<PAGE>
As filed with the Securities and Exchange Commission on February 16, 1999.
Registration No. 333-64709
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TELEMUNDO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 4833 13-3993031
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2290 West 8th Avenue
Hialeah, Florida 33010
(305) 884-8200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Osvaldo F. Torres, Esq.
Vice President, General Counsel and Secretary
Telemundo Holdings, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
(305) 884-8200
(Name, address, including zip code, and telephone number including area code,
of agent for service)
----------------
Copies to:
Patrick J. Dooley, Esq.
Edward D. Sopher, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
----------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This Prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED February 16, 1999
OFFER TO EXCHANGE
11 1/2% SENIOR DISCOUNT NOTES DUE 2008, SERIES B
FOR AN EQUAL PRINCIPAL AMOUNT AT MATURITY OF
11 1/2% SENIOR DISCOUNT NOTES DUE 2008, SERIES A
OF
TELEMUNDO HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED
Telemundo Holdings, Inc., a Delaware corporation ("Holdings"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange $1,000
principal amount at maturity of its 11 1/2% Senior Discount Notes due 2008,
Series B (the "New Notes") for each $1,000 principal amount at maturity of its
outstanding 11 1/2% Senior Discount Notes due 2008, Series A (the "Old Notes")
of which $218,838,000 principal amount at maturity is outstanding. The New
Notes will be obligations of Holdings issued pursuant to the indenture under
which the Old Notes were issued (the "Indenture"). The form and terms of the
New Notes are identical in all material respects to the form and terms of the
Old Notes except (i) the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined) of which this Prospectus is a part, and
thus will not bear legends restricting their transfer pursuant to the
Securities Act, (ii) the holders of the New Notes will not be entitled to
certain rights of holders of the Old Notes under the Registration Rights
Agreement (as defined) which rights will terminate upon the consummation of the
Exchange Offer and (iii) the holders of the New Notes will not be entitled to
certain contingent rights relating to the payment of additional interest. See
"The Exchange Offer." The New Notes and the Old Notes are collectively referred
to herein as the "Notes."
The New Notes will mature on August 15, 2008. The New Notes will be issued at
a substantial discount from their principal amount at maturity. The New Notes
will accrete at a rate of 11 1/2%, compounded semiannually, to an aggregate
principal amount of $218,838,000 at August 15, 2003. The New Notes will begin
to accrue cash interest at a rate of 11 1/2% per annum commencing on August 15,
2003, and cash interest will be payable thereafter on February 15 and August 15
of each year, commencing February 15, 2004. The New Notes will be redeemable at
the option of Holdings, in whole or in part, on or after August 15, 2003, at
the redemption prices set forth herein. In addition, at any time and from time
to time prior to August 15, 2001, Holdings may redeem the Notes with the net
cash proceeds of one or more Public Equity Offerings (as defined), at a
redemption price equal to 111 1/2% of the aggregate Accreted Value (as defined)
thereof at the date of redemption; provided that not less than 65% of the
aggregate principal amount at maturity of the Notes originally issued remains
outstanding after any such redemption. See "Description of the Notes--Optional
Redemption." In addition, upon a Change of Control (as defined), each holder of
the Notes will have the right to require Holdings to purchase all or any part
of such holder's Notes at a purchase price equal to 101% of the aggregate
Accreted Value thereof at the date of purchase, if such purchase occurs prior
to August 15, 2003, or 101% of the aggregate principal amount plus accrued and
unpaid interest, if any, to the date of purchase, if such purchase occurs
thereafter. See "Description of the Notes--Change of Control." There can be no
assurance that in the event of a Change of Control, Holdings will have, or will
have access to, sufficient funds or will be contractually permitted under the
terms of outstanding indebtedness, including the New Credit Facilities (as
defined), to pay the required purchase price for any Notes. See "Risk Factors--
Change of Control."
(Continued on next page)
-----------
See "Risk Factors" beginning on page 13 of this Prospectus for a discussion
of certain factors that should be considered by holders prior to tendering
their Old Notes in the Exchange Offer.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1999
<PAGE>
The New Notes will be general unsecured obligations of Holdings ranking
senior in right of payment to all future indebtedness expressly subordinated
to the New Notes and pari passu in right of payment with all other existing
and future unsecured indebtedness and other obligations of Holdings. The New
Notes will be effectively subordinated to all indebtedness and other
obligations (including trade payables) of Holdings' subsidiaries, including
the New Credit Facilities. As of September 30, 1998, Holdings had no
indebtedness other than the Notes, and Holdings' subsidiaries had $281.3
million of indebtedness outstanding (excluding trade payables). See
"Description of the Notes--Ranking."
The New Notes are being offered hereunder in order to satisfy certain
obligations of Holdings contained in the Registration Rights Agreement. The
Old Notes were originally issued and sold on August 12, 1998 in transactions
not registered under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold or otherwise pledged, hypothecated or transferred in
the United States unless so registered or unless an applicable exemption from
the requirements of the Securities Act is available. Based upon
interpretations by the staff of the Securities and Exchange Commission (the
"SEC" or the "Commission") set forth in no-action letters issued to unrelated
third parties, Holdings believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any "Restricted Holder,"
being (i) a broker-dealer who purchases such Old Notes directly from Holdings
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of Holdings within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders are not participating, do not intend to
participate and have no arrangement or understanding with any person to
participate, in a distribution of such New Notes. The Company has not
submitted a no-action letter on its behalf and there can be no assurance that
the Commission will make a similar determination with respect to the Exchange
Offer. Eligible holders wishing to accept the Exchange Offer must represent to
Holdings that such conditions have been met. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal relating to the Exchange Offer states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "Underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Holdings has agreed that, for a period of 180 days after the
Expiration Date (as defined), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "The Exchange
Offer" and "Plan of Distribution."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders
of Old Notes will continue to be subject to the existing restrictions on
transfer thereof and Holdings will have no further obligation to such holders
to provide for the registration under the Securities Act of the Old Notes. See
"Risk Factors--Consequences of the Exchange Offer on Non-Tendering Holders of
the Old Notes."
There is no public market for the Old Notes or the New Notes and there can
be no assurance that an active trading market for the New Notes will develop
or be sustained. Although the Initial Purchasers (as defined) have advised the
Company that they currently intend to make a market in the New Notes, they are
not obligated to do so and any market making may be discontinued at any time.
The Company does not intend to list the New Notes on any national securities
exchange or apply for quotation through any automated quotation system. See
"Risk Factors--No Prior Public Market; Possible Volatility of New Note Price.
Holdings will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds." Holdings will accept for exchange any and all Old Notes that are
validly tendered on or prior to the Expiration Date (as defined). The exchange
of New Notes for Old Notes will be made promptly following the Expiration
Date.
i
<PAGE>
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount
of Old Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by Holdings. See "The
Exchange Offer." Holdings has agreed to pay the expenses of the Exchange Offer
(which shall not include the expenses of any holder of the New Notes in
connection with resales of the New Notes).
The New Notes will be issued in the form of one or more fully registered
Global Notes (as defined), which will be deposited with, or on behalf of, The
Depository Trust Company ("DTC" or the "Depositary") and registered in the
name of the Depositary or its nominee. Beneficial interests in the Global
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary or its nominee, and its participants.
After the initial issuance of the Global Notes, New Notes in certificated form
will be issued in exchange for the Global Notes only under limited
circumstances as set forth in the Indenture. See "Book-Entry, Delivery and
Form."
----------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL HOLDINGS ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
----------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER COVERED BY THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOLDINGS.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW NOTES IN ANY
JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE
IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF HOLDINGS SINCE
THE DATE HEREOF.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical facts, included in this
Prospectus, including without limitation, certain statements under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business" and located elsewhere
herein regarding the Company's operations, financial position and business
strategy, may constitute forward-looking statements. Forward-looking
statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "believe" or "continue" or the negative thereof or variations
thereon or similar terminology. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at
this time, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("cautionary statements") are
disclosed in this Prospectus, including without limitation, in conjunction
with the forward-looking statements included in this Prospectus and under
"Risk Factors" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." All subsequent written or oral forward-
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the cautionary statements.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to
the New Notes being offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. With respect to each
contract, agreement or other document filed or incorporated by reference as an
exhibit to the Registration Statement, reference is made to such exhibit and
each statement made in this Prospectus as to the provisions of such contract,
agreement or other document is qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and at 500 West Madison Street (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, included elsewhere in this Prospectus.
Telemundo Holdings, Inc. ("Holdings") was formed as a holding company for the
acquisition of Telemundo Group, Inc. ("Telemundo") and its subsidiaries through
the Merger (as defined), which was consummated on August 12, 1998. References
in this Prospectus to the "Company" include Holdings, the issuer of the New
Notes offered hereby, and Telemundo and its subsidiaries. For purposes of this
Prospectus, unless the context requires otherwise, (i) references to the United
States exclude Puerto Rico and (ii) "Market Area" or "DMA" refers to Designated
Market Area, a term developed by Nielsen Media Research, Inc. ("Nielsen TV")
and used by the television industry to describe a geographically distinct
television market.
The Company
The Company is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic
Market Areas in the United States--Los Angeles, New York, Miami, San Francisco,
Chicago, San Antonio and Houston. Four of these markets are among the five
largest general Market Areas in the United States. The Company also owns and
operates the leading full-power television station and related production
facilities in Puerto Rico. The Company's stations broadcast a wide variety of
network programming, including movies, telenovelas (soap operas), talk shows,
entertainment programs, national and international news, music and sporting
events. In addition, the Company supplements its network programming with local
programming focused on local news and community events.
Prior to the Merger, Telemundo produced and acquired its network programming
through its network operations (the "Telemundo Network"), which provided
programming 24-hours a day to Telemundo's owned and operated stations and
network affiliates. In connection with the Merger, the Company sold (the
"Network Sale") its network operations, which consisted of substantially all of
the programming and production assets of the Telemundo Network, to Telemundo
Network Group LLC (the "Network Company"), a recently formed company which is
equally owned by a subsidiary of Sony Pictures Entertainment Inc. and a
subsidiary of Liberty Media Corporation. The Network Company also entered into
an affiliation agreement with the Company and related affiliation agreements
with the Company's owned and operated stations (collectively, the "Affiliation
Agreement"), pursuant to which the Network Company provides network programming
to the Company, and the Company and the Network Company have agreed to pool and
allocate local, national spot and network advertising revenues on a
predetermined basis. See "Business--Affiliation Agreement." The Network Company
currently serves 63 markets in the United States, including the 37 largest
Hispanic markets, and reaches approximately 85% of all U.S. Hispanic
households.
The Company believes that it will benefit significantly from the global
production, programming and distribution expertise of Sony Pictures
Entertainment Inc. ("Sony Pictures") and the diverse programming and cable
distribution capabilities of Liberty Media Corporation ("Liberty"). The Company
expects that Sony Pictures and Liberty will provide (i) a source of high-
quality network programming, the expenses associated with which will be borne
entirely by the Network Company, (ii) access to significant national sales and
marketing resources, and (iii) greater market penetration through increased
cable television coverage. As a result of the reduction in operating costs due
to the Network Sale and the effect of the revenue sharing arrangement, the
Company expects its operating margins to be substantially improved from
historical levels.
1
<PAGE>
The Merger and Related Transactions
On August 12, 1998, the Merger was consummated in accordance with the
Agreement and Plan of Merger (the "Merger Agreement"), dated November 24, 1997,
among Holdings, TLMD Acquisition Co. ("TLMD Acquisition"), a wholly owned
subsidiary of Holdings, and Telemundo. Pursuant to the Merger Agreement, TLMD
Acquisition was merged with and into Telemundo (the "Merger"), with Telemundo
being the surviving corporation and becoming a wholly owned subsidiary of
Holdings.
The aggregate consideration paid in connection with the Merger (based on a
purchase price of $44.12537 per share, inclusive of interest for the period
commencing on July 30, 1998 and ending on August 11, 1998, and including the
refinancing of certain existing indebtedness of Telemundo and transaction fees
and expenses), was approximately $777.6 million. Of this amount, $300.0 million
was provided by borrowings under the New Credit Facilities (as defined), $125.0
million was provided from the proceeds of the offering of the Old Notes (the
"Offering"), $274.0 million was provided by the Equity Contributions (as
defined) and $74.0 million was provided from the proceeds of the Network Sale.
See "--Sources and Uses of Funds" and "Certain Relationships and Related
Transactions--Transactions Related to the Merger--Equity Contributions."
Holdings owns 100% of Telemundo's outstanding capital stock. The common stock
of Holdings is owned 24.95% by Sony Pictures, 24.95% by Liberty and 50.1% by
Station Partners, LLC ("Station Partners"). Station Partners is owned 68% by
Apollo Investment Fund III, L.P. ("Apollo Investment"), which may be deemed to
be an affiliate of TLMD Partners II, L.L.C. ("TLMD II"), a significant
stockholder of Telemundo prior to the Merger, and 32% by Bastion Capital Fund,
L.P. and/or its affiliates ("Bastion"), a significant stockholder of Telemundo
prior to the Merger.
New Credit Facilities. Telemundo has entered into new credit facilities (the
"New Credit Facilities") providing for aggregate borrowings of up to $350.0
million, which are guaranteed by Holdings and substantially all of Telemundo's
wholly owned domestic subsidiaries. In connection with the New Credit
Facilities, Telemundo terminated its revolving credit facility that was
existing prior to the Merger (the "Old Credit Facility"). See "Description of
Certain Indebtedness--New Credit Facilities."
Equity Contributions. In connection with the Merger, Holdings received equity
contributions (the "Equity Contributions") aggregating $274.0 million in cash
from Sony Pictures, Liberty, Apollo Investment and Bastion. The Equity
Contributions were contributed by Holdings to TLMD Acquisition to fund a
portion of the consideration paid in the Merger. See "Certain Relationships and
Related Transactions--Transactions Related to the Merger--Equity
Contributions."
Network Sale. The Company also sold its network operations which consisted of
substantially all of the programming and production assets of the Telemundo
Network to the Network Company for $74.0 million. The Network Company and the
Company have entered into the Affiliation Agreement pursuant to which the
Network Company provides network programming to the Company, and the Company
and the Network Company have agreed to pool and allocate local, national spot
and network advertising revenues on a predetermined basis. See "Business--
Affiliation Agreement" and "Certain Relationships and Related Transactions--
Transactions Related to the Merger--Network Sale and Affiliation Agreement."
Tender Offer. On August 12, 1998, TLMD Acquisition purchased approximately
$191.7 million aggregate principal amount of Telemundo's 10 1/2% Senior Notes
due 2006 (the "10 1/2% Notes") pursuant to an offer to purchase (as amended on
July 20, 1998, the "Tender Offer").
The Offering was consummated substantially contemporaneously with the Merger,
the Equity Contributions, the Network Sale, the Tender Offer and initial
borrowings under the New Credit Facilities (the Offering, the Merger, the
Equity Contributions, the Network Sale, the Tender Offer, the New Credit
Facilities and the related transactions are collectively referred to herein as
the "Transactions").
2
<PAGE>
The following table sets forth the approximate sources and uses of funds in
connection with the Transactions, which were consummated on August 12, 1998.
Sources and Uses of Funds
(Dollars in millions)
<TABLE>
<S> <C>
Sources of Funds
----------------
New Credit Facilities..... $300.0(a)
Assumed Capital Leases.... 4.6
Old Notes................. 125.0
Equity Contributions...... 274.0
Network Sale.............. 74.0
------
Total Sources........... $777.6
======
</TABLE>
<TABLE>
<S> <C>
Uses of Funds
-------------
Merger Consideration....... $538.4 (b)
Option and Warrant
Proceeds.................. (20.1)(c)
------
518.3
Refinance 10 1/2% Notes.... 191.7
Assumed Capital Leases..... 4.6
Repay Other Indebtedness... 0.5 (d)
Fees, Expenses and Other... 62.5 (e)
------
Total Uses............... $777.6
======
</TABLE>
- --------
(a) Excludes additional availability of up to $50.0 million under the Revolving
Credit Facility (as defined).
(b) Includes interest on the purchase price for the equity of Telemundo for the
period commencing on July 30, 1998 and ending on August 11, 1998, the day
before the date on which the Merger was completed. See "Certain
Relationships and Related Transactions--Transactions Related to the
Merger--Merger Agreement" and "--Equity Contributions."
(c) The merger consideration was reduced by the exercise price of options and
warrants converted in connection with the Merger.
(d) Reflects amounts outstanding and termination fees under the Old Credit
Facility and the refinancing of approximately $200,000 principal amount of
Telemundo's 10 1/4% Senior Notes due 2001 (the "10 1/4% Notes") which were
outstanding prior to the Merger.
(e) Includes fees and expenses incurred in connection with the Transactions,
including premiums paid in connection with the Tender Offer.
3
<PAGE>
The following chart sets forth in summary form the ownership of the Company.
[CHART]
STATION PARTNERS(a) SONY PICTURES LIBERTY
| | |
50.1% 24.95% 24.95%(b)
|------------------------------|-------------------|
$274.0 million | | |
Equity | | |
Contributors---------HOLDINGS 50%--------50%
$125.0 million | |
Old Notes | |
(Gross Proceeds) | |
| |
|100% |
| |
$350 million | Network Sale |
New Credit ------------TELEMUNDO $74.0 million NETWORK $74.0 million
Facilities -----------------------COMPANY Equity
Affiliation Agreement Contributions
Revenue Sharing
- --------
(a) Station Partners is owned by Apollo Investment (68%) and Bastion (32%).
Station Partners owns 50.1% of Holdings with Apollo Investment indirectly
owning 34.06% and Bastion indirectly owning 16.04% of Holdings.
(b) Liberty has granted Station Partners a proxy to vote all of its shares of
Holdings' common stock. As a result, Station Partners has the right to vote
75.05% of the shares of Holdings' common stock.
4
<PAGE>
Summary of Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $218,838,000 aggregate
principal amount at maturity of Old Notes for up to an equal aggregate
principal amount at maturity of New Notes. The form and terms of the New Notes
are identical in all material respects to the form and terms of the Old Notes
except (i) the New Notes will have been registered under the Securities Act,
(ii) the holders of the New Notes will not be entitled to certain rights of
holders of the Old Notes under the Registration Rights Agreement and (iii) the
holders of the New Notes will not be entitled to certain contingent rights
relating to the payment of additional interest.
The Exchange Offer..........
$1,000 principal amount at maturity of New Notes
will be issued in exchange for each $1,000
principal amount at maturity of Old Notes validly
tendered pursuant to the Exchange Offer. The
exchange of New Notes for Old Notes will be made
with respect to all Old Notes validly tendered
and not withdrawn on or prior to the Expiration
Date promptly following the Expiration Date. As
of February 15, 1999, the Accreted Value of the
Old Notes was $132.3 million.
Resale...................... Based upon interpretations by the staff of the
Commission set forth in no-action letters issued
to unrelated third parties, Holdings believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by
holders thereof (other than any Restricted
Holder) without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders'
business and such holders are not participating,
do not intend to participate and have no
arrangement or understanding with any person to
participate, in a distribution of such New Notes.
See "Shearman & Sterling," SEC No-Action Letter
(available July 2, 1993); "Morgan Stanley & Co.,
Incorporated," SEC No-Action Letter (available
June 5, 1991); and "Exxon Capital Holdings
Corporation," SEC No-Action Letter (available May
13, 1988). The Company has not submitted a no-
action letter on its behalf and there can be no
assurance that the Commission will make a similar
determination with respect to the Exchange Offer.
Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-
dealer as a result of market-making activities or
other trading activities, must acknowledge that
it will deliver a prospectus in connection with
any resale of such New Notes. See "Exchange
Offer" and "Plan of Distribution."
If any person were to participate in the Exchange
Offer for the purpose of distributing securities
in a manner not permitted by the preceding
paragraph, such person could not rely on the
position of the staff of the Commission and must
comply with the prospectus delivery requirements
of the Securities Act in connection with a
secondary resale transaction. Therefore each
holder of Old Notes who accepts the Exchange
Offer must represent in the Letter of Transmittal
that it meets the conditions described above. See
"The Exchange Offer--Purpose and Effects of the
Exchange Offer."
5
<PAGE>
Expiration Date............. 12:00 midnight, New York City time, on
, 1999, unless the Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
Holdings in whole or in part and from time to
time in its sole discretion. See "The Exchange
Offer--Conditions." The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
Procedure for Tendering Old
Notes...................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes (unless such tender
is being effected pursuant to the procedures for
book-entry transfer described below) to be
exchanged and any other required documentation to
the Exchange Agent (as defined herein) at the
address set forth herein and therein. See "The
Exchange Offer--Procedure for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on his or her
own behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering his or her Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name
or obtain a properly completed bond power from
the registered holder. The transfer of record
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Procedure for
Tendering."
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders of Old Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
6
<PAGE>
Acceptance of Old Notes and
Delivery of New Notes...... Holdings will accept for exchange any and all Old
Notes which are validly tendered in the Exchange
Offer prior to the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Consequence of Failure to
Exchange................... Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the Exchange
Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set
forth on the legend thereon. In addition, if the
Exchange Offer is consummated, Holdings does not
intend to file further registration statements
for the sale or other disposition of the Old
Notes. See "Risk Factors--No Public Market for
the Notes; Possible Volatility of New Note Price"
and "--Consequences of the Exchange Offer on Non-
Tendering Holders of Old Notes."
Registration Rights
Agreement; Effect on
Holders.................... The Old Notes were sold by Holdings on August 12,
1998 to Credit Suisse First Boston Corporation
and CIBC Oppenheimer Corp., as the initial
purchasers (the "Initial Purchasers") pursuant to
a Purchase Agreement dated August 7, 1998 between
Holdings and the Initial Purchasers (the
"Purchase Agreement"). The Initial Purchasers
subsequently sold the Old Notes to qualified
institutional buyers in reliance on Rule 144A
under the Securities Act. Pursuant to the
Purchase Agreement, Holdings and the Initial
Purchasers entered into a Registration Rights
Agreement dated as of August 12, 1998 (the
"Registration Rights Agreement") which grants the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is being
made to satisfy this contractual obligation of
Holdings. The holders of New Notes are not
entitled to any exchange or registration rights
with respect to the New Notes. See "The Exchange
Offer--Purpose and Effects of the Exchange
Offer."
Certain U.S. Federal Income
Tax Consequences........... The exchange of Old Notes for New Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
will not recognize any taxable gain or loss or
any interest income for federal income tax
purposes as a result of such exchange. See
"Certain U.S. Federal Income Tax Consequences."
Exchange Agent.............. Bank of Montreal Trust Company, the Trustee under
the Indenture, is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer. The address of the Exchange Agent is: Bank
of Montreal Trust Company, Wall Street Plaza, 88
Pine Street, New York, New York 10005, Attention:
Reorganization Department. For information with
respect to the Exchange Offer, call (212) 701-
7624.
7
<PAGE>
Use of Proceeds............. Holdings will not receive any cash proceeds from
the exchange of the New Notes for the Old Notes
pursuant to the Exchange Offer. The proceeds to
Holdings from the sale of Old Notes of
approximately $119.0 million (after deducting
discounts and fees and expenses of the Offering)
were applied, together with the Equity
Contributions, borrowings under the New Credit
Facilities and the proceeds of the Network Sale,
to fund the Merger, refinance existing
indebtedness of Telemundo and pay fees and
expenses related to the Transactions. See "--The
Merger and Related Transactions--Sources and Uses
of Funds" and "Use of Proceeds."
8
<PAGE>
Summary Description of the New Notes
Securities Offered.......... $218,838,000 aggregate principal amount at matu-
rity of 11 1/2% Senior Discount Notes Due 2008,
Series B.
Maturity Date............... August 15, 2008.
Yield to Maturity;
Interest................... 11 1/2% per annum (computed on a semiannual bond
equivalent basis). The New Notes will accrete at
a rate of 11 1/2%, compounded semiannually, to
100% of the principal amount at maturity byAugust
15, 2003. Except as described herein, no cash in-
terest will accrue on the New Notes prior to Au-
gust 15, 2003. The New Notes will begin to accrue
cash interest at a rate of 11 1/2% per annum com-
mencing on August 15, 2003, and cash interest
will be payable thereafter on February 15 and Au-
gust 15 of each year, commencing February 15,
2004.
Original Issue Discount..... The New Notes are being offered at an original
issue discount for U.S. federal income tax pur-
poses. Thus, although no cash interest will ac-
crue on the New Notes prior to August 15, 2003,
the accretion of original issue discount will be
includible, periodically, in a holder's gross in-
come for U.S. federal income tax purposes in ad-
vance of the receipt of cash payments to which
such income is attributable. See "Certain U.S.
Federal Income Tax Considerations."
Optional Redemption......... The New Notes will be redeemable at the option of
Holdings, in whole or in part, on or after August
15, 2003, at the redemption prices set forth
herein. In addition, at any time and from time to
time prior to August 15, 2001, Holdings may re-
deem the New Notes with the net cash proceeds of
one or more Public Equity Offerings, at a redemp-
tion price equal to 111 1/2% of the aggregate Ac-
creted Value thereof at the date of redemption;
provided that not less than 65% of the aggregate
principal amount at maturity of the New Notes
originally issued remains outstanding after any
such redemption. See "Description of the Notes--
Optional Redemption."
Ranking..................... The New Notes will be general unsecured obliga-
tions of Holdings ranking senior in right of pay-
ment to all future indebtedness expressly subor-
dinated to the New Notes and pari passu in right
of payment with all other existing and future
unsecured indebtedness and other obligations of
Holdings. The New Notes will be effectively sub-
ordinated to all indebtedness and other obliga-
tions (including trade payables) of Holdings'
subsidiaries, including the New Credit Facilities
of Telemundo. As of September 30, 1998, Holdings
had no indebtedness other than the Notes, and
Holdings' subsidiaries had $281.3 million of in-
debtedness outstanding (excluding trade
payables). See "Description of the Notes--Rank-
ing."
9
<PAGE>
Change of Control........... Upon a Change of Control, each holder of the
Notes will have the right to require Holdings to
purchase all or any part of such holder's Notes
at a purchase price equal to 101% of the aggre-
gate Accreted Value thereof at the date of pur-
chase, if such purchase occurs prior to August
15, 2003, or 101% of the aggregate principal
amount plus accrued and unpaid interest, if any,
to the date of purchase, if such purchase occurs
thereafter. See "Description of the Notes--Change
of Control."
Certain Covenants...........
The Indenture contains certain covenants that,
among other things, limit the ability of Holdings
and the Restricted Subsidiaries (as defined) to
incur additional indebtedness, make investments
and certain other restricted payments, consummate
asset sales, enter into certain transactions with
affiliates, incur liens, effect asset swaps, or
merge or consolidate with any other person or
sell, assign, transfer, lease, convey or other-
wise dispose of all or substantially all of the
assets of Holdings and the Restricted Subsidiar-
ies taken as a whole. The Indenture also limits
restrictions on the ability of a Restricted Sub-
sidiary to pay dividends or effect certain other
transactions. These covenants are subject to a
number of important qualifications and limita-
tions. See "Description of the Notes--Certain
Covenants."
Risk Factors
Holders of Old Notes should carefully consider the specific matters set forth
under "Risk Factors" beginning on page 13, as well as all other information and
data included in this Prospectus, before tendering Old Notes in exchange for
New Notes.
The specific matters set forth under "Risk Factors" include: the substantial
indebtedness of the Company and the restrictions imposed thereby; the holding
company structure of Holdings, the structural and effective subordination
caused thereby and limitations on the ability of Telemundo to pay funds to
Holdings; Telemundo's history of losses; significant competition in the
broadcast industry; concentration of the Company's revenue from WKAQ in Puerto
Rico; the effect of industry and economic conditions and seasonality; the
potential impact of new technologies; the effect of the Network Sale, the
Company's dependence on programming from the Network Company; the Company's
dependence on distribution systems; certain litigation relating to the Merger;
government regulation of the industry; foreign ownership restrictions; the
effect of a Change of Control on the Company; the control of the Company by
major stockholders; the Company's reliance on key personnel; potential Year
2000 issues; certain tax and legal consequences for Holders of the New Notes
and the Company; absence of a public market for the New Notes and possible
volatility of the price of the New Notes; and consequences of the Exchange
Offer on non-tendering Holders of the Old Notes.
10
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following presents summary historical consolidated financial data of
Telemundo (the "Predecessor") for the three years ended December 31, 1997, and
for the nine months ended September 30, 1997, which have been derived from
Telemundo's audited consolidated financial statements for the three years ended
December 31, 1997 and the unaudited consolidated financial statements for the
nine months ended September 30, 1997. The summary historical consolidated
financial data for the period January 1 to August 12, 1998 have been derived
from Telemundo's unaudited financial statements for the period January 1 to
August 12, 1998. The summary historical consolidated financial data for the
period August 13 to September 30, 1998 have been derived from the Company's
unaudited financial statements for the period August 13, 1998 to September 30,
1998. In the opinion of management, the unaudited consolidated financial data
presented herein reflect all adjustments (consisting of normal recurring
accruals only) necessary to fairly present the information for such periods.
The historical financial statements prior to August 13, 1998 do not reflect the
consummation of the Transactions or the capital structure of the Company
following the Transactions and may not be indicative of results that would have
been reported had the Transactions occurred, nor may it be indicative of the
Company's future financial position or operating results.
Also included is unaudited summary pro forma statement of operations data for
the year ended December 31, 1997 and the nine months ended September 30, 1998,
prepared as if the Transactions had occurred on January 1, 1997. Unaudited
summary balance sheet data as of September 30, 1998, which is also included,
includes the effects of the Merger and related transactions which occurred on
August 12, 1998. The summary pro forma data does not purport to represent what
the Company's results of operations or financial position would have been if
any of the Transactions had actually occurred at any date, nor does such data
purport to represent the results of operations for any future period. The pro
forma adjustments are based upon available information and certain assumptions
that the Company believes are reasonable.
The summary historical and pro forma consolidated financial data should be
read in conjunction with "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the historical financial statements of the Company and Telemundo and the notes
thereto included elsewhere herein.
Historical financial data for Holdings has not been provided for periods
prior to August 13, 1998 as Holdings did not have any operations or account
balances prior to the Merger.
11
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
<TABLE>
<CAPTION>
Company
Predecessor Historical Historical(a) Company Pro Forma
-------------------------------------------------------- ------------- --------------------------
Nine Months Nine Months
Year Ended December 31, Ended January 1 to August 13 to Year Ended Ended
---------------------------- September 30, August 12 September 30, December 31, September 30,
1995 1996 1997 1997 1998 1998 1997 1998
-------- -------- -------- ------------- ------------ ------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue............. $169,148 $202,713 $197,588 $139,427 $124,671 $21,819 $148,836 $114,091
Operating income........ 14,379 29,292 16,114 3,583 3,595 5,323 36,681 23,005
Merger related
expenses............... -- -- (1,707) -- (5,506) -- -- --
Interest expense--net... (14,489) (18,920) (20,849) (15,517) (13,067) (5,254) (40,100) (31,300)
Loss from investment in
and disposal of
TeleNoticias........... (6,355) (5,561) -- -- -- -- -- --
Minority interest....... -- (2,125) (2,808) (2,106) (1,898) (196) (2,808) (2,094)
Loss before
extraordinary item..... (10,088) (1,179) (13,444) (17,173) (19,989) (819) (10,428) (14,194)
Extraordinary item--
extinguishment
of debt................ -- (17,243) -- -- -- -- -- --
Net loss................ (10,088) (18,422) (13,444) (17,173) (19,989) (819) (10,428) (14,194)
</TABLE>
<TABLE>
<CAPTION>
Company
September 30,
1998
-------------
<S> <C>
Balance Sheet Data:
Working capital................................................... $ 19,830
Broadcast licenses and other intangible assets.................... 578,097
Total assets...................................................... 700,978
Long-term debt (including capital leases)......................... 408,261
Minority interest................................................. 5,403
Common stockholders' equity....................................... 213,194
</TABLE>
- --------
(a) Historical financial data for Holdings has not been provided for periods
prior to August 13, 1998 as Holdings did not have any operations or account
balances prior to the Merger.
12
<PAGE>
RISK FACTORS
Key factors affecting current and future operations of the Company include
the factors discussed below. Holders of Old Notes should carefully consider
the following factors in addition to the other information set forth in this
Prospectus before tendering Old Notes in exchange for New Notes.
Substantial Leverage; Restrictive Covenants
The Company has substantial indebtedness. The Company's aggregate principal
amount of total indebtedness (including capital leases) at September 30, 1998
was approximately $408.3 million and total stockholders' equity at September
30, 1998 was approximately $213.2 million. In addition, on a pro forma basis,
earnings would have been insufficient to cover fixed charges by $10.4 million
for the nine months ended September 30, 1998. The Indenture and the New Credit
Facilities contain various financial and operating covenants that, among other
things, require the maintenance of certain financial ratios and restrict the
ability of the Company to incur indebtedness, make investments, sell assets
and certain other restrictions. These restrictions, in combination with the
leveraged nature of the Company, could limit the ability of the Company to
respond to market conditions or meet extraordinary capital needs, or could
adversely affect the Company's ability to finance its future operations or
capital needs, or engage in other business activities which could be in the
interest of the Company. See "Description of Certain Indebtedness--New Credit
Facilities."
The Company has significant cash interest expense relating to borrowings
under the New Credit Facilities, and a significant amount of the Company's
consolidated cash flow will be required to service its indebtedness. No cash
interest will accrue on the Notes until August 15, 2003. Thereafter, cash
interest will accrue and be payable on the Notes. All of the indebtedness
under the New Credit Facilities will become due prior to the time payments of
principal on the Notes become due. In addition, the Company may be required to
refinance the New Credit Facilities and Holdings may be required to refinance
the Notes at maturity. No assurance can be given that, if required, the New
Credit Facilities or the Notes will be refinanced on terms acceptable to the
Company, if at all. The Company's ability to service its indebtedness will
depend upon the Company's future operating performance, which is subject to
financial, political, business, regulatory, general economic and other
factors, many of which are beyond the Company's control. Since borrowings
under the New Credit Facilities bear interest at rates that will fluctuate
with certain prevailing interest rates, increases in such rates likely will
increase the Company's interest expense with respect to borrowings thereunder
and could have an adverse effect on the Company. There can be no assurance
that the Company's cash flow from operations will be sufficient to enable it
to make payments on its indebtedness, including the Notes.
If the Company were to sustain a decline in its operating results, it could
experience difficulty in complying with the covenants that are contained in
the Indenture, the New Credit Facilities and any other agreements governing
future indebtedness of the Company. The failure to comply with such covenants
could result in an event of default under such agreements, thereby permitting
acceleration of indebtedness incurred pursuant thereto, as well as
indebtedness under other instruments that contain cross-acceleration or cross-
default provisions. In addition, if the Company experienced difficulty in
servicing its indebtedness, including the Notes, it may be forced to examine
alternative strategies that may include actions such as reducing or delaying
capital expenditures, restructuring or refinancing its indebtedness, the sale
of assets or the Company's ownership interest in its subsidiaries or seeking
additional debt and/or equity financings. There can be no assurance that any
of these strategies could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Sources of Capital."
Holding Company Structure; Structural and Effective Subordination; Limitation
on Payment of Funds to Holdings
Holdings is a holding company and does not have any material operations or
assets other than ownership of the capital stock of its subsidiaries.
Accordingly, the New Notes will be structurally subordinated to all existing
and future liabilities of its subsidiaries, including indebtedness under the
New Credit Facilities. In addition, the New Notes will not be secured by any
of the assets of Holdings or its subsidiaries. Therefore, the New Notes
13
<PAGE>
will be effectively subordinated to all existing and future secured
indebtedness of Holdings to the extent of the value of the assets securing
such indebtedness. The obligations of Telemundo under the New Credit
Facilities are guaranteed on a senior basis by Holdings and by substantially
all of Telemundo's wholly owned domestic subsidiaries, and are secured by
substantially all of the assets of Holdings and such subsidiaries. See
"Description of Certain Indebtedness--New Credit Facilities." In the event of
bankruptcy, liquidation or reorganization of Holdings or any of its
subsidiaries or in the event of acceleration of any indebtedness of any
subsidiary of Holdings upon the occurrence of an event of default, the assets
of Holdings or such subsidiary would be available to pay obligations on the
New Notes only after such secured indebtedness of Holdings or other
indebtedness of such subsidiary has been paid in full. As of September 30,
1998, the aggregate amount of indebtedness (excluding trade payables) of
Holdings' subsidiaries to which the holders of the New Notes would be
structurally subordinated was approximately $281.3 million. Holdings and its
subsidiaries may incur additional indebtedness in the future, subject to
certain limitations contained in the instruments governing their indebtedness.
Such indebtedness may be incurred by Holdings or its subsidiaries and may be
secured indebtedness.
In addition, as a holding company, Holdings derives substantially all of its
operating income from its subsidiaries. Holdings must rely upon cash flow from
its subsidiaries to generate the funds necessary to meet its obligations,
including the payment of principal of and interest on the New Notes and any
other indebtedness. Holdings' subsidiaries will have no obligation, contingent
or otherwise, to pay interest or principal on Holdings' indebtedness,
including the New Notes, or make any funds available to Holdings. The New
Credit Facilities restrict, and future indebtedness of Telemundo and its
subsidiaries may restrict, the ability of Telemundo and its subsidiaries to
pay dividends to Holdings. However, assuming no default or event of default
under the New Credit Facilities, the New Credit Facilities do not restrict the
ability of Telemundo to pay dividends to Holdings to enable Holdings to make
scheduled payments of cash interest on the New Notes. There can be no
assurance that Holdings will obtain sufficient funds from its subsidiaries in
order to make payments on its indebtedness, including the New Notes. See
"Description of Certain Indebtedness--New Credit Facilities."
History of Losses
In July 1993, Telemundo consented to the entry of an order for relief under
Chapter 11 of the United States Code (the "Bankruptcy Code") and on December
30, 1994, consummated a plan of reorganization (the "Reorganization") under
the Bankruptcy Code. Although Telemundo has reported operating income for each
of the three years ended December 31, 1995, 1996 and 1997, it reported net
losses of $10.1 million, $18.4 million and $13.4 million for such years,
respectively. The net loss for 1996 includes the effect of an extraordinary
loss of $17.2 million. In addition, on a pro forma basis after giving effect
to the Transactions, for the year ended December 31, 1997 and for the nine
months ended September 30, 1998, the Company would have incurred a net loss of
$10.4 million and $14.2 million, respectively. There can be no assurance that
the Company will achieve or sustain profitability in the future.
Competition
The broadcasting industry is highly competitive. The Company's owned and
operated television stations face competition for advertising revenue from
other Spanish-language and English-language television broadcasters. The
Company's competitors also include cable television operators, wireless cable
systems, direct broadcast satellite systems, telephone company video systems,
Spanish-language and English-language radio broadcasters and other media
including newspapers, magazines, computer on-line services, movies and other
forms of entertainment and advertising. Many of the Company's competitors are
better capitalized and have greater financial resources and flexibility than
the Company.
The ability of television broadcast stations to generate advertising
revenues depends to a significant degree upon audience ratings. Technological
innovation and the resulting proliferation of programming alternatives, such
as independent broadcast stations, cable television and other multi-channel
competitors, pay-per-view and VCRs have fragmented television viewing
audiences and subjected television broadcast stations to new types of
competition. During the past decade, cable television and independent stations
have captured an increasing market share and overall viewership of general
market broadcast network television has declined.
14
<PAGE>
In the Spanish-language television broadcast market, the Company faces
significant competition from Univision Communications, Inc. ("Univision"),
which operates the other national Spanish-language broadcast company in the
United States and has a substantially greater audience share than the Company.
In each of the markets in which the Company owns and operates full-power
stations, except Puerto Rico, the Company's station competes directly with a
full-power Univision station. Together, the Univision stations and the
Univision network affiliates reach a larger percentage of Hispanic viewers in
the United States than the Company's owned and operated stations and the
Network Company's network affiliates and within the last year have attracted
as much as 86% of the U.S. Spanish-language television network audience (as
reported by Nielsen TV). Generally, the competing Univision stations have been
operating in their markets longer than have the Company's stations. Univision
also owns Galavision, a Spanish-language cable network that is reported to
serve approximately 2.5 million Hispanic subscribers, representing
approximately 55% of all Hispanic households that subscribed to cable
television in 1997. Both Grupo Televisa, S.A. de C.V. ("Televisa") and
Corporacion Venezolana de Television, C.A. ("Venevision"), which are
significant stockholders of Univision, have entered into long-term contracts
to supply Spanish-language programming to the Univision and Galavision
networks. Televisa is the largest supplier of Spanish-language programming in
the world. Through these program license agreements, Univision has the right
of first refusal to air in the United States all Spanish-language programming
produced by Televisa and Venevision. These supply contracts currently provide
Univision with a competitive advantage in obtaining programming originating
from Mexico and in targeting U.S. Hispanics of Mexican origin, who account for
approximately 63% of the U.S. Hispanic market. In October 1998, Televisa
announced that it has reduced its ownership interest in Univision by
approximately 50%, to approximately 10%. The Company is unable to predict the
effect that such ownership change would have on the broadcast television
market or on the Company's financial condition or future results of
operations.
Further, certain of the Company's stations, particularly in Puerto Rico and
Los Angeles, also face competition on a local level from various independent
Spanish-language television stations. In March 1998, TV Azteca, S.A. de C.V.
("TV Azteca"), one of two Mexican television broadcast companies, announced
its intention to create a third Spanish-language network in the United States.
To date, the Company is not aware of any activity with respect to such
network. On October 2, 1998, Chancellor Media Corp. and one of its
subsidiaries (collectively, "Chancellor") filed a transfer application seeking
FCC consent of Chancellor's acquisition of Pegasus Broadcasting of San Juan,
L.L.C., the licensee of WAPA-TV, San Juan, Puerto Rico ("WAPA"). WAPA is one
of WKAQ's significant competitors. On December 4, 1998, the Company filed a
"Petition to Deny" Chancellor's transfer application on both procedural and
substantive grounds. Chancellor filed its opposition to the Petition to Deny
on December 17, 1998 and WAPA filed a reply on December 28, 1998. The pleading
cycle is now closed and the FCC has yet to rule on the Company's Petition to
Deny. It is not possible to predict how the ultimate outcome of this
proceeding or the possible acquisition of WAPA by Chancellor will affect the
Company's business. Increased competition for viewers and revenues may have a
material adverse effect on the Company's financial condition or future results
of operations.
The Company also competes with English-language broadcasters for Hispanic
viewers, including the four principal English-language television networks,
ABC, CBS, NBC and Fox, and, in certain cities, the UPN and WB networks. Sony
Pictures and Liberty provide programming to each of the principal English-
language networks. Certain of these and other English-language networks have
begun producing Spanish-language programming and simulcasting certain
programming in English and Spanish. Several cable programming networks,
including HBO, ESPN and CNN, provide Spanish-language services as well. There
can be no assurance that current Spanish-language television viewers will
continue to watch the Company's or any other Spanish-language broadcaster's
programming rather than English-language programming or Spanish-language
simulcast programming. In addition, many of the Company's competitors are
better capitalized and have greater financial resources and flexibility than
the Company. Increased competition for viewers and revenues may have a
material adverse effect on the Company's financial condition or future results
of operations. See "Business--Competition."
Concentration of Revenue from WKAQ in Puerto Rico
The Company's owned and operated station in Puerto Rico, WKAQ, accounted for
approximately 26% of the Company's net commercial air time sales for the year
ended December 31, 1997. A decline in the revenue of
15
<PAGE>
WKAQ could have a material adverse effect on the Company's financial condition
or future results of operations. Although the Company cannot determine the
impact at this time, it expects that the revenues of WKAQ will be adversely
affected as a result of advertisers reducing their spending while businesses
and services, including electricity, are disrupted due to damage caused by
Hurricane Georges in September 1998.
Industry and Economic Conditions; Seasonality
The Company's profitability may be affected by numerous factors, including
changes in audience viewing preferences, priorities of advertisers, reductions
in advertisers' budgets, new laws and governmental regulations and policies,
changes in broadcast technical requirements, technological advances, proposals
to eliminate the tax deductibility of certain advertising expenses incurred by
advertisers and changes in the willingness of financial institutions and other
lenders to finance television station acquisitions and operations. The Company
cannot predict which, if any, of these or other factors might have a
significant impact on the television broadcasting industry in the future, nor
can it predict what impact, if any, the occurrence of these or other events
might have on the Company's financial condition or future results of
operations.
Historically, advertising in most forms of media has correlated with the
general condition of the economy. Television broadcasters are also exposed to
the general economic conditions of the local regions in which they operate.
Due to the concentration of revenues from WKAQ in Puerto Rico, the Company may
be adversely affected more than other broadcasters by an economic downturn in
Puerto Rico.
Seasonal revenue fluctuations are common in the television broadcasting
industry and the Company's revenue reflects seasonal patterns with respect to
advertiser expenditures. Increased advertising during the holiday season
results in increases in advertising revenue for the fourth quarter,
particularly in Puerto Rico. As a result, the Company experiences seasonal
fluctuations in its revenue to a greater degree than its direct competitors
and the broadcasting industry in general. Because costs are more ratably
spread throughout the year, the impact of this seasonality on operating income
may be pronounced. See "--Concentration of Revenue from WKAQ in Puerto Rico."
Impact of New Technologies
In recent years, the Federal Communications Commission (the "FCC") has
adopted policies providing for authorization of new technologies and a more
favorable operating environment for certain existing technologies that have
the potential to provide additional competition for television stations.
Further advances in technology such as video compression, direct broadcast
satellites and programming delivered through fiber optic telephone lines could
facilitate the entry of new channels and encourage the development of
increasingly specialized "niche" programming. In particular, the Company may
be affected by the development of digital television technology ("DTV") and
the adoption of standards and regulations for DTV by the FCC. The FCC recently
completed several rulemaking proceedings in order to implement DTV.
Broadcasters are tentatively required to complete the transition to DTV
broadcasting by 2006, subject to biennial reviews to evaluate the progress of
implementation. DTV implementation will impose significant additional costs on
the Company, primarily due to the capital costs associated with construction
of DTV facilities and increased operating costs both during and after the
transition period, and no assurance can be given that the Company will have
adequate financial resources to incur such costs. In addition, the FCC is
currently engaged in a rulemaking proceeding regarding the application of the
must-carry rules to DTV. Moreover, broadcasters who elect not to engage in DTV
broadcasting at an early stage could suffer a significant competitive
disadvantage. The Company is unable to predict the effect that technological
changes will have on the broadcast television industry or on the Company's
financial condition or future results of operations.
