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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO __________________
COMMISSION FILE NUMBER 333-61211
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RADIO UNICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------------------------
DELAWARE 65-0776004
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8400 NW 52ND STREET, SUITE 101
MIAMI, FLORIDA 33166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
-----------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 305-463-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. |X| YES |_| NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. |X|
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF RADIO UNICA COMMUNICATIONS CORP.
ACCORDINGLY, SINCE ALL THE STOCK IS OWNED BY AN AFFILIATE, THERE IS NO MARKET
VALUE OF STOCK OWNED BY NON-AFFILIATES.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF RADIO UNICA
COMMUNICATIONS CORP., EXPECTED TO BE FILED WITHIN 120 DAYS FROM THE COMPANY'S
FISCAL YEAR-END, ARE INCORPORATED BY REFERENCE INTO PART III.
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TABLE OF CONTENTS
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PART I
Item 1. Business ........................................................................................1
Item 2. Properties .....................................................................................17
Item 3. Legal Proceedings ..............................................................................17
Item 4. Submission of Matters to a Vote of Security Holders ............................................18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ..........................20
Item 6. Selected Financial Data ........................................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..........22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....................................27
Item 8. Financial Statements and Supplemental Data .....................................................27
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure ............................50
PART III
Item 10. Directors and Executive Officers ...............................................................50
Item 11. Executive Compensation .........................................................................50
Item 12. Security Ownership of Certain Beneficial Owners and Management .................................50
Item 13. Certain Relationships and Related Transactions .................................................50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...............................51
</TABLE>
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PART I
THIS ANNUAL REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS
ANNUAL REPORT, INCLUDING, WITHOUT LIMITATION, THE STATEMENTS UNDER "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 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.
ITEM 1. BUSINESS
GENERAL
We were incorporated on September 12, 1996 (inception), for the purpose of
producing, broadcasting and distributing Spanish-language radio programming in
the United States. We are the only national Spanish-language AM radio network in
the U.S., broadcasting 24-hours a day, 7-days a week. We began broadcasting our
network programming on January 5, 1998, producing 19 hours of live and first-run
celebrity-based news/talk, sports and information programming each weekday and
20 hours of such programming each weekend. With 15 Company-owned and/or operated
stations and 33 affiliated stations, our network reaches approximately 80% of
the U.S. Hispanic population. The Company-operated stations are located in 13 of
the top 20 U.S. markets in terms of Spanish-language media spending. The markets
in which we maintain stations collectively account for approximately 65% of the
total U.S. Hispanic population.
In July 1998, we effected a holding company reorganization (the
"Reorganization"). In the Reorganization, we became a wholly owned subsidiary of
Radio Unica Communications Corp. ("RUCC") and the Company's stockholders
received shares of RUCC common stock and RUCC Series A Cumulative Redeemable
Preferred Stock bearing identical rights and preferences to the Company's common
stock and Series A Cumulative Redeemable Preferred Stock ("Company Preferred
Stock") previously held by such stockholders. Upon consummation of the
Reorganization, each option to purchase common stock of the Company was
converted into an option to purchase RUCC common stock, exercisable upon the
same terms and conditions as they were under the Company's stock option plan,
and the Company's stock option plan was cancelled.
On October 19, 1999, RUCC completed an initial public offering ("IPO") of
6,840,000 shares of its common stock at an IPO price of $16.00 per share. RUCC
received net proceeds from the IPO of approximately $99.4 million on October 22,
1999. The net proceeds from the IPO were and will be used to repay the
indebtedness under the revolving credit facility, to acquire radio stations,
upgrade existing stations and for general corporate purposes.
Our uniform delivery of national programming to our stations 24 hours a day
differentiates us from other Spanish-language radio groups. Importantly, our
nationwide distribution allows us to produce high quality programming and spread
the cost of that programming over our large base of stations. Our network offers
advertisers the only Hispanic radio platform capable of delivering a consistent
and controlled message to a national audience. Additionally, our network allows
national advertisers to reach a large portion of the Hispanic population more
effectively and at a lower cost than would be the case if they had to purchase
advertising separately in each market.
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We believe that our high quality, original programming gives us a
competitive advantage over other Spanish-language radio broadcasters in
marketing to the Hispanic audience. Popular Hispanic television personalities
host our programs and their broad appeal extends beyond any particular
Hispanic cultural or geographical boundaries. These national personalities
include Pedro Sevcec, Dr. Isabel Gomez-Bassols, Jorge Ramos, Ricardo Brown,
Ana Patricia Condiani, Charytin, Hugo Cadelago and Mauricio Zeilic. We also
air segments featuring Cristina, the most popular Hispanic talk show host in
the U.S., and Maria Elena Salinas, the most recognized Hispanic female news
anchor. Our programming includes contemporary talk, entertainment and
information programs, news programs, hourly local and national newscasts,
sports talk programs, sports broadcasting, and other programming relevant to
our national Hispanic audience.
Many of our radio programs are fully-interactive talk shows that allow
listeners nationwide to call in as active participants in the on-air dialogue.
These programs continue to grow in popularity, as demonstrated by an increase in
call volume from 5,000 weekday telephone calls in early 1998 to over 25,000
calls today.
Live sporting events are an integral part of Radio Unica's network
programming, and we have acquired the broadcast rights in the United States to
numerous marquee sporting events. We have acquired the exclusive
Spanish-language radio rights for several of the most popular sporting events
among Hispanics, Copa America 1999, 2001 and 2003, Copa Oro 2000, 2002, 2004 and
2006, the Summer Olympics in 2000 and 2004, the World Cup 2002 qualifying
matches, the NBA Finals in 1999 and 2000, Mexican National Team and Mexican
soccer league games. In addition to being an important part of our programming,
major sporting events are an important means of attracting first-time listeners.
To capture these first-time listeners, we sponsor major promotional events in
conjunction with our sports programming which serve to solidify listener loyalty
and raise awareness of the Radio Unica network.
THE HISPANIC MARKET OPPORTUNITY
We believe that Spanish-language radio targeting the Hispanic market will
continue to benefit from the following:
STRONG PROJECTED GROWTH AND GEOGRAPHIC CONCENTRATION OF THE HISPANIC
POPULATION. Hispanics represent the most rapidly growing segment of the U.S.
population. From 1989 to 1998, the Hispanic population increased from 23.7
million to 33.9 million, a 43% increase. The strong growth of the Hispanic
population is expected to continue, increasing approximately 50% by 2010, five
times the growth rate of the U.S. population as a whole. Additionally, the
Hispanic population is highly concentrated, with approximately 60% of all
Hispanics located in the top ten Hispanic markets. This concentration allows us
to cost effectively reach the majority of Hispanics through our existing network
platform.
USE OF SPANISH AMONG HISPANICS. Spanish is the language spoken at home by
the majority of Hispanics, regardless of income or education. The number of
Hispanics who speak Spanish at home is expected to increase substantially from
over 21 million today. We believe that the continued use of Spanish among
Hispanics indicates that Spanish-language media has been and will continue to be
an important source of news, sports, information, advice and entertainment for
Hispanics.
ATTRACTIVE PROFILE OF HISPANIC CONSUMERS. The demographic profile of the
Hispanic audience makes it attractive to advertisers. We believe the larger size
(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 consumer goods and services. For
example, Hispanic households spend more each year on food to be eaten at home,
children's clothing, footwear, phone services, and laundry and household
cleaning products than the average U.S. household.
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INCREASING HISPANIC BUYING POWER. The Hispanic population will spend an
estimated $421 billion in 1999 on consumer goods and services, an increase of
98% since 1990. Hispanics are expected to spend $965 billion by 2010, an
increase of 129%. This increase is five times the expected growth rate in
expenditures by all consumers in the United States.
GROWING USE OF SPANISH-LANGUAGE MEDIA BY ADVERTISERS. Expenditures on
advertising to Hispanics grew from $730 million in 1992 to $1.9 billion in 1999,
a compound annual growth rate of 15%. Although Hispanic consumers represent
approximately 7% of U.S. consumer spending, advertising targeting Hispanics
represents only 1% of total advertising expenditures. We believe that the lack
of Spanish-language media outlets relative to the size of the Hispanic
population has historically caused the differential between Hispanic consumer
spending and Spanish-language advertising expenditures. For example, in the
radio segment, there are approximately 474 Spanish-language commercial stations,
which constitute only 4.6% of all commercial radio stations in the United
States, although the Hispanic population comprises approximately 11% of the
United States population. With the increasing media access to this population,
we believe advertising expenditures will move closer towards parity with
Hispanic consumer spending. We also believe that advertisers who re-direct a
portion of their English-language budgets to Spanish-language media are able to
increase overall audience reach without incurring additional cost. Furthermore,
we believe that advertisers have found Spanish-language radio advertising to be
a particularly effective means to reach the growing Hispanic audience. As a
result, approximately 27% of Hispanic advertising expenditures in 1999 were
directed to radio, a substantially higher percentage than radio's overall share
of national advertising expenditures.
OUR BUSINESS STRATEGY
Our strategy is to provide a leading national Spanish-language broadcast
network comparable to the Univision and Telemundo television networks. To this
end, we have employed the following business strategy:
CREATE POPULAR, NATIONAL, HIGH-IMPACT PROGRAMMING. Radio Unica's
programming is differentiated from other radio groups by its focus on topics and
issues relevant to today's Hispanic audience, its strong line-up of top Hispanic
personalities and its national reach. Radio Unica takes advantage of its
management's established relationships with talent, built over numerous years of
industry experience, to secure top personalities and to create high-impact
programming. In addition, management draws upon its expertise and established
track record of having created some of the most well-received Spanish-language
television programs, including SABADO GIGANTE and CRISTINA. We believe that our
access to talent and the programming expertise of our senior management will
continue to serve as a strong competitive advantage in attracting advertisers
and listeners.
FOSTER STRONG BRAND IDENTITY. We continue to build a strong brand identity
for our radio stations and network by promoting the Radio Unica name on-air,
using music that listeners associate with our radio stations and programs and by
engaging in a wide array of marketing and promotional activities. Our marketing
strategy includes personal appearances by on-air personalities, promotional
tie-ins with sporting events covered on our network and advertising on
Spanish-language television and billboards and in Spanish-language print media.
We believe a strong brand identity will allow us to retain and increase our
listening audience, continue to grow our advertiser base, and attract and retain
top talent.
FOCUS ON THE NEWS/TALK RADIO FORMAT. We will continue to focus on the
news/talk radio format which has broad listener appeal. News/talk programming
typically allows twice as many minutes of commercials per hour as music-based
formats. As a result, the news/talk format permits stations to capture a larger
share of advertising revenue relative to audience share. We believe that a
news/talk format is a more effective advertising medium than a music based
format, since the audience is actively listening and more attentive to the
programming. The news/talk format also enables on-air personalities to mention
the names of their station, program and network more frequently, which promotes
a high degree of name recognition and listener loyalty leading to higher ratings
and higher advertising revenue.
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SELL ADVERTISING TO THE TOP 50 SPANISH-LANGUAGE ADVERTISERS. Our sales
strategy is to target the top 50 national Spanish-language advertisers who
collectively purchase the majority of Spanish-language network and national
advertising in the United States. We employ 15 in-house national sales people in
ten sales offices nationwide, as well as 90 local sales people situated
throughout the markets where we own and/or operate stations. Our large, in-house
sales force allows us to maintain better control and accountability over the
sales process. We also believe that our sales force is important in maintaining
relationships with key advertisers and agencies and identifying new advertisers.
The combination of our commitment to pursue the largest Spanish-language
advertisers and our captive sales force has enabled us to secure many premier
national advertisers, including Procter & Gamble, Sears, Walmart, Chevrolet,
American Airlines, Honda, Americatel, Corona and Moneygram.
MAINTAIN MODERN TECHNOLOGY AND REDUCE OPERATING COSTS. We operate
technologically advanced and automated nationwide production and delivery
systems which provide live programming via satellite to our owned and/or
operated and affiliate stations. At our modern production studios in Miami, we
produce substantially all of our radio programs, commercials and promotional
recordings. We deliver this programming to stations 24 hours a day via satellite
and our computer-based wide-area network. By employing modern technology and
producing and coordinating our programming from a centralized location, we are
able to operate with minimal staffing at our stations, thereby reducing
operating costs and increasing both quality of delivery and efficiency. For
example, our network is capable of simultaneously broadcasting different
versions of commercials in different regions which allows our advertisers
flexibility in targeting their messages.
OUR EXPANSION STRATEGY
MAXIMIZE NETWORK REACH THROUGH OWNED/OPERATED AND AFFILIATE STATIONS. We
currently own and/or operate radio stations in the top ten Hispanic
markets and in three other U.S. markets. Our owned and operated stations reach
markets where almost 60% of the Hispanic audience resides and our network
(including affiliates) reaches markets where approximately 80% of the Hispanic
audience resides. We seek to enter into agreements with affiliate stations in
smaller, less concentrated Hispanic markets so as to broaden the reach of our
network and increase its appeal to national advertisers while reducing the
amount of capital required to do so. We will continue to acquire stations which
help achieve our goal of owning stations in the largest, most concentrated
Hispanic markets while maintaining affiliates in other markets.
PURSUE STRATEGIC INFRASTRUCTURE UPGRADES. We continue to pursue signal and
other operational upgrades at our existing stations that will allow us to
enhance our market coverage. We are currently pursuing upgrades at our radio
stations in New York, Miami and Dallas. By expanding our market coverage at
existing and acquired stations, we believe we can further increase the Radio
Unica audience and enhance the value of our radio stations.
INTERNET STRATEGY
We are seeking to exchange our radio programming, promotional capabilities
and celebrity and sports based content for equity ownership in a
Spanish-language Internet portal. We intend to use audio streaming technology to
broadcast our network programming through this Web portal and thereby further
increase the reach of our radio network. In addition, such a Web site would
contain information and resources for the Hispanic community, links to Web pages
relating to Radio Unica's programs and celebrities, links to other entertainment
related sites, the ability to purchase merchandise on-line and the opportunity
to interact with other Hispanics worldwide. Aligning ourselves with such a
company will provide Radio Unica with a larger base over which to amortize the
costs of our programming, enhance our name recognition, and create significant
opportunities to cross-sell and cross-promote our radio and Internet properties.
For example, we intend to promote our Web site on the air, jointly advertise our
radio and Internet properties in Spanish-language television, billboard and
print media campaigns and jointly sponsor promotional events. We believe that
with the combination of Radio Unica's existing content, other well-known Latin
celebrities and our promotional capabilities, we will be able to attract a large
number of visitors to such a Web site and create an attractive and successful
Internet enterprise.
PROGRAMMING
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Radio Unica's network programming is broadcast 24 hours a day, seven days a
week and is designed to appeal to the general Hispanic audience, including
Hispanics located in different geographic regions of the United States and from
varying cultural backgrounds. The news/talk radio format is a proven format used
by several major networks, including ABC Radio Networks, Westwood One and
Premiere Radio Networks. The share of the audience listening to stations with
this format has increased over the last several years and news/talk is currently
the most listened to format in the United States.
Radio Unica currently produces 19 hours per day of live and first-run
programming, Monday through Friday, at our network production studios in Miami.
Our daily schedule features programs hosted by celebrities, many of whom also
host or appear on popular shows on the Univision and Telemundo networks. These
on-air personalities create radio shows exclusively for Radio Unica. Cristina
and Maria Elena Salinas also host daily segments on the network.
Our programming includes:
MUY TEMPRANO. Hosted by Ricardo Brown and Ana Patricia Candiani this
three hour show focuses on a variety of issues, introducing various
thought-provoking topics, and allowing for plenty of listener participation.
Ricardo Brown is one of the most experienced Hispanic journalists in the country
with more than 25 years in English and Spanish media. Prior to joining Radio
Unica, Brown was Chief Correspondent at CBS TeleNoticias and was seen on
Telemundo several times a week. Ana Patricia Candiani is also a news anchor for
Telemundo, CBS TeleNoticias, and anchor and writer for TeleNoticias'
entertainment program "Mas Vida". Prior to arriving in the U.S., Candiani
launched her career in media at Grupo Acir and Radio Nuevo Leon in Monterrey,
Mexico.
SEVCEC EN VIVO. Hosted by Pedro Sevcec, this three-hour talk show is
devoted to in-depth coverage of the top news stories of the day, other issues of
importance to the Hispanic population and interviews with prominent figures,
Pedro Sevcec was a senior reporter for Telemundo's popular TV news magazine,
OCURRIO ASI, hosted his own talk show called SEVCEC and is currently the
Telemundo Network evening news anchor.
DRA. ISABEL. This advice program hosted by Dr. Isabel Gomez-Bassols focuses
on such topics as family issues and personal relationships. Dr. Isabel
Gomez-Bassols is a noted psychologist and educator and makes frequent
appearances on such popular television shows as CRISTINA, SEVCEC and MIAMI
AHORA.
CHARYTIN. Charytin is a well-known singer and performer who has frequently
appeared on Univision's and Telemundo's programs. This one-hour program hosted
by Charytin discusses novelas (i.e., Spanish-language soap operas) and the lives
of soap opera stars.
INMIGRACION . . . PREGUNTAS Y RESPUESTAS. This program, hosted by Fulvia
Peimbert, focuses on the rules of the U.S. immigration system. This program
features lawyers and immigration experts as guests.
EL GORDO Y EDUARDO, hosted by funnyman "El Gordo de Oro" Hugo Cadelago and
comedic actor Eduardo Ibarrola features two hours of non-stop humor,
commentaries, horoscopes, and focus on interactive audience participation. Hugo
Cadelago, better known to Hispanic audiences as "El Gordo", has more than 20
years experience in both English and Spanish-language radio. Prior to joining
Radio Unica, Cadelago was the top rated Los Angeles afternoon radio host.
Eduardo Ibarrola, is a well known radio and television personality. Ibarrola has
starred as a comedic actor in various highly rated Hispanic soap operas.
UNICA EN DEPORTES. This sports talk show hosted by Jorge Ramos features
sports, talk, news and interviews appealing to Hispanic audiences. Jorge Ramos
has served as sports anchor for Telemundo since 1994 and in his career has
broadcast four World Cups. Joining Jorge is an experienced, well known team of
sports personalities
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SPORTING EVENTS. During our major sporting events, we broadcast live,
play-by-play coverage and daily programs and interviews with players and
participants. We have obtained the exclusive United States Spanish-language
radio broadcasting rights for a number of popular sporting events including
the following:
SUMMER OLYMPICS 2000, 2004 AND 2008. Radio Unica has acquired the
Spanish-language radio broadcast rights in the United States for the 2000 and
2004 Summer Olympics and has a right of first refusal for the 2008 games. The
Olympic games are the highest profile sporting event in the world. Radio Unica's
broadcasts will highlight soccer, boxing and other events and athletes that
interest Hispanics. We will also utilize the universal awareness of the Olympics
to continue to promote our brand and attract new listeners.
COPA AMERICA 1999, 2001 AND 2003. Copa America is the most popular
international soccer event for Hispanics after the World Cup and is held every
other year. This event is the oldest international soccer tournament and is a
forum for Latin Americans to listen to their teams compete against neighboring
countries. With South America and Mexico participating, this event offers the
soccer fan the opportunity to listen to some of the best soccer stars playing
for their national teams.
COPA ORO 2000, 2002, 2004 AND 2006. Copa Oro tournaments are held in the
alternate years from Copa America. Similar to Copa America, Copa Oro is an
international soccer event with countries in North and Central America
participating.
WORLD CUP 2002 QUALIFYING MATCHES. The World Cup is the most popular soccer
event in the world. These matches are of interest to the Hispanic audience since
they pit Latin American countries against each other in the qualifying rounds in
their quest for a World Cup trophy.
MEXICAN SOCCER. Radio Unica has the U.S. Spanish-language radio rights
to some of the most popular Mexican soccer league team games and the Mexican
national team games.
NBA FINALS 2000. Radio Unica has the rights to broadcast the 2000 NBA
Finals and the 2000 All Star Game.
ADVERTISING REVENUE
Substantially all of our revenue is generated from the sale of network,
national and local advertising on our radio stations. The classes of advertising
are described in the following table:
CLASSES OF RADIO ADVERTISING
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Network..................................................... Represents commercial air time sold directly by a
network to a national advertiser to be aired
during "network" programming. This unique type of
advertising is sold by a "networked" group of
stations airing uniform programming simultaneously
over a significant portion of the United States.
