax law, which is subject to
change, possibly retroactively. This discussion does not describe all relevant
aspects of United States Federal income taxation that may be important to
particular Holders in light of their individual investment circumstances or
certain types of Holders subject to special tax rules (E.G., financial
institutions, insurance companies, broker-dealers, tax-exempt organizations or,
except to the extent discussed below, Non-U.S. Holders (as defined below) or to
persons that hold or will hold the Notes as part of a straddle, hedging, or
synthetic security transaction, all of whom may be subject to tax rules that
differ significantly from those described below. In addition, this discussion
does not describe any foreign, state or local tax considerations. This summary
addresses tax consequences only to current Holders of the Notes and assumes that
such Holders hold their Notes as "capital assets" (generally, property held for
investment) for United States Federal income tax purposes. PROSPECTIVE HOLDERS
OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD NOTES FOR THE NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
INCOME AND OTHER TAX LAWS.
For purposes of this discussion, a "U.S. Holder" means (i) an individual
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate that is subject to United States
Federal income taxation without regard to the source of its income, or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust. For
purposes of this discussion, a "Non-U.S. Holder" means any holder who is not a
U.S. Holder.
EXCHANGE OFFER
There will be no United States Federal income tax consequences to a U.S.
Holder or Non-U.S. Holder exchanging an Old Note for a New Note pursuant to the
Exchange Offer and such holder will have the same adjusted basis and holding
period in the New Note as it had in the Old Note immediately before the
exchange.
U.S. HOLDERS
STATED INTEREST
Payments of stated interest on the Notes will not be separately taxable to
U.S. Holders, but, instead, will be includible in income as original issue
discount ("OID") on an accrual basis, as described below.
ORIGINAL ISSUE DISCOUNT
The Notes will be treated as issued with OID. For United States Federal
income tax purposes, U.S. Holders generally must accrue OID in gross income over
the term of the Notes on a constant yield basis, regardless of their regular
method of tax accounting. As a result, U.S. Holders will recognize taxable
income in respect of the Notes in advance of the receipt of cash attributable to
such income.
The amount of OID on a Note will equal the excess of the stated redemption
price at maturity over the issue price. For this purpose, the "issue price" of a
Note is the first price at which a substantial amount of Notes is sold for cash
(other than to bond houses, brokers or similar persons or organizations acting
in the capacity of underwriters, placement agents or wholesalers). Additionally,
the "stated redemption price at maturity" of a Note is the sum of all payments
due under the Note, other than payments of qualified
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stated interest. "Qualified stated interest" is any interest that is
unconditionally payable in cash or in property at least annually at a single
fixed rate.
Prior to August 1, 2002, there will not be any cash payments of interest on
the Notes. Accordingly, none of the payments of interest on a Note will be
considered "unconditionally payable at least annually at a single fixed rate"
under applicable Treasury Regulations and thus none of such payments will be
characterized as interest for U.S. Federal income tax purposes that is taxable
to cash and accrual basis taxpayers when received or accrued, respectively.
Instead, all such payments must be included in the calculations of the Notes'
stated redemption price at maturity and thus will be characterized as OID
taxable under the rules described below.
For each taxable year of a U.S. Holder, the amount of OID that must be
included in gross income in respect of a Note will be the sum of the daily
portions of OID for each day during such taxable year or portion thereof in
which such U.S. Holder held the Note. Such daily portions are determined by
allocating to each day in an accrual period a pro rata portion of the OID
allocable to that accrual period. Accrual periods may be of any length and may
vary in length over the term of the Note, provided that each accrual period is
not longer than one year and each scheduled payment of principal or interest
occurs on the first day or the final day of such period. The amount of OID
allocable to any accrual period generally will equal the product of the Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period). The adjusted
issue price of a Note at the beginning of any accrual period will equal the
issue price of the Note, as defined above, increased by previously accrued OID
from prior accrual periods, and reduced by any payments made on such a Note
(e.g., the cash payments commencing on August 1, 2002) on or before the first
day of the accrual period.
The Company does not intend to treat the possibility of an optional
redemption or repurchase of the Notes as giving rise to any additional accrual
of OID, or recognition of ordinary income upon redemption, sale or exchange of
the Notes. U.S. Holders may wish to consult with their tax advisors regarding
the Treasury Regulations dealing with the treatment of certain contingencies.
DISPOSITION OF NOTES
In general, a U.S. Holder will have an adjusted tax basis for a Note equal
to the Note's purchase price, increased by the amount of OID previously included
in gross income by the U.S. Holder and reduced by prior payments made to the
U.S. Holder in respect of such Note. Upon the redemption, sale, exchange or
retirement of a Note, a U.S. Holder generally will recognize capital gain or
loss equal to the difference between the amount realized upon the redemption,
sale, exchange or retirement and the adjusted tax basis of the Note. Any such
capital gain or loss will be long-term capital gain or loss if the holding
period of the Note exceeds one year at the time of the disposition. Under
recently adopted amendments to the Internal Revenue Code, net capital gain
recognized by an individual investor upon a disposition of property that has
been held for more than 12 months will generally be subject to a maximum tax
rate of 20% or, in the case of property that has been held for 12 months or
less, will generally be subject to tax at ordinary income tax rates. Capital
losses are subject to limitations on deductibility for U.S. Federal income tax
purposes.
MARKET DISCOUNT AND ACQUISITION PREMIUM
U.S. Holders, other than original purchasers of the Old Notes in the
original offering, should be aware that the sale of the New Notes may be
affected by the market discount and acquisition premium provisions of the Code.
MARKET DISCOUNT RULES. The market discount rules generally provide that if
a U.S. Holder of a Note purchased the Note, subsequent to the original offering,
at a "market discount" (I.E., at an amount less than the adjusted issue price of
the Note as determined on the date of such purchase) in excess of a
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statutorily-defined DE MINIMIS amount, and thereafter recognizes gain upon a
disposition (including a partial redemption) of the New Note received in
exchange for an Old Note, the lesser of such gain or the portion of the market
discount that accrued while the Old Note and New Note were held by such U.S.
Holder will be treated as ordinary interest income at the time of disposition.
The rules also provide that a U.S. Holder who acquires a Note at a market
discount may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such Note until the U.S. Holder disposes of such Note in a taxable
transaction. If a holder of such Note elects to include market discount in
income currently, both of the foregoing rules would not apply.
ACQUISITION PREMIUM RULES. The acquisition premium rules generally provide
that if a U.S. Holder of a Note purchased the Note, subsequent to the original
offering, at an acquisition premium (I.E., at an amount greater than the
adjusted issue price of the Note as determined on the date of such purchase),
the amount of original issue discount that the U.S. Holder includes in gross
income is reduced to reflect such acquisition premium. Acquisition premium is
allocated on a pro rata basis to each accrual of original issue discount
reducing original issue discount by a constant fraction, the numerator of which
is the excess of the adjusted basis of the Note over its adjusted issue price
and the denominator of which is the excess of the sum of all amounts payable on
the Note after the purchase date over its adjusted issue price.
NON-U.S. HOLDERS
Under present United States Federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
(a) payments of interest to, and accruals of OID by, any Non-U.S. Holder
generally will not be subject to United States Federal income or
withholding tax, provided that (1) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (2) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the
Company through stock ownership, and (3) such interest payments are not
effectively connected with the conduct of a United States trade or
business of the Non-U.S. Holder;
(b) a Non-U.S. Holder generally will not be subject to the United States
Federal income tax on gain realized on the sale, exchange or other
disposition of the Note, unless (1) such Non-U.S. Holder is an individual
who is present in the United States for 183 days or more during the
taxable year and certain other requirements are met or (2) the gain is
effectively connected with the conduct of a United States trade or
business of the Non-U.S. Holder or (3) the Non-U.S. Holder is subject to
certain provisions applicable to certain U.S. expatriated persons; and
(c) if interest on the Notes is exempt from withholding of United States
Federal income tax under the rules described in clause (a) above, the
Notes will not be included in the estate of a deceased Non-U.S. Holder
for United States Federal estate tax purposes.
The certification referred to above may be made on an Internal Revenue
Service Form W-8 or substantially similar substitute form.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal and interest on a Note, and the proceeds of the sale of a Note before
maturity within the United States (and, under certain circumstances, outside of
the United States) to, and to the accrual of original issue discount with
respect to, non-corporate Holders. A Holder of a Note may be subject to backup
withholding at the rate of 31% with respect to interest paid on the Note and
proceeds from the sale, exchange, redemption or retirement of the Note, unless
such Holder (a) is a corporation or comes within certain other exempt
categories, and,
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when required, demonstrates such fact, (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding rules or (c) in the case of a Non-U.S. Holder, such holder certifies
as to its status as a Non-U.S. Holder on an Internal Revenue Service Form W-8 or
substantially similar substitute form. A U.S. Holder who does not provide the
Company with the Holder's correct taxpayer identification number may be subject
to penalties imposed by the Internal Revenue Service.
Amounts withheld under the backup withholding rules may be credited against
a Holder's tax liability, and a Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service.
RECENTLY ISSUED TREASURY REGULATIONS
The U.S. Treasury Department recently issued final Treasury Regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1999. The new Treasury Regulations generally would not alter
the treatment of Non-U.S. Holders described above. The new Treasury Regulations
would alter the procedures for claiming the benefits of an income tax treaty and
may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of a Note.
Prospective investors should consult their tax advisors concerning the effect,
if any, of such new Treasury Regulations on an investment in the Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by any person subject to
the prospectus delivery requirements of the Securities Act, including any
participating broker-dealer, in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will use its reasonable best efforts to make this Prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale for such period of time as such broker-dealer must comply with the
requirements of the Securities Act (which period shall not exceed 180 days from
the date the Registration Statement becomes effective).
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Starting on the Expiration Date the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the validity of the New Notes will
be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and December 31, 1996 and for the period from September 12, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997 and for the
cumulative period from September 12, 1996 (inception) through December 31, 1997
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
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The financial statements of 13 Radio Corporation as of December 31, 1997 and
December 31, 1996 and for each of the two years in the period ended December 31,
1997 appearing in this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Oro Spanish Broadcasting, Inc. as of August 31,
1997 and August 31, 1996 and for each of the two years in the period ended
August 31, 1997 appearing in this Prospectus and Registration Statement, have
been audited by Miller, Kaplan, Arase & Co., LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
RADIO UNICA CORP.
Report of Independent Certified Public Accountants....................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............................................. F-3
Consolidated Statements of Operations for the period from September 12, 1996 through December 31, 1996,
for the year ended December 31, 1997, and Cumulative from September 12, 1996 through December 31,
1997................................................................................................... F-4
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred Stock and Stockholders'
Equity (Deficit)....................................................................................... F-5
Consolidated Statements of Cash Flows for the period from September 12, 1996 through December 31, 1996,
for the year ended December 31, 1997, and Cumulative from September 12, 1996 through December 31,
1997................................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Consolidated Balance Sheet (Unaudited) as of September 30, 1998.......................................... F-18
Consolidated Statement of Operations (Unaudited) for the nine months ended September 30, 1997 and 1998... F-19
Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 1997 and 1998... F-20
Notes to Consolidated Financial Statements (Unaudited)................................................... F-21
13 RADIO CORPORATION
Report of Independent Certified Public Accountants....................................................... F-27
Balance Sheets as of December 31, 1996 and 1997.......................................................... F-28
Statements of Operations and Accumulated Deficit for the Pre-Acquisition year ended December 31, 1996 and
the Post-Acquisition year ended December 31, 1997...................................................... F-29
Statements of Cash Flows for the Pre-Acquisition year ended December 31, 1996 and the Post-Acquisition
year ended December 31, 1997........................................................................... F-30
Notes to Consolidated Financial Statements............................................................... F-31
ORO SPANISH BROADCASTING, INC.
Independent Auditors' Report............................................................................. F-36
Independent Accountants' Report.......................................................................... F-37
Balance Sheets as of August 31, 1996 and 1997 and February 28, 1998...................................... F-38
Statements of Operations and Accumulated Deficit for the year ended August 31, 1996 and 1997 and for the
six months ended February 28, 1997 and 1998............................................................ F-39
Statements of Cash Flows for the years ended August 31, 1996 and 1997 and for the six months ended
February 28, 1997 and 1998............................................................................. F-40
Notes to Financial Statements............................................................................ F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Radio Unica Corp.