The FCC has acknowledged that DTV channel allotment may involve displacement
of existing low-power television stations, particularly in major television
markets. Accordingly, the Company's existing low-power owned and operated
stations and the Network Company's broadcast affiliates may be materially
adversely affected. The Company's largest low power broadcast station
represents approximately 2.8% of the Company's coverage of the U.S. Hispanic
market. In 1997, Telemundo's low power broadcast stations collectively
represented less than 1% of total revenues.
In addition, the Balanced Budget Act of 1997 requires (unless the FCC finds
that certain conditions have not been met) broadcasters to return their analog
channels on an expedited basis by 2006 to permit them to be
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reauctioned to new licensees. An expedited transition period could require the
Company to end analog transmission before all of its viewers (particularly in
the Hispanic markets which the Company serves) have purchased DTV-compatible
reception equipment.
Network Sale; Dependence on Programming; Affiliation Agreement
Prior to the Merger, Telemundo produced or acquired and distributed its
network programming through the Telemundo Network to Telemundo's owned and
operated stations and its network affiliates. In connection with the Merger,
the Company sold its network operations to the Network Company and entered
into the Affiliation Agreement. As a result, network programming is provided,
and network and national advertising sales and marketing activities are
conducted, by the Network Company. The Network Sale created certain risks and
uncertainties for the Company, including risks relating to the separation and
independent operation of the Company and the Telemundo Network, which
historically have been integrated. The Company does not control the Network
Company. There can be no assurance that the Company and the Telemundo Network
will be able to successfully operate independently from one another. The
failure of the Network Company to successfully operate its network could have
a material adverse effect on the Company's financial condition or future
results of operations.
In connection with the Network Sale, the Company entered into the
Affiliation Agreement, pursuant to which the Network Company provides
programming to the Company, and the Company and the Network Company have
agreed to pool and allocate local, national spot and network advertising
revenues pursuant to a revenue sharing arrangement. Accordingly, the Company
relies solely on the Network Company for all of its network programming and is
dependent, to a significant extent, on the ability of the Network Company to
generate advertising revenues. The Telemundo network's average share of the
weekday Spanish-language television network audience has declined
significantly to 16% in the second quarter of 1998 as compared to 26% in the
first quarter of 1996. The Spanish-language television market shares for the
Company's stations will be dependent upon the Network Company's ability to
produce or acquire and distribute programming which attracts significant
viewer levels. If the programming provided by the Network Company fails to
attract viewers, each of the Company's and the Network Company's ability to
attract advertisers and generate revenues and profits would be impaired. Since
the Network Sale, certain new programming has been introduced. However, the
Telemundo network's average share of the weekday Spanish-language television
network audience has continued to decline to 14% in the fourth quarter of
1998. There can be no assurance that the programming provided by the Network
Company will achieve or maintain satisfactory viewership levels or maintain
current viewership levels, or that the Company or the Network Company will be
able to generate significant advertising revenues.
The initial term of the Affiliation Agreement is ten years and the Network
Company will have the right to renew for two consecutive five-year terms if
certain performance goals are met. The Affiliation Agreement is terminable by
either party in the event of a "material default of a material provision" (as
defined therein). The termination of the Affiliation Agreement would
constitute an event of default under the New Credit Facilities and the
Indenture and would have a material adverse effect on the Company's financial
condition and results of operations. In addition, the obligations of the
Network Company under the Affiliation Agreement as to a particular station can
be terminated under certain limited circumstances. Such termination, if
materially adverse to the Company, would constitute an event of default under
the New Credit Facilities and the Indenture. See "Business--Affiliation
Agreement" and "Description of the Notes."
Dependence on Distribution System
The Company's stations receive network broadcast feeds by satellite.
Satellites are subject to significant risks that may prevent or impair proper
commercial operations, including satellite defects, launch failure,
destruction and damage and incorrect orbital placement. On May 19, 1998, the
satellite leased by the Telemundo Network experienced a failure which resulted
in the disruption of the Telemundo Network's transmission for a short period
of time. A substitute satellite was made available to transmit the Telemundo
Network's signal. The Network Company recently entered into a new satellite
lease agreement. There can be no assurance that other disruptions of
transmissions will not occur in the future. The operation of the satellite is
outside the control of the Company and the Network Company and a disruption of
the transmissions could have a material adverse effect on the Company's
financial condition or future results of operations.
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The Company owns and leases antenna and transmitter space for each of its
owned and operated stations. The loss of certain of these antenna tower leases
could also have a material adverse effect on the financial condition or future
results of operations of the Company.
Certain Litigation Relating to the Merger
The Company is aware of six lawsuits that have been filed relating to the
Merger. Telemundo and its directors are defendants in all of the lawsuits. On
March 5, 1998, the six actions were consolidated for all purposes, and the
complaint entitled Mimona Capital, CA No. 16052-NC was designated as the sole
operative complaint for the consolidated action. The complaint asserts that
the $44.00 per share price to be paid to the stockholders of Telemundo is
inadequate and is not the result of arm's-length negotiations and that the
Merger Agreement serves no legitimate business purpose. To date none of the
defendants has been required to answer, move or otherwise respond to the
complaint and no discovery has been taken. There can be no assurance that the
result of such litigation will not have a material adverse effect on the
Company's consolidated results of operations or financial condition. See
"Business--Legal Proceedings."
Government Regulation
The television broadcasting industry is subject to extensive and changing
regulation. Among other things, the Communications Act of 1934 (the
"Communications Act") and FCC rules and policies require that each television
broadcaster must operate in compliance with a license issued by the FCC. Each
of the Company's television stations operates pursuant to one or more licenses
issued by the FCC that expire at different times. The Company must apply to
renew these licenses, and third parties may challenge those applications.
Although the Company has no reason to believe that its licenses will not be
renewed in the ordinary course, there can be no assurance that its licenses
will be renewed. See "--Impact of New Technologies" and "Business--FCC
Regulation."
On July 30, 1998, the FCC issued an initial consent to the transfer of
control of certain broadcast licenses to Holdings (the "Initial FCC Consent").
The parties consummated the Transactions on the basis of the Initial FCC
Consent. Any person whose interests are adversely affected by the Initial FCC
Consent has 30 days after public notice thereof to seek reconsideration or
review of the Initial FCC Consent. If no timely petition for reconsideration
or review of the Initial FCC Consent is filed within 30 days thereof and the
FCC does not timely reconsider the action on its own motion within 40 days
thereof, such Initial FCC Consent shall become a final order and shall no
longer be subject to further administrative or judicial review at the close of
business on the 40th day after public notice of the Initial FCC Consent. In
connection with Holdings' application for the Initial FCC Consent, Univision
filed a "Petition to Deny" and a supplement to its "Petition to Deny," which
were denied by the FCC on July 30, 1998. On August 6, 1998, Univision filed an
application (the "Univision Application") seeking review of the Initial FCC
Consent. On August 26, 1998, the Company filed its opposition to the Univision
Application and on September 19, 1998, Univision filed its reply. Although the
Company cannot predict the timing for FCC action on, or the outcome of, the
Univision Application, the Univision Application or any timely judicial appeal
of the FCC decision on the Univision Application may substantially delay the
Initial FCC Consent becoming a final order. See "Certain Relationships and
Related Transactions--Transactions Related to the Merger--Merger Agreement."
A number of the Company's stations serving several markets and many of the
Network Company's affiliates are classified by the FCC as "low-power"
stations. Certain of the Company's owned and operated stations and the Network
Company's affiliates increase their coverage through use of "translators" that
rebroadcast the station's signal. Both low-power and translator stations are
referred to as "LPTV" stations and generally operate at significantly lower
levels of power than full-power stations. Under FCC rules, in addition to its
policies regarding DTV, such LPTV stations operate on a secondary basis, and,
therefore, are subject to displacement by a full-power station or other
facility if one is licensed and they must tolerate defined levels of
electromagnetic interference from full-power stations.
The Telecommunications Act of 1996 (the "Telecommunications Act") directed
the broadcast and cable television industries to develop and transmit an
encrypted rating in all video programming that, when used in conjunction with
the so-called "V-Chip" technology, would permit the blocking of programs with
a common
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rating. On March 12, 1998, the FCC voted to accept an industry proposal
providing for a voluntary ratings system of "TV Parental Guidelines" under
which all video programming will be designated in one of six categories in
order to permit the electronic blocking of selected video programming. The FCC
has begun a separate proceeding to address technical issues related to the "V-
Chip." The FCC has directed that all television receiver models with picture
screens 13 inches or greater be equipped with "V-Chip" technology under a
phased implementation beginning on July 1, 1999. The Company cannot predict
how changes in the implementation of the ratings system and "V-Chip"
technology will affect the Company's business.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modify existing laws and regulations and policies
regarding a wide variety of matters, including the adoption of attribution
rules which would further restrict broadcast station ownership, that could
directly or indirectly adversely affect the ownership and operation of the
Company's broadcast properties, as well as the Company's business strategies.
The adoption of various measures could accelerate the existing trend toward
vertical integration in the media and home entertainment industries and cause
the Company to face more formidable competition in the future. The
Telecommunications Act modified or eliminated restrictions on the offering of
multiple network services by the existing major television networks,
restrictions on the participation by the regional telephone operating
companies in cable television and other direct to home video technologies, and
certain restrictions on broadcast station ownership. The Company is unable to
predict whether these or other potential changes in the regulatory environment
could restrict or curtail the ability of the Company to acquire, operate and
dispose of stations or, in general, to compete profitably with other operators
of television stations and other media properties.
Foreign Ownership Restrictions
The Communications Act authorizes the FCC, if the FCC determines that it
would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or a foreign government or a representative thereof or any
corporation organized under the laws of a foreign country (collectively,
"Aliens"). In the Initial FCC Consent, the FCC held that 22.67% of the capital
stock of the Company is owned of record by Aliens and that 23.26% of the
voting stock of the Company is voted by Aliens. The Univision Application
directly challenged these holdings. The Company cannot predict the outcome of
the Univision Application or any judicial appeal of the FCC's action on the
Univision Application. If the FCC ultimately determines that more than 25% of
the capital stock of the Company is indirectly owned of record or voted by
Aliens, the Stockholders are prepared to restructure their respective
investment in the Company or take any other action necessary to reduce the
indirect Alien ownership in the Company to no more than 25%. There can be no
assurance that the FCC will find that these actions enable the Company to
comply with the Communications Act's foreign ownership restrictions.
Change of Control
In the event of a Change of Control, Holdings will be required to offer to
purchase all of the outstanding Notes at 101% of the Accreted Value thereof at
the date of purchase, if such purchase occurs prior to August 15, 2003, or
101% of the aggregate principal amount thereof, plus any accrued and unpaid
interest thereon to the date of purchase, if such purchase occurs thereafter.
The exercise by the holders of the Notes of their rights to require Holdings
to offer to purchase Notes upon a Change of Control could also cause a default
under other indebtedness of Holdings, including the New Credit Facilities,
even if the Change of Control itself does not, because of the financial effect
of such repurchase on Holdings. Holdings' ability to pay cash to any of the
holders of New Notes upon a repurchase may be limited by Holdings' then
existing capital resources. There can be no assurance that in the event of a
Change of Control, Holdings will have, or will have access to, sufficient
funds or
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will be contractually permitted under the terms of outstanding indebtedness,
including the New Credit Facilities, to pay the required purchase price for
any New Notes. See "Description of the Notes--Change of Control."
Control by Major Stockholders
As a result of the Merger and the related transactions, Apollo Investment
indirectly owns 34.06% of Holdings, Bastion indirectly owns 16.04% of Holdings
and Liberty and Sony Pictures each own 24.95% of Holdings. Station Partners,
which is owned 68% by Apollo Investment and 32% by Bastion, is the record
holder of an aggregate 50.1% ownership interest in Holdings. Further, Liberty
has granted to Station Partners a proxy to vote all of the shares of common
stock of Holdings owned by Liberty and, as a result, Station Partners has the
right to vote 75.05% of the shares of common stock of Holdings. In addition,
Station Partners, on the one hand, and Sony Pictures and Liberty, on the other
hand, have entered into certain put/call arrangements with respect to their
shares of common stock. Under Delaware law, owners of a majority of a
company's outstanding common stock are able to elect all of a company's
directors and approve significant corporate transactions without the approval
or consent of other stockholders. In addition, each of Sony Pictures, Liberty
and Station Partners (collectively, the "Initial Stockholders") have entered
into a Stockholders Agreement (as defined), providing for, among other things,
the election of directors and voting with respect to Major Decisions (as
defined in the Stockholders Agreement). See "Certain Relationships and Related
Transactions--Transactions Related to the Merger--Stockholders Agreement."
Circumstances could arise in which the interests of the Initial Stockholders,
as equity holders, could be in conflict with the interests of the holders of
the New Notes. In addition, these stockholders could pursue transactions that
in their judgment enhance the value of their equity investment but involve
risks to holders of the New Notes.
Reliance on Key Personnel
The Company believes that its success will continue to be dependent upon the
ability of the Company and the Network Company to attract and retain skilled
managers and other personnel, including its present officers and network and
station employees. The Company does not have any control with respect to the
officers and employees of the Network Company. The loss of the services of any
key personnel may have a material adverse effect on the results of operations
or financial condition of the Company or the Network Company. The Company
presently does not maintain any key man life insurance policies on any of its
personnel. The Company generally has employment agreements with its key
personnel which contain non-competition or non-interference covenants. See
"Management--Executive Compensation--Employment Agreements."
Year 2000
The Company has developed plans, utilizing internal resources, to ensure its
information systems are capable of properly utilizing dates beyond December
31, 1999. During the past year, the Company upgraded or replaced many of its
accounting and traffic computer systems, including the conversion to new
software which is Year 2000 compliant. Additionally, the Company has evaluated
its other principal computer systems and determined they are substantially
Year 2000 compliant. The Company is also seeking to work with its relevant
customers, suppliers and other service providers to ensure their systems are
Year 2000 compliant. Although the impact on the Company caused by the failure
of its significant customers, suppliers and other service providers to achieve
Year 2000 compliance in a timely and effective manner is uncertain, the
Company's business and results of operations could be materially adversely
affected by such failure. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Year 2000."
Original Issue Discount; Possible Tax and Other Legal Consequences for
Holders of New Notes and the Company
The New Notes will be issued at a substantial discount from their principal
amount at maturity. Cash payments of interest on the New Notes will not be
paid prior to 2004. However, original issue discount (i.e., the difference
between the "stated redemption price at maturity" of the New Notes and the
"issue price" of the New Notes) will accrue from the issue date of the New
Notes and will be includable as interest income
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periodically in a holder's gross income for U.S. federal income tax purposes
in advance of receipt of the cash payments to which the income is
attributable. Furthermore, the New Notes will be subject to the applicable
high-yield discount obligation rules, and the Company will not be able to
deduct the original issue discount attributable to the New Notes until paid in
cash or property. As a result, the Company's after-tax cash flow may be less
than if such original issue discount were deductible when accrued. See
"Certain U.S. Federal Income Tax Considerations--Original Issue Discount."
If a bankruptcy case were commenced by or against Holdings under the
Bankruptcy Code after the issuance of the New Notes, the claim of a holder of
the New Notes with respect to the principal amount thereof may be limited to
an amount equal to the sum of (i) the initial offering price and (ii) that
portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the Bankruptcy Code. Any original issue
discount that had not amortized as of the date of any such bankruptcy filing
would constitute "unmatured interest."
Generally, Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), limits a corporation's use of its net operating losses ("NOLs") and
other tax attributes (the "Section 382 Limitation"), if a corporation has a
cumulative change in ownership of greater than 50% within a three-year period
(an "ownership change"). The Section 382 Limitation applies to the use of NOLs
and other tax attributes in periods after such an ownership change. The
Company's use of its NOLs incurred prior to December 31, 1994 are subject to
the Section 382 Limitation. In addition, as a result of the Merger, the
Company has undergone a further ownership change and its use of NOLs from
periods prior to the Merger will be further limited. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Sources of Capital."
No Prior Public Market; Possible Volatility of New Note Price
There is no public market for the New Notes and there can be no assurance
that an active trading market for the New Notes will develop or be sustained.
If such a market were to develop, there can be no assurance as to the
liquidity of any market that may develop for the New Notes, the ability of the
holders of the New Notes to sell their New Notes, or the prices at which the
holders of the New Notes would be able to sell their New Notes. Future trading
prices of the New Notes will depend upon many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
securities. Although the Initial Purchasers have advised the Company that they
currently intend to make a market in the New Notes, they are not obligated to
do so and any market making may be discontinued at any time. In addition,
because the Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered for exchange, the number of New Notes tendered could be
quite small, which could have an adverse effect on the liquidity of the New
Notes. Therefore, no assurance can be given as to the liquidity of the trading
market for the New Notes. Historically, the market for non-investment grade
debt securities has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the New Notes. There can be
no assurance that the market for the New Notes will not be subject to similar
disruptions. Any such disruptions could have an adverse effect on holders of
the New Notes. The Company does not intend to list the New Notes on any
national securities exchange or apply for quotation through any automated
quotation system.
Consequences of the Exchange Offer on Non-Tendering Holders of the Old Notes
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Company does not intend to file further registration
statements for the sale or other disposition of Old Notes. Old Notes that are
not exchanged for New Notes will remain restricted securities within the
meaning of Rule 144 of the Securities Act. Consequently, following completion
of the Exchange Offer, holders of Old Notes seeking liquidity in their
investment would have to rely on an exemption to the registration requirements
under applicable securities laws, including the Securities Act, with respect
to any sale or other disposition of the Old Notes. In addition, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Old Notes could be adversely affected.
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USE OF PROCEEDS
Holdings will not receive any cash proceeds from the exchange of the New
Notes for the Old Notes pursuant to the Exchange Offer.
The proceeds to Holdings from the sale of the Old Notes of approximately
$119.0 million (after deducting underwriting discounts and fees and expenses
of the Offering) were applied, together with the Equity Contributions,
borrowings under the New Credit Facilities and the proceeds of the Network
Sale, to fund the Merger, refinance existing indebtedness of Telemundo and pay
fees and expenses related to the Transactions. See "Prospectus Summary--The
Merger and Related Transactions--Sources and Uses of Funds."
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THE EXCHANGE OFFER
Purpose and Effects of the Exchange Offer
The Old Notes were sold by Holdings on August 12, 1998 (the "Issue Date") to
the Initial Purchasers, pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
within the meaning of Rule 144A under the Securities Act. As a condition to
the Purchase Agreement, Holdings and the Initial Purchasers entered into the
Registration Rights Agreement on August 12, 1998. The Registration Rights
Agreement required Holdings to file with the Commission following the Issue
Date, a registration statement relating to an exchange offer pursuant to which
notes that are substantially identical to the Old Notes would be offered in
exchange for the then outstanding Old Notes tendered at the option of the
holders thereof. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except (i) the New
Notes will have been registered under the Securities Act, (ii) the holders of
the New Notes will not be entitled to certain rights of holders of the Old
Notes under the Registration Rights Agreement and (iii) the holders of the New
Notes will not be entitled to certain contingent rights relating to the
payment of additional interest. The Exchange Offer is being made to satisfy
the contractual obligations of Holdings under the Registration Rights
Agreement. The holders of any Old Notes not tendered in the Exchange Offer
will not be entitled to require Holdings to file the Resale Registration
Statement.
Holdings has agreed pursuant to the Registration Rights Agreement that,
unless clause (i) of the first sentence of the next paragraph shall apply,
Holdings will, at its cost, (i) no later than 60 days after the Issue Date
file a registration statement (the "Exchange Offer Registration Statement")
with the Commission with respect to an Exchange Offer to exchange the Old
Notes for New Notes and (ii) use all reasonable efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the Issue Date. Upon the effectiveness of the Exchange
Offer Registration Statement, Holdings will offer the New Notes in exchange
for surrender of the Old Notes. Holdings will keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders. For each Old Note
surrendered to Holdings pursuant to the Exchange Offer, the Holder of such Old
Note will receive a New Note having a principal amount at maturity and
Accreted Value on the date of exchange equal to that of the surrendered Old
Note.
In the event that (i) applicable law or interpretations of the staff of the
Commission do not permit Holdings to effect the Exchange Offer, (ii) if for
any other reason the Exchange Offer is not consummated within 180 days of the
Issue Date, (iii) any Initial Purchaser so requests with respect to the Old
Notes not eligible to be exchanged for New Notes in the Exchange Offer by it
following consummation of the Exchange Offer, or (iv) any Holder notifies
Holdings within 30 days after commencement of the Exchange Offer that such
Holder (x) is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, (y) may not resell New Notes acquired by
it to the public without delivery of a prospectus and that the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (z) is a broker-dealer and holds
Old Notes acquired directly from Holdings or an affiliate of Holdings, then
Holdings will, at its cost, (a) as promptly as practicable, file a
registration statement (the "Shelf Registration Statement") covering resales
of the Old Notes or the New Notes, as the case may be, from time to time, (b)
use all reasonable efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (c) keep the Shelf
Registration Statement continuously effective until the earlier of two years
from the Issue Date or such time as all of the Old Notes or New Notes covered
by the Shelf Registration Statement have been disposed of pursuant to the
Shelf Registration Statement or are no longer restricted securities (as
defined under Rule 144 under the Securities Act). Holdings will, in the event
a Shelf Registration Statement is filed, among other things, provide to each
Holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Old Notes or the New Notes, as the case may be. A holder selling Old Notes
or New Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in
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connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such Holder (including
certain indemnification obligations). In addition, each Holder of the Old
Notes or New Notes to be registered under the Shelf Registration Statement
will be required to deliver information to be used in connection with the
Shelf Registration Statement within the time period set forth in the
Registration Rights Agreement in order to have such holder's Old Notes or New
Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding additional interest set forth in the following paragraph.
If (i) on or prior to 60 days after the Issue Date, neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has been
filed with the Commission; or (ii) on or prior to 150 days after the Issue
Date, neither the Exchange Offer Registration Statement has been declared
effective nor the Shelf Registration Statement has been declared effective; or
(iii) on or prior to 180 days after the Issue Date, neither the Exchange Offer
has been consummated nor the Shelf Registration Statement has been declared
effective; or (iv) the Shelf Registration Statement has not been filed with
the Commission or declared effective within the periods specified in the
Registration Rights Agreement; or (v) after either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective, such Exchange Offer Registration Statement or such Shelf
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Old Notes or New Notes in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i), (ii), (iii), (iv) and
(v) a "Registration Default"), additional cash interest ("Additional
Interest") will accrue on the Old Notes and the New Notes, as applicable, at
the rate of 0.50% per annum, from and including the date on which any such
Registration Default shall occur to, but excluding, the next Semi-Annual
Accrual Date (as defined)(calculated on the Accreted Value on such Semi-Annual
Accrual Date); and shall continue to accrue from and including such Semi-
Annual Accrual Date, and be payable on each successive Semi-Annual Accrual
Date (calculated on the Accreted Value on each such date) to, but excluding,
the earlier of (i) the date on which such Registration Default has been cured
or (ii) the date on which all the Old Notes and New Notes otherwise become
freely transferable by Holders other than affiliates of Holdings without
further registration under the Securities Act. Such interest is payable in
addition to any other interest payable from time to time with respect to the
Old Notes and the New Notes in cash on each Semi-Annual Accrual Date after any
accrual of such interest to the Holders of record (as determined pursuant to
the Indenture), notwithstanding that cash interest may not otherwise be
payable on such Old Notes or New Notes on each such date. Notwithstanding the
foregoing, (i) the amount of Additional Interest payable shall not increase
because more than one Registration Default has occurred and is pending, (ii) a
Holder of Old Notes or New Notes who is not entitled to the benefits of the
Shelf Registration Statement (i.e., such Holder has not elected to include
information) shall not be entitled to Additional Interest with respect to a
Registration Default that pertains to the Shelf Registration Statement, and
(iii) a Holder of Old Notes constituting an unsold allotment from the original
sale of the Old Notes or who otherwise is not entitled to participate in the
Registered Exchange Offer shall not be entitled to Additional Interest by
reason of a Registration Default that pertains to the Registered Exchange
Offer. The Exchange Offer Registration Statement was declared effective on
, 1999. Pursuant to the terms of the Registration Rights Agreement,
Additional Interest began to accrue on the Notes on January 12, 1999 and will
be payable until the Exchange Offer is consummated.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to unrelated third parties, Holdings believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any Restricted Holder) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate, in a distribution
of such New Notes. See "Shearman & Sterling," SEC No-Action Letter (available
July 2, 1993); "Morgan Stanley & Co., Incorporated," SEC No-Action Letter
(available June 5, 1991); and "Exxon Capital Holdings Corporation," SEC No-
Action Letter (available May 13, 1988). The Company has not submitted a no-
action letter on its behalf and there can be no assurance that the Commission
will make a similar determination with respect to the Exchange Offer. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
24
<PAGE>
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the preceding paragraph,
such person could not rely on the position of the staff of the Commission and
must comply with the Prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Therefore, each holder of Old
Notes who accepts the Exchange Offer must represent in the Letter of
Transmittal that it meets the conditions described above.
The Exchange Offer shall be deemed to have been consummated upon the earlier
to occur of (i) Holdings having exchanged New Notes for all outstanding Old
Notes (other than Old Notes held by a Restricted Holder) pursuant to such
Exchange Offer and (ii) Holdings having exchanged, pursuant to such Exchange
Offer, New Notes for all Old Notes that have been validly tendered and not
withdrawn on the Expiration Date. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under applicable securities laws, including the Securities Act.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Holdings will accept all Old
Notes validly tendered prior to the Expiration Date. The exchange of New Notes
for Old Notes will be made with respect to all Old Notes validly tendered and
not withdrawn on or prior to the Expiration Date, promptly following the
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. Holdings will issue $1,000
principal amount at maturity of New Notes in exchange for $1,000 principal
amount at maturity of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange
Offer in denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
As of February 15, 1999, the Accreted Value of the Old Notes was $132.3
million.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of February 16, 1999 (the "Record
Date").
Holdings shall be deemed to have accepted validly tendered Old Notes when,
as and if Holdings has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purpose of receiving New Notes from Holdings and delivering New
Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by Holdings. Holdings has agreed to
pay, subject to the instructions in the Letter of Transmittal, all transfer
taxes, if any, relating to the sale or disposition of such holders' Old Notes
pursuant to the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 12:00 midnight, New York City time, on
, 1999, unless Holdings, in its sole discretion, extends the Exchange
Offer, in which case, the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended.
In order to extend the Expiration Date, Holdings will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that Holdings is extending the
Exchange Offer for a specified period of time.
25
<PAGE>
Subject to the applicable rules and regulations of the Commission, Holdings
reserves the right to (i) delay acceptance of Old Notes, extend the Exchange
Offer or terminate the Exchange Offer and refuse to accept Old Notes not
previously accepted, if any of the conditions set forth herein under "--
Conditions" shall not have been satisfied or waived by Holdings, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, and (ii) amend the terms of the Exchange Offer in any manner deemed by
it to be advantageous to the holders of the Old Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by Holdings to constitute a material change,
Holdings will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such amendment.
Without limiting the manner in which Holdings may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, Holdings shall have no obligation to publish, advertise
or otherwise communicate any such public announcement other than by making a
timely release to a financial news service.
Accretion of New Notes
The New Notes will accrete at a rate of 11 1/2%, compounded semiannually, to
100% of the principal amount at maturity by August 12, 2003.
Interest on New Notes
The New Notes will begin to accrue cash interest at a rate of 11 1/2% per
annum commencing on August 15, 2003, and cash interest will be payable
thereafter on February 15 and August 15 of each year, commencing February 15,
2004.
Procedure for Tendering
To tender Old Notes pursuant to the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below) and any other required documents, to
the Exchange Agent prior to the Expiration Date. Signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed
by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act (any
of the foregoing hereinafter referred to as an "Eligible Institution") unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC
to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's procedure for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or confirmed by the Exchange Agent at its addresses set forth
herein prior to the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and Holdings in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
26
<PAGE>
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes
should be sent to Holdings.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of Holdings or any other person who
has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender his Old Notes should contact the registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
holder wishes to tender on his own behalf, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable
time.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case, signed as
the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
a corporation or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Holdings,
evidence satisfactory to Holdings of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by Holdings in its sole discretion, which determination will be
final and binding. Holdings reserves the absolute right to reject any and all
Old Notes not validly tendered or any Old Notes the acceptance of which would,
in the opinion of counsel for Holdings, be unlawful. Holdings also reserves
the absolute right to waive any irregularities or conditions of tender as to
particular Old Notes. Holdings' interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as Holdings shall determine. Neither Holdings, the Exchange Agent
nor any other person shall be under any duty to give notification of defects
or irregularities with respect to tenders of Old Notes nor shall any of them
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent without cost to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as promptly as practicable following the Expiration Date.
By tendering Old Notes pursuant to the Exchange Offer, each holder will
represent to Holdings that, among other things, (i) such holder is acquiring
the New Notes in the ordinary course of its business, (ii) such holder is not
participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of Holdings and (iv) such holder is not a broker-dealer
who acquired Old Notes directly from Holdings to resell pursuant to Rule 144A
or any other available exemption under the Securities Act.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may effect a tender if:
27
<PAGE>
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (the "Notice of Guaranteed Delivery") (by facsimile
transmission, mail or hand delivery) setting forth the name and address of
the holder of the Old Notes, the certificate number or numbers of such Old
Notes and the principal amount at maturity of Old Notes, the certificate
number or numbers of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the date of execution of the Notice
of Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Old Notes to be tendered
in proper form (or confirmation of a book-entry transfer into the Exchange
Agent's account at DTC of Old Notes delivered electronically) for transfer
and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a book-
entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes
to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the trustee with respect to the Old
Notes to register the transfer of such Old Notes into the name of the
Depositor withdrawing the tender and (iv) specify the name in which any such
Old Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by Holdings, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned by the Exchange Agent to
the holder thereof without cost to such holder as promptly as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "--Procedure for Tendering" at any time prior
to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Holdings will not be
obligated to consummate the Exchange Offer if the New Notes to be received
will not be tradeable by the holder, other than in the case of Restricted
Holders, without restriction under the Securities Act and the Exchange Act and
without material restrictions under the Blue Sky or securities laws of
substantially all of the states of the United States. Such condition will be
deemed to be satisfied unless a holder provides Holdings with an opinion of
counsel reasonably satisfactory to Holdings to the effect that the New Notes
received by such holder will not be tradeable without restriction under the
Securities Act and the Exchange Act and without material restrictions under
the Blue Sky or securities laws of substantially all of the states of the
United States. Holdings may waive this condition.
28
<PAGE>
If the condition described above exists, Holdings will be entitled to refuse
to accept any Old Notes and, in the case of such refusal, will return tendered
Old Notes to tendering holders of Old Notes.
Exchange Agent
Bank of Montreal Trust Company, the Trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
By Hand Delivery, Registered or Certified Mail or Overnight Courier:
Bank of Montreal Trust Company
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
Attention: Reorganization Department
Confirm by Telephone: (212) 701-7624
Facsimile: (212) 701-7636
Fees and Expenses
The fees and expenses of soliciting tenders pursuant to the Exchange Offer
will be borne by Holdings. The principal solicitation for tenders pursuant to
the Exchange Offer is being made by mail. Additional solicitations may be made
by officers and regular employees of Holdings and its affiliates in person, by
telegraph or telephone.
Holdings will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by Holdings. Holdings has agreed to
pay, subject to the instructions in the Letter of Transmittal, all transfer
taxes, if any, relating to the sale or disposition of Old Notes pursuant to
the Exchange Offer. If, however, certificates representing New Notes or Old
Notes for principal amounts at maturity not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
Accounting Treatment
The New Notes will be recorded in the Company's accounting records at the
same carrying values as the Old Notes as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by Holdings upon the consummation of
the Exchange Offer. The expenses of the Exchange Offer will be amortized by
Holdings over the term of the New Notes under generally accepted accounting
principles.
29
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company on August 13, 1998 and September 30, 1998, and reflects the Offering
(after deducting discounts to the Initial Purchasers and expenses of the
Offering), the Merger, initial borrowings under the New Credit Facilities, the
Equity Contributions, the Network Sale and the Tender Offer. This table should
be read in conjunction with "Selected Historical Consolidated Financial Data,"
"Unaudited Pro Forma Condensed Consolidated Financial Statements,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the historical financial statements of the Company and
Telemundo and the notes thereto included elsewhere herein. See also "Use of
Proceeds."
<TABLE>
<CAPTION>
August 13, September 30,
1998 1998
---------- -------------
(In thousands)
<S> <C> <C>
Debt:
New Credit Facilities:
Revolving Credit Facility.................. $100,000 $ 81,000
Tranche A Term Loan........................ 25,000 25,000
Tranche B Term Loan........................ 175,000 175,000
Capital Lease Obligations.................... 4,600 --
10 1/2% Notes................................ 300 300
Old Credit Facility.......................... -- --
Old Notes.................................... 125,000 127,000
-------- --------
Total Debt................................. 429,900 408,300
Minority Interest.............................. 5,400 5,400
Common Stockholders' Equity.................... 214,000 213,200
-------- --------
Total Capitalization....................... $649,300 $626,900
======== ========
</TABLE>
30
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following presents selected historical consolidated financial data of
Telemundo for the five years ended December 31, 1997, and for the nine months
ended September 30, 1997, which have been derived from Telemundo's audited
consolidated financial statements for the five years ended December 31, 1997
and the unaudited consolidated financial statements for the nine months ended
September 30, 1997. The historical financial data for the period January 1,
1998 to August 12, 1998 have been derived from Telemundo's unaudited financial
statements for the period January 1 to August 12, 1998. The historical
financial data for the period August 13, 1998 to September 30, 1998 have been
derived from the Company's unaudited financial statements for the period
August 13 to September 30, 1998. In the opinion of management, the unaudited
consolidated financial data presented herein reflect all adjustments
(consisting of normal recurring accruals only) necessary to fairly present the
information for such periods. The historical financial statements prior to
August 13, 1998 do not reflect the consummation of the Transactions or the
capital structure of the Company following the Transactions and may not be
indicative of results that would have been reported had the Transactions
occurred nor may it be indicative of the Company's future financial position
or operating results.
The selected historical consolidated financial data should be read in
conjunction with "Summary Historical and Pro Forma Consolidated Financial
Data," "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the historical financial statements of the Company
and Telemundo and the notes thereto included elsewhere herein.
Historical financial data for Holdings has not been provided for periods
prior to August 13, 1998 as Holdings did not have any operations or account
balances prior to the merger.
31
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Reorganization
Predecessor(a) Predecessor Company(b)
----------------------- ------------------------------------------------------ -------------
Nine months January 1 August 13
Year ended December 31, ended to to
----------------------------------------------------- September 30, August 12, September 30,
1993 1994 1995 1996 1997 1997 1998 1998
-------------- -------- -------- -------- -------- ------------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue............. $ 177,809 $183,894 $169,148 $202,713 $197,588 $139,427 $124,671 $21,819
Operating income ....... 16,597 13,176 14,379 29,292 16,114 3,583 3,595 5,323
Reorganization items.... (2,543) 76,255 -- -- -- -- -- --
Merger related
expenses............... -- -- -- -- (1,707) -- (5,506) --
Interest expense--net... (24,411) (645) (14,489) (18,920) (20,849) (15,517) (13,067) (5,254)
Loss from investment in
and disposal of
TeleNoticias........... -- (1,314) (6,355) (5,561) -- -- -- --
Minority interest....... -- -- -- (2,125) (2,808) (2,106) (1,898) (196)
Income (loss) before
extraordinary item..... (14,059) 84,049 (10,088) (1,179) (13,444) (17,173) (19,989) (819)
Extraordinary item--
extinguishment of
debt................... -- 130,482 -- (17,243) -- -- -- --
Net income (loss)....... (14,059) 214,531 (10,088) (18,422) (13,444) (17,173) (19,989) (819)
Other Financial Data:
Capital expenditures.... $ 8,485 $ 12,550 $ 6,719 $ 9,125 $ 11,156 $ 8,199 $ 6,843 $ 484
Depreciation and
amortization........... 11,469 10,804 11,642 13,311 13,938 10,439 9,024 2,662
Ratio of earnings to
fixed charges(c)....... -- -- -- 1.1x -- -- -- --
<CAPTION>
Reorganization
Predecessor Company
-------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
(at end of period)(b):
Working capital......... $ 65,691 $ 32,325 $ 35,541 $ 44,769 $ 44,576 $19,830
Broadcast licenses and
other intangible
assets................. -- 92,792 90,200 132,831 128,366 578,097
Total assets............ 169,657 232,024 224,459 295,560 290,086 700,978
Long-term debt
(liabilities subject to
settlement in 1993).... 326,784 100,724 108,032 179,695 189,081 408,261
Common stockholders'
equity (deficiency).... (214,816) 70,000 60,251 42,893 29,909 213,194
</TABLE>
- --------
(a) Prior to 1995, net income (loss) was significantly impacted in certain
years by nonrecurring income and expense items related to Telemundo's
financial restructuring. Telemundo was recapitalized and adopted fresh
start reporting as of December 31, 1994. Consequently, for the years prior
to 1995, Telemundo is referred to as the Reorganization Predecessor.
(b) Historical financial data for Holdings has not been provided for periods
prior to August 13, 1998 as Holdings did not have any operations or
account balances prior to the Merger.
(c) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of net income (loss), before extraordinary items,
income taxes and fixed charges. Fixed charges consist of interest
expense--net, which includes interest on capital leases, the interest
component of operating leases and amortization of deferred financing fees.
As a result of the effects of the restructuring referred to in Note (a),
the ratio of earnings to fixed charges is not applicable for 1994 and
prior periods. Earnings were insufficient to cover fixed charges by
approximately $6.6 million, $9.2 million, and $14.0 million, respectively,
for the years ended December 31, 1995 and 1997 and the nine months ended
September 30, 1997. Earnings were insufficient to cover fixed charges by
approximately $16.9 million and $100,000 for the period January 1 to
August 12, 1998 and the period August 13 to September 30, 1998,
respectively. The seasonality of Telemundo's earnings impacts the ratio of
earnings to fixed charges for periods less than one year.
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements give effect to (i) the payment of the merger consideration in
connection with the Merger, (ii) the related financings including the Equity
Contributions, the New Credit Facilities, the Tender Offer, the Offering and
repayment of the Old Credit Facility, (iii) the consummation of the Network
Sale and (iv) certain operating items related to the above, including the
impact of the Affiliation Agreement with the Network Company.
The historical information included in the unaudited pro forma condensed
consolidated financial statements for the year ended December 31, 1997 have
been derived from Telemundo's audited financial statements for the year ended
December 31, 1997. The historical information included in the unaudited pro
forma condensed financial statements for the nine months ended September 30,
1998 have been derived from Telemundo's unaudited financial statements for the
period January 1 to August 12, 1998 and from the Company's unaudited financial
statements for the period August 13 to September 30, 1998.
The unaudited pro forma condensed consolidated statements of operations have
been presented as if the Transactions had been consummated on January 1, 1997.
The unaudited pro forma condensed consolidated financial statements do not
purport to represent what the Company's results of operations would have been
if any of the Transactions had actually occurred at any date, nor does such
data purport to represent the results of operations for any future period. The
pro forma adjustments are based on available information and certain
assumptions that the Company believes are reasonable.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and historical financial statements of the Company and Telemundo
and the notes thereto included elsewhere herein.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------
Company
Telemundo Network Operating Pro
Historical Merger Financing Sale(a) Adjustments Forma
---------- ------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $197,588 $ -- $ -- $(62,559) $ -- $135,029
Incremental revenue from
Affiliation Agreement.. -- -- -- -- 13,807(b) 13,807
-------- ------- -------- -------- ------- --------
197,588 -- -- (62,559) 13,807 148,836
Costs and expenses:
Direct operating costs.. 93,297 (41,514) 51,783
Selling, general and
administrative expenses
other than network and
corporate.............. 38,707 38,707
Network expenses........ 30,650 (30,650) --
Corporate expenses...... 4,882 4,882
Depreciation and
amortization........... 13,938 8,111 (c) (5,266) 16,783
-------- ------- -------- -------- ------- --------
181,474 8,111 -- (77,430) -- 112,155
-------- ------- -------- -------- ------- --------
Operating income........ 16,114 (8,111) -- 14,871 13,807 36,681
Merger related and
other expenses......... (1,700) 1,700 (d) --
Interest expense, net of
interest income........ (20,849) (19,251)(e) (40,100)
-------- ------- -------- -------- ------- --------
Income (loss) before
income taxes and
minority interest...... (6,435) (6,411) (19,251) 14,871 13,807 (3,419)
Income tax provision.... (4,201) (4,201)
Minority interest....... (2,808) (2,808)
-------- ------- -------- -------- ------- --------
Net income (loss)....... $(13,444) $(6,411) $(19,251) $ 14,871 $13,807 $(10,428)
======== ======= ======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------
Network Operating Company Pro
Historical(1) Merger Financing Sale(a) Adjustments Forma
------------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $146,490 $ -- $ -- $(45,539) $ -- $100,951
Incremental revenue from
Affiliation Agreement.. -- -- -- -- 13,140(b) 13,140
-------- ------ -------- -------- ------- --------
146,490 -- -- (45,539) 13,140 114,091
Costs and expenses:
Direct operating costs.. 71,379 (30,017) 41,362
Selling, general and
administrative expenses
other than network and
corporate.............. 31,114 31,114
Network expenses........ 18,546 (18,546) --
Corporate expenses...... 4,847 4,847
Depreciation and
amortization........... 11,660 5,530 (c) (3,427) 13,763
-------- ------ -------- -------- ------- --------
137,546 5,530 -- (51,990) -- 91,086
-------- ------ -------- -------- ------- --------
Operating income........ 8,944 (5,530) -- 6,451 13,140 23,005
Merger related and other
expenses............... (5,506) 5,506 (d) --
Interest expense, net of
interest income........ (18,321) (12,979) (e) (31,300)
-------- ------ -------- -------- ------- --------
Income (loss) before
income taxes and
minority interest...... (14,883) (24) (12,979) 6,451 13,140 (8,295)
Income tax provision.... (3,805) (3,805)
Minority interest....... (2,094) (2,094)
-------- ------ -------- -------- ------- --------
Net income (loss)....... $(20,782) $ (24) $(12,979) $6,451 $13,140 $(14,194)
======== ====== ======== ======== ======= ========
</TABLE>
- --------
(1) The aggregate of the period from August 13, 1998 to September 30, 1998 and
the period from January 1 to August 12, 1998 (Predecessor).
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma condensed consolidated financial statements reflect
the Merger and related transactions, including (i) the purchase of all of the
outstanding common stock and common stock equivalents of Telemundo, net of
proceeds from common stock equivalents, (ii) the retirement of approximately
$191.7 million face amount of the 10 1/2% Notes, at approximately 113% of face
amount pursuant to the Tender Offer, (iii) the repayment of the Old Credit
Facility, (iv) $15.7 million of fees and expenses (excluding $14.0 million of
debt issuance costs), and (v) the assumption of long-term capital lease
obligations.
As a result of the Merger, assets and liabilities were reflected at fair
value, reduced to the extent retained by a previous shareholder of Telemundo,
Bastion (15.1% prior to the Merger). The allocation of the net purchase
consideration between tangible and intangible assets and liabilities is
preliminary. Independent appraisals will be performed to establish the actual
fair values.
The Merger was accounted for using the purchase method of accounting. The
purchase consideration of approximately $756 million has been allocated to the
net assets acquired based upon preliminary estimates of fair value. The net
assets of Holdings were adjusted to reflect the continuing ownership of
Bastion (15.1% prior to the merger). This adjustment, a "deemed dividend",
represents the difference between the proceeds received for it's ownership
interest in Telemundo and it's predecessor basis in Telemundo, adjusted for
the network sale. The following is a summary of the estimated fair values of
the assets acquired (in thousands):
<TABLE>
<S> <C>
Accounts receivable............................................ $ 45,402
Other current assets (excluding television programming)........ 26,812
Television programming......................................... 8,755
Property and equipment......................................... 44,320
Other assets................................................... 16,249
Broadcast licenses and other intangible assets................. 579,930
Accounts payable............................................... 12,329
Accrued liabilities............................................ 32,242
Long-term debt................................................. 425,319
Other non-current liabilities.................................. 32,174
Minority interest.............................................. 5,391
Stockholders' equity........................................... 214,013
</TABLE>
The carrying value of accounts receivable, other current assets, television
programming, property and equipment, other assets, accounts payable, accrued
liabilities, other non-current liabilities and minority interest were
considered to closely approximate fair value. The allocation of the purchase
consideration to broadcast licenses and other intangible assets is
preliminary. Independent appraisals will be performed to establish the actual
fair values. A 40 year life was used to amortize broadcast licenses, and other
intangible assets.
(a) Reflects consummation of Network Sale for $74.0 million, which resulted
in no gain as the Network Company's assets and liabilities were adjusted to
fair value as part of the Merger. Network direct operating costs consisted
solely of programming and production costs for network programming. Network
expenses include costs associated with the network sales force, network
engineering and other technical network departments, network research, network
sales support and business development, affiliate relations and network
general and administrative costs. All of these network costs will no longer be
incurred by the Company as a result of the Network Sale.
36
<PAGE>
(b) Reflects impact of Affiliation Agreement with the Network Company, which
determines the allocation of revenues to the entities, among other things.