English language networks with capabilities
similar to Radio Unica include ABC Radio Networks,
Westwood One and Premiere Radio Networks. Radio
Unica sells this advertising time through its own
national sales force.
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National Spot............................................... Represents commercial air time sold to a national
advertiser within a specific local market. Most
radio stations and station groups sell this time
through third party independent representatives.
Radio Unica sells this advertising time through
its own national sales force.
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Local Spot................................................. Represents commercial air time sold to an
in-market advertiser or advertising agency. Local
advertisers consist primarily of local merchants
and service providers. Radio Unica sells this time
generally through its station's local sales staff.
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Sales of network and national advertising are made by our in-house national
sales force located in ten regional sales offices. Sales of local advertising
are made by our sales staffs located at each of our stations. We do not use
third party national representatives or "rep" firms. As a result, we have more
control over and greater accountability from our sales force. We also believe
that our sales force is important in maintaining relationships with key
advertisers and agencies and identifying new advertisers. We do not pass along
any of our network advertising revenue or pay cash compensation to our
affiliates.
Advertising rates charged by a radio station or network are based primarily
on the station's or network's ability to attract listeners and on the
attractiveness to advertisers of the station's or the network's listener
demographics. Rates vary depending upon a program's ability to increase sales
and popularity among an advertiser's target audience, the number of advertisers
seeking similar time slots, and the availability of alternative media in the
market. Radio advertising rates are generally highest during the morning and
afternoon drive-time hours.
RADIO UNICA NETWORK
Radio Unica's 15 owned and/or operated AM stations in 13 markets and 33
affiliate stations comprise a network that reaches approximately 80% of the
Hispanic population. We are the only national radio network available to
advertisers targeting the fast growing Hispanic market. We are one of only three
national Hispanic advertising platforms in the U.S., the other two consisting of
the Univision and Telemundo television networks. Radio Unica's network is
differentiated from other Spanish-language radio broadcasters by its ability to
deliver uniform programming to the national Hispanic audience over a 24 hour
period. We believe that advertisers prefer this delivery as it allows them to
reach a national audience in a consistent and controlled manner. With one
contract, advertisers can reach a large portion of the Hispanic population at a
cost lower than if they had to purchase advertising separately in each market.
Radio Unica offers advertisers the opportunity to associate their advertising
message with a particular program that will consistently be aired at a specific
time. No other Spanish-language broadcasters have this capability on a national
level.
ADVANTAGES TO RADIO UNICA. Although our owned and/or operated stations
reach markets where approximately 65% of Hispanics reside, through our
affiliates we are able to increase our reach to approximately 80%. Our 33
affiliates have allowed us to cost-effectively enter an additional 28 markets
and expand our reach and appeal to advertisers. Affiliates allow us to enter a
market without the capital expenditures that would be required in buying or
building a station. Many of our affiliates have branded themselves as Radio
Unica stations which helps build brand awareness and listener loyalty.
Additionally, the network enables us to share the cost of programming over a
larger base. We believe that this sharing of expenses allows us to invest a
larger amount in programming compared to our competitors.
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ADVANTAGES TO AFFILIATES. Affiliate stations benefit by gaining access to
Radio Unica's high-impact programming, including programs hosted by some of the
most popular Hispanic personalities and live sporting events, which would be
prohibitively expensive to create or purchase on their own. In addition,
affiliates benefit from our national advertising campaigns and promotional
materials. Affiliates also have access to our sales, marketing and operating
managerial expertise.
RADIO STATIONS
The following table sets forth certain information concerning the stations
owned and/or operated by the Company and their respective markets:
<TABLE>
<CAPTION>
Hispanic Hispanic Hispanic
Rank by Company- Population in Population Population
Hispanic owned or Market as a % of as a % of
Population Market LMA (in thousands) Total Market U.S. Hispanics
Served/Station
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1 Los Angeles
KBLA (AM) Owned 6,928 40.6% 20.4%
2 New York
WWRU (AM) Owned 3,776 18.5% 11.1%
WJDM (AM) Owned
3 Miami
WNMA (AM) Owned 1,522 38.8% 4.5%
WAFN (AM) Owned
4 San Francisco/San Jose
KIQI (AM) Owned 1,424 20.1% 4.2%
5 Chicago
WNTD (AM) Owned 1,354 14.2% 4.0%
6 Houston
KXYZ (AM) Owned 1,312 25.3% 3.9%
7 San Antonio
KZDC (AM) LMA/Option 1,167 55.0% 3.5%
8 Dallas/Ft. Worth
KAHZ (AM) Owned 928 15.7% 2.7%
9 McAllen/Brownsville
KVJY (AM) Owned* 874 89.5% 2.6%
10 San Diego
KURS (AM) LMA/Option 803 27.3% 2.4%
11 Phoenix
KIDR (AM) Owned 783 20.4% 2.3%
12 Fresno
KFRE (AM) Owned* 737 44.3% 2.2%
16 Denver
KCUV (AM) Owned 447 13.4% 1.3%
------------- --------------
Totals 22,055 65.1%
============= ==============
*Pending FCC approval
</TABLE>
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OWNED STATIONS
LOS ANGELES. Radio Unica's radio station KBLA (AM), broadcasting on 1580
kHz, serves the Los Angeles market, which has a population of approximately 17.1
million, of which approximately 6.9 million or 40.6% are Hispanic.
Spanish-language radio advertising spending in the market was approximately $125
million in 1999. In July 1998, Radio Unica acquired substantially all of the
assets used in the operation of KBLA for a purchase price of approximately $21
million. The purchase of KBLA was financed primarily through the proceeds from
our senior discount notes. 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 market.
NEW YORK. Radio Unica's radio station WWRU (AM), broadcasting on 1660 kHz in
the expanded band, serves the New York City market. The New York City market has
a population of approximately 20.4 million, of which approximately 3.8 million
or 18.5% are Hispanic. In 1999, Spanish-language radio advertising spending in
the market was approximately $60 million. In January 1999, Radio Unica acquired
WWRU, along with WJDM, KAHZ, Dallas/Fort Worth, and KIDR, Phoenix for a purchase
price of approximately $30 million. The purchase of WWRU and WJDM, KAHZ and KIDR
were financed primarily through the proceeds from our senior discount notes.
WWRU is licensed at 10,000 watts during the daytime. WWRU's transmitter is
located in Carlstadt, New Jersey and enables this station to reach substantially
all of the New York City market during the day. We have received Federal
Communication Commission ("FCC") approval to upgrade our night signal in New
York City which will provide us with significantly improved market coverage at
night.
In connection with the acquisition of WWRU, Radio Unica also acquired
substantially all the assets used in the operation of WJDM(AM), broadcasting
on 1530 kHz. WJDM is licensed at 1,000 watts during the daytime. Broadcast
time on this station has been sold to a third party through May 30, 2001.
WJDM's transmitter is located in Elizabeth, New Jersey. Based on current FCC
guidelines, the license of either WWRU or WJDM must be relinquished by the
Company five years after the FCC grants a license for WWRU. The Company
currently operates WWRU pursuant to special temporary authority (STA) pending
the submission by the Company of an application for license to cover its
outstanding construction permit. The STA is scheduled to expire July 13, 2000.
The Company's construction permit, which was modified in 1999 to authorize
improvement of WWRU's nighttime operations, expires on March 12, 2001. The
Company is confident that the FCC will extend the STA so that the Company can
complete construction of the new nighttime facilities and file a license
application by March 12, 2001. The Company cannot predict when the FCC will
grant the license application once it is filed.
MIAMI. Radio Unica's radio station WNMA(AM), broadcasting on 1210 kHz,
serves the Miami market. This market has a population of approximately 3.9
million, of which approximately 1.5 million or 38.8% are Hispanic. In 1999,
Spanish-language radio advertising spending in the market was approximately $67
million. In May 1998, Radio Unica acquired WNMA for approximately $9 million.
The purchase of WNMA was financed primarily through the proceeds from the
issuance of preferred stock as well as the issuance of notes payable to one of
our stockholders, Warburg, Pincus Ventures. 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 market. We are
currently pursuing a signal upgrade beyond the Miami market to another county
which will increase our coverage of South Florida's Hispanic population by
approximately 10%.
In connection with the acquisition of WNMA, the Company acquired WAFN (AM),
broadcasting on 1700 kHz. Broadcast time on this station has been sold to a
third party. Based on current FCC guidelines, Radio Unica must relinquish the
license of either WNMA or WAFN by May 13, 2003.
SAN FRANCISCO/SAN JOSE. Radio Unica's station KIQI(AM), broadcasting on
1010 kHz, serves the San Francisco/San Jose market. This market has a population
of approximately 7.1 million, of which approximately 1.4 million or 20.1% are
Hispanic. In 1999, Spanish-language radio advertising spending in the market was
approximately $20 million. In April 1998, Radio Unica acquired Oro Spanish
Broadcasting, Inc., the parent of the licensee of KIQI, for approximately $12
million. The purchase of KIQI was financed primarily through the proceeds from
the issuance of preferred stock, the issuance of notes payable to the former
owners of KIQI and the issuance of notes payable to one of our stockholders,
Warburg, Pincus Ventures. Prior to the acquisition, Oro Spanish Broadcasting,
Inc 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
is located in Oakland, California and enables this station to reach
substantially all of the San Francisco/San Jose market during the day.
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CHICAGO. Radio Unica's radio station WNTD(AM), broadcasting on 950 kHz,
serves the Chicago market. This market has a population of approximately 9.5
million, of which approximately 1.4 million or 14.2% are Hispanic. In 1999,
Spanish-language radio advertising spending in the market was approximately $30
million. In May 1999, Radio Unica acquired WNTD for approximately $16.75
million. The purchase of WNTD was financed through the proceeds from our senior
discount notes as well as proceeds from borrowings under our credit facility.
WNTD is licensed at 1,000 watts during the daytime. WNTD's transmitter is
located in Chicago, Illinois and enables this station to reach substantially all
of the Chicago market.
HOUSTON. Radio Unica's station KXYZ(AM), broadcasting on 1320 kHz, serves
the Houston market. This market has a population of approximately 5.2 million,
of which approximately 1.4 million or 25.3% are Hispanic. In 1999,
Spanish-language radio advertising spending in the market was approximately $41
million. In March 1998, Radio Unica acquired an 80% economic interest in KXYZ
and acquired the remaining interest in September 1998 for a total of
approximately $6.4 million. The purchase of KXYZ was financed primarily through
the proceeds from our senior discount notes. Prior to the acquisition, the
station was operated for approximately 13 years with a Spanish-language format.
KXYZ is licensed at 5,000 watts during the daytime. KXYZ's transmitter is
located in Pasadena, Texas and enables this station to reach substantially all
of the Houston market.
DALLAS/FORT WORTH. Radio Unica's station KAHZ(AM), broadcasting on 1360
kHz, serves the Dallas/Fort Worth market. This market has a population of
approximately 5.9 million, of which approximately 928,000 or 15.7% are Hispanic.
In 1999, Spanish-language radio advertising spending in the market was
approximately $15 million. 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 market. We are considering
various opportunities to improve both our day and night signals. The upgrade in
Dallas will increase day time population coverage by 23% and will expand the
night time signal reach from Fort Worth to Dallas.
PHOENIX. Radio Unica's station KIDR(AM), broadcasting on 740 kHz, serves
the Phoenix market. This market has a population of approximately 3.8 million,
of which approximately 783,000 or 20.4% are Hispanic. We estimate that in 1999
Spanish-language radio advertising spending in the market was approximately $6.0
million. KIDR is licensed at 1,000 watts during the daytime. KIDR's transmitter
is located in Phoenix, Arizona and enables this station to reach substantially
all of the Phoenix market.
DENVER. Radio Unica's station KCUV(AM) broadcasting on 1150 kHz, serves the
Denver market. This market has a population of approximately 3.3 million, of
which approximately 448,000 or 13.4% are Hispanic. We estimate that in 1999,
Spanish-language radio advertising spending in the market was approximately $6.0
million. In January 2000, Radio Unica acquired KCUV from Den-Mex LLC for
approximately $2.8 million. The purchase of KCUV was financed through capital
contributions from RUCC. During 1999, Radio Unica operated the station under an
local marketing agreement with Den-Mex LLC. KCUV is licensed at 5,000 watts
during the daytime. KCUV's transmitter is located in Englewood, Colorado and
enables the station to reach substantially all of the Denver market.
FRESNO. On December 23, 1999 the Company contracted to acquire
substantially all the assets used in the operations of station KFRE (AM)
broadcasting on 940 kHz in Fresno, California from Harry J. Pappas. The Company
has paid $4.5 million in conjunction with this transaction. KFRE is licensed at
50,000 watts during the daytime. KFRE's transmitter is located in Fresno,
California and enables the station to reach substantially all of the Fresno
market. The transaction is expected to be finalized upon receipt of the FCC's
approval.
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McALLEN/BROWNSVILLE. On February 11, 2000 the Company contracted to acquire
substantially all the assets used in the operations of station KVJY (AM)
broadcasting on 840 kHz in McAllen, Texas from El Pistolon Investments, L.P.,
for a cash purchase price of approximately $2.5 million. The Company funded a
$500,000 escrow in conjunction with this transaction. KVJY's transmitter is
located in Edinburg, Texas and enables the station to reach substantially all
of the McAllen/Brownsville market. The transaction is expected to be
finalized upon receipt of FCC approval.
LOCAL MARKETING AGREEMENTS (OPERATED STATIONS)
The Company has entered into LMAs with respect to radio stations in San
Antonio and San Diego. Pursuant to these LMAs, the Company operates, and
supplies all programming for, these stations.
SAN ANTONIO. The Company operates station KZDC (AM), broadcasting on 1250
kHz, in San Antonio pursuant to an LMA with Lotus. Spanish-language radio
advertising spending in the market was approximately $23 million in 1999. The
term of this LMA is through December 31, 2001 and the Company's annual LMA
payment ranges from $225,000 in 1999 to $275,000 in 2001. The Company has an
option to 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, Texas and enables
this station to reach substantially all of the San Antonio Market.
SAN DIEGO. The Company operates station KURS (AM), broadcasting on 1040 kHz,
in San Diego pursuant to an LMA with Quetzel Bilingual Comm., Inc.
Spanish-language radio advertising spending in the market was approximately $8.0
million in 1999. The term of this LMA is through December 31, 2001 and the
Company's annual LMA payment is $744,000. The Company has an option to purchase
the assets of KURS. The option is exercisable at periodic intervals from
September 1, 2000 through December 31, 2002. KURS is licensed at 390 watts
during the daytime. KURS' transmitter site is located in Cutler, California and
enables this station to reach substantially all of the San Diego Market.
AFFILIATE STATIONS
Radio Unica has 33 affiliate radio stations. Under our arrangements with
these stations, they are generally required to carry a minimum of eight hours
per day of our network programming. Currently, our affiliates are substantially
exceeding this minimum, broadcasting an average of 12 hours of our programming
each weekday. Our arrangements typically provide that our programming will
include a certain number of minutes per hour of network advertising to be sold
by us. We do not pass along any of our network advertising revenue or pay cash
compensation to our affiliates. We also provide our affiliates with marketing,
sales and promotional support. The terms of these arrangements are generally one
to two years, but may be terminated earlier for certain reasons. Some of these
arrangements give us a right of first refusal to buy the station if the station
owner offers to sell it.
COMPETITION
Radio broadcasting is a highly competitive business. The financial
success of each of our radio stations will depend, to a significant degree, upon
our audience ratings, our share of the overall radio advertising revenue within
each geographic market and the economic health of the market. In addition, our
advertising revenue depends upon the desire of marketers to reach our audience
demographic. Our 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. Some of these radio stations and networks also broadcast
Spanish-language talk radio. Our primary competitors are Univision, Telemundo,
Hispanic Broadcasting Corporation and Spanish Broadcasting System. Many of these
entities are larger and have significantly greater resources than Radio Unica.
Additionally, since we are in the early stages of our operations, our network
has not yet been rated by Arbitron.
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If a competing station converts to a format similar to that of one of our
stations, or if one of our competitors strengthens its operations, our stations
could suffer a reduction in ratings and advertising revenue. The audience
ratings and advertising revenue of our individual stations are subject to change
and any adverse change in a particular market could have a material adverse
effect on our operations. There is no ranking of Spanish-language radio
networks.
The Telecommunications Act of 1996 facilitates the entry of other radio
broadcasting companies into the markets in which we operate or may operate in
the future, some of which may be larger and have more financial resources than
Radio Unica. In addition, certain of our stations compete, and in the future
other stations of Radio Unica may compete, with combinations of stations
operated by a single operator. There can be no assurance that our radio stations
will be able to develop, maintain or increase their current audience ratings and
radio advertising revenue.
In addition to the competition faced by our radio stations, we face
competition from other providers of radio programs, including other radio groups
that offer Spanish-language programming. Our network also competes with other
radio networks and individual radio stations for the services of talk show
personalities. Competition from existing and new radio networks may limit the
growth and profitability of our network.
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, 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.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to
regulation by the FCC. The FCC regulates radio broadcast stations under
authority granted by the Communications Act of 1934, as amended (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 that directly or
indirectly affect the ownership, management, programming, operation
and employment practices of stations; and
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- has the power to impose penalties for violations of its rules or the
Communications Act.
In February 1996, Congress enacted the Telecommunications Act of 1996 to
amend the Communications Act. The Telecommunications Act, among other measures,
directed the FCC to:
- eliminate the national radio ownership limits;
- liberalize the local radio ownership limits as specified in the
Telecommunications Act;
- issue broadcast licenses for periods of up to eight years; and
- eliminate the opportunity for the filing of competing applications
against broadcast license renewal applications.
In the Balanced Budget Act of 1997, Congress authorized the FCC for the
first time to conduct auctions for the awarding of construction permits for
commercial radio and television stations. To settle already pending mutually
exclusive applications without auctions, Congress directed the FCC to waive
existing rules as necessary. The FCC has begun to implement these provisions.
While Radio Unica is not a participant in any implementation proceeding, this
recent action should result in the awarding of construction permits for
additional radio stations, some of which might compete with Radio Unica'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 limitations referred to
below. In deciding whether to grant a license, 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
periods of time. The Telecommunications Act amended the Communications Act to
provide that broadcast licenses be granted, and thereafter renewed, for
successive terms of up to eight years each, if the FCC finds that the public
interest, convenience, and necessity would be served thereby.
Generally, the FCC renews broadcast licenses without a hearing. The
Telecommunications Act requires the FCC to grant an application for renewal of a
broadcast license if:
- the station has served the public interest, convenience and necessity;
- there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and
- 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.
Accordingly, the FCC does not entertain competing applications against
broadcast license renewal applications. The Telecommunications Act provides 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 after denying
an application for renewal 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 the renewal of
broadcast license 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.
There are no renewal applications currently pending for any of Radio
Unica's broadcast licenses. Radio Unica does not anticipate any material
difficulty in obtaining license renewals for full terms in the future,
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however, there can be no assurance that the licenses of each of our stations
will be renewed or will be renewed without conditions or sanctions.
The FCC or its staff may reconsider its renewal of an application during
specified time periods 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 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 may have an attributable interest.
"Attributable interests" are discussed in greater detail below. The FCC,
pursuant to the Telecommunications Act, eliminated the previously existing
"national radio ownership rule." Consequently, there now is no limit imposed by
the FCC on 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. Under the Telecommunications Act, the FCC
revised its rules to set the local radio ownership limits as follows:
- 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);
- 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;
- 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
- 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 in the same market, although such limits may be waived by the FCC. On
August 5, 1999, the FCC adopted a new radio television cross-ownership rule,
which became effective March 16, 1999, which permits common ownership of up to
two television stations and up to six radio stations or one television station
and seven radio stations in any market where at least 20 independently owned
media voices remain in the market. A party will be permitted to own up to two
television stations and up to four radio stations in any market where at least
10 voices remain after the combination is effected and to own up to two
television stations and one radio station regardless of the number of voices in
the market. Media voices include other radio stations, television stations,
daily newspapers and cable systems. 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. On August 5, 1999, the FCC adopted an order, which will be
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effective November 16 1999, repealing the cross-interest policy. The FCC is
presently evaluating its radio/ newspaper rule. Radio Unica cannot predict
whether the FCC will adopt any change in this rule.
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. On August
5, 1999, the FCC revised its attribution rules, effective November 16, 1999,
increasing the threshold for passive investors to 20 percent. 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 entity. Currently, when a single
shareholder holds a majority of the voting stock of a corporate licensee, the
FCC considers other shareholders of the licensee, unless they are also officers
or directors of the licensee, exempt from attribution. 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.