We have audited the accompanying consolidated balance sheets of Radio Unica
Corp. and subsidiaries (a development stage company) as of December 31, 1996 and
1997, and the related consolidated statements of operations, changes in Series A
redeemable cumulative preferred stock and stockholders' equity (deficit) and
cash flows for the period from September 12, 1996 (inception) through December
31, 1996, the year ended December 31, 1997, and for the cumulative period from
September 12, 1996 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of Radio Unica
Corp. and subsidiaries (a development stage company) as of December 31, 1996 and
1997, and the results of their operations and their cash flows for the period
from September 12, 1996 (inception) through December 31, 1996, the year ended
December 31, 1997 and for the cumulative period from September 12, 1996
(inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Miami, Florida
June 5, 1998
F-2
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
<S> <C> <C>
1996 1997
---------- -------------
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 5,000 $ 1,126,862
Prepaid expenses..................................................................... -- 554,000
Radio broadcasting rights............................................................ -- 2,650,000
---------- -------------
Total current assets................................................................... 5,000 4,330,862
Property and equipment................................................................. -- 1,221,995
Advances to equity investee............................................................ -- 1,016,590
Other assets........................................................................... -- 108,641
---------- -------------
$ 5,000 $ 6,678,088
---------- -------------
---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................................... $ -- $ 354,120
Accrued expenses..................................................................... -- 179,549
Radio broadcasting rights obligation................................................. -- 2,385,000
Notes payable to stockholders........................................................ -- 365,000
---------- -------------
Total current liabilities.............................................................. -- 3,283,669
Commitments and contingencies
Series A redeemable cumulative preferred stock, $.01 par value, 450,000 shares
authorized; none and 51,975 shares issued and outstanding in 1996 and 1997,
respectively......................................................................... -- 5,316,990
Stockholders' equity (deficit):
Common stock $.10 and $.01 par value in 1996 and 1997, respectively; 100,000 shares
authorized; 3,000 and 5,250 shares issued and outstanding in 1996 and 1997,
respectively....................................................................... 300 53
Additional paid-in capital (deficiency).............................................. 44,700 (67,043)
Deficit accumulated during the development stage..................................... (40,000) (1,855,581)
---------- -------------
Total stockholders' equity (deficit)................................................... 5,000 (1,922,571)
---------- -------------
$ 5,000 $ 6,678,088
---------- -------------
---------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE CUMULATIVE
PERIOD FROM FROM
SEPTEMBER 12, SEPTEMBER 12,
1996 1996
(INCEPTION) FOR THE YEAR (INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating expenses:
Selling, general and administrative expenses...................... $ -- $ 31,124 $ 31,124
Network expenses.................................................. -- 812,654 812,654
Corporate expenses................................................ 40,000 959,038 999,038
------------- ------------- -------------
40,000 1,802,816 1,842,816
------------- ------------- -------------
Loss from operations................................................ (40,000) (1,802,816) (1,842,816)
Interest expense, net............................................... -- 12,765 12,765
------------- ------------- -------------
Net loss............................................................ (40,000) (1,815,581) (1,855,581)
Accrued dividends on Series A redeemable cumulative preferred
stock............................................................. -- 119,490 119,490
------------- ------------- -------------
Net loss applicable to common shareholders.......................... $ (40,000) $ (1,935,071) $(1,975,071)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share applicable to common shareholders--basic
and diluted....................................................... $ (13.33) $ (356.10)
------------- -------------
------------- -------------
Weighted average common shares outstanding--basic and diluted....... 3,000 5,434
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CUMULATIVE PREFERRED
STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
SERIES A -----------------------------------------------------------------
REDEEMABLE CUMULATIVE DEFICIT
ADDITIONAL ACCUMULATED
PREFERRED STOCK COMMON STOCK PAID-IN DURING THE
----------------------- ---------------------- CAPITAL DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) STAGE TOTAL
--------- ------------ --------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 12, 1996......... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock............ 3,000 300 44,700 45,000
Net loss............................ (40,000) (40,000)
--------- ------------ --------- ----------- ----------- ------------- -------------
Balance at December 31, 1996.......... -- -- 3,000 300 44,700 (40,000) 5,000
Issuance of common stock............ -- -- 7,000 700 454,300 -- 455,000
Conversion of Predecessor Company
common stock to Radio Unica Corp.
Series A redeemable cumulative
preferred stock and common
stock............................. 4,950 495,000 (9,500) (995) (494,005) -- (495,000)
Issuance of Series A redeemable
cumulative preferred stock and
common stock...................... 47,025 4,702,500 4,750 48 47,452 -- 47,500
Accrued dividends in arrears on
Series A redeemable cumulative
preferred stock................... 119,490 (119,490) (119,490)
Net loss............................ -- -- -- -- -- (1,815,581) (1,815,581)
--------- ------------ --------- ----------- ----------- ------------- -------------
Balance at December 31, 1997.......... 51,975 $ 5,316,990 5,250 $ 53 $ (67,043) $ (1,855,581) $ (1,922,571)
--------- ------------ --------- ----------- ----------- ------------- -------------
--------- ------------ --------- ----------- ----------- ------------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD CUMULATIVE
FROM FROM
SEPTEMBER 12, SEPTEMBER 12,
1996 1996
(INCEPTION) FOR THE YEAR (INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................ $ (40,000) $ (1,815,581) $(1,855,581)
Adjustments to reconcile net loss to net cash used in operating
activities:
Change in assets and liabilities:
Prepaid expenses................................................ -- (554,000) (554,000)
Radio broadcasting rights....................................... -- (2,650,000) (2,650,000)
Other assets.................................................... -- (108,641) (108,641)
Accounts payable................................................ -- 354,120 354,120
Accrued expenses................................................ -- 179,549 179,549
Radio broadcasting rights obligation............................ -- 2,385,000 2,385,000
------------- ------------- -------------
Net cash used in operating activities............................... (40,000) (2,209,553) (2,249,553)
------------- ------------- -------------
INVESTING ACTIVITIES
Advances to equity investee......................................... -- (1,016,590) (1,016,590)
Acquisition of property and equipment............................... -- (1,221,995) (1,221,995)
------------- ------------- -------------
Net cash used in investing activities............................... -- (2,238,585) (2,238,585)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from notes payable to stockholders......................... -- 365,000 365,000
Proceeds from issuance of Series A redeemable cumulative preferred
stock and common stock............................................ 45,000 5,205,000 5,250,000
------------- ------------- -------------
Net cash provided by financing activities........................... 45,000 5,570,000 5,615,000
------------- ------------- -------------
Increase in cash and cash equivalents............................... 5,000 1,121,862 1,126,862
Cash and cash equivalents at beginning of year...................... -- 5,000 --
------------- ------------- -------------
Cash and cash equivalents at end of year............................ $ 5,000 $ 1,126,862 $ 1,126,862
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION
Radio Unica Corp., a Florida corporation incorporated on September 12, 1996
(Old Radio Unica), was merged into Radio Unica Corp. (Radio Unica), a Delaware
corporation, on August 7, 1997. As a result of the merger, the investors of Old
Radio Unica exchanged all of their common shares in Old Radio Unica for 500
shares of common stock and 4,950 shares of preferred stock of Radio Unica, the
surviving corporation. The merger was accounted for as a combination of entities
under common control in a manner similar to a pooling. Radio Unica, together
with its subsidiaries (collectively, the Company), is a development stage
company organized for the purpose of producing, broadcasting and distributing
Spanish-language radio programming in the United States.
On August 11, 1997, Warburg, Pincus Ventures, L.P. (WPV) entered into a
Securities Purchase Agreement with Radio Unica for the purchase of common and
Series A redeemable cumulative preferred stock of Radio Unica. At December 31,
1997, WPV had acquired a 90.5% ownership interest in the Company's common and
Series A redeemable cumulative preferred stock in exchange for $4,750,000.
The Company launched its network on January 5, 1998 and began broadcasting
programming to radio broadcast stations that it operates and to affiliated
stations in the United States; and subsequently, the Company was no longer in
the development stage.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Radio Unica
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. The Company accounts for investments in
20% to 50% owned companies and for investments in over 50% owned companies over
which the Company does not have control under the equity method of accounting.
CASH EQUIVALENTS
The Company defines as cash equivalents all highly liquid temporary
investments with a maturity of three months or less at the time of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the related assets, which
range from 3 to 10 years. Leasehold improvements are capitalized and amortized
over their estimated useful lives or the remaining life of the lease, whichever
is shorter. The Company placed a majority of its property and equipment into
service on or about December 31, 1997; therefore, there was no depreciation
expense recorded for the period from September 12, 1996 (inception) through
December 31, 1996 and for the year ended December 31, 1997.
ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS
The Company accounts for the impairment of long lived assets under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS. SFAS No. 121 requires
impairment losses to be recorded on long-lived assets when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets'
F-7
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carrying amount. If the carrying value of the assets will not be recoverable, as
determined based on the undiscounted cash flows estimated, the carrying value of
the assets are reduced to fair value. Generally, fair value will be determined
using valuation techniques such as expected discounted cash flows or appraisals,
as appropriate. The Company has not recorded any impairment losses.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Prior to August 7, 1997, the Company, with the
consent of its shareholders, elected S Corporation treatment for the Company. As
a result, the shareholders of the Company were taxed on their proportionate
share of the Company's taxable income. Accordingly, no provision or credit for
federal income tax amounts has been included in the consolidated financial
statements for the period prior to August 7, 1997. On August 7, 1997, upon the
merger of Old Radio Unica into Radio Unica, the Company became a C Corporation.
Deferred income tax assets and liabilities are determined based upon
differences between the financial statements and income tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion of the tax assets will not be realized.
ACCOUNTING FOR STOCK OPTIONS
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, became effective
January 1, 1996. The new standard defines a fair value method of accounting for
issuance of stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES (APB Opinion No. 25), but are required to disclose in a note to the
consolidated financial statements pro forma net income (loss) as if the Company
had applied the new method of accounting.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock-based transactions and has complied with the
disclosure requirements of SFAS No. 123.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense for
the period ended December 31, 1996 and the year ended December 31, 1997 amounted
to approximately $1,500 and $82,000, respectively.
F-8
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of their
short duration to maturity. The carrying amounts of the notes payable to
stockholders approximate fair value because the interest rates approximate the
Applicable Federal Rate.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
LOSS PER SHARE
In 1997, the Company retroactively adopted SFAS No. 128, EARNINGS PER SHARE.
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share (EPS) with basic and diluted EPS. For the period from September 12, 1996
(inception) through December 31, 1996 and for the year ended December 31, 1997,
there is no difference between the basic and diluted EPS calculation.
Net income per common share is calculated using the weighted average number
of common shares for the basic EPS presentation, and the weighted average number
of common and common equivalent shares for the diluted EPS presentation,
outstanding during the respective periods. For the period from September 12,
1996 (inception) through December 31, 1996 and for the year ended December 31,
1997, no incremental shares related to the Series A redeemable cumulative
preferred stock or stock options are included because the effect would be
antidilutive.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company is in the process of
evaluating the disclosure requirements of SFAS No. 130. The adoption of SFAS No.
130 is not expected to have an impact on the Company's consolidated statement of
operations, financial condition or cash flows.
3. RADIO BROADCASTING RIGHTS AGREEMENT
On July 30, 1997, the Company entered into a Radio Broadcasting Rights
Agreement (Rights Agreement) with Univision Network Limited Partnership
(Univision) for the 1998 World Cup Soccer Championship (1998 World Cup). This
agreement grants the Company exclusive Spanish-language radio broadcast rights
in the United States for the 1998 World Cup. The purchase price for these rights
is $2,650,000, of which $265,000 was paid in advance as a deposit to Univision.
The Company will amortize the cost of the Rights Agreement, on a pro-rata basis,
as revenue for the 1998 World Cup is earned. The Company evaluates the
recoverability of the carrying amount of its broadcast rights by determining if
any impairment indicators are present. If this review indicates that the
carrying value of the broadcast rights
F-9
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RADIO BROADCASTING RIGHTS AGREEMENT (CONTINUED)
will not be recoverable, as determined based on the estimated undiscounted cash
flows over the broadcast rights remaining useful life, the carrying value is
reduced to fair value. Generally, fair value will be determined using expected
discounted cash flows. WPV arranged for the issuance of a letter of credit in
the amount of $2,385,000 to Univision on behalf of the Company to secure the
payments under the agreement. In the event that this letter of credit is
exercised, the amounts drawn will be treated as capital contributions.