Pursuant to the Affiliation Agreement, the Network Company provides network
programming to the Company, and the Company and the Network Company pool and
allocate local, national spot and network advertising revenues based upon a
formula ("Station Compensation Pool"). The Station Compensation Pool consists
of the following revenue sources (collectively, the "Aggregate Net Advertising
Receipts"): (i) 61% of the net advertising revenues received by the Network
Company pursuant to the sale of network advertising and block time (time made
available for paid programming); and (ii) 100% of the net advertising revenues
received by the Company (excluding WKAQ in Puerto Rico) from the sale of
"spot" and local advertising time and local and national block time. The
Station Compensation Pool is shared between the Company and the Network
Company, with the Company's allocation based on the following formula: (i) 80%
of the first $130 million of Aggregate Net Advertising Receipts; plus (ii) 55%
of the incremental Aggregate Net Advertising Receipts above $130 million up to
$230 million; plus (iii) 45% of the incremental Aggregate Net Advertising
Receipts above $230 million. After the initial year, the threshold levels
(i.e., $130 million and $230 million) will be increased 3% annually. Although
there is no simple threshold above which increases in advertising revenue will
result in the Company receiving less from the Station Compensation Pool than
it contributed, whether the Company receives less revenue than it contributed
to the revenue sharing pool depends on the relationship between (a) the
relative portion each party contributed to the pool and (b) the overall size
of the pool (which determines the allocation percentage). In general, as the
amount of pooled revenue increases, the percentage of incremental revenue
allocated to the Company decreases, pursuant to the formula noted above. The
pro forma impact on net revenue is as follows (in millions):
<TABLE>
<CAPTION>
Nine
Year months
ended ended
12/31/97 9/30/98
-------- -------
<S> <C> <C>
Network net revenue....................................... $62.6 $45.5
Adjustment to eliminate non-advertising revenue
components............................................... 1.1 4.0
Network revenue from August 13 to September 30, 1998...... -- 4.8
----- -----
Net advertising revenues received by Network Company...... 63.7 54.3
@ 61%..................................................... 38.9 33.1
100% of U.S. station group net advertising revenue *...... 86.3 66.9
----- -----
Total shared revenue...................................... 125.2 100.0
80% of first $130 million................................. 100.1 80.0
U.S. station group revenue prior to revenue sharing....... (86.3) 66.9
----- -----
Incremental revenues pursuant to revenue sharing.......... $13.8 $13.1
===== =====
</TABLE>
*U.S. station group net advertising revenue is after deducting WKAQ-Puerto
Rico revenue of $48.6 million and $34.1 million for the year ended December
31, 1997 and the nine months ended September 30, 1998, respectively.
All advertising revenue subject to allocation is net of uncollectible
amounts.
37
<PAGE>
(c) Reflects the impact on depreciation and amortization resulting from the
Merger. A 40 year life was used for broadcast licenses and all other
intangible assets (in millions):
<TABLE>
<CAPTION>
Nine
Year months
ended ended
12/31/97 9/30/98
-------- -------
<S> <C> <C>
Historical depreciation and amortization.................. $(13.9) $(11.7)
Network depreciation and amortization..................... 5.3 3.4
------ ------
(8.6) (8.3)
Amortization of broadcast licenses and other intangible
assets................................................... 14.5 10.9
Depreciation of property and equipment.................... 2.2 2.9
------ ------
Pro forma adjustment...................................... $ 8.1 $ 5.5
====== ======
</TABLE>
The allocation of the purchase consideration to broadcast licenses and
other intangibles assets is preliminary. Independent appraisals will be
performed to establish the actual fair values and estimated useful lives.
The Company expects the appraisals to be completed during February 1999.
The Company estimates the substantial majority of the intangible asset
value identified will be broadcast licenses. Other intangible assets which
the Company estimates may represent up to approximately 15% of intangible
asset value, may include, among others, advertiser base and the Affiliation
Agreement. If the appraisal indicates that 15% of the intangible asset
value were other than broadcast licenses (for which a 40 year life will be
used), and a 10 year weighted-average useful life was deemed appropriate
for intangible assets other than broadcast licenses, the effect would be an
additional $6.6 million and $4.9 million of depreciation and amortization
for the year ended December 31, 1997 and the nine months ended September
30, 1998, respectively.
(d) To eliminate non-recurring Merger related costs (investment advisory,
legal, accounting and other fees) incurred by Telemundo.
(e) Adjustment to reflect pro forma interest expense (in millions):
<TABLE>
<CAPTION>
Nine
Year months
ended ended
12/31/97 9/30/98
-------- -------
<S> <C> <C>
New Credit Facilities (at average interest rate of 7.8%).. $23.4 $17.6
Other, net................................................ 0.2 0.1
----- -----
Cash interest expense..................................... 23.6 17.7
Old Notes ($125.0 million gross proceeds at interest rate
of 11 1/2%).............................................. 14.8 12.3
Amortization of debt issuance costs....................... 1.7 1.3
----- -----
Pro forma total interest expense.......................... 40.1 31.3
Historical interest expense............................... 20.8 18.3
----- -----
Pro forma adjustment...................................... $19.3 $13.0
===== =====
</TABLE>
For the New Credit Facilities, the impact of a 0.125% change in the average
interest rate is approximately $375,000 and $281,000 for the year ended
December 31, 1997 and the nine months ended September 30, 1998, respectively.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Introduction
The Company is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic
Market Areas in the United States--Los Angeles, New York, Miami, San
Francisco, Chicago, San Antonio and Houston. Four of these markets are among
the five largest general Market Areas in the United States. The Company also
owns and operates the leading full-power television station and related
production facilities in Puerto Rico.
Prior to the Merger, Telemundo produced or acquired and distributed its
network programming through the Telemundo Network to Telemundo's owned and
operated stations and network affiliates. The Telemundo network's average
share of the weekday Spanish-language television network audience has declined
significantly to 16% in the second quarter of 1998 as compared to 26% in the
first quarter of 1996. The Company believes that this overall decline in
audience share has been principally the consequence of difficulties
encountered in acquiring and developing programming to compete effectively
with Univision's prime-time programming. The Company determined that it would
likely be able to compete more effectively by allying itself with one or more
strategic partners who could provide it with the programming, capital and
other resources necessary to aggressively pursue the U.S. Spanish-language
television audience. Discussions with potential strategic partners resulted in
the Merger and the related transactions. Holdings had no operations prior to
the Merger.
In connection with the Merger, the Company sold its network operations,
which consisted of substantially all of the programming and production assets
and the related liabilities of the Telemundo Network, to the Network Company.
The Company also entered into the Affiliation Agreement, pursuant to which the
Network Company provides network programming to the Company, and the Company
and the Network Company have agreed to pool and allocate local, national spot
and network advertising revenues pursuant to a revenue sharing arrangement. As
a result, the Company is no longer required to bear any costs or expenses
related to, or fund or make capital expenditures in connection with, the
development of network programming or the operations of the Telemundo Network.
The Network Company currently serves 63 markets in the United States,
including the 37 largest Hispanic markets, and reaches approximately 85% of
all U.S. Hispanic households.
The primary source of revenues for the Company is a formula-based allocation
of combined local, national spot and network advertising revenues (the
"Station Compensation Pool") generated by the Company and the Network Company
pursuant to the terms of the Affiliation Agreement. The Station Compensation
Pool consists of the following revenue sources (collectively, the "Aggregate
Net Advertising Receipts"): (i) 61% of the net advertising revenues received
by the Network Company pursuant to the sale of network advertising and block
time (time made available for paid programming); and (ii) 100% of the net
advertising revenues received by the Company (excluding WKAQ in Puerto Rico)
from the sale of "spot" and local advertising time and local and national
block time. The Station Compensation Pool is shared between the Company and
the Network Company, with the Company's allocation based on the following
formula: (i) 80% of the first $130 million of Aggregate Net Advertising
Receipts; plus (ii) 55% of the incremental Aggregate Net Advertising Receipts
above $130 million up to $230 million; plus (iii) 45% of the incremental
Aggregate Net Advertising Receipts above $230 million. After the initial year,
the threshold levels (i.e., $130 million and $230 million) will be increased
3% annually. See "Business--Affiliation Agreement." The Company does not
control the Network Company. See "Risk Factors--Network Sale; Dependence on
Programming; Affiliation Agreement."
As a result of the revenue sharing arrangement and the reduction in
operating costs resulting from the Network Sale, the Company expects to be
able to apply greater cash resources to improve its local programming,
marketing and advertising efforts.
Seasonal revenue fluctuations are common in the television broadcasting
industry and the Company's revenue, particularly in Puerto Rico, reflects
seasonal patterns with respect to advertiser expenditures. The first
39
<PAGE>
quarter generally produces the lowest level of revenue due to the reduced
demand for advertising time. Because costs are more ratably spread throughout
the year, the impact of this seasonality on operating income is more
pronounced during the first quarter.
Pursuant to the Merger, Telemundo became a wholly owned subsidiary of
Holdings on August 12, 1998. The purchase method of accounting was used to
record assets acquired and liabilities assumed. As a result of purchase
accounting, the accompanying financial statements of the Predecessor (for
purposes of management's discussion and analysis of results of operations and
financial condition ("MD&A"), the term "Predecessor" refers to Telemundo prior
to the Merger and related transactions) and the Company are not comparable in
all material respects since the financial statements to which MD&A relates,
report financial position, results of operations, and cash flows of these two
separate entities.
Results of Operations
Nine months ended September 30, 1998 and 1997
For the nine months ended September 30, 1997, the Predecessor's results
include the operations of the Telemundo Network and do not reflect Merger
related transactions for these periods. Consequently, the results for the nine
months ended September 30, 1997 are not comparable to the 1998 periods, which
reflect the Merger and related transactions, including the impact of the
Network Sale and the Affiliation Agreement from August 13, 1998 to September
30, 1998. Accordingly, MD&A for the 1998 period as compared to the respective
1997 period has been presented on a historical basis and has been supplemented
with certain pro forma disclosures. The pro forma results of operations for
the nine months ended September 30, 1998 and 1997 include the pro forma impact
of the Network Sale, the Affiliation Agreement, interest expense on the
Company's new indebtedness, amortization of broadcast licenses and other
intangible assets, Merger related financing costs, and the impact of other
Merger related transactions as if these transactions had occurred on January
1, 1997. The pro forma results of operations for the nine months ended
September 30, 1998 and 1997 are not necessarily indicative of what would have
occurred if the Merger and related transactions had taken place on January 1,
1997.
Net revenue for the nine months ended September 30, 1998 and 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1997 1998(a) Change
-------- -------- ------
<S> <C> <C> <C>
Net Commercial Air Time:
Continental U.S.:
Network and National Spot............................ $ 57,831 $ 56,812 (2)%
Local................................................ 30,282 34,178 13%
Incremental Revenue from Affiliation Agreement....... -- 2,674 --
-------- --------
88,113 93,664 6%
Puerto Rico........................................... 29,835 30,591 3%
-------- --------
117,948 124,255 5%
Other.................................................. 21,479 22,235 4%
-------- --------
$139,427 $146,490 5%
======== ========
</TABLE>
- --------
(a) The aggregate of the period from August 13, 1998 to September 30, 1998 and
the period from January 1, 1998 to August 12, 1998 (Predecessor) (the
"1998 Combined Periods.")
The decrease in network and national spot revenue for the nine months ended
September 30, 1998, as compared to the corresponding period of 1997, is
primarily the result of the Network Sale. Excluding network revenue, national
spot revenue would have decreased by 5% for the nine month period ended
September 30,
40
<PAGE>
1998. This was a result of a decline in overall average audience shares,
offset in part by continued strong growth in the overall Spanish-language
television market. The increase in local revenue is primarily the result of an
increase at KVEA-Los Angeles, where growth in the local Spanish-language
television market, coupled with increases in audience shares, led to increased
local revenue.
The Company believes that the overall decline in audience share previously
noted has been in part the consequence of difficulties the Predecessor
encountered in acquiring and developing programming to compete effectively
with its principal competitor's prime-time programming. Although there can be
no assurance, the Company believes that as a result of the Merger and related
transactions, including the Affiliation Agreement, it will likely be able to
compete more effectively with expanded programming options.
The increase in commercial air time revenue in Puerto Rico for the nine
months ended September 30, 1998 was a result of WKAQ maintaining its dominant
audience share in an advertising market which grew slightly, offset in part by
advertisers reducing their spending while business and services, including
electricity, were disrupted due to damage caused by Hurricane Georges in
September 1998.
Incremental Revenue from Affiliation Agreement relates to an allocation of
pooled revenue received pursuant to the Affiliation Agreement, in excess of
revenue generated by the Company's owned and operated stations.
Other revenue increased by 4% for the nine months ended September 30, 1998,
from the corresponding period of the prior year, which was primarily due to
sales of blocks of broadcast time at higher rates.
On a pro forma basis, net revenue would have increased by $8.8 million, for
the nine months ended September 30, 1998 from the corresponding period of the
prior year. This would primarily have been a result of an increase in network
revenue, which would have been included in the allocation of pooled revenue
received pursuant to the Affiliation Agreement, as well as the increase in
local revenue, decrease in national spot revenue, increase in other revenue
and increase in Puerto Rico commercial air time revenue as discussed above.
Direct operating costs decreased by 4% for the 1998 Combined Periods from
the corresponding period of the prior year as a result of the Network Sale.
Network direct operating costs consisted solely of programming and production
costs for network programming. Excluding those costs relating to the network,
direct operating costs would have increased by 6%, for the nine months ended
September 30, 1998. This was primarily the result of an increase of $2.3
million in station programming and production expenses related to the increase
in costs incurred to produce and acquire station programming including WKAQ-
Puerto Rico. As part of the Affiliation Agreement, each of the Network and
Station Group agreed, subject to various conditions, to incur certain
programming, marketing/promotional and capital expenditures in the future.
These expenditures may be reduced or eliminated based on financial tests,
which assume such expenditures produce positive financial results
(i.e., incremental revenue). The Company can also elect to incur a portion of
such expenditures in a subsequent year. If the Company meets such financial
tests and does not elect to defer a portion of such expenditures, the Company
will incur levels of non-network expenditures which are greater than non-
network expenditures historically incurred by the Company's owned and operated
stations. Any such expenditures on the part of the Company are subject to the
Network Company having incurred its respective expenditures. In addition, the
Company will continue to incur non-network programming expenditures in
connection with its owned and operated stations, including all programming
expenditures for WKAQ-Puerto Rico. However overall programming expenditures
will be reduced from historical Predecessor levels as a result of the Network
Company incurring all network programming costs.
Selling, general and administrative expenses other than network and
corporate increased by 8% for the 1998 Combined Periods, from the
corresponding period of the prior year. This was primarily the result of
greater sales commissions and other costs related to the increase in revenue
and an increase in general and administrative expenditures. Pursuant to the
Affiliation Agreement, the Company may be required to incur, under certain
circumstances, levels of marketing and promotional expenditures which are
greater than marketing and promotional expenditures historically incurred by
the Company's owned and operated stations.
41
<PAGE>
Network expenses, which represent costs associated with the network sales
force, network engineering and other technical network departments, network
research, network sales support and business development, affiliate relations
and network general and administrative costs, decreased by 1% for the nine
month period ended September 30, 1998, from the corresponding period of the
prior year. Pursuant to the Network Sale, the Company will not incur these
costs.
Corporate expenses increased by $1.3 million for the 1998 Combined Periods
from the corresponding period of the prior year. This was primarily the result
of an increase in executive performance-based compensation and additional
legal costs.
Depreciation and amortization increased by $1.2 million for the 1998
Combined Periods from the corresponding period of the prior year. This was a
result of the amortization of broadcast licenses and other intangible assets
recorded as a result of applying the purchase method of accounting to the
Merger.
Merger related expenses include investment banking, legal, accounting and
other costs incurred during the nine months ended September 30, 1998 for
services provided to the Company in connection with the Merger.
Interest expense, net of interest income, for the 1998 Combined Periods,
totaled $18.3 million, as compared to $15.5 million for the corresponding
period of the prior year. Interest expense for the period January 1 through
August 12, 1998 includes (i) interest accrued and accreted on the 10 1/4%
Notes which were outstanding during the period through August 12, 1998
(approximately 99.8% of which were tendered in a repurchase offer on February
26, 1996), (ii) interest accrued and accreted on the 10 1/2% Notes
(approximately 99.9% of which were tendered pursuant to the Tender Offer on
August 12, 1998), (iii) amortization of deferred issuance costs for the 10
1/2% Notes, and (iv) interest and fees on the Old Credit Facility. Interest
expense for the period August 13, 1998 through September 30, 1998 includes:
(i) interest and fees accrued and paid on the New Credit Facilities providing
for aggregate borrowings of up to $350.0 million, at an average interest rate
of 7.74% during the period, (ii) interest accreted on the Notes which were
issued at a discount and structured to produce a yield to maturity of 11 1/2%
per annum, and (iii) amortization of deferred issuance costs for the New
Credit Facilities and the Senior Discount Notes. Interest expense was offset
by interest income of $79,000 for the period August 13, 1998 to September 30,
1998, $180,000 for the period January 1, 1998 to August 12, 1998 and $188,000
for the nine months ended September 30, 1997.
The income tax provision recorded in each of the periods related to WKAQ,
which is taxed separately under Puerto Rico income tax regulations,
withholding taxes related to intercompany interest, and certain state income
and franchise taxes. The Company is in a net operating loss position for
federal income tax purposes. The Company's use of its NOLs incurred prior to
December 31, 1994 are subject to certain limitations imposed by Section 382 of
the Code and their use will be limited. As a result of the Merger, the
Company's NOL's incurred from January 1, 1995 to August 12, 1998 will be
subject to Section 382 Limitations.
The Internal Revenue Service ("IRS") has examined the Predecessor's 1994 and
1995 federal income tax returns. Adjustments and assessments as a result of
the audit are immaterial to the Company's consolidated financial position and
results of operations. The adjustments did not result in any further
limitation to the Company's available NOL's and certain disallowed deductions
will be taken in tax returns subsequent to the 1994 and 1995 returns.
Minority interest represents the accounting impact of distributions to the
25.5% partner in Video 44, which is based on a minimum annual preferred
distribution to such partner.
42
<PAGE>
Fiscal years ended December 31, 1997, 1996 and 1995
Net revenue for each of the three years in the period ended December 31,
1997 was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 Change 1996 Change 1997
------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Commercial Air Time:
Continental U.S.:
Network and National
Spot................. $ 67,938 22% $ 82,741 -- % $ 82,828
Local................. 38,888 22% 47,345 (12)% 41,572
-------- -------- --------
106,826 22% 130,086 (4)% 124,400
Puerto Rico............ 37,830 16% 43,741 1 % 44,012
-------- -------- --------
144,656 20% 173,827 (3)% 168,412
Other Revenue........... 24,492 18% 28,886 1 % 29,176
-------- -------- --------
$169,148 20% $202,713 (3)% $197,588
======== ======== ========
</TABLE>
The increase in network and national spot revenue in 1997 is the result of
the continued growth in the overall Spanish-language television market and the
acquisition of WSNS-TV in Chicago, offset by a decline in audience share.
Excluding the impact of WSNS, which is reflected in the financial statements
effective February 27, 1996, network and national spot revenue would have
decreased by 1% in 1997. The increase in network and national spot revenue in
1996 was the result of the growth in the overall Spanish-language television
market, the acquisition of WSNS-TV, and increases in audience share for the
relevant ratings periods. Excluding the impact of WSNS, network and national
spot revenue would have increased by 13% in 1996.
The decrease in local revenue in 1997 is primarily the result of the decline
in audience share which impacted all stations, most significantly KVEA-Los
Angeles and WSCV-Miami. Local revenue was also impacted by the operations of
WSNS being included for the entire year in 1997. Excluding the impact of WSNS,
local revenue would have decreased by 14%. The increase in local revenue in
1996 was the result of an increase at KVEA-Los Angeles and other major owned
and operated stations, related to increases in audience shares for the
relevant ratings periods, and the acquisition of WSNS. Excluding the impact of
WSNS, local revenue would have increased by 7% in 1996.
The Predecessor's average share of the weekday Spanish-language television
network audience for each of the first through fourth quarters of 1997 was 18%
and was 26%, 23%, 23% and 21%, respectively, for the first through fourth
quarters of 1996. A change in audience share typically has a delayed impact on
revenue.
The increase in commercial air time revenue in Puerto Rico in 1997 is the
result of WKAQ maintaining its dominant audience share in a market which grew
slightly. The increase in 1996 was the result of an increase in WKAQ's prime
time audience share and growth in the overall market, due in part to political
advertising.
Other revenue increased in 1997 primarily as a result of an increase in
international program sales and the impact of WSNS, which was offset by the
decline in sales of blocks of broadcast time to independent programmers.
Excluding the impact of WSNS, other revenue would have decreased by 1%. Other
revenue increased in 1996 primarily due to sales of blocks of broadcast time
and the acquisition of WSNS. Excluding the impact of WSNS, other revenue would
have increased by 9% in 1996.
Direct operating costs increased $6.3 million or 7% in 1997, which primarily
reflects an increase of $5.6 million in programming and production expenses
related to the increase in costs incurred to produce and acquire network and
station programming, including those at WKAQ, and the impact of including the
costs of WSNS for the entire year. Network direct operating costs consisted
solely of programming and production costs for network programming. Excluding
the impact of WSNS, direct operating costs would have increased by 6%. The
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$8.4 million or 11% increase in 1996 primarily reflected an increase of $7.9
million in programming costs related to the increase in costs incurred to
produce and acquire network and station programming, as well as costs
attributable to WSNS. Excluding WSNS, direct operating expenses would have
increased by 8% in 1996.
Selling, general and administrative expenses, other than network and
corporate expenses, decreased $1.2 million or 3% in 1997, which is primarily
the result of the Predecessor undertaking cost reduction efforts, particularly
at the station group, and was offset in part by the impact of the acquisition
of WSNS. Excluding WSNS, selling, general and administrative expenses would
have decreased by 4%. The $5.6 million or 16% increase in 1996 primarily
reflected the acquisition of WSNS. Excluding WSNS, selling, general and
administrative expenses would have increased by 2% in 1996.
Network expenses, which represent costs associated with the network sales
force, network engineering and other technical network departments, network
research, network sales support and business development, affiliate relations
and network general and administrative costs, increased by $1.8 million or 6%
in 1997 which primarily reflects increases in advertising and promotion
efforts. Network expenses increased by $3.0 million or 12% in 1996 primarily
as a result of the provision of $3.8 million to the allowance for doubtful
accounts relating to a particular client due to the doubtful collectibility of
this account.
Corporate expenses increased by $511,000 in 1997 which is primarily a result
of a full year of compensation and operating expenses associated with an
additional corporate office and increased legal costs, offset in part by a
decrease in executive incentive compensation. Corporate expenses decreased by
$29,000 in 1996, which was primarily a result of an increase in executive
incentive compensation more than offset by other expense savings.
Depreciation and amortization expense increased by $627,000 or 5% in 1997
which reflects an increase in fixed asset additions and the impact of a full
year of WSNS. Depreciation and amortization expense increased $1.7 million or
14% in 1996 which was primarily the result of the addition of WSNS.
The Predecessor incurred Merger related expenses of $1.7 million in 1997.
Interest expense, net of interest income, in 1997 totaled $20.8 million as
compared to $18.9 million and $14.5 million in 1996 and 1995, respectively.
Interest expense in 1997 and 1996 includes (i) interest accrued and accreted
on the 10 1/2% Notes, which were issued on February 26, 1996 at a discount and
were structured to produce a yield to maturity of 10 1/2% per annum, (ii)
amortization of deferred issuance costs for the 10 1/2% Notes, (iii) interest
and fees associated with the Old Credit Facility, and (iv) interest accrued
and accreted on the 10 1/4% Notes (approximately 99.8% of which were tendered
in a repurchase offer on February 26, 1996). Interest expense was offset by
$303,000 and $304,000 of interest income in 1997 and 1996, respectively.
Interest expense in 1995 primarily represents interest on the Predecessor's 10
1/4% Notes, and is offset by $268,000 of interest income.
Net loss from investment in TeleNoticias of $3.1 million and $6.4 million in
1996 and 1995, respectively, represented the Predecessor's 42% share of
TeleNoticias' net loss and related costs. In addition, the loss on disposal of
TeleNoticias of $2.4 million in 1996 resulted from the disposal of the
Predecessor's interests in TeleNoticias on June 26, 1996 (see Note 4 of "Notes
to Consolidated Financial Statements" contained elsewhere herein).
The income tax provision recorded in each of the periods relates to WKAQ,
which is taxed separately under Puerto Rico income tax regulations,
withholding taxes related to foreign operations, and certain state income and
franchise taxes.
Minority interest represents distributions to the 25.5% partner in Video 44,
which is based on a minimum preferred distribution to such partner.
The extraordinary loss on extinguishment of debt in 1996 is related to the
repurchase of 10 1/4% Notes.
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Liquidity and Sources of Capital
The Company's cash flows provided from (used in) operating activities were
$21.6 million for the 1998 Combined Periods and $(6.8) million for the nine
months ended September 30, 1997. The increase was primarily the result of the
net effect of the Network Sale including the collection of network operations
receivables and the servicing of network operations liabilities which were
retained as part of the Network Sale, certain accrued Merger related costs and
the increase in operating income before depreciation and amortization. The
Predecessor's cash flows from operating activities were $486,000 for 1997 as
compared to $24.7 million for 1996 and $11.6 million for 1995. The decrease in
1997 is the result of a decrease in operating income before depreciation and
amortization and the net effect of changes in certain asset and liability
accounts. The increase in 1996 was the result of the improvement in operating
income before depreciation and amortization and the net effect of changes in
certain asset and liability accounts, including WSNS's initial working capital
requirements.
The Company had working capital of $19.8 million at September 30, 1998.
Capital expenditures of approximately $11.2 million were made during 1997
for the replacement and upgrading of equipment, expanding production
capabilities and upgrading facilities. Capital expenditures of approximately
$7.3 million were made by the Company and the Predecessor during the nine
months ended September 30, 1998 for the replacement and upgrading of equipment
and upgrading of facilities. Of these amounts, $6.2 million and $3.5 million,
were made during 1997 and the nine months ended September 30, 1998,
respectively, with respect to network operations. As a result of the Network
Sale, the Company no longer has capital expenditure requirements with respect
to network operations. On a pro forma basis after giving effect to the
Transactions, the Company expects capital expenditures of $6.0 million in
1998, including expenditures related to the commencement of conversion to DTV.
The Company expects increased capital expenditures in 1999 related to the
continued conversion to DTV.
The Predecessor's principal sources of liquidity were cash from operations
and the Old Credit Facility. As a result of the Merger, the Company has a new
capital structure which includes a $150 million Revolving Credit Facility as a
component of the New Credit Facilities. The Company plans on financing interim
cash needs through cash generated from operations and the Revolving Credit
Facility, under which there was $69 million available at September 30, 1998.
The Company does not presently anticipate the need to obtain any additional
financing to fund operations.
The New Credit Facilities consist of a $25 million amortizing term loan (the
"Tranche A Term Loan") with a final maturity of September 30, 2005, a $175
million amortizing term loan (the "Tranche B Term Loan") with a final maturity
of March 31, 2007 and a $150 million revolving credit facility (the "Revolving
Credit Facility") with a final maturity of September 30, 2005.
The Tranche A Term Loan amortizes quarterly beginning December 31, 1999 and
the scheduled principal repayments increase each year. The Tranche B Term Loan
requires equal quarterly payments beginning December 31, 1999, with a $162.3
million balloon payment due March 31, 2007. The Revolving Credit Facility has
scheduled annual reductions in availability beginning December 31, 2001.
The Tranche A Term Loan and the Revolving Credit Facility bear interest
based upon either the Eurodollar (LIBOR) rate or the Alternative Base Rate
(greater of the prime rate or federal funds rate plus 0.5%), plus an interest
rate margin determined by reference to the ratio of Telemundo's debt to EBITDA
(as defined) for the four fiscal quarters most recently concluded (the
"Leverage Ratio"). The interest rate margins applicable to Eurodollar
borrowing range from 0.75% to 1.875% per annum. The interest rate margins
applicable to Alternative Base Rate borrowing range from zero to 0.875%. At
September 30, 1998, the interest rate applicable to the Tranche A Term Loan
and the Revolving Credit Facility was 7.56% and 7.47%, respectively, which
includes an interest rate margin of 1.875%. The Revolving Credit Facility also
provides for payment of a commitment fee of 0.5% per annum of the unused
portion, which may be reduced based upon the Leverage Ratio.
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The interest rate margins applicable to the Tranche B Term Loan Eurodollar
borrowing and Alternate Base Rate borrowing is fixed at 2.125% and 1.125%,
respectively. At September 30, 1998, the interest rate applicable to the
Tranche B Term Loan was 7.81%, which includes an interest rate margin of
2.125%. Pursuant to the New Credit Facilities, Telemundo is required to hedge
the interest rate on a portion of the New Credit Facilities. Accordingly,
Telemundo entered into a fixed rate for LIBOR swap transaction fixing a 5.145%
Eurodollar equivalent interest rate on $100 million principal amount,
effective from September 29, 1998 to August 13, 2003. Effective December 1,
1998, based upon the Leverage Ratio, the interest rate margin applicable to
the Tranche A Term Loan and Revolving Credit Facility Eurodollar borrowings
was reduced to 1.5% and the commitment fee was reduced to 0.375% of the unused
portion of the Revolving Credit Facility.
The Old Notes were, and the New Notes will be, issued at a substantial
discount and were structured to produce a yield to maturity of 11 1/2% per
annum. The Notes begin accruing cash interest on August 15, 2003. Interest
becomes payable February 15, 2004. The Notes will mature on August 15, 2008.
The New Credit Facilities and the Notes require the Company to maintain
certain financial ratios and impose on the Company certain limitations or
prohibitions, including (i) the incurrence of indebtedness or the guarantee or
assumption of indebtedness; (ii) the creation or incurrence of mortgages,
pledges or security interests on the property or assets of the Company or any
of its subsidiaries; (iii) the sale of assets of the Company or any of its
subsidiaries; (iv) the merger or consolidation of the Company; (v) the payment
of dividends or the redemption or repurchase of any capital stock or
subordinated indebtedness of the Company; (vi) limitations on change of
control; and (vii) investments and acquisitions. See "Description of Certain
Indebtedness--New Credit Facilities" and "Description of the Notes."
Year 2000
The Company has developed plans, utilizing internal resources, to ensure its
information systems are capable of properly utilizing dates beyond December
31, 1999. Since January 1, 1997, the Company has upgraded or replaced many of
its accounting and traffic computer systems, including the conversion to new
software which is Year 2000 compliant at a total cost of approximately
$450,000. Additionally, the Company has evaluated its other principal computer
systems and determined they are substantially Year 2000 compliant. The Company
does not expect to incur more than an additional $250,000 in connection with
the Year 2000 issue.
The Company is also seeking to work with its relevant customers, suppliers
and other service providers to ensure their systems are Year 2000 compliant.
If any of the Company's customers are not Year 2000 compliant, the Company
could, among other things, experience delays in collections of accounts
receivable. Further, Year 2000 non-compliance could adversely affect the
overall operations of the Company's customers, which could result in reduced
demand for advertising time. Although the impact on the Company caused by the
failure of its significant customers, suppliers and other service providers to
achieve Year 2000 compliance in a timely and effective manner is uncertain,
the Company's business and results of operations could be materially adversely
affected by such failure. The amount of potential liability and lost revenue
has not been estimated. However, the Company does not believe that the most
reasonably likely worst case Year 2000 scenario would significantly impact the
Company. Accordingly, the Company does not believe it is necessary to develop
a contingency plan at this time. The Company will continuously monitor the
need for a contingency plan as it acquires additional information regarding
the Year 2000 compliance programs of its customers, suppliers and other
service providers.
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Recent Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 provides guidance for the presentation and display of
comprehensive income. SFAS 131 establishes standards for disclosure of
operating segments, products, services, geographic areas and major customers.
The Company is required to adopt both standards for its fiscal year ending
December 31, 1998. Management believes that the implementation of SFAS 130 and
SFAS 131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is required to be adopted in years
beginning after June 15, 1999. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance but must be adopted as of
the first quarter of fiscal years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in fair value will either be offset against the change in fair value
of the related hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The Company has not yet determined what the effect of
SFAS 133 will be on the earnings and financial position of the Company.
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BUSINESS
The Company is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic
Market Areas in the United States--Los Angeles, New York, Miami, San
Francisco, Chicago, San Antonio and Houston. Four of these markets are among
the five largest general Market Areas in the United States. The Company also
owns and operates the leading full-power television station and related
production facilities in Puerto Rico. The Company's stations broadcast a wide
variety of network programming, including movies, telenovelas (soap operas),
talk shows, entertainment programs, national and international news, music and
sporting events. In addition, the Company supplements its network programming
with local programming focused on local news and community events.
U.S. Hispanic Market Overview
Market Demographics
Hispanics are one of the fastest growing segments of the U.S. population.
According to the U.S. Census Bureau, the U.S. Hispanic population has grown
from an estimated 14.6 million people, or 6.4% of the U.S. population in 1980,
to 28.7 million people, or 10.7% of the U.S. population in 1997. The Hispanic
population in the United States, the fifth largest Hispanic population in the
world, is growing at approximately five times the rate of the non-Hispanic
population. By the year 2010, the Hispanic population in the United States is
projected by the U.S. Census Bureau to reach approximately 41.1 million
people, accounting for approximately 13.8% of the total population of the
United States, which would represent the country's largest minority group.
The U.S. Hispanic population is highly concentrated geographically, with
over 50% of all Hispanics residing in the seven largest Hispanic Market Areas.
In addition, Hispanic households in the United States on average tend to be
larger than non-Hispanic households, averaging 3.5 persons compared to 2.6
persons for all U.S. households. The U.S. Hispanic population is also younger,
with an average age of 27 years compared to 35 years for the entire
population, and spends a greater percentage of their total household income on
consumer products than non-Hispanic households.
Importance of Spanish-Language Media, Especially Television
Hispanics in the United States historically have tended to retain Spanish as
their dominant language. The 1997-1998 Nielsen Enumeration Study indicates
that approximately 48% of U.S. Hispanic households speak predominantly
Spanish. Consequently, many Hispanics in the United States rely on Spanish-
language media as an important, and often the exclusive, source of news and
information as well as entertainment. Approximately 80% of U.S. Hispanic
television households view Spanish-language television, and aggregate viewing
of Spanish-language television increased by approximately 33% from 1993 to
1997, as compared to a decrease of approximately 13% for the general market
English-language television broadcast networks during the same period. As a
result, the Company believes that major advertisers such as The Procter &
Gamble Co., AT&T Corp., Sears, Roebuck & Co., General Motors Corporation and
McDonald's Corporation have found that Spanish-language advertising is a more
cost-efficient means to target this growing audience than English-language
broadcast media. See "--Sales and Marketing."
Advertising Market
The annual purchasing power of Hispanics is in excess of $260 billion. With
the continuing growth of the Hispanic market, advertisers have substantially
increased their use of Spanish-language media, particularly television.
According to Hispanic Business Magazine, total advertising expenditures
directed towards Spanish-language media were estimated to have increased from
approximately $830 million in 1993 to approximately $1.4 billion in 1997,
representing a compounded annual growth rate of 14% over the four-year period.
More recently, total advertising expenditures directed towards Spanish-
language media increased approximately 17% from 1996 to 1997, with over half
of these expenditures spent on Spanish-language television. Despite the rapid
growth, advertising expenditures directed to the Hispanic television market
still represent less than 1.7% of all
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television advertising in the United States. Based on Nielsen TV data,
however, the Company estimates that approximately 4% of total television
viewing is of Spanish-language television. The Company believes that this
disparity will narrow as advertisers continue to increase their advertising
expenditures on Spanish-language television and as more information on the
Hispanic market becomes available.
The Company believes that advertising should continue to grow significantly
as new advertisers enter the Hispanic market and existing advertisers increase
the percentage of their budgets directed towards Spanish-language television.
Affiliation With Sony Pictures and Liberty
The Company is owned by Sony Pictures, Liberty and Station Partners, LLC.
Each of Sony Pictures and Liberty have made significant investments to acquire
their interests in the Company and the Network Company and have agreed to make
additional significant contributions of capital and other resources to the
Network Company. Sony Pictures, a subsidiary of Sony Corporation, is a global
entertainment company whose operations include motion picture production and
distribution, television channels, production and syndication and home
entertainment. Sony Pictures has demonstrated its expertise in television
programming and marketing and currently has ownership interests in 24
international television channels, nine of which are in Latin America. The
Company has been advised that Sony Pictures expects its Telemundo investment
to be an integral part of Sony Pictures' strategy to serve domestic and
international Spanish-language markets.
Liberty is the programming unit of Tele-Communications, Inc. ("TCI"), one of
the leading cable and telecommunications companies in the United States, and
owns interests in numerous globally-branded entertainment and electronic
retailing networks. Liberty invests in and manages entities engaged in the
production, acquisition and distribution of branded entertainment and
informational programming and software, including multimedia products. On June
24, 1998, TCI and AT&T Corp. ("AT&T") announced that they had entered into an
Agreement and Plan of Restructuring and Merger pursuant to which TCI will
become a wholly owned subsidiary of AT&T (the "AT&T/TCI Merger"). In addition,
TCI announced its intention to combine Liberty and TCI Ventures Group
concurrently with the consummation of the AT&T/TCI Merger. Immediately
following the AT&T/TCI Merger, AT&T will issue separate tracking stock to
holders of Liberty to continue the holders' interest in Liberty. The
consummation of these transactions is subject to certain regulatory approvals
and there can be no assurance that these transactions will be consummated.
The Company expects that Sony Pictures and Liberty will provide (i) a source
of high-quality network programming, (ii) access to significant national sales
and marketing resources, and (iii) greater market penetration through
increased cable television coverage.
Source of High-Quality Programming. Pursuant to the Affiliation Agreement,
the Network Company provides all network programming to the Company, the
expenses associated with which are borne entirely by the Network Company. The
Company believes that with the support of Sony Pictures' vast production
resources and library, which contains over 3,500 movie titles and 35,000
series episodes, together with Liberty's access to programming, the Network
Company will be a valuable source of innovative and high-quality programming.
Sony Pictures is one of the premiere producers of network and syndicated
television programming in the world, and has produced or distributed such
programs as Seinfeld, Mad About You, Party of Five, Days of Our Lives, Wheel
of Fortune and Jeopardy. Sony Pictures has also produced such movies as The
Mask of Zorro, Men In Black, Air Force One, As Good As It Gets and Jerry
Maguire. In addition, Liberty will provide access to sports and other
programming from its numerous investments in cable channels, including Fox
Sports Americas and Discovery Channel.
The Network Company is expected to produce original and innovative
programming, as well as utilize Sony Pictures' production resources and
library and Liberty's access to programming to supplement and enhance the
Company's schedule. The Network Company is also expected to adapt certain
proven sitcom, game-show and drama formats to create original Spanish-language
programming which will be more culturally relevant to Hispanics in the United
States than currently available Spanish-language programming.
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National Sales and Marketing Resources. Pursuant to the Affiliation
Agreement, the Network Company is responsible for the sale of all network
advertising time, as well as the sale of national spot advertising time on
behalf of network affiliated stations (including the Company's owned and
operated stations). While the Network Company conducts its own sales and
marketing activities, Columbia Television Advertiser Sales, Sony Pictures'
national advertising sales and marketing affiliate, is expected to provide
advertising assistance to the Network Company. The Company believes that the
Network Company will be able to leverage such national and international
experience, relationships and other advertising and marketing resources to
enhance the Network Company's sales and marketing efforts.
Revenue Sharing. Pursuant to the Affiliation Agreement, the Company and the
Network Company have agreed to pool and allocate local, national spot and
network advertising revenues on a predetermined basis. As a result, the
Company receives a formula-based percentage of the revenues that are generated
by the Network Company from the sale of advertising time on its network of
affiliated stations (including the Company's owned and operated stations). See
"Risk Factors--Network Sale, Dependence on Programming; Affiliation Agreement"
and "--Affiliation Agreement."
Cable Carriage. Pursuant to a carriage agreement (the "Carriage Agreement"),
a subsidiary of TCI will agree to provide incremental cable carriage to the
Network Company through its extensive cable distribution infrastructure. The
Company expects that the Carriage Agreement, together with Liberty's
comprehensive cable experience and relationships, will increase the market
coverage of the Network Company. See "--Carriage Agreement."
Business Strategy
The Spanish-language television market in the United States is currently
served by only two national television broadcast companies, Univision and the
Company. The Company believes that since 1993, it has lost market share to
Univision due to the Company's limited programming, production and financial
resources, and as a result of certain exclusive programming relationships
Univision has with Televisa and Venevision. See "Risk Factors--Competition."
The Company has developed an operating strategy that is designed to improve
ratings and audience share and result in increased revenue and EBITDA. The key
components to the Company's strategy include the following:
Leverage Relationship with Sony Pictures and Liberty. The Company intends
to fully leverage its relationship with Sony Pictures and Liberty in order to
gain access to a source of high-quality network programming and significant
national sales and marketing resources and to obtain greater market
penetration through increased cable television coverage.
Improve Programming. For over 30 years, the U.S. Spanish-language
television market has followed the traditional programming format
originated in Mexico, which involves broadcasting primarily telenovelas
throughout the day and almost exclusively during prime time. This
programming format offers largely imported programming from Mexico and
other Latin American countries, which has the effect of ignoring large
segments of U.S. Spanish-language viewers, primarily younger and male
audiences. Independent research confirms that U.S. Hispanic audiences are
seeking a more varied and culturally relevant alternative to the
telenovela.
The Company believes that as a result of the Network Company's
relationship with Sony Pictures and Liberty, the Network Company will be
able to provide the Company with a more diverse and compelling product that
is tailored specifically for Hispanics in the United States. The Company
expects that the Network Company will offer new categories and formats of
high-quality programming, in addition to the telenovela, that have not
previously been available to the Hispanic audience, focusing on programming
that both reflects and impacts the lifestyles of Hispanics in the United
States. Examples of such new Spanish-language programming include action
and adventure programs such as Angeles and Reyes & Rey and game shows such
as Buscando Pareja (The Dating Game) and Los Recien Casados (The
Newlyweds). The Company also expects that the Network Company will
broadcast in the Spanish language major motion
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picture releases from Sony Pictures' library. These programming initiatives
will be initially focused on prime time slots, which the Company believes
represent the greatest growth opportunity and generate the majority of
advertising revenues. See "Risk Factors--Network Sale; Dependence on
Programming; Affiliation Agreement."
Enhance Marketing Efforts and Advertising Presence. The Company believes
that the Telemundo brand name is well known and well respected in the
Hispanic community. The Company and the Network Company intend to enhance
Telemundo's image by repositioning Telemundo as a more contemporary
network. The marketing strategy includes committing greater resources to
its marketing efforts, creating a new and distinct brand identity,
developing and investing in strategic advertising and promotion and
improving overall public relations. In addition, the Company and the
Network Company have identified key advertising sales initiatives,
including cultivating new accounts, offering competitive packages and
services and creating program sponsorships and product integration
programs. The Company believes that both the Network Company and the
Company could increase their respective shares of the advertising market by
simply increasing their visibility in the market.
Increase Market Penetration. The Carriage Agreement, which will provide
for incremental cable carriage of the Network Company's programming over
TCI's extensive cable systems, is expected to increase the market
penetration of the Network Company. The Company believes that the increased
market penetration, together with the programming and marketing
initiatives, will result in increased audience share and revenues for the
Network Company and the Company.
Strengthen Local Identity. The Company believes that local programming,
particularly strong coverage of news and community affairs, enhances local
presence, builds viewer loyalty and ultimately increases viewership levels.
Accordingly, the Company plans to increase spending on local programming and
produce new local programming, as well as enhance coverage of local news and
community affairs. In addition, the Company intends to reduce the level of
paid programming (infomercials), which the Company believes will also result
in improved viewer loyalty and further increase viewership.
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Television Stations
The Company owns and operates eight full-power and 15 low-power Spanish-
language television stations in the United States and Puerto Rico.
Full-Power Stations
The Company's U.S. owned and operated full-power stations broadcast network
programming provided by the Network Company and produce and broadcast local
news and limited other programming focused on the audience in each of their
respective local markets. Each full-power station also sells blocks of
broadcast time during non-network programming hours to independent programmers
("block time programmers"). The following table sets forth certain information
about the Company's owned and operated full-power Spanish-language television
stations.
<TABLE>
<CAPTION>
Number of
Ranking of Ranking of Other Spanish-
Number of Market Area Market Area Language
Hispanic Hispanics by Number by Number Television
Television as a Percentage of Hispanic of Total Stations
Market Area Station Households in of Total Television Television Operating in
Served and Channel Market Area(1) Population(2) Households(1) Households(1) Market Area(3)
- ----------------- ------------- -------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA KVEA (Ch. 52) 1,351,000 37% 1 2 2
New York, NY WNJU (Ch. 47) 1,023,000 18% 2 1 1
Miami, FL WSCV (Ch. 51) 451,000 37% 3 16 3
San Francisco, CA KSTS (Ch. 48) 301,000 18% 4 5 1
Chicago, IL(4) WSNS (Ch. 44) 293,000 13% 5 3 1
San Antonio, TX KVDA (Ch. 60) 283,000 52% 6 38 2
Houston, TX KTMD (Ch. 48) 278,000 23% 7 11 1
San Juan, PR WKAQ (Ch. 2) 1,145,000(5) -- -- -- 6
</TABLE>
- --------
(1) Estimated by Nielsen TV as of January 1, 1998.
(2) Claritas, Inc., 1997, derived from U.S. Census Bureau data and other
government statistics.
(3) The Company and each of its Spanish-language competitors broadcast over
UHF, except in Puerto Rico, where WKAQ and its three major competitors
broadcast over VHF.
(4) The Company owns a 74.5% interest in WSNS through a joint venture.
(5) Mediafax, Puerto Rico Market Data, December 1997.
Los Angeles: The Company owns and operates KVEA, Channel 52, licensed to
Corona, California and serving the Los Angeles market. KVEA began operating as
a Spanish-language station in 1985. Los Angeles is the largest U.S. Hispanic
market, representing approximately 17% of the Hispanic television households
in the United States. An estimated 5.8 million Hispanics reside in the Los
Angeles DMA, constituting approximately 37% of the Los Angeles DMA population.
The Hispanic population in Los Angeles more than doubled between 1980 and
1997, and immigration trends indicate that the Hispanic population will
continue to grow rapidly. As a reflection of the significance of Spanish-
language television, Spanish-language television programs periodically draw
higher overall audience levels than the competing English-language programs in
the Los Angeles DMA. The Hispanic population in Los Angeles is predominantly
Mexican in origin.
New York: The Company owns and operates WNJU, Channel 47, licensed to
Linden, New Jersey and serving the New York market. WNJU began operating as a
Spanish-language station in 1965. New York is the second largest U.S. Hispanic
market, representing approximately 13% of the Hispanic television households
in the United States. An estimated 3.4 million Hispanics reside in the New
York DMA, constituting approximately 18% of the New York DMA population. The
Hispanic population in New York increased by approximately 64% between 1980
and 1997. Although almost half of this market is of Puerto Rican origin, the
New York Hispanic community is relatively diverse.