Under the newly revised attribution rules, if the holder of an otherwise
nonattributable interest is either (1) a "major program supplier" or (2) a
same-market media entity subject to the broadcast multiple ownership rules, its
interest in a licensee or other media entity will be attributed if the total
interest (aggregating both debt and equity) exceeds 33 percent of the total
asset value of the licensee or media entity. A "major program supplier" is
defined as any entity that provides more than 15 percent of a station's total
weekly broadcast programming hours. This new "Equity/Debt Plus" rule became
effective November 16, 1999.
Under current FCC rules, any stockholder of Radio Unica with 5% or more of
the outstanding votes (except for qualified institutional investors, for which
the 20% threshold is applicable), will be considered to hold attributable
interests in Radio Unica. Such holders of attributable interests must comply
with or obtain waivers of the FCC's multiple and cross-ownership rules.
Currently, none of the attributable stockholders, officers or directors of Radio
Unica have any other media interests besides those of Radio Unica that implicate
the FCC's multiple ownership limits except that affiliates of Warburg, Pincus
Ventures hold interests in several daily newspapers none of which is published
in communities served by Radio Unica stations.
The FCC will consider a radio station providing programming and sales on
another local radio station pursuant to a local marketing agreement 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 local marketing agreement 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.
Under the new attribution rules, same-market local marketing agreements will
also be subject to the FCC's prohibition against common ownership of a radio
station and a local daily newspaper.
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 aliens, who
consist of non-U.S. citizens or entities or their representatives or foreign
governments or their representatives or by foreign corporations. Where the
corporation owning the license is controlled by another corporation, the parent
corporation cannot have more than one-fourth of its capital stock owned of
record or voted by aliens, if the FCC finds it in the public interest to refuse
or revoke the license. The FCC has issued interpretations of existing law under
which these 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.
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
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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. 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. Until last year, the FCC imposed
equal employment opportunity rules on licensees. The U.S. Court of Appeals for
the D.C. Circuit found that these requirements were unconstitutional. The FCC
recently adopted new rules to address the concern of the U.S. Court of
Appeals. The new rules will require the Company not to discriminate in hiring
practices,to file certain employment reports annually and at other times,
tocertify compliance with the rules, and to widely disseminate information
regarding job openings.
AGREEMENTS WITH OTHER BROADCASTERS. Over the past several years a
significant number of broadcast licensees, including Radio Unica, have entered
into cooperative agreements with other stations in their markets. One typical
example is a local marketing agreement 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 local marketing agreements 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
of its broadcast station. As is the case with Radio Unica in certain
circumstances the local marketing agreement 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.
FCC 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. One exception to the simulcast rule
permits unlimited simulcasting on an expanded band AM station of the programming
of a corresponding commonly owned non-expanded band AM station in the same
market. Radio Unica formerly took advantage of the FCC's exception to the
general rule for simulcasting on an expanded band station (WAFN) in order to
simulcast in Miami.
LOW POWER RADIO BROADCAST SERVICE. The FCC recently adopted a Notice of
Proposed Rulemaking seeking public comment on a proposal to establish two
classes of a low power radio service both of which would operate in the existing
FM radio band: a primary class with a maximum operating power of 1 kW and a
secondary class with a maximum power of 100 watts. These proposed low power
radio stations would have limited service areas of 8.8 miles and 3.5 miles,
respectively. The FCC also has sought public comment on the advisability of
establishing a very low power secondary "microbroadcasting" service with a
maximum power limit of one to ten watts. These "microradio" stations would have
a service radius of only one to two miles. The service would target "niche
markets" and be possibly supported by advertising revenue. Existing licensees,
like Radio Unica, would be prohibited from owning or having a relationship with
these new stations. Implementation of a low power radio service or
microbroadcasting would provide an additional audio programming service that
could compete with Radio Unica's stations for listeners, but the effect on Radio
Unica cannot be predicted.
PROPOSED REGULATORY CHANGES. The FCC has not yet formally implemented
certain of the changes to its rules necessitated by the Telecommunications 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:
- affect the operation, programming, technical requirements, ownership
and profitability of Radio Unica and its radio broadcast stations;
- result in the loss of audience share and advertising revenues of Radio
Unica's radio broadcast stations;
- affect the ability of Radio Unica to acquire additional radio
broadcast stations or finance such acquisitions;
16
<PAGE>
- affect cooperative agreements and/or financing arrangements with other
radio broadcast licensees; or
- affect Radio Unica'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 implementation 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 Radio Unica believes the foregoing discussion is sufficient to
provide the reader with a general understanding of all material aspects of FCC
regulations that affect Radio Unica, 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.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 245 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.
ITEM 2. PROPERTIES
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 and, in certain
markets, the building and land 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- ------------- ---------------------------------------
<S> <C> <C>
Joaquin F. Blaya 54 Chairman of the Board and
Chief Executive Officer
Jose C. Cancela 42 President and Director
Steven E. Dawson 36 Chief Financial Officer, Executive
Vice President, Secretary
and Director
Andrew C. Goldman 52 Executive Vice President, Business
Affairs and Director
Blaine R. Decker 48 Executive Vice President,
Network Sales
Omar Marchant 64 Vice President, Programming of
Radio Unica Network, Inc.
Adrianna Grillet 46 Vice President, Affiliate Relations of
Radio Unica Network, Inc.
Roy Pressman 46 Vice President, Engineering of
Radio Unica Network, Inc.
John D. Santoleri 36 Director
Sidney Lapidus 62 Director
</TABLE>
18
<PAGE>
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, Executive Vice
President, 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 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.
19
<PAGE>
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,
Pincus & Company LLC ("Warburg") where he has been employed since 1989.
Warburg is the managing entity of Warburg Pincus Ventures, L.P., the
Company's controlling stockholder. Prior to joining Warburg, Pincus, he was a
Vice President of The Harlan Company, a New York-based real estate consulting
and investment banking boutique. Mr. Santoleri is a Director of Cephren, Inc.,
Inslogic, Inc., Radiowave.com, Seicky Networks, Inc., and Tradiant, Inc. He
also serves on the board of directors of Children for Children Foundation and
is a member of the stewardship committee of St. James' Church in Manhattan.
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, Lennar Corp.
and several private companies.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE FOR COMMON STOCK
The Company's Common Stock has not been registered under the Securities Act
of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is not listed on any national securities
exchange. There is no established public trading market for the Company's Common
Stock. All of the Company's outstanding shares of common stock are owned by
Radio Unica Communications Corp. The indenture relating to the Company's 11 3/4%
Senior Discount Notes due 2006 and the Senior Secured Revolving Credit Facility
have covenants restricting among other things, the payment of dividends. For the
year ended December 31, 1999, the Company did not declare nor pay any dividends.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended
December 31, 1999, 1998 and 1997 and as of December 31, 1996 and for the
period from September 12, 1996 (inception) through December 31, 1996, have
been derived from the consolidated financial statements of the Company, which
were audited by Ernst & Young LLP, independent certified public accountants.
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 annual report.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED SEPTEMBER 12, 1996
DECEMBER 31, (INCEPTION) THROUGH
---------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996
-------------- ------------- ------------- --------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 16,217,180 $ 8,218,043 $ - $ -
Operating expenses
Stock option compensation expense 19,591,106 - -
LMA termination fee 2,000,000 - - -
Other 35,955,075 28,196,739 1,802,816 40,000
-------------- ------------- ------------- ----------
Loss from operations (41,329,001) (19,978,696) (1,802,816) (40,000)
Interest expense, net (13,396,929) (4,289,658) (12,765) -
Other (20,719) (14,867) - -
-------------- ------------- ------------- ----------
Loss before income taxes (54,746,649) (24,283,221) (1,815,581) (40,000)
Income tax (expense) benefit (311,989) 2,446,745 - -
-------------- ------------- ------------- ----------
Net loss (55,058,638) (21,836,476) (1,815,581) (40,000)
Accured dividends on preferred stock 3,149,390 2,850,608 119,490 -
-------------- ------------- ------------- ----------
Net loss applicable to common shareholders $ (58,208,028) $ (24,687,084) $ (1,935,071) $ (40,000)
============== ============= ============= ==========
OTHER FINANCIAL DATA:
Depreciation and amorization $ 5,184,941 $ 1,696,376 $ - $ -
EBITDA(1) (36,144,060) (18,282,320) (1,802,816) (40,000)
EBITDA before one time charges(2) (14,522,954) (18,282,320) (1,802,816) (40,000)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents $ 2,396,044 $ 38,894,144 $ 1,126,862 $ 5,000
Working capital 5,734,986 52,867,136 1,047,193 5,000
Total assets 126,259,410 123,505,573 6,678,088 5,000
Long-term debt 117,732,564 105,029,128 - -
Series A redeemable cummulative preferred
stock - 38,266,437 5,316,990 -
Stockholders' (deficit) equity (23,459,938) (26,303,393) (1,922,571) 5,000
</TABLE>
(1) EBITDA is defined as loss from operations plus depreciation and
amortization.
(2) EBITDA before one time charges is defined as loss from operations plus
depreciation and amorization, stock option compensation expense and LMA
termination fee.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the accompanying consolidated financial statements, the notes thereto and the
supplemental data included in this annual report.
GENERAL
The Company, 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 revenue.
The Company generates revenue from sales of network advertising time and
sales of advertising time on the Company-owned and operated 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 operating income (loss) plus
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.
On October 19, 1999, the Company's parent, RUCC, completed an initial
public offering ("IPO") of 6,840,000 shares of its commons stock at an IPO
price of $16.00 per share. RUCC received net proceeds from the IPO of
approximately $99.4 million on October 22, 1999. The net proceeds from the
IPO were and will be used to repay the indebtedness under the revolving
credit facility, to acquire radio stations, upgrade existing stations and for
general corporate purposes.
22
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
NET REVENUE. Net revenue increased by approximately $8.0 million or 98 % to
approximately $16.2 million for the year ended December 31, 1999 from
approximately $8.2 million for the year ended December 31, 1998. The increase in
net revenue relates to an increase in the Company's customer base due to the
strengthening of the Company's network and O&Os and the increased in the number
of O&Os.
OPERATING EXPENSES. Operating expenses increased by approximately $29.3
million or 104% to approximately $57.5 million for the year ended December 31,
1999 from approximately $28.2 million for the year ended December 31, 1998. The
increase in operating expenses is due to a non-cash stock option compensation
expense charge of approximately $19.6 million, a one-time payment of $2.0
million to terminate the LMA agreement for Los Angeles radio station KVCA-AM,
increased depreciation and amortization relating to the increase in the number
of O&Os of approximately $3.5 million and increased costs associated with the
increase in the number of O&Os.
Direct operating expenses increased by approximately $1.9 million or 106% to
approximately $3.7 million for the year ended December 31, 1999 from
approximately $1.8 million for the year ended December 31, 1998. The increase in
direct operating expenses is primarily due to the increase in the number of O&Os
as well as increased spending relating to the promotion of those O&Os.
Selling, general and administrative expenses increased by approximately $1.7
million or 17% to approximately $11.8 million for the year ended December 31,
1999 from approximately $10.1 million for the year ended December 31, 1998. The
increase in selling, general and administrative expenses primarily relates to
the increase in the number of O&Os.
Network expenses increased by approximately $0.4 million or 3% to
approximately $12.2 million for the year ended December 31, 1999 from
approximately $11.8 million for the year ended December 31, 1998. The
increase in network expenses is mainly due to the increased cost of network
programming as well as increased network advertising.
Corporate expenses increased by approximately $0.2 million or 7% to
approximately $3.0 million for the year ended December 31, 1999 from
approximately $2.8 million for the year ended December 31, 1998. The increase in
corporate expenses is mainly due to increased costs of executive management,
legal and professional fees and other costs.
Depreciation and amortization increased by approximately $3.5 million or
206% to approximately $5.2 million for the year ended December 31, 1999 from
approximately $1.7 million for the year ended December 31, 1998. The increase in
depreciation and amortization is due to significant additions of fixed assets
and intangible assets arising from the acquisition of O&Os.
Stock option compensation expense relates to a non-cash charge of
approximately $19.6 million relating to the vesting of variable options granted
to employees of the Company to purchase approximately 1.3 million shares of the
RUCC's common stock at exercise prices ranging from $.03 to $1.72 per share.
These stock options vested on October 19, 1999, upon the completion of RUCC's
IPO.
23
<PAGE>
OTHER INCOME (EXPENSE). Other income (expense) increased by approximately
$(9.1) million or 212% to approximately $(13.4) million for the year ended
December 31, 1999 from approximately $(4.3) million for the year ended December
31, 1998. Other income (expense) for the year ended December 31, 1999 included
interest income of approximately $0.7 million, and interest expense of
approximately $14.1 million. Interest expense primarily relates to the interest
on the outstanding balance of the Senior Discount Notes. The Company had
approximately $1.8 million in interest income and $6.0 million in interest
expense during the year ended December 31, 1998.
INCOME TAX EXPENSE. The Company recorded an income tax expense in 1999 of
approximately $0.3 million as compared to an income tax benefit of approximately
$2.4 million for the year ended December 31, 1998. The expense results from the
Company only being able to utilize a portion of its net operating tax loss
carryforwards in the future to offset existing deferred tax liabilities.
NET LOSS. Net loss increased by approximately $33.3 million or 153% to
approximately $55.1 million for the year ended December 31, 1999 as compared
to a loss of approximately $21.8 million for the year ended December 31,
1998. The increase in net loss is mainly the result of the non-cash stock
option compensation expense charge of approximately $19.6 million, a one-time
payment of $2.0 million to terminate the LMA agreement for Los Angeles radio
station KVCA-AM, increased costs associated with the operation of the
Company's O&Os, the increase in depreciation and amortization resulting from
the significant increase in the number of O&Os, and the increase in interest
expense resulting from the senior discount notes and borrowing under the
revolving credit facility
EBITDA. EBITDA, less the non-cash charge relating to the stock option
compensation expense of approximately $19.6 million and the one-time payment of
$2.0 million to terminate the LMA agreement for Los Angeles radio station
KVCA-AM increased by approximately $3.7 million or 20% to approximately $(14.6)
million for the year ended December 31, 1999 as compared to approximately
$(18.3) million for the year ended December 31, 1998. EBITDA decreased by
approximately $17.8 million or 97% to approximately $(36.1) million for the year
ended December 31, 1999 as compared to approximately $(18.3) million for the
comparable period in the prior year. The decrease in EBITDA is mainly a result
of the one-time charges mentioned above as well as increased costs associated
with the operation of the Company's O&Os.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET REVENUE. Net revenue for the year ended December 31, 1998 was
approximately $8.2 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
O&Os during the year ended December 31, 1997 and as a result had no revenues.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1998
were approximately $28.2 million as compared to approximately $1.8 million for
the year ended December 31, 1997.
Direct operating expenses of approximately $1.9 million related to
engineering and programming costs of the Company's O&Os.
Selling, general and administrative expenses of approximately $10.1 million
related to the operations of the Company's O&Os, an increase of approximately
$10.0 million over the year ended December 31, 1997. Selling, general and
administrative expenses for the year ended December 31, 1997 primarily related
to sales personnel hired for the Company's stations operated under LMAs.
Network expenses of approximately $11.8 million related to the operations of
the Company's network including engineering, programming, sales and
administration, an increase of approximately $11 million over the year ended
December 31, 1997. Network expenses for the year ended December 31, 1997
included costs related to developing and launching of the network including
programming, sales, engineering and administration.
Corporate expenses for the year ended December 31, 1998 of approximately
$2.8 million related to the costs of executive management, legal and
professional fees and other costs, an increase of approximately $1.8 million
24
<PAGE>
over the year ended December 31, 1997. Corporate expenses for the year ended
December 31, 1997 included primarily executive management, legal and
professional fees, promotional costs and travel expenses incurred during the
development stage.
Depreciation and amortization for the year ended December 31, 1998 of
approximately $1.7 million related to the depreciation of the Company's fixed
assets as well as the amortization of its intangibles. The Company placed a
majority of its property and equipment as well as its broadcast licenses and
other intangibles into service on or about December 31, 1997; therefore, there
was no depreciation and amortization expense recorded for the year ended
December 31, 1997.
OTHER INCOME (EXPENSE). Other income (expense) for the year ended December
31, 1998 included interest income of approximately $1.7 million, interest
expense of approximately $6.0 million and equity in loss of equity investee of
approximately $15,000. Interest income primarily related to interest earned on
the remaining proceeds from the Senior Discount Notes. Interest expense related
primarily to the interest on the outstanding balance of the Senior Discount
Notes. The Company had approximately $13,000 in interest expense during the year
ended December 31, 1997 associated with promissory notes due to stockholders.
INCOME TAX BENEFIT. The Company recorded an income tax benefit in 1998 of
approximately $2.4 million. The benefit results from the Company's ability to
utilize a portion of its net operating tax loss carryforwards to offset existing
deferred tax liabilities.
NET LOSS. The Company incurred a net loss of approximately $21.8 million for
the year ended December 31, 1998 as compared to a loss of approximately $1.8
million for the year ended December 31, 1997. The increase in the net loss is a
result of the increased costs associated with the operation of the Company's
network and O&Os as well as the increase in interest expense resulting from the
Senior Discount Notes.
EBITDA. EBITDA was approximately $(18.3) million for the year ended December
31, 1998 as compared to approximately $(1.8) million for the year ended December
31, 1997. The decrease in EBITDA is a result of the increased costs associated
with the operations of the Company's network and O&Os.
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 proceeds
from RUCC's initial public offering, the issuance of the 11 3/4 % Senior
Discount Notes due August 1, 2006 and the issuance of promissory notes,
common stock and preferred stock to the Company's shareholders.
The Company's primary sources of liquidity is the remaining proceeds from
RUCC's initial public offering (see Note 1 to financial statements) and the
Senior Secured Revolving Credit Facility. The Senior Secured Revolving Credit
Facility is a senior secured revolver with $20.0 million of available borrowings
subject to certain conditions. At December 31, 1999 there were no amounts
outstanding under the Senior Secured Revolving Credit Facility.
25
<PAGE>
Net cash used in operating activities decreased by approximately $2.0
million to approximately $19.7 million for year ended December 31, 1999 as
compared to approximately $21.7 million for the years ended December 31, 1998.
Net cash used in investing activities was approximately $40.7 million and $60.6
million for years ended December 31, 1999 and 1998, respectively. The decrease
of $19.9 million from 1999 to 1998 is primarily due to fewer acquisitions that
took place during 1999 as well as the release of funds held in escrow in
connection with the acquisitions taking place during 1999. Net cash provided by
financing activities was $23.9 million and $120.1 million for the years ended
December 31, 1999 and 1998, respectively. Cash provided by financing activities
for the year ended December 31, 1998 included the proceeds from the issuance of
the Senior Discount Notes as well as the issuance of preferred and common stock
partially offset by the repayment of notes payable to stockholders. Cash
provided by financing activities in 1999 was primarily from advances received
from RUCC.
Capital expenditures primarily relate to the purchase of broadcast
equipment for the network and O&Os, leasehold improvements, computer
equipment and telecommunications equipment. Capital expenditures were
approximately $3.8 million and $5.3 million for the years ended December 31,
1999 and 1998, respectively. The decrease in capital expenditures is
primarily due to the significant capital expenditures made during 1998
related to the development of the Company's network and O&Os.
The Company's primary source of liquidity will be the remaining proceeds
from RUCC's initial public offering and the borrowing availability under its
revolving credit facility. The revolving credit facility is a $20.0 million
senior secured revolver subject to certain conditions. As of December 31,
1999 there were no amounts outstanding under the credit facility.
The Company believes that its current cash position, the remaining proceeds
from RUCC's initial public offering 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 its business strategy provides the Company
with sufficient operating cash flow. There can be no assurance that such
business strategy will be successfully implemented or that the future cash
flows of the Company will be sufficient to meet all of the Company's
obligations and commitments. The failure to generate such sufficient cash flow
or to achieve such alternatives could significantly adversely affect the
market value of the Senior Discount Notes and the Company's ability to pay the
principal of and interest on the Senior Discount Notes.
The known impact on future operating results related to the Senior Discount
Notes will be annual interest expense through August 1, 2006 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN MILLIONS)
-------------
<S> <C> <C> <C>
2000........ $ 14.2 2004.......... $ 18.6
2001........ 16.0 2005.......... 18.6
2002........ 17.9 2006.......... 10.8
2003........ 18.6
</TABLE>
Expected interest payments under the terms of the Senior Discount Notes are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
(IN MILLIONS)
----------------------
<S> <C>
2003.... $ 18.6
2004.... 18.6
2005.... 18.6
2006.... 10.8
</TABLE>
Amortization of deferred financing costs and intangibles resulting from the
Senior Discount Notes and the acquisitions of radio stations will be
approximately $3.7 million annually.