At December 31, 1997, payment obligations under the Rights Agreement are as
follows:
<TABLE>
<S> <C>
May 11, 1998.................................................... $ 795,000
June 30, 1998................................................... 795,000
August 11, 1998................................................. 795,000
---------
$2,385,000
---------
---------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31,
LIVES -----------------------
(YEARS) 1996 1997
----------- --------- ------------
<S> <C> <C> <C>
Broadcast equipment............................................ 7 $ -- $ 867,735
Leasehold improvements......................................... 10 -- 147,759
Office equipment, computers & software......................... 3-5 -- 146,804
Furniture & fixtures........................................... 5 -- 59,697
--------- ------------
$ -- $ 1,221,995
--------- ------------
--------- ------------
</TABLE>
5. ADVANCES TO EQUITY INVESTEE
On October 27, 1997, the Company obtained 49.9% (499 common shares) of the
ownership and voting rights of Blaya, Inc., a newly formed company, for $0.01
per share. The remaining ownership interest was held by Joaquin F. Blaya. The
Company accounts for this investment under the equity method.
On December 24, 1997, Blaya, Inc. entered into an asset purchase agreement
with 13 Radio Corporation (13 Radio), a CBS Broadcasting (CBS) subsidiary, to
acquire Houston radio station KXYZ -- AM, for a cash purchase price of $6.4
million (the Acquisition). In connection with this Acquisition, the Company
advanced $1,016,590 to Blaya, Inc., which is reflected as advances to equity
investee at December 31, 1997. Also on December 24, 1997, Blaya, Inc. entered
into a Time Brokerage Agreement (TBA) with 13 Radio effective as of January 5,
1998. The TBA made available to Blaya, Inc. substantially all of the
broadcasting time of the station, pending the completion of the Acquisition,
which was subject to Federal Communication Commission (FCC) consent. The fee for
this broadcasting time is $165,000 per quarter. The Company began operating the
station under its TBA on January 5, 1998. Blaya, Inc. did not have any
operations during 1997.
On March 6, 1998, the Directors of Blaya, Inc. divided Blaya, Inc.'s capital
stock into the following two classes: (1) Class A common stock with rights
identical to all other shares of Blaya, Inc.'s capital stock
F-10
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ADVANCES TO EQUITY INVESTEE (CONTINUED)
except that each share is entitled to cast 4.016 votes and (2) Class B common
stock with rights identical to all other shares of Blaya, Inc.'s capital stock
except that each share is entitled to cast 1 vote. On March 6, 1998, the Company
acquired 800 shares of Blaya, Inc.'s Class B common stock, representing 49.9% of
the voting rights and 80% of the economic ownership rights in Blaya, Inc., in
exchange for its 499 shares of common stock in Blaya, Inc. and $640,000. On the
same day, the Company loaned Mr. Blaya $160,000 in exchange for a 10 year 9%
promissory note. These proceeds were used by Mr. Blaya (together with the
surrender of the shares of Blaya, Inc's common shares then held by him) to
purchase 200 shares of Blaya, Inc.'s Class A common stock representing 50.1% of
the voting rights and 20% of the ownership rights in Blaya, Inc. In connection
with this equity investment, the stockholders of Blaya, Inc. entered into a
stockholders agreement which provided the Company the first right of refusal if
Mr. Blaya decided to sell any interest in Blaya, Inc.
On March 10, 1998, the Company entered into a promissory note payable of
$5.7 million with Blaya, Inc. On March 11, 1998, the proceeds were used to
complete the Acquisition with 13 Radio and to pay related closing costs. The
promissory note payable bears interest at 9% compounded quarterly and payable
annually. The entire principal amount outstanding under the promissory note
payable shall be due and payable in full on the earliest to occur of (i) the
termination of the TBA, (ii) fifteen days following the date when 50% of the
voting stock is transferred to any party or substantially all the assets of
Blaya, Inc. are sold, or (iii) March 10, 2008. The promissory note payable is
secured by substantially all of the assets of Blaya, Inc.
Summary financial information for Blaya, Inc., which is accounted for under
the equity method, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current assets.................................................................. $1,000,000
Total assets.................................................................... 1,016,590
Current liabilities............................................................. 1,016,580
Stockholders' equity............................................................ 10
</TABLE>
Blaya, Inc. had no operations for the year ended December 31, 1997.
6. NOTES PAYABLE TO STOCKHOLDERS
On July 15, 1997, the Company entered into promissory notes payable with
several stockholders amounting to $100,000. The promissory notes payable are due
on demand and bear interest at 9%.
On July 24, 1997, the Company entered into a promissory note payable with
WPV amounting to $265,000. The promissory note payable is due on demand and
bears interest at 8%. The funds provided by this promissory note payable were
applied as a deposit on the Rights Agreement.
7. INCOME TAXES
Concurrent with the August 7, 1997 merger of Old Radio Unica with and into
the Company, Old Radio Unica's S corporation election was terminated.
Thereafter, the Company became subject to corporate income taxes. The Company
had no income tax expense or benefit for the period from September 12, 1996
through December 31, 1996 and for the year ended December 31, 1997.
F-11
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
HISTORICAL
The difference between the federal statutory income tax rate of 34% and the
effective income tax rate are summarized below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Tax benefit at federal statutory rate................................ $ (493,823) $ --
State income tax benefit, net of federal benefit..................... (52,375) --
Permanent differences................................................ 3,259 --
Other................................................................ (7,924) --
Valuation allowance.................................................. 550,863 --
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
</TABLE>
Significant components of the Company's net deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Depreciation......................................................... $ 7,924 $ --
Net operating loss carryforward...................................... 542,939 --
----------- ----------
Total deferred tax asset............................................. 550,863 --
Valuation allowance.................................................. (550,863) --
----------- ----------
Net deferred tax asset............................................... $ -- $ --
----------- ----------
----------- ----------
</TABLE>
PRO FORMA
The difference between the federal statutory income tax rate of 34% and the
effective income tax rate are summarized below assuming the Company was a C
corporation for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Tax benefit at federal statutory rate................................ $ (617,298) $ (13,600)
State income taxes, net of federal benefit........................... (65,392) (1,422)
Permanent differences................................................ 4,810 280
Valuation allowance.................................................. 677,880 14,742
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $550,863 valuation allowance at December 31, 1997 is
necessary to reduce the deferred tax assets to the amount that will more likely
than not be realized. The net carrying value of the deferred tax assets at
December 31, 1997 is zero. The change in the valuation allowance for the year
ended
F-12
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
December 31, 1997 is $550,863. At December 31, 1997, the Company has available
net operating loss carryforwards of $1,442,836, which expire in the year 2012.
Had the Company not been taxed as an S Corporation, it would have had available
net operating loss carryforwards of $39,175 and $1,819,554 at December 31, 1996
and 1997, respectively, expiring in years 2011 and 2012, respectively. The
related deferred tax assets of approximately $15,000 and $690,000 at December
31, 1996 and 1997, respectively, would have been entirely offset by valuation
allowances reducing the carrying values of such deferred tax assets to zero,
since it is more likely than not that they will not be realized.
8. SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK
The Company has 450,000 authorized shares of redeemable, 10% cumulative,
nonconvertible, voting, Series A Preferred Stock (the Preferred Stock), $.01 par
value, of which none and 51,975 shares were issued and outstanding at December
31, 1996 and 1997, respectively. If and when dividends are declared by the Board
of Directors, holders of the Preferred Stock shall be entitled to receive
cumulative dividends at the rate of 10% per annum. Each share of Preferred Stock
shall be entitled to ten votes per share on all matters upon which common
stockholders are entitled to vote (one vote per common share) and have a
redemption price of $100 per share, together with accrued and unpaid dividends
thereon. Redemption of the Preferred Stock is at the option of the holders for
any or all the outstanding shares upon the occurrence of (i) a change in
control, (ii) an initial public offering or (iii) on August 6, 2007. In the
event of any liquidation, dissolution or winding up of the affairs of the
Company, holders of Preferred Stock shall be paid the redemption price plus all
accrued dividends to the date of liquidation, dissolution or wind up of affairs
before any payment to other stockholders. Accrued dividends in arrears of
$119,490, as of December 31, 1997, are included in the redemption value of the
Preferred Stock.
9. STOCK OPTION PLAN
On August 8, 1997, the Company adopted the 1997 Stock Option Plan (the Plan)
which provides for the granting of incentive stock options to purchase shares of
the Company's common stock to officers, directors and key employees responsible
for the direction and management of the Company and to non-employee consultants
and independent contractors. At December 31, 1997, the Company reserved 20,000
shares of its common stock for issuance under the Plan. The vesting period and
the terms of the incentive stock options granted are established by a Committee
of the Board of Directors (the Committee). The incentive stock options expire no
later than ten years from the date of grant. Upon the adoption of the Plan, the
Company granted options to its employees to purchase 7,700 shares of its common
stock. Of the 7,700 options granted, 1,800 vested immediately, 1,200 vest
ratably over a five year period and 1,700 vest upon the attainment of certain
performance goals as determined by the Committee. The exercise price of these
incentive stock options is $10 per share which was determined by the Committee
to be the fair value at the date of grant. As a result, no compensation cost has
been recognized under the provisions of APB Opinion No. 25. The remaining 3,000
incentive stock options vest upon the attainment of specified return on equity
targets and have a variable exercise price per share based on a formula which is
triggered upon the occurrence of certain events. There were no options granted
by the Company prior to the adoption of this plan.
F-13
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation cost for the Plan been determined based on the fair value of the
stock options on the grant date for the award issued in 1997 consistent with the
provisions of SFAS No. 123, the Company's net loss and EPS would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Net loss applicable to common shareholders--pro forma.......................... $ (1,938,551)
Basic and diluted loss per share applicable to common shareholders-- pro
forma........................................................................ $ (356.74)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value fair value model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0.0%; risk-free interest
rate of 6.00% and average expected life of five years.
At December 31, 1997, the weighted average exercise price of the options
outstanding is $10.00, the weighted average fair value of the options granted
during 1997 is $2.59 and the weighted average remaining contractual life of
those options is four years. No options were exercised, forfeited or expired
during the year ended December 31, 1997.
10. COMMITMENTS
LOTUS OXNARD CORP. TIME BROKERAGE AGREEMENTS
On October 31, 1997, the Company entered into a TBA with Lotus Oxnard Corp.
(Lotus) to operate Simi Valley, CA radio station KVCA, effective January 5,
1998. Simultaneous with the TBA, the Company entered into an escrow agreement
whereby the Company provided a $2.5 million escrow account deposit on January 5,
1998 to secure compliance with the TBA terms. In addition to the TBA and escrow
agreement, the Company entered into an asset purchase option agreement with
Lotus which provides an option to purchase the assets of KVCA, including its
broadcasting license, from Lotus. This purchase option is exercisable at any
time from June 24, 2001 through and including September 30, 2001. The TBA shall
end upon the earliest to occur of (i) the closing or termination as defined in
the asset purchase option agreement or (ii) December 31, 2001.
On October 31, 1997, the Company entered into a TBA with Lotus to operate
San Antonio radio station KZDC, effective January 5, 1998. Simultaneous with the
TBA, the Company entered into an asset purchase option agreement with Lotus
which provides an option to purchase the assets of KZDC, including its
broadcastxing license, from Lotus, which is exercisable at any time from June
24, 2001 through and including September 30, 2001.
F-14
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS (CONTINUED)
The future minimum payments under the Lotus TBAs are as follows:
<TABLE>
<S> <C>
1998............................................................ $1,650,000
1999............................................................ 2,425,000
2000............................................................ 2,650,000
2001............................................................ 2,875,000
---------
$9,600,000
---------
---------
</TABLE>
The Company leases office space, broadcasting studios and certain equipment
under operating leases, which expire at various dates through September 2007.
Certain leases contain renewal options and provide for base rental payments plus
escalation charges for real estate taxes and operating expenses.
At December 31, 1997, future minimum lease payments under such leases are as
follows:
<TABLE>
<S> <C>
1998............................................................ $ 432,000
1999............................................................ 445,000
2000............................................................ 458,000
2001............................................................ 392,000
2002............................................................ 400,000
Thereafter...................................................... 458,000
---------
$2,585,000
---------
---------
</TABLE>
Total rent expense for the year ended December 31, 1997 amounted to
$109,000. There was no rent expense for the period ended December 31, 1996.
11. SUMMARIZED FINANCIAL INFORMATION
The securities that may be issued under a debt offering contemplated by the
Company will be guaranteed by all of the Company's Domestic Restricted
Subsidiaries, which comprises all of the Company's existing subsidiaries, on a
full, unconditional, joint and several basis. The financial statements of the
subsidiary guarantors are omitted as management has determined that separate
financial statements and other disclosures concerning the subsidiaries are not
material to investors.