Miami: The Company owns and operates WSCV, Channel 51, licensed to Ft.
Lauderdale, Florida and serving the Miami-Ft. Lauderdale market. WSCV began
operating as a Spanish-language station in 1985. In
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February 1998, Univision's WLTV in Miami became the first Spanish-language
station in the United States to be the highest rated television station in its
market, achieving higher ratings than any of the major English-language
network affiliates. Miami is the third largest U.S. Hispanic market,
representing approximately 6% of the Hispanic television households in the
United States. An estimated 1.3 million Hispanics reside in the Miami DMA,
constituting approximately 37% of the Miami DMA population. It has been
estimated that more than half of the population of Miami-Dade County is
comprised of Hispanics. The Hispanic population in Miami more than doubled
between 1980 and 1997. Approximately 54% of Hispanics in Miami are of Cuban
origin.
San Francisco: The Company owns and operates KSTS, Channel 48, licensed to
San Jose, California and serving the San Francisco-San Jose market. KSTS began
operating as a Spanish-language station in 1987. The San Francisco-San Jose
Hispanic market is the fourth largest U.S. Hispanic market, representing
approximately 4% of the Hispanic television households in the United States.
An estimated 1.2 million Hispanics reside in the San Francisco DMA (which
includes San Jose), constituting approximately 18% of the San Francisco DMA
population. The Hispanic population in this market grew by approximately 83%
from 1980 to 1997 and is over 68% of Mexican origin.
Chicago: The Company owns a 74.5% interest in and operates WSNS, Channel 44,
licensed to and serving the Chicago market. WSNS began operating as a Spanish-
language station in 1985. The Chicago market is the fifth largest Hispanic
market in the United States, representing approximately 4% of the Hispanic
television households in the United States. An estimated 1.1 million Hispanics
reside in the Chicago DMA, constituting approximately 13% of the Chicago DMA
population. The Hispanic population in Chicago grew by approximately 76% from
1980 to 1997 and is over 69% of Mexican origin.
San Antonio: The Company owns and operates KVDA, Channel 60, licensed to and
serving the San Antonio, Texas market. KVDA began operating as a Spanish-
language station in 1989. The San Antonio market is the sixth largest U.S.
Hispanic market, representing approximately 4% of the Hispanic television
households in the United States. An estimated 1.0 million Hispanics reside in
the San Antonio DMA, constituting approximately 52% of the San Antonio DMA
population. The Hispanic population in San Antonio, which is principally of
Mexican origin, increased by approximately 54% between 1980 and 1997.
Houston: The Company owns and operates KTMD, Channel 48, licensed to
Galveston, Texas and serving the Houston-Galveston market. KTMD began
operating as a Spanish-language station in 1987. The Houston-Galveston market
is the seventh largest U.S. Hispanic market, representing approximately 4% of
the Hispanic television households in the United States. An estimated 1.0
million Hispanics reside in the Houston DMA (which includes Galveston),
constituting approximately 23% of the Houston DMA population. The Hispanic
population in Houston more than doubled between 1980 and 1997 and is
principally of Mexican origin.
San Juan, Puerto Rico: The Company owns and operates television station
WKAQ, Channel 2, in San Juan, which together with its affiliate, WOLE (Channel
12 in Mayaguez), and its translator facilities, cover virtually all of Puerto
Rico. WKAQ began operating as a Spanish-language television station in 1954.
The current population of Puerto Rico is approximately 3.8 million.
Low-Power Stations
In addition to its 15 owned and operated LPTVs, the Company has received
permission from the FCC to build two additional LPTVs. LPTVs and "translator
stations" generally operate at significantly lower levels of power than full-
power stations. In addition, their signals generally cover smaller areas than
those covered by full-power stations and may not cover the full Market Area in
which they are located. LPTVs extend the Company's and the Network Company's
coverage in areas where the Company does not own a full-power television
station or where the Network Company does not have a network affiliate. The
Company's low-power television stations operate with minimal staff and
generally do not originate programming or have their own sales forces. See
"Risk Factors--Impact of New Technologies" and "--FCC Regulation."
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The following table sets forth certain information about the Company's owned
and operated LPTVs.
<TABLE>
<CAPTION>
Number of Hispanic
Television Households
Market Area Served Station(s) in Market Area(1)
------------------ ---------- ---------------------
<S> <C> <C>
Albuquerque/Santa Fe, NM(2)(3)....... K52BS 181,000
Sacramento, CA(2).................... K47DQ, K52CK, K61F1 154,000
Boston, MA........................... W32AY 89,000
Austin, TX(2)........................ K11SF 79,000
Salinas/Monterey, CA................. K15CU 51,000
Colorado Springs, CO................. K49CJ 40,000
Santa Barbara/Santa Maria, CA........ K27EI 40,000
Salt Lake City, UT................... K48EJ 37,000
Odessa/Midland, TX(2)................ K60EE, K49CD 37,000
Amarillo, TX......................... K36DV 28,000
Reno, NV............................. K52FF 18,000
Abilene, TX.......................... K40DX 14,000
</TABLE>
- --------
(1) Estimated by Nielsen TV as of January 1, 1998.
(2) These areas are served by more than one LPTV, including affiliated LPTVs.
(3) The Company expects to sell its LPTV in Santa Fe, New Mexico, which is
expected to become an affiliate of the Network Company.
Affiliation Agreement
Pursuant to the Affiliation Agreement, the Network Company provides
programming to the Company, and the Company and the Network Company have
agreed to pool and allocate local, national spot and network advertising
revenues on a predetermined basis. The initial term of the Affiliation
Agreement is ten years and the Network Company will have the right to renew
the Affiliation Agreement for two consecutive five-year terms if certain
performance goals are met. The Affiliation Agreement is terminable by either
party in the event of a "material default of a material provision" (as defined
therein). The Network Company may terminate its obligations with respect to
any of the Company's low-power television stations and enter into an
affiliation agreement with either another low-power or a full-power television
station in the same licensed community (which need not be owned by the
Company) if that station has greater signal coverage than that of the
terminated low-power station. In addition, the obligations of the Network
Company under the Affiliation Agreement as to a particular station can be
terminated under certain limited circumstances. The Network Sale and the
Affiliation Agreement will result in the Company incurring reduced overall
programming and certain other costs from the levels historically incurred by
the Predecessor. All network programming costs are now borne by the Network
Company. As part of the Affiliation Agreement, each of the Network and Station
Group agreed, subject to various conditions, to incur certain programming,
marketing/promotional and capital expenditures in the future. These
expenditures may be reduced or eliminated based on financial tests, which
assume such expenditures produce positive financial results (i.e., incremental
revenue). The Company can also elect to incur a portion of such expenditures
in a subsequent year. If the Company meets such financial tests and does not
elect to defer a portion of such expenditures, the Company will incur levels
of non-network expenditures which are greater than non-network expenditures
historically incurred by the Company's owned and operated stations. Any such
expenditures on the part of the Company are subject to the Network Company
having incurred its respective expenditures.
Programming
The Affiliation Agreement provides that all network programming will be
provided by the Network Company. Subject to certain exceptions, the Company
has the exclusive broadcast rights in the areas in which the Company operates.
Moreover, any licensing to third parties of any programs first shown on the
network is subject to agreed upon limitations. Pursuant to the Affiliation
Agreement, all expenses associated with the development of original Network
Company programming will be borne by the Network Company, while all
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expenses related to the development of local programming will be borne by the
Company. Each of the stations is responsible for approximately 2 to 3 hours of
local programming daily, consisting primarily of local news and coverage of
community affairs.
Advertising and Revenue Sharing
Pursuant to the Affiliation Agreement, the Network Company is responsible
for the sale of all network advertising time, as well as the sale of national
spot advertising time on behalf of network affiliated stations (including the
Company's owned and operated stations), while the Company is responsible for
the sale of local advertising time. Revenue allocation is based on a formula
applied to the Station Compensation Pool, which consists of the following
revenue sources: (i) 61% of the net advertising revenues received by the
Network Company pursuant to the sale of network advertising and block time
(time made available for paid programming); and (ii) 100% of the net
advertising revenues received by the Company (excluding WKAQ in Puerto Rico)
from the sale of "spot" and local advertising time and local and national
block time. The Station Compensation Pool is shared between the Company and
the Network Company, with the Company's allocation based on the following
formula: (x) 80% of the first $130 million of Aggregate Net Advertising
Receipts; plus (y) 55% of the incremental Aggregate Net Advertising Receipts
above $130 million up to $230 million; plus (z) 45% of the incremental
Aggregate Net Advertising Receipts above $230 million. After the initial year,
the above levels (i.e., $130 million and $230 million) will be increased 3%
annually. The Affiliation Agreement provides that not less than 50% of all
advertising time during network programming will be available for local and
national spot advertising. All advertising revenue subject to allocation is
net of uncollectible amounts.
Under certain limited circumstances involving a specified number of "Willful
Unauthorized Preemptions" or "Other Unauthorized Preemptions" or a "Change in
Operations" (each as defined in the Affiliation Agreement) affecting a
particular station, the obligations of the Network Company with respect to
such station may be terminated by the Network Company. Upon such a
termination, the percentage of net advertising revenues contributed by the
Network Company referred to in clause (i) of the preceding paragraph would be
reduced to a percentage figure equal to 61% multiplied by a fraction, the
denominator of which is equal to the Company's stations' then prevailing
aggregate "network" coverage of U.S. Hispanic television households (as
measured by objective demographic data obtained from Nielsen TV or as
otherwise agreed) and the numerator of which is the Company's stations' then
prevailing aggregate "network" coverage of U.S. Hispanic television households
excluding the "network" coverage of U.S. Hispanic television households
provided by the terminated station.
Carriage Agreement
The Network Company will enter into the Carriage Agreement with a subsidiary
of TCI, pursuant to which such subsidiary will provide for incremental cable
carriage to the Network Company through TCI's extensive cable distribution
infrastructure. The Carriage Agreement is expected to increase the market
penetration of the Network Company. The Company believes that an incremental
400,000 subscribers in areas in which the Company or the Network Company
currently does not operate would increase the network's coverage from 85% to
90% of all U.S. Hispanic households.
Under the Carriage Agreement, the Network Company will pay such TCI
subsidiary fees for delivering new Hispanic surname households as subscribers
to a TCI cable system carrying the Network Company's programming ("TCI
Hispanic Subscribers"). The Affiliation Agreement provides that the Company
will reimburse the Network Company for one-half of the fees actually paid by
the Network Company (up to $2.50 per TCI Hispanic Subscriber) for the first
400,000 TCI Hispanic Subscribers, and a specified percentage of such fees (up
to a maximum payment obligation of $1,000,000) for TCI Hispanic Subscribers in
excess of 400,000 and for new Hispanic cable subscribers on other than TCI
cable systems carrying the Network Company's programming ("Non-TCI
Subscribers"). The Company's maximum total payment obligation for additional
TCI Hispanic Subscribers and Non-TCI Subscribers is $2,000,000.
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Programming
As a result of the Affiliation Agreement, the Company relies on the Network
Company for network programming. The Network Company provides the Company with
a variety of entertainment and news programs, national and international news,
music and sporting events.
On June 16, 1998, the Telemundo network announced its programming schedule
for the 1998-1999 broadcast season. The Telemundo network will provide such
action and adventure programs such as Angeles, AXN, Reyes y Rey and Operacion
Rescate (Operation Rescue), game shows such as Buscando Pareja (The Dating
Game) and Los Recien Casados (The Newlyweds) and situation comedies such as
Solo en America (Only in America) and Una Familia con Angel (A Family with
Angel ). The Telemundo network's programming schedule is further supplemented
by a new line-up of feature films from Sony Pictures' library.
The Telemundo network also provides the Emmy Award-winning show, Ocurrio
Asi, a one-hour reality-based investigative news magazine show, which has
consistently been one of the Company's highest-rated programs. Other Telemundo
network programming with consistently strong market shares that are provided
include Sevcec, a talk show hosted by renowned journalist, Pedro Sevcec, which
is designed to entertain the public with a mix of celebrities, musical
performances and comedians and educate the public on a wide range of issues,
including immigration and violence, and El y Ella (He and She), a talk show
that discusses everyday topics and common problems from the male and female
perspective, which is hosted by Sofia Webber and Guillermo Quintanilla.
The Telemundo network's programming currently includes network newscasts
produced by CBS-Telenoticias.
In addition, the Company's owned and operated full-power stations produce
and broadcast local news and limited other programming focused on the audience
in each of their respective local markets. The remainder of the Company's
programming is purchased from various program suppliers primarily in Mexico
and other Latin American countries.
The programming lineup of WKAQ in Puerto Rico differs from that of the
Telemundo network, but includes approximately 15 hours per week of network
programming. Through its production studios, WKAQ produces approximately 28
hours of programming weekly, including variety and comedy shows, mini-series,
news and public affairs shows, all primarily directed toward the Puerto Rico
market. In addition, WKAQ has the right of first refusal to purchase
telenovelas and other programming for the Puerto Rico market, produced by
Televisa pursuant to a programming agreement which expires in May 2005. WKAQ
also broadcasts programming from other Latin American countries and broadcasts
United States syndicated programming dubbed in Spanish.
Prior to the Merger, Telemundo, through the Telemundo Network, sold the
rights to broadcast network original programming in the international markets.
Revenue from the international syndication of such programming represented
less than 2% of Telemundo's total net revenue in 1997.
Affiliates
In addition to the Company's owned and operated stations, the Network
Company provides programming to 151 affiliates serving 51 Hispanic markets in
the United States. These affiliates, which consist of 33 affiliated broadcast
stations and 118 satellite direct cable affiliates that take the Network
Company's signal directly from the satellite, represent approximately 31% of
the Network Company's total coverage of the U.S. Hispanic market.
Sales and Marketing
Pursuant to the Affiliation Agreement, the Network Company is responsible
for the sale of all network advertising time, as well as the sale of national
spot advertising time on behalf of network affiliated stations (including the
Company's owned and operated stations), while the Company is responsible for
the sale of local
56
<PAGE>
advertising time. Revenue is allocated between the Company and the Network
Company based on a formula applied to a combination of the Company's and the
Network Company's local, national spot and network advertising revenue. See
"--Affiliation Agreement." Each of the Company's owned and operated full-power
stations maintains a sales and marketing force to sell local advertising time
on its own behalf.
The Network Company currently has a network and national spot sales and
marketing force, including account executives and sales managers with
backgrounds in both Spanish-language and English-language media, to sell
advertising time broadcast over the Network Company's entire network (network
sales) and to sell advertising time in markets covered by the Company's owned
and operated stations and the Network Company's other network affiliates
(national spot sales). The Network Company currently has national sales
offices in New York, Los Angeles, Miami, Chicago, San Francisco, San Antonio,
Dallas, Houston and Orange County, California.
The Company and the Network Company sell advertising time to a broad and
diverse group of advertisers. No single advertiser accounted for 10% or more
of Telemundo's 1997 total revenue. According to Hispanic Business Magazine,
the top ten advertisers in Spanish-language media in 1997, all of which
broadcast advertisements over the Telemundo network and the Company's owned
and operated stations, were:
The Procter & Gamble Co. McDonald's Corporation
AT&T Corp. Anheuser-Busch Companies Inc.
Sears, Roebuck & Co. Philip Morris Companies, Inc.
General Motors Corporation Colgate-Palmolive Company
MCI Communications Corporation Ford Motor Company
Additionally, the Network Company and each of the Company's stations sell
blocks of air time during non-network programming hours to block time
programmers. The Company intends to gradually reduce the programming hours
allocated to block time programmers.
Ratings Systems
The Company's advertising revenue depends to a large extent on its ratings
and audience share. The Nielsen Hispanic Television Index ("NHTI") which began
in November 1992, and the Nielsen Hispanic Station Index ("NHSI") provide
national network (NHTI) and local (NHSI) television ratings and share data for
the Hispanic audience. Management believes that Spanish-language television
has the potential to garner a larger share of total U.S. television
advertising revenue, and better demographic information and audience research
should continue to accelerate this process.
Competition
The broadcasting industry has become increasingly competitive in recent
years. The competitive success of a television network or station depends
primarily on public response to the programs broadcast, which affects the
revenue earned by the network or station from the sale of advertising time. In
addition to programming, factors determining competitive position include
management's ability and experience, marketing, research and promotional
efforts.
In the Spanish-language television broadcast market, the Company faces
significant competition from Univision, which operates the other Spanish-
language broadcast company in the United States and has a substantially
greater audience share than the Company. In each of the markets in which the
Company owns and operates full-power stations, except Puerto Rico, the
Company's station competes directly with a full-power Univision station.
Together the Univision stations and the Univision network affiliates reach a
larger percentage of Hispanic viewers in the United States than the Company's
owned and operated stations and the Network Company's network affiliates and
within the last year have attracted as much as 86% of the U.S. Spanish-
language television network audience (as reported by Nielsen TV). Generally,
the competing Univision stations
57
<PAGE>
have been operating in their markets longer than have the Company's stations.
Univision also owns Galavision, a Spanish-language cable network that is
reported to serve approximately 2.5 million Hispanic subscribers, representing
approximately 55% of all Hispanic households that subscribed to cable
television in 1997. Both Televisa and Venevision, which are significant
stockholders of Univision, have entered into long-term contracts to supply
Spanish-language programming to the Univision and Galavision networks.
Televisa is the largest supplier of Spanish-language programming in the world.
Through these program license agreements, Univision has the right of first
refusal to air in the United States all Spanish-language programming produced
by Televisa and Venevision. These supply contracts currently provide Univision
with a competitive advantage in obtaining programming originating from Mexico
and in targeting U.S. Hispanics of Mexican origin, who account for
approximately 63% of the U.S. Hispanic market. In October 1998, Televisa
announced that it had reduced its ownership interest in Univision by
approximately 50%, to approximately 10%.
Certain of the Company's stations, particularly in Puerto Rico and Los
Angeles, also face competition on a local level from various independent
Spanish-language television stations. In March 1998, TV Azteca, one of two
Mexican television broadcast companies, announced its intention to create a
third Spanish-language network in the United States. To date, the Company is
not aware of any activity with respect to such network.
There are also several independent Spanish-language television stations that
broadcast, on a full-time or part-time basis, in markets in which the Company
owns and operates stations. Independent Spanish-language television stations
compete with Company-owned stations in the Los Angeles, Miami and San Antonio
Market Areas.
The Company's owned and operated television stations and the Network
Company's affiliates also face competition for advertising revenue from other
sources serving the same markets and competing for the same target audience,
such as other Spanish-language and English-language media, including
television stations, cable channels, direct broadcast satellites, radio
stations, magazines, newspapers, movies and other forms of entertainment. The
English-language media are generally better developed and better capitalized
than the Spanish-language media in the United States. The Company also
competes with English-language broadcasters for Hispanic viewers, including
the four principal English-language television networks, ABC, CBS, NBC and
Fox, and, in certain cities, the UPN and WB networks. Certain of these and
other English-language networks have begun producing Spanish-language
programming and simulcasting certain programming in English and Spanish.
Several cable programming networks, including HBO, ESPN and CNN, provide
Spanish-language services as well. There can be no assurance that current
Spanish-language television viewers will continue to watch the Company's or
any other Spanish-language broadcaster's programming rather than English-
language programming or Spanish-language simulcast programming.
In Puerto Rico, WKAQ has three significant Spanish-language television
station competitors. In addition, three other Spanish-language television
stations operate in that market. Although the general market programming of
the major English-language U.S. networks is available in Puerto Rico through
cable carriage, none of such networks has attracted a significant share of the
Puerto Rico audience to date. On October 2, 1998, Chancellor filed a transfer
application seeking FCC consent of Chancellor's acquisition of Pegasus
Broadcasting of San Juan, L.L.C., the licensee of WAPA. WAPA is one of WKAQ's
significant competitors. On December 4, 1998, the Company filed a "Petition to
Deny" Chancellor's transfer application on both procedural and substantive
grounds. Chancellor filed its opposition to the Petition to Deny on December
17, 1998 and WAPA filed a reply on December 28, 1998. The pleading cycle is
now closed and the FCC has yet to rule on the Company's Petition to Deny. It
is not possible to predict how the ultimate outcome of this proceeding or the
possible acquisition of WAPA by Chancellor will affect the Company's business.
See "Risk Factors--Competition."
Further advances in technology such as video compression and programming
delivered through fiber optic telephone lines could lower entry barriers for
new channels and encourage the development of increasingly specialized niche
programming. See "Risk Factors--Competition."
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FCC Regulation
Licensing
The ownership of the Company's television stations and certain of its
television broadcasting operations are subject to the jurisdiction of the FCC
under the Communications Act. The Communications Act was substantially amended
by the Telecommunications Act of 1996. The Communications Act prohibits the
operation of television broadcasting stations except under a license issued by
the FCC and empowers the FCC, among other matters, to issue, renew, revoke and
modify broadcast licenses, to determine the location of stations, to establish
areas to be served and to regulate certain aspects of broadcast programming.
The Communications Act prohibits the assignment of a broadcast license or the
transfer of control of a licensee without the prior approval of the FCC. If
the FCC determines that violations of the Communications Act or the FCC's own
regulations have occurred, it may impose sanctions ranging from admonition of
a licensee to license revocation.
The Communications Act provides that a license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations. Pursuant to the terms of the
Telecommunications Act, the FCC increased the terms of such licenses and their
renewals from five to eight years. FCC licenses of full-power stations held by
the Company have the following expiration dates: WNJU--June 1, 1999; WKAQ and
WSCV--February 1, 2005; WSNS--December 1, 2005; KTMD and KVDA--August 1, 2006;
and KSTS and KVEA--December 1, 2006. The Company expects that the WNJU renewal
application will be filed on February 1, 1999. The Company must apply to renew
these licenses, and third parties may challenge those applications. Although
the Company has no reason to believe that its licenses will not be renewed in
the ordinary course, there can be no assurance that its licenses will be
renewed.
Attributable Interests
Under current FCC regulations, the officers, directors and certain of the
equity owners of a broadcasting company are deemed to have an "attributable
interest" in the broadcasting company. In the case of a corporation owning or
controlling television stations, subject to certain exceptions, there is
generally attribution only to officers and directors and to stockholders who
own 5% or more of the outstanding voting stock (except for certain
institutional investors, which are subject to a 10% voting stock benchmark
provided certain conditions are satisfied). In addition, under one of these
exceptions, there is no attribution of minority stock interests if there is a
single holder of more than 50% of the outstanding voting stock of a corporate
broadcast licensee in which the minority interest is held.
Under current FCC rules governing multiple and cross-ownership of broadcast
companies, a license to operate a television station will not be granted
(unless established waiver standards are met) to any party (or parties under
common control) that has an attributable interest in another television
station with an overlapping service contour, as defined in the rules. The
regulations also prohibit a party from having an attributable interest in
television stations located in markets which, in the aggregate, include more
than 35% of total U.S. television households. (For purposes of this rule, UHF
stations are attributed with 50% of the television households in their
respective markets). The rules also prohibit (with certain qualifications) a
party from holding attributable interests in (i) a television and a radio
station, (ii) a television station and a cable television system, or (iii) a
television or radio station and a daily newspaper, in the same local market.
In addition, the FCC's "cross-interest" policy generally prohibits a party (or
parties under common control) that has an attributable interest in one media
company from having a non-attributable but "meaningful" interest, including a
significant non-voting equity interest, in another media company serving
"substantially the same area." The FCC is conducting rulemaking proceedings to
consider, among other things, changes in its attribution rules and the
modification of the local cross-ownership restrictions and the cross-interest
policy. In addition, on March 12, 1998, the FCC commenced a formal inquiry to
review all of its broadcast ownership rules which are not otherwise under
review, including the national audience limitation, the associated 50%
discount for UHF stations and the cable/television cross-ownership rule. The
Company cannot predict the timing or effect of any changes resulting from
these rulemaking proceedings.
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The Company does not have any attributable interests in other broadcast
stations, cable systems or newspapers, but the parent company of one of the
Company's stockholders, directly or indirectly, holds (i) attributable
interests in cable television systems within each of the markets served by the
Company's television stations, and (ii) non-attributable interests in
television stations operating within certain of the markets served by the
Company's television stations. In addition, a limited partner of one of the
Company's stockholders holds attributable interests in cable television
systems within two of the markets served by the Company's television stations.
Pursuant to the Initial FCC Consent, these interests in the Company were
deemed not to be attributable under FCC rules and not to be "meaningful" for
purposes of the cross-interest policy. See "Risk Factors--Government
Regulation."
Foreign Ownership Restrictions
The Communications Act authorizes the FCC, if the FCC determines that it
would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of
the capital stock is owned of record or voted by Aliens. The FCC has issued
interpretations of existing law under which these restrictions in modified
form apply to other forms of business organizations, including partnerships.
In the Initial FCC Consent, the FCC held that 22.67% of the capital stock of
the Company is indirectly owned of record by aliens and that 23.26% of the
voting stock of the Company is indirectly voted by Aliens. If the FCC
ultimately determines that more than 25% of the capital stock of the Company
is indirectly owned of record or voted by Aliens, the Stockholders are
prepared to restructure their respective investment in the Company or take any
other action necessary to reduce the indirect Alien ownership in the Company
to no more than 25%. See "Risk Factors--Foreign Ownership Restrictions."
Coverage and Must-Carry Rights
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, television broadcasters are required to make triennial elections to
exercise either certain "must-carry" or "retransmission consent" rights in
connection with their carriage by cable systems in each broadcaster's local
market. By electing must-carry rights, a broadcaster demands carriage on a
specified channel on cable systems within its Area of Dominant Influence
("ADI"), as defined by the Arbitron 1991-92 Television Market Guide. However,
these must-carry rights are not absolute, but are dependent on variables such
as the number of activated channels on, and the location and size of, the
cable system, the amount of duplicative programming on a broadcast station,
the channel positioning demands of other broadcast stations and the signal
quality of the stations at the cable system's principal headend.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for
a fee or other consideration. LPTVs have very limited must-carry rights,
although cable systems cannot retransmit LPTV stations' signals without their
consent. The Company's owned and operated full-power stations have elected
must-carry rights.
A number of the Company's stations serving several markets and many of the
Network Company's affiliates are classified by the FCC as "low-power"
stations. Certain of the Company's owned and operated stations and the Network
Company's affiliates increase their coverage through use of "translators" that
rebroadcast the station's signal. Both low-power and translator stations are
referred to as "LPTV" stations and generally operate at significantly lower
levels of power than full-power stations. Under FCC rules, in addition to its
policies regarding DTV, such LPTV stations operate on a secondary basis, and,
therefore, are subject to displacement by a full-power station or other
facility if one is licensed and they must tolerate defined levels of
electromagnetic interference from full-power stations.
Recent and Proposed Legislation; Proposed Rulemaking
On February 17, 1998, the FCC adopted a final table of digital channel
allotments and rules for the implementation of DTV service (including high-
definition television) in the United States. The digital table of
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allotments provides each existing full power television station licensee or
permittee with a second broadcast channel to be used during the transition to
DTV, conditioned upon the surrender of one of the channels at the end of the
DTV transition period. The implementing rules permit broadcasters to use their
assigned digital spectrum flexibly to provide either standard or high-
definition video signals and additional services, including, for example, data
transfer, subscription video, interactive materials and audio signals, subject
to the requirement that they continue to provide at least one free, over-the-
air television service. The FCC has set a target date of 2006 for expiration
of the transition period, subject to biennial reviews to evaluate the progress
of DTV, including the rate of consumer acceptance. Conversion to DTV may
reduce the geographic reach of the Company's stations or result in increased
interference, with, in either case, a corresponding loss of population
coverage. DTV implementation will impose additional costs on the Company,
primarily due to the capital costs associated with construction of DTV
facilities and increased operating costs both during and after the transition
period. In addition, on July 10, 1998, the FCC initiated a rulemaking
proceeding to determine how the must-carry rule will be applied to the digital
broadcast channel assigned to each current full power television station
licensee. The Company cannot predict the effect this proceeding will have on
the cable carriage of the Company's full power television stations. Also,
pursuant to the Telecommunications Act, on November 19, 1998, the FCC adopted
rules that require broadcasters to pay the United States Treasury a fee of
five percent of gross revenues received from ancillary or supplementary uses
of their DTV spectrum for which the broadcasters charge subscription fees or
other compensation. The FCC has maintained the secondary status of LPTV
stations in connection with its implementation of a channel allotment plan for
DTV, but has announced steps to assist LPTV stations that are displaced or
otherwise affected by DTV operations, including affording procedural
protections to LPTV stations that seek to relocate to a new channel to
eliminate interference to or from an allotted full service DTV facility.
Pursuant to the Children's Television Act of 1990, the amount of commercial
matter that may be broadcast during the programming designed for children 12
years of age and younger has been limited to 12 minutes per hour on weekdays
and 10.5 minutes per hour on weekends. In addition, television stations are
required to broadcast a minimum of three hours per week of "core" children's
educational programming, which the FCC defines as programming that (i) has
serving the educational and informational needs of children 16 years of age
and under as a significant purpose; (ii) is regularly scheduled, weekly and at
least 30 minutes in duration; and (iii) is aired between the hours of 7:00
a.m. and 10:00 p.m. A television station found not to have complied with the
"core" programming requirements or the children's commercial limitations could
face sanctions, including monetary fines and the possible non-renewal of its
broadcasting license.
The Telecommunications Act directed the broadcast and cable television
industries to develop and transmit an encrypted rating in all video
programming that, when used in conjunction with the so-called "V-Chip"
technology, would permit the blocking of programs with a common rating. On
March 12, 1998, the FCC voted to accept an industry proposal providing for a
voluntary ratings system of "TV Parental Guidelines" under which all video
programming will be designated in one of six categories in order to permit the
electronic blocking of selected video programming. The FCC has begun a
separate proceeding to address technical issues related to the "V-Chip." The
FCC has directed that all television receiver models with picture screens 13
inches or greater be equipped with "V-Chip" technology under a phased
implementation beginning on July 1, 1999. The Company cannot predict how
changes in the implementation of the ratings system and "V-Chip" technology
will affect the Company's business.
The FCC's closed captioning rules, which became effective January 1, 1998,
provide for the phased implementation of a universal on-screen captioning
requirement with respect to the vast majority of video programming. Program
distributors, including television stations and cable systems, are generally
responsible for compliance with the captioning rules. The Company's owned and
operated stations and the Network Company's other affiliates are required to
comply with the closed captioning rules which take effect in phases over a 14-
year transition period.
Under certain copyright laws, the signals of broadcast television stations
that can be received by viewers over-the-air cannot be retransmitted to those
viewers by satellite video providers without the prior consent of
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parties holding copyrights to the underlying programming. However, the
Satellite Home Viewer Act creates a statutory copyright license that permits
satellite video providers to retransmit to subscribers the signals of certain
broadcast television stations or networks that cannot be received by those
subscribers over-the-air. On November 17, 1998, the FCC initiated a rulemaking
proceeding to more clearly define the standard that should be used by
satellite video providers, under the Satellite Home Viewer Act, to determine
if a subscriber receives a given broadcast television signal over-the-air. It
is not possible to predict how the ultimate outcome of this proceeding will
affect the Company's business.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modify existing laws and regulations and policies
regarding a wide variety of matters, including the adoption of attribution
rules which would further restrict broadcast station ownership, that could
directly or indirectly adversely affect the ownership and operation of the
Company's broadcast properties, as well as the Company's business strategies.
The adoption of various measures could accelerate the existing trend toward
vertical integration in the media and home entertainment industries and cause
the Company to face more formidable competition in the future. The
Telecommunications Act modified or eliminated restrictions on the offering of
multiple network services by the existing major television networks,
restrictions on the participation by the regional telephone operating
companies in cable television and other direct-to-home video technologies, and
certain restrictions on broadcast station ownership. The Company is unable to
predict whether these or other potential changes in the regulatory environment
could restrict or curtail the ability of the Company to acquire, operate and
dispose of stations or, in general, to compete profitably with other operators
of television stations and other media properties.
The laws, rules, regulations and interpretations governing the Company's
business are revised from time to time and it is not possible to predict the
effect that future regulatory changes will have on the Company's business.
Environmental Matters
Under certain environmental laws, a current or previous owner of real
property, and parties that generate or transport hazardous substances that are
disposed of at real property, may be liable for the costs of investigating and
remediating such substances on or under the property. The federal
Comprehensive Environmental Response, Compensation & Liability Act, as amended
("CERCLA"), and similar state laws, impose liability on a joint and several
basis, regardless of whether the owner, operator, or other responsible party
was at fault for the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which
property may be used or businesses may be operated, and these restrictions may
require expenditures for compliance. In connection with the ownership or
operation of its facilities, the Company could be liable for such costs in the
future.
The Company currently is not aware of any material environmental claims
pending or threatened against it, and does not believe it is subject to any
material environmental remediation obligations. However, no assurance can be
given that a material environmental claim or compliance obligation will not
arise in the future. The cost of defending against any claims of liability, of
remediating a contaminated property, or of complying with future environmental
requirements could impose material costs on the Company.
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Properties
The table below sets forth the Company's principal properties as of December
31, 1998. Except where otherwise indicated, the Company expects to exercise
renewal options for leases expiring in 1998.
<TABLE>
<CAPTION>
Lease/Option
Station Location Use Owned/Leased Size (Sq. Ft.) Expiration
- ------- --------------------- ------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
WSCV Hialeah, FL Office & studio(1) Leased 25,000 2000/2004
Transmission tower site Leased 2004/2011
WNJU Hasbrouck Hts, NJ Office & studio(2) Leased 15,000 1999/2004
Transmission tower site(3) Leased 2004
KVEA Glendale, CA Office & studio Leased 32,000 2002
Transmission tower site Leased (4)
KTMD Houston, TX Office & studio Leased 17,000 2003
Transmission tower site Owned
KSTS San Jose, CA Office & studio Leased 16,000 2003
Transmission tower site(5) Leased 1999
WSNS Chicago, IL Office & studio Owned 21,000
Transmission tower site Leased 2009/2019
KVDA San Antonio, TX Office & studio Owned 20,000
Transmission tower site Owned
WKAQ San Juan, Puerto Rico Office & studio Owned 180,000
Transmission tower site(6) Leased 2009
</TABLE>
- --------
(1) WSCV also shares additional space in the Network Company's operations
center in Hialeah, Florida.
(2) WNJU also shares space in the Network Company's national sales offices in
New York, New York.
(3) Located on the top of the World Trade Center in New York, New York.
(4) The Company currently uses this site pursuant to an oral lease and expects
to execute a written lease which will expire in 2003, with options to
extend until 2013.
(5) Relocating to an alternative transmitter and antenna site in San Jose,
California in 1999.
(6) Located on property owned by the Department of Natural Resources of the
Commonwealth of Puerto Rico.
In addition, the Company is in the process of negotiating a lease for
corporate offices in Glendale, California where the Company currently occupies
space. The Company also leases various properties throughout the country for
LPTVs. None of these lease commitments are material to the Company.
Employees
As of December 31, 1998, the Company and its subsidiaries had approximately
790 full-time employees, approximately 215 of whom were employees of WKAQ in
Puerto Rico. Approximately 60 employees of KVEA, 60 employees of WNJU, 30
employees of KSTS, 120 employees of WKAQ and 30 employees of WSNS are covered
by union contracts. The Company believes its relations with its employees and
unions are satisfactory.
Legal Proceedings
The Company is aware of six lawsuits that have been filed relating to the
Merger. Telemundo and its directors are defendants in all of the lawsuits.
Certain of Telemundo's significant stockholders are defendants in
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two of the lawsuits. All of the lawsuits were filed by stockholders of
Telemundo not affiliated with the Company or its affiliates, seeking to
represent a putative class of all such stockholders. All of the lawsuits were
filed in the Delaware Court of Chancery. On March 5, 1998, the six actions
were consolidated for all purposes, and the complaint entitled Mimona Capital,
CA No. 16052-NC was designated as the sole operative complaint for the
consolidated action.
The complaint asserts that the $44.00 per share price to be paid to the
stockholders of Telemundo is inadequate and is not the result of arm's-length
negotiations and that the Merger Agreement serves no legitimate business
purpose. The complaint also alleges that the defendants breached their
fiduciary duties in approving the Merger Agreement.
The complaint seeks preliminary and injunctive relief prohibiting Telemundo
from, among other things, consummating the Merger. To date no motion to enjoin
any of the proceedings contemplated by the Merger Agreement has been made. The
complaint also seeks unspecified damages, attorneys' fees and other relief. To
date none of the defendants has been required to answer, move or otherwise
respond to the complaint and no discovery has been taken. Telemundo believes
that the allegations contained in the complaint are without merit and intends
to contest the action vigorously. The individual defendants have advised the
Company that they also believe that the allegations in the complaint are
without merit and that they intend to contest the action vigorously. There can
be no assurance that the result of such litigation will not have a material
adverse effect on the Company's consolidated results of operations or
financial condition.
The Company and its subsidiaries are involved in a number of other actions
arising out of the ordinary course of business and are contesting the
allegations of the complaints in each pending action and believe, based on
current knowledge, that the outcome of all such actions will not have a
material adverse effect on the Company's consolidated results of operations or
financial condition.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of each executive
officer and director of Holdings:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Roland A. Hernandez...... 41 President, Chief Executive Officer and Director
Peter J. Housman II...... 47 Chief Financial Officer and Treasurer
Osvaldo F. Torres........ 37 Vice President, General Counsel and Secretary
Vincent L. Sadusky....... 33 Vice President, Finance
Leon D. Black............ 47 Director
Guillermo Bron........... 47 Director
Brian D. Finn............ 38 Director
Yair Landau.............. 34 Director
Enrique F. Senior........ 55 Director
Bruce H. Spector......... 56 Director
Barry Thurston........... 57 Director
Edward M. Yorke.......... 40 Director
</TABLE>
Roland A. Hernandez. Mr. Hernandez has been President, Chief Executive
Officer and a Director of Holdings since August 1998. Mr. Hernandez has been a
Director of Telemundo from 1989 to August 1998 and has been President and
Chief Executive Officer of Telemundo since March 1995. Since November 1997,
Mr. Hernandez has been an executive officer of HIC Broadcast, Inc. ("HIC"),
which owns Spanish-language television station KFWD, Channel 52, a Telemundo
affiliate serving the Dallas/Fort Worth market. From 1987 to 1997, Mr.
Hernandez was an executive officer of the corporate general partner of
Interspan Communications ("Interspan"), the predecessor to HIC. Mr. Hernandez
is a Director of Wal-Mart Stores, Inc. and Owens Corning.
Peter J. Housman II. Mr. Housman has been the Chief Financial Officer and
Treasurer of Holdings since August 1998 and the Chief Financial Officer and
Treasurer of Telemundo since February 1987.
Osvaldo F. Torres. Mr. Torres has been Vice President, General Counsel and
Secretary of Holdings since August 1998 and Vice President, General Counsel
and Secretary of Telemundo since May 1997. From May 1996 to May 1997, Mr.
Torres served as Associate General Counsel and Secretary of Telemundo. From
February 1995 to May 1996, Mr. Torres served as an associate in the law firm
of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., in West Palm Beach,
Florida. From February 1989 to February 1995, Mr. Torres served as an
associate in the law firm of Schulte Roth & Zabel in New York City.
Vincent L. Sadusky. Mr. Sadusky has been Vice President, Finance of Holdings
since November 1998. From March 1994 to November 1998, Mr. Sadusky held
various financial positions with Telemundo, most recently as Vice President
Finance of the Telemundo Network and of Telemundo's owned and operated
stations. From 1986 to March 1994, Mr. Sadusky served in the accounting firm
of Ernst & Young LLP, most recently as a Manager.
Leon D. Black. Mr. Black has been a Director of Holdings since August 1998
and has been Chairman of the Board of Directors of Telemundo from December 30,
1994 to August 1998. Mr. Black is one of the founding principals and, since
its formation, has been a limited partner of Apollo Advisors, L.P. ("Apollo
Advisors"), which was established in 1990 and which, together with its
affiliates, acts as managing general partner of Apollo Investment Fund, L.P.,
AIF II, L.P., Apollo Investment Fund III, L.P. and Apollo Investment Fund IV,
L.P., private securities investment funds. Mr. Black is also a founding
principal of Lion Advisors, L.P., ("Lion Advisors") which acts as financial
advisor to and representative for certain institutional investors with respect
to securities investments. Mr. Black is also a Director of Converse, Inc.,
Samsonite Corporation and Vail Resorts, Inc.
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<PAGE>
Guillermo Bron. Mr. Bron has been a Director of Holdings since August 1998
and has been a Director of Telemundo from December 30, 1994 to August 1998.
From July 1993 to present, Mr. Bron has been an officer, director and
principal stockholder of the corporate general partner of Bastion Partners,
which is the general partner of Bastion. Mr. Bron is a Director of United
PanAm Financial Corp.
Brian D. Finn. Mr. Finn has been a Director of Holdings since August 1998.
Mr. Finn joined Clayton, Dubilier & Rice, Inc., a private investment firm, in
1997 as principal. From 1993 to 1997, Mr. Finn was a Managing Director and Co-
Head of Mergers & Acquisitions at Credit Suisse First Boston. Mr. Finn is also
a director of Dynatech Corporation.
Yair Landau. Mr. Landau has been a Director of Holdings since August 1998.
Since October 1997, Mr. Landau has served as Executive Vice President,
Corporate Development and Strategic Planning of Sony Pictures. From January
1997 to September 1997, Mr. Landau was Senior Vice President, Corporate
Development and Strategic Planning. Mr. Landau joined Sony Pictures in May
1991 as Director, Financial Planning and Analysis, and was promoted to Vice
President, Business Planning, for Sony Pictures' motion picture operations in
September 1992. Mr. Landau served in that capacity until January 1997.
Enrique F. Senior. Mr. Senior has been a Director of Holdings since August
1998. Mr. Senior is a Managing Director and Executive Vice President of Allen
& Company, Incorporated, having joined Allen & Company in 1973. Mr. Senior is
a Director of Princeton Video Image, Inc. and dick clark productions, inc.
Bruce H. Spector. Mr. Spector has been a Director of Holdings since August
1998 and has been a Director of Telemundo from December 30, 1994 to August
1998. From 1992 to 1995, Mr. Spector was a consultant to Apollo Advisors. In
March 1995, Mr. Spector became a principal of Apollo Advisors. For 25 years
prior to 1992, Mr. Spector was a member of the Los Angeles law firm of Stutman
Triester & Glatt. Mr. Spector is also a Director of Metropolis Realty Trust,
Inc., Nexthealth, Inc., United International Holdings, Inc. and Vail Resorts,
Inc.
Barry Thurston. Mr. Thurston has been a Director of Holdings since August
1998. Mr. Thurston has served as President of Columbia TriStar Television
Distribution and its predecessors since 1986. In this capacity, Mr. Thurston
is responsible for the domestic distribution to television outlets of all Sony
Pictures' television and feature film product.
Edward M. Yorke. Mr. Yorke has been a Director of Holdings since August 1998
and has been a Director of Telemundo since June 1995. Since August 1998, Mr.
Yorke has been a Managing Director and principal of Donaldson, Lufkin &
Jenrette Securities Corporation. From 1992 to August 1998, Mr. Yorke was a
principal of Apollo Advisors and Lion Advisors. Mr. Yorke is also a Director
of Aris Industries, Inc., and Salant Corporation.
Pursuant to the Stockholders Agreement, Station Partners, Sony Pictures and
Liberty have agreed to elect nine directors to the Board of Directors of
Holdings, of which four directors would be designated by Station Partners, two
directors would be designated by Sony Pictures, one director would be
nominated by Liberty, subject to the approval of a majority of the outstanding
shares of common stock of the Company held by stockholders other than Liberty,
and two directors would be designated as independent. One of the independent
directors would be nominated by Station Partners, subject to the approval of
Liberty and Sony Pictures, and the other independent director would be
nominated by Liberty and Sony Pictures, subject to the approval of Station
Partners. Station Partners has designated Messrs. Black, Bron, Hernandez and
Spector as directors, Sony Pictures has designated Messrs. Landau and Thurston
as directors and Mr. Finn has been nominated by Liberty. Messrs. Senior and
Yorke have been selected as the independent directors. The Stockholders
Agreement also requires that certain Major Decisions receive the unanimous
approval of each of Station Partners, Sony Pictures and Liberty. See "Certain
Relationships and Related Transactions--Transactions Related to the Merger--
Stockholders Agreement."
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the years ended December 31,
1998, 1997, and 1996 paid to (a) the Chief Executive Officer, (b) the other
three most highly compensated executive officers of the Company during 1998
and (c) the two most highly compensated executive officers of Telemundo who
were not employees of the Company at December 31, 1998 (collectively, the
"Named Executive Officers"). Mr. Tringali became an executive officer of
Telemundo in 1996. The amounts shown in the table for periods prior to August
13, 1998 reflect payments for services rendered to Telemundo.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards (#)
---------------------- ------------
Annual Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position During 1997 Year ($) ($)(1) Options (#) ($)(2)
- --------------------------------------- ---- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roland A. Hernandez...... 1998 782,700 733,333 0 7,140
President and Chief 1997 700,000 0 30,000 8,438
Executive Officer 1996 700,000 913,889 0 8,615
Peter J. Housman II...... 1998 387,000 366,666 0 7,140
Chief Financial Officer 1997 325,000 0 30,000 6,233
and Treasurer 1996 325,000 186,506 0 7,733
Osvaldo F. Torres........ 1998 177,400 52,500 0 5,587
Vice President, General 1997 142,900 30,000 15,000 4,750
Counsel and Secretary 1996 84,200 16,000 0 0
Vincent L. Sadusky....... 1998 120,700 37,500 0 5,303
Vice President, Finance 1997 102,700 30,000 15,000 4,750
1996 85,100 17,500 0 3,419
Steven J. Levin.......... 1998 242,100(3) 266,666 0 6,382(3)
Executive Vice President 1997 344,900 0 30,000 6,233
1996 315,500 331,566 0 7,733
Donald J. Tringali....... 1998 242,100(3) 266,666 0 6,382(3)
Executive Vice President 1997 344,900 0 30,000 3,502
1996 177,000(4) 261,486 75,000 742(4)
</TABLE>
- --------
(1) Bonus amounts represent compensation for services for the respective years
shown.