IMPACT OF YEAR 2000
26
<PAGE>
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $10,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure with respect to financial instruments is to
changes in the "prime rate" in the United States. We may borrow up to $20
million under our credit facility. Amounts outstanding under the credit facility
bear interest, at the Company's option, at the bank's prime rate plus 1.25% or
LIBOR plus 2.50%. At December 31, 1999 there were no amounts outstanding under
the credit facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
----------
<S> <C>
Report of Independent Certified Public Accountants 28
Consolidated Balance Sheets as of December 31, 1999 and 1998 29
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997 30
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred
Stock and Stockholders' Deficit 31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997 32
Notes to Consolidated Financial Statements 33
</TABLE>
27
<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 as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in Series A redeemable cumulative
preferred stock and stockholders' deficit and cash flows for each of
the three years in the period ended December 31, 1999. Our audits also included
the financial statement schedule listed in the Index of Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Radio Unica Corp. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida
February 22, 2000
28
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
ASSETS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,396,044 $ 38,894,144
Restricted cash 305,000 12,600,000
Accounts receivable, net of allowance for
doubtful accounts of $255,242 and $116,031
at December 31, 1999 and 1998, respectively 5,304,089 1,232,402
Prepaid expenses and other current assets 1,935,991 5,012,001
------------- -------------
Total current assets 9,941,124 57,738,547
Property and equipment, net 17,434,918 11,769,654
Broadcast licenses, net of acumulated
amortization of $3,463,192 and $752,775 at
December 31, 1999 and 1998, respectively 84,665,873 43,729,708
Other intangible assets, net 9,093,528 9,894,522
Other assets 5,123,967 373,142
------------- -------------
$ 126,259,410 $ 123,505,573
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,877,162 $ 922,064
Accrued expenses 2,112,909 3,199,347
Current portion of notes payable 216,067 750,000
------------- -------------
Total current liabilities 4,206,138 4,871,411
Other liabilities 165,000 -
Notes payable 76,911 -
Deferred taxes 1,953,979 1,641,990
Due to parent 25,584,756 -
Senior discount notes 117,732,564 105,029,128
Commitments and contingencies
Series A redeemable cumulative preferred stock
of Radio Unica Communications Corp.$.01 par
value; 5,000,000 and 450,000 shares authorized
at December 31, 1999 and 1998, respectively;
0 and 353,560 shares issued and outstanding
December 31, 1999 and 1998, respectively - 38,266,437
Stockholders' deficit:
Common stock $.01 par value; 1,000 shares
authorized; 100 shares issued and outstanding 1 1
Capital deficiency 59,556,278 (2,611,337)
Deferred compensation expense (4,265,522) -
Accumulated deficit (78,750,695) (23,692,057)
------------- -------------
Total stockholders' deficit (23,459,938) (26,303,393)
------------- -------------
$ 126,259,410 $ 123,505,573
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $ 16,217,180 $ 8,218,043 $ -
Operating expenses:
Direct operating 3,747,894 1,852,832 -
Selling, general and administrative 11,839,845 10,064,219 31,124
Network 12,213,570 11,812,105 812,654
Corporate 2,968,825 2,771,207 959,038
Depreciation and amortization 5,184,941 1,696,376 -
LMA termination fee 2,000,000 - -
Stock option compensation 19,591,106 - -
------------- ------------- -------------
57,546,181 28,196,739 1,802,816
------------- ------------- -------------
Loss from operations (41,329,001) (19,978,696) (1,802,816)
Other income (expense):
Interest expense (14,053,053) (6,038,483) (12,765)
Interest income 656,124 1,748,825 -
Equity in loss of equity investee - (14,867) -
Other (20,719) - -
------------- ------------- -------------
(13,417,648) (4,304,525) (12,765)
------------- ------------- -------------
Loss before income taxes (54,746,649) (24,283,221) (1,815,581)
Income tax (expense) benefit (311,989) 2,446,745 -
------------- ------------- -------------
Net loss (55,058,638) (21,836,476) (1,815,581)
Accrued dividends on Series A
redeemable cumulative preferred stock 3,149,390 2,850,608 119,490
------------- ------------- -------------
Net loss applicable to common
shareholders $ (58,208,028) $ (24,687,084) $ (1,935,071)
============= ============= =============
Net loss per common share applicable
to common shareholders - basic and
diluted $ (582,080) $ (2,438) $ (356)
============= ============= =============
Weighted average common shares
outstanding - basic and diluted 100 10,124 5,434
============= ============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CUMULATIVE
PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A
REDEEMABLE
CUMULATIVE
PREFERRED STOCK COMMON STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 51,975 $ 5,316,990 5,250 $ 53
Issuance of Series A redeemable
cumulative preferred stock and
common stock 148,500 14,850,000 15,000 150
Conversion of notes payable and
promissory notes payable to
stockholders to Series A
redeemable cumulative preferred
stock and common stock 154,700 15,469,965 15,626 156
Cancellation of common stock in
connection with the Radio Unica
Communications Corp.
reorganization - - (35,876) (359)
Issuance of common stock in
connection with the Radio Unica
Communications Corp. reorganization - - 100 1
Redemption and cancellation of
Series A redeemable cumulative
preferred stock of Radio Unica
Communications Corp. (2,110) (221,126) - -
Issuance of Series A redeemable
cumulative preferred stock of
Radio Unica Communications Corp. 495 49,500 - -
Shareholder note receivable issued
for Series A redeemable cumulative
preferred stock of Radio Unica
Communications Corp. - (49,500) - -
Accrued dividends on Series A
redeemable cumulative preferred
stock of Radio Unica
Communications Corp. - 2,850,608 - -
Net loss - - - -
---------- ------------ ---------- ----------
Balance at December 31, 1998 353,560 38,266,437 100 1
Issuance of Series A redeemable
cumulative preferred stock of
Radio Unica Communications Corp. 347 34,650 - -
Accrued dividends on Series A
redeemable cumulative preferred
stock of Radio Unica
Communications Corp. - 3,149,390 - -
Repayment of shareholder note
receivable issued for Series A
redeemable cumulative preferred
stock of Radio Communications Corp. - 49,500 - -
Stock option compensation expense - - - -
Deferred compensation expense - - - -
Exchange of Series A cumulative
preferred stock of Radio Unica
Communications Corp. for common
stock of Radio Unica
Communications Corp. (353,907) (41,499,977) - -
Shareholder note - - - -
Net loss - - - -
---------- ------------ ---------- ----------
Balance at December 31, 1999 - $ - 100 $ 1
========== ============ ========== ==========
ADDITIONAL
PAID-IN DEFERRRED
CAPITAL COMPENSATION ACCUMULATED
(DEFICIENCY) EXPENSE DEFICIT TOTAL
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ (67,043) $ - $ (1,855,581) $ (1,922,571)
Issuance of Series A redeemable
cumulative preferred stock and
common stock 149,850 - - 150,000
Conversion of notes payable and
promissory notes payable to
stockholders to Series A
redeemable cumulative preferred
stock and common stock 156,106 - - 156,262
Cancellation of common stock in
connection with the Radio Unica
Communications Corp.
reorganization 359 - - -
Issuance of common stock in
connection with connection with
the Radio Unica Communications
Corp. reorganization (1) - - -
Redemption and cancellation of
Series A redeemable cumulative
preferred stock of Radio Unica
Communications Corp. - - - -
Issuance of Series A redeemable
cumulative preferred stock of
Radio Unica Communications Corp. - - - -
Shareholder note receivable issued
for Series A redeemable cumulative
preferred stock of Radio Unica
Communications Corp. - - - -
Accrued dividends on Series A
redeemable cumulative preferred
stock of Radio Unica
Communications Corp. (2,850,608) - - (2,850,608)
Net loss - - (21,836,476) (21,836,476)
------------ ------------ ------------ ------------
Balance at December 31, 1998 (2,611,337) - (23,692,057) (26,303,393)
Issuance of Series A redeemable
cumulative preferred stock of
Radio Unica Communications Corp. - - - -
Accrued dividends on Series A
redeemable cumulative preferred
stock of Radio Unica
Communications Corp. (3,149,390) - - (3,149,390)
Repayment of shareholder note
receivable issued for Series A
redeemable cumulative preferred
stock of Radio Communications Corp. - - - -
Stock option compensation expense 19,591,106 - - 19,591,106
Deferred compensation expense 4,265,522 (4,265,522) - -
Exchange of Series A cumulative
preferred stock of Radio Unica
Communications Corp. for common
stock of Radio Unica
Communications Corp. 41,499,977 - 41,499,977
Shareholder note (39,600) - - (39,600)
Net loss - - (55,058,638) (55,058,638)
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 59,556,278 $ (4,265,522) $(78,750,695) $(23,459,938)
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
<PAGE>
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (55,058,638) $ (21,836,476) $ (1,815,581)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 5,184,941 1,696,376 -
Provision for bad debt 139,211 116,031 -
Equity in loss of equity investee - 14,867 -
Interest on notes payable paid with
the issuance of preferred and common
stock - 261,227 -
Accretion of interest on senior
discount notes 12,703,436 5,029,128 -
Amortization of deferred financing costs 770,832 321,181 -
Stock option compensation expense 19,591,106
Deferred taxes 311,989 (2,446,745) -
Other (285,063) - -
Change in assets and liabilities:
Accounts receivable (4,210,897) (1,252,384) -
Prepaid expenses and other current
assets 868,090 (3,433,576) (554,000)
Radio broadcasting rights - 1,650,000 (2,650,000)
Other assets (330,633) (301,689) (108,641)
Accounts payable 955,098 551,046 354,120
Accrued expenses (500,856) 324,743 179,549
Radio broadcasting rights obligation - (2,385,000) 2,385,000
Deposit payable 165,000 - -
-------------- -------------- --------------
Net cash used in operating activities (19,696,384) (21,691,271) (2,209,553)
-------------- -------------- --------------
INVESTING ACTIVITIES
Acquisition of property and equipment (3,771,859) (5,336,309) (1,221,995)
Restricted cash-escrow account 12,295,000 (12,600,000) -
Advances to equity investee - - (1,016,590)
Repayment of advances to equity investee - 1,016,590 -
Deposit on acquisition of radio station (4,500,000) - -
Acquisition of radio stations (44,723,582) (43,409,440) -
Covenant not to compete - (276,743) -
-------------- -------------- --------------
Net cash used in investing activities (40,700,441) (60,605,902) (2,238,585)
-------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of senior discount
notes, net - 95,535,581 -
Intercompany payable, net 25,584,756 - -
Deferred financing costs (1,135,581) - -
Proceeds from issuance of Series A
redeemable cumulative preferred stock
and common stock 44,550 15,000,000 5,205,000
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 (595,000) (5,250,000) -
Redemption and cancellation of preferred
stock - (221,126) -
-------------- -------------- --------------
Net cash provided by financing activities 23,898,725 120,064,455 5,570,000
-------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents (36,498,100) 37,767,282 1,121,862
Cash and cash equivalents at beginning of
period 38,894,144 1,126,862 5,000
-------------- -------------- --------------
Cash and cash equivalents at end of
period $ 2,396,044 $ 38,894,144 $ 1,126,862
============== ============== ==============
Supplemental disclosures of cash flow
information:
Note payable issued in connection with
the acquisition of KIQI-AM
San Francisco $ - $ 6,000,000 $ -
============== ============== ==============
Exchange of Series A redeemable
cumulative preferred stock of Radio
Unica Communications Corp. $ 41,499,977 $ - $ -
============== ============== ==============
Cash paid for interest $ 478,600 $ 413,712 $ -
============== ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
<PAGE>
RADIO UNICA CORP.
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. (the "Company"), 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 the
Company, the surviving corporation. The merger was accounted for as a
combination of entities under common control in a manner similar to a pooling.
In July 1998, the Company effected a holding company reorganization (the
"Reorganization"), pursuant to which the Company became a wholly owned
subsidiary of Radio Unica Communications Corp. ("RUCC"). 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
RUCC's 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 cumulative preferred stock were
cancelled. The Company subsequently authorized and issued 100 shares par value
$0.01 of common stock to RUCC. The outstanding shares of Series A redeemable
cumulative preferred stock issued by RUCC were "pushed-down" to the Company and
accordingly are reflected in the Company's financial statements.
The Company was formed for the purpose of producing, broadcasting and
distributing Spanish language radio programming in the United States. 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 abroad. Prior to the launch, the Company was a
development stage company.
On October 19, 1999, RUCC completed an initial public offering ("IPO") of
6,840,000 shares of its common stock at an IPO price of $16.00 per share. RUCC
received net proceeds from the IPO of approximately $99.4 million on October 22,
1999. The net proceeds from the IPO were and will be used to repay the
indebtedness under the revolving credit facility, to acquire radio stations,
upgrade existing stations and for general corporate purposes.
In connection with RUCC's initial pubic offering, all the outstanding
shares of RUCC'S Series A redeemable cumulative preferred stock were
exchanged for an aggregate of 2,974,909 shares of RUCC common stock.
Accordingly, the liquidation value of the Series A redeemable cumulative
preferred stock outstanding on the date of the initial public offering, which
had been pushed down to the Company, has been accounted for as a contribution
of capital to the Company by RUCC. The total liquidation value of the Series
A redeemable cumulative preferred stock on the date of the initial public
ofering was $41,499,997, which included accrued dividends of $6,119,487.
The Company has entered into Affiliation Agreements ("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.
33
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
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 investments with a
maturity of three months or less at the time of purchase.
RESTRICTED CASH
Restricted cash represents escrow accounts established by the Company in
connection with asset purchase agreements or local marketing agreements.
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 30 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 year ended December 31, 1997.
INTANGIBLE ASSETS
Intangible assets are recorded at cost. Amortization of intangible assets
is provided in amounts sufficient to relate the asset cost to operations over
the estimated useful lives on a straight-line basis. Intangible assets consist
primarily of broadcast licenses, goodwill and other identifiable intangible
assets. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Broadcast licenses... 30 years
Goodwill............. 30 years
Other intangibles... 1-5 years
</TABLE>
The Company evaluates periodically the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest for each of the Company's radio stations over the remaining
amortization periods of the related intangible assets. If such projections
indicate that undiscounted operating income is not expected to be adequate to
recover the carrying amounts of the related intangible assets, a loss is
recognized to the extent the carrying amount of the asset exceeds its fair
value. At this time, the Company believes that no impairment of goodwill or
other intangible assets has occurred and that no reduction of the estimated
useful lives is warranted.
34
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local, national and network advertisers. Revenue is recognized as commercials
are broadcast.
ADVERTISING COSTS
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are charged to expense as incurred and for
the years ended December 31, 1999, 1998 and 1997 amounted to approximately
$3.5 million, $3.6 million, and $82,000, respectively.
BARTER TRANSACTIONS
Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment and services. Barter transactions are
recorded at the estimated fair value of the goods or services received. Revenues
from barter transactions are recognized as income when advertisements are
broadcast. Expenses are recognized when goods or services are used. Barter
amounts are not significant to the Company's consolidated financial statements.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (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 the
Company, the Company became a C Corporation.
Deferred 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 deferred tax assets will not be realized.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under the
provisions of 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 amounts. 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.
35
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate fair value
because of their short duration to maturity. The fair value of the long-term
debt is based on quoted market prices. At December 31, 1999, the fair value of
the Senior Discount Notes was approximately $102,757,000.
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.
BUSINESS SEGMENTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business
Enterprise and Related Information", the Company is required to report segment
information. As the Company only operates in one business segment, no additional
reporting is required.
LOSS PER SHARE
In 1997, the Company retroactively adopted SFAS No. 128, "Earnings Per
Share", which replaced the calculations of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. For the years ended December 31,
1999, 1998 and 1997 there was no difference between the basic and diluted EPS
calculations.
Net loss 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.
RECLASSIFICATION
Certain amounts appearing in the 1998 consolidated financial statements
have been reclassified to conform with the 1999 presentation
36
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
1999 ACQUISITIONS
On October 27, 1998, the Company entered into an asset purchase agreement
with Children's Broadcasting Corporation to acquire certain assets of New York
City area radio stations WWRU-AM and WJDM-AM, Dallas/Ft. Worth radio station
KAHZ-AM and Phoenix radio station KIDR-AM for a purchase price of $29.25
million. In connection with this acquisition, the Company entered into a
two-year non-compete agreement with the seller for $750,000. Other costs
associated with the transaction were approximately $441,000. Pursuant to this
agreement, the Company established escrow accounts totaling $10 million. The
Company operated these stations under a Time Brokerage Agreement (also known as
local marketing agreements and referred to herein as "LMAs") for a monthly fee
of $200,000 until the transaction closed. An advanced payment of $2.5 million
was made to Children's Broadcasting Corporation with the execution of the LMA.
On January 14, 1999, after receiving the consent of the Federal Communications
Commission (the "FCC") to assign the broadcasting licenses, the Company
completed the acquisitions. Based on current FCC guidelines, the license of
either WWRU or WJDM must be relinquished by the Company by March 12, 2003.
On February 22, 1999, the Company entered into an asset purchase agreement
with One-on-One to acquire certain assets of Chicago radio station WNTD-AM for a
cash purchase price of approximately $16.7 million. Other costs associated with
the transaction were approximately $60,000. The Company funded a $1 million
escrow account in conjunction with this transaction. On May 14, 1999, after
receiving the consent of the FCC to assign the broadcasting licenses, the
Company completed the acquisition.
On October 18, 1999, the Company entered into an asset purchase agreement
with Den-Mex LLC to acquire Denver radio station KCUV-AM for a cash purchase
price of $2.7 million. On January 3, 2000, after receiving the consent of the
FCC to assign the broadcasting license, the Company completed the acquisition.
The Company operated the station under a LMA for a monthly fee of $25,000 from
June 1999 to December 1999.
On December 23, 1999, the Company entered into an asset purchase agreement
with Harry Pappas to acquire Fresno radio station KFRE-AM. The Company has
paid a $4.5 million deposit in conjunction with this transaction. The
transaction is expected to be finalized upon the receipt of the FCC's
approval to assign the broadcasting license.
1998 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 WAFN-AM for a
cash purchase price of $9.0 million. Other costs associated with the
transaction were approximately $167,000. On May 13, 1998, after receiving the
consent of the FCC to assign the broadcasting licenses, the Company completed
the acquisitions. The Company operated the stations under a LMA for a monthly
fee of $72,500 from February 1, 1998 to May 13, 1998. Based on current FCC
guidelines, the license of either WNMA or WAFN must be relinquished by the
Company by October 8, 2002.
37
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS, CONTINUED
1998 ACQUISITIONS, CONTINUED
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.
Other costs associated with the transactions were approximately $277,000. On
April 30, 1998, after 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. The promissory note 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. The
Company operated the station under an LMA for a monthly fee of $58,000 from
March 2, 1998 to April 30, 1998. Effective February 1999, the Company ceased
interest payments on the note. The Company has offset certain costs and expenses
related to the acquired entity against the balance due. The Company accounted
for the acquisition as a purchase and, accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on appraisals
and other estimates of the underlying values.
On May 20, 1998, the Company entered into an asset purchase agreement to
acquire the assets of Los Angeles radio station KBLA-AM from subsidiaries of
Sinclair Communications, Inc. for $21 million in cash. Other costs associated
with the transaction were approximately $466,000. On July 30, 1998, after
receiving the FCC's consent to assign 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 RUCC.
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. 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 an LMA with 13 Radio
effective as of January 5, 1998. The LMA 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 an LMA 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 LMA on January 5, 1998. Blaya, Inc. did not have
any operations during 1997.
On March 6, 1998, Blaya, Inc.'s capital stock was divided 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 economic 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 right of first refusal
if the majority voting stockholder decided to sell any interest in Blaya, Inc.
38
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS, CONTINUED
1998 ACQUISITIONS, CONTINUED
On March 10, 1998, the Company entered into a promissory note in the amount
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 bore interest of 9% compounded quarterly and was payable
annually. The entire principal amount outstanding under the promissory note was
due and payable in full on the earliest to occur of (i) the termination of the
LMA, (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. were
sold, or (iii) March 10, 2008. The promissory note 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 an asset purchase agreement
dated December 24, 1997. Other costs associated with the transaction were
approximately $100,000. On June 10, 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 License Corp., a wholly owned subsidiary of Blaya,
Inc., became an indirect, wholly owned subsidiary of the Company. The
majority-voting stockholder of Blaya, Inc. 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
the Company accounted for such cancellation as a contribution to Blaya,
Inc.'s capital.