Summarized financial information of guarantor subsidiaries are as follows:
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current assets................................................ $ 3,204,000 --
Total assets.................................................. 6,678,088 --
Current liabilities (including due to parent of $514,730)..... 3,433,399 --
Total liabilities............................................. 3,798,399 --
Net revenues.................................................. -- --
Operating expenses............................................ 1,641,592 --
Net loss...................................................... (1,654,357) --
</TABLE>
F-15
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
ISSUANCE OF CAPITAL STOCK
On January 5, 1998, WPV purchased an additional 148,500 shares of preferred
stock and 15,000 shares of common stock in exchange for $15,000,000. This
transaction increased WPV's ownership interest in the Company to 97.5%.
TIME BROKERAGE AGREEMENT AND PURCHASE OF WNMA--AM AND WCMQ--AM MIAMI
On January 26, 1998, the Company entered into an asset purchase agreement
with One-on-One Sports License of Florida L.L.C. and One-on-One Sports Radio of
Florida L.L.C to acquire Miami radio stations WNMA--AM and WCMQ--AM for a cash
purchase price of $9.0 million. The Company funded a $1.0 million escrow account
in conjunction with this transaction. The Company operated the stations under a
TBA for a monthly fee of $72,500 until May 13, 1998.
On May 13, 1998, upon receiving the FCC's consent to transfer the
broadcasting licenses, the Company completed the acquisition of certain assets
of One-on-One Sports License of Florida L.L.C. and One-on-One Sports Radio of
Florida L.L.C. for $9 million pursuant to the asset purchase agreement dated
January 26, 1998.
TIME BROKERAGE AGREEMENT AND PURCHASE OF KIQI--AM SAN FRANCISCO
On February 20, 1998, the Company entered into a stock purchase agreement
with Oro Spanish Broadcasting, Inc. to acquire San Francisco radio station
KIQI--AM for $12 million. The purchase price is comprised of a $6 million cash
payment and a $6 million promissory note payable. The promissory note payable
bears interest at 8% and is payable monthly. The entire principal amount
outstanding under the promissory note payable, shall be due and payable in full
on the earliest to occur of (i) the fifth anniversary of the closing date or
(ii) fifteen days following the date on which all of the issued and outstanding
stock of the Company, or substantially all the assets of the Company, are sold
to a nonaffiliate. The Company funded a $1 million escrow account in conjunction
with this transaction. The Company operated the station under a TBA for a
monthly fee of $58,000 from March 2, 1998 to April 30, 1998.
On April 30, 1998, upon receiving the FCC's consent to transfer the
broadcasting license, the Company completed the acquisition of all the common
stock of Oro Spanish Broadcasting, Inc. for $11.5 million. In connection with
this acquisition, the Company entered into a five year non-compete agreement
with the seller for $500,000.
TIME BROKERAGE AGREEMENT FOR KDFT--AM DALLAS
On April 27, 1998, the Company entered into a TBA with The Freedom Network,
Inc. to operate the Dallas radio station KDFT-AM through May 18, 2000 for a
monthly fee of $44,786 and $56,546 through May 18, 1999 and 2000, respectively.
An advance payment of $146,903 was made to The Freedom Network, Inc. in
connection with the execution of the TBA.
ASSET PURCHASE AGREEMENT FOR KBLA--AM LOS ANGELES
On May 20, 1998, the Company entered into an asset purchase agreement with
Sinclair Radio of Los Angeles, Inc. and Sinclair Radio of Los Angeles Licensee,
Inc. to acquire certain assets of the Los Angeles radio station KBLA-AM for $21
million. The transaction is expected to be finalized and the transfer of the
broadcasting license is expected to be completed once the FCC's consent to
transfer the broadcasting license is received.
F-16
<PAGE>
RADIO UNICA CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
PROMISSORY NOTES
In April and May 1998, the Company entered into promissory notes payable to
WPV in the aggregate amount of $21 million. Such notes bear interest at 10% per
annum and are due on demand.
CONVERSION OF NOTES PAYABLE TO STOCKHOLDERS
On April 17, 1998 the Company converted $365,000 in notes payable to
stockholders plus accrued interest of $22,323 into 3,835 shares of Series A
redeemable cumulative preferred stock and 387 shares of common stock valued at
$383,450 and $3,873, respectively.
TIME BROKERAGE AGREEMENT FOR WBAH--AM NEW YORK
On June 1, 1998, the Company entered into a TBA with Children's Radio of New
York, Inc. for substantially all of the broadcast time on the New York radio
station WBAH -AM through August 31, 1998 in exchange for a fee in the amount of
$175,000.
F-17
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $57,548,283
Restricted cash........................................................... 2,500,000
Accounts receivable, net.................................................. 2,716,048
Prepaid expenses.......................................................... 120,597
Radio broadcasting rights................................................. 757,616
-----------
Total current assets........................................................ 63,642,544
Property and equipment, net................................................. 10,112,514
Broadcast licenses and other intangibles.................................... 48,801,865
Other assets................................................................ 9,195,098
-----------
$131,752,021
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................................... $ 634,520
Accrued expenses.......................................................... 3,604,372
-----------
Total current liabilities................................................... 4,238,892
Note payable................................................................ 750,000
Radio broadcasting rights obligation........................................ 3,400,000
Deferred tax liability...................................................... 4,088,735
Senior discount notes....................................................... 102,087,895
Commitments and contingencies
Series A redeemable cumulative preferred stock of Radio Unica Holdings
Corp., $.01 par value, 450,000 shares authorized; 353,065 shares issued
and outstanding........................................................... 37,332,908
Stockholders' deficit:
Common stock $.01 par value; 1,000 shares authorized; 1,000 shares issued
and outstanding......................................................... 10
Capital deficiency........................................................ (1,677,817)
Accumulated deficit....................................................... (18,468,602)
-----------
Total stockholders' deficit................................................. (20,146,409)
-----------
$131,752,021
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
-------------- -----------
<S> <C> <C>
Net revenue..................................................................... $ 6,418,719 $ --
Operating expenses:
Direct operating expenses..................................................... 1,302,715 --
Selling, general and administrative expenses.................................. 6,956,119 --
Network expenses.............................................................. 9,798,561 --
Corporate expenses............................................................ 2,041,058 788,298
Depreciation and amortization................................................. 901,971 --
-------------- -----------
21,000,424 788,298
-------------- -----------
Loss from operations............................................................ (14,581,705) (788,298)
Other income (expense):
Interest expense.............................................................. (2,848,214) --
Interest income............................................................... 831,765 --
Equity in loss of equity investee............................................. (14,867) --
-------------- -----------
(2,031,316) --
-------------- -----------
Net loss........................................................................ (16,613,021) (788,298)
Accrued dividends on Series A redeemable cumulative preferred stock............. 1,917,079 --
-------------- -----------
Net loss applicable to common shareholders...................................... $ (18,530,100) $ (788,298)
-------------- -----------
-------------- -----------
Net loss per common share applicable to common shareholders--basic and
diluted....................................................................... $ (1,345.10) $ (132.11)
-------------- -----------
-------------- -----------
Weighted average common shares outstanding--basic and diluted................... 13,776 5,967
-------------- -----------
-------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................................... $ (16,613,021) $ (788,298)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................... 901,971 --
Equity in loss of equity investee................................................ 14,867 --
Interest on notes payable paid with the issuance of capital stock................ 261,227 --
Accretion of interest on senior discount notes................................... 2,087,895 --
Amortization of deferred financing cost.......................................... 117,014 --
Change in assets and liabilities:
Accounts receivable............................................................ (2,619,999) --
Prepaid expenses............................................................... 457,828 --
Radio broadcasting rights...................................................... (1,750,000) (2,650,000)
Other assets................................................................... (531,686) (30,641)
Accounts payable............................................................... 263,502 50,000
Accrued expenses............................................................... 1,119,700 15,982
Radio broadcasting rights obligation........................................... 1,015,000 2,385,000
-------------- -------------
Net cash used in operating activities.............................................. (15,275,702) (1,017,957)
-------------- -------------
INVESTING ACTIVITIES
Acquisition of property and equipment.............................................. (3,406,218) (360,755)
Restricted cash-escrow account..................................................... (2,500,000) --
Repayment of advances to equity investee........................................... 1,000,000 --
Investment in WNMA-AM Miami........................................................ (9,317,000) --
Investment in KIQI-AM San Francisco................................................ (6,211,521) --
Investment in KBLA-AM Los Angeles.................................................. (21,465,920) --
Investment in KXYZ-AM Houston...................................................... (6,500,000) --
Covenant not to complete........................................................... (276,743) --
-------------- -------------
Net cash used in investing activities.............................................. (48,677,402) (360,755)
-------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of senior discount notes, net............................... 95,845,651 --
Proceeds from issuance of Series A redeemable cumulative preferred stock and common
stock............................................................................ 15,000,000 1,455,000
Proceeds from issuance of notes payable to stockholders............................ 21,795,000 365,000
Repayment on notes payable to stockholders......................................... (6,795,000) --
Repayment on note payable issued in connection with the acquisition of KIQI-AM San
Francisco........................................................................ (5,250,000) --
Redemption and cancellation of preferred stock..................................... (221,126) --
-------------- -------------
Net cash provided by financing activities.......................................... 120,374,525 1,820,000
-------------- -------------
Net increase in cash and cash equivalents.......................................... 56,421,421 441,288
Cash and cash equivalants at beginning of period................................... 1,126,862 5,000
-------------- -------------
Cash and cash equivalents at end of period......................................... $ 57,548,283 $ 446,288
-------------- -------------
-------------- -------------
Supplemental disclosures of cash flow information:
Note payable issued in connection with the acquisition of KIQI-AM
San Francisco.................................................................. $ 6,000,000 $ --
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Radio Unica Corp. and subsidiaries (the "Company") for the periods indicated
herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with the generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and notes required by 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. Operating
results for the nine months ended September 30, 1998 and 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. The consolidated financial statements include the accounts of
the Company and all majority owned subsidiaries over which the Company has
control. All significant intercompany accounts and transactions have been
eliminated. For further information, refer to the Company's 1997 consolidated
financial statements and notes thereto.
In July 1998, the Company effected a holding company reorganization,
pursuant to which the Company became a wholly owned subsidiary of Radio Unica
Holdings Corp. ("Holdings"). Holdings has no assets other than the shares of
Company's common stock. In connection with the reorganization, the holders of
the Company's common stock and Series A redeemable cumulative preferred stock
exchanged their shares for shares of Holdings' common stock and Series A
redeemable cumulative preferred stock bearing identical rights and preferences
to the Company's then existing common stock and Series A cumulative redeemable
preferred stock. The existing shares of the Company's common stock and Series A
redeemable preferred stock. The existing shares of the Company's common stock
and Series A redeemable cumulative preferred stock were cancelled. The Company
subsequently authorized and issued 1,000 shares par value $0.01 of common stock
to Holdings. The 353,065 shares of Series A redeemable cumulative preferred
stock issued by Holdings has been "pushed-down" to the Company and accordingly
reflected in the Company's financial statements as of September 30, 1998.
2. RADIO BROADCAST RIGHTS AGREEMENT
On September 28, 1998, the Company entered into a Radio Broadcasting Rights
Agreements (the "Rights Agreements") with Inter/Forever Sports, Inc. for several
large soccer events including Copa America 1999 and 2001, Copa Oro 2000 and
2002, and elimination games for the 2002 World Cup (collectively the "Soccer
Events"). The Rights Agreements grant the Company exclusive Spanish-language
radio broadcast rights in the United States for the Soccer Events.
3. ACQUISITIONS
On January 26, 1998, the Company entered into an asset purchase agreement
with One-on-One Sports License of Florida, L.L.C. and One-on-One Sports Radio of
Florida L.L.C. to acquire Miami radio stations WNMA-AM and WCMQ-AM for a cash
purchase price of $9.0 million. On May 13, 1998, upon receiving the consent of
the Federal Communications Commission (the "FCC") to transfer the broadcasting
licenses, the Company completed the acquisitions. The Company operated the
stations under a Time Brokerage Agreement ("TBA") for a monthly fee of $72,500
from February 1, 1998 to May 13, 1998.
On February 20, 1998, the Company entered into a stock purchase agreement
with Oro Spanish Broadcasting, Inc. to acquire San Francisco radio station
KIQI-AM for $11.5 million. In connection with this acquisition, the Company
entered into a five-year non-compete agreement with the seller for $500,000.
F-21
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
On April 30, 1998, upon receiving the consent of the FCC to transfer the
broadcasting license, the Company completed the acquisition of all the common
stock of Oro Spanish Broadcasting, Inc. The purchase price was comprised of a $6
million cash payment and a $6 million promissory note payable. The promissory
note payable bears interest at 8% and is payable monthly. On July 2, 1998 the
Company revised certain terms of and paid down $5.25 million against the
promissory note payable. The remaining $750,000 is due on or before October 31,
1999. The Company operated the station under a TBA for a monthly fee of $58,000
from March 2, 1998 to April 30, 1998.