(2) The following amounts are included in the above table. Retirement
contributions and matching 401(k) contributions: Mr. Hernandez--$6,600 for
1998, $4,750 and $6,250 for 1996; Mr. Housman--$6,600 for 1998, $4,750 for
1997 and $6,250 for 1996; Mr. Torres--$5,047 for 1998, $4,750 for 1997 and
$0 for 1996; Mr. Sadusky--$4,828 for 1998, $4,750 for 1997 and $3,419 for
1996; Mr. Levin--$6,067 for 1998, $4,750 for 1997 and $6,250 for 1996; and
Mr. Tringali--$6,067 for 1998, $2,019 for 1997 and $0 for 1996. Life
insurance premium payments: Mr Hernandez--$540 for 1998, $3,688 for 1997
and $3,848 in 1996; Mr. Housman--$540 for 1998 and $1,483 in each of 1997
and 1996; Mr. Torres--$540 for 1998 and $0 in each of 1997 and 1996; and
Mr. Sadusky--$475 for 1998 and $0 in each of 1997 and 1996; Mr. Levin--
$315 for 1998 and $1,483 in each of 1997 and 1996; and Mr. Tringali--$315
for 1998, $1,483 in 1997 and $742 in 1996.
(3) In connection with the Merger, as of August 13, 1998, Messrs. Levin and
Tringali became employees of the Network Company. The 1998 compensation
amounts for Mr. Levin and Mr. Tringali represent compensation for services
rendered to Telemundo through August 12, 1998.
(4) From May 1995 through May 1996, Mr Tringali served as a consultant to
Telemundo. Consulting fees paid to Mr. Tringali in 1996 amounted to
$130,800.
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Option Grants in 1998
No options were granted by Holdings or Telemundo in 1998.
Aggregated Option Exercises in 1998 and Year-End Option Value
No options were exercised in 1998. However, in connection with the Merger,
on August 12, 1998, all of the unexercised options outstanding held by the
Named Executive Officers immediately prior to the Effective Time (as defined
in the Merger Agreement) (whether or not such option was then exercisable)
were converted into the right to receive, subject to any required withholding
taxes, the following cash payments: Mr. Hernandez--$17,800,513 for 542,500
shares underlying such options; Mr. Housman--$1,786,279 for 80,000 shares
underlying such options; Mr. Torres--$202,505 for 15,000 shares underlying
such option; Mr. Sadusky--$202,505 for 15,000 shares underlying such options;
Mr. Levin--$1,957,529 for 80,000 shares underlying such options; and Mr.
Tringali--$1,867,538 for 105,000 shares underlying such options.
Directors Compensation
Prior to the Merger, each of the directors of Telemundo, other than Mr.
Hernandez, serving on the Board of Directors of Telemundo received for
services as a director (i) $10,000 as an annual retainer, (ii) $2,500 for each
regularly scheduled Board meeting attended, (iii) $1,000 annual fee for
serving on each committee such director served on, (iv) $1,000 for each
extraordinary meeting of the Board attended and (v) an annual grant of options
to purchase 2,500 shares of Series A Common Stock, which options were granted
on the date of Telemundo's annual meeting, vested over a period of three years
and were exercisable at the market price on the grant date. In connection with
the Merger, all of the unexercised options outstanding immediately prior to
the Effective Time (whether or not such option was then exercisable) were
converted into the right to receive, subject to any required withholding
taxes, a cash payment equal to the product of (i) the total number of shares
then subject to each such option multiplied by (ii) the excess of the Merger
Consideration over the exercise price per share subject to such option, which
payment was made in connection with the Merger.
The directors of Holdings are expected to receive usual and customary
compensation for their services.
Compensation Committee Interlocks and Insider Participation
Prior to the Merger, the members of the Compensation Committee of Telemundo
were Barry W. Ridings, Bruce H. Spector and Edward M. Yorke. None of the
members of the Compensation Committee has ever served as an officer or
employee of Telemundo, nor has any such member served as a member of a
compensation committee or other board of directors' committee performing
similar functions of any other entity in 1997 except that Mr. Spector served
on the compensation committee for United International Holdings, Inc.
Employment Agreements
Mr. Hernandez's employment agreement with Telemundo, dated as of March 9,
1995, as amended, remains in effect until February 28, 2001 and automatically
extends for additional one-year terms thereafter unless either party elects to
terminate the agreement. The amended employment agreement provides for an
annual base salary of $700,000 until February 28, 1998 and $800,000 during the
remainder of his term of employment. Mr. Hernandez will be eligible for annual
bonuses for each of the 1998, 1999, 2000 and 2001 fiscal years up to 100% of
his base salary, in each case, if Telemundo achieves certain EBITDA targets.
Mr. Housman's employment agreement with Telemundo, dated as of March 7,
1997, as amended, remains in effect until February 28, 2001 and automatically
extends for additional one-year terms thereafter unless either party elects to
terminate the agreement. The agreement provides for an annual base salary of
$325,000 until February 28, 1998 and $400,000 during the remainder of his term
of employment. Mr. Housman will be eligible for annual bonuses of up to 100%
of his base salary for the 1998, 1999, 2000 and 2001 fiscal years, in each
case, if Telemundo achieves certain EBITDA targets.
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In addition to the specific provisions described above, the employment
agreements, as amended, for Messrs. Hernandez and Housman each contain the
provisions set forth below. If such executive's employment is terminated
because of death, disability or other event rendering the applicable executive
unable to perform his duties and obligations under the agreement, in addition
to his base salary and certain benefits through the date of termination,
Telemundo is obligated to pay such executive a bonus, if earned, for the year
in which such termination occurred. If such an executive is terminated for
"cause" (as defined in the applicable employment agreement) or such an
executive resigns without "good reason" (as defined in the applicable
employment agreement) pursuant to a resignation that is not a "specified
resignation" (as defined in the applicable employment agreement), Telemundo is
obligated to pay such executive only his base salary and certain other
benefits through the date of termination or resignation. The agreements
provide that if the executive is terminated by Telemundo "without cause" or by
the executive for "good reason" (each as defined in the applicable employment
agreement), the executive will be entitled to receive through an entitlement
date that is the later of February 28, 2001 or the first anniversary of the
date of termination of the executive's employment, (i) his base salary, (ii)
his bonus for the fiscal year in which such termination occurs and (iii) his
benefits (or reimbursement of the cost thereof) under his employment
agreement. These employment agreements also provide that if (a) there is a
"change of control transaction" (as defined in the applicable employment
agreement), (b) the applicable executive is offered a position allowing him to
keep his title with the successor to all or any part of Telemundo's business
and (c) a "diminution in duty" (as defined in the applicable employment
agreement) would have occurred but for the offer of a position as described in
clause (b) above, then the applicable executive will have the option of
declining the position offered as described in clause (b) above and instead
modifying his position to a position (but not senior to that offered) that has
such work location, time commitment, duties, responsibilities and terms as the
applicable executive officer may specify in his sole and absolute discretion
after consultation with Telemundo. In addition, the employment agreements
provide for "specified resignation rights" (as defined in the applicable
employment agreement) which allow the executive, during the one-month period
beginning 14 months after a change of control transaction, to terminate his
employment for any reason whatsoever; any such termination will be treated as
if it were a termination for "good reason" (the consequences of which are
described above). The consummation of the Merger constituted a "change of
control transaction."
Mr. Torres' employment agreement with Telemundo, dated as of September 10,
1997 remains in effect until December 31, 1999 and automatically extends for
additional one-year terms thereafter unless either party elects to terminate
the agreement. The agreement provides for a current annual base salary of
$200,000. For the period beginning on May 14, 1999 and ending on December 31,
1999, the base salary will be mutually agreed upon by Mr. Torres and
Telemundo, but in no event will the base salary increase be less than ten
percent of the then current base salary. For the 1998 and 1999 fiscal years,
Mr. Torres is entitled to a performance bonus equal to fifteen percent of his
base salary. The performance bonus is awarded based solely upon an assessment
of Mr. Torres' performance of his duties, without regard to the financial
condition or performance of Telemundo. For the 1998 and 1999 fiscal years, Mr.
Torres is also entitled to a bonus based upon Telemundo's achievement with
respect to EBITDA targets. Mr. Torres has the right to resign without "good
reason" (as defined in the employment agreement) and terminate the employment
agreement at any time within six months after a "change of control
transaction" (as defined in the employment agreement) occurs and is entitled
to receive (i) his base salary earned up to the date of resignation and (ii)
all benefits due up to the date of resignation. Mr. Torres also has the right
to terminate the employment agreement if a "diminution in duty," a "designated
relocation," or any other "good reason event" (each as defined in the
employment agreement) occurs and is entitled to receive (i) his base salary
earned through the later of December 31, 1999 or six months after the date of
termination of his employment, (ii) his bonus, if any, earned for the fiscal
year in which such termination occurs and (iii) all benefits to which he is
entitled through the later of December 31, 1999 or six months after the date
of termination of his employment. The consummation of the Merger constituted a
"change of control transaction."
Mr. Sadusky's employment agreement with Telemundo, dated as of September 10,
1997 remains in effect until December 31, 1999 and automatically extends for
additional one-year terms thereafter unless either party elects to terminate
the agreement. The agreement currently provides for an annual base salary of
$150,000. For the period beginning on July 24, 1999 and ending on December 31,
1999, the base salary will be mutually agreed
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<PAGE>
upon by Mr. Sadusky and Telemundo, but in no event will the base salary
increase be less than ten percent of the then current base salary. For the
1998 and 1999 fiscal years, Mr. Sadusky is entitled to a performance bonus
equal to fifteen percent of his base salary. The performance bonus is awarded
based solely upon an assessment of Mr. Sadusky's performance of his duties,
without regard to the financial condition or performance of Telemundo. For the
1998 and 1999 fiscal years, Mr. Sadusky is also entitled to a bonus based upon
Telemundo's achievement with respect to EBITDA targets. Mr. Sadusky has the
right to resign without "good reason" (as defined in the employment agreement)
and terminate the employment agreement at any time within six months after a
"change of control transaction" (as defined in the employment agreement)
occurs and is entitled to receive (i) his base salary earned up to the date of
resignation and (ii) all benefits due up to the date of resignation. Mr.
Sadusky also has the right to terminate the employment agreement if a
"diminution in duty," a "designated relocation," or any other "good reason
event" (each as defined in the employment agreement) occurs and is entitled to
receive (i) his base salary earned through the later of December 31, 1999 or
six months after the date of termination of his employment, (ii) his bonus, if
any, earned for the fiscal year in which such termination occurs and (iii) all
benefits to which he is entitled through the later of December 31, 1999 or six
months after the date of termination of his employment. The consummation of
the Merger constituted a "change of control transaction."
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1998, the number and
percentage of outstanding shares of voting stock of Holdings beneficially
owned by: (i) each executive officer and director of Holdings; (ii) all
executive officers and directors of Holdings as a group; and (iii) each person
known by Holdings to own beneficially more than five percent of Holdings'
voting stock, respectively. Holdings believes that each individual or entity
named has sole investment and voting power with respect to shares of voting
stock of Holdings indicated as beneficially owned by them, except as otherwise
noted.
<TABLE>
<CAPTION>
Number of Percent
Name and Address of Beneficial Owner Shares of Class
------------------------------------ --------- --------
<S> <C> <C>
5% Owners:
Station Partners, LLC(1)(2)............................... 7,505 75.05%
c/o Apollo Management, L.P.
1301 Avenue of the Americas
New York, New York 10019
Liberty Media Corporation(2).............................. 2,495 24.95%
8101 East Prentice Avenue
Englewood, Colorado 80111
Sony Pictures Entertainment Inc........................... 2,495 24.95%
10202 West Washington Boulevard
Culver City, California 90232-3195
Executive Officers and Directors:
Roland A. Hernandez....................................... -- --
Peter J. Housman II....................................... -- --
Osvaldo F. Torres......................................... -- --
Vincent L. Sadusky........................................ -- --
Leon D. Black (3)......................................... -- --
Guillermo Bron (4)........................................ -- --
Brian D. Finn............................................. -- --
Yair Landau (5)........................................... -- --
Enrique F. Senior......................................... -- --
Bruce H. Spector (3)...................................... -- --
Barry Thurston (5)........................................ -- --
Edward M. Yorke........................................... -- --
All directors and officers as a group(6).................. -- --
</TABLE>
- --------
(1) Stations Partners is owned approximately 68% by Apollo Investment and
approximately 32% by Bastion. Apollo Investment is a Delaware limited
partnership of which Apollo Advisors II, L.P., a Delaware limited
partnership ("Advisors II"), is the managing general partner. Apollo
Capital Management II, Inc., a Delaware corporation ("Apollo Capital II"),
is the general partner of Advisors II. Apollo Management L.P., a Delaware
limited partnership ("Apollo Management"), serves as manager of Apollo
Investment. AIF III Management, Inc., a Delaware corporation ("AIM"), is
the general partner of Apollo Management. Mr. Leon Black, a director of
Holdings, is a director and stockholder of Apollo Capital II, a director
of AIM and one of the founding principals and a limited partner of Apollo
Investment. Mr. Bruce Spector, currently a director of Holdings, is a
principal of Apollo Management and Advisors II and a Vice President of
Apollo Capital II. Bastion Capital Fund, L.P. is a Delaware limited
partnership. The sole general partner of Bastion Capital Fund, L.P. is
Bastion Partners, L.P., a Delaware limited partnership ("Bastion
Partners"). The general partners of Bastion Partners are Bron Corp., a
Delaware corporation ("BC"), and Villanueva Investments, Inc., a Delaware
corporation ("VII"). The sole holder of voting stock and the sole director
and officer of BC is Mr. Guillermo Bron, currently a director of Holdings.
The sole holder of voting stock of VII is the Daniel Villanueva Living
Trust, a trust created under the laws of California, the co-trustees of
which are Daniel D. Villanueva and Myrna E. Villanueva. Mr. Villanueva, a
director of Telemundo prior to the Merger, is the sole director and
principal officer of VII. Messrs. Bron and Villanueva are the managing
directors of Bastion Capital Corp., which manages the affairs of Bastion
pursuant to a management agreement.
(2) Liberty has granted to Station Partners a proxy to vote all of the shares
of common stock of Holdings owned by Liberty. As a result of such proxy,
Liberty is not entitled to vote any of the shares of common stock of
Holdings owned by it. Such shares are included in the amount shown as
beneficially owned by Station Partners in the table above.
(3) Messrs. Black and Spector are associated with Apollo Management, the
manager of Apollo Investment, and disclaim beneficial ownership of all
shares of Holdings held by Station Partners.
(4) Mr. Bron is associated with Bastion and disclaims beneficial ownership of
all shares of Holdings held by Station Partners.
(5) Messrs. Landau and Thurston are associated with Sony Pictures and disclaim
beneficial ownership of all shares of Holdings held by Sony Pictures.
(6) Excludes shares shown in the table above as held by Station Partners,
Liberty and Sony Pictures.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Related to the Merger
Merger Agreement
On August 12, 1998, the Merger was consummated in accordance with the Merger
Agreement pursuant to which TLMD Acquisition was merged with and into
Telemundo, with Telemundo being the surviving corporation and becoming a
wholly owned subsidiary of Holdings. In the Merger, each outstanding share of
Common Stock (other than shares of Common Stock held by Holdings, TLMD
Acquisition or any other wholly owned subsidiary of Holdings, or in the
treasury of Telemundo or by any wholly owned subsidiary of Telemundo, all of
which were canceled with no payment being made with respect thereto, or by
stockholders of Telemundo who exercised and perfected their statutory
appraisal rights under Delaware law) were converted into the right to receive
$44.00 in cash, including an increase of 8% per annum (approximately $0.29 per
share per month) during the period commencing on July 30, 1998 and ending on
August 11, 1998. Such increase was funded 50% by an increase in the price paid
to Holdings pursuant to the Network Sale and 50% by increases in the Equity
Contributions.
Consummation of the Merger was subject to various conditions, including
receipt of the Initial FCC Consent, which was received on July 30, 1998,
consummation of the Offering and the New Credit Facilities (or Holdings
securing financing pursuant to alternative financing arrangements) and the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Telemundo
received notice of the early termination of the HSR waiting periods with
respect to all of the applications filed by Telemundo, Holdings and certain of
Holdings' affiliates.
On June 16, 1998, at a special meeting of the stockholders of Telemundo, the
stockholders voted to approve and adopt the Merger Agreement and the related
transactions, with 9,424,027 votes cast in favor of approving and adopting the
Merger Agreement and the related transactions, representing 91.79% of the
total shares outstanding entitled to vote at the meeting, and 5,165 votes cast
against.
Equity Contributions
Pursuant to a funding agreement, dated as of November 24, 1997, Station
Partners, Liberty and Sony Pictures made equity contributions to Holdings in
the amounts of $137.2 million (of which $93.3 million was funded by Apollo
Investment and $43.9 million was funded by Bastion), $68.4 million and $68.4
million, respectively. The commitments to make the foregoing equity
contributions were conditioned upon all conditions to the Company's
obligations to consummate the Merger having been fulfilled or waived and the
expiration or termination of the waiting period under the HSR Act.
Network Sale and Affiliation Agreement
In connection with the Merger, the Company sold its network operations,
which consisted of substantially all of the programming and production assets
of the Telemundo Network, to the Network Company. The Network Company is
equally owned by an affiliate of Sony Pictures and an affiliate of Liberty.
Sony Pictures and Liberty each own 24.95% of Holdings. The proceeds of the
Network Sale were contributed to TLMD Acquisition and Telemundo, and were used
to fund the consummation of the Merger and refinance existing indebtedness of
Telemundo. See "Prospectus Summary--The Merger and Related Transactions--
Sources and Uses of Funds" and "Use of Proceeds."
In connection with the Network Sale, the Company also entered into the
Affiliation Agreement with the Network Company, pursuant to which the Network
Company provides network programming to the Company, and the Company and the
Network Company have agreed to pool and allocate local, national spot and
network advertising revenues on a predetermined basis. See "Business--
Affiliation Agreement."
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Proxy
Station Partners has the right to vote 75.05% of the common stock of
Holdings as a result of the grant by Liberty of an irrevocable proxy to vote
all of its shares of the common stock of Holdings. The proxy may be terminated
by Liberty under certain specified circumstances.
Stockholders Agreement
In connection with the Merger, the Initial Stockholders entered into a
Stockholders Agreement (the "Stockholders Agreement") pursuant to which the
Initial Stockholders agreed to elect nine directors to the Board of Directors
of Holdings, of which four directors would be designated by Station Partners,
two directors would be designated by Sony Pictures, one director would be
nominated by Liberty, subject to the approval of a majority of the outstanding
shares of common stock of the Company held by stockholders other than Liberty,
and two directors would be designated as independent. One of the independent
directors would be nominated by Station Partners, subject to the approval of
Liberty and Sony Pictures, and the other independent director would be
nominated by Liberty and Sony Pictures, subject to the approval of Station
Partners.
The Stockholders Agreement requires that Major Decisions (as defined in the
Stockholders Agreement) receive the unanimous approval of the Initial
Stockholders. Major Decisions include (i) changing the nature or scope of the
Company's predominantly Spanish-language broadcast business or acquiring an
additional material broadcast station or other substantial business, (ii)
issuing any equity or debt securities of Holdings, (iii) merging,
consolidating or reorganizing the Company, (iv) selling all or substantially
all of the assets of the Company, (vi) selling assets of the Company with a
fair value in excess of $10 million, (v) taking any action relating to the
termination, dissolution, liquidation or winding-up of the Company,
(vii) taking any action that would constitute certain events of insolvency and
(viii) entering into any related transaction between any station or the
Company and any of its affiliates (excluding transactions between the Company
and the Network Company). In addition, the approval of Station Partners and
Sony Pictures is required to permit any station owned, directly or indirectly,
by Holdings to enter into, amend, take any action to terminate or fail to
renew any affiliation agreement. The Stockholders Agreement also requires that
the appointment of the Chief Executive Officer and Chief Financial Officer, on
the recommendation of Station Partners, be approved by Sony Pictures.
Station Partners received rights (the "Network Rights") from the Network
Company with respect to interests in the Network Company (the "Network
Interests") that represent the right to receive the value equal to 10% of the
Network Interests outstanding at the Effective Time for an amount equal to 10%
of the aggregate equity contributed by Sony Pictures and Liberty to the
Network Company (subject to certain adjustments in the future, including for
subsequent equity investments made by Sony Pictures and Liberty in the Network
Company and for certain distributions made by Network Company to Sony Pictures
and Liberty (as adjusted, the "Strike Price")).
Put/Call Agreement
In general, common stock of Holdings held by an Initial Stockholder may not
be transferred without the consent of the other Initial Stockholders. The
Initial Stockholders have entered into a Put/Call Agreement, pursuant to
which, at any time after the fifth anniversary of the Merger, and subject to
regulatory approval, including FCC approval, Station Partners has the right to
sell its ownership interest in Holdings to Sony Pictures and Liberty. Each of
Sony Pictures and Liberty are severally obligated to purchase 50% of such
ownership interest for a price (the "Station Partners Purchase Price") equal
to a proportional amount, based upon Station Partners' then ownership interest
in Holdings, of the price that an unrelated third party would pay to acquire
the entire ownership of Holdings, in an arm's-length transaction.
Notwithstanding the foregoing, if the Station Partners Purchase Price is lower
than the amount that would be required to be paid to Station Partners such
that Station Partners' internal rate of return with respect to its investment,
equals a compounded return of 10% (the "Minimum Value"), then the price to be
paid for Station Partners' ownership interest in Holdings shall be the Minimum
Value. If the Station Partners Purchase Price is higher than the amount that
would be required to be paid to Station Partners such that Station Partners'
internal rate of return with respect to its investment equals a
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compounded annual return of 40% (the "Maximum Value"), then the price to be
paid for Station Partners' ownership interest in the Company shall be the
Maximum Value. If Station Partners exercises its right to sell to Sony
Pictures and Liberty its ownership interest in Holdings, Sony Pictures and
Liberty also will be required to purchase the Network Rights at an amount
equal to the difference (which shall not be less than zero) between (x) the
price equal to a proportional amount, based upon the proportion of the total
Network Interest represented by the Network Rights, that an unrelated third
party would pay to acquire all of the equity interests (including the Network
Rights) of the Network Company, in an arm's-length transaction and (y) the
aggregate Strike Price of the Network Rights (the "Network Company Purchase
Price"). After the fifth anniversary of the Merger, and subject to regulatory
approval, including FCC approval, Sony Pictures and Liberty jointly have the
right to purchase all of Station Partners' ownership interest in Holdings for
a purchase price equal to the Station Partners Purchase Price or, if
applicable, the Minimum Value or Maximum Value. If Sony Pictures and Liberty
exercise their joint right to purchase Station Partners' ownership interest in
Holdings, then Sony Pictures and Liberty also will be required to purchase the
Network Rights at an amount equal to the Network Company Purchase Price.
Sharing Agreement
Pursuant to a sharing agreement, dated as of August 12, 1998, between
Telemundo and the Network Company, Telemundo and the Network Company share
certain facilities, equipment, and administrative services, the cost of which
will be allocated and borne ratably between the parties.
Transactions Prior to the Merger
Prior to the Merger and in connection with the consummation on December 30,
1994 (the "Consummation Date") of its plan of reorganization (the "Plan")
under the Bankruptcy Code, Telemundo entered into a number of agreements with
certain persons, including TLMD II and certain of its affiliates, relating to
the securities of Telemundo and defining certain aspects of the ongoing
relationship between Telemundo and such persons. All of these agreements,
which are briefly summarized below, were terminated upon consummation of the
Transactions.
Warrants
Pursuant to the Plan, as of the Consummation Date, holders of certain claims
against and interests in Telemundo received cash, 10 1/4% Notes, Common Stock,
and/or five-year warrants to purchase Series A Common Stock at $7.00 per share
(the "Creditors' Warrants").
Pursuant to Telemundo's Restated Certificate of Incorporation, the holders
of the Series B Common Stock had the right until December 30, 1998 (or for a
shorter period upon the occurrence of certain events) to elect a majority of
the Board. Of the 10,000,000 shares of Common Stock distributed under the
Plan, 4,388,394 were shares of Series A Common Stock and 5,611,606 were shares
of Series B Common Stock, of which 3,011,885 were distributed in the aggregate
to Apollo Investment and Bastion. Pursuant to the Plan, Reliance Insurance
Company ("Reliance"), which had directly owned or controlled 58.4% of the then
outstanding common stock of Telemundo, received approximately 10.2% of the
total outstanding Common Stock of Telemundo, all of which was Series A Common
Stock and warrants to purchase 416,667 shares of Series A Common Stock at
$7.19 per share. In addition, certain affiliates of Reliance received warrants
to purchase 38 shares of Series A Common Stock at $7.00 per share.
At the Effective Time, all outstanding warrants were converted into the
right to receive, subject to any required withholding taxes, a cash payment
equal to the product of (i) the total number of shares then subject to each
such Warrant multiplied by (ii) the excess of the Merger Consideration over
the exercise price per share subject to such Warrant, which payment was made
in connection with the Merger.
Old Shareholders Agreement
TLMD II, Mr. Leon Black, a director of Holdings, Bastion and Hernandez
Partners, a California general partnership of which Roland A. Hernandez, the
chief executive officer and a director of Holdings, is a partner,
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entered into a shareholders agreement (the "Old Shareholders Agreement")
pursuant to which each of them agreed to vote their shares through a voting
committee comprised of three members. The Old Shareholders Agreement was
terminated in connection with the Transactions.
Old Registration Agreement
In connection with the Plan, Telemundo, Apollo Advisors, L.P. ("Advisors")
and Reliance entered into a registration rights agreement (the "Old
Registration Agreement") pursuant to which Telemundo, subject to certain
conditions, agreed to register under the Securities Act the 10 1/4% Notes and
the common stock held by Advisors and its affiliates or Reliance and its
affiliates, or their respective transferees. The registration provisions of
the Old Registration Agreement have been terminated.
Other Transactions
Telemundo Transactions with Sony Pictures
In May 1997, Telemundo, Columbia TriStar Television, Inc. ("Columbia TriStar
Television"), an affiliate of Sony Pictures, and TV Azteca agreed to jointly
produce certain Spanish-language television programming. The first of these
programs is scheduled for broadcast on the Telemundo network beginning in the
fall of 1998. Telemundo Network, Inc. has entered into various agreements with
Columbia TriStar Television and Columbia TriStar Television Distribution
pursuant to which Columbia TriStar Television Distribution has agreed to
license to Telemundo Network, Inc. for broadcast on the Telemundo network
certain motion pictures and Columbia TriStar Television has agreed to develop
and produce for broadcast on the Telemundo network television serial
programming and provide to Telemundo certain advertising sales, consulting and
marketing assistance. These agreements were assumed by the Network Company in
connection with the Network Sale.
Indemnification of Directors and Officers; Directors and Officers Insurance
Pursuant to the Merger Agreement, the Company and Telemundo maintain the
right to indemnification and exculpation of officers and directors provided
for in the Restated Certificate of Incorporation and Amended and Restated By-
laws of Telemundo as in effect on the date of the Merger Agreement, with
respect to indemnification and exculpation for acts and omissions occurring
prior to the Effective Time. To the fullest extent permitted by applicable
law, Telemundo has agreed to indemnify and hold harmless each present and
former director and officer of Telemundo for acts and omissions occurring
prior to the Effective Time. Telemundo has also agreed to advance expenses to
each such indemnified person and to cooperate fully in the defense of any such
matter. Pursuant to the Merger Agreement, for a period of six years after the
Effective Time, the Company or Telemundo will maintain officers' and
directors' liability insurance covering the persons who, on the date of the
Merger Agreement, were covered by Telemundo's officers' and directors'
liability insurance policies with respect to acts and omissions occurring
prior to the Effective Time.
KFWD Affiliation Agreement
HIC owns and operates television station KFWD, Channel 52, the Company's
Dallas/Fort Worth network affiliate. Mr. Hernandez and his family own HIC and
Mr. Hernandez serves as an executive officer and director of HIC. The
affiliate relationship between Telemundo and HIC is governed by an Affiliation
and Representation Agreement dated as of August 31, 1993, as amended (the
"KFWD Affiliation Agreement"). Telemundo and Interspan, HIC's predecessor,
entered into a Modification Agreement, dated as of September 10, 1997 (the
"Modification Agreement"), which modified the KFWD Affiliation Agreement. The
compensation committee of Telemundo, pursuant to authority delegated to it by
its Board of Directors, negotiated the terms of the Modification Agreement on
behalf of Telemundo. Among other things, the Modification Agreement extended
the term of the KFWD Affiliation Agreement through February 28, 2001 and
provided HIC with the right to terminate the KFWD Affiliation Agreement by
giving Telemundo six months' written notice of such termination during the 12-
month period following the termination, for any reason, of Mr. Hernandez's
employment
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relationship with Telemundo. Under the KFWD Affiliation Agreement, as modified
by the Modification Agreement, Telemundo paid to HIC $1,500,000 during the
twelve month period ended August 31, 1998 and will pay to HIC $1,612,500 and
$1,733,438 during the 12-month periods ending on August 31, 1999 and 2000,
respectively, and at the rate of $1,863,445 on an annualized basis during the
period beginning on September 1, 2000 and ending on February 28, 2001. In
addition, HIC may be entitled to an amount up to $120,500 of bonus
compensation based upon ratings performance of the station during any 12-month
period. The KFWD Affiliation Agreement was assumed by the Network Company in
connection with the Network Sale.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
New Credit Facilities
In connection with the Transactions, Telemundo entered into the New Credit
Facilities pursuant to which Credit Suisse First Boston, New York Branch, an
affiliate of Credit Suisse First Boston Corporation, and Canadian Imperial
Bank of Commerce, an affiliate of CIBC Oppenheimer Corp., acted as co-agents
and arrangers. Under the New Credit Facilities, the lenders have provided
Telemundo with a $150 million reducing revolving credit facility (the
"Revolving Credit Facility"), a $25 million tranche A term loan facility (the
"Tranche A Facility") and a $175 million tranche B term loan facility (the
"Tranche B Facility" and, together with the Revolving Credit Facility and the
Tranche A Facility, the "New Credit Facilities") upon the terms and conditions
set forth therein.
Subject to compliance with the terms thereof, the Revolving Credit Facility
is available until September 30, 2005. The commitment thereunder will be
reduced to $142.5 million, $127.5 million, $112.5 million and $90.0 million on
December 31, 2001, 2002, 2003 and 2004, respectively. The Tranche A Facility
matures on September 30, 2005 and the Tranche B Facility matures on March 31,
2007.
Loans under the Tranche A Facility are scheduled to amortize in 24 quarterly
installments commencing on December 31, 1999 in the following aggregate
amounts: (i) $2.5 million for the first year, (ii) $3.125 million for the
second year, (iii) $3.75 million for the third year, (iv) $4.375 million for
the fourth year, (v) $5.0 million for the fifth year and (vi) $6.25 million
for the last year. Loans under the Tranche B Facility are scheduled to
amortize in 29 quarterly installments of $437,500 commencing on December 31,
1999 with a final quarterly payment of $162.3 million. In certain
circumstances, the Company may also be required to repay the New Credit
Facilities with the net proceeds of asset sales and equity issuances and with
a portion of Excess Cash Flow (as defined in the New Credit Facilities).
Subject to customary conditions precedent, amounts repaid on the Revolving
Credit Facility prior to maturity may be reborrowed up to $150 million,
subject to reduction of the Revolving Credit Facility. Amounts repaid on the
Tranche A Facility and the Tranche B Facility may not be reborrowed.
The New Credit Facilities are obligations of Telemundo and are
unconditionally guaranteed by Holdings and by each subsidiary of Telemundo
which is a wholly owned domestic entity for U.S. federal income tax purposes,
and is secured by substantially all of the assets of Holdings and each such
subsidiary (other than certain subsidiaries as permitted by the lenders).
Telemundo's Puerto Rican subsidiary has granted a security interest to
Telemundo in its assets to secure certain existing indebtedness of such
subsidiary to Telemundo, and Telemundo has pledged such indebtedness and 65%
of the voting stock and 100% of the nonvoting stock of such subsidiary as
security for the New Credit Facilities. Loans under the New Credit Facilities
bear interest at Telemundo's option at either (i) Adjusted LIBOR plus the
Applicable Margin or (ii) a base rate (the "Base Rate") plus the Applicable
Margin. The Applicable Margin for the Revolving Credit Facility and the
Tranche A Facility is initially (a) 1.875% for Adjusted LIBOR loans and (b)
0.875% for Base Rate loans, and thereafter will be determined by a grid based
upon the ratio of total debt to EBITDA (as defined in the New Credit
Facilities). The Applicable Margin for the Tranche B Facility is (a) 2.125%
for Adjusted LIBOR loans and (b) 1.125% for Base Rate loans.
The New Credit Facilities also contain provisions restricting the ability of
Holdings and its subsidiaries, from (with certain exceptions), among other
things, (i) incurring additional indebtedness or liens, (ii) entering into
sale and lease-back transactions, (iii) making advances, investments or loans,
(iv) entering into mergers, consolidations or asset sales or purchases, (v)
paying dividends or redeeming stock, (vi) entering into transactions with
affiliates other than on an arm's-length basis, (vii) engaging in new lines of
business unrelated to their current activity, (viii) materially amending or
modifying any material document in a manner adverse to Telemundo, the Company
or the lenders, (ix) prepaying or materially amending certain other
indebtedness, (x) taking any action that would result in the Collateral
Requirement or the Guarantee Requirement (each as defined in the New Credit
Facilities) not being satisfied, (xi) changing its fiscal year end, or (xii)
permitting any change to occur in the ownership or control of the Company.
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The New Credit Facilities also require Telemundo, for certain periods of
time, to maintain (i) a consolidated ratio of total debt to EBITDA (as defined
in the New Credit Facilities) not to exceed 7.0 to 1.0 (with such ratio being
incrementally reduced to 4.5 to 1.0 by December 31, 2001), which was 5.41 to
1.0 at September 30, 1998, (ii) a consolidated interest expense coverage ratio
of not less than 1.6 to 1.0 (with such ratio being incrementally increased to
2.25 to 1.0 by September 30, 2001), which was 2.25 to 1.0 at September 30,
1998, and (iii) a consolidated fixed charge coverage ratio of not less than
1.0 to 1.0 (with such ratio being incrementally increased to 1.15 to 1.0 by
September 30, 2001), which was 1.81 to 1.0 at September 30, 1998.
Generally, Telemundo is prohibited from paying dividends or making other
distributions to Holdings. However, so long as no default under the New Credit
Facilities shall have occurred and be continuing or result therefrom,
Telemundo may pay cash dividends to Holdings in the amounts and at the times
required in order that Holdings may (x) make scheduled payments of cash
interest on the Notes, (y) pay taxes in respect of the consolidated group
consisting of Holdings and its subsidiaries and (z) pay operating expenses in
an amount not to exceed $1,000,000 during any period of four fiscal quarters.
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DESCRIPTION OF THE NOTES
General
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated as of August 12, 1998 (the "Indenture"), between Holdings and Bank of
Montreal Trust Company, as Trustee (the "Trustee"). The form and terms of the
New Notes are identical in all material respects to the form and terms of the
Old Notes except (i) the New Notes will have been registered under the
Securities Act, (ii) the holders of the New Notes will not be entitled to
certain rights of holders of the Old Notes under the Registration Rights
Agreement and (iii) the holders of the New Notes will no be entitled to
certain contingent rights relating to the payment of additional interest as a
result of a Registration Default. See "The Exchange Offer--Purpose and Effects
of the Exchange Offer." The following is a summary of certain provisions of
the Indenture and the New Notes, a copy of which Indenture and the form of New
Notes is available upon request to Holdings. The following summary of certain
provisions of the Indenture and the New Notes is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture and the
New Notes, and those terms made a part thereof by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), including the
definitions of certain terms therein. For purposes of the "Description of the
Notes," references to Holdings are to Telemundo Holdings, Inc. and its
successors, and does not include any of its subsidiaries.
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of Holdings in the Borough of Manhattan, The City of New York, which
initially shall be the corporate trust office of the Trustee's agent, except
that, at the option of Holdings, payment of interest may be made by check
mailed to the address of the Holders as such address appears in the Note
register.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 principal amount at maturity and any integral
multiple of $1,000. See "Book-Entry, Delivery and Form." No service charge
shall be made for any registration or exchange of New Notes, but Holdings may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Terms of the Notes
The Notes are general unsecured obligations of Holdings, limited to
$218,838,000 aggregate principal amount at maturity, and will mature on August
15, 2008. The Notes will accrete at a rate of 11 1/2% per annum to 100% of the
principal amount at maturity by August 15, 2003. Except as described herein,
no cash interest will accrue on the Notes prior to August 15, 2003, although
for U.S. federal income tax purposes a significant amount of original issue
discount, taxable as ordinary income, will be recognized by a Holder as such
discount accretes. See "Certain U.S. Federal Income Tax Considerations" for a
discussion regarding the taxation of such original issue discount. Cash
interest will accrue on the Notes at the rate per annum shown on the front
cover of this Prospectus from August 15, 2003, or from the most recent date to
which interest has been paid or provided for, payable semiannually on February
15 and August 15 of each year, commencing February 15, 2004, to the Holders of
record at the close of business on the February 1 or August 1 immediately
preceding the interest payment date. Interest will be calculated on the basis
of a 360-day year comprised of twelve 30-day months.
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of Holdings prior to August 15, 2003. Thereafter, the
Notes will be redeemable, at Holdings' option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest to the redemption date (subject to the right
of Holders of record on the relevant record date to receive interest due on
the relevant interest payment date), if redeemed during the 12-month period
commencing on August 15 of the years set forth below:
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<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
2003........................................................... 105.750%
2004........................................................... 103.833
2005........................................................... 101.917
2006 and thereafter............................................ 100.000
</TABLE>
In addition, at any time and from time to time prior to August 15, 2001,
Holdings may redeem in the aggregate up to 35% of the aggregate principal
amount at maturity of the Notes with the Net Cash Proceeds of one or more
Public Equity Offerings at a redemption price equal to 111 1/2% of their
Accreted Value at the redemption date; provided, however, that not less than
65% of the aggregate principal amount at maturity of Notes originally issued
must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed,
or if the Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in principal amount at maturity or
less shall be redeemed in part. If any Note is to be redeemed in part only,
the notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
Ranking
The indebtedness evidenced by the Notes are general unsecured obligations of
Holdings, ranking senior in right of payment to all future indebtedness of
Holdings expressly subordinated to the Notes and pari passu in right of
payment with all other existing and future indebtedness and other obligations
of Holdings. The Notes will also be effectively subordinated to all secured
obligations, if any, of Holdings to the extent of the value of the assets
securing such obligations. The obligations of Telemundo under the New Credit
Facilities are guaranteed by Holdings and each Subsidiary of Telemundo which
is a wholly owned domestic entity for U.S. federal income tax purposes and are
secured by substantially all of the assets of Holdings and each such
Subsidiary. See "Description of Certain Indebtedness--New Credit Facilities."
Although the Indenture contains limitations on the amount of additional
Indebtedness that Holdings may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be secured Indebtedness.
Holdings is a holding company and does not have any material assets or
operations other than the ownership of Capital Stock of its Subsidiaries; all
of the operations of Holdings are conducted through its Subsidiaries. Claims
of creditors of such Subsidiaries, including trade creditors, and claims of
preferred stockholders (if any) of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of Holdings, including Holders of the Notes. The Notes,
therefore, will be structurally subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of Subsidiaries of Holdings. As
of September 30, 1998, Holdings had no indebtedness other than the Notes, and
Holdings' Subsidiaries had $281.3 million of indebtedness (including capital
leases) outstanding. Although the Indenture limits the incurrence of
Indebtedness and the issuance of preferred stock of Holdings' Restricted
Subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such Restricted Subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "Risk Factors--Holding
Company Structure; Structural and Effective Subordination; Limitation on
Payment of Funds to Holdings."
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that Holdings purchase
all or any part of such Holder's Notes at a purchase price in cash
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equal to 101% of the Accreted Value thereof at the date of purchase, if such
purchase occurs prior to August 15, 2003, or 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on the relevant record
date to receive accrued and unpaid interest due on the relevant interest
payment date), if such purchase occurs thereafter:
(i) prior to a Public Equity Offering, the Permitted Holders cease to
beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) in the aggregate Capital Stock representing more than 50% of the
outstanding equity and the aggregate voting power represented by the
outstanding Capital Stock of Holdings, whether as a result of the issuance
of securities, merger or consolidation, transfer of securities or
otherwise;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined above, except that for purposes of this
clause (ii) such person shall be deemed to have beneficial ownership of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the then
outstanding Voting Stock of Holdings, and the Permitted Holders
beneficially own (as defined in clause (i) above) in the aggregate Voting
Stock representing a lesser percentage of the total voting power of the
Voting Stock of Holdings;
(iii) during any period of two consecutive years after the initial Public
Equity Offering, individuals who at the beginning of such period
constituted the Board of Directors of Holdings (together with any new
directors whose election by such Board of Directors was made pursuant to
the Stockholders Agreement or whose nomination for election by the
shareholders of Holdings was approved by a vote of the majority of the
directors of Holdings then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office;
(iv) Holdings consolidates with, or merges with or into, another Person
or Holdings and/or one or more Restricted Subsidiaries sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially
all of the assets of Holdings and the Restricted Subsidiaries, taken as a
whole, in one transaction or series of related transactions, to any Person
(other than a Wholly Owned Restricted Subsidiary of Holdings), or any
Person consolidates with, or merges with or into, Holdings, in any such
event other than pursuant to a transaction in which the Person or Persons
that beneficially owned (as defined in clause (ii) above), directly or
indirectly, Voting Stock representing a majority of the total voting power
of the Voting Stock of Holdings immediately prior to such transaction or
series of related transactions beneficially own (as defined in clause (ii)
above), directly or indirectly, Voting Stock representing a majority of the
total voting power of the Voting Stock of the surviving or transferee
Person;
(v) Sony Pictures ceases to beneficially own (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) Capital Stock of Holdings representing at
least 15% of the outstanding equity represented by the outstanding Capital
Stock of Holdings, whether as a result of the issuance of securities,
merger or consolidation, transfer of securities or otherwise; provided,
however, that any transfer by Sony Pictures necessary in order to comply
with restrictions imposed upon the ownership by Sony Pictures of the
Capital Stock of Holdings by any federal or state court or regulatory
authority or agency with applicable jurisdiction that would, but for this
proviso, result in a Change of Control under this clause (v), will not
result in a Change of Control so long as (x) Liberty continues to own
Capital Stock of Holdings representing at least 20% of the outstanding
equity represented by the outstanding Capital Stock of Holdings and (y)
Sony Pictures continues to own Capital Stock of the Network Company
representing 25% of the equity and the aggregate voting power represented
by the outstanding Capital Stock of the Network Company;
(vi) Liberty ceases to beneficially own (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) Capital Stock of Holdings representing at
least 15% of the outstanding equity represented by the outstanding Capital
Stock of Holdings, whether as a result of the issuance of securities,
merger or consolidation, transfer of securities or otherwise; provided,
however, that any transfer by Liberty necessary in order to comply with
restrictions imposed upon the ownership by Liberty of the Capital Stock of
Holdings by any federal or state
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court or regulatory authority or agency with applicable jurisdiction that
would, but for this proviso, result in a Change of Control under this
clause (vi), will not result in a Change of Control so long as (x) Sony
Pictures continues to own Capital Stock of Holdings representing at least
20% of the outstanding equity represented by the outstanding Capital Stock
of Holdings and (y) Liberty continues to own Capital Stock of the Network
Company representing 25% of the equity and the aggregate voting power
represented by the outstanding Capital Stock of the Network Company;
(vii) Liberty and Sony Pictures together cease to beneficially own (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) Capital Stock of
the Network Company representing at least 50% of the equity of the Network
Company, whether as a result of the issuance of securities, merger or
consolidation, transfer of securities or otherwise; or
(viii) following the Merger, Telemundo shall not be a Wholly Owned
Subsidiary of Holdings (other than by virtue of a merger or consolidation
with Holdings).
For the purposes of this definition of Change of Control, "equity" shall be
determined after giving effect to the exercise of all options, warrants or
other rights to acquire or purchase Capital Stock and the conversion or
exchange of all securities convertible into or exchangeable for Capital Stock,
less any exercise, conversion or exchange price therefor.
Within 30 days following any Change of Control, unless Holdings has mailed a
notice of redemption with respect to all the outstanding Notes pursuant to the
provisions of the Indenture described above under "--Optional Redemption,"
Holdings shall mail a notice to the Trustee and to each Holder stating: (1)
that a Change of Control has occurred and that such Holder has the right to
require Holdings to purchase such Holder's Notes at a purchase price in cash
equal to 101% of the Accreted Value thereof at the date of purchase, if such
purchase occurs prior to August 15, 2003, or 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive accrued and unpaid interest due on the relevant interest payment
date), if such purchase occurs thereafter; (2) a description of the
transaction or transactions constituting such Change of Control; (3) the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the procedures determined by
Holdings, that a Holder must follow in order to have its Notes purchased.
Holdings shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the covenant described hereunder, Holdings shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the covenant described hereunder by virtue
thereof.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Holdings, Sony Pictures, Liberty or the Network Company would decide to
do so in the future. Subject to the limitations discussed below, Holdings
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect Holdings' capital
structure or credit ratings. The Change of Control provisions in the Indenture
may not afford Holders protection in the event of a highly leveraged
transaction.
The New Credit Facilities contain, and future indebtedness of Holdings and
its Subsidiaries may contain, prohibitions on the occurrence of certain events
that would constitute a Change of Control or require such indebtedness to be
repaid or purchased upon a Change of Control. There can be no assurance that
sufficient funds will be available when necessary to make any required
purchases. The New Credit Facilities do not permit Telemundo to pay dividends
or make distributions to Holdings for the purpose of purchasing Notes in the
event of Change of Control. Even if sufficient funds were otherwise available,
the terms of certain Indebtedness could prohibit Holdings' prepayment of Notes
prior to their scheduled maturity. Consequently, if Holdings is not able
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to prepay such Indebtedness, Holdings will be unable to fulfill its repurchase
obligations if Holders of Notes exercise their repurchase rights following a
Change of Control. The failure of Holdings to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "--Events of Default." In the event
Holdings is required to purchase outstanding Notes pursuant to a Change of
Control offer, Holdings may seek additional debt or equity financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that Holdings would be able to obtain such
financing. The phrase "all or substantially all," as used in the definition of
"Change of Control," has not been interpreted under New York law (which is the
governing law of the Indenture) to represent a specific quantitative test. As
a consequence, in the event the Holders of the Notes elected to exercise their
rights under the Indenture and Holdings elected to contest such election there
could be no assurance how a court interpreting New York law would interpret
the phrase.