The Company accounted for the acquisition of Blaya, Inc. as a purchase and
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on appraisals and other estimates of the underlying
values. The operations of Blaya, Inc. are included in the consolidated statement
of operations of the Company beginning on September 11, 1998.
The acquisitions of the assets of WNMA-AM and WAFN-AM, Miami, KBLA-AM,
Los Angeles, WWRU-AM and WJDM-AM, New York, KAHZ-AM, Dallas/Ft.Worth, KIDR-AM,
Phoenix, and WNTD-AM, Chicago, were not the purchases of businesses, as the
format and language of the stations were changed and the Company did not assume
responsibility for any employees. The acquisitions were accounted for as
purchases and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on appraisals and other estimates of
their underlying values.
The pro forma results of operations of the Company for the years ended
December 31, 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>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net revenue................................................. $ 8,529,015 $ 3,586,407
============== ==============
Net loss applicable to common shareholders.................. $ (25,004,564) $ (3,433,090)
============== ==============
Net loss per common share applicable to
common shareholders - basic and diluted.................... $ (2,470) $ (632)
============== ==============
</TABLE>
39
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 "Old Notes"). Cash interest on the Old Notes would
not accrue or be payable prior to August 1, 2002. Thereafter, cash interest
would accrue at a rate of 11 3/4% per annum on the principal amount at maturity
of the Old Notes through and including the maturity date and would 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 $94.4 million
after deducting issuance expenses of approximately $5.6 million.
The Old Notes were general senior unsecured obligations of the Company and
ranked 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 Old Notes were 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 in the Indenture, dated July 27, 1998 between the
Company, Wilmington Trust as trustee and the Guarantors named therein (the
"Indenture")), on a full, unconditional, joint and several basis. The Old Notes
were 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 could redeem, at its
option, up to 35% of the aggregate principal amount at maturity of the Old Notes
with the net proceeds of one or more Equity Offerings, as defined, at 111.75% of
the Accreted Value thereof, as defined in the Indenture, as long as Old Notes
representing at least $65.0 million of the aggregate initial Accreted Value of
the Old Notes originally issued remained outstanding after each such redemption
and that such redemption occurred within 90 days of the closing of any such
Equity Offering.
Upon a Change of Control as defined in the Indenture, the Company would be
required to offer to repurchase the Old Notes at a purchase price equal to (i)
101% of the Accreted Value thereof, if the purchase date was 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
was after August 1, 2002.
The Old Notes restricted, 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.
On December 17, 1998, in order to satisfy certain obligations of the Company
under a Registration Rights Agreement, dated July 22, 1998, between the Company,
CIBC Oppenheimer Corp. and Bear, Stearns & Co. Inc., the Company completed the
registration of the Old Notes and exchanged the Old Notes for newly issued 11
3/4% Senior Discount Notes Series B due 2006 (the "New Notes").
The form and terms of the New Notes are substantially the same as the Old
Notes, except that the New Notes have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), and hence are not subject to certain
transfer restrictions, registration rights and related liquidated damages
provisions applicable to the Old Notes. The New Notes evidence the same debt as
the Old Notes and are entitled to the benefits of the Indenture. The Indenture
provides for the issuance of both the Old Notes and the New Notes.
40
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
SENIOR SECURED REVOLVING CREDIT FACILITY
On July 8, 1998, the Company entered into a credit agreement with a bank for
a senior secured revolving credit facility (the "Revolving Credit Facility")
providing for up to $20.0 million of availability. The Revolving Credit Facility
will mature in May 2002. Amounts outstanding under the Revolving Credit Facility
bear interest at the higher of the (i) bank's prime rate plus 1.25% or (ii)
LIBOR plus 2.50%. The obligations under the Revolving Credit Facility are
guaranteed by RUCC and secured by substantially all the assets of the Company
and its subsidiaries.
The Company has paid and pays 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 December 31, 1999, 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 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
December 31, 1999 the Company was in compliance with these covenants.
5. PROMISSORY NOTES PAYABLE
On July 15 and July 24, 1997, the Company entered into promissory notes
payable with several stockholders amounting to $365,000. 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 January 5, 1998, Warburg, Pincus Ventures, L.P. ("WPV") purchased
148,500 shares of preferred stock and 15,000 shares of common stock in exchange
for $15,000,000.
In April, May and June 1998, the Company entered into four promissory notes
payable to WPV in the aggregate amount of approximately $21.8 million. Such
notes bore interest at 10% per annum and were due on demand. 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. The Company paid the remaining $6.795
million on July 15, 1998.
41
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES ---------------------------------
(YEARS) 1999 1998
---------------- -------------- --------------
<S> <C> <C> <C>
Land................................................ - $ 3,339,119 $ 2,629,241
Buildings.......................................... 30 1,271,559 1,064,349
Broadcast equipment................................ 7 10,719,737 6,273,644
Leasehold improvements............................. 10 1,685,581 910,393
Office equipment, computers & software............. 3-5 1,771,603 1,205,049
Furniture & fixtures............................... 5 731,858 380,804
Automobiles........................................ 5 223,841 -
-------------- --------------
19,743,298 12,463,480
Less: Accumulated depreciation and amortization 2,308,380 693,826
-------------- --------------
$17,434,918 $11,769,654
============== ==============
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $1,614,554, $693,826 and $0, respectively.
7. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES ----------------------------------
(YEARS) 1999 1998
--------------- ---------------- --------------
<S> <C> <C> <C>
Goodwill..................................... 30 $ 4,088,735 $ 4,088,735
Deferred financing costs..................... 4-8 5,600,000 5,600,000
Covenants not to compete..................... 1-5 1,526,743 776,743
---------------- --------------
11,215,478 10,465,478
Less: Accumulated amortization............... 2,121,950 570,956
---------------- --------------
$ 9,093,528 $ 9,894,522
================ ==============
</TABLE>
Amortization expense for other intangible assets for the years ended
December 31, 1999 and 1998 was $1,550,994 and $570,956, respectively.
Amortization expense relating to the deferred financing costs of $770,832 and
$321,181 for the years ended December 31, 1999 and 1998 was classified as
interest expense. There was no amortization expense for the year ended
December 31, 1997.
8. 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 year ended December 31, 1997.
42
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES, CONTINUED
HISTORICAL
The components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred.......................................... $ 311,989 $ (2,446,745)
--------------- ---------------
$ 311,989 $ (2,446,745)
=============== ===============
</TABLE>
The differences between the federal statutory income tax and the effective
income tax rate are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Tax benefit at federal statutory rate................ $(19,161,327) $(8,499,127)
State income tax benefit, net of federal benefit..... (1,788,792) (1,239,329)
Permanent differences................................ 6,984,390 60,111
Other................................................ (23,078) (58,775)
Increase in valuation allowance...................... 14,300,796 7,290,375
---------------- -----------------
$ 311,989 $(2,446,745)
================ =================
</TABLE>
Deferred income taxes reflect the tax effects 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>
YEAR ENDED
DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $25,888,236 $11,079,878
Other................................................ 161,755 45,340
--------------- ---------------
26,049,991 11,125,218
Valuation allowance.................................. (22,142,034) (7,841,238)
--------------- ---------------
Total deferred tax assets............................ 3,907,957 3,283,980
Deferred tax liabilities:
Amortization......................................... (5,835,113) (4,912,080)
Other................................................ (26,823) (13,890)
--------------- ---------------
(5,861,936) (4,925,970)
--------------- ---------------
Total net deferred taxes.............................. $ (1,953,979) $(1,641,990)
=============== ===============
</TABLE>
43
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES, CONTINUED
PRO FORMA
The differences 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>
YEAR ENDED
DECEMBER 31,
1997
-------------------
<S> <C>
Tax benefit at federal statutory rate................. $ (617,298)
State income tax benefit, net of federal benefit...... (65,392)
Permanent differences................................. 4,810
Valuation allowance................................... 677,880
---------------
Net deferred tax asset................................ $ -
===============
</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 $22,142,034 valuation allowance at
December 31, 1999 is necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized. The change in the
valuation allowance for the current year is approximately $14,301,000. At
December 31, 1999, the Company has available net operating tax loss
carryforwards of approximately $56,052,000, of which approximately
$53,055,000 expire in the years 2018 through 2019 and the remaining
$2,997,000 expire in years 2007 through 2012.
9. SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK
RUCC has 5,000,000 authorized shares of redeemable, 10% cumulative,
nonconvertible, voting, Series A Preferred Stock (the "Preferred Stock"), $.01
par value, of which 0 and 353,560 shares were issued and outstanding at December
31, 1999 and 1998, respectively. If and when dividends are declared by the Board
of Directors of RUCC, 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 of RUCC 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
RUCC, 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. Pursuant to the Reorganization, all of
the outstanding shares of Series A redeemable cumulative preferred stock issued
by RUCC have been "pushed-down" to the Company.
In connection with RUCC's initial public offering, all the outstanding
shares of RUCC's Series A redeemable cumulative preferred stock were exchanged
for an aggregate of 2,974,909 shares of RUCC common stock. Accordingly, the
liquidation value of the Series A redeemable cumulative preferred stock
outstanding on the date of the initial public offering, which had been pushed
down to the Company, has been accounted for as a contribution of capital to the
Company by RUCC. The total liquidation value of the Series A redeemable
cumulative preferred stock on the date of the initial public offering was
$41,499,977, which included accrued dividends of $6,119,487.
44
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK, CONTINUED
On August 28, 1998 the Company, pursuant to a separation agreement between
the Company and its former President and Chief Operating Officer, redeemed and
cancelled 2,110 shares of Series A redeemable cumulative preferred stock of RUCC
in exchange for $221,126.
10. 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 6,200,000 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 2,387,000 shares of its common stock. Upon the
consummation of the Reorganization, each option to purchase one share of
Company's common stock was converted into an option to purchase one share of
RUCC's common stock, exercisable upon the same terms and conditions as they
were under the Company's stock option plan, and the Company's stock option
plan was cancelled.
In 1998, RUCC granted options to its employees to purchase 2,844,870 shares
of the RUCC's common stock. Of the 2,844,870 options granted, 678,280 vested
immediately, 407,650 vest ratably over time and 635,500 vest upon the attainment
of certain performance goals as determined by the Committee. Of the 635,500
options, 130,888 vested on December 31, 1998. The exercise price of the 678,280
options which vested immediately, the 407,650 options which vest ratably over
time and the 130,888 options which vested on December 31, 1998 is $0.03 per
share, which was determined by the Committee to be the fair market value at the
date of grant, or, in the case of the 130,888 options, on the date they vested.
As a result, no compensation expense has been recognized on these options under
the provisions of APB Opinion No. 25. The remaining 1,123,440 options have an
exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of RUCC
or substantially all of its assets, (ii) an initial public offering, or (iii) an
issuance of capital stock of RUCC that would result in WPV and/or its affiliates
in the aggregate ceasing to control more common stock of RUCC than any other
single shareholder. Compensation expense for the 1,123,440 options will be
recognized to the extent that the market value of the shares exceeds the option
price when vesting for these options becomes probable. Vesting for these options
was not deemed probable as of December 31, 1998 and no compensation expense has
been recorded for these options as of December 31, 1998.
During 1999, RUCC has granted options to its employees to purchase
1,914,667 shares of the RUCC's common stock. Of the 1,914,667 options granted,
1,821,357 vest ratably over time and 31,620 vest upon the attainment of certain
performance goals as determined by the Committee. The exercise price of the
1,821,357 options which vest ratably over time range from $0.03 to $32.00 per
share, which was determined by the Committee to be the fair market value at the
date of grant. As a result, no compensation expense has been recognized on these
options under the provisions of APB Opinion No. 25. The remaining 61,690 options
have an exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of
RUCC or substantially all of its assets, (ii) an initial public offering, or
(iii) an issuance of capital stock of the RUCC that would result in WPV and/or
its affiliates in the aggregate ceasing to control more common stock of RUCC
than any other single shareholder.
45
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN, CONTINUED
During 1999, the 31,620 and 61,690 options granted in 1999 and the
635,500 and 1,123,400 options granted in 1998, which were variable options
were valued at the initial public offering price of $16.00 per share.
Compensation expense of approximately $19,591,000, representing the extent
that the market value of the shares exceeded the option price, was charged to
operations immediately and approximately $4.3 million will be charged to
operations over the remaining vesting period.
Changes to the plan for 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997
------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
--------- -------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 2,844,870 $ 0.58 2,387,000 $ 0.03 - -
Granted......................... 1,914,667 $ 15.61 2,844,870 $ 0.58 2,387,000 $ 0.03
Exercised....................... (46,004) $ 0.03 - - - -
Cancelled....................... (79,008) $ 1.05 (2,387,000) $ 0.03 - $ 0.03
--------- -------- --------- -------- --------- -------
Outstanding at end of year...... 4,634,525 $ 6.75 2,844,870 $ 0.58 2,387,000 $ 0.03
========= ======== ========= ======== ========= =======
Options exercisable at year-end 2,529,246 $ 0.65 972,228 $ 0.03 667,430 $ 0.03
========= ======== ======= ======== ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE PRICE NUMBER CONTRACTUAL NUMBER EXERCISE
RANGE OUTSTANDING LIFE EXERCISABLE PRICE
<S> <C> <C> <C> <C>
$0.03 - $1.72 2,821,148 6.48 2,529,246 $ 0.65
$16.00 - $25.13 1,785,777 9.80 - -
$25.50 - $32.00 27,600 9.88 - -
</TABLE>
The weighted average per share fair values of options granted under the
stock option plan during 1999, 1998 and 1997, based on the Black-Scholes option
valuation model, were $6.19, $0.008 and $0.007, respectively. Had compensation
expense for the RUCC's stock option grants been determined based in the fair
value at the grant date for awards consistent with the methods of SFAS No. 123,
the Company's net loss would have increased the pro forma amounts for each year
as indicated below:
46
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN, CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
-------------- ---------------- -------------
<S> <C> <C> <C>
Net loss applicable to common
stockholders
As reported....................... $ (58,208,028) $ (24,687,084) $ (1,935,071)
============== ================ =============
Pro forma......................... $ (58,783,189) $ (24,688,270) $ (1,939,851)
============== ================ =============
Net loss per share applicable to
common stockholders
As reported....................... $ (582,080) $ (2,438) $ (356)
============== ================ =============
Pro forma......................... $ (587,832) $ (2,439) $ (357)
============== ================ =============
</TABLE>
The following weighted average assumptions were used in the Black-Scholes
model:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Expected life........... 5 years 5 years 5 years
Interest rate........... 6.50% 6.00% 6.00%
Volatility.............. 130% - -
Dividend Yield.......... - - -
</TABLE>
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models, in management's opinion, do
not necessarily provide a reliable single measure of the fair value RUCC's stock
options.
11. COMMITMENTS
LOTUS OXNARD CORP. TIME BROKERAGE AGREEMENTS
On October 31, 1997, the Company entered into a LMA with Lotus to operate
San Antonio radio station KZDC, effective January 5, 1998. Simultaneous with the
LMA, the Company entered into an asset purchase option agreement with Lotus
which provides an option to purchase the assets of KZDC, including its
broadcasting license, from Lotus, which is exercisable at any time from June 24,
2001 through and including December 31, 2001. The LMA 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. The future minimum payments
under the Lotus LMA are $250,000 for 2000 and $275,000 for 2001.
47
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, CONTINUED
QUETZEL BILINGUAL COMM., INC., TIME BROKERAGE AGREEMENT
On December 29, 1999 the Company entered into a LMA with Quetzel Bilingual
Comm., Inc to operate San Diego radio station KURS, effective January 1, 2000.
The term of this LMA is through December 31, 2001 and the Company's annual
LMA payment is $744,000. The Company has an option to purchase the assets of
KURS. The option is exercisable from September 1, 2000 through
December 31, 2002.
RADIO BROADCASTING RIGHTS
On September 28, 1998, the Company entered into Radio Broadcasting Rights
Agreements ("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.
At December 31, 1999, future minimum obligations under the Rights
Agreements are as follows:
<TABLE>
<S> <C>
January 15, 2000........ $ 600,000
June 30, 2000........... 600,000
March 31, 2001.......... 600,000
----------------
$ 1,800,000
================
</TABLE>
LEASES
The Company leases office space, broadcasting studios and certain equipment
under operating leases, which expire at various dates through December 2012.
Certain leases contain renewal options and provide for base rental payments plus
escalation charges for real estate taxes and operating expenses.
At December 31, 1999, future minimum lease payments under such leases are as
follows:
<TABLE>
<S> <C>
2000........................ $ 871,000
2001........................ 810,000
2002........................ 847,000
2003........................ 692,000
2004........................ 592,000
Thereafter.................. 1,718,000
----------------
$ 5,530,000
================
</TABLE>
Total rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $943,000, $526,000, and $109,000, respectively.
48
<PAGE>
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION
The New Notes 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.
Summarized financial information of guarantor subsidiaries are as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Current assets.................................... $ 7,545,080 $ 18,844,403
Total assets...................................... 126,280,545 84,611,429
Current liabilities (including due to parent of
$22,383,324 and $19,421,468, respectively)....... 26,589,462 24,292,879
Total liabilities................................. 56,787,286 25,934,869
Net revenue....................................... 16,217,180 8,218,043
Operating expenses................................ 32,371,513 22,677,176
Net loss.......................................... (29,883,970) (16,316,913)
</TABLE>
13. SUBSEQUENT EVENTS
On February 11, 2000 the Company contracted to acquire substantially all
the assets used in the operations of station KVJY (AM) broadcasting on 840 kHz
in McAllen, Texas from El Pistolon Investments, L.P., for a cash purchase
price of approximately $2.5 million. The Company funded a $500,000 escrow in
conjunction with this transaction. KVJY's transmitter is located in Edinburg,
Texas and enables the station to reach substantially all of the
McAllen/Brownsville market. The transaction is expected to be finalized upon
receipt of the FCC's approval to assign the broadcasting license.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by Item 10 with respect to directors, nominees and
executive officers of the Company is incorporated by reference to the
information set forth under in Radio Unica Communications Corp. Definitive
Schedule 14A Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the Company's fiscal year-end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
information set forth in Radio Unica Communications Corp's Definitive Schedule
14A Proxy Statement to be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year-end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company's Common Stock has not been registered under the Securities Act
of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is not listed on any national securities
exchange. There is no established public trading market for the Company's Common
Stock. All of the Company's outstanding shares of common stock are owned by
Radio Unica Communications Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
information set forth in Radio Unica Communications Corp's Definitive Schedule
14A Proxy Statement to be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year-end.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements have been filed under Item 8 of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred
Stock and Stockholders' (Deficit) Equity
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts.
(b) Reports on Form 8-K
None
51
<PAGE>
RADIO UNICA CORP.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED CHARGES BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION YEAR AND EXPENSES ACCOUNTS DEDUCTION YEAR
- ----------- ------------ ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
1999:
Allowance for doubtful trade accounts
Receivable $ 116,031 $ 160,208 $ 0 $ 20,997 $ 255,242
=========== ============== ======= ========= ============
Deferred tax valuation allowance $ 7,841,238 $ 14,300,796 $ 0 $ 0 $ 22,142,034
=========== ============== ======= ========= ============
1998:
Allowance for doubtful trade accounts
Receivable $ - $ 118,098 $ - $ 2,067 $ 116,031
=========== ============== ======= ========= ============
Deferred tax valuation allowance $ 550,863 $ 7,290,375 $ - $ - $ 7,841,238
=========== ============== ======= ========= ============
1997:
Allowance for doubtful trade accounts
Receivable $ - $ - $ - $ - $ -
=========== ============== ======= ========= ============
Deferred tax valuation allowance $ - $ 550,863 $ - $ - $ 550,863
=========== ============== ======= ========= ============
</TABLE>
52
<PAGE>
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1* Certificate of Incorporation of the Company.
3.2* Bylaws of the Company.
4.1* Indenture dated as of July 27, 1998 between Radio Unica Corp. and
Wilmington Trust Company, as Trustee.
10.1* Credit Agreement, dated as of July 8, 1998 among Radio Unica Corp.,
Radio Unica Holdings Corp., the several banks and other financial
institutions from time to time parties thereto and Canadian Imperial
Bank of Commerce, in its individual capacity and as Agent ("CIBC").