On May 20, 1998, the Company entered into an asset purchase agreement to
acquire the assets of Los Angeles radio station KBLA-AM with Sinclair Radio of
Los Angeles, Inc. and Sinclair Radio of Los Angeles Licensee, Inc. for $21
million in cash. On July 30, 1998, upon receiving the FCC's consent to transfer
the broadcasting licenses, the Company completed the acquisition.
On October 27, 1997, the Company obtained 49.9% of the ownership and voting
rights of Blaya, Inc., a newly formed company. The remaining ownership interest
was held by one of the stockholders of the Company.
On December 24, 1997, Blaya, Inc. entered into an asset purchase agreement
with 13 Radio Corporation ("13 Radio"), a CBS Broadcasting ("CBS") subsidiary,
to acquire Houston radio station KXYZ-AM, for a cash purchase price of $6.4
million (the "Acquisition"). In connection with this Acquisition, the Company
advanced $1,016,590 to Blaya, Inc., which was reflected in investments and
advances to equity investee. Also on December 24, 1997, Blaya, Inc. entered into
a TBA with 13 Radio effective as of January 5, 1998. The TBA made available to
Blaya, Inc. substantially all of the broadcasting time of the station, pending
the completion of the acquisition, which was subject to FCC consent. The Company
entered into a TBA with Blaya, Inc. for substantially all of the broadcasting
time of the station for a fee of $165,000 per quarter. The Company began
operating the station under its TBA on January 5, 1998. Blaya Inc. did not have
any operations during 1997.
On March 6, 1998, the Directors of Blaya, Inc. divided Blaya, Inc.'s capital
stock into the following two classes: (i) Class A common stock with rights
identical to all other shares of Blaya, Inc.'s capital stock except that each
share is entitled to cast 4.016 votes and (2) Class B common stock with rights
identical to all other shares of Blaya, Inc.'s capital stock except that each
share is entitled to cast 1 vote. On March 6, 1998, the Company acquired 800
shares of Blaya, Inc.'s Class B common stock, representing 49.9% of the voting
rights and 80% of the economic ownership rights in Blaya, Inc., in exchange for
its 499 shares of common stock in Blaya, Inc. and $640,000. On the same day, the
Company loaned Mr. Blaya $160,000 in the form of a 10 year 9% promissory note.
These proceeds were used by Mr. Blaya to purchase 200 shares of Blaya, Inc.'s
Class A common stock representing 50.1% of the voting rights and 20% of the
ownership rights in Blaya, Inc. In connection with this equity investment, the
stockholders of Blaya, Inc. entered into a stockholders agreement that provided
the Company the first right of refusal if the majority voting stockholder
decided to sell any interest in Blaya, Inc. The Company accounts for its
investment in Blaya, Inc. under the equity method of accounting since the
minority owner of Blaya, Inc. had operating control of Blaya, Inc.
On March 10, 1998, the Company entered into a promissory note payable of
$5.7 million with Blaya, Inc. The proceeds were used to complete the asset
purchase agreement with 13 Radio and to pay related closing costs. The
promissory note payable bore interest of 9% compounded quarterly and payable
F-22
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
annually. The entire principal amount outstanding under the promissory note
payable was due and payable in full on the earliest to occur of (i) the
termination of the TBA, (ii) fifteen days following the date when 50% of the
voting stock was transferred to any party or substantially all the assets of
Blaya, Inc. are sold, or (iii) March 10, 2008. The promissory note payable was
secured by substantially all of the assets of Blaya, Inc.
On March 11, 1998, Blaya Inc. completed the Acquisition of certain assets of
13 Radio for $6.4 million pursuant to the Asset Purchase Agreement dated
December 24, 1997. The allocation of the purchase price is preliminary and
subject to change.
On June 9, 1998, the Company entered into a stock purchase agreement with
the majority-voting stockholder of Blaya, Inc. to purchase his remaining 50.1%
voting rights and 20% ownership interest in Blaya, Inc (the "Remaining
Interest"). On September 11, 1998, the Company completed the acquisition of the
Remaining Interest for $160,000 and accordingly, Blaya, Inc. became a wholly
owned subsidiary of the Company and Radio Unica of Houston Licence Corp., a
wholly owned subsidiary of Blaya, Inc. became an indirect, wholly owned
subsidiary of the Company. Mr. Blaya repaid the $160,000, plus interest, he owed
the Company pursuant to the 10 year 9% promissory note. In addition, the $5.7
million promissory note was cancelled by the Company and accounted for as a
contribution to Blaya, Inc.'s capital. The operations of Blaya, Inc. are
included in the consolidated statement of operations of the Company beginning on
September 11, 1998.
The pro forma unaudited results of operations of the Company for the nine
months ended September 30, 1998 and 1997 assuming the Oro Spanish Broadcasting,
Inc. and Blaya, Inc., acquisitions had been consummated as of January 1, 1997
and assuming Blaya, Inc. had acquired 13 Radio as of January 1, 1997 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
<S> <C> <C>
1998 1997
-------------- -------------
Net revenue................................................. $ 6,729,691 $ 2,933,695
-------------- -------------
Net loss applicable to common shareholders.................. $ (18,926,935) $ (2,006,372)
-------------- -------------
Net loss per common share applicable to common shareholders
- basic and diluted....................................... $ (745.48) $ (336.24)
-------------- -------------
-------------- -------------
</TABLE>
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
SENIOR DISCOUNT NOTES
On July 27, 1998, the Company sold in an unregistered offering to qualified
institutional buyers and accredited institutional investors $158,088,000
aggregate principal amount at maturity of the Company's 11 3/4% Senior Discount
Notes due August 1, 2006 (the "Senior Discount Notes" or "Old Notes"). Cash
interest on the Senior Discount Notes will not accrue or be payable prior to
August 1, 2002. Thereafter, cash interest will accrue at a rate of 11 3/4% per
annum on the principal amount at maturity of the Senior Discount Notes through
and including the maturity date and will be payable semi-annually on August 1
and February 1 of each year. In connection with this transaction, the Company
received net proceeds of approximately $95 million after issuance expenses of
approximately $5 million. The net proceeds will be
F-23
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
(CONTINUED)
used to fund existing and future acquisitions of radio stations, repay amounts
borrowed under the Company's Revolving Credit Facility and for general working
capital purposes.
The Senior Discount Notes are general senior unsecured obligations of the
Company and rank PARI PASSU in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the Company and senior in right of
payment to any subordinated indebtedness of the Company. The Senior Discount
Notes are guaranteed on a senior unsecured basis, as to payment of principal,
premium if any, and interest, by the Guarantors, which consist of the Company's
Domestic Restricted Subsidiaries, as defined, on a full, unconditional, joint
and several basis. The Senior Discount Notes are redeemable at any time and from
time to time at the option of the Company, in whole or in part on or after
August 1, 2002, plus accrued and unpaid interest thereon to the date of
redemption. In addition, on or prior to August 1, 2001, the Company may redeem,
at its option, up to 35% of the aggregate principal amount at maturity of the
Senior Discount Notes with the net proceeds of one or more Equity Offerings, as
defined, at 111.75% of the Accreted Value thereof, as defined, as long as Senior
Discount Notes representing at least $65.0 million of the aggregate initial
Accreted Value of the Senior Discount Notes originally issued remains
outstanding after each such redemption and that such redemption occurs within 90
days of the closing of any such Equity Offering.
Upon a Change of Control, as defined, the Company will be required to offer
to repurchase the Senior Discount Notes at a purchase price equal to (i) 101% of
the Accreted Value thereof, if the purchase date is on or prior to August 1,
2002, or (ii) 101% of the principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date, if such date is after
August 1, 2002.
The Senior Discount Notes restrict, among other things, the Company's
ability to incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, create liens on assets,
enter into transactions with affiliates, make investments, loans or advances,
consolidate or merger with or into any other person or convey, transfer or lease
all or substantially all of its assets or change the business conducted by the
Company.
SENIOR SECURED REVOLVING CREDIT FACILITY
On July 8, 1998, the Company entered into a credit agreement for a senior
secured revolving credit facility (the "Revolving Credit Facility") providing
for up to $20.0 million of availability with Canadian Imperial Bank of Commerce
("CIBC"). The Revolving Credit Facility will mature on the earlier of 91 days
before the first cash interest is due on the Senior Discount Notes or June 30,
2002. Amounts outstanding under the Revolving Credit Facility bear interest at a
rate of either (i) the higher of CIBC's prime rate plus 1.25% or (ii) LIBOR plus
2.50%. The obligations under the Revolving Credit Facility are guaranteed by the
Company and secured by substantially all the assets of the Company. The Company
will pay certain fees in connection with the Revolving Credit Facility,
including a commitment fee of 0.50% per annum on the aggregate unused portion of
the Revolving Credit Facility. At September 30, 1998 there were no amounts
outstanding under the Revolving Credit Facility.
The Revolving Credit Facility contains certain financial and operational
covenants and customary events of default, including, among others, payment
defaults and default in the performance of other covenants, breach of
representations or warranties, cross-default to other indebtedness, certain
bankruptcy or ERISA defaults, the entry of certain judgments against the Company
or any subsidiary, and any security
F-24
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
(CONTINUED)
interest or guarantee that ceases to be in effect. The Revolving Credit Facility
also provides that an event of default will occur upon the occurrence of a
"change of control", as defined. As of September 30, 1998 the Company was in
compliance with these covenants.
5. PROMISSORY NOTES PAYABLE
In April, May and June 1998, the Company entered into four promissory notes
payable to Warburg Pincus Ventures L.P. ("WPV") in the aggregate amount of
approximately $21.8 million. Such notes bear interest at 10% per annum and are
due on demand. On June 30, 1998, the Company converted $15 million of the
promissory notes payable to preferred stock. The Company paid the remaining
$6.795 million on July 15, 1998.
6. PREFERRED AND COMMON STOCK
On January 5, 1998, WPV purchased 148,500 shares of preferred stock and
15,000 shares of common stock in exchange for $15,000,000.
On April 17, 1998 the Company converted $365,000 in notes payable to
stockholders plus accrued interest of $22,323 into 3,835 shares of Series A
redeemable cumulative preferred stock and 387 shares of common stock valued at
$383,450 and $3,873, respectively.
On June 30, 1998, the Company converted $15 million in promissory notes
payable to WPV plus $238,904 in accrued interest into 150,865 shares of Series A
redeemable cumulative preferred stock and 15,239 shares of common stock valued
at $15,086,515 and $152,389, respectively.
7. COMMITMENTS
TIME BROKERAGE AGREEMENT FOR KDFT-AM DALLAS
On April 27, 1998, the Company entered into a TBA with The Freedom Network,
Inc. to operate the Dallas radio station KDFT-AM through May 18, 2000 for a
monthly fee of $44,786 and $56,546 through May 18, 1999 and 2000, respectively.
An advance payment of $146,903 was made to The Freedom Network, Inc. in
connection with the execution of TBA.
TIME BROKERAGE AGREEMENT AND OPTION TO PURCHASE OF WYPA-AM CHICAGO
On June 9, 1998, the Company entered into a TBA with Achievement Radio
Holdings, Inc. for substantially all of the broadcast time on Chicago radio
station WYPA-AM for a monthly fee of $118,000 through June 8, 1999. The term of
the TBA may be extended at the Company's option through June 9, 2000 (Renewal
Term). In addition to the TBA, the Company has an option to purchase the assets
of WYPA-AM, which is exercisable from June 9, 1998 through June 9, 1999 and will
be exercisable for the Renewal Term if the TBA is extended.
F-25
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. SUMMARIZED FINANCIAL INFORMATION
The Senior Discount Notes issued by the Company are guaranteed by all of the
Company's Domestic Restricted Subsidiaries, which comprises all of the Company's
existing subsidiaries, on a full, unconditional, joint and several basis. The
financial statements of the subsidiary guarantors are omitted as management has
determined that separate financial statements and other disclosures concerning
the subsidiaries are not material to investors.
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
-------------- ---------
<S> <C> <C>
Current assets..................................................... $ 6,094,261 --
Total assets....................................................... 61,200,150 --
Current liabilities (including due to parent of $14,921,169)....... 19,160,061 --
Total liabilities.................................................. 27,398,796 --
Net revenues....................................................... 6,418,719 --
Operating expenses................................................. 17,117,624 --
Net loss........................................................... (12,730,221) --
</TABLE>
9. SUBSEQUENT EVENTS
On October 27, 1998, the Company entered into an asset purchase agreement
(the "Agreement") with Children's Broadcasting Corporation to acquire certain
assets of New York City area radio stations WBAH-AM and WJDM-AM, Dallas/Ft.