Holdings will not be required to make a Change of Control offer upon a
Change of Control if a third party makes the Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control offer made by
Holdings and purchases all Notes validly tendered and not withdrawn under such
Change of Control offer.
The provisions under the Indenture relating to Holdings' obligation to make
an offer to purchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the Notes then outstanding. The existence of a Holder's
right to require Holdings to offer to purchase such Holder's Notes upon a
Change of Control may deter a third party from acquiring Holdings in a
transaction which constitutes a Change of Control.
Certain Covenants
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) Holdings shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness;
provided, however, that (x) Holdings or any Restricted Subsidiary (other than
Telemundo or any of its Subsidiaries) may Incur Indebtedness if at the time of
such Incurrence and after giving effect thereto, the Consolidated Leverage
Ratio is less than or equal to 8.5 to 1.0 and (y) Telemundo or any of its
Subsidiaries may Incur Indebtedness if at the time of such Incurrence and
after giving effect thereto, the Consolidated Leverage Ratio is less than or
equal to 7.0 to 1.0 (for purposes of this clause (y), all references to
Holdings or any Restricted Subsidiary in the definitions used to calculate the
Consolidated Leverage Ratio shall be to Telemundo and its Subsidiaries (other
than any Unrestricted Subsidiary)).
(b) Notwithstanding the foregoing paragraph (a), Holdings or any Restricted
Subsidiary, as applicable, may Incur any or all of the following Indebtedness:
(1) Indebtedness of Holdings or any Restricted Subsidiary Incurred under
the Bank Credit Agreement in an aggregate amount not to exceed an aggregate
principal amount of $350 million at any time outstanding, less the
aggregate amount of any scheduled amortization payments or mandatory
prepayments actually made on term loans thereunder;
(2) the Old Notes, the New Notes or any Indebtedness (including the New
Notes) the proceeds of which are used to Refinance the Old Notes or the New
Notes;
(3) Indebtedness of Telemundo or any of its Subsidiaries outstanding on
the Issue Date (other than Indebtedness referred to in clause (1) or (2) of
this covenant);
(4) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (2) or (3) or this clause (4);
(5) (i) Indebtedness of any Restricted Subsidiary owed to and held by
Holdings or any Restricted Subsidiary and (ii) Indebtedness of Holdings
owed to and held by any Restricted Subsidiary which is unsecured and
subordinated in right of payment to the payment and performance of
Holdings' obligations
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under the Notes; provided, however, that an incurrence of Indebtedness that
is not permitted by this clause (5) shall be deemed to have occurred upon
(x) any sale or other disposition of any Indebtedness of Holdings or any
Restricted Subsidiary referred to in this clause (5) to any Person other
than Holdings or any Restricted Subsidiary or (y) any Restricted Subsidiary
that holds Indebtedness of Holdings or another Restricted Subsidiary
ceasing to be a Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements or
Currency Agreements directly related to Indebtedness permitted to be
Incurred by Holdings or a Restricted Subsidiary pursuant to the Indenture;
(7) Capital Lease Obligations, Acquired Indebtedness, Purchase Money
Indebtedness and Attributable Debt with respect to Sale/Leaseback
Transactions, and Refinancing Indebtedness thereof, in an aggregate
principal amount not exceeding $25 million at any one time outstanding;
(8) Indebtedness of Holdings or any Restricted Subsidiary Incurred or
Incurrable in respect of reimbursement obligations related to letters of
credit, banker's acceptances or similar facilities entered into in the
ordinary course of business;
(9) Indebtedness of Holdings or any Restricted Subsidiary in respect of
bid, performance, surety and appeal bonds and obligations provided in the
ordinary course of business;
(10) Indebtedness of Telemundo of Chicago, Inc. and Video 44 Acquisition
Corp., Inc., pursuant to Section 3.5(a) of the Chicago Joint Venture
Agreement;
(11) any Guarantee by the Company of any Indebtedness (not prohibited
under the Indenture) of any Wholly Owned Restricted Subsidiary, and any
Guarantee by any Wholly Owned Restricted Subsidiary of any Indebtedness
(not prohibited under the Indenture) of the Company or any Wholly Owned
Restricted Subsidiary;
(12) Indebtedness of any Restricted Subsidiary Incurred in the ordinary
course of business under any Local Marketing Agreement in an aggregate
amount, together with the aggregate amount of Investments pursuant to
clause (xii) of the definition of "Permitted Investment," not to exceed $10
million at any one time outstanding; and
(13) other Indebtedness in an aggregate principal amount not to exceed
$35 million at any one time outstanding.
(c) Notwithstanding the foregoing, Holdings shall not incur any Indebtedness
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (i) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, Holdings, in its sole discretion, will
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of the above clauses and (ii) an item of
Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above. A guarantee of Indebtedness permitted by this
covenant to be Incurred by Holdings or a Restricted Subsidiary otherwise
permitted to be Incurred pursuant to this covenant is not considered a
separate Incurrence for purposes of this covenant.
Limitation on Liens. Holdings shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist any Lien upon
any of its property or assets, now owned or hereafter acquired, securing any
obligation unless concurrently with the creation of such Lien effective
provision is made to secure the Notes equally and ratably with such obligation
for so long as such obligation is so secured; provided, that, if such
obligation is a Subordinated Obligation, the Lien securing such obligation
shall be subordinated and junior to the Lien securing the Notes with the same
or lesser relative priority as such Subordinated Obligation shall have been
with respect to the Notes. The preceding restriction shall not require
Holdings or any Restricted Subsidiary to secure the Notes if the Lien consists
of the following:
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(a) Liens created by the Indenture or otherwise securing the Notes, Liens
securing Indebtedness Incurred under the Bank Credit Agreement and Liens on
assets of Telemundo or any of its Subsidiaries existing as of the Issue
Date;
(b) Permitted Liens;
(c) Liens securing any Indebtedness of any Restricted Subsidiary
permitted to be Incurred pursuant to the Indenture;
(d) Liens to secure Purchase Money Indebtedness issued by Holdings or a
Restricted Subsidiary; provided, however, that (a) the Indebtedness secured
by such Liens shall have been permitted to be Incurred under the "--
Limitation on Indebtedness" covenant and (b) such Liens shall not encumber
any property of Holdings or any Restricted Subsidiary other than the
property acquired or any improvement or accessions on or proceeds of such
property and shall attach to such property within 180 days of the
acquisition or completion of construction of such property;
(e) Liens on the assets or property of a Restricted Subsidiary existing
at the time such Restricted Subsidiary becomes a Restricted Subsidiary and
not incurred as a result of (or in connection with or in anticipation of)
such Restricted Subsidiary becoming a Restricted Subsidiary; provided,
however, that such Liens do not extend to or cover any other property of
Holdings or any other Restricted Subsidiary;
(f) Liens deemed to exist by virtue of the buyout provisions contained in
Sections 6 and 7 of the Chicago Joint Venture Agreement;
(g) Liens on property at the time of acquisition thereof by Holdings or
any Restricted Subsidiary provided such Liens were not given as a result
of, in connection with or in anticipation of such acquisition;
(h) Liens securing Capital Lease Obligations, Acquired Indebtedness and
Attributable Debt Incurred pursuant to clause (b)(7) of the "--Limitation
on Indebtedness" covenant;
(i) Liens securing Indebtedness Incurred to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted
to be Refinanced under the Indenture; provided, however, that such Liens do
not extend to or cover any property of Holdings or any Restricted
Subsidiary not securing the Indebtedness so Refinanced; or
(j) Liens on assets of Holdings or any Restricted Subsidiary securing
Indebtedness in an aggregate amount not to exceed $10 million.
Limitation on Sale/Leaseback Transactions. Holdings shall not, and shall not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless (i) Holdings or such Restricted Subsidiary
would be (A) in compliance with the covenant described under "--Limitation on
Indebtedness" immediately after giving effect to such Sale/Leaseback
Transaction and (B) entitled to create a Lien on such property securing the
Attributable Debt with respect to such Sale/Leaseback Transaction without
securing the Notes pursuant to the covenant described under "--Limitation on
Liens," (ii) the net proceeds received by Holdings or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least
equal to the fair market value (as determined by the Board of Directors) of
such property and (iii) Holdings or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Restricted Payments. (a) Holdings shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time Holdings or such Restricted Subsidiary makes, and after
giving effect to, the proposed Restricted Payment: (i) a Default shall have
occurred and be continuing (or would result therefrom); (ii) Holdings is not
able to incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of
the covenant described under "--Limitation on Indebtedness"; or (iii) the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of:
(A) (x) the Cumulative EBITDA less (y) 1.4 times Cumulative Consolidated
Interest Expense, each as determined at the time of such Restricted
Payment;
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(B) the aggregate Net Cash Proceeds (including Net Cash Proceeds received
upon the conversion of non-cash proceeds) received by Holdings from capital
contributions or the issuance or sale of Qualified Stock subsequent to the
Issue Date or any options, warrants or rights to purchase Qualified Stock,
together with the aggregate cash received by Holdings at the time of
exercise of such options, warrants or rights (other than any such issuance
or sale to a Subsidiary of Holdings);
(C) the amount by which Indebtedness of Holdings is reduced on Holdings'
balance sheet upon the conversion or exchange (other than by a Subsidiary
of Holdings) of any Indebtedness of Holdings or a Restricted Subsidiary
issued subsequent to the Issue Date for Qualified Stock (less the amount of
any cash, or the fair value of any other property, distributed by Holdings
upon such conversion or exchange), whether pursuant to the terms of such
Indebtedness or pursuant to an agreement with a creditor to engage in an
equity for debt exchange; and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries or Investments constituting Restricted Payments
resulting from interest on debt, dividends, repayments of loans or advances
or other transfers of assets or proceeds from the disposition of Capital
Stock or other distributions or payments, in each case to Holdings or any
Restricted Subsidiary from, or with respect to an Investment in,
Unrestricted Subsidiaries, and (ii) the portion (proportionate to Holdings'
equity interest in such Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that
the foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the aggregate amount of Investments previously made (and
treated as a Restricted Payment) by Holdings or any Restricted Subsidiary
in such Unrestricted Subsidiary subsequent to the Issue Date and the
aggregate amount of Investments in such Person constituting Restricted
Payments.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock of Holdings or any
Restricted Subsidiary or Subordinated Obligations of Holdings made by
exchange for, or out of the proceeds of the substantially concurrent
issuance and sale of, Qualified Stock (other than any such issuance and
sale to a Subsidiary of Holdings) or out of the proceeds of a
substantially concurrent capital contribution to Holdings; provided,
however, that (x) such purchase, capital contribution or redemption
shall be excluded in the calculation of the amount of Restricted
Payments and (y) the Net Cash Proceeds from such sale of Capital Stock
or capital contribution shall be excluded from clause (iii)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations in
whole or in part (including premium, if any, and accrued and unpaid
interest) made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of Holdings which is
permitted to be Incurred pursuant to the covenant described under "--
Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation of the amount of
Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments if not already taken into consideration for determining such
amount upon the declaration thereof; and
(iv) the redemption of Capital Stock of Holdings from present or
former directors, officers or employees of Holdings and its
Subsidiaries or their estates or beneficiaries pursuant to the terms of
an employee benefit plan or employment or other agreement; provided
that the aggregate amount of all such repurchases shall not exceed $3
million in any fiscal year and $10 million since the Issue Date plus
the aggregate cash proceeds received by Holdings from any reissuance of
such Capital Stock to directors, officers and employees of Holdings and
its Subsidiaries; provided, further, that such redemption shall be
excluded in the calculation of the amount of Restricted Payments.
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Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Holdings shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock to Holdings or a Restricted Subsidiary or pay any
Indebtedness owed to Holdings, (b) to make any loans or advances to Holdings
or (c) to transfer any of its property or assets to Holdings, except: (i) any
Permitted Restriction; (ii) any encumbrance or restriction pursuant to any
agreement in effect at or entered into on the date of the Indenture as such
agreement is in effect on such date; (iii) any encumbrance or restriction with
respect to a Person pursuant to an agreement relating to any Indebtedness
Incurred by such Person prior to the date on which such Person became a
Restricted Subsidiary and not Incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary; (iv) any encumbrance or restriction pursuant to an agreement
effecting Refinancing Indebtedness Incurred pursuant to an agreement referred
to in clause (ii) or (iii) of this covenant or this clause (iv) or contained
in any amendment to an agreement referred to in clause (ii) or (iii) of this
covenant or this clause (iv); provided, however, that the encumbrances and
restrictions with respect to any such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the Holders
in any material respect as determined in good faith by the Board of Directors
of Holdings than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; (v) any such encumbrance or
restriction (A) consisting of customary non-assignment provisions in leases to
the extent such provisions restrict the subletting, assignment or transfer of
the lease or the property leased thereunder or in purchase money financings or
(B) by virtue of any Indebtedness, transfer, option or right with respect to,
or any Lien on, any property or assets of Holdings or any Restricted
Subsidiary not otherwise prohibited by the Indenture; (vi) in the case of
clause (c) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (vii) encumbrances or restrictions imposed by
operation of any applicable law, rule, regulation or order; (viii) any
restriction with respect to assets imposed pursuant to an agreement entered
into for the sale or disposition of such assets pending the closing of such
sale or disposition; (ix) customary non-assignment provisions in licenses of
intellectual property entered into in the ordinary course of business
(including programming agreements) and in Local Marketing Agreements; (x)
Capitalized Lease Obligations that are otherwise permitted hereunder;
provided, however, that such encumbrance or restriction does not extend to any
property other than that subject to the underlying lease; (xi) any restriction
imposed by Liens permitted under the Indenture; and (xii) any encumbrance or
restriction relating to an agreement relating to the acquisition of assets or
property so long as such encumbrances and restrictions relate solely to the
assets so acquired (and any improvements thereon).
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Holdings or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors of
Holdings, of the shares and assets subject to such Asset Disposition, and at
least 75% of the consideration thereof received by Holdings or such Restricted
Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal
to 100% of the Net Available Cash from such Asset Disposition is applied by
Holdings (or such Restricted Subsidiary, as the case may be) (A) first, to the
extent Holdings elects (or is required by the terms of any Indebtedness), to
prepay, repay or redeem (and permanently reduce the commitments under)
Indebtedness under the Bank Credit Agreement or Indebtedness of any Restricted
Subsidiary within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash (the "Receipt Date")
and/or to acquire Additional Assets; provided, however, that Holdings shall be
required to commit such Net Available Cash to the acquisition of Additional
Assets within nine months from the later of the date of such Asset Disposition
or the Receipt Date and shall be required to consummate the acquisition of
such Additional Assets within fifteen months from the Receipt Date; provided,
further, that if the other party to such acquisition refuses or fails, after
the first anniversary of the Receipt Date, to consummate such acquisition,
Holdings shall apply such Net Available Cash, within fifteen months from the
Receipt Date, as provided in the first part of this clause (A) or clause (B);
(B) second, to the extent of the balance of such Net Available Cash after
application in
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accordance with clause (A), to make an offer pursuant to paragraph (b) below
(x) to the Holders to purchase Notes pursuant to and subject to the conditions
contained in the Indenture and (y) if applicable, to the holders of other
Indebtedness of Holdings that ranks pari passu with the Notes (the "Other
Debt") and that by its terms requires Holdings to make an offer to purchase
such Other Debt upon consummation of an Asset Disposition, to purchase such
Other Debt on a pro rata basis with the Notes; and (C) third, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A) and (B) to any other application or use not prohibited by the
Indenture. Notwithstanding the foregoing provisions of this paragraph,
Holdings and the Restricted Subsidiaries shall not be required to apply the
Net Available Cash in accordance with this paragraph until the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this paragraph exceeds $10.0 million (at which time, the entire
unutilized Net Available Cash, and not just the amount in excess of $10.0
million, shall be applied pursuant to this paragraph).
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Indebtedness of Holdings or
any Restricted Subsidiary and the release of Holdings or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition; (y) securities received by Holdings or any Restricted
Subsidiary from the transferee that are converted by Holdings or such
Restricted Subsidiary into cash within 180 days of closing the transaction;
and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes and, if applicable, Other Debt pursuant to clause (a)(ii)(B) above,
Holdings will be required to purchase (i) Notes tendered pursuant to an offer
by Holdings for the Notes at a purchase price of 100% of their aggregate
Accreted Value at the date of purchase, if such purchase occurs prior to
August 15, 2003, or 100% of their aggregate principal amount, plus accrued but
unpaid interest, if any, to the date of purchase, if such purchase occurs
thereafter, and (ii) if applicable, Other Debt to the extent required thereby
and provided there is a permanent reduction in the principal amount thereof,
in each case, in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture.
(c) Holdings shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) Holdings shall not, and shall not
permit any Restricted Subsidiary to, enter into any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of Holdings (an "Affiliate
Transaction") unless the terms thereof (1) are no less favorable to Holdings
or such Restricted Subsidiary than those that could be obtained at the time of
such transaction in a comparable transaction in arm's-length dealings with a
Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $2.5 million, (i) are set forth in writing and
(ii) have been approved by a majority of the members of the Board of Directors
of Holdings having no material personal financial stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $10.0 million, have been determined by a nationally recognized investment
banking firm or nationally recognized independent appraisal firm qualified to
perform such task to be fair to Holdings or such Restricted Subsidiary, as the
case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or Restricted Payment permitted to be made pursuant to
the covenant described under "--Limitation on Restricted Payments," or any
payment or transaction specifically excepted from the definition of Restricted
Payment, (ii) transactions exclusively between or among Holdings and one or
more Restricted Subsidiaries or exclusively between or among Restricted
Subsidiaries; (iii) customary directors' fees, indemnification and similar
arrangements, employee salaries, bonuses or employment agreements,
compensation or retirement or employee benefit arrangements and incentive
arrangements with any officer, director or employee of Holdings or any
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Restricted Subsidiary entered into in the ordinary course of business; (iv)
agreements (and transactions pursuant to agreements), in effect on the Issue
Date, including, without limitation, the Affiliation Agreement, the Network
Sale Agreement and the Stockholders Agreement (but excluding the Sharing
Agreement), as such agreements are in effect on such date or as thereafter
amended in a manner not materially adverse to Holdings in the good faith
judgment of the Board of Directors of Holdings; (v) issuances of Qualified
Stock; or (vi) loans and advances to officers, directors and employees of
Holdings or any Restricted Subsidiary for travel, entertainment, moving and
other relocation expenses, in each case made in the ordinary course of
business and consistent with past business practices in an aggregate principal
amount not to exceed $2 million at any one time outstanding.
(c) The provisions of clauses (2) and (3) of the foregoing paragraph (a)
shall not be applicable to any transaction between Holdings and/or one or more
Restricted Subsidiaries, on the one hand, and one or more Affiliates of
Holdings, on the other hand, for the provision of goods and services in the
ordinary course of business of Holdings and the Restricted Subsidiaries and in
the ordinary course of business of such Affiliate or Affiliates (including any
such transaction pursuant to the Sharing Agreement).
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Holdings shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except (i) to Holdings or a Wholly Owned
Restricted Subsidiary; (ii) directors' qualifying shares or shares required by
applicable law to be held by a person other than Holdings or a Restricted
Subsidiary; (iii) the sale of all of the Capital Stock of a Restricted
Subsidiary in accordance with "--Limitation on Sales of Assets and Subsidiary
Stock"; (iv) in the case of issuance of Capital Stock by a non-Wholly Owned
Restricted Subsidiary if, after giving effect to such issuance, such
Restricted Subsidiary remains a Restricted Subsidiary; or (v) shares of
Capital Stock in any Restricted Subsidiary the assets of which are limited to
a low-power television station, the station license therefor and assets
directly related thereto.
Limitation on Asset Swaps. Holdings will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
(i) at the time of entering into the agreement with respect thereto and
immediately after giving effect to the proposed Asset Swap, no Default
shall have occurred and be continuing;
(ii) the respective fair market values of the Productive Assets (to be
determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by Holdings or any Restricted
Subsidiary are substantially the same at the time of entering into such
agreement; and
(iii) the cash payments, if any, received by Holdings or such Restricted
Subsidiary in connection with such Asset Swap are treated as Net Available
Cash received from an Asset Disposition.
Amendment of Affiliation Agreement. Holdings shall not amend the Affiliation
Agreement except in a manner that the Board of Directors of Holdings
determines in good faith is not materially adverse to Holdings (such
determination of the Board of Directors of Holdings to include the affirmative
vote of at least two members who have been designated as independent directors
pursuant to the Stockholders Agreement).
Merger and Consolidation. Holdings shall not consolidate with or merge with
or into any other Person, and Holdings shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, sell, convey, transfer or
lease, in one transaction or a series of transactions, all or substantially
all of the assets of Holdings and the Restricted Subsidiaries, taken as a
whole, to any Person, unless: (i) either Holdings shall be the surviving
Person or the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not Holdings) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of Holdings under
the Notes, the Indenture and the Registration Rights Agreement; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
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Subsidiary as a result of such transaction as having been incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) (x) of the covenant
described under "--Limitation on Incurrence of Additional Indebtedness" (if
Holdings shall not be the Sucessor Company, all references to Holdings or any
Restricted Subsidiary in the definitions used to calculate the Consolidated
Leverage Ratio shall be to the Sucessor Company and its Subsidiaries (other
than any Unrestricted Subsidiary)); and (iv) Holdings shall have delivered to
the Trustee an officer's certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture
(if any) comply with the Indenture.
The Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Indenture, but, in the
case of a conveyance, transfer or lease, Holdings shall not be released from
the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (x) any Restricted
Subsidiary may consolidate or merge with and into or transfer all or part of
its properties and assets to Holdings or another Restricted Subsidiary and (y)
Holdings may consolidate or merge with and into Telemundo.
SEC Reports. Notwithstanding that Holdings may not be or required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Holdings shall file with the SEC (unless the SEC will not accept such a
filing, in which case, Holdings shall provide such documents to the Trustee)
and provide within 15 days to the Trustee and make available to the Holders
such annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and
other reports to be so filed and provided at the times specified for the
filing of such information, documents and reports under such Sections. In
addition, for so long as any Notes remain outstanding, Holdings shall furnish
to the Holders and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes,
if not obtainable from the SEC, information of the type that would be filed
with the SEC pursuant to the foregoing provisions, upon the request of any
such holder.
Events of Default
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in the payment of interest on the Notes when due, continued
for 30 days;
(ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
acceleration or otherwise;
(iii) the failure by Holdings to comply with its obligations under (x)
"--Certain Covenants--Merger and Consolidation" or (y) "--Amendment of
Affiliation Agreement" above;
(iv) the failure by Holdings to comply for 30 days after notice with any
of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Notes) or under "--Certain
Covenants--Limitation on Indebtedness," "--Limitation on Restricted
Payments," "--Limitation on Restrictions on Distributions from Restricted
Subsidiaries," "--Limitation on Sales of Assets and Subsidiary Stock," "--
Limitation on Affiliate Transactions," "--Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries" or "--Limitation on
Asset Swaps";
(v) the failure by Holdings to comply for 60 days after notice with its
other agreements contained in the Indenture;
(vi) Indebtedness of Holdings or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million and such non-
payment continues or such acceleration is not rescinded within ten days
after notice thereof (the "cross acceleration provision");
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(vii) certain events of bankruptcy, insolvency or reorganization of
Holdings or any Significant Subsidiary (the "bankruptcy provisions");
(viii) any judgment or decree (not covered by insurance or an indemnity
by a person other than Holdings or a Restricted Subsidiary, which
indemnitor is solvent) for the payment of money in excess of $10.0 million
is entered against Holdings or any Significant Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, bonded, waived or stayed within 30 days after notice (the
"judgment default provision");
(ix) the Umbrella Affiliation Agreement shall cease to be in full force
and effect; or
(x) any one or more Station Affiliation Agreements shall cease to be in
full force and effect and such cessation shall be materially adverse to
Holdings; provided, however, that no such cessation shall be deemed
materially adverse to Holdings if the Board of Directors of Holdings shall
have determined in good faith that such cessation is not materially adverse
to Holdings (such determination of the Board of Directors of Holdings to
include the affirmative vote of at least two members who have been
designated as independent directors pursuant to the Stockholders
Agreement).
If an Event of Default (other than the bankruptcy provisions relating to
Holdings) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount at maturity of the outstanding Notes may declare the
Accreted Value of and accrued but unpaid interest on all the Notes to be due
and payable. Upon such a declaration, such Accreted Value and interest shall
be due and payable immediately. If an Event of Default relating to the
bankruptcy provisions relating to Holdings occurs and is continuing, the
Accreted Value of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
In the event of a declaration of acceleration because an Event of Default
set forth in clause (vi) has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if (A) either (x)
the holders of the Indebtedness which is the subject of such Event of Default
have waived such failure to pay at final maturity or have rescinded the
acceleration in respect of such Indebtedness within 60 days of such maturity
or declaration of acceleration, as the case may be, and no other Event of
Default has occurred during such 60-day period that has not been cured or
waived, or (y) such Indebtedness shall have been discharged or the maturity
thereof shall have been extended such that it is not then due and payable, or
the underlying default has been cured (and any acceleration based thereon of
such other Indebtedness has been rescinded), within 60 days of such maturity
or declaration of acceleration, as the case may be, and (B) no judgment or
decree for the payment of the money due on the Notes has been obtained by the
Trustee as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such
Holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium (if any) or interest when due, no Holder of a Note may
pursue any remedy with respect to the Indenture or the Notes unless (i) such
Holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount at maturity of
the outstanding Notes have requested the Trustee to pursue the remedy, (iii)
such Holders have offered the Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt thereof and the offer of security or
indemnity and (v) the Holders of a majority in principal amount at maturity of
the outstanding Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period. Subject to certain restrictions, the
Holders of a majority in principal amount at maturity of the outstanding Notes
are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. The Trustee, however, may refuse to follow
any direction that conflicts with law or the Indenture or that the
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Trustee determines is unduly prejudicial to the rights of any other Holder or
that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as the board of directors, the executive committee or a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the Holders. In addition, Holdings is required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. Holdings also is required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action
Holdings is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount at maturity of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount at maturity of the Notes then outstanding.
The provisions under the Indenture relating to Holdings' obligation to make
an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to
an amendment, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal or Accreted Value of or
change the Stated Maturity of any Note, (iv) reduce the premium payable upon
the redemption of any Note or change the time at which any Note may be
redeemed as described under "--Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Notes, (vi) impair the right of
any Holder to receive payment of principal of and interest on such Holder's
Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, (vii)
make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions or (viii) subordinate the Notes in right
of payment to any other Indebtedness.
Without the consent of any Holder, Holdings and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of Holdings
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code), to add Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of Holdings for the benefit of the Holders or to
surrender any right or power conferred upon Holdings, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, Holdings is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect
therein, will not impair or affect the validity of the amendment.
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Transfer
The New Notes were, and the Old Notes will be, issued in registered form and
will be transferable only upon the surrender of the Notes being transferred
for registration of transfer. Holdings may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in
connection with certain transfers and exchanges. Holdings is not required to
transfer or exchange any Note selected for redemption or repurchase or to
transfer or exchange any Note for a period of 15 days prior to selection of
Notes to be redeemed or repurchased.
Defeasance
Holdings at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations
to register the transfer or exchange of the Notes, to replace mutilated,
destroyed, lost or stolen Notes and to maintain a registrar and paying agent
in respect of the Notes. In addition, Holdings at its option at any time may
terminate its obligations under "Change of Control" and substantially all of
its covenants in the Indenture, including the covenants described under "--
Certain Covenants" (other than the covenant described under "--Merger and
Consolidation") (and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries, the judgment default provision described
under "--Events of Default" above and the limitations contained in clauses
(iii) and (iv) under "--Certain Covenants--Merger and Consolidation" above
("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii)(y), (iv), (v), (vi), (vii) (with
respect only to Significant Subsidiaries), (viii), (ix) or (x) under "--Events
of Default" above or because of the failure of Holdings to comply with clause
(iii) under "--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations or a combination thereof for the payment of principal,
premium, if any, and interest on the Notes to maturity or any redemption date
specified by Holdings, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an opinion of counsel to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when: (i) either
(a) all the Notes theretofore authenticated and delivered (except lost, stolen
or destroyed Notes which have been replaced or paid) have been delivered to
the Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption within one year
under irrevocable arrangements reasonably satisfactory to the Trustee for the
giving of notice of redemption by the Trustee and Holdings has irrevocably
deposited or caused to be deposited with the Trustee an amount in United
States dollars sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit or maturity
or redemption date; (ii) Holdings has paid or caused to be paid all other sums
then due and payable under the Indenture by Holdings; and (iii) Holdings has
delivered to
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the Trustee an officers' certificate and an opinion of counsel each stating
that all conditions precedent under the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
No Personal Liability of Directors, Officers, Employees and Stockholders
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of Holdings in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director,
employee, affiliate or controlling person of Holdings or any successor Person
or affiliate thereof. Each Holder, by accepting the Notes, waives and releases
all such liability. The waiver and release are part of the consideration for
the issuance of the Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the SEC
that such waiver is against public policy.
Concerning the Trustee
Bank of Montreal Trust Company is the Trustee under the Indenture and has
been appointed by Holdings as Registrar and Paying Agent with regard to the
Notes. Such bank may also act as a depository of funds for, or make loans to
and perform other services for, Holdings or its Affiliates in the ordinary
course of business in the future.
The Holders of a majority in principal amount at maturity of outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of its own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the Indenture.
The Trustee may resign at any time or may be removed by Holdings. If the
Trustee resigns, is removed or becomes incapable of acting as Trustee or if a
vacancy occurs in the office of the Trustee for any cause, a successor Trustee
shall be appointed in accordance with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject
to the provisions of, the Trust Indenture Act and the Indenture. The Indenture
also contains certain limitations on the right of the Trustee, as a creditor
of Holdings, to obtain payment of claims in certain cases, or to realize on
certain property received by it in respect of any such claims, as security or
otherwise.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
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Certain Definitions
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
Semi-Annual Accreted
Accrual Date Value
------------ ---------
<S> <C>
February 15, 1999............................................... $ 604.61
August 15, 1999................................................. $ 639.38
February 15, 2000............................................... $ 676.14
August 15, 2000................................................. $ 715.02
February 15, 2001............................................... $ 756.13
August 15, 2001................................................. $ 799.61
February 15, 2002............................................... $ 845.59
August 15, 2002................................................. $ 894.21
February 15, 2003............................................... $ 945.63
August 15, 2003................................................. $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
of a Note and (b) an amount equal to the product of (1) the Accreted Value
for the first Semi-Annual Accrual Date less such original issue price
multiplied by (2) a fraction, the numerator of which is the number of days
from the Issue Date to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the Issue Date to the first Semi-Annual Accrual Date, using a 360-day
year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b)
an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of any Person existing at the
time such Person becomes a Restricted Subsidiary or at the time it merges or
consolidates with Holdings or any Restricted Subsidiary or assumed in
connection with the acquisition of assets from such Person and not Incurred by
such Person in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary or such merger, consolidation or
acquisition.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by Holdings or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Capital
Stock of any other Person by Holdings or any Restricted Subsidiary, in either
case, pursuant to which such Person shall become a Restricted Subsidiary or
shall be consolidated, merged with or into Holdings or any Restricted
Subsidiary or (ii) any acquisition by Holdings or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating
unit or division or a line of business of such Person or which is otherwise
outside of the ordinary course of business.
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"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by Holdings or another Restricted Subsidiary
or (iii) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clause (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, Controlling or Controlled by or under direct or indirect common
Control with such specified Person.
"Affiliation Agreement" means the Umbrella Affiliation Agreement, the Cable
Payments Agreement and the Station Affiliation Agreements, each as amended
from time to time in accordance with the covenant under "--Certain Covenants--
Amendment of Affiliation Agreement."
"amend" means amend, supplement, modify, restate, amend and restate, renew
or extend, including successively; and "amended," "amending" and "amendment"
have meanings correlative thereto.
"Apollo" means Apollo Investment Fund III, L.P., Apollo Advisors II, L.P.
and Apollo Management, L.P. (the "Original Apollo Entities") and any Person
with respect to which the investment decisions, decisions as to the exercise
of voting or consensual rights and other material decisions are ultimately
controlled by substantially the same individual or individuals at the time
controlling such decisions as to any of the Original Apollo Entities and
without limitation such individual or individuals themselves.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by Holdings or any
Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law
to be held by a Person other than Holdings or a Restricted Subsidiary), (ii)
all or substantially all the assets (other than Capital Stock of an
Unrestricted Subsidiary) of any division or line of business of Holdings or
any Restricted Subsidiary, or (iii) any other assets (other than Capital Stock
of an Unrestricted Subsidiary) of Holdings or any Restricted Subsidiary
outside of the ordinary course of business of Holdings or such Restricted
Subsidiary (other than, in the case of (i), (ii) and (iii) above, (x) a
disposition by a Restricted Subsidiary to Holdings or by Holdings or a
Restricted Subsidiary to a Restricted Subsidiary and (y) for purposes of the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment permitted by the covenant described under "--Certain Covenants--
Limitation on Restricted Payments" or a disposition specifically excepted from
the definition of Restricted Payments); provided, however, that Asset
Disposition shall not include (a) a transaction or series of related
transactions for which Holdings or its Restricted Subsidiaries receive
aggregate consideration less than or equal to $1.0 million, (b) the sale,
lease, conveyance, disposition or other transfer of all or substantially all
of the assets of Holdings as permitted under "--Certain Covenants--Merger and
Consolidation"; (c) Asset Swaps permitted under "--Certain Covenants--
Limitation on Asset Swaps"; (d) a disposition of Temporary Cash Investments;
(e) the Network Sale; and (f) any transaction constituting a Change of
Control.
"Asset Swap" means the execution of a definitive agreement, subject only to
governmental approval and other customary closing conditions, that Holdings in
good faith believes will be satisfied, for a substantially concurrent purchase
and sale, or exchange, of Productive Assets between Holdings or any Restricted
Subsidiary and another Person or group of Persons; provided that any amendment
to or waiver of any closing condition which individually or in the aggregate
is material to the Asset Swap will be deemed to be a new Asset Swap; provided,
however, that the cash and other assets to be received by Holdings or such
Restricted Subsidiary which do not constitute Productive Assets do not
constitute more than 25% of the total consideration to be received by Holdings
or such Restricted Subsidiary in such Asset Swap.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations
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of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which
such lease has been extended) or until the earliest date on which the lessee
may terminate such lease without penalty.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means the Credit Agreement, dated as of August 4,
1998 among Holdings, TLMD Acquisition, as borrower, Credit Suisse First
Boston, as administrative agent, collateral agent and issuing bank, Canadian
Imperial Bank of Commerce, as documentation agent, and the lenders party
thereto, together with the related documents thereto (including, without
limitation, any guarantees, agreements and security documents), in each case,
as such agreements, in whole or in part, may be amended, increased (but only
so long as such increase is permitted under the terms of the Indenture) or
Refinanced in whole or in part by one or more separate agreements.
"Bastion" means Bastion Capital Fund, L.P., Bastion Partners L.P., and
Bastion Management Corp. (the "Original Bastion Entities") and/or any other
Person with respect to which the investment decisions as to the exercise of
voting or consensual rights and other material decisions are ultimately
controlled by substantially the same individual or individuals at the time
controlling such decisions as to any of the Original Bastion Entities
(including, without limitation, such individual or individuals themselves.)
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Cable Payments Agreement" means the Memorandum of Agreement dated the Issue
Date between Telemundo Network Group LLC and Telemundo regarding certain cable
payments.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity and, excluding any Network Rights (as defined in the Stockholders
Agreement).
"Chicago Joint Venture Agreement" means the Amended and Restated Partnership
Agreement of Video 44, dated as of February 26, 1996 by and among Essaness
Theatres Corporation, Telemundo of Chicago, Inc. and Video 44 Acquisition
Corp., Inc., as in effect on the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated EBITDA" for any period means the sum of Consolidated Net
Income plus the following to the extent deducted in calculating such
Consolidated Net Income: (a) Consolidated Interest Expense, (b) all income tax
expense of Holdings and the Restricted Subsidiaries, (c) depreciation expense,
(d) amortization expense, (e) Merger related expenses and (f) all other non-
cash items reducing such Consolidated Net Income
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(excluding any non-cash item to the extent it represents an accrual of, or
reserve for, cash disbursement for any subsequent period) less all non-cash
items increasing such Consolidated Net Income (such amount calculated pursuant
to this clause (f) not to be less than zero), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of Holdings
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be paid as a
dividend to Holdings by such Subsidiary without prior approval (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Consolidated Interest Expense" means, for any period, the total interest
expense, net of interest income, of Holdings and its consolidated Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP, plus, to the extent not included in such total interest expense,
and to the extent Incurred by Holdings or any Restricted Subsidiary, (i)
interest expense attributable to Capital Lease Obligations, (ii) amortization
of debt discount, (iii) capitalized interest, (iv) non-cash interest expense,
(v) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) Preferred
Stock dividends in respect of all Preferred Stock held by Persons other than
Holdings or a Restricted Subsidiary and (viii) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is guaranteed
by Holdings or any Restricted Subsidiary minus, to the extent included, (x)
any amortization or write-off or deferred financing costs of Holdings and the
Restricted Subsidiaries during such period and (y) any charge related to any
penalty or premium paid in connection with Refinancing any Indebtedness of
Holdings or any Restricted Subsidiary prior to its Stated Maturity.
"Consolidated Leverage Ratio" means the ratio of (a) the Total Consolidated
Indebtedness as of the date of calculation (the "Determination Date") to (b)
the Consolidated EBITDA for the most recent four consecutive fiscal quarters
for which financial information is available immediately preceding such
Determination Date (the "Measurement Period"). For purposes of calculating
Consolidated EBITDA for the Measurement Period immediately prior to the
relevant Determination Date, (I) any Person that is a Restricted Subsidiary on
the Determination Date (or would become a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated EBITDA) will be deemed to have been a
Restricted Subsidiary at all times during such Measurement Period, (II) any
Person that is not a Restricted Subsidiary on such Determination Date (or
would cease to be a Restricted Subsidiary on such Determination Date in
connection with the transaction that requires the determination of such
Consolidated EBITDA) will be deemed not to have been a Restricted Subsidiary
at any time during such Measurement Period or after the end of such period and
on or prior to such Determination Date, and (III) if Holdings or any
Restricted Subsidiary shall have in any manner (x) acquired (through an
Acquisition or the commencement of activities constituting an operating
business or asset) or (y) disposed of (by way of an Asset Disposition or the
Network Sale or the termination or discontinuance of activities constituting
such operating business or asset) any operating business or asset during such
Measurement Period or after the end of such period and on or prior to such
Determination Date, such calculation will be made on a pro forma basis as if,
in the case of an Acquisition or the commencement of activities constituting
such operating business or asset, all such transactions had been consummated
on the first day of such Measurement Period and, in the case of an Asset
Disposition or the Network Sale or termination or discontinuance of activities
constituting such operating business or asset, all such transactions had been
consummated prior to the first day of such Measurement Period (it being
understood that in calculating Consolidated EBITDA the exclusions set forth in
clauses (i) through (vi) of the definition of Consolidated Net Income shall
apply to an Acquired Person as if it were a Restricted Subsidiary).
"Consolidated Net Income" means, for any period, the net income of Holdings
and its consolidated Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP; provided, however, that there shall not be
included in such Consolidated Net Income: (i) any net income of any Person if
such Person
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is not a Restricted Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, Holdings' equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person during such
period (or, in the case of Video 44, in respect of such period pursuant to the
Chicago Joint Venture Agreement) to Holdings or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) Holdings' equity in a net loss of any such Person
for such period shall be included in determining such Consolidated Net Income
up to the aggregate amount invested by Holdings or any Restricted Subsidiary
in such Person; (ii) any net income (or loss) of any Person acquired by
Holdings or a Subsidiary of Holdings in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary to the extent that such Restricted Subsidiary is subject
to restrictions (other than the Permitted Restrictions), directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to Holdings, except that (A)
subject to the exclusion contained in clause (iv) below, Holdings' equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
Holdings or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
Holdings' equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income; (iv) any
gain or loss realized upon the sale or other disposition of any assets of
Holdings or its consolidated Subsidiaries (including pursuant to any sale-and-
leaseback arrangement) which is not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or
other disposition of any Capital Stock of any Person; (v) extraordinary gains
or losses; and (vi) the cumulative effect of a change in accounting
principles.
"Control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Cumulative Consolidated Interest Expense" means, as at any date of
determination, Consolidated Interest Expense during the period (taken as a
single accounting period) commencing on the Issue Date and ending on the last
day of the most recent fiscal quarter immediately preceding the date of
determination for which consolidated financial information of Holdings is
available.
"Cumulative EBITDA" means, as at any date of determination, the positive
cumulative Consolidated EBITDA realized during the period (taken as a single
accounting period) commencing on the Issue Date and ending on the last day of
the most recent fiscal quarter immediately preceding the date of determination
for which
consolidated financial information of Holdings is available or, if such
cumulative Consolidated EBITDA for such period is negative, the negative
amount by which cumulative Consolidated EBITDA is less than zero.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Disqualified Stock, or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the 91st day
following the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
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thereof giving holders thereof the right to require such Person to redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock" and "--Certain Covenants--
Change of Control."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time applied on a consistent basis for
all applicable periods, including those set forth (i) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (ii) in statements and pronouncements of the
Financial Accounting Standards Board, (iii) in such other statements by such
other entity as approved by a significant segment of the accounting
profession, and (iv) in the rules and regulations of the SEC governing the
inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb (and the
participle formed therefrom) shall have a correlative meaning. The term
"guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
determined in accordance with GAAP pursuant to any Interest Rate Agreement or
Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for
Indebtedness; provided, however, that any Indebtedness of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" shall have a
correlative meaning. Neither the accrual of interest nor the accretion of
principal of a non-interest bearing or other discount security shall be deemed
the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt in
respect of Sale/Leaseback Transactions entered into by such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such Person and all obligations
of such Person under any title retention agreement (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn
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upon, or, if and to the extent drawn upon, such drawing is reimbursed no later
than the tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary
of such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any guarantee (exclusive of endorsements of negotiable instruments in the
ordinary course of business) but only to the extent of the lesser of the
amount of such obligations and the maximum liability of such Person for the
payment of such obligations; (vii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by any Lien on any property
or asset of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured;
and (viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person (it being understood that Indebtedness shall not
include ordinary course payment obligations (not described in the foregoing
clauses (i) through (viii)) pursuant to a Local Marketing Agreement). For
purposes of the preceding sentence, the maximum fixed repurchase price of any
Disqualified Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture; provided, however, that
if such Disqualified Stock is not then permitted to be repurchased, the
repurchase price shall be the book value of such Disqualified Stock. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date; provided, however,
that for purposes of calculating the amount of any non-interest bearing or
other discount security, such indebtedness shall be deemed to be the principal
amount thereof that would be shown on the balance sheet of the issuer dated
such date prepared in accordance with GAAP.
"Interest" means, with respect to the Notes, the sum of any interest and any
Additional Interest on the Notes.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect Holdings or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of guarantee
or similar arrangement or negotiable instruments held for collection) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person.
"Issue Date" means the date of original issuance of the Old Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for
the intervening period. If a regular record date is a Legal Holiday, the
record shall not be affected.
"Liberty" means Liberty Media Corporation and its successors, Tele-
Communications Inc. and its successors, and their respective Affiliates.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Local Marketing Agreement" means a local marketing arrangement, sale
agreement, time brokerage agreement, management agreement or similar
arrangement pursuant to which a Person: (a) obtains the right to sell at least
a majority of the advertising inventory of a television station on behalf of a
third party, (b) purchases at least a majority of the air time of a television
station to exhibit programming and sell advertising time, (c) manages the
selling operations of a television station with respect to at least a majority
of the advertising inventory of such station, (d) manages the acquisition of
programming for a television station, (e) acts as a program consultant for a
television station or (f) manages the operation of a television station
generally.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, brokerage commissions, underwriting discounts or commissions or
sales commissions and other reasonable fees and expenses (including, without
limitation, fees and expenses of counsel, accountants and investment bankers)
related to such Asset Disposition or converting to cash any other proceeds
received, and any relocation and severance expenses as a result thereof, and
all federal, state, provincial, foreign and local taxes attributable to such
Asset Disposition, (ii) all payments made on any Indebtedness which is secured
by any assets subject to such Asset Disposition or made in order to obtain a
necessary consent to such Asset Disposition or to comply with applicable law,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by Holdings
or any Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition. Further, with respect to
an Asset Disposition by a Subsidiary which is not a Wholly Owned Restricted
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of
the equity of such Subsidiary which is not owned by Holdings.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Network Sale Agreement" means the Purchase Agreement dated as of the Issue
Date among Telemundo, Telemundo Network, Inc. and Telemundo Network Group LLC.
"Permitted Holders" means (i) Apollo, (ii) Bastion, (iii) Liberty, (iv) Sony
Pictures, and (v) any transferee of the shares of Capital Stock of Holdings
(or any rights to purchase any such Capital Stock) owned by Station Partners
on the date of the Indenture in accordance with the express provisions of the
Stockholders' Agreement.