10.2* Time Brokerage Agreement, dated as of October 31, 1997, by and between
Radio Unica and Texas Lotus Corp. relating to KZDC(AM).
10.3*(a) Asset Purchase Agreement, dated as of January 26, 1998, by and among
Radio Unica, One-on-One Sports License of Florida, L.L.C. and
One-on-One Sports Radio of Florida, L.L.C.
10.4*(a) Stock Purchase Agreement, dated as of February 20, 1998, by and among
Radio Unica, Oro Spanish Broadcasting, Inc. and Rene De La Rosa. 10.5*
Asset Purchase Agreement, dated as of May 20, 1998, by and among Radio
Unica, Sinclair Radio of Los Angeles, Inc. and Sinclair Radio of Los
Angeles Licensee, Inc.
10.6* Form of Non Competition and Confidentiality Agreement with each of
Joaquin F. Blaya and Steven E. Dawson, dated August 13, 1997.
10.7* Agreement, dated as of January 15, 1998, entered into by and between
Radio Unica Corp. and Jorge Ramos.
10.8* Amended and Restated Artist Agreement, dated as of June 5, 1998,
entered into by and between Radio Unica Network, Inc. and Raque
Productions (for services of Pedro Sevcec).
10.9* Independent Contractor Agreement dated as of June 30, 1998 between
Radio Unica Network, Inc. and Dra Isabel, Inc. (for services of Isabel
Gomez Bassols).
10.10* Stock Purchase Agreement, dated as of June 10, 1998, by and among
Radio Unica, Blaya, Inc. and Joaquin F. Blaya.
10.11* Option Agreement, dated as of October 31, 1997, by and between Texas
Lotus Corp. and Radio Unica.
10.12(a)* Agreement, dated as of September 28, 1998, between Radio Unica and
Inter/Forever Sports, Inc.
53
<PAGE>
10.13(a)* Agreement, dated as of September 28, 1998, between Radio Unica and
Inter/Forever Sports, Inc.
10.14* Asset Purchase Agreement, dated as of October 26, 1998, among Radio
Unica, Children's Broadcasting Corporation, Children's Radio of
Dallas, Inc., Children's Radio of Phoenix, Inc. and Children's Radio
of New York, Inc.
10.15* First Amendment to Asset Purchase Agreement, dated as of October 27,
1998, among Radio Unica, Children's Radio of Dallas, Inc., Children's
Radio of Phoenix, Inc., and Children's Radio of NewYork, Inc.
10.16*** Asset Purchase Agreement, dated as of February 22, 1999, among Radio
Unica, One-on-One Sports License of Illinois, L.L.C. and One-on-One
Sports Radio of Illinois, L.L.C.
10.17**** Time Brokerage Agreement dated as of December 29, 1999 buy and
between Radio Unica Corp and Quetzal Bilingual Comm., Inc
10.18**** Option Agreement dated as of December 29, 1999 buy and between Radio
Unica Corp and Quetzal Bilingual Comm., Inc.
21.1**** Subsidiaries
27.1**** Financial data schedule
</TABLE>
---------------
* Incorporated by reference from Registration Statement on Form S-4 (No.
333-61211) of Radio Unica Corp. as amended, as declared effective by the
Securities and Exchange Commission on December 18,1998.
** Incorporated by reference from Registration Statement on Form S-1 (No
333-82561) of Radio Unica Communications Corp, as amended, as declared
effective by the Securities and Exchange Commission on October 19, 1999.
*** Incorporated by reference from Annual Report on Form 10-K for the year
ended December 31, 1998 filed by Radio Unica Corp.
**** Filed herewith
(a) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Securities
and Exchange Commission
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 2000.
Radio Unica Corp.
By: /s/ JOAQUIN F. BLAYA
--------------------
Joaquin F. Blaya
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOAQUIN F. BLAYA Chairman of the Board March 24, 2000
- -------------------------- Chief Executive Officer
Joaquin F. Blaya
/s/ JOSE CANCELA President and Director March 24, 2000
- ---------------------------
Jose Cancela
/s/ STEVEN E. DAWSON Chief Financial Officer, March 24, 2000
- ------------------------- Executive Vice President
Steven E. Dawson Secretary and Director
/s/ MANUEL BORGES Chief Accounting Officer March 24, 2000
- ---------------------------
Manuel Borges
/s/ JOHN D. SANTOLERI Director March 24, 2000
- ---------------------------
John D. Santoleri
/s/ SIDNEY LAPIDUS Director March 24, 2000
- ---------------------------
Sidney Lapidus
/s/ ANDREW C. GOLDMAN Director March 24, 2000
- -----------------------
Andrew C. Goldman
</TABLE>
55
<PAGE>
EXHIBIT 10.17
TIME BROKERAGE AGREEMENT
THIS TIME BROKERAGE AGREEMENT ("Agreement"), dated as of December 29,
1999, is made and entered into by and between RADIO UNICA CORP., a Delaware
corporation ("Unica"), and QUETZAL BILINGUAL COMM., INC., a California
corporation ("Quetzal").
WHEREAS, Quetzal is the owner and operator of radio station KURS, 1040
kHz, licensed to San Diego, California (the "Station");
WHEREAS, Unica and Quetzal have entered into that certain Option
Agreement, dated as of December 29, 1999 (the "Option Agreement"), pursuant to
which Quetzal has granted to Unica an option (the "Option") to purchase
substantially all of the assets of the Station pursuant to the Asset Purchase
Agreement (the "Asset Purchase Agreement") attached as an exhibit to the Option
Agreement;
WHEREAS, Quetzal desires to make available to Unica substantially all
the broadcasting time on the Station; and
WHEREAS, Unica is engaged in the business of radio broadcasting and
desires to avail itself of the Station's available broadcast time.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, Unica and Quetzal agree as follows:
1. COMMENCEMENT DATE AND FACILITIES.
Commencing 12:01 a.m. on Saturday, January 1, 2000 (the "Operational
Commencement Date"), Quetzal shall broadcast, or cause to be broadcast, over the
Station transmission facilities certain programming, consisting of programs,
announcements and advertising (the "Programming"), originating at the Station's
studio or delivered to Quetzal by Unica in compliance with the provisions of
Section 6(a) of this Agreement. Unica shall deliver the Programming to Quetzal's
transmitter site at Unica's exclusive cost, by means reasonably acceptable to
Quetzal.
2. LICENSE TO USE STUDIO AND OFFICE FACILITIES; ASSIGNMENTS.
(a) During the Term (as hereinafter defined) of this Agreement Unica is
hereby granted a license to utilize the Station's studio and office facilities
located at the News Plaza Building, 296 H Street, 3rd Floor, Chula Vista, CA
91910 (the "Premises"); PROVIDED, THAT until February 29, 2000, Mr. Jaime
Bonilla and his personnel shall be allowed to continue to use approximately
1,410 square feet of office space located on the Premises that Mr. Bonilla and
his peronnel are currently using for business offices (the "Office Space").
Unica hereby agrees to pay News Baja, Inc. a monthly fee of Two Thousand Six
Hundred Twenty-Six Dollars ($2,626.00) for the use of the Office Space
commencing on March 1, 2000 and continuing for the remainder of the Term of this
Agreement; except that, no such monthly fee for the Office Space shall be owed
by Unica until Mr. Bonilla and
<PAGE>
his personnel have vacated the Office Space. During the Term of this Agreement,
Unica shall be obligated to make no payments for the license to use the Premises
other than the monthly fee called for by this Section 2(a) and the fee called
for by Section 4 hereof. Unica shall not make any material physical improvements
or changes to the Premises without the prior written consent of Quetzal, which
consent shall not be unreasonably denied nor delayed; PROVIDED, HOWEVER, that
Unica may, at its own expense, install on the Premises such equipment,
including, without limitation, satellite receivers, as necessary to permit Unica
to broadcast the Programming on the Station. Such installation shall be subject
to Quetzal's approval and supervision. Title to any such equipment installed on
the Premises by Unica shall remain with Unica. Unica does not assume, and shall
not be deemed to assume, under this Agreement or otherwise by reason of the
transactions contemplated by this Agreement, any liabilities, obligations or
commitments of Quetzal of any nature whatsoever, regardless of whether arising
from or relating to the ownership, operations or business of the Station. Except
as specifically provided in Section 2(d) hereof, this Agreement shall not
constitute an assignment of any contract or lease to which Quetzal is a party,
including without limitation any studio or tower leases. Consistent with this
Agreement, except as specifically provided in Section 2(d) hereof, Quetzal shall
continue to perform all of its obligations under all contracts, leases and other
agreements in a timely manner and otherwise keep all such contracts and leases
in full force and effect.
(b) In the event that Unica exercises the Option pursuant to the terms
of the Option Agreement, Unica and News Baja, Inc., the controlling shareholder
of Quetzal, agree to enter into a lease agreement substantially in the form of
Quetzal's current lease with News Baja for the Premises, a copy of which is
attached hereto as Exhibit A, which lease shall include the following terms:
Unica shall pay monthly rent of $8,400.00 for a term of seven years and shall
have the option to extend the term of the lease for an additional five years.
The monthly rent shall be increased three percent (3%) per year. The lease shall
include parking, general building maintenance and the use of fifty percent (50%)
of the garage (News Baja to pay for separation wall and new exterior entrance
into subdivided space). Electrical shall be paid for at a rate of thirty-three
percent (33%) of the electrical invoice for the building. The first and last
month's rent shall be paid as a deposit.
(c) In addition to any payments required pursuant to Section 4(a)
hereof and Section 1.6 of the Option Agreement, on the date hereof, Unica shall
pay News Baja One Hundred Thousand Dollars ($100,000.00) for vacating the
Premises, such amount to be paid by wire transfer of immediately available funds
to an account specified by Quetzal in writing.
(d) Subject to the terms hereof, Quetzal hereby assigns, transfers, and
conveys to Unica, its successors and assigns, and Unica hereby accepts all of
the rights, title and interest of Quetzal in the contracts set forth on Schedule
2(d)(i) hereof. In addition, Quetzal hereby assigns title to and Unica hereby
accepts the contracts to a 1996 GMC Safari, account number 085-0368-18340 and a
1996 GMC Safari, account number 085-0368-19474 and Quetzal hereby further
assigns title to a 1985 GMC Step Van. Additionally, Unica hereby assumes the
obligations for advertising time as set forth on Schedule 2(d)(ii) hereto;
PROVIDED, THAT, in no event will Unica be responsible for more than $149,879.50
of advertising time which obligation Unica shall fulfill in accordance with
Seller's
2
<PAGE>
rate card; and subject to the terms of Section 21.2(g) hereof, Unica covenants
and agrees to use its best efforts to commission Lotus Hispanic Reps. Corp., a
California corporation ("Lotus") for sales previously booked and recorded for
the broadcast period that begins January 1, 2000 pursuant to that certain
contract dated September 28, 1999 between Lotus and Pacific Spanish Network
Radio Station KURS (the "Lotus Agreement").
3 TERM.
This Agreement shall be effective on January 1, 2000, and, unless
sooner terminated, extended or renewed as hereinafter provided, shall end on
December 31, 2001 (the "Initial Term"). In the event the Option is exercised by
Unica, the Initial Term of this Agreement shall end upon the Closing (as defined
in the Asset Purchase Agreement) or the termination of the Asset Purchase
Agreement pursuant to the terms thereof, it being expressly agreed and
understood that termination of the Asset Purchase Agreement shall not result in
the Initial Term of this Agreement ending prior to December 31, 2001. At any
time prior to the end of the Initial Term, Unica, at its sole option, by written
notice to Quetzal, may renew this Agreement for an additional one year period,
in which case this Agreement, unless sooner terminated, shall continue from
January 1, 2002 and end on December 31, 2002, (the "Renewal Term," and together
with the Initial Term, the "Term").
4 PAYMENTS BY UNICA.
(a) In addition to any fees and costs Unica incurs in producing,
providing and delivering the Programming (including costs payable by Unica
pursuant to Section 4(c) and Section 10(a) hereof), and the fees called for
pursuant to Section 2(a) hereof and subject to Section 1.6 of the Option
Agreement, Unica hereby agrees to pay Quetzal, during the Term, a monthly fee of
Sixty Two Thousand Dollars ($62,000.00) ("Monthly Fee"), which Monthly Fee
includes all costs related to engineering, transmitter operations, utilities,
and transmitter lines and subject to Section 2(a) hereof) the use of Quetzal's
studio facilities. The Monthly Fee payable by Unica to Quetzal pursuant to this
Agreement shall be paid in advance without notice or demand prior to the first
day of each month during the Term hereof, except that Unica shall pay Quetzal,
on the date hereof, a deposit of One Hundred Twenty Four Thousand Dollars
($124,000.00), representing the Monthly Fee to be paid by Unica for the first
and last month pursuant to this Section 4(a), such amount to be paid by wire
transfer of immediately available funds to an account specified by Quetzal in
writing. Quetzal hereby agrees that the Monthly Fees due hereunder for the
seventh and eighth months shall be suspended and no payments shall be made by
Unica to Quetzal for such months; PROVIDED, THAT if the Option is not exercised
by Unica, such Monthly Fees for the seventh and eighth months in the amount of
One Hundred Twenty Four Thousand Dollars ($124,000.00) shall be added to the
last Monthly Fee payment due under this Agreement by Unica to Quetzal. Monthly
Fee payments received later than the fifth business day of any month shall be
subject to a late charge of five percent (5%) of the Monthly Fee (the "Late
Charge"). The Late Charge shall be paid within ten business days of written
notice by Quetzal to Unica of the late Monthly Fee. Subject to Section 1.6 of
the Option Agreement, all payments to Quetzal hereunder shall be made without
deductions or offset and shall be non-refundable, except as otherwise provided
in this Agreement.
3
<PAGE>
(b) Subsequent payments will be made by check delivered to Quetzal at
296 H Street, 3rd Floor, Chula Vista, California 91910, or such other address as
Quetzal may select pursuant to Section 29 hereof, PROVIDED, THAT, if Quetzal has
given wire transfer instructions to Unica, Unica will be required to make all
payments by wire transfer of immediately available funds to the account
specified by Quetzal.
(c) Unica shall be solely responsible for and shall pay in a timely
manner all direct and indirect costs incurred by Unica in producing, providing
and delivering the Programming including, but not limited to, (i) program costs,
(ii) sales costs, (iii) Station advertising and promotion costs, (iv) costs
related to Unica's audio lines to Quetzal's studio or transmitter, (v) salaries,
payroll taxes, insurance, health benefits and related costs of personnel
employed by Unica in connection with the Programming supplied to Quetzal, (vi)
marketing, costs in connection with sales and promotion of radio time, (vii)
costs related to administrative supplies, FCC regulatory fees, local and long
distance telephone service related to the Station (including toll-free calls),
and (viii) income, gross receipts, sales, personal property, and other taxes of
any nature whatsoever and costs related to Unica's programming of the Station.
Additionally, Unica shall be solely responsible for providing and operating its
own vehicles in connection with the Programming and shall be solely responsible
for the payment of any costs incurred in connection with the provision and
operation of such vehicles, including insurance.
(d) Quetzal agrees to assign to Unica on the date hereof all of its
right title and interest in the accounts receivable (the "Accounts Receivable")
set forth on Schedule 4(d) hereto. In consideration for assigning the Accounts
Receivable to Unica, Unica agrees to pay Quetzal a sum equal to forty percent
(40%) of the amount of the total Accounts Receivable set forth on Schedule 4(d),
such sum to be paid in four equal, monthly installments, commencing on February
1, 2000.
(e) The failure of Quetzal to demand or insist upon timely and full
payment of any payment due hereunder, shall not constitute a waiver of Unica's
obligations under this Section 4.
5 PAYMENTS BY QUETZAL.
In addition to the costs payable by Quetzal pursuant to Section 10(b)
hereof, Quetzal shall be solely responsible for and shall pay in a timely manner
the following costs of the Station: (i) rents, utilities, insurance and
maintenance costs relating to the Station's tower and transmitter site
facilities and other real and personal property relating to, or used by, the
Station; (ii) Quetzal's local telephone service, its delivery and postal service
expenses; (iii) the salaries, payroll taxes, insurance, health benefits and
related costs of personnel employed by Quetzal in the operation of the Station
following the Operational Commencement Date; and (iv) income, gross receipts,
sales, personal property, excise or any other taxes of any nature whatsoever
pertaining to the transmission function of the Station and costs related to the
production and broadcast of material supplied by Quetzal pursuant to Section
6(b) of this Agreement ("Quetzal Programming").
4
<PAGE>
6 PROGRAMS.
(a) Unica shall furnish or cause to be furnished, at its own cost,
material in broadcast-ready form for broadcast on the Station pursuant to this
Agreement at all times other than the times of the Quetzal Programming, and all
such Unica programs shall accord with the Communications Act of 1934, as amended
(as so amended, the "Act"), and all other applicable statutes and Federal
Communications Commission ("FCC") policies and requirements. All rights,
including without limitation all ownership rights and rights of use, relating to
the Programming shall belong exclusively to Unica, and Quetzal shall have no
rights of any kind in or to such programs and hereby disclaims all rights
thereto.
(b) Quetzal reserves the following periods to present Quetzal
Programming and to sell time and collect fees therefor: Sunday morning from
6:00AM - 8:00 AM. Upon reasonable notice from Quetzal, Unica instead of Quetzal
will program those hours at Unica's expense and Unica will retain any proceeds
resulting therefrom.
7 EMPLOYMENT.
(a) Quetzal shall be solely responsible for, and shall indemnify Unica,
its directors, officers, employees, contractors, agents, or affiliates from and
against, all claims, costs, losses, liability, damages, and other expenses
(including reasonable professional fees and disbursements) relating to,
salaries, taxes, insurance, severance, bonuses and other benefits or obligations
due or payable to: (i) all personnel (other than employees of Unica) used in the
production of Quetzal Programming hereunder or necessary to fulfill Quetzal's
obligations hereunder; and (ii) all employees of Quetzal.
(b) Unica shall be solely responsible for, and shall indemnify Quetzal,
its directors, officers, employees, contractors, agents or affiliates from and
against, all claims, costs, losses, liability, damages, and other expenses
(including reasonable professional fees and disbursements) relating to,
salaries, taxes, insurance, severance, bonuses, and other benefits or
obligations due or payable to: (i) all personnel (other than employees of
Quetzal) used in the production of the Programming hereunder or necessary to
fulfill Unica's obligations hereunder; and (ii) all employees of Unica.
8 HANDLING OF MAIL AND PUBLIC FILE.
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To the extent that either Quetzal or Unica receives or handles mail,
cables, telecopies, telephone calls or other communications in connection with
any material broadcast over the Station during the term of this Agreement, the
party promptly shall (a) advise the other, in writing, of any public or FCC
complaint or inquiry concerning the Programming or the Quetzal Programming, or
both and (b) deliver to the other a copy of any written communications from the
public or the FCC. Unica also shall deliver to Quetzal copies of all operating
and programming information relating to Unica, including, without limitation,
the Station's operating logs, necessary to maintain the public file and other
records required to be kept by FCC regulations, rules and policies. During the
term of this Agreement, Unica, as to the Programming, also shall maintain and
deliver to Quetzal such records and information required by the FCC to be placed
in the public inspection file of the Station relating to the broadcast of
political programming and advertisements, in accordance with the provisions of
Sections 73.1943 and 73.3526 of the FCC's rules, and pertaining to the broadcast
of sponsored programming addressing political issues or controversial issues of
public importance, in accordance with the provisions of Section 73.1212 of the
FCC's rules. Unica also shall consult with Quetzal concerning the Programming to
ensure that the Station is compliant with the Act and all other applicable
statutes and the rules, regulations and policies of the FCC, as announced from
time to time, with respect to the carriage of political advertisements and
programming (including, without limitation, the rights of candidates and, as
appropriate, others to "equal opportunities") and the charges permitted
therefor. Unica shall provide to the Station such documentation relating to the
Programming as Quetzal reasonably shall request. Quetzal shall be responsible
for providing the personnel necessary to maintain a complete public file (as
required by the FCC) and to compile and file all required quarterly
issues/programs lists for the Station.