Worth radio station KAHZ-AM and Phoenix radio station KIDR-AM (collectively the
"Stations") for a purchase price of $29.25 million. Pursuant to the Agreement,
the Company has established escrow accounts totaling $10 million. The
transaction is expected to be finalized and the transfers of the broadcast
licenses are expected to be completed once the FCC's consents to transfer the
broadcast licenses are received. Until such time, the Company will operate the
Stations under a TBA for a monthly fee of $200,000. An advanced payment of $2.5
million was made to Children's Broadcasting Corporation with the execution of
the TBA.
F-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
13 Radio Corporation
We have audited the accompanying balance sheets of 13 Radio Corporation as
of December 31, 1996 and 1997, and the related statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of 13 Radio Corporation at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Miami, Florida
June 12, 1998
F-27
<PAGE>
13 RADIO CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 109,824 $ 203,759
Accounts receivable, net of allowance for doubtful accounts of $63,755 in 1996 and
$138,953 in 1997.................................................................. 241,531 195,167
Other current assets................................................................ 3,954 2,909
------------ ------------
Total current assets................................................................ 355,309 401,835
Property and equipment, net........................................................... 868,582 846,403
Other assets.......................................................................... 38,717 32,330
Broadcast license, net of accumulated amortization of $-0- in 1996 and $37,797 in
1997................................................................................ 1,511,888 1,474,091
Goodwill, net of accumulated amortization of $-0- in 1996
and $7,573 in 1997.................................................................. 302,938 295,365
------------ ------------
Total assets.......................................................................... $ 3,077,434 $ 3,050,024
------------ ------------
------------ ------------
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Accounts payable.................................................................... $ 9,198 $ 12,264
Accrued expenses.................................................................... 78,950 118,635
------------ ------------
Total current liabilities............................................................. 88,148 130,899
Deferred tax liability................................................................ 302,938 290,820
Commitments and contingencies
Parent's equity....................................................................... 2,686,348 2,628,305
------------ ------------
Total liabilities and Parent's equity................................................. $ 3,077,434 $ 3,050,024
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-28
<PAGE>
13 RADIO CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
POST
PRE-ACQUISITION ACQUISITION
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
Net revenue........................................................................ $ 1,610,764 $1,606,201
Operating expenses:
Direct expenses.................................................................. 784,118 844,108
Selling, general and administrative expenses..................................... 1,095,456 1,089,792
Depreciation and amortization.................................................... 81,020 105,088
-------------- ------------
1,960,594 2,038,988
-------------- ------------
Loss before income taxes........................................................... (349,830) (432,787)
Deferred income tax benefit........................................................ -- (12,118)
-------------- ------------
Net loss........................................................................... (349,830) (420,669)
Accumulated deficit at beginning of year........................................... (3,902,056) --
-------------- ------------
Accumulated deficit at end of year................................................. $ (4,251,886) $ (420,669)
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
13 RADIO CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
POST
PRE-ACQUISITION ACQUISITION
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................................... $ (349,830) $ (420,669)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization.................................................. 81,020 105,088
Provision for bad debts........................................................ 2,473 69,654
Deferred income taxes.......................................................... -- (12,118)
Changes in operating assets and liabilities:
Accounts receivable.......................................................... (387) (23,290)
Other current assets......................................................... 65,447 1,045
Other assets................................................................. (37,501) 6,387
Accounts payable............................................................. (2,934) 3,066
Accrued expenses............................................................. (109,966) 39,685
-------------- ------------
Cash used by operating activities.................................................. (351,678) (231,152)
INVESTING ACTIVITY
Purchases of property and equipment................................................ (11,993) (37,539)
-------------- ------------
Cash used by investing activity.................................................... (11,993) (37,539)
FINANCING ACTIVITY
Net advances from Parent........................................................... 363,677 362,626
-------------- ------------
Cash provided by financing activity................................................ 363,677 362,626
-------------- ------------
Increase in cash................................................................... 6 93,935
Cash at beginning of period........................................................ 109,818 109,824
-------------- ------------
Cash at end of period.............................................................. $ 109,824 $ 203,759
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes.
F-30
<PAGE>
13 RADIO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
13 Radio Corporation (13 Radio or the Company), a Delaware corporation and
subsidiary of CBS Radio Group (CBS), operates Houston radio station KXYZ-AM. 13
Radio, produces, broadcasts and distributes Spanish-language radio programming
in the Houston area.
On December 24, 1997, 13 Radio entered into an asset purchase agreement with
Blaya, Inc. whereby Blaya, Inc. acquired certain assets of 13 Radio for a cash
purchase price of $6.4 million. On March 11, 1998, this transaction was
completed upon receipt of the Federal Communication Commission's (FCC) consent
to transfer the broadcast license from 13 Radio to Blaya, Inc.
ORGANIZATION AND BASIS OF PRESENTATION
For the year ended December 31, 1996, the accounts of 13 Radio were included
in the consolidated accounts of Infinity Broadcasting Corporation (Infinity) and
were not presented as a separate reporting entity. Accordingly, the accounts
included in the accompanying financial statements were carved out of Infinity's
historical accounting records.
On December 31, 1996, CBS completed its acquisition of all of the
outstanding common stock of Infinity. The fair value of net assets acquired
applicable to 13 Radio, including approximately $1.5 million allocated to 13
Radio's broadcast license, was $2.6 million. The fair value of the broadcast
license is being amortized on a straight line basis over forty years. The
acquisition was accounted for using the purchase method of accounting.
For the year ended December 31, 1997, the accounts of 13 Radio were included
in the consolidated accounts of CBS and were not presented as a separate
reporting entity. Accordingly, the accounts included in the accompanying
financial statements were carved out of CBS's historical accounting records.
The accompanying statements of operations and accumulated deficit and cash
flows for the year ended December 31, 1996 represents the results of 13 Radio
when it was owned by Infinity, while the accompanying statements of operation
and accumulated deficit and cash flows for the year ended December 31, 1997
represents the results of 13 Radio after it was acquired by CBS.
The accompanying balance sheets at December 31, 1996 and 1997 represent the
financial position of 13 Radio after it was acquired by CBS.
The accompanying financial statements include costs allocated to 13 Radio by
Infinity and CBS for certain functions and services they performed centrally.
All allocations and estimates were based on assumptions Infinity's and CBS'
management believed were reasonable in the circumstances. These allocations and
estimates are not necessarily indicative of the costs and expenses that would
have resulted if 13 Radio had been operated as a separate entity. See Note 3 for
a description of the functions and services and the amounts allocated.
F-31
<PAGE>
13 RADIO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATIONS OF CREDIT RISK
The Company's trade receivables result from advertising sales for
commercials aired. The majority of the Company's trade receivables are due from
local and national advertising agencies and are not collateralized.
Consideration is given to the nature of these receivables and the financial
position of customers in determining the appropriate allowance for doubtful
accounts. Credit losses are provided for in the financial statements and have
been within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the related assets, which
range from 2 to 10 years.
INTANGIBLE ASSETS
The broadcast license represents the fair value allocated to the FCC license
held by 13 Radio upon the acquisition of 13 Radio by CBS, which is being
amortized on a straight-line basis over forty years. Goodwill represents the
excess of purchase price of certain assets of 13 Radio over the fair value of
net assets acquired. Goodwill is being amortized on a straight-line basis over
forty years.
ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS
The Company accounts for the impairment of long lived assets and certain
intangible assets under the provisions of FASB Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS.
SFAS No. 121 requires impairment losses to be recorded on long-lived assets when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. Based
on current circumstances, the Company does not believe that any impairment
indicators are present.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. Deferred income tax assets and liabilities are determined based
upon differences between the financial statements and income tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion of the tax assets will not be realized.
REVENUE RECOGNITION
Advertising revenues are recognized as income when commercials are aired.
Included in revenues are certain barter transactions which represent commercials
aired in exchange for products or services to be provided to the Company. Barter
transactions are recorded at the estimated fair market value of the merchandise
or services received in exchange for the commercial broadcast. If the
merchandise or services are received prior to the broadcast of the commercial, a
liability is recorded. Likewise, if the commercial is broadcast first, a
receivable is recorded. At December 31, 1996 and 1997, accounts receivable and
liabilities remaining from barter transactions were insignificant.
F-32
<PAGE>
13 RADIO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense for
the years ended December 31, 1996 and 1997 amounted to approximately $13,000 and
$18,000, respectively.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value because of their short duration to
maturity.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997, consists of the
following:
<TABLE>
<CAPTION>
USEFUL LIVES
(YEARS) 1996 1997
--------------- ---------- ----------
<S> <C> <C> <C>
Land.................................................... $ 670,000 $ 670,000
Buildings............................................... 2 37,253 37,253
Broadcast equipment..................................... 1-5 120,003 141,599
Office equipment........................................ 2-10 27,852 39,586
Automobiles............................................. 1-3 13,474 18,630
---------- ----------
868,582 907,068
Less accumulated depreciation........................... -- (60,665)
---------- ----------
$ 868,582 $ 846,403
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the year ended December 31, 1996 amounted to
$62,320.
4. INCOME TAXES
The Company is a member of a group which files consolidated federal and
state income tax returns. The Company recorded income taxes as if the Company
was filing unconsolidated income tax returns.
The components of the benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
---------------------
<S> <C> <C>
1996 1997
--------- ----------
Current.............................................................. $ -- $ --
Deferred............................................................. -- (12,118)
--------- ----------
$ -- $ (12,118)
--------- ----------
--------- ----------
</TABLE>
F-33
<PAGE>
13 RADIO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
4. INCOME TAXES (CONTINUED)
The differences between the reported benefit from income taxes and income
taxes computed at the U.S. statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Income tax benefit computed at the U.S.
statutory rate of 34%............................................. $ (118,942) $ (147,148)
State taxes, net of federal benefit................................. (10,390) (12,291)
Non-deductible items................................................ 1,530 4,731
Change in deferred tax valuation allowance.......................... 127,802 142,590
----------- -----------
Total............................................................. $ -- $ (12,118)
----------- -----------
----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforward................................... $ 664,683 $ 777,616
Allowance for bad debts........................................... 23,570 51,371
----------- -----------
Total deferred tax asset............................................ 688,253 828,987
Deferred tax liability:
Amortization of broadcast license................................. (558,945) (544,971)
----------- -----------
Net deferred tax asset.............................................. 129,308 284,016
Less: Valuation allowance........................................... (432,246) (574,836)
----------- -----------
Net deferred tax liability.......................................... $ 302,938 $ 290,820
----------- -----------
----------- -----------
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance of $432,246 and $574,836 at December
31, 1996 and 1997, respectively, is necessary to reduce the deferred tax assets
to the amount that will more likely than not be realized. At December 31, 1997,
the Company has available net operating loss carryforwards of $2,090,000 (of
which $1,798,000 would be subject to an IRC section 382 annual limitation) which
expire in the years 2001 through 2012.
5. RELATED PARTY TRANSACTIONS
The 1996 financial statements include significant allocations from Infinity
for the cost of functions and services it performed centrally which are included
in selling, general and administrative expenses. Included in this caption are
allocated costs for general liability, workers' compensation and auto insurance,
and certain corporate salaries. The Company's employees also participated in
certain Infinity sponsored savings plans. Total allocated costs amounted to
approximately $50,000 for the year ended December 31, 1996.
F-34
<PAGE>
13 RADIO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The 1997 financial statements include significant allocations from CBS for
the cost of functions and services it performed centrally which are included in
selling, general and administrative expenses. Included in this caption are
allocated costs for general liability, workers' compensation and auto insurance,
and certain corporate salaries. The Company's employees also participated in
certain CBS sponsored savings plans. Total allocated costs amounted to
approximately $82,000 for the year ended December 31, 1997.
6. PARENT'S EQUITY
Parent's equity at December 31, 1996 and 1997 represents CBS's ownership
interest in the recorded net assests of the Company. All cash transactions and
intercompany transactions flow through the equity account. A summary of the
activity is as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Balance at beginning of period................................................. $ 5,265,466 $ 2,686,348
Net loss....................................................................... (349,830) (420,669)
Purchase price adjustment...................................................... (2,592,965)
Net intercompany activity...................................................... 363,677 362,626
------------- -------------
Balance at end of period....................................................... $ 2,686,348 $ 2,628,305
------------- -------------
------------- -------------
</TABLE>
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Oro Spanish Broadcasting, Inc.