"Permitted Investment" means (i) any Investment in Holdings or any
Restricted Subsidiary or a Person that will, upon the making of such
Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Person is a Related Business; (ii) an Investment in
any Person, if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all
its assets to, Holdings or any Restricted Subsidiary; provided, however, that
such Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to Holdings or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as Holdings
or any such Restricted Subsidiary deems reasonable under the circumstances;
(v) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as
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expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to officers and employees made in the
ordinary course of business consistent with past practices of Holdings or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
Holdings or any Restricted Subsidiary or in satisfaction of judgments or
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of trade debtors or customers of Holdings or any
Restricted Subsidiary or upon the foreclosure, perfection or enforcement of a
Lien in favor of Holdings or any Restricted Subsidiary that arose in the
ordinary course of business of Holdings or such Restricted Subsidiary; (viii)
an Investment in any Person to the extent such Investment represents the non-
cash portion of the consideration received for an Asset Disposition as
permitted pursuant to the covenant described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock"; (ix) an Investment in a
joint venture, any Person engaged in a Related Business or any Unrestricted
Subsidiary; provided that the aggregate amount of all such Investments
outstanding at any time shall not exceed $35 million; (x) Hedging Obligations
entered into in compliance with the terms of the Indenture; (xi) an Investment
held by any Person on the date such Person becomes a Restricted Subsidiary so
long as such Investments were not made in contemplation of such acquisition;
(xii) an Investment in any Person with which Holdings or any Restricted
Subsidiary has entered into, or has an agreement that, subject to consummation
of such agreement, entitles Holdings or any Restricted Subsidiary to enter
into a Local Marketing Agreement and in any Person created by such a Local
Market Agreement; provided that the aggregate amount of all such Investments,
together with the aggregate amount of Indebtedness Incurred pursuant to clause
(b)(12) of the "--Limitation on Indebtedness" covenant, shall not exceed $10
million at any time outstanding; (xiii) any Investment made with Qualified
Stock or acquired as a capital contribution to Holdings; and (xiv) any
Investment required by Section 3.5(a) of the Chicago Joint Venture Agreement.
"Permitted Liens" means, with respect to any Person, (a) Liens incurred or
pledges or deposits by such Person under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits or cash or United
States government bonds to secure surety or appeal bonds to which such Person
is a party, performance bonds and other obligations of a like nature incurred
in the ordinary course of business, or deposits as security for contested
taxes or import duties or for the payment of rent, in each case incurred in
the ordinary course of business; (b) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due or
being contested in good faith by appropriate proceedings; (c) Liens arising
out of judgments or awards against such Person with respect to which such
Person shall then be proceeding with an appeal or other proceedings for review
or time for appeal has not yet expired; (d) Liens for taxes, assessments or
other governmental charges not yet subject to penalties for non-payment or
which are being contested in good faith by appropriate proceedings; (e) Liens
in favor of issuers of surety bonds or letters of credit issued pursuant to
the request of and for the account of such Person in the ordinary course of
its business; provided, however, that such letters of credit do not constitute
Indebtedness; (f) survey exceptions, encumbrances, easements or reservations
of or rights of others for licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness and which do not in
the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of such Person;
(g) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted under the Indenture to be, secured by a Lien
on the same property securing the Interest Rate Agreement; (h) Liens securing
Currency Agreements so long as the related Indebtedness is, and is permitted
under the Indenture to be, secured by a Lien on the same property securing
such Currency Agreement; (i) Liens in favor of Holdings and its Wholly Owned
Restricted Subsidiaries; (j) Liens relating to any license of intellectual
property entered into in the ordinary course of business (including
programming agreements); (k) Liens pursuant to Local Marketing Agreements and
not securing any Indebtedness; (l) minor imperfections of, or encumbrances on,
title that do not impair the value of property for its intended use; and (m)
Liens, leases and subleases of real property which do not interfere with the
ordinary conduct of the business of such Person, and which are made on
customary and usual terms applicable to similar properties.
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"Permitted Restrictions" means (i) the encumbrances or restrictions
contained in the Bank Credit Agreement as in effect on the date of the
Indenture or as thereafter amended in a manner no less favorable to the
Holders in any material respect as determined in good faith by the Board of
Directors of Holdings and (ii) any encumbrance or restriction contained in any
other agreement governing Indebtedness of any Restricted Subsidiary permitted
under the Indenture which encumbrance or restriction does not prohibit (except
upon a default or event of default thereunder) the payment of dividends in an
amount sufficient to cover scheduled payments of cash interest on the Notes.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Productive Assets" means assets used or useful in the ownership or
operation of a Related Business of Holdings or any Restricted Subsidiary,
including any and all licenses, franchises and assets related thereto.
"Public Equity Offering" means an underwritten public offering of common
stock of Holdings pursuant to an effective registration statement under the
Securities Act that yields not less than $25.0 million in gross proceeds,
which for purposes of the provisions described under "--Optional Redemption"
only shall be a primary offering for the account of Holdings.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of assets, the amount of which Indebtedness
does not exceed the sum of (i) 100% of the lesser of such cost or the fair
market value of such assets, as determined in good faith by the Board of
Directors of Holdings, and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Qualified Stock" means any Capital Stock of Holdings that is not
Disqualified Stock.
"redeem" means redeem, repurchase, defease or otherwise acquire or retire
for value; and "redemption" and "redeemed" have correlative meanings thereto.
"Refinance" means refinance, renew, extend, replace, defease or refund, in
whole or in part, including successively; and "Refinancing" and "Refinanced"
have correlative meanings thereto.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Holdings or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided, further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of
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Holdings or (y) Indebtedness of Holdings or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of Holdings, Telemundo or any of its Subsidiaries or the
Network Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in Qualified Stock and dividends or distributions payable to
Holdings or a Restricted Subsidiary, and other than pro rata dividends or
other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary
to minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of Holdings held by any Person or of any Capital Stock of a Restricted
Subsidiary held by any Affiliate of Holdings (other than a Restricted
Subsidiary), including the exercise of any option to exchange any Capital
Stock (other than into Qualified Stock), (iii) with respect to Holdings, the
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying of a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition), or (iv) the making of any Investment in any Person
(other than a Permitted Investment), including by designation of any
Subsidiary as an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of Holdings that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Holdings secured by a Lien.
"Sharing Agreement" means the agreement expected to be entered into between
Holdings and Telemundo Network Group LLC, pursuant to which they will share
certain facilities, equipment and administrative services, as in effect from
time to time.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Sony Pictures" means Sony Pictures Entertainment Inc. and its successors,
Sony Corporation of America and its successors, and their respective
Affiliates.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Station Affiliation Agreements" means the several Station Affiliation
Agreements dated the Issue Date between Telemundo Network Group LLC and
certain subsidiaries of Telemundo and any other agreement in substantially the
same form with respect to any future television station of Telemundo or any
Restricted Subsidiary.
"Stockholders Agreement" means the Agreement dated as of the Issue Date
among Holdings, Apollo, Bastion, Station Partners, Liberty and Sony Pictures,
as in effect on such date.
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"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Issue Date or thereafter incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person.
"S&P" means Standard & Poor's Ratings Group.
"Telemundo" means Telemundo Group, Inc., a Delaware corporation.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, demand deposits, Eurodollar
deposits, certificates of deposit and money market deposits maturing within
365 days of the date of acquisition thereof issued by a bank or trust company
which is organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50,000,000 (or the foreign currency equivalent thereof) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 180 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
Holdings) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-2" (or
higher) according to Moody's or "A-2" (or higher) according to S&P,
(v) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and
(vi) investments in money market funds that make investments in instruments of
the type described in clauses (i) through (v) above in accordance with the
regulations of the SEC under the Investment Company Act of 1940, as amended.
"Total Consolidated Indebtedness" means, as at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of Holdings and the
Restricted Subsidiaries outstanding on a consolidated basis as of such date of
determination, after giving pro forma effect to any Incurrence of Indebtedness
and the application of the proceeds, including the repayment of any
Indebtedness, therefrom giving rise to such determination.
"Umbrella Affiliation Agreement" means the Memorandum of Agreement dated the
Issue Date between Telemundo Network Group LLC and Telemundo regarding, among
other things, revenue sharing.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors of Holdings in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. Video 44 shall be deemed to have
been designated an Unrestricted Subsidiary as of the Issue Date. The Board of
Directors of Holdings may designate any Subsidiary of Holdings (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, Holdings or any other
Subsidiary of Holdings that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or
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less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under "--Certain
Covenants--Limitation on Restricted Payments." The Board of Directors of
Holdings may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) if such Unrestricted Subsidiary at such time has Indebtedness,
Holdings could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "--Certain Covenants-- Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors of Holdings shall be evidenced by
Holdings to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which
its full faith and credit is pledged or (y) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the timely payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
"Video 44" means Video 44, an Illinois general partnership formed under the
Chicago Joint Venture Agreement.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable law
to be held by a Person other than Holdings or a Restricted Subsidiary) is
owned by Holdings or one or more Wholly Owned Restricted Subsidiaries.
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BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be issued in the form of one or more fully registered
Notes in global form ("Global Notes"). The Global Notes will be deposited
with, or on behalf of, the Depositary and registered in the name of the
Depositary or its nominee. Except as set forth below, the Global Notes may be
transferred, in whole and not in part, only to the Depositary or another
nominee of the Depositary. Investors may hold their beneficial interests in
the Global Notes directly through the Depositary if they have an account with
the Depositary or indirectly through organizations which have accounts with
the Depositary.
New Notes that are issued as described below under "Certificated Notes" will
be issued in definitive certificated form. Upon the transfer of Old Notes in
definitive certificated form to a QIB, such Old Notes will, unless the Global
Note representing the principal amount of Old Notes being transferred has
previously been exchanged for Old Notes in definitive certificated form, be
exchanged for an interest in such Global Note.
The Depositary has advised Holdings as follows: the Depositary is a limited-
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Notes, the Depositary will credit, on its
book-entry registration and transfer system, the amount of New Notes
represented by such Global Notes to the accounts of participants. Ownership of
beneficial interests in the Global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depositary or its nominee (with respect to participants' interests) for such
Global Notes, or by participants or persons that hold interests through
participants (with respect to the beneficial interests in the Global Notes of
persons other than participants). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in the Global Notes.
So long as the Depositary, or its nominee, is the registered holder and
owner of any Global Notes, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the New Notes
represented by such Global Notes for all purposes under the Indenture and the
New Notes. Except as set forth below, owners of beneficial interests in Global
Notes will not be entitled to have such Global Notes registered in their
names, will not receive or be entitled to receive physical delivery of
certificated New Notes in definitive form and will not be considered to be the
owners or holders of such Global Notes for any purpose under the New Notes or
the Indenture. Holdings understands that under existing industry practice, in
the event an owner of a beneficial interest in a Global Note desires to take
any action that the Depositary, as the holder of such Global Note, is entitled
to take, the Depositary would authorize the participants to take such action,
and that the participants would authorize beneficial owners owning through
such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and interest on New Notes represented by Global
Notes registered in the name of and held by the Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the
registered owner and holder of the Global Notes.
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Holdings expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of the Depositary or its nominee. Holdings also expects
that payments by participants to owners of beneficial interests in the Global
Notes held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants.
None of the Trustee, Holdings or any paying agent for the Global Notes will
have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in any of
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of
relationship between the Depositary and its participants or the relationship
between such participants and the owners of beneficial interests in the Global
Notes owning through such participants.
Unless and until exchanged in whole or in part for certificated New Notes in
definitive form, the Global Notes may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor Holdings will have any responsibility for the performance by
the Depositary or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Certificated Notes
The New Notes represented by the Global Notes are exchangeable for
certificated Notes in definitive form of like tenor as such New Notes in
denominations of $1,000 and integral multiples thereof if (i) the Depositary
notifies Holdings that it is unwilling or unable to continue as Depositary for
the Global Notes or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act and, in either case, Holdings fails
to appoint a successor depositary within 90 days; (ii) Holdings in its
discretion at any time determines not to have all of the New Notes represented
by the Global Notes or (iii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the
Depositary to issue certificated New Notes. Any New Notes that are
exchangeable pursuant to the preceding sentence are exchangeable for
certificated New Notes issuable in authorized denominations and registered in
such names as the Depositary shall direct. Subject to the foregoing, the
Global Notes are not exchangeable, except for the Global Notes of the same
aggregate denomination to be registered in the name of the Depositary or its
nominee.
Neither Holdings nor the Trustee will be liable for any delay by the
Depositary or its nominee in indemnifying the beneficial owners of the New
Notes, and Holdings and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Depositary or its nominee for
all purposes.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain U.S. federal income tax consequences
of an investment in the Notes. Except where noted, it deals only with Notes
that are held as capital assets (generally, property held for investment) by
holders that are United States Persons (as defined below) and does not deal
with special situations, such as those of foreign persons, dealers in
securities, financial institutions, life insurance companies, holders whose
"functional currency" is not the United States dollar, or holders that hold
the Notes as part of a hedge, conversion transaction, straddle or other risk
reduction transaction. Furthermore, the discussion below is based upon the
provisions of the Code, and Treasury regulations, administrative rulings and
judicial decisions thereunder, all as of the date hereof. Such authorities may
be repealed, revoked or modified, possibly with retroactive effect, so as to
result in U.S. federal income tax consequences different from those discussed
below. PROSPECTIVE PURCHASERS CONSIDERING AN INVESTMENT IN THE NOTES ARE URGED
TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS THAT MAY BE SPECIFIC TO THEM AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, "United States Person" means a beneficial owner of a Note
who or which is (i) a citizen or resident of the United States, (ii) a
corporation or a partnership for U.S. federal income tax purposes and that is
organized in or under the laws of the United States or any state thereof or
the District of Columbia (although certain partnerships so organized may be
treated, under regulations not yet published, as not a United States Person),
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States Persons have the authority to control all
substantial decisions of the trust.
Exchange
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. A holder should have the same adjusted
basis and holding period in the New Notes immediately after the Exchange Offer
as it had in the Old Notes immediately before the Exchange Offer.
Original Issue Discount
The Notes have been issued with original issue discount ("OID") for U.S.
federal income tax purposes. Accordingly, each holder of a Note generally will
be required to include OID in gross income as it accrues on a yield-to-
maturity basis over the term of the Notes in advance of the receipt of any
cash payment attributable to such income (regardless of whether the holder is
a cash or accrual basis taxpayer). The amount of OID with respect to a Note
will be the excess of the stated redemption price at maturity of such Note
over its issue price. The stated redemption price at maturity of a Note
generally will include all payments required to be made on the Note, whether
denominated as principal or interest. The issue price of a Note is the first
price at which a substantial amount of the Old Notes were sold for money
(other than sales to bond houses, brokers, similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers,
including the Initial Purchasers).
A holder of a debt instrument that bears OID is required to include in gross
income an amount equal to the sum of the daily portions of OID for each day
during the taxable year in which the debt instrument is held. The daily
portions of OID are determined by allocating to each day in an accrual period
the pro rata portion of the OID that is allocable to the accrual period. The
amount of OID that is allocable to an accrual period generally is equal to the
product of the adjusted issue price of the Notes at the beginning of the
accrual period (the issue price of the Notes determined as described above,
generally increased by all prior accruals of OID and decreased by the amount
of any payments made on the Notes) and the Notes' yield-to-maturity (the
discount rate, which, when applied to all payments under the Notes, results in
a present value equal to the issue price of the Notes). In
110
<PAGE>
the case of the final accrual period, the allocable OID generally is the
difference between the amount payable at maturity and the adjusted issue price
at the beginning of the accrual period.
The Company will furnish annually to the Internal Revenue Service (the
"Service") and to holders (other than with respect to certain exempt holders,
including, in particular, corporations) information with respect to the OID
accruing while the Notes were held by the holders. Holders may be required to
include different amounts of OID in gross income based on their individual
circumstances, such as the acquisition of a Note for an amount in excess of
its adjusted issue price (as discussed below).
Certain Potential Federal Income Tax Consequences to the Company and to
Corporate Holders
The Notes constitute applicable high yield discount obligations ("AHYDOs")
as their yield to maturity exceeds the sum of the relevant applicable federal
rate (the "AFR") plus five percentage points, and the Notes have been issued
with significant OID. Under the rules applicable to AHYDOs, the Company will
not be entitled to deduct OID that accrues with respect to such Notes until
amounts attributable to such OID are paid. The Company does not expect that
the loss of this deduction on a current basis would have a material adverse
effect on the Company's financial condition or results of operations. Subject
to otherwise applicable limitations, holders that are corporations will be
entitled to a dividends-received deduction (generally at a rate of 70%) with
respect to any disqualified portion of the accrued OID to the extent that the
Company has sufficient current or accumulated earnings and profits. If the
disqualified portion exceeds the Company's current and accumulated earnings
and profits, the excess will continue to be taxed as ordinary OID income in
accordance with the rules described above in "Original Issue Discount."
Disposition of Notes
A holder will generally recognize gain or loss upon the sale, exchange,
retirement or other disposition of Notes equal to the difference between the
amount realized on the disposition and the holder's adjusted tax basis in the
Notes. A holder's adjusted tax basis in a Note will generally be the cost of
such Note, increased by the amount of OID previously included in income by
such holder, and decreased by the amount of any payments that are not
Additional Interest. Such gain or loss generally would be capital gain or
loss, and will be long-term capital gain or loss if at the time of the sale,
exchange, retirement or other disposition the holder has held the Note for
more than one year. For holders that are individuals, estates or trusts, the
maximum rate of U.S. federal income taxation on long-term capital gains
generally is 20%.
Backup Withholding
Under certain circumstances, a holder may be subject to backup withholding
at a 31% rate on payments received with respect to the Notes. This withholding
generally applies only if the holder (i) fails to furnish his or her social
security or other taxpayer identification number ("TIN"); (ii) furnishes an
incorrect TIN; (iii) is notified by the Service that he or she has failed to
report payment of interest and dividends properly and the Service has notified
the Company that he or she is subject to backup withholding or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is his or her correct number and
that he or she is not subject to backup withholding. Any amount withheld from
a payment to a holder under the backup withholding rules is allowable as a
credit against such holder's U.S. federal income tax liability, provided that
the required information is furnished to the Service. Certain holders
(including, among others, corporations) are not subject to backup withholding.
Holders should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
111
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 1999, all dealers effecting transactions
in the New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and be
delivering a Prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the reasonable expenses of one counsel for the
Holders of the New Notes) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes will be
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., New
York, New York.
EXPERTS
The financial statements included in this Prospectus and the related
financial statement schedules included elsewhere in the Registration Statement
and the financial statements from which the Selected Financial Data included
in the Prospectus have been derived have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein. Such
financial statements, financial statement schedules and Selected Financial
Data have been included herein in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Consolidated Financial Statement--Telemundo Holdings, Inc.
Independent Auditors' Report of Deloitte & Touche LLP................... F-2
Consolidated Balance Sheet at June 30, 1998............................. F-3
Notes to Consolidated Balance Sheet..................................... F-4
Unaudited Consolidated Financial Statements--Telemundo Holdings, Inc.*
Consolidated Statements of Operations for the period August 13, 1998 to
September 30, 1998 and of the Predecessor* for the period July 1, 1998
to August 12, 1998, the period January 1, 1998 to August 12, 1998 and
the three and nine months ended September 30, 1997 (Unaudited).......... F-6
Consolidated Balance Sheets at September 30, 1998 (Unaudited) and of the
Predecessor* at December 31, 1997...................................... F-7
Consolidated Statement of Changes in Common Stockholders' Equity for the
period August 13, 1998 to September 30, 1998 and of the Predecessor*
for the period January 1, 1998 to August 12, 1998 (Unaudited).......... F-8
Consolidated Statements of Cash Flows for the period August 13, 1998 to
September 30, 1998 and of the Predecessor* for the period January 1,
1998 to August 12, 1998 and the nine months ended September 30, 1997
(Unaudited)............................................................. F-9
Notes to Consolidated Financial Statements (Unaudited).................. F-10
Audited Consolidated Financial Statements--Telemundo Group, Inc.
Independent Auditors' Report of Deloitte & Touche LLP................... F-15
Independent Certified Public Accountants' Report of Arthur Andersen
LLP..................................................................... F-16
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997..................................................... F-17
Consolidated Balance Sheets at December 31, 1996 and 1997............... F-18
Consolidated Statements of Changes in Common Stockholders' Equity for
the years ended
December 31, 1995, 1996 and 1997....................................... F-19
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-20
Notes to Consolidated Financial Statements.............................. F-21
</TABLE>
- --------
* As used in these financial statements, unless the context otherwise
requires, the "Company" refers to Telemundo Holdings, Inc. and the
"Predecessor" refers to Telemundo Group, Inc. with respect to periods prior
to the Merger (as defined herein).
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Telemundo Holdings, Inc.
Hialeah, Florida
We have audited the accompanying consolidated balance sheet of Telemundo
Holdings, Inc. as of June 30, 1998. This balance sheet is the responsibility
of the Company's management. Our responsibility is to express an opinion this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the consolidated financial position of the Company as of June 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, NY
January 7, 1999
F-2
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARY
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
June 30,
Assets 1998
------ --------
<S> <C>
Total Assets...................................................... $ --
=====
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C>
Total Liabilities................................................. $ --
Stockholders' Equity.............................................. --
-----
$ --
=====
</TABLE>
See notes to financial statements
F-3
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
Telemundo Holdings, Inc. ("Holdings", collectively with its subsidiaries, the
"Company") was formed on November 17, 1997 for the purpose of acquiring
Telemundo Group, Inc. ("Telemundo") through TLMD Acquisition Co., its wholly-
owned subsidiary. No shares were issued and Holdings was not capitalized until
August 12, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings and its
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the consolidated balance sheet in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain amounts reported in the balance sheet and
accompanying notes. Actual results could differ from those estimates.
3. SUBSEQUENT EVENTS
On August 12, 1998, TLMD Acquisition Co., merged with and into Telemundo, with
Telemundo being the surviving corporation and becoming a wholly-owned
subsidiary of Holdings (the "Merger"). Holdings is owned 50.1% by Station
Partners, LLC, 24.95% by Sony Pictures Entertainment Inc. ("SPE") and 24.95%
by Liberty Media Corporation ("Liberty") (collectively, the "Purchaser").
Station Partners, LLC is owned 68.0% by Apollo Investment Fund III, L.P.
("Apollo") and 32.0% by Bastion Capital Fund, L.P. ("Bastion").
Pursuant to the Merger, each outstanding share of Telemundo common stock, par
value $0.1 per share, was converted into the right to receive $44.12537 in
cash.
Substantially contemporaneously with the completion of the Merger, TLMD
Acquisition Co. accepted for payment an aggregate of $191.7 million principal
amount of the outstanding 10.5% Senior Notes Due 2006 (the "10.5% Notes") of
Telemundo (representing 99.8% of such issue) tendered in connection with a
tender offer by TLMD Acquisition Co. pursuant to an Offer to Purchase as
amended on July 20, 1998 (the "Tender Offer").
In connection with the Merger, Telemundo entered into new credit facilities
(the "New Credit Facilities") providing for aggregate borrowings of up to
$350.0 million and Holdings received equity contributions (the "Equity
Contributions") aggregating $274.0 million from its shareholders, the proceeds
of which were used to fund the Merger, refinance existing indebtedness of
Telemundo and pay fees and expenses of the related transactions. In connection
with the New Credit Facilities, Telemundo terminated its revolving credit
facility that was existing prior to the Merger ("Old Credit Facility"). In
addition, Holdings completed an offering of $218.8 million aggregate principal
amount at maturity of 11.5% Senior Discount Notes Due 2008 (the "Senior
Discount Notes"), which were issued at a discount and structured to produce a
yield to maturity of 11.5% per annum, the proceeds of which were also used to
fund the Merger, refinance existing indebtedness of Telemundo and pay fees and
expenses of the related transactions.
Also in connection with the Merger, Telemundo sold substantially all of the
programming and production assets of its network operations (the "Telemundo
Network") to Telemundo Network Group LLC (the "Network Company"), which is
equally owned by a subsidiary of SPE and a subsidiary of Liberty for $74.0
million (the
F-4
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
"Network Sale"). The Network Company entered into affiliation agreements with
the Company's owned and operated stations (collectively, the "Affiliation
Agreements") pursuant to which the Network Company provides network
programming to the Company, and the Company and the Network Company pool and
allocate local, national spot and network advertising revenues based upon a
formula ("Station Compensation Pool"). The Station Compensation Pool consists
of the following revenue sources (collectively, the "Aggregate Net Advertising
Receipts"): (i) 61% of the net advertising revenues received by the Network
Company pursuant to the sale of network advertising and block time (time made
available for paid programming); and (ii) 100% of the net advertising revenues
received by the Company (excluding WKAQ in Puerto Rico) from the sale of
"spot" and local advertising time and local and national block time. The
Station Compensation Pool is shared between the Company and the Network
Company, with the Company's allocation based on the following formula: (i) 80%
of the first $130 million of Aggregate Net Advertising Receipts; plus (ii) 55%
of the incremental Aggregate Net Advertising Receipts above $130 million up to
$230 million; plus (iii) 45% of the incremental Aggregate Net Advertising
Receipts above $230 million. After the initial year, the threshold levels
(i.e., $130 million and $230 million) will be increased 3% annually.
Holdings had no operations prior to the Merger. The Merger was accounted for
under the purchase method of accounting. The aggregate consideration paid in
connection with the Merger and the related transactions was approximately
$777.6 million. Of this amount, $300.0 million was provided from borrowings
under the New Credit Facilities, $125.0 million was provided from the proceeds
of the Senior Discount Notes offering, $274.0 was provided from the Equity
Contributions and $74.0 million was provided from the Network Sale.
In November 1997, after the announcement of the proposed Merger, Telemundo and
its directors were named as defendants in six purported class actions filed on
behalf of Telemundo's public stockholders. The suits are virtually identical
and allege that Telemundo and its directors violated fiduciary duties owed to
Telemundo's public stockholders by entering into the merger agreement with the
Purchaser. The six actions were consolidated for all purposes, however, to
date none of the defendants has been required to answer, move or otherwise
respond to the complaint and no discovery has been taken. The Company believes
that the allegations contained in the complaint are without merit and intends
to contest the action vigorously. The Company believes that the outcome of the
suits will not have a material adverse effect on the Company's consolidated
results of operations or financial position.
F-5
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------------- -------------
Three months Nine months
ended ended July 1 to January 1 to August 13 to
September 30, September 30, August 12, August 12, September 30,
1997 1997 1998 1998 1998
------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net revenue............................................... $48,646 $139,427 $23,135 $124,671 $21,819
Costs and expenses:
Direct operating costs................................... 24,571 74,148 10,762 63,861 7,518
Selling, general and administrative expenses other than
network and corporate................................... 9,023 28,886 4,900 25,515 5,599
Network expenses......................................... 6,720 18,783 3,390 18,546 --
Corporate expenses....................................... 1,262 3,588 787 4,130 717
Depreciation and amortization............................ 3,396 10,439 1,546 9,024 2,662
------- -------- ------- -------- -------
44,972 135,844 21,385 121,076 16,496
------- -------- ------- -------- -------
Operating income.......................................... 3,674 3,583 1,750 3,595 5,323
Merger related expenses................................... -- -- (2,694) (5,506) --
Interest expense--net..................................... (5,307) (15,517) (2,386) (13,067) (5,254)
------- -------- ------- -------- -------
Income (loss) before income taxes and minority interest... (1,633) (11,934) (3,330) (14,978) 69
Income tax provision...................................... (1,050) (3,133) (776) (3,113) (692)
Minority interest......................................... (702) (2,106) (356) (1,898) (196)
- --------------------------------------------------
------- -------- ------- -------- -------
Net loss.................................................. $(3,385) $(17,173) $(4,462) $(19,989) $ (819)
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
----------- ------------
December 31 September 30
Assets 1997 1998
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................................... $ 2,378 $ 10,328
Accounts receivable, less allowance for doubtful accounts of $8,836 and $7,583...................... 54,155 36,770
Television programming.............................................................................. 15,154 8,114
Prepaid expenses and other.......................................................................... 9,287 3,564
Due from Network Company, net....................................................................... -- 2,514
-------- --------
Total current assets.............................................................................. 80,974 61,290
Property and equipment, net........................................................................... 66,602 44,511
Television programming................................................................................ 6,779 1,062
Other assets.......................................................................................... 7,365 16,018
Broadcast licenses and other intangible assets........................................................ 128,366 578,097
-------- --------
$290,086 $700,978
======== ========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................................... $ 7,726 $ 6,468
Accrued expenses and other.......................................................................... 22,761 33,245
Television programming obligations.................................................................. 5,911 1,747
-------- --------
Total current liabilities......................................................................... 36,398 41,460
Long-term debt........................................................................................ 189,081 408,261
Capital lease obligations............................................................................. 5,120 --
Television programming obligations.................................................................... 399 93
Other liabilities..................................................................................... 23,845 32,567
-------- --------
254,843 482,381
-------- --------
Minority interest..................................................................................... 5,334 5,403
-------- --------
Contingencies and commitments
Common stockholders' equity:
Common Stock, $.01 par value, 10,000 shares authorized and
outstanding at September 30, 1998.................................................................. -- --
Predecessor Series A Common Stock, $.01 par value, 14,388,394 shares
authorized, 7,129,614 shares outstanding at December 31, 1997...................................... 71 --
Predecessor Series B Common Stock, $.01 par value, 5,611,606 shares
authorized, 3,088,341 shares outstanding at December 31, 1997...................................... 31 --
Additional paid-in capital............................................................................ 71,761 214,013
Accumulated deficit................................................................................... (41,954) (819)
-------- --------
29,909 213,194
-------- --------
- -------------------------------------------------- $290,086 $700,978
======== ========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Number of Shares
Outstanding Common Stock
----------------------------- ------------------------
Series A Series B Series A Series B Additional Common
Common Common Common Common Common Common Paid-In Accumulated Stockholders'
Stock Stock Stock Stock Stock Stock Capital Deficit Equity
------ ---------- ---------- ------ -------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
Balance, January 1,
1998................... -- 7,129,614 3,088,341 -- $ 71 $ 31 $ 71,761 $(41,954) $ 29,909
Net loss................ -- -- -- -- -- -- -- (19,989) (19,989)
Warrant conversions..... -- 523,988 -- -- 5 -- 3,742 -- 3,747
Stock conversions....... -- 1,843 (1,843) -- -- -- -- -- --
------ ---------- ---------- --- ---- ---- -------- -------- --------
Balance, August 12,
1998................... -- 7,655,445 3,086,498 -- 76 31 75,503 (61,943) 13,667
Company:
Elimination of former
equity interests....... -- (7,655,445) (3,086,498) -- (76) (31) (75,503) 61,943 (13,667)
Common Stock issued in
connection with the
Merger................. 10,000 -- -- -- -- -- 273,993 -- 273,993
Distribution in excess
of Predecessor basis... -- -- -- -- -- -- (59,980) -- (59,980)
Net loss................ -- -- -- -- -- -- -- (819) (819)
------ ---------- ---------- --- ---- ---- -------- -------- --------
Balance, September 30,
1998................... 10,000 -- -- -- -- -- $214,013 $ (819) $213,194
====== ========== ========== === ==== ==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------------- -------------
Nine months
ended January 1 to August 13 to
September 30, August 12, September 30,
1997 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................. $(17,173) $(19,989) $ (819)
Charges not affecting cash:
Depreciation and amortization...................................................... 10,439 9,024 2,662
Interest accretion................................................................. 4,097 3,732 1,965
Minority interest.................................................................. 2,106 1,898 196
Changes in assets and liabilities:
Accounts receivable................................................................ 7,102 8,753 8,632
Television programming............................................................. (4,195) (462) (421)
Television programming obligations................................................. (623) (1,684) (372)
Due from Network Company........................................................... -- -- (2,514)
Accounts payable and accrued expenses and other.................................... (8,601) 12,513 (1,557)
-------- -------- ---------
Cash flows provided from (used in) operating activities.......................... (6,848) 13,785 7,772
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Additions to property and equipment.................................................. (8,199) (6,843) (484)
-------- -------- ---------
Cash flows used in investing activity............................................ (8,199) (6,843) (484)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under New Credit Facilities................................. -- -- 300,000
Payments under New Credit Facilities................................................. -- -- (19,000)
Proceeds from Equity Contributions................................................... -- -- 273,993
Proceeds from issuance of Senior Discount Notes...................................... -- -- 125,000
Proceeds from Network Sale........................................................... -- -- 73,993
Repurchase of Telemundo equity interests............................................. -- -- (518,282)
Repurchase of 10.5% Notes, consent fees and related costs............................ -- -- (217,451)
Repay other indebtedness and related costs........................................... -- -- (192)
Deferred financing costs............................................................. -- -- (14,500)
Merger costs......................................................................... -- -- (6,852)
Proceeds from exercise of warrants................................................... 94 3,747 --
Payments of obligations under capital leases......................................... (540) (424) --
Borrowings under Old Credit Facility................................................. 9,549 5,425 --
Payments under Old Credit Facility and related costs................................. (2,025) (9,221) (272)
Payments to minority interest partner................................................ (2,040) (1,841) (403)
Other................................................................................ (381) -- --
-------- -------- ---------
Cash flows provided from (used in) financing activities.......................... 4,657 (2,314) (3,966)
-------- -------- ---------
Increase (decrease) in cash and cash equivalents..................................... (10,390) 4,628 3,322
Cash and cash equivalents, beginning of period....................................... 12,587 2,378 7,006
-------- -------- ---------
Cash and cash equivalents, end of period............................................. $ 2,197 $ 7,006 $ 10,328
======== ======== =========
Supplemental cash flow information:
Interest paid...................................................................... $ 13,474 $ 7,090 $ 7,390
- --------------------------------------------------
======== ======== =========
Income taxes paid, including Puerto Rico withholding taxes......................... $ 933 $ 185 $ 21
</TABLE>
See notes to consolidated financial statements
F-9
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BUSINESS
Telemundo Holdings, Inc. ("Holdings", collectively with its subsidiaries, the
"Company") is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic
Market Areas (a term developed by Nielsen Media Research, Inc. and used by the
television industry to describe a geographically distinct television market)
in the United States--Los Angeles, New York, Miami, San Francisco, Chicago,
San Antonio and Houston. The Company also owns and operates the leading full-
power television station and related production facilities in Puerto Rico. The
Company's stations broadcast a wide variety of network programming, including
movies, dramatic series, sitcoms, telenovelas (soap operas), talk shows,
entertainment programs, national and international news, music and sporting
events. In addition, the Company supplements its network programming with
local programming focused on local news and community events.
2. MERGER AND RELATED TRANSACTIONS
On August 12, 1998, TLMD Acquisition Co., a wholly-owned subsidiary of
Holdings, merged with and into Telemundo Group, Inc. ("Telemundo"), with
Telemundo being the surviving corporation and becoming a wholly-owned
subsidiary of Holdings (the "Merger"). Holdings is owned 50.1% by Station
Partners, LLC, 24.95% by Sony Pictures Entertainment Inc. ("SPE") and 24.95%
by Liberty Media Corporation ("Liberty")(collectively, the "Purchaser").
Station Partners, LLC is owned 68.0% by Apollo InvestmentFund III, L.P.
("Apollo") and 32.0% by Bastion Capital Fund, L.P. ("Bastion").
Pursuant to the Merger, each outstanding share of Telemundo Common Stock, par
value $.01 per share, was converted into the right to receive $44.12537 in
cash.
Substantially contemporaneously with the completion of the Merger, TLMD
Acquisition Co. accepted for payment an aggregate of $191.7 million principal
amount of the outstanding 10.5% Senior Notes Due 2006 (the "10.5% Notes") of
Telemundo (representing 99.8% of such issue) tendered in connection with a
tender offer by TLMD Acquisition Co. pursuant to an Offer to Purchase and
Consent Solicitation Statement, as amended on July 20, 1998 (the "Tender
Offer").
In connection with the Merger, Telemundo entered into new credit facilities
(the "New Credit Facilities") providing for aggregate borrowings of up to
$350.0 million and Holdings received equity contributions (the "Equity
Contributions") aggregating $274.0 million from its shareholders, the proceeds
of which were used to fund the Merger, refinance existing indebtedness of
Telemundo and pay fees and expenses of the related transactions. In connection
with the New Credit Facilities, Telemundo terminated its revolving credit
facility that was existing prior to the Merger ("Old Credit Facility"). In
addition, Holdings completed an offering of $218.8 million aggregate principal
amount at maturity of 11.5% Senior Discount Notes Due 2008 (the "Senior
Discount Notes"), which were issued at a discount and structured to produce a
yield to maturity of 11.5% per annum, the proceeds of which were also used to
fund the Merger, refinance existing indebtedness of Telemundo and pay fees and
expenses of the related transactions.
Also in connection with the Merger, Telemundo sold substantially all of the
programming and production assets of its network operations (the "Telemundo
Network") to Telemundo Network Group LLC (the "Network Company"), which is
equally owned by a subsidiary of SPE and a subsidiary of Liberty for $74.0
million (the "Network Sale"). The Network Company entered into affiliation
agreements with the Company's owned and operated stations (collectively, the
"Affiliation Agreements") pursuant to which the Network Company provides
network programming to the Company, and the Company and the Network Company
pool and allocate local, national spot and network advertising revenues based
upon a formula ("Station Compensation Pool"). The
F-10
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Station Compensation Pool consists of the following revenue sources
(collectively, the "Aggregate Net Advertising Receipts"): (i) 61% of the net
advertising revenues received by the Network Company pursuant to the sale of
network advertising and block time (time made available for paid programming);
and (ii) 100% of the net advertising revenues received by the Company
(excluding WKAQ in Puerto Rico) from the sale of "spot" and local advertising
time and local and national block time. The Station Compensation Pool is
shared between the Company and the Network Company, with the Company's
allocation based on the following formula: (i) 80% of the first $130 million
of Aggregate Net Advertising Receipts; plus (ii) 55% of the incremental
Aggregate Net Advertising Receipts above $130 million up to $230 million; plus
(iii) 45% of the incremental Aggregate Net Advertising Receipts above $230
million. After the initial year, the threshold levels (i.e., $130 million and
$230 million) will be increased 3% annually.
The Affiliation Agreement provides that the Company will continue to incur
non-network marketing/promotional expenditures, programming expenditures and
capital expenditures for its owned and operated stations. The Network Sale and
the Affiliation Agreement will result in the Company incurring reduced overall
programming and certain other costs from the levels historically incurred by
the Predecessor. All network programming costs are now borne by the Network
Company. As part of the Affiliation Agreement, each of the Network Company and
the Company agreed, subject to various conditions, to incur certain
programming, marketing/promotional and capital expenditures in the future.
These expenditures may be reduced or eliminated based on financial tests,
which assume such expenditures produce positive financial results (i.e.,
incremental revenue). The Company can also elect to incur a portion of such
expenditures in a subsequent year. If the Company meets such financial tests
and does not elect to defer a portion of such expenditures, the Company will
incur levels of non-network expenditures which are greater than non-network
expenditures historically incurred by the Company's owned and operated
stations. Any such expenditures on the part of the Company are subject to the
Network Company having incurred its respective expenditures.
Holdings had no operations prior to the Merger. The Merger was accounted for
under the purchase method of accounting. The aggregate consideration paid in
connection with the Merger and the related transactions was approximately
$777.6 million. Of this amount, $300.0 million was provided from borrowings
under the New Credit Facilities, $125.0 million was provided from the proceeds
of the Senior Discount Notes offering, $274.0 was provided from the Equity
Contributions and $74.0 million was provided from the Network Sale.
The Merger was accounted for using the purchase method of accounting. The
purchase consideration of approximately $756 million has been allocated to the
net assets acquired based upon preliminary estimates of fair value. The net
assets of Holdings were adjusted to reflect the continuing ownership of
Bastion (15.1% prior to the merger). This adjustment, a "deemed dividend",
represents the difference between the proceeds received for it's ownership
interest in Telemundo and it's predecessor basis in Telemundo, adjusted for
the network sale. The following is a summary of the estimated fair values of
the assets acquired (in thousands):
<TABLE>
<S> <C>
Accounts receivable............................................. $45,402
Other current assets (excluding television programming) ........ 26,812
Television programming.......................................... 8,755
Property and equipment.......................................... 44,320
Other assets.................................................... 16,249
Broadcast licenses and other intangible assets.................. 579,930
Accounts payable................................................ 12,329
Accrued liabilities............................................. 32,242
Long-term debt.................................................. 425,319
Other non-current liabilities................................... 32,174
Minority interest............................................... 5,391
Stockholders' equity............................................ 214,013
</TABLE>
F-11
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
The carrying value of accounts receivable, other current assets, television
programming, property and equipment, other assets, accounts payable, accrued
liabilities, other non-current liabilities and minority interest were
considered to closely approximate fair value. The allocation of the purchase
consideration to broadcast licenses, and other intangible assets is
preliminary. Independent appraisals will be performed to establish the actual
fair values. A 40 year life was used to amortize broadcast licenses and other
intangible assets.
The following summarized, unaudited pro forma results of operations for the
nine months ended September 30, 1998 and 1997, assume the Merger, the Tender
Offer, initial borrowings under the New Credit Facilities, the Equity
Contributions, consummation of the Senior Discount Notes offering and the
Network Sale occurred on January 1, 1997. The pro forma information is
presented for informational purposes and is not necessarily indicative of the
operating results that would have occurred had the Merger and related
transactions been consummated on January 1, 1997, nor is it necessarily
indicative of future operations.
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------
1997 1998
-------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net revenue...................................... $105,316 $114,091
Operating income................................. 21,453 23,005
Net loss......................................... (13,786) (14,194)
</TABLE>
In November 1997, after the announcement of the proposed Merger, Telemundo and
its directors were named as defendants in six purported class actions filed on
behalf of Telemundo's public stockholders. The suits are virtually identical
and allege that Telemundo and its directors violated fiduciary duties owed to
Telemundo's public stockholders by entering into the merger agreement with the
Purchaser. The six actions were consolidated for all purposes, however, to
date none of the defendants has been required to answer, move or otherwise
respond to the complaint and no discovery has been taken. The Company believes
that the allegations contained in the complaint are without merit and intends
to contest the action vigorously. The Company believes that the outcome of the
suits will not have a material adverse effect on the Company's consolidated
results of operations or financial position.
3. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Merger, Telemundo became a wholly owned subsidiary of Holdings
on August 12, 1998. The purchase method of accounting was used to record
assets acquired and liabilities assumed. As a result of purchase accounting,
the accompanying financial statements of the Predecessor (for purposes of
these financial statements, the term "Predecessor" refers to Telemundo prior
to the Merger and related transactions) and the Company are not comparable in
all material respects since the financial statements report financial
position, results of operations, and cash flows of these two separate
entities.
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company and the Predecessor include all
adjustments necessary to present fairly the Company's financial position at
September 30, 1998, and the results of operations and cash flows for all
periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire year.
For a summary of significant accounting policies and additional financial
information of the Predecessor, see Telemundo's Annual Report on Form 10-K for
the year ended December 31, 1997.
Interest Rate Arrangements
The Company uses interest rate swaps to effectively hedge interest rate
exposures. In this type of hedge, the differential to be paid or received is
accrued and recognized in interest expense and may change as market
F-12
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
interest rates change. If an arrangement is terminated or effectively
terminated prior to maturity, then the realized or unrealized gain or loss is
effectively recognized over the remaining original life of the agreement if
the hedged item remains outstanding, or immediately, if the underlying hedged
instrument does not remain outstanding. If the arrangement is not terminated
or effectively terminated prior to maturity, but the underlying hedged
instrument is no longer outstanding, then the unrealized gain or loss on the
related interest rate swap or cap is recognized immediately.
4. NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 provides guidance for the presentation and display of
comprehensive income. SFAS 131 establishes standards for disclosure of
operating segments, products, services, geographic areas and major customers.
The Company is required to adopt both standards for its fiscal year ending
December 31, 1998. The Company has adopted SFAS 130 and comprehensive income
is the same as net income. Management believes that the implementation of SFAS
131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is required to be adopted in years
beginning after June 15, 1999. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance but must be adopted as of
the first quarter of fiscal years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in fair value will either be offset against the change in fair value
of the related hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The Company has not yet determined what the effect of
SFAS 133 will be on the earnings and financial position of the Company.
5. RELATED PARTY TRANSACTIONS
Apollo and Bastion, through Station Partners, LLC, are significant
shareholders of the Company. Apollo may be deemed to be an affiliate of TLMD
Partners II, L.L.C., a significant shareholder of Telemundo prior to the
Merger. Bastion was a significant shareholder of Telemundo prior to the
Merger.
SPE and Liberty, through its subsidiaries, own the Network Company and are
significant shareholders of the Company. Pursuant to the Affiliation
Agreements, the Company recorded $2.7 million in incremental net revenue for
the period August 13, 1998 to September 30, 1998, which amount is included in
Due from Network Company. In addition, pursuant to other contractual
arrangements, the Network Company has paid certain costs on behalf of the
Company, and the Company has paid certain costs on behalf of the Network
Company. The Company believes these costs to be at fair value and the net
effect, which was not material, is included in Due to Network Company.
6. PROGRAM SUPPLIER RISK
As a result of the Affiliation Agreements, the Company relies solely on the
Network Company for all of its network programming and is dependent, to a
significant extent, on the ability of the Network Company to generate
advertising revenues. The Spanish-language television market shares for the
Company's stations will be
F-13
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
dependent upon the Network Company's ability to produce or acquire and
distribute programming which attracts significant viewer levels. If the
programming provided by the Network Company fails to attract viewers, each of
the Company's and the Network Company's ability to attract advertisers and
generate revenues and profits would be impaired. There can be no assurance
that the programming provided by the Network Company will achieve or maintain
satisfactory viewership levels or maintain current viewership levels, or that
the Company or the Network Company will be able to generate significant
advertising revenues.
7. INTEREST RATE ARRANGEMENTS
The Company manages interest rate exposure by adjusting the mix of floating
rate debt and fixed rate debt. As part of such management of interest rate
exposure, the Company has entered into a derivative instrument to swap a fixed
interest rate for a floating rate for a portion of its debt. At September 30,
1998, the Company had an interest rate swap contract outstanding swapping a
fixed interest rate for a floating rate for a notional value of $100,000,000,
representing a portion of its debt. Under this type of interest rate swap,
notional amounts do not quantify risk or represent assets or liabilities of
the Company, but are only used in the calculation of cash interest settlements
under the contracts. This contract is effective from September 29, 1998 to
August 13, 2003. The carrying value of this arrangement as of September 30,
1998 was $0.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Telemundo Group, Inc.
We have audited the accompanying consolidated balance sheets of Telemundo
Group, Inc. (the "Company") and its subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of operations, changes in common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedules listed in the Index at Item 21. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Telenoticias del Mundo L.P. ("TeleNoticias"), the Company's investment in
which was accounted for by use of the equity method for 1995. The Company's
share of the net loss of $6,355,000 for the year ended December 31, 1995 is
included in the accompanying consolidated financial statements, see Note 4.
The financial statements of TeleNoticias for 1995 were audited by other
auditors whose report (which contains substantial doubt as to TeleNoticias'
ability to continue as a going concern, the effect of which, in our opinion,
was not material in relation to the consolidated financial statements) has
been furnished to us, and our opinion insofar as it relates to the amount
included for TeleNoticias, was based solely on the report of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 in conformity with general accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
New York, New York March 19, 1998
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Telenoticias del Mundo, L.P.;
We have audited the accompanying balance sheet of Telenoticias del Mundo, L.P.