9 MAINTENANCE OF EQUIPMENT.
(a) The transmitter equipment and antennas used for the Station's
broadcasts owned by Quetzal (the "Transmission Equipment") shall be maintained
by Quetzal in a condition consistent with good engineering practices and in
compliance in all material respects with the Act and all other applicable rules,
regulations and technical standards of the FCC. Quetzal shall maintain power and
modulation of the Station broadcasts in a manner consistent with Quetzal's past
practices. All capital expenditures reasonably required to maintain the
technical quality of the Station's Transmission Equipment and its compliance
with applicable laws and regulations shall be made at the sole expense and in
the sole discretion of Quetzal.
(b) All equipment necessary for the delivery of the Programming and the
Quetzal Programming shall be paid for and/or maintained by Unica in a condition
consistent with good engineering practices and in compliance in all material
respects with the Act and all other applicable rules, regulations and technical
standards of the FCC. All capital expenditures reasonably required to maintain
the technical quality of the broadcast equipment and its compliance with
applicable laws and regulations shall be made at the sole expense and in the
sole discretion of Unica.
10 RESPONSIBILITY FOR PRODUCTION EXPENSES.
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(a) Unica shall pay for all costs associated with producing, providing
and delivering the Programming and sale of radio time, all fees to ASCAP, BMI
and SESAC and any other music licensing organization, attributable to the
Programming and any other copyright fees attributable to the Programming.
(b) Quetzal shall pay for all costs associated with producing,
providing and delivering the Quetzal Programming and sale of radio time, all
fees to ASCAP, BMI and SESAC and any other music licensing organization,
attributable to the Quetzal Programming and any other copyright fees
attributable to the Quetzal Programming.
11 CONTROL OF THE STATION.
During the term of this Agreement, Quetzal shall maintain ultimate
control over the Station's facilities and Unica agrees that it will permit
Quetzal to take any and all steps necessary to maintain such control
continuously throughout the term of this Agreement. Quetzal and Unica
acknowledge and agree that Quetzal's responsibility to retain control is an
essential element of the continuing validity and legality of this Agreement.
Quetzal shall provide and shall pay all costs for: (a) a General Manager for the
Station who shall report solely to, and be accountable solely to, Quetzal and
who shall direct the day-to-day operations of the Station; and (b) such other
engineering, programming and other personnel as are necessary to fulfill
Quetzal's obligations under this Agreement, including but not limited to
personnel necessary for any remote control facilities to be manned by Quetzal's
personnel to meet FCC operating requirements, all in accordance with FCC
policies, which currently require Quetzal to employ at the Station at least one
full time management employee (who shall be the General Manager referred to in
clause (a) of this Section 11) and one full time staff employee (or part time
employees equivalent to one full time staff employee). Quetzal shall retain
control, said control to be reasonably exercised, over the policies, programming
and operations of the Station, including, without limitation, the right to
decide whether to accept or reject any programming or advertisements, and the
right to take any other actions necessary to comply with the laws of the United
States and of the State of California and the rules, regulations and policies of
the FCC. Quetzal shall maintain its main studio within the boundaries permitted
by FCC rules and Unica shall take such actions as Quetzal may reasonably request
to ensure such requirements are met. Unica shall have the ability to utilize
Quetzal's studio and office facilities during the Term of this Agreement in
accordance with Section 2 hereof. Unica shall not represent, warrant or hold
itself out as the Station's owner and shall sell all advertising time and enter
into all agreements in its own name. Quetzal reserves the right to refuse to
broadcast any program or programs containing matter which is, or in the
reasonable opinion of Quetzal may be, violative of any right, law, or
governmental rule, regulation or policy.
12 SPECIAL EVENTS.
Quetzal has the right to reject any of the Programming and to
substitute on a temporary basis a program that, in the reasonable opinion of
Quetzal, is of greater public local or national importance. Quetzal confirms
that no Programming shall be rejected on the basis of Programming
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performance or ratings, advertiser reaction or the availability of alternative
programming (including, but not limited to, sporting events or paid programming)
that Quetzal believes to be more profitable or more attractive. Quetzal shall
give Unica written notice of such rejection and substitution, and the reasons
therefor, at least three (3) weeks in advance of the scheduled broadcast, or as
soon thereafter as possible (including an explanation of the cause of any lesser
notice). In the event of such preemption, Unica shall receive a payment credit
in an amount equal to the loss of revenue by Unica which shall equal the loss of
the Station's local and national revenues and the Station's allocation of Radio
Unica network revenues. The Station's allocation of Radio Unica network revenues
shall be equal to the percentage of Radio Unica network revenues that is the
same percentage determined by dividing the Hispanic population of the San Diego
market by the total Hispanic population reached by the Radio Unica network.
13 FORCE MAJEURE.
Any failure or impairment (I.E., failure to broadcast at Station's full
authorized power) of facilities or any delay or interruption in broadcast
programs, or failure at any time to furnish facilities, in whole or in part, for
broadcasting, due to any acts of God, strikes or threats thereof or FORCE
MAJEURE or due to any other causes beyond the reasonable control of Quetzal or
Unica shall not constitute a breach of this Agreement and Quetzal or Unica, as
the case may be, will not be liable to the other party hereto therefor, provided
such party uses reasonable diligence to correct such failure or impairment as
soon as is reasonably possible.
14 STATION'S IDS.
Quetzal hereby grants to Unica an exclusive license to use such call
letters and other identifiers as are currently used or in the future may be used
by the Station (the "Station's Licensed Identifiers") in connection with the
broadcast of Unica's programs on the Station, but for no other purpose. The
license granted herein shall expire on the Closing Date or upon the expiration
or earlier termination of this Agreement. Unica shall use the Station's Licensed
Identifiers in Unica's programming in a manner consistent with the use thereof
by Quetzal in broadcasts of the Station immediately prior to the Operational
Commencement Date during the entire term of this Agreement and as may be
required by the Act or the rules, regulations and policies of the FCC. In
addition, Quetzal agrees, at Unica's cost, to cooperate with Unica in applying
for a change or changes in the Station's Licensed Identifiers ("New Station
Identifiers") should such a change be deemed appropriate by Unica, so long as
such New Station Identifiers are not offensive or contrary to the public
interest.
15 PAYOLA.
Unica shall provide Quetzal with payola affidavits, substantially in
the form attached hereto as Attachment A, signed by such of Unica's employees
and at such times as Quetzal may reasonably request in writing, and shall notify
Quetzal promptly of any violations it learns of relating to the Act, including
Sections 317 and 508 thereof.
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16 COMPLIANCE WITH LAW AND OTHER AGREEMENTS.
Unica and Quetzal shall, throughout the term of this Agreement, comply
in all material respects with the Act, the rules, regulations and policies of
the FCC, the terms of the Station's FCC licenses and all other laws and
regulations applicable to the conduct of Station business.
17 INDEMNIFICATION; WARRANTY.
Each party (as the case may be, the "Indemnitor") shall indemnify and
hold harmless the other party (as the case may be, the "Indemnitee"), its
directors, officers, employees, agents and affiliates, from and against any and
all liability, including without limitation all reasonable attorneys fees,
arising out of or incident to the programming furnished by the Indemnitor, any
breach of this Agreement by the Indemnitor or the conduct of the Indemnitor, its
directors, officers, employees, contractors, agents or affiliates. Without
limiting the generality of the foregoing, Indemnitor shall indemnify and hold
and save the Indemnitee, its directors, officers, employees, agents and
affiliates harmless against liability for libel, slander, infringement of
trademarks, trade names, or program titles, violation of rights of privacy, and
infringement of copyrights and proprietary rights resulting from the programming
furnished by the Indemnitor. Each party's obligation to hold the other harmless
against the liabilities specified above shall survive any termination or
expiration of this Agreement for a period of six (6) months.
18 EVENTS OF DEFAULT.
Each of the following shall constitute an "Event of Default" under this
Agreement:
(a) DEFAULT IN COVENANTS. Unica's or Quetzal's material non-observance
or material non-performance of any covenant or agreement contained herein,
(PROVIDED, HOWEVER, that such default shall not constitute an Event of Default
hereunder unless such default is not cured within twenty (20) business days
after delivery of written notice thereof to the breaching party by the
non-breaching party); or
(b) BREACH OF REPRESENTATION. Unica's or Quetzal's material breach of
any representation or warranty herein, or in any certificate or document
furnished pursuant to the provisions hereof, which shall prove to have been
false or misleading in any material respect, as of the time made or furnished,
and not cured within twenty (20) business days after delivery of written notice
thereof to the breaching party by the non-breaching party; or
(c) INSOLVENCY. The voluntary filing by Unica or Quetzal (or an
involuntary filing with respect to Unica or Quetzal not vacated within ninety
(90) days after such filing) of a petition for reorganization or dissolution
under federal bankruptcy laws or under substantially equivalent state laws.
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19 TERMINATION.
(a) TERMINATION UPON AN EVENT OF DEFAULT. Either party may terminate
this Agreement by written notice to the other party upon the occurrence of an
Event of Default; provided however, that the party serving such notice shall not
then be in default of its obligations under this Agreement.
(b) EFFECT OF TERMINATION. Upon termination of this Agreement, pursuant
to this Section 19, each party shall be free to pursue any and all remedies
available at law, in equity or otherwise. Quetzal, in addition to its other
legal and equitable rights and remedies under this Agreement or under applicable
law, shall be entitled immediately to cease making available to Unica any
further broadcast time or broadcast transmission and facilities, and all amounts
accrued or payable to Quetzal prior to the date of termination which have not
been paid shall be immediately due and payable. Unica, in addition to its other
legal and equitable rights and remedies under this Agreement or under applicable
law, shall be entitled immediately to cease providing any further Programming to
be broadcast on the Station, and any amounts which have been prepaid to Quetzal
beyond the termination date shall be immediately due and payable to Unica.
(c) LIABILITIES UPON TERMINATION. Unica shall pay all debts and
obligations resulting from its use of the Station's air time and transmission
facilities, including, without limitation, accounts payable and net barter
balances relating to the period on and after the Operational Commencement Date
and prior to the termination of this Agreement and shall be entitled to the
revenues and other credits for that period and Quetzal shall be entitled to
retain the revenues and other credits arising from the Quetzal Programming.
(d) SPECIFIC PERFORMANCE. In addition to Unica's rights of termination
hereunder (and in addition to any other remedies available to it or provided
under law), Unica may seek specific performance of this Agreement, in which case
Quetzal shall waive the defense of an adequate remedy at law and interpose no
opposition, legal or otherwise, as to the propriety of specific performance as a
remedy hereunder.
20 REVENUES.
Unica shall receive all revenues attributable to the Programming on and
from the Operational Commencement Date and for the period thereafter during the
Term of this Agreement. Quetzal shall receive all revenues attributable to the
Quetzal Programming during the Term of this Agreement.
21 REPRESENTATIONS, WARRANTIES AND COVENANTS.
21.1 Unica represents and warrants to, and covenants with, Quetzal
that:
(a) This Agreement has been duly executed and delivered by Unica, and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as limited by laws affecting the enforcement
of creditor's rights generally or equitable principles. Unica has
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all necessary corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement have been duly
and validly authorized by all necessary corporate action on Unica's part.
(b) No consent of any other party and no consent, license, approval or
authorization of, or exemption by, or filing, restriction or declaration with,
any governmental authority, bureau, agency or regulatory authority, is required
in connection with the execution, delivery or performance by Unica of this
Agreement.
(c) The execution, delivery and performance of this Agreement will not
violate any provision in Unica's certificate of incorporation or by-laws, nor
will it constitute or result in the breach of any term, condition or provision
of, or constitute a default under, or accelerate or permit the acceleration of
any performance required by, any agreement or other instrument to which Unica is
a party or by which any part of its property is bound, or violate any law,
regulations, judgment or order binding upon Unica.
(d) No proceeding is pending or, to the knowledge of Unica, threatened
against Unica before any court, government agency or arbitral tribunal that
would enjoin or prohibit, or which otherwise questions the validity of, any
action taken or to be taken in connection with this Agreement.
(e) The Programming shall include (i) public service announcements
(including, at Quetzal's request from time to time, a reasonable number of
public service announcements of local interest); (ii) an announcement in form
sufficient to meet the station identification requirements of the FCC at the
beginning of each hour; (iii) an announcement at the beginning of each segment
of programming to indicate the program time has been purchased by Unica; and
(iv) any other announcement that may be required by applicable law or
regulations (including, but not limited to, Emergency Alert System tests).
(f) The performing rights to all music contained in the Programming, if
any, shall be licensed to Unica by BMI, ASCAP, SESAC or the composer directly or
shall be in the public domain.
21.2 Quetzal represents and warrants to, and covenants with, Unica
that:
(a) This Agreement has been duly executed and delivered by Quetzal, and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as limited by laws affecting the enforcement
of creditor's rights generally or equitable principles. Quetzal has all
necessary corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement have been duly
and validly authorized by all necessary corporate action on Quetzal's part.
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(b) No consent of any other party and no consent, license, approval or
authorization of, or exemption by, of filing, restriction or declaration with,
any governmental authority, bureau, agency or regulatory authority, is required
in connection with the execution, delivery or performance by Quetzal of this
Agreement.
(c) The execution, delivery and performance of this Agreement will not
violate any provision of Quetzal's articles of incorporation or by-laws, nor
will it constitute or result in the breach of any term, condition or provision
of, or constitute a default under, or accelerate or permit the acceleration of
any performance required by any agreement or other instrument to which Quetzal
is a party or by which any part of its property is bound, or violate any law,
regulation, judgment or order binding upon Quetzal.
(d) Except as set forth on Schedule 21.2(d), no proceeding is pending
or, to the knowledge of Quetzal, threatened against Quetzal before any court,
governmental agency or arbitral tribunal that would enjoin or prohibit, or which
otherwise questions the validity of, any action taken or to be taken in
connection with this Agreement.
(e) Quetzal Programming shall be designed to serve the interest of the
Station's service area.
(f) During the Term of this Agreement, Quetzal will hold all licenses
and other permits and authorizations necessary for the operation of the Station,
and such licenses, permits and authorizations are and will be in full force and
effect throughout the Term of this Agreement. There is not pending, or to
Quetzal's best knowledge, threatened, any action by the FCC or by any other
party to revoke, cancel, suspend, refuse to renew or modify adversely any of
such licenses, permits or authorizations. To the best of Quetzal's knowledge,
Quetzal is not in violation of any statute, ordinance, rule, regulation, policy,
order or decree of any federal, state or local entity, court or authority having
jurisdiction over it or the Station, which would have an adverse effect upon
Quetzal, its assets, the Station or upon Quetzal's ability to perform this
Agreement. Quetzal shall not take any action or omit to take any action which
would have an adverse impact upon Quetzal, its assets, the Station or upon
Quetzal' ability to perform this Agreement. All reports and applications
required to be filed with the FCC or any other governmental body during the Term
of this Agreement will be filed in a timely and complete manner. Quetzal has,
and throughout the Term of this Agreement will maintain, good title to, or
rights by license, lease or other agreement to use, all of the assets and
properties used in the operation of the Station. During the Term of this
Agreement, Quetzal shall not dispose of, transfer, assign or pledge any of such
assets and properties, except with the prior written consent of Unica, if such
action would adversely affect Quetzal's performance hereunder or the business
and operations of Quetzal or the Station permitted hereby.
(g) Quetzal covenants and agrees to use its best efforts to terminate
the Lotus Agreement.
22 ARBITRATION.
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Any dispute arising under or related to this Agreement shall be
resolved by binding arbitration in San Diego, California in accordance with the
then existing Rules of Practice and Procedure of Judicial Arbitration &
Mediation Services, Inc., and judgment upon any award rendered by the
arbitrator(s) may be entered by any State or Federal Court having jurisdiction
thereof. The prevailing party shall be awarded all of its legal fees,
disbursements and costs of arbitration.
23 MODIFICATION AND WAIVER.
No modification or waiver of any provision of this Agreement shall in
any event be effective unless the same shall be in writing and signed by the
parties, and then such waiver and consent shall be effective only in the
specific instance and for the purpose for which given.
24 DELAY IN EXERCISE OF REMEDIES; REMEDIES CUMULATIVE.
No failure or delay on the part of Quetzal or Unica in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of Quetzal and Unica herein provided are cumulative and are not
exclusive of any right or remedies which they may otherwise have.
25 CONSTRUCTION.
This Agreement shall be construed in accordance with the internal
substantive (that is, without reference to conflict of) laws of the State of
California and the obligations of the parties hereto are subject to all Federal,
state or municipal laws or regulations now or hereafter in force and to the
regulations and policies of the FCC and all other governmental bodies or
authorities presently or hereafter duly constituted. The parties believe that
the terms of this Agreement meet all of the requirements of current FCC policy
for time brokerage agreements for radio stations and agree that they shall
negotiate in good faith to meet any FCC concern with respect to this Agreement
if they are incorrectly interpreting current FCC policy or if FCC policy as
hereafter modified so requires. If the parties cannot agree to a modification or
modifications deemed necessary by either party to meet FCC requirements, the
termination provisions of Section 19 above shall apply. The parties further
agree that they will make all required filings with the FCC with respect to this
Agreement.
26 HEADINGS.
The headings contained in this Agreement are included for convenience
only and no such heading shall in any way alter the meaning of any provision.
27 SUCCESSORS AND ASSIGNS.
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This Agreement shall be binding upon and inure to the benefit of the
parties and their respective permitted successors and assigns, including,
without limitation, any permitted transferees or assignees of any kind of the
FCC licenses for the Station.
28 COUNTERPART SIGNATURES.
This Agreement may be signed in one or more counterparts, each of which
shall be deemed a duplicate original, binding on the parties hereto
notwithstanding that the parties are not signatory to the same original or the
same counterpart.
29 NOTICES.
Any notice required hereunder shall be in writing and any payment,
notice or other communications shall be deemed given when delivered by hand or
one (1) day after deposit with a recognized overnight courier for overnight
delivery and addressed as follows:
(a) If to Buyer:
Radio Unica Corp.
8400 N.W. 52nd Street
Suite 101
Miami, Florida 33176
Attn: Joaquin F. Blaya
Phone: (305) 442-4077
with a required copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attn: John C. Quale, Esq.
Phone: (202) 371-7200
(b) If to Seller:
Quetzal Bilingual Comm., Inc.
News Plaza Building
296 H Street, 3rd Floor
Chula Vista, CA 91910
Attn: Jaime Bonilla
Phone: (619) 427-5877
with a required copy to:
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The Aventine-LaJolla
8910 University Center Lane
Suite 170
San Diego, CA 92122
Attn: Steven McCue
Phone: 619-455-9210
and to:
Taylor Thiemann & Aitken, L.C.
908 King Street
Suite 300
Alexandria, VA 22314
Attn: Robert L. Thompson
Phone: 703-836-9400
or such other address as the addressee may have specified in a notice
duly given to the sender as provided herein.
30 ENTIRE AGREEMENT.
This Agreement (together with the Attachments hereto) and the Option
Agreement embody the entire agreement between the parties regarding the subject
matter hereof and there are no other agreements, representations, warranties, or
understandings, oral or written, between them with respect to the subject matter
hereof. No alteration, modification or change of this Agreement shall be valid
unless it is embodied in a written instrument signed by both of the parties.
31 SEVERABILITY AND ASSIGNMENT.
If any provision or provisions contained in this Agreement are held to
be invalid, illegal or unenforceable, this shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had not been contained herein, PROVIDED,
THAT the benefits afforded each party hereunder are not materially changed.
Neither party may assign this Agreement without the prior written consent of the
other party and any purported assignment without such consent shall be null and
void and of no legal force or effect, PROVIDED, THAT either party may assign
this Agreement if it would constitute a pro forma assignment or transfer of
control (on Form 316) under Section 73.3540(f) of the FCC's rules.
32 NO JOINT VENTURE.
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The parties agree that nothing herein shall constitute a joint venture
or a principal-agent relationship between them. The parties acknowledge that
call letters, trademarks and other intellectual property shall at all times
remain the property of the respective parties and that neither party shall
obtain any ownership interest in the other party's intellectual property by
virtue of this Agreement.
33 BOOKS AND RECORDS.
Each of Quetzal and Unica agrees to permit the other party hereto and
its agents and representatives reasonable access to all books and records
relating to the operation of the Station that may be in its possession.
34 BENEFICIARIES.
Nothing in this Agreement, express or implied, is intended to confer on
any person other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
35 FURTHER ASSURANCES.
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its commercially reasonable efforts to take or
cause to be taken all such further actions, and to do, or cause to be done, all
things necessary, proper or advisable in order to fully effectuate the purposes,
terms and conditions of this Agreement.