2601 Mission Street
San Francisco, California 94110
We have audited the accompanying balance sheets of Oro Spanish Broadcasting,
Inc. as of August 31, 1996 and 1997 and the related statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oro Spanish Broadcasting,
Inc., as of August 31, 1996 and 1997 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring net losses and has an
accumulated deficit. In addition, the Company's current liabilities exceed its
current assets and the Company has experienced some difficulty meeting
obligations as they become due. Those conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 9. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ MILLER, KAPLAN, ARASE & CO., LLP
North Hollywood, California
November 18, 1997
F-36
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Oro Spanish Broadcasting, Inc.
2601 Mission Street
San Francisco, California 94110
We have reviewed the accompanying balance sheet of Oro Spanish Broadcasting,
Inc. as of February 28, 1998 and the statements of operations and accumulated
deficit and cash flows for the six months ended February 28, 1997 and 1998, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Oro Spanish Broadcasting, Inc.
A review consists principally of inquiries of management personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the February 28, 1997 and 1998 financial statements in order
for them to be in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring net losses and has an
accumulated deficit. In addition, the Company's current liabilities exceed its
current assets and the Company has experienced some difficulty meeting
obligations as they become due. Those conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 9. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
MILLER, KAPLAN, ARASE & CO., LLP
North Hollywood, California
June 6, 1998
F-37
<PAGE>
ORO SPANISH BROADCASTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
-------------------- FEBRUARY 28,
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
(REVIEWED)
ASSETS
CURRENT ASSETS
Cash...................................................................... $ 30,448 $ 49,928 $ 2,135
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $18,506, $50,000 and $62,000................................ 371,678 431,099 400,887
Prepaid Expenses and Other Current Assets................................. 21,144 19,529 50,067
--------- --------- ------------
TOTAL CURRENT ASSETS.................................................... 423,270 500,556 453,089
--------- --------- ------------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $1,164,277,
$1,203,748 AND $1,224,177 (NOTE 2)........................................ 132,650 133,098 140,273
--------- --------- ------------
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $800,800, $850,800 AND
$875,800.................................................................. 1,199,200 1,149,200 1,124,200
--------- --------- ------------
OTHER ASSETS
Accounts Receivable--Stockholder (Note 7)................................. 284,335 317,957 325,937
Other Assets.............................................................. 43,392 39,935 40,935
--------- --------- ------------
TOTAL OTHER ASSETS...................................................... 327,727 357,892 366,872
--------- --------- ------------
TOTAL ASSETS............................................................ $2,082,847 $2,140,746 $2,084,434
--------- --------- ------------
--------- --------- ------------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable.......................................................... $ 122,943 $ 137,871 $ 155,453
Accrued Expenses and Other................................................ 190,930 306,784 357,152
Covenant Not To Compete (Note 3).......................................... 50,000 50,000 50,000
Note Payable--Current (Note 4)............................................ 110,000 240,000 340,000
License Payable--Current (Note 5)......................................... 105,727 230,840 219,341
--------- --------- ------------
TOTAL CURRENT LIABILITIES............................................... 579,600 965,495 1,121,946
--------- --------- ------------
NON-CURRENT LIABILITIES
Interest Payable--Long Term (Note 4)...................................... 1,097,995 1,122,279 1,127,330
Note Payable--Long Term (Note 4).......................................... 3,059,610 2,899,610 2,799,610
License Payable--Long Term (Note 5)....................................... 157,107 -- --
Equipment Lease and Loans Payable (Note 4)................................ 20,675 27,590 16,935
--------- --------- ------------
TOTAL NON-CURRENT LIABILITIES........................................... 4,335,387 4,049,479 3,943,875
--------- --------- ------------
TOTAL LIABILITIES....................................................... 4,914,987 5,014,974 5,065,821
--------- --------- ------------
COMMITMENTS (NOTES 6 AND 8)
STOCKHOLDER'S DEFICIENCY
COMMON STOCK, AUTHORIZED 1,000,000 SHARES
$1 PAR VALUE, ISSUED AND OUTSTANDING
6,000 SHARES.............................................................. 6,000 6,000 6,000
ADDITIONAL PAID-IN CAPITAL.................................................. 994,000 994,000 994,000
ACCUMULATED DEFICIT......................................................... (3,832,140) (3,874,228) (3,981,387)
--------- --------- ------------
TOTAL STOCKHOLDER'S DEFICIENCY.......................................... (2,832,140) (2,874,228) (2,981,387)
--------- --------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY.......................... $2,082,847 $2,140,746 $2,084,434
--------- --------- ------------
--------- --------- ------------
</TABLE>
(Accountants' reports and the attached notes are an integral part of this
statement)
F-38
<PAGE>
ORO SPANISH BROADCASTING, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
----------------------------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31,
----------------------------
1996 1997 1997 1998
------------- ------------- ------------- -------------
<CAPTION>
(REVIEWED) (REVIEWED)
<S> <C> <C> <C> <C>
NET REVENUE........................................... $ 2,294,107 $ 2,274,594 $ 1,025,752 $ 1,093,602
OPERATING EXPENSES
Direct Operating Expenses........................... 301,257 290,492 146,598 147,377
Selling, General and Administrative................. 1,600,611 1,591,888 742,475 840,292
Depreciation and Amortization....................... 98,703 89,471 45,258 45,429
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES.......................... 2,000,571 1,971,851 934,331 1,033,098
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS............................ 293,536 302,743 91,421 60,504
OTHER EXPENSES
Interest Expense, Net............................... (333,432) (344,031) (175,996) (166,863)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAX................................ (39,896) (41,288) (84,575) (106,359)
INCOME TAXES.......................................... 800 800 800 800
------------- ------------- ------------- -------------
NET LOSS.............................................. (40,696) (42,088) (85,375) (107,159)
ACCUMULATED DEFICIT AT BEGINNING OF PERIOD............ (3,791,444) (3,832,140) (3,832,140) (3,874,228)
------------- ------------- ------------- -------------
ACCUMULATED DEFICIT AT END OF PERIOD.................. $ (3,832,140) $ (3,874,228) $ (3,917,515) $ (3,981,387)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(Accountants' reports and the attached notes are an integral part of this
statement)
F-39
<PAGE>
ORO SPANISH BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
YEAR ENDED AUGUST 31, ------------------------
------------------------ 1997 1998
1996 1997 ----------- -----------
----------- -----------
(REVIEWED) (REVIEWED)
----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss.................................................... $ (40,696) $ (42,088) $ (85,375) $ (107,159)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) in Operating Activities:
Depreciation and Amortization......................... 98,703 89,471 45,258 45,429
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable.......... 23,326 (59,421) 27,748 30,212
(Increase) Decrease Prepaid Expenses and Other
Curret Assets..................................... 22,068 1,615 (23,592) (30,538)
(Increase) Decrease in Other Assets................. (14,733) 3,457 3,457 (1,000)
(Increase) in Advances to Stockholder-- Interest
Receivable Portion................................ (16,097) (17,622) (7,500) (7,980)
Increase in Accounts Payable and Other.............. 28,269 51,483 30,653 134
Increase in Interest Payable........................ 19,927 54,704 30,088 62,052
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES.... 120,767 81,599 20,737 (8,850)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment..................... (15,731) (14,097) (10,027) (27,604)
Increase in Accounts Receivable--Stockholder.............. -- (16,000) (16,000) --
Proceeds from Sale of Assets.............................. 500 -- -- --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............. (15,231) (30,097) (26,027) (27,604)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Equipment Lease and Loans Payable... (16,746) (18,022) (7,582) (11,339)
Proceeds from Refinancing of Automobile Loan Payable...... -- 16,000 16,000 --
Principal Payments on Note Payable........................ (80,000) (30,000) (30,000) --
----------- ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES............. (96,746) (32,022) (21,582) (11,339)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH............................... 8,790 19,480 (26,872) (47,793)
CASH AT BEGINNING OF PERIOD................................... 21,658 30,448 30,448 49,928
----------- ----------- ----------- -----------
CASH AT END OF PERIOD......................................... $ 30,448 $ 49,928 $ 3,576 $ 2,135
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest.................................... $ 326,253 $ 307,837 $ 153,907 $ 112,825
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash Paid for Income Taxes................................ $ 800 $ 800 $ 800 $ 800
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
</TABLE>
During November 1996, the Company incurred a note payable of $17,822 for
property and equipment. In addition, the Company acquired property and equipment
with a cost of $8,000 which was included in accounts payable at August 31, 1997.
(Accountants' reports and the attached notes are an integral part of this
statement)
F-40
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
Oro Spanish Broadcasting, Inc. ("the Company") is a California Corporation,
that has owned and operated radio station KIQI-AM licensed to San Francisco,
California since September 8, 1980.
B. UNAUDITED INTERIM INFORMATION
In the opinion of management, the financial statements for the unaudited
periods ended February 28, 1997 and 1998 include all adjustments necessary for a
fair presentation in accordance with generally accepted accounting principles.
The results of operations and cash flows for the six months ended February 28,
1997 and 1998 are not necessarily indicative of results which would be expected
for a full year.
C. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company uses the straight
line method of depreciating equipment for both book and income tax purposes over
estimated useful lives of 5-12 years. Amounts expended for improvements to
increase the useful lives of property and equipment, or to replace major units
of property and equipment are capitalized. Expenditures for maintenance and
repairs or minor renewals are charged to expense when incurred.
D. GOODWILL
Goodwill is recorded at cost and amortized using the straight line method,
over 40 years.
E. TRADE ACTIVITY
Under trade agreements with certain advertisers, commercial airtime is
exchanged for goods and services. These transactions are recorded at the
estimated fair market value of the merchandise and services rendered. Revenue is
recognized when commercial spot announcements are broadcast and the value of
merchandise and services are expensed when utilized. Included in net revenue was
trade revenue of $245,003, $198,086, $76,584 and $97,075 and included in
selling, general and administrative was trade expense of $231,003, $191,196,
$73,059 and $94,575 for the years ended August 31, 1996 and 1997 and six months
ended February 28, 1997 and 1998, respectively.
F. INVESTMENT TAX CREDITS
As investment tax credits are utilized, they will be accounted for on the
flow through method.
G. REVENUE RECOGNITION
The Company recognizes revenue when the commercial spot announcements are
aired. Payments received in advance of airing are accounted for as deferred
revenue, which will be recognized in a subsequent period.
F-41
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable. Concentration of credit risk with respect to
accounts receivable is somewhat limited due to the large number of customers
comprising the Company's customer base and their dispersion across many
different industries. However, there is a geographical risk as the Company
grants credit to many advertisers located in Northern California.
I. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for future tax
consequences of events that have been previously recognized on the Company's
financial statements or tax returns. The measurement of deferred tax assets and
liabilities is based on the provisions of the tax laws in effect as of the date
of these financial statements; the effects of future changes in tax laws or
rates are not anticipated except as otherwise noted.
For the years ended August 31, 1996 and 1997, the Company utilized federal
net operating loss ("NOL") carryforwards of approximately $25,000 and $105,000,
respectively, and California NOL carryforwards of approximately $37,000 and
$117,000, respectively.
The Company has available to offset future federal Corporation taxable
income, NOL carryforwards of approximately $1,576,000, $1,471,000 and $1,537,000
for years ended August 31, 1996 and 1997 and six months ended February 28, 1998,
respectively, expiring in the years 2005 through 2013. In addition, the Company
has available to offset any future federal Corporation income tax liabilities,
investment tax credit carryovers of approximately $22,000 expiring in the years
1998 through 2001.
At August 31, 1996 and 1997 and February 28, 1998, the Company has available
for California income tax purposes, NOL carryforwards of approximately $579,000,
$412,000 and $452,000, respectively, expiring in the years 1998, 1999 and 2003.
The Company's net deferred tax assets (using a federal rate of 34% and an
effective California rate of 9.3%) consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
---------------------- ------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ------------
Deferred Tax Asset.......................................................... $ 598,395 $ 574,611 $ 609,380
Deferred Tax Asset Valuation................................................ (598,395) (574,611) (609,380)
Net Deferred Tax Asset...................................................... $ -- $ -- $ --
</TABLE>
The tax benefit computed at the statutory rate is due primarily to temporary
differences in depreciation and amortization calculated for book and tax
purposes and the NOL carryforwards. Management anticipates that there will not
be sufficient taxable income to utilize the NOL carryforward benefits prior to
their expiration, thus a valuation allowance has been established to fully
offset the deferred tax asset.