(a Delaware limited partnership) as of December 31, 1995 and the related
statements of operations, partners' capital and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telenoticias del Mundo, L.P.
as of December 31, 1995 and the results of its operations and its cash flows
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
The financial statements have been prepared assuming that the Partnership will
continue as a going concern. As discussed in Note 8 to the financial
statements, the Partnership has incurred significant losses since inception.
Additionally, the Partners have postponed their required capital
contributions, which raises substantial doubt as to the Partnership's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Miami, Florida
February 23, 1996
F-16
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue.......................... $169,148,000 $202,713,000 $197,588,000
------------ ------------ ------------
Costs and expenses:
Direct operating costs.............. 78,609,000 86,994,000 93,297,000
Selling, general and administrative
expenses other than
network and corporate.............. 34,270,000 39,910,000 38,707,000
Network expenses.................... 25,848,000 28,835,000 30,650,000
Corporate expenses.................. 4,400,000 4,371,000 4,882,000
Depreciation and amortization....... 11,642,000 13,311,000 13,938,000
------------ ------------ ------------
154,769,000 173,421,000 181,474,000
------------ ------------ ------------
Operating income..................... 14,379,000 29,292,000 16,114,000
Merger related expenses.............. -- -- (1,707,000)
Interest expense --net of interest
income of $303,000 in
1997, $304,000 in 1996 and $268,000
in 1995............................. (14,489,000) (18,920,000) (20,849,000)
Loss from investment in
TeleNoticias........................ (6,355,000) (3,120,000) --
Loss on disposal of TeleNoticias..... -- (2,441,000) --
Other income (expense)............... (104,000) 14,000 7,000
------------ ------------ ------------
Income (loss) before income taxes,
minority interest and
extraordinary item.................. (6,569,000) 4,825,000 (6,435,000)
Income tax provision................. (3,519,000) (3,879,000) (4,201,000)
Minority interest.................... -- (2,125,000) (2,808,000)
------------ ------------ ------------
Loss before extraordinary item....... (10,088,000) (1,179,000) (13,444,000)
Extraordinary item--extinguishment of
debt................................ -- (17,243,000) --
------------ ------------ ------------
Net loss............................. $(10,088,000) $(18,422,000) $(13,444,000)
============ ============ ============
Basic net loss per share:
Loss before extraordinary item...... $ (1.01) $ (.12) $ (1.32)
Extraordinary item.................. -- (1.71) --
------------ ------------ ------------
Net loss............................ $ (1.01) $ (1.83) $ (1.32)
============ ============ ============
Weighted average shares outstanding.. 10,000,000 10,054,000 10,163,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-17
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1996 1997
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 12,587,000 $ 2,378,000
Accounts receivable, less allowance for doubtful
accounts of $5,943,000 and $7,583,000............ 51,824,000 54,155,000
Television programming............................ 14,062,000 15,154,000
Prepaid expenses and other........................ 7,685,000 9,287,000
------------ ------------
Total current assets............................ 86,158,000 80,974,000
Property and equipment, net......................... 64,532,000 66,602,000
Television programming.............................. 4,588,000 6,779,000
Other assets........................................ 7,451,000 7,365,000
Broadcast licenses and reorganization value in
excess of amounts allocable to identifiable assets,
net................................................ 132,831,000 128,366,000
------------ ------------
Total Assets........................................ $295,560,000 $290,086,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable.................................. $ 8,831,000 $ 7,726,000
Accrued expenses and other........................ 27,484,000 22,761,000
Television programming obligations................ 5,074,000 5,911,000
------------ ------------
Total current liabilities....................... 41,389,000 36,398,000
Long-term debt...................................... 179,695,000 189,081,000
Capital lease obligations........................... 5,945,000 5,120,000
Television programming obligations.................. 442,000 399,000
Other liabilities................................... 19,950,000 23,845,000
------------ ------------
247,421,000 254,843,000
------------ ------------
Minority interest................................... 5,246,000 5,334,000
------------ ------------
Contingencies and commitments
Common stockholders' equity:
Series A common stock, $.01 par value, 14,388,394
shares authorized, 6,621,983 and 7,129,614 shares
outstanding at December 31, 1996 and 1997........ 66,000 71,000
Series B common stock, $.01 par value, 5,611,606
shares authorized, 3,530,232 and 3,088,341 shares
outstanding at December 31, 1996 and 1997........ 36,000 31,000
Additional paid-in capital.......................... 71,301,000 71,761,000
Accumulated deficit................................. (28,510,000) (41,954,000)
------------ ------------
42,893,000 29,909,000
------------ ------------
Total Liabilities and Stockholders' Equity.......... $295,560,000 $290,086,000
============ ============
</TABLE>
See notes to consolidated financial statements
F-18
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of Shares
Outstanding Common Stock
-------------------- -----------------
Series A Series B Series A Series B Additional Common
Common Common Common Common Paid-In Accumulated Stockholders'
Stock Stock Stock Stock Capital Deficit Equity
--------- ---------- -------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 4,388,394 5,611,606 $ 44,000 $ 56,000 $69,900,000 $ -- $ 70,000,000
Net loss................ -- -- -- -- -- (10,088,000) (10,088,000)
Stock option transac-
tions (a).............. -- -- -- -- 338,000 -- 338,000
Warrant conversions..... 200 -- -- -- 1,000 -- 1,000
Stock conversions....... 1,545,271 (1,545,271) 15,000 (15,000) -- -- --
--------- ---------- -------- -------- ----------- ------------ -------------
Balance at December 31,
1995................... 5,933,865 4,066,335 59,000 41,000 70,239,000 (10,088,000) 60,251,000
Net loss................ -- -- -- -- -- (18,422,000) (18,422,000)
Issuance of stock pursu-
ant to
exercise of stock op-
tions.................. 150,000 -- 2,000 -- 1,048,000 -- 1,050,000
Warrant conversions..... 2,015 -- -- -- 14,000 -- 14,000
Stock conversions....... 536,103 (536,103) 5,000 (5,000) -- -- --
--------- ---------- -------- -------- ----------- ------------ -------------
Balance at December 31,
1996................... 6,621,983 3,530,232 66,000 36,000 71,301,000 (28,510,000) 42,893,000
Net loss................ -- -- -- -- -- (13,444,000) (13,444,000)
Warrant conversions..... 65,740 -- -- -- 460,000 -- 460,000
Stock conversions....... 441,891 (441,891) 5,000 (5,000) -- -- --
--------- ---------- -------- -------- ----------- ------------ -------------
Balance at December 31,
1997................... 7,129,614 3,088,341 $ 71,000 $ 31,000 $71,761,000 $(41,954,000) $ 29,909,000
========= ========== ======== ======== =========== ============ =============
</TABLE>
- --------
(a) Effect of the cancellation and issuance of options to a former officer.
See notes to consolidated financial statements
F-19
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $(10,088,000) $(18,422,000) $(13,444,000)
Charges not affecting cash:
Depreciation and amortization....... 11,642,000 13,311,000 13,938,000
Interest accretion.................. 1,511,000 4,559,000 5,557,000
Provision for losses on accounts
receivable.......................... 2,020,000 5,522,000 3,479,000
Loss from investment in
TeleNoticias........................ 6,355,000 3,120,000 --
Loss on disposal of TeleNoticias.... -- 2,441,000 --
Minority interest................... -- 2,125,000 2,808,000
Extraordinary item--extinguishment
of debt............................. -- 17,243,000 --
Changes in assets and liabilities:
Accounts receivable, gross.......... 2,067,000 (9,316,000) (3,971,000)
Television programming.............. (676,000) (2,392,000) (3,283,000)
Television programming obligations.. (1,133,000) 594,000 794,000
Accounts payable and accrued
expenses and other.................. (103,000) 5,888,000 (5,392,000)
------------ ------------ ------------
Cash flows provided from operating
activities.......................... 11,595,000 24,673,000 486,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Video 44, net of cash
acquired............................ -- (43,973,000) --
Additions to property and equipment.. (6,719,000) (9,125,000) (11,156,000)
Investment in TeleNoticias........... (3,104,000) (1,704,000) --
Disposal of TeleNoticias, net........ -- (2,769,000) --
------------ ------------ ------------
Cash flows used in investing activ-
ities............................... (9,823,000) (57,571,000) (11,156,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 10.5%
Notes............................... -- 169,981,000 --
Repurchase of 10.25% Notes, consent
fee and related costs............... -- (118,993,000) --
Proceeds from exercise of stock
options and warrants................ -- 1,065,000 460,000
Payments of obligations under capital
leases.............................. (517,000) (642,000) (727,000)
Borrowings under credit facility..... 6,013,000 8,012,000 9,854,000
Payments under credit facility....... (216,000) (13,993,000) (6,025,000)
Payments to minority interest
partner............................. -- (2,061,000) (2,720,000)
Payments of reorganization items,
liabilities subject to settlement
under Chapter 11 proceedings and
other............................... (5,703,000) (1,083,000) (381,000)
------------ ------------ ------------
Cash flows provided from (used in)
financing activities................ (423,000) 42,286,000 461,000
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... 1,349,000 9,388,000 (10,209,000)
Cash and cash equivalents, beginning
of year............................. 1,850,000 3,199,000 12,587,000
------------ ------------ ------------
Cash and cash equivalents, end of
year................................ $ 3,199,000 $ 12,587,000 $ 2,378,000
============ ============ ============
Non-cash investing activities:
Note receivable and escrow deposit
associated with
disposal of TeleNoticias, net of
accrued liabilities................. $ -- $ 879,000 $ --
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-20
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Telemundo Group, Inc. ("Telemundo"), together with its subsidiaries
(collectively, the "Company"), is one of two Spanish-language television
broadcast networks in the United States. The network provides programming 24-
hours per day to its owned and operated stations and affiliates, which serve
61 markets in the United States, including the 37 largest Hispanic markets,
and reaches approximately 85% of all U.S. Hispanic households. The Company
also owns and operates the leading full-power television station and related
production facilities in Puerto Rico. The Company produces Spanish-language
programming for use on its network and for sale in foreign countries and sells
advertising time on behalf of its owned and operated television stations and
affiliates.
Principles of Consolidation
The consolidated financial statements include the accounts of Telemundo and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The Company's 42% investment in Telenoticias
del Mundo, L.P. ("TeleNoticias") had been accounted for by the equity method
until June 26, 1996, when substantially all of the assets and certain
liabilities of TeleNoticias were sold. (see Note 4).
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Company considers short-term investments with an original maturity of
three months or less to be cash equivalents. Such short-term investments are
carried at cost which approximates fair value.
Television Programming
Television programming rights are carried at the lower of unamortized cost
or estimated net realizable value. The costs of the rights are amortized on
varying bases related to the license period, usage of the programs and
management's estimate of revenue to be realized from each airing of the
programs.
Depreciation and Amortization
Property and equipment is depreciated by the straight-line method over
estimated useful lives as follows:
<TABLE>
<CAPTION>
Buildings..................................... 40 Years
<S> <C>
Antennas and transmitters..................... 20 Years
Other broadcast equipment..................... 3 to 7 Years
Furniture and fixtures........................ 5 to 7 Years
Automobiles and trucks........................ 4 Years
Shorter of Life of Lease or
Leasehold improvements and transponder........ Useful Life of Asset
</TABLE>
F-21
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Broadcast Licenses and Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets
Broadcast licenses and reorganization value in excess of amounts allocable
to identifiable assets represents the portions of reorganization value and
Video 44 purchase price not attributable to specific tangible assets at the
time of the reorganization and the purchase, and are being amortized on a
straight-line basis over periods ranging from 10 to 40 years. Accumulated
amortization was $11.2 million at December 31, 1997. Broadcast licenses and
reorganization value in excess of amounts allocable to identifiable assets is
attributable primarily to FCC broadcast licenses ($115.3 million net of
accumulated amortization at December 31, 1997). The Company evaluates the
recoverability of its investment in such intangible assets in relation to
anticipated cash flows on an undiscounted basis. If the estimated future cash
flows were projected to be less than the carrying value, an impairment write-
down would be recorded.
Revenue Recognition
Revenue is derived primarily from the sale of advertising time on a network,
national spot and local basis. In addition, the Company earns revenue from the
sale of blocks of broadcast time during non-network programming hours. Revenue
is recognized when earned, i.e., when the advertisement is aired or the block
of broadcast time is utilized. The Company reviews the collectibility of its
accounts receivable and adjusts its allowance for doubtful accounts
accordingly. During 1997, 1996 and 1995, no customer accounted for more than
10% of the Company's revenue.
Income Taxes
Income taxes provided reflect the current and deferred tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. A valuation allowance is recorded if it is more likely than not that
a deferred tax asset will not be realized.
Per Common Share Information
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share ("FAS 128"). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of stock
options, warrants and convertible securities. Diluted earnings per share is
not presented as the effect of the 2,020,629 stock options and warrants is
anti-dilutive.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform with the current year's presentation.
2. PROPOSED MERGER TRANSACTION
On November 24, 1997 the Company announced that it had entered into a
definitive agreement with a venture to be formed by Sony Pictures
Entertainment Inc., Liberty Media Corporation, Apollo Investment Fund III,
L.P. and Bastion Capital Fund, L.P. (such venture, the "Purchaser") pursuant
to which the Purchaser will acquire all of the common stock of the Company in
a cash merger transaction (the "Merger") for $44 per share, plus, subject to
certain conditions, an additional amount if the Merger is not completed by
July 30, 1998. The proposed transaction, which is expected to close in the
summer of 1998, is subject to the approval of Company stockholders (for which
a related preliminary proxy statement was filed with the Securities and
F-22
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exchange Commission on February 18, 1998) and the Federal Communications
Commission, the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act, as well as the receipt by the Purchaser of the
financing required to consummate the Merger (the Purchaser has received
commitments from financial institutions and its stockholders in an amount
sufficient to fund the Merger). As a result of the various conditions to the
completion of the Merger, there can be no assurance that the Merger will be
consummated. Merger related costs incurred during 1997 were $1.7 million.
In November 1997 after the announcement of the Merger, the Company and its
directors were named as defendants in six purported class actions filed on
behalf of Telemundo's public stockholders. The suits are virtually identical
and allege that Telemundo and its directors violated fiduciary duties owed to
Telemundo's public stockholders by entering into the merger agreement with the
Purchaser. The Company's board of directors, relying upon the unanimous
recommendation of a special committee of the board of directors comprised of
directors who have no financial interest in the Purchaser or its affiliates,
has determined that the Merger is fair to and in the best interests of the
Company's public stockholders. The Company and its directors intend to
vigorously defend the lawsuits, and believe that the outcome of the suits will
not have a material adverse effect on the Company's consolidated results of
operations or financial position.
3. ACQUISITION AND REFINANCING
On February 26, 1996, Telemundo completed the acquisition of a 74.5%
interest in a joint venture ("Video 44"), which owns WSNS-TV, Channel 44 in
Chicago, which had been the Company's largest affiliated station (the
"Acquisition"). The purchase price for the Acquisition was approximately $44.6
million of cash and $1.3 million of costs and liabilities associated with the
Acquisition. The allocation of the $45.9 million purchase price among property
and equipment, broadcast licenses and other assets was based upon estimated
fair market values. The operations of Video 44 are consolidated with those of
the Company and the interest, subject to a minimum preferred distribution,
attributable to the partner which owns the remaining 25.5% of the venture is
reflected in the accompanying financial statements as minority interest.
On February 26, 1996, the Company also completed the sale of $192 million in
aggregate principal amount of 10.5% Senior Notes due 2006 (the "10.5% Senior
Notes"), the proceeds of which were used primarily for the Acquisition and to
repurchase $116.7 million principal amount of its 10.25% Senior Notes (the
"10.25% Notes"). The repurchase resulted in an extraordinary loss of $17.2
million in 1996.
The following summarized, unaudited pro forma results of operations for the
year ended December 31, 1996, assumes the Acquisition, the repurchase of the
10.25% Notes and the issuance of the 10.5% Senior Notes occurred as of the
beginning of the year. Items associated with TeleNoticias (see Note 4) are
excluded from the pro forma amounts, including the "Loss from investment in
TeleNoticias" and the "Loss on disposal of TeleNoticias" which are reflected
in the Company's Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------
<S> <C>
Net revenue................................................. $205,215,000
Income before extraordinary item............................ 3,764,000
Net loss.................................................... (13,479,000)
Diluted earnings (loss) per share:
Income before extraordinary item........................... $ .34
Net loss................................................... $(1.22)
</TABLE>
F-23
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVESTMENT IN TELENOTICIAS
From July 1994 through June 1996, Telemundo held a 42% interest in
TeleNoticias, an international Spanish-language news service. On June 26,
1996, Telemundo acquired the remaining 58% interest in TeleNoticias from its
former partners for approximately $5.1 million (the "Purchase").
Contemporaneous with the Purchase, the Company sold substantially all of the
assets and certain liabilities of TeleNoticias for approximately $5.75
million, which resulted in a loss on disposal of TeleNoticias of $2.4 million.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land................................................. $ 4,727,000 $ 4,727,000
Buildings............................................ 18,965,000 19,333,000
Broadcast and other equipment........................ 43,463,000 53,152,000
Satellite transponder................................ 6,999,000 6,999,000
Leasehold improvements............................... 9,436,000 10,846,000
------------ ------------
83,590,000 95,057,000
Less accumulated depreciation and amortization....... (19,058,000) (28,455,000)
------------ ------------
$ 64,532,000 $ 66,602,000
============ ============
6. ACCRUED EXPENSES AND OTHER
<CAPTION>
December 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Accrued compensation and commissions................. $ 6,495,000 $ 4,400,000
Accrued agency commissions........................... 6,164,000 5,969,000
Accrued reorganization costs......................... 490,000 --
Accrued interest expense............................. 5,040,000 5,040,000
Other accrued expenses............................... 9,295,000 7,352,000
------------ ------------
$ 27,484,000 $ 22,761,000
============ ============
7. LONG-TERM DEBT
<CAPTION>
December 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
10.5% Senior Notes................................... $179,521,000 $185,073,000
10.25% Notes......................................... 159,000 165,000
Revolving credit facility............................ 15,000 3,843,000
------------ ------------
179,695,000 189,081,000
Less current portion................................. -- --
------------ ------------
$179,695,000 $189,081,000
============ ============
</TABLE>
F-24
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant terms of the Company's debt agreements are as follows:
10.5% Senior Notes: On February 26, 1996, the Company completed the sale of
$192 million in aggregate principal amount of the 10.5% Senior Notes which
are unsecured obligations of the Company. The 10.5% Senior Notes were
issued at a discount and were structured to produce a yield to maturity of
10.5% per annum. The 10.5% Senior Notes require semi-annual interest
payments at the rate of 7% per annum on their principal amount at maturity
through and including February 15, 1999, and after such date will bear
interest at a rate of 10.5% per annum on their principal amount at
maturity. The principal balance is due in its entirety on February 26,
2006.
10.25% Notes: On December 30, 1994, the Company consummated a financial
restructuring pursuant to a plan of reorganization under chapter 11 of the
Bankruptcy Code (the "Plan") and issued the 10.25% Notes pursuant to the
Plan. The 10.25% Notes were recorded at their fair value of $100,524,000
(principal amount of $116,889,000) at December 31, 1994, reflecting an
effective interest rate of 13.34%, based upon market trading activity at
the time of consummation of the Plan. The 10.25% Notes are unsecured
obligations of the Company bearing interest from December 31, 1994, payable
semi-annually, and maturing December 30, 2001. As discussed above, on
February 26, 1996 the Company completed the sale of $192 million in
aggregate principal amount of 10.5% Senior Notes, the proceeds of which
were used primarily for the Acquisition and to repurchase $116,705,500
principal amount of the 10.25% Notes tendered in the repurchase offering,
representing approximately 99.8% of the aggregate outstanding principal
amount of the 10.25% Notes.
Revolving Credit Facility: The Revolving Credit Facility ("Credit
Facility") provides for borrowings of up to $20 million, which is subject
to an accounts receivable borrowing base. Approximately $15.0 million was
available at December 31, 1997 after giving effect to a $1.2 million
standby letter of credit which was issued to secure an office lease.
Interest accrues at a rate of prime plus 1.75% (10.25% and 10% at December
31, 1997 and 1996, respectively, and averaged 10.19% for 1997 and 10% for
1996). The agreement expires December 30, 1999 and is cancelable at the
Company's option prior to expiration upon payment of an early termination
fee, except under certain conditions. The Company is required to pay a fee
of 0.5% per annum based on the average unborrowed portion of the Credit
Facility and other annual fees and expenses. The Credit Facility is secured
by substantially all U.S. assets of the Company and does not require
compensating balances.
The 10.5% Senior Notes, 10.25% Notes, and Credit Facility agreements contain
certain covenants which, among other things, require the Company to maintain
certain financial ratios and impose on the Company certain limitations or
prohibitions on: (i) the incurrance of indebtedness or the guarantee or
assumption of indebtedness of another; (ii) the creation or incidence of
mortgages, pledges or security interests on the property or assets of the
Company or any of its subsidiaries; (iii) the sale of assets of the Company or
any of its subsidiaries; (iv) the merger or consolidation of the Company; (v)
the payment of dividends or the redemption or repurchase of any capital stock
of the Company; and (vi) investments and acquisitions.
The Purchaser has received commitments from financial institutions and its
stockholders in an amount sufficient to fund the Merger. Terms of any new
financing related to the Merger may require existing debt to be repaid. The
Purchaser has not yet determined whether it will refinance the 10.5% Senior
Notes and the 10.25% Notes. The Revolving Credit Facility will likely be
refinanced if the Merger is consummated.
Interest paid was $14,312,000, $8,667,000 and $12,810,000 for the years
ended 1997, 1996 and 1995, respectively.
F-25
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Company files a separate Puerto Rico income tax return for its
operations in Puerto Rico. The income tax provision consisted of:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Puerto Rico (a)........................... $3,379,000 $3,473,000 $3,794,000
Federal, state and other.................. 140,000 406,000 407,000
---------- ---------- ----------
$3,519,000 $3,879,000 $4,201,000
========== ========== ==========
</TABLE>
(a) Represents a provision for withholding tax related to intercompany
interest.
The Company paid $708,000, $1,790,000 and $1,534,000 for withholding taxes
related to its operations in Puerto Rico in 1997, 1996 and 1995, respectively.
In addition, the Company paid federal and state income and franchise and
foreign withholding taxes of $289,000, $514,000 and $190,000 in 1997, 1996 and
1995, respectively.
The tax effects comprising the Company's net deferred taxes as of December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards ("NOLs")..... $ 84,459,000 $ 88,449,000
Capital loss carryforward..................... 8,827,000 8,827,000
Amortization of FCC broadcast licenses........ 28,948,000 27,009,000
Other......................................... 7,998,000 8,808,000
------------ ------------
130,232,000 133,093,000
------------ ------------
Deferred Tax Liabilities:
Amortization of FCC broadcast licenses........ (50,443,000) (49,608,000)
Accelerated depreciation...................... (1,743,000) (303,000)
------------ ------------
(52,186,000) (49,911,000)
------------ ------------
Net deferred tax asset.......................... 78,046,000 83,182,000
Valuation allowance............................. (78,046,000) (83,182,000)
------------ ------------
Net deferred tax................................ $ -- $ --
============ ============
</TABLE>
F-26
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Limitations imposed by Section 382 of the Internal Revenue Code limit the
amount of NOLs and capital loss carryforwards which will be available to
offset future U.S. taxable income to approximately $6,600,000 annually, or a
total of $72,600,000 from 1998 through 2008, except in certain circumstances.
The limitations only apply to $147,771,000 and $22,633,000 of the Company's
U.S. NOLs and capital loss carryforwards, respectively, incurred before
December 31, 1994. The Company has approximately $61,707,000 of additional
U.S. NOLs that are not subject to limitations.
As there is no assurance that the Company will generate sufficient earnings
to utilize its available tax assets, including its NOLs, a valuation allowance
has been established to offset the existing net deferred tax asset.
The Company has NOLs expiring as follows:
<TABLE>
<CAPTION>
U.S.
- -------------------------------------
<S> <C>
2002.................... $ 19,472,000
2003.................... 43,317,000
2004.................... 31,103,000
2005.................... 6,262,000
2006.................... 31,799,000
2007.................... 26,942,000
2008.................... 8,676,000
2010.................... 12,334,000
2011.................... 22,444,000
2012.................... 7,129,000
------------
$209,478,000
============
</TABLE>
<TABLE>
<CAPTION>
Commonwealth of
Puerto Rico
- ------------------------------------
<S> <C>
1998.................... $ 5,973,000
1999.................... 5,657,000
2000.................... 3,402,000
2001.................... 1,931,000
2002.................... 313,000
2004.................... 39,000
-----------
$17,315,000
===========
</TABLE>
The Company also has state tax NOLs in various jurisdictions.
The Company's 1994 and 1995 federal income tax returns are currently under
examination by the Internal Revenue Service ("IRS"). To date, the IRS has not
communicated any proposed adjustments to the Company. Assessments, if any, are
not expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
9. COMMON STOCK AND WARRANTS
The Company has one class of Common Stock, $.01 par value, which is divided
into Series A Common Stock and Series B Common Stock. Each share of Common
Stock entitles the holder to one vote on all matters brought before the Annual
Meeting of Stockholders, except that, under the Company's Restated Certificate
of Incorporation, the majority of the Board of Directors will be elected by
the holders of the Series B Common Stock. Series B Common Stock converts to
Series A Common Stock upon sale to an unaffiliated party and upon certain
other conditions.
Pursuant to the Plan, 639,750 warrants were issued, entitling the holders of
each warrant to purchase one share of Series A common stock at $7 per share.
These warrants are exercisable from December 30, 1994 and expire on December
30, 1999. There were 571,795 warrants outstanding at December 31, 1997. Also
pursuant to the Plan, 416,667 warrants were issued to Reliance Group Holdings,
Inc. and its affiliates ("Reliance"), which are all outstanding. Each warrant
entitles the holder to purchase one share of Series A common stock at $7.19
per share and the warrants are exercisable in three equal annual installments
commencing December 30, 1995, expiring five years from the date they become
exercisable and all are currently exercisable. A complaint was
F-27
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
filed against the Company by Reliance on March 2, 1998 alleging breach of a
registration rights agreement relating to the warrants issued to Reliance. The
Company does not believe it has breached the agreement and intends to contest
the action vigorously. The warrants contain certain antidilutive provisions in
the event of a change in the Company's capitalization. If the Merger is
consummated, each warrant holder will receive, subject to any required
withholding of taxes, a cash payment equal to the product of (i) the total
number of shares then subject to each warrant multiplied by (ii) the excess of
the merger consideration over the exercise price per share subject to each
warrant. By virtue of the foregoing treatment of the warrants, all these
warrants will cease to exist.
10. EMPLOYEE RETIREMENT AND INCENTIVE PLANS
The Company maintains qualified defined contribution retirement and savings
plans for its U.S. employees. The contributions to these plans totaled
$549,000, $527,000 and $520,000 in 1997, 1996 and 1995, respectively.
Pursuant to the Plan, the Company adopted a Stock Plan (the "Stock Plan")
whereby key employees may be granted restricted stock or options to acquire up
to 1,000,000 shares of Series A common stock, exercisable for a maximum term
of 10 years. The Stock Plan is administered by a committee comprised of
independent members of the Company's board of directors.
During 1995, the Company issued options to purchase 672,500 shares of Series
A common stock, with exercise prices ranging from $10.00 to $14.625 per share,
which was their current fair market value, to officers of the Company. Also
during 1995, a former officer was issued separate options to purchase 150,000
shares of Series A common stock with an exercise price of $7.00 per share,
which were exercised on August 23, 1996.
During 1996, the Company issued options to purchase 90,000 shares of Series
A common stock, with exercise prices ranging from $19.125 to $29.875 per
share, which was their current fair market value to officers and a key
employee of the Company.
During 1997, the Company issued options to purchase an additional 235,500
shares of Series A common stock, with exercise prices ranging from $24.375 to
$33.75 per share, which was their current fair market value to officers and
key employees of the Company. The options vest over various periods, and in
certain cases, vesting is dependent on the Company achieving certain
performance targets.
In 1996, the Company adopted the 1996 Non-Employee Director Stock Option
Plan ("Director Plan") whereby each non-management director will receive an
annual grant of options to purchase 2,500 shares of the Company's Series A
Common Stock. Stock issued pursuant to the Director Plan may not exceed
100,000 shares. The exercise price shall be equal to the fair market value of
the Company's underlying common stock at the date of grant, one-third of the
granted options vest on each anniversary date and extend for a period of ten
years. The Company issued options to purchase 20,000 shares of Series A common
stock on each of June 12, 1996 and 1997 at an exercise price of $24.75 and
$24.375, respectively.
Certain options issued pursuant to the Stock Plan and Director Plan will
become immediately exercisable upon a "change of control transaction" (as
defined in the respective stock option agreements). The consummation of the
Merger would constitute a "change of control transaction" under certain of
these agreements.
If the Merger is consummated, each holder of a then outstanding and
unexercised option issued pursuant to the Company's Stock Plan or its Director
Plan that entitles the holder thereof to purchase shares of common stock,
whether or not such option is then presently exercisable, will be entitled to
receive, in settlement of such option, subject to any required withholding of
taxes, a cash payment equal to the product of (i) the total number of shares
then subject to each such option multiplied by (ii) the excess of the merger
consideration over the exercise price per share subject to each option. By
virtue of the foregoing treatment of such options, all these options will
cease to exist.
F-28
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounts for employee stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
and related interpretations. However, pro forma information regarding net
income and earnings per share is required by Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), and accordingly has been determined as if the Company had accounted for
its employee stock options under the fair value method of FAS 123. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1996, 2001, 2002 and 2003, respectively: risk-free interest rates of 5.0%,
6.5%, 6.6% and 5.5%; no dividend yields; a volatility factor of the expected
market price of the Company's common stock of .41 for options granted during
1995 and 1996, and .31 for options granted during 1997; and a weighted-average
expected life of the options of 6 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information assuming the implementation of the fair value
method of FAS 123 follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma loss before extraordinary
item............................... $(11,470,000) $ (2,485,000) $(15,672,000)
Extraordinary item................ -- (17,243,000) --
------------ ------------ ------------
Net loss.......................... $(11,470,000) $(19,728,000) $(15,672,000)
============ ============ ============
Pro forma net loss per share:
Loss before extraordinary item.... $ (1.15) $ (.25) $ (1.54)
Extraordinary item................ -- (1.71) --
------------ ------------ ------------
Net loss.......................... $ (1.15) $ (1.96) $ (1.54)
============ ============ ============
</TABLE>
A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ -------------------------
Number Weighted Number Weighted Weighted
of Average of Average Number of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- -------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at
beginning of year...... 600,000 $ 7.00 822,500 $10.09 782,500 $12.64
Granted................. 822,500 10.09 110,000 24.02 255,500 30.10
Exercised............... -- -- (150,000) 7.00 -- --
Canceled or lapsed...... (600,000) 7.00 -- -- (5,833) 21.36
-------- -------- ---------
Shares under option at
end of year............ 822,500 $10.09 782,500 $12.64 1,032,167 $16.91
======== ======== =========
Exercisable at end of
year................... 150,000 $ 7.00 143,125 $10.13 543,282 $11.98
Weighted-average fair
value of options
granted during the
year................... $ 5.44 $13.08 $12.48
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$10.00 to $33.75 which represented the fair market value of the underlying
stock at the date of grant. The weighted average remaining contractual life of
those options is 8.0 years.
F-29
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. CONTINGENCIES AND COMMITMENTS
The Company and its subsidiaries are involved in a number of actions and are
contesting the allegations of the complaints in each pending action and
believe, based on current knowledge, that the outcome of all such actions will
not have a material adverse effect on the Company's consolidated results of
operations or financial position (See Note 2).
The Company is obligated under various leases, some of which contain renewal
options and provide for cost escalation payments. At December 31, 1997, future
minimum rental payments under such leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- ----------
<S> <C> <C>
1998................................................ $ 3,720,000 $1,271,000
1999................................................ 3,327,000 1,380,000
2000................................................ 2,434,000 1,380,000
2001................................................ 1,650,000 1,380,000
2002................................................ 1,335,000 1,380,000
2003 and later...................................... 4,849,000 575,000
----------- ----------
Total minimum lease payments........................ $17,315,000 7,366,000
===========
Less amount representing interest................... (1,423,000)
----------
Present value of minimum lease payments (includes
current
portion of $823,000)............................... $5,943,000
==========
</TABLE>
Rent expense was $3,881,000, $5,264,000 and $4,440,000 in 1997, 1996 and
1995, respectively.
Certain of the Company's affiliation agreements, which typically last two to
five years, provide for compensation to affiliates.
The Company has employment agreements with certain officers pursuant to
which the Company has commitments for compensation aggregating $2,160,000,
$2,175,000, $2,000,000 and $333,000 for 1998, 1999, 2000 and 2001
respectively. These agreements provide for additional compensation based upon
the achievement of certain performance targets. In addition, each employment
agreement provides for compensation in the event such officer's employment is
terminated under certain circumstances.
The Company has contracted for certain audience measurement services in the
U.S. and Puerto Rico. The Company is committed to pay $7,208,000, $7,625,000,
$7,308,000 and $230,000 in 1998, 1999, 2000 and 2001, respectively.
The Company has certain programming and news production contracts for which
the Company is committed to pay $10,989,000, $7,068,000, $6,964,000 and
$1,750,000 in 1998, 1999, 2000 and 2001, respectively.
If, under certain conditions, the Company terminates the merger agreement
with the Purchaser, the Company may be required to pay a termination fee of
$15 million to the Purchaser and reimburse the Purchaser up to an aggregate of
$2.5 million in expenses.
12. TRANSACTIONS WITH AFFILIATES
The Company paid compensation pursuant to an affiliation agreement of
approximately $1,433,000, $1,350,000 and $1,225,000 in 1997, 1996 and 1995,
respectively, to a broadcast television station affiliate, in which the
President and Chief Executive Officer of the Company has a financial interest.
F-30
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 1996, the Company completed the offering of its 10.5% Senior
Notes in which BT Alex. Brown Incorporated was a co-manager and received an
underwriting fee. A director of the Company is a Managing Director of BT Alex.
Brown Incorporated.
Management believes that the transactions described above were on terms no
less favorable to the Company than could be obtained from unaffiliated
parties.
Apollo Investment Fund III, L.P. and Bastion Capital Fund, L.P., along with
other entities, have ownership interests in the Purchaser in the proposed
Merger transaction. Certain directors of the Company are affiliated with
Apollo Investment Fund III, L.P. and Bastion Capital Fund, L.P., and these, or
affiliated entities, are significant stockholders in the Company. The
Company's board of directors, relying upon the unanimous recommendation of a
special committee of the board of directors comprised of directors who have no
financial interest in the Purchaser or its affiliates, has determined that the
Merger is fair to and in the best interests of the Company's public
stockholders.
13. FINANCIAL INSTRUMENTS
Pursuant to the Financial Accounting Standards Board Statement No. 107,
"Disclosures about Fair Values of Financial Instruments," the estimated fair
values of the Company's financial instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash
equivalents.............. $ 12,587,000 $ 12,587,000 $ 2,378,000 $ 2,378,000
Accounts receivable....... 51,824,000 51,824,000 54,155,000 54,155,000
Long-term debt:
10.5% Senior Notes...... 179,521,000 190,080,000 185,073,000 201,600,000
10.25% Notes............ 159,000 183,000 165,000 183,000
Credit facility......... 15,000 15,000 3,843,000 3,843,000
</TABLE>
The carrying amount reported in the consolidated balance sheet for cash and
cash equivalents and accounts receivable approximates fair value because of
the short-term maturity of these financial instruments. The revolving credit
facility approximates fair value because it is a variable rate instrument.
Estimated fair value for the 10.5% Notes is based upon market prices at
December 31, 1997. Estimated fair value for the 10.25% Notes is based upon the
face amount of such Notes.
F-31
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 Quarter
--------------------------------------
First Second Third Fourth (c) Year
-------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenue.................. $ 38,267 $ 54,311 $51,002 $59,133 $202,713
======== ======== ======= ======= ========
Operating income (loss)...... $ (3,246) $ 8,474 $ 8,099 $15,965 $ 29,292
======== ======== ======= ======= ========
Income (loss) before
extraordinary item $ (9,691) $ (2,190) $ 1,428 $ 9,274 $ (1,179)
======== ======== ======= ======= ========
Net income (loss)............ $(26,934) $ (2,190) $ 1,428 $ 9,274 $(18,422)
======== ======== ======= ======= ========
Net income (loss) per share
(a)......................... $ (2.69) $ (.22) $ .13 $ .83 $ (1.83)
======== ======== ======= ======= ========
Common stock price range (b):
High....................... $ 21.00 $ 25.625 $35.375 $ 34.50
Low........................ $ 13.75 $ 17.00 $ 20.50 $26.375
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter
------------------------------------
First Second Third Fourth Year
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue.................... $ 39,100 $ 51,681 $48,646 $58,161 $197,588
======== ======== ======= ======= ========
Operating income (loss)........ $ (5,254) $ 5,163 $ 3,674 $12,542 $ 16,114
======== ======== ======= ======= ========
Net income (loss).............. $(12,057) $ (1,731) $(3,385) $ 3,729 $(13,444)
======== ======== ======= ======= ========
Net income (loss) per share
(a)........................... $ (1.19) $ (0.17) $ (0.33) $ .33 $ (1.32)
======== ======== ======= ======= ========
Common stock price range (b):
High......................... $ 32.625 $ 28.875 $ 36.50 $42.375
Low.......................... $ 27.375 $ 18.50 $23.625 $31.375
</TABLE>
(a) Weighted average shares outstanding for the third and fourth quarters of
1996 and the fourth quarter of 1997 is adjusted for the incremental shares
attributed to outstanding options and warrants to purchase common stock.
Basic earnings per share for the third and fourth quarters of 1996 and the
fourth quarter of 1997 was $.14, $.91 and $.37, respectively. Net income
per share for the third and fourth quarters of 1996 have been restated to
comply with FAS 128.
(b) The Company's Series A common stock trades on the Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol TLMD. The Company's
warrants (exclusive of the warrants issued to Reliance) trade on the
Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol
TLMDW.
(c) Includes the impact of a significant additional provision to the allowance
for doubtful accounts and adjustments to certain expense accruals. The net
impact of these was a reduction in earnings of $1.0 million.
F-32
<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
time subsequent to the date hereof or that there has been no change in the
affairs of the Company since such date.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 13
Use of Proceeds.......................................................... 22
The Exchange Offer....................................................... 23
Capitalization........................................................... 30
Selected Historical Consolidated Financial Data.......................... 31
Unaudited Pro Forma Condensed Consolidated Financial Statements.......... 33
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 39
Business................................................................. 48
Management............................................................... 65
Principal Stockholders................................................... 71
Certain Relationships and Related Transactions........................... 72
Description of Certain Indebtedness...................................... 77
Description of the Notes................................................. 79
Book-Entry, Delivery and Form............................................ 108
Certain U.S. Federal Income Tax Considerations........................... 110
Plan of Distribution..................................................... 112
Legal Matters............................................................ 112
Experts.................................................................. 112
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF TELEMUNDO HOLDINGS, INC.]
Telemundo Holdings, Inc.
$218,838,000
11 1/2% Senior Discount Notes Due 2008
PROSPECTUS
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article Fifth of the Company's Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") eliminates the
liability of the Company's directors to the Company or its stockholders,
except for liabilities related to breach of duty of loyalty, actions or
omissions not in good faith and certain other liabilities.
Section 145 of the DGCL provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
The Company also maintains officers' and directors' liability insurance which
insures against liabilities that officers and directors of the Company may
incur in such capacities.
Reference is made to sections of the Registration Rights Agreement filed as
Exhibit 4.3 to this Registration Statement which provides for indemnification
for the officers and directors of the Company and certain control persons of
the Company against certain liabilities, including liabilities caused by any
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission of a material fact in any registration statement, preliminary
prospectus, prospectus or any amendments thereto.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
2.1 Merger Agreement dated as of November 24, 1997 by and among TLMD
Station Group, Inc., TLMD Acquisition Co. and Telemundo Group, Inc.*
3.1 The Company's Amended and Restated Certificate of Incorporation.*
3.2 The Company's Restated Bylaws.*
4.1 Indenture dated as of August 12, 1998 between the Company, as issuer,
and Bank of Montreal Trust Company, as trustee.*
4.2 Form of 11 1/2% Senior Discount Notes due 2008.*
4.3 Registration Rights Agreement dated as of August 12, 1998 between the
Company, Credit Suisse First Boston Corporation and CIBC Oppenheimer
Corp.*
5.1 Legal opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. concerning
the legality of the Notes.*
10.1 Memorandum of Agreement Re: Umbrella Affiliation Agreement dated as
of August 12, 1998 between Telemundo Network Group LLC and Telemundo
Group, Inc.**
10.2 Memorandum of Agreement Re: Cable Payments dated as of August 12,
1998 between
Telemundo Network Group LLC and Telemundo Group, Inc.*
10.3 Form of High Power Station Affiliation Agreement.*
10.4 Stockholders Agreement dated as of August 12, 1998 between the
Company, Apollo Investment Fund III, L.P., Bastion Capital Fund L.P.,
Liberty Media Corporation, Sony Pictures Entertainment Inc. and
Station Partners, LLC.*
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.5 Asset Purchase Agreement dated as of August 12, 1998 between
Telemundo Group, Inc., Telemundo Network Inc. and Telemundo
Network Group LLC.*
10.6 Credit Agreement dated as of August 4, 1998 between TLMD
Acquisition Co., as borrower, the Company, as parent guarantor,
the Lenders (as named therein), Credit Suisse First Boston
Corporation and Canadian Imperial Bank of Commerce.*
10.7 Pledge Agreement dated as of August 12, 1998 between Telemundo
Group, Inc., the Company, the Subsidiary Pledgors (as named
therein) and Credit Suisse First Boston Corporation.*
10.8 Security Agreement dated as of August 12, 1998 between Telemundo
Group, Inc., the Company and the Subsidiary Guarantors (as named
therein).*
10.9 Subsidiary Guarantee Agreement dated as of August 12, 1998 between
the Subsidiary Guarantors (as defined therein) and Credit Suisse
First Boston Corporation.*
10.10 Amended and Restated Employment Agreement dated as of September
10, 1997 between the Company and Roland A. Hernandez.+
10.11 Amended and Restated Employment Agreement dated as of September
10, 1997 between the Company and Peter J. Housman II.+
10.12 Employment Agreement dated as of September 10, 1997 between the
Company and Osvaldo F. Torres.+
10.13 Employment Agreement dated as of September 10, 1997 between the
Company and Vincent L. Sadusky.*
12.1 Computation of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1).
23.4 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney.*
25.1 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended, of Bank of Montreal Trust
Company, as trustee.*
27 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, and Other Nominees.*
99.4 Form of Letter to Clients.*
99.5 Guidelines for Certification of Taxpayer Identification Number on
Form W-9.*
</TABLE>
- --------
* Previously filed.
** Previously filed. Confidential treatment requested for certain portions.
+ Incorporated by reference to the Annual Report on form 10-K dated December
31, 1997 of Telemundo Group, Inc.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
II-2
<PAGE>
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and Bylaws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in such Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
items 4, 10(b), 11 or 13 of this form, within one business day receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
city of New York, state of New York, on February 16, 1999.
Telemundo Holdings, Inc.
/s/ Roland A. Hernandez
By: _________________________________
Roland A. Hernandez President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Roland A. Hernandez President, Chief February 16, 1999
- ------------------------------------- Executive Officer
Roland A. Hernandez and Director
* Chief Financial February 16, 1999
- ------------------------------------- Officer and
Peter J. Housman II Treasurer
/s/ Osvaldo F. Torres Vice President, February 16, 1999
- ------------------------------------- General Counsel and
Osvaldo F. Torres Secretary
* Director February 16, 1999
- -------------------------------------
Leon D. Black
* Director February 16, 1999
- -------------------------------------
Guillermo Bron
* Director February 16, 1999
- -------------------------------------
Brian D. Finn
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
* Director February 16, 1999
- -------------------------------------
Yair Landau
* Director February 16, 1999
- -------------------------------------
Enrique F. Senior
* Director February 16, 1999
- -------------------------------------
Bruce H. Spector
* Director February 16, 1999
- -------------------------------------
Barry Thurston
* Director February 16, 1999
- -------------------------------------
Edward M. Yorke
/s/ Osvaldo F. Torres *
By: _________________________________
(Attorney-in-Fact)
</TABLE>
II-5
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ------------ ----------------------------- ------------- -------------
Additions
-----------------------------
Balance at Charged to Charged to Deducted
Beginning of Profit and Other Accounts from Reserves Balance at
Description Period Loss or Income -Describe -Describe End of Period
----------- ------------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1997:
Allowance for doubtful
accounts.............. $5,943 $3,479 $ - $1,839(a) $7,583
------ ------ --- ------ ------
Year Ended December 31,
1996:
Allowance for doubtful
accounts.............. $2,650 $5,522 $ - $2,229(a) $5,943
------ ------ --- ------ ------
Year Ended December 31,
1995:
Allowance for doubtful
accounts.............. $2,845 $2,020 $ - $2,215(a) $2,650
------ ------ --- ------ ------
</TABLE>
- --------
(a) Amounts written off, net of recoveries.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-64709 of Telemundo Holdings, Inc. on Form S-4 of our report dated March
19, 1998 (relating to the financial statements of Telemundo Group, Inc.),
appearing in the Prospectus, which is part of this Registration Statement, and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedules of Telemundo Group,
Inc., listed in Item 21. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, 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/ Deloitte & Touche LLP
New York, New York
February 16, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report dated February 23, 1996 for the year ended December 31, 1995 and to
all references to our firm included in or made part of this registration
statement. It should be noted that we have not audited any financial
statements of the company subsequent to December 31, 1995 or performed any
audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
Miami, Florida,
February 16, 1999.
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-64709 of Telemundo Holdings, Inc. on Form S-4 of our report dated January
7, 1999 appearing in the Prospectus, which is part of this Registration
Statement, and to the references to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
New York, New York
February 16, 1999