36 CONFIDENTIALITY, PUBLIC NOTICES.
Unica and Quetzal each agrees that it will use its best efforts to keep
confidential (except for disclosure requirements of federal or state securities
laws and securities markets along with such disclosure to attorneys, bankers,
underwriters investors, etc. as may be appropriate in the furtherance of this
transaction, or disclosure requirements of the FCC) all information of a
confidential nature obtained by it from each of the other parties, including the
terms of any proposal, in connection with the transactions contemplated by this
Agreement. Unica and Quetzal shall jointly prepare and determine the timing of
any press release or other announcement to the public or the news media relating
to the execution of this Agreement. No party hereto will issue any press release
or make any other public announcement relating to the transactions contemplated
by this Agreement without the prior consent of each other party hereto, except
that any party may make any disclosure required to be made by it under
applicable law (including federal or state securities laws and the regulations
of securities markets) if it determines in good faith that it is appropriate to
do so and gives prior notice to each other party hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Time
Brokerage Agreement on the date first above written.
RADIO UNICA CORP.
By:
-----------------------------
Name:
Title:
QUETZAL BILINGUAL COMM., INC.
By:
-----------------------------
Name:
Title:
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ATTACHMENT A
FORM OF PAYOLA AFFIDAVIT
City of _______________________ )
County of ____________________ ) SS:
State of ______________________ )
ANTI-PAYOLA/PLUGOLA AFFIDAVIT
__________________________, being first duly sworn, deposes and says as follows:
1. He/She is _____________________________ for _________________________.
Position
2. He/She has acted in the above capacity since _________________________.
3. No matter has been broadcast by Station KURS for which service, money or
other valuable consideration has been directly or indirectly paid, or
promised to, or charged, or accepted, by him/her from any person, which
matter at the time so broadcast has not been announced or otherwise
indicated as paid for or furnished by such person.
4. So far as he/she is aware, no matter has been broadcast by Station KURS for
which service, money, or other valuable consideration has been directly or
indirectly paid, or promised to, or charged, or accepted by Station KURS or
by any independent contractor engaged by Station KURS in furnishing
programs, from any person, which matter at the time so broadcast has not
been announced or otherwise indicated as paid for or furnished by such
person.
-------------------------------------
Affiant
Subscribed and sworn to before me
this __ day of __________, 19__.
- --------------------------------------
Notary Public
My Commission expires: ________________
A-1
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EXHIBIT A
FORM OF LEASE AGREEMENT
<PAGE>
EXHIBIT 10.18
OPTION AGREEMENT
This OPTION AGREEMENT, dated as of December 29, 1999, is made
and entered into by and between QUETZAL BILINGUAL COMM., Inc., a California
corporation("Seller"), and RADIO UNICA CORP., a Delaware corporation ("Buyer").
WHEREAS, Seller is the owner and operator of radio station
KURS, licensed to broadcast on frequency 1040 kHz, at San Diego, California (the
"Station");
WHEREAS, Buyer is the wholly owned subsidiary of Radio Unica
Communications Corp., a Delaware corporation ("Parent");
WHEREAS, Seller and Buyer have entered into a Time Brokerage
Agreement ("TBA"), dated as of December 29, 1999, whereby Seller has made
available to Buyer substantial broadcasting time on the Station; and
WHEREAS, in connection with the TBA the parties have agreed
that Seller will grant to Buyer an option to purchase the assets used in the
conduct of the business and ownership and operation of the Station on the terms
and conditions set forth herein and subject to the rules, regulations and
policies of the Federal Communications Commission ("FCC").
NOW THEREFORE, in consideration of the foregoing and of the
mutual promises and covenants contained herein, and other good and valuable
consideration, the parties, intending to be legally bound, hereby agree as
follows:
SECTION 1. OPTION TO PURCHASE ASSETS
1.1 In consideration of Buyer entering into the TBA with
Seller upon the terms and conditions set forth therein, Seller hereby grants to
Buyer an exclusive, irrevocable option (the "Option") to purchase the assets,
real, personal and mixed, tangible and intangible, owned and held by Seller that
are used in the conduct of the business and operations of the Station (the
"Station Assets"), free and clear of all material debts, liens, encumbrances or
other liabilities, subject to the terms and conditions set forth herein.
<PAGE>
1.2 The Option granted hereunder may be exercised at any time
from September 1 - 30, 2000; December 1 - 31, 2000; March 1 - 31, 2001; June 1 -
30, 2001; September 1 - 30, 2001; December 1 - 31, 2001; March 1 - 31, 2002;
June 1 - 30, 2002; September 1 - 30, 2002; and December 1 - 31, 2002.
1.3 In the event that Buyer wishes to exercise the Option,
Buyer shall give written notice (the date of such notice being referred to as
the "Exercise Date") to Seller and the giving of such notice shall be deemed to
exercise the Option. In the event that the Option is exercised, the parties
shall, within ten (10) days of the Exercise Date, execute an Asset Purchase
Agreement (the "Purchase Agreement") in substantially the form attached hereto
as Exhibit A, it being understood that (i) the asset purchase price shall be as
set forth in Section 1.4 of this Agreement and (ii) the only changes to such
form shall be changes, if any, in the information contained in the schedules
thereto and the addition, if any, of schedules thereto that are reasonably
required to reflect events occurring after the date hereof; PROVIDED, HOWEVER,
that Buyer shall not be required to accept any such change that could reasonably
be expected to cause a materially adverse change in, or have a materially
adverse effect on, the assets to be conveyed to Buyer pursuant to the Purchase
Agreement or the ability of Seller to consummate the transactions contemplated
by the Purchase Agreement, and thereafter Buyer and Seller shall perform their
respective obligations under the Purchase Agreement, including, without
limitation, filing and prosecuting an appropriate application for FCC consent to
the assignment of the FCC licenses for the Station from Seller to Buyer.
Notwithstanding anything contained in this Agreement to the contrary, Buyer may
withdraw its notice of exercise of its Option at any time prior to its execution
of the Purchase Agreement; PROVIDED, however, that the Option will then
terminate.
1.4 Subject to the adjustment in Section 1.5 hereof, the
purchase price for the Station Assets shall be $10, 124,000.00 payable as
follows: $8,062,000.00 payable in immediately available funds (the "Cash
Consideration") and $2,062,000.00 payable in shares of common stock of Parent
par value $.01 per share (the "Stock Consideration"); PROVIDED, THAT Seller in
its sole discretion, upon ten business days written notice to Buyer, may elect
to receive any or all of the Cash Consideration in a promissory note in the form
attached hereto as Exhibit B. The number of shares of common stock of Parent par
value $.01 per share ("Parent Common Stock") which Seller shall be entitled to
receive pursuant to this Section 1.4 shall be determined by dividing the Stock
Consideration by the Share Price, as hereinafter defined. The Share Price shall
be the average daily price per share of the
2
<PAGE>
Parent Common Stock during the week preceding the Closing Date, as defined in
the Purchase Agreement.
1.5 The firm of Dutreil, Rackley and Associates ("Dutreil
Rackley"), at Buyer's expense, shall evaluate the current station upgrade plans
of Seller to increase the operating power of the Station. Within thirty days of
execution of the TBA, Dutreil Rackley shall present its evaluation to Buyer. If
such upgrade plans are approved by Dutreil Rackley, Buyer agrees to reimburse
Seller for those costs preapproved by Buyer and incurred by Seller from and
after the date of execution of the TBA in connection with such upgrade plans.
The parties agree that the purchase price specified in Section 1.4 hereof, shall
be increased by such reimbursement amount, such amount payable in immediately
available funds.
1.6 In addition to reimbursing Seller as provided in Section
1.5 hereof, upon the execution of the TBA, Buyer agrees to pay to Seller
$30,000.00 in immediately available funds as reimbursement for engineering
costs, such amount to be paid by wire transfer to an account specified by
Quetzal in writing; PROVIDED, HOWEVER, that if Buyer does not exercise the
Option, such $30,000.00 reimbursement shall be paid back to Buyer without
interest within thirty (30) days following the termination of the TBA and owed
by Buyer to Seller.
SECTION 2. SPECIFIC PERFORMANCE
The parties agree that the FCC licenses and the broadcast
business of the Station made possible thereby are unique assets not readily
available on the open market. For this reason, Seller acknowledges that monetary
damages alone would not be adequate to compensate Buyer and that specific
performance is an appropriate remedy for Buyer in the event this Agreement is
breached by Seller. The parties agree that the rights afforded by the preceding
sentence shall be in addition to any and all rights Buyer may have at law or
equity. If any action is brought by Buyer to enforce this Agreement, Seller
shall waive the defense that there is an adequate remedy at law.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER
3
<PAGE>
Seller represents and warrants to Buyer as follows:
3.1 Seller is, and upon exercise of the Option will be, a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California.
3.2 Seller has, and upon the exercise of the Option will have,
full corporate power and authority to enter into this Agreement and the Purchase
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller and no other corporate proceedings on the
part of Seller are necessary to authorize this Agreement and the Purchase
Agreement or to consummate the transactions contemplated hereby and thereby.
This Agreement constitutes, and any other instruments contemplated hereby when
executed will constitute, the legal, valid and binding obligations of Seller,
enforceable in accordance with their terms, except as may be affected by
bankruptcy and insolvency laws and court-applied equitable principles.
3.3 The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, and the compliance with
the terms, conditions and provisions of this Agreement, with or without the
giving of notice or the passage of time, or both, will not: (i) violate any
provision of Seller's articles of incorporation or by-laws, (ii) conflict with
or result in a breach of or constitute a default under any of the terms,
conditions or provisions of any indenture, mortgage, loan or credit agreement or
any other agreement or instrument to which Seller is party or by which it or any
of the assets of Seller may be bound or affected, or any decree, judgment or
order of any court or governmental department, commission, board, agency or
instrumentality, domestic or foreign, or any applicable law, ordinance, rule or
regulation, including but not limited to the Communications Act of 1934, as
amended (the "Act"), and the rule and regulations of the FCC promulgated
thereunder.
3.4 All of the Station Assets are, and upon the exercise of
the Option all of the Station Assets will be, owned by Seller free and clear of
all liens, pledges, charges, claims, security interests of other encumbrances,
whether consensual, statutory or otherwise (collectively, "Liens").
SECTION 4. COVENANTS OF SELLER
4
<PAGE>
4.1 So long as this Agreement is in effect, Seller covenants
that it will not, without the Buyer's prior written approval, which shall not be
unreasonably withheld:
(a) Create, assume or suffer to exist, directly or
indirectly, any mortgage, deed of trust or Lien of any nature whatsoever, upon
any of the Station Assets, now owned or hereafter as acquired, excluding, Liens
incurred in the ordinary course of business.
(b) Sell, transfer, lease or otherwise dispose of any
of the Station Assets whose value exceeds $5,000.00 or 25,000.00 in the
aggregate, except in connection with the acquisition of replacement property of
equivalent kind and value.
(c) Enter into any agreement to consolidate or merge
with or into, or to sell all or substantially all of its capital stock,
properties or assets to, any person or entity.
(d) Enter into any agreement or grant any person or
entity a right to purchase the Station's FCC licenses or all or substantially
all of the Station Assets.
(e) Enter into any agreement or take any other action
that would interfere with, or prevent, Seller from transferring the Station
Assets to Buyer as contemplated hereunder or under the Purchase Agreement.
(f) Take any action that jeopardizes the validity or
enforceability of or rights under the Station's FCC licenses.
4.2 So long as this Agreement is in effect, Seller covenants
that it will:
(a) Subject to the terms and conditions of the TBA,
(i) carry on the business and activities of the Station in the ordinary course
of business, consistent with past practices of Seller, (ii) pay or otherwise
satisfy all obligations of the Station as they come due and payable; (iii)
maintain all Station Assets in customary repair, order and condition; and (iv)
maintain its books of account, records and files in substantially the same
manner as heretofore maintained.
5
<PAGE>
(b) Maintain the validity of the Station's FCC
licenses, comply in all material respects with all requirements of the Station's
FCC licenses and the rules and regulations of the FCC, and deliver to Buyer,
within ten (10) days after filing, copies of any reports, applications or
responses to the FCC related to the Station that are filed from and after the
date hereof.
(c) Maintain in full force and effect all existing
casualty, liability and other insurance insuring the Station and the Station
Assets in amounts not less than those in effect on the date hereof.
(d) Upon receiving notice or otherwise becoming aware
of any violation relating to the Station's FCC licenses, any violation by the
Station of any rules and regulations of the FCC or any material violations under
any other applicable laws and regulations, promptly notify Buyer and, at
Seller's expense, use reasonable commercial efforts to cure all such violations
in a timely fashion.
SECTION 50 REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Buyer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
5.2 Buyer has full corporate power and authority to enter into
this Agreement and the Purchase Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer and no other
corporate proceedings on the part of Buyer are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
constitutes, and any other instruments contemplated hereby when executed will
constitute, the legal, valid and binding obligations of Buyer, enforceable in
accordance with their terms, except as may be affected by bankruptcy and
insolvency laws and court-applied equitable principles.
5.3 The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, and the compliance with
the terms, conditions and provisions of this Agreement, with or without the
giving of notice or the passage of time, or both, will not: (i) violate any
provision of Buyer's articles of incorporation or by-laws, (ii) conflict with or
result in a breach of or constitute a
6
<PAGE>
default under any of the terms, conditions or provisions of any indenture,
mortgage, loan or credit agreement or any other agreement or instrument to which
Buyer is party or by which it or any of the assets of Buyer may be bound or
affected, or any decree, judgment or order of any court or governmental
department, commission, board, agency or instrumentality, domestic or foreign,
or any applicable law, ordinance, rule or regulation, including but not limited
to the Act and the rule and regulations of the FCC promulgated thereunder.
SECTION 60 MISCELLANEOUS
6.1 If any provision or provisions contained in this Agreement
are held to be invalid, illegal or unenforceable, this shall not affect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or provisions had not been contained
herein.
6.2 No party may assign this Agreement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld, and any purported assignment without such consent shall be null and
void and of no legal force or effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Nothing in this Agreement, express or implied, is intended to
confer on any person other than the parties hereto and their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
6.3 No amendment, waiver of compliance with any provision or
condition hereof, or consent pursuant to this Agreement will be effective unless
evidenced by an instrument in writing signed by the parties.
6.4 The headings contained in this Agreement are included for
convenience only and no such heading shall in any way alter the meaning of any
provision.
6.5 This Agreement shall be governed by, enforced under and
construed in accordance with the laws of the State of California, without giving
effect to any choice or conflict of law provision or rule thereof.
6.6 Any notice required hereunder shall be in writing and any
notice or other communications shall be deemed given when delivered personally
or one (1) day after deposited with a recognized overnight air courier for
overnight delivery and addressed as follows:
7
<PAGE>
(a) If to Buyer:
Radio Unica Corp.
8400 N.W. 52nd Street
Suite 101
Miami, Florida 33176
Attn: Joaquin F. Blaya
Phone: (305-442-4077
with a required copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attn: John C. Quale, Esq.
Phone: (202) 371-7200
(b) If to Seller:
Quetzal Bilingual Comm., Inc.
News Plaza Building
296 H Street, 3rd Floor
Chula Vista, CA 91910
Attn: Jaime Bonilla
Phone: (619) 427-5877
with a required copy to:
The Aventine-LaJolla
8910 University Center Lane
Suite 170
San Diego, CA 92122
Attn: Steven McCue
Phone: 619-455-9210
8
<PAGE>
and to:
Taylor Thiemann & Aitken, L.C.
908 King Street
Suite 300
Alexandria, VA 22314
Attn: Robert L. Thompson
Phone: 703-836-9400
or such other address as the addressee may have specified in a notice duly given
to the sender as provided herein.
6.7 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
6.8 After the date hereof, Buyer shall be afforded reasonable
opportunity to inspect the Station and the books and records of the Seller
relating to the Station and the Station Assets upon reasonable advance request.
6.9 Buyer and Seller each agrees that it will use its best
efforts to keep confidential (except for such disclosure to attorneys, bankers,
underwriters, investors, etc. as may be appropriate in the furtherance of this
transaction and except for such filings with the FCC as may be required) all
information of a confidential nature obtained in connection with the
transactions contemplated by this Agreement and, in the event that such
transactions are not consummated, each party will return to the other party such
documents and other material obtained from the other party in connection
therewith.
6.10 Buyer and Seller shall jointly prepare, and determine the
timing of, any press release or other announcement to the public relating to the
execution of this Agreement. No party hereto will issue any press release or
make any other public announcement relating to the transactions contemplated
hereby without the prior consent of the other party hereto, except that any
party may make any disclosure required to be made by it under applicable law if
it determines in good faith that it is appropriate to do so and gives prior
notice to the other party.
6.11 Each party shall bear its respective costs incurred in
connection with the transactions contemplated by this Agreement.
9
<PAGE>
6.12 Seller agrees that from the date hereof and during the
time period in which the Option is exercisable hereunder, or if the Option is
exercised, during the period prior to execution of the Purchase Agreement, it
shall not offer or seek to offer, or entertain or discuss any offer, to sell the
Station or the Station Assets, other than as contemplated under this Agreement.
6.13 This Agreement (together with the Exhibits hereto) and
the TBA embody the entire agreement between the parties regarding the subject
matter hereof and there are no other agreements, representations, warranties, or
understandings, oral or written, between them with respect to the subject matter
hereof.
6.14 Prior to consummation of the Purchase Agreement and to
obtaining consent from the FCC, Buyer shall not, directly or indirectly,
control, supervise or direct or attempt to control, supervise or direct the
operations of the Station or Seller; such operations, including complete
ultimate control and supervision of all of the Station's programs, employees and
policies, shall remain the sole responsibility of Seller, as set forth in the
rules and policies of the FCC.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Option Agreement on the day and year first written above.
QUETZAL BILINGUAL COMM., INC.
By:
----------------------------
Name:
Title:
RADIO UNICA CORP.
By:
----------------------------
Name:
Title:
11
<PAGE>
EXHIBIT A
FORM OF ASSET PURCHASE AGREEMENT
<PAGE>
EXHIBIT B
FORM OF PROMISSORY NOTE
<PAGE>
EXHIBIT 22.1
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
EXACT NAME OF REGISTRANT AS INCORPORATION OR
SPECIFIED IN ITS CHARTER ORGANIZATION
---------------------------------------- ------------------------------
<S> <C>
Blaya Inc Delaware
Oro Spanish Broadcasting Inc California
Radio Unica Network, Inc. Delaware
Radio Unica of Chicago, Inc Delaware
Radio Unica of Chicago License Corp Delaware
Radio Unica of Dallas, Inc Delaware
Radio Unica of Dallas License Corp Delaware
Radio Unica of Denver, Inc Delaware
Radio Unica of Denver License Corp Delaware
Radio Unica of Fresno, Inc. Delaware
Radio Unica of Fresno License Corp Deleware
Radio Unica of Houston License Corp Delaware
Radio Unica of Los Angeles Delaware
Radio Unica of Los Angeles License Corp Delaware
Radio Unica of McAllen, Inc. Deleware
Radio Unica of McAllen License Corp Deleware
Radio Unica of Miami, Inc Delaware
Radio Unica of Miami License Corp Delaware
Radio Unica of New York, Inc Delaware
Radio Unica of New York License Corp Delaware
Radio Unica of Phoenix, Inc Delaware
Radio Unica of Phoenix License Corp Delaware
Radio Unica of San Antonio, Inc. Delaware
Radio Unica of San Diego, Inc. Delaware
Radio Unica of San Diego License Corp Deleware
Radio Unica of San Francisco Inc Delaware
Radio Unica of San Francisco License Corp Delaware
Radio Unica Sales Corp Florida
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RADIO UNICA CORP. FOR YEAR ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIERTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,396,044
<SECURITIES> 0
<RECEIVABLES> 5,304,089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,941,124
<PP&E> 17,434,918
<DEPRECIATION> 0
<TOTAL-ASSETS> 126,259,410
<CURRENT-LIABILITIES> 4,206,138
<BONDS> 117,732,564
0
0
<COMMON> 1
<OTHER-SE> (23,459,939)
<TOTAL-LIABILITY-AND-EQUITY> 126,259,410
<SALES> 16,217,180
<TOTAL-REVENUES> 16,217,180
<CGS> 0
<TOTAL-COSTS> 57,546,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14,053,053)
<INCOME-PRETAX> (54,746,649)
<INCOME-TAX> (311,989)
<INCOME-CONTINUING> (55,058,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,058,638)
<EPS-BASIC> (582,080)
<EPS-DILUTED> (582,080)
</TABLE>