F-42
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
K. IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long lived assets under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long Lived Assets. SFAS No. 121 requires
impairment losses to be recorded on long-lived assets when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. If the carrying value
of the assets will not be recoverable, as determined based on the undiscounted
cash flows estimated, the carrying value of the assets are reduced to fair
value. Generally, fair value will be determined using valuation techniques such
as expected discounted cash flows or appraisals, as appropriate. The adoption of
SFAS No. 121 did not have a material impact on the results of operations of the
Company.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to estimate
that value
- Cash
The carrying amount is a reasonable estimate of fair value
- Accounts Receivable
The carrying value of accounts receivable approximates the fair value due to
the short-term nature of these instruments
- Accounts Payable and Accrued Liabilities
The carrying value of accounts payable and accrued expenses approximates the
fair value due to the short-term nature of these instruments.
F-43
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------- FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Equipment............................................................... $ 672,127 $ 672,127 $ 672,127
Transmitter............................................................. 372,807 386,957 412,600
Furniture and Fixtures.................................................. 60,935 60,935 61,748
Trucks and Automobiles.................................................. 97,167 116,095 117,025
Computer Equipment...................................................... 43,825 48,455 48,455
Leasehold Improvements.................................................. 34,342 35,722 35,940
Music Library........................................................... 15,724 16,555 16,555
------------ ------------ ------------
1,296,927 1,336,846 1,364,450
Less: Accumulated Depreciation.......................................... 1,164,277 1,203,748 1,224,177
------------ ------------ ------------
$ 132,650 $ 133,098 $ 140,273
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 3--COVENANT NOT TO COMPETE
The covenant of $475,000 was amortized over a nine year period, commencing
on the closing date, September 8, 1980 and was to be fully paid, per terms of
the covenant, on September 8, 1989. The current balance in arrears owed is
$50,000.
NOTE 4--LONG TERM DEBT
NOTE PAYABLE
The $3,600,000 note with Bank of America ("the Bank") accrues interest at a
rate per annum equal to the Reference Rate (Bank of America's Prime rate) plus
2%. The agreement provided for the capitalization into principal certain months'
interest totaling $97,995 and allows for $1,000,000 of accrued interest to be
repaid at the loan maturity date. All remaining principal plus any accrued
interest is due and payable on December 31, 1999. Additionally, certain
financial covenants must be met including covenants governing current ratios and
operating profit ratios. Substantially all assets of the Company are pledged as
collateral on the note.
As of August 31, 1996, the Company was in violation of certain covenants and
failed to make required principal and interest payments. The Company entered
into an agreement with the Bank to make weekly payments of interest in the
amount of $10,000, due on Friday of each week, commencing May 9, 1997 and ending
September 26, 1997. Any accrued and unpaid interest as of September 26, 1997 was
due and payable on September 30, 1997. Additionally, principal payments of
$90,000 due through September 10, 1997 were due and payable on September 30,
1997, unless the agreement terminated. As of February 28, 1998, the Company was
five interest payments in arrears totaling approximately $135,000 and was in
violation of some of its loan covenants for which the Bank forbore from pursuing
its remedies with respect to the loan covenant violations.
F-44
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 4--LONG TERM DEBT (CONTINUED)
Aggregate principal payments required on the note payable for each of the
succeeding five years ending February 28 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 340,000
2000............................................................ 2,799,610
---------
$3,139,610
---------
---------
</TABLE>
The Bank's prime rate on interest at August 31, 1996 and 1997 and February
28, 1998, was 8.50%, 8.25% and 8.50%, respectively.
EQUIPMENT LEASE AND LOANS PAYABLE
The Company has entered into lease and loan agreements for the purchase of
automobiles and office equipment which mature through September 2000. The
agreements call for monthly installments which range from $556 to $1,552 which
includes interest at rates ranging from 8.5% to 15.0%. All agreements are
collateralized by the purchased equipment.
The capitalized cost of the above is $83,958, $68,628 and $68,628 less
accumulated depreciation of $55,841, $35,186 and $42,048 and is included in
property and equipment in the accompanying financial statements for the years
ended August 31, 1996 and 1997 and six months ended February 28, 1998,
respectively. Interest expense related to these loans was $5,283, $5,491, $2,822
and $2,405 for the years ended August 31, 1996 and 1997 and six months ended
February 28, 1997 and 1998, respectively.
Future minimum loan payments for the years ended February 28, are as
follows:
<TABLE>
<S> <C>
1999............................................................... $ 20,716
2000............................................................... 13,951
2001............................................................... 2,984
---------
$ 37,651
---------
---------
</TABLE>
NOTE 5--LICENSE PAYABLE
On April 22, 1993, Broadcast Music, Inc. ("BMI") obtained an arbitration
award of $264,181 against the Company for unpaid license fees.
Effective September, 1995 the Company entered into a Settlement Agreement
and Stipulation of Dismissal with Prejudice ("the Agreement") which superseded
the original award. In this Agreement, the Company is to pay BMI the sum of
$200,000 in monthly payments ranging from $2,500 to $3,200 starting October 1,
1995 and a final balloon payment of $24,800 on October 1, 2000. There is no
interest calculated into the payment schedule. If the Company defaults on the
payment schedule, then the Company will be liable for the original award plus
interest at the California statutory rate, less the total of payments which had
been made to date. As of August 31, 1996, the Company was in compliance with the
payment schedule. As of August 31, 1997 and February 28, 1998, the Company was
four and six payments in arrears, respectively, and as a result, the entire
obligation is presented as a current liability. Under the Agreement, the current
License Agreement dated May, 1994 is excluded from the settlement and the
Company is still
F-45
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 5--LICENSE PAYABLE (CONTINUED)
bound to its obligation. The License Agreement dated May, 1994 is retroactive
and covers the period January 1, 1992 through December 31, 1996. The new
Agreement settlement plus current license fees under the new license agreement
amounted to a total liability of $239,227, $213,233 and $203,234 at August 31,
1996 and 1997 and February 28, 1998, respectively.
In addition, the Company fell into arrears with its 1995/1996 ASCAP music
license fee payments for approximately $11,607 and owed an additional $15,000
due to an audit conducted for the period ending December 31, 1994. On May 9,
1996, the Company entered into an arrangement whereas they agreed to make
monthly payments of at least $750 in addition to the regular monthly billing
until paid in full. The balance remaining at August 31, 1996 and 1997 and
February 28, 1998, was $23,607, $17,607 and $16,107, respectively. As of August
31, 1997 and February 28, 1998, the Company was two and six payments in arrears
under the terms of this arrangement and, as a result, the entire obligation is
presented as a current liability.
NOTE 6--OPERATING LEASES
The Company leases its office space and transmitter location under operating
leases. The office spaced is leased for $5,000 per month for the first year
(renegotiated to $4,000 per month beginning October 1, 1996) and subject to CPI
increases thereafter under an agreement dated March, 1993. The lease expires
July 1, 2000. The transmitter location lease dated October 20, 1987 had a term
of 10 years but was renegotiated in October 1997 and extended for an additional
10 years at $3,750 per month. Total rental expense related to the above leases
for the years ended August 31, 1996 and 1997 and six months ended February 28,
1997 and 1998 was $94,431, $89,325, $44,915 and $46,170, respectively.
The future payments are as follows for the years ended February 28:
<TABLE>
<S> <C>
1999.............................................................. $ 93,000
2000.............................................................. 93,000
2001.............................................................. 61,000
2002.............................................................. 45,000
2003.............................................................. 45,000
Thereafter........................................................ 210,000
---------
$ 547,000
---------
---------
</TABLE>
F-46
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 7--ACCOUNTS RECEIVABLE--STOCKHOLDER
Accounts receivable--stockholder accrues interest at 6% until paid. Accounts
receivable--stockholder consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------- FEBRUARY 28,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Cash Advances for Crosby (Royster) Note Prior to 1982....................... $ 63,298 $ 63,298 $ 63,298
Dividend--Repayment......................................................... (36,650) (36,650) (36,650)
Net Cash Advances........................................................... 91,322 107,322 107,322
Interest.................................................................... 166,365 183,987 191,967
---------- ---------- ------------
$ 284,335 $ 317,957 $ 325,937
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
Interest income related to this note was approximately $16,000, $17,600,
$7,500 and $8,000 for the years ended August 31, 1996 and 1997 and the six
months ended February 28, 1997 and 1998, respectively.
NOTE 8--SIMPLE IRA PLAN
Effective January 1, 1997, the Company established a SIMPLE IRA Plan ("the
Plan") under IRC Section 408(p) covering employees earning over $5,000 during
the calendar year. Under the terms of the Plan, the Company is required to
contribute a matching contribution to each eligible employee's SIMPLE IRA equal
to the employee's salary reduction contributions up to a limit of 3% of the
employee's compensation for the calendar year. The Company may reduce the 3%
limit for the calendar year if: (1) the limit is not reduced below 1%; (2) the
limit is not reduced for more than 2 calendar years during the 5 year period
ending with the calendar year the reduction is effective; and (3) each employee
is notified of the reduced limit within a reasonable period of time before the
employee's 60 day election period for the calendar year. No accrual for the
Company's required contribution for the Plan year ending December 31, 1997 has
been made as of February 28, 1998. Plan expense for the year ended August 31,
1997 and the six months ended February 28, 1997 and 1998 was $-0-.
NOTE 9--GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has suffered net losses of
$40,696, $42,088, $85,375 and $107,159 during the years ended August 31, 1996
and 1997 and the six months ended February 28, 1997 and 1998, respectively; and
as of February 28, 1998, had a negative net worth of $2,981,387. The Company's
current liabilities as of this date exceeded current assets by $668,857. In
addition, the Company has experienced difficulty meeting obligations as they
become due.
In view of the matters described in the preceding paragraph, future
profitability is dependent upon the success of future operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classifications of
liabilities that might be necessary should the Company be unable to continue
normal operations.
However, the Company's management believes it will be able to continue as a
going concern due to the sale of the Company's common stock discussed in Note
10. $4,236,321 from the proceeds of the sale
F-47
<PAGE>
ORO SPANISH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996 AND 1997 AND FEBRUARY 28, 1997 AND 1998
NOTE 9--GOING CONCERN UNCERTAINTY (CONTINUED)
was recognized by the Company as additional paid in capital. This money was used
to retire the debt which contributed to the going concern uncertainty.
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED)
On February 20, 1998, the Company's sole stockholder entered into a Stock
Purchase Agreement to sell all of his common stock interest in the Company to
Radio Unica of San Francisco, Inc. ("Radio Unica") for $12,000,000.
The Company and Radio Unica entered into a Time Brokerage Agreement (the
"LMA") effective March 1, 1998 and expiring on the closing date or termination
of the Stock Purchase Agreement. During this period, the Company is responsible
for all engineering and certain personnel costs and will receive $58,000 per
month from Radio Unica.
On March 2, 1998, the Company and BMI entered into an agreement to settle
the outstanding obligation under the Agreement (Note 5) for $75,000 payable on
or before June 19, 1998, plus interest at 9% per annum accumulating from
February 19, 1998 to the date of payment.
On March 30, 1998, the Company and the Bank entered into an agreement
whereby upon the closing date of the Stock Purchase Agreement, the Company will
pay the Bank $3,800,000, plus interest at prime plus 2% per annum beginning
February 1, 1998, as settlement in full of all principal and accrued interest
owed under the terms of the note (Note 4).
On April 30, 1998, the common stock interest in the Company was sold and the
debt discussed above was retired. At Closing, the receivable from the
stockholder discussed in Note 7 was recognized as a dividend.
F-48
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary......................................... 1
Risk Factors.................................... 10
The Transactions................................ 17
Use of Proceeds................................. 18
Capitalization.................................. 19
Unaudited Pro Forma Combined
Financial Data................................ 20
Selected Historical Financial Data.............. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 28
Business........................................ 33
Management...................................... 49
Principal Stockholders of Holdings.............. 53
Certain Relationships and Related
Transactions.................................. 54
Description of Revolving Credit Facility........ 57
The Exchange Offer.............................. 58
Description of the Notes........................ 67
Certain United States Federal Income
Tax Considerations............................ 96
Plan of Distribution............................ 100
Legal Matters................................... 100
Experts......................................... 100
Index to Financial Statements................... F-1
</TABLE>
$158,088,000
RADIO UNICA CORP.
OFFER TO EXCHANGE
11 3/4% SENIOR DISCOUNT NOTES
SERIES B DUE 2006
FOR ANY AND ALL OUTSTANDING
11 3/4% SENIOR DISCOUNT NOTES
DUE 2006
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PROSPECTUS
---------------------
DECEMBER 18, 1998
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