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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 333-64709
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TELEMUNDO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3993031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 WEST 8TH AVENUE
HIALEAH, FLORIDA 33010
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 884-8200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of March 27, 2000, there were 10,000 shares of common stock of the
registrant outstanding, all of which were owned by affiliates. There is no
established public trading market for the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of registrant's 1999 annual report to stockholders are
incorporated by reference in items 6, 7, 7A and 8 of Part II of this report.
Certain exhibits to the registration statement on Form S-4, as amended
(Registration number 333-64709 filed with the Securities and Exchange Commission
on September 29, 1998), are incorporated by reference in certain portions of
Item 14 of Part IV of this report.
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TABLE OF CONTENTS
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PART I
Item 1. BUSINESS.............................................................1
Item 2. PROPERTIES..........................................................15
Item 3. LEGAL PROCEEDINGS...................................................16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................16
Item 6. SELECTED FINANCIAL DATA.............................................16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION....................................16
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................17
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................17
Item 11. EXECUTIVE COMPENSATION..............................................19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......22
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................24
PART IV
Item 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K....26
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PART I
ITEM 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. For purposes of this report,
unless the context requires otherwise, references to the United States exclude
Puerto Rico. The Company owns and operates seven full-power UHF stations serving
the seven largest Hispanic Market Areas (as defined) in the United States--Los
Angeles, New York, Miami, San Francisco, Chicago, Houston and San Antonio. Four
of these markets are among the five largest general Market Areas in the United
States ("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 also owns and operates the leading full-power television station and
related production facilities in Puerto Rico and 16 domestic low-power
television stations.
Holdings was formed as a holding company for the acquisition of Telemundo
Group, Inc. ("Telemundo") and its subsidiaries through the Merger (as defined)
that was consummated on August 12, 1998. Holdings owns 100% of Telemundo's
outstanding capital stock. The capital stock of Holdings is owned 24.95% by Sony
Pictures Entertainment Inc. ("Sony Pictures"), 24.95% by Liberty Media
Corporation ("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.
("TMLD II"), a significant stockholder of Telemundo prior to the Merger, and 32%
by Bastion Capital Fund, L.P. ("Bastion"), a significant stockholder of
Telemundo prior to the Merger.
The Company's stations broadcast a wide variety of network programming,
including telenovelas (soap operas), talk shows, movies, entertainment programs,
national and international news, sporting events, children's programming, music,
sitcoms and dramatic series. In addition, the Company supplements its network
programming with local programming focused on local news and community events.
Network programming is provided 24-hours a day to the Company's U.S. stations by
Telemundo Network Group LLC (the "Network Company"), a company formed in
connection with the Merger (as defined), which is equally owned by a subsidiary
of Sony Pictures and a subsidiary of Liberty. The Company's Puerto Rico station
broadcasts a similar variety of programs. However, a substantial amount of its
programming is developed and produced or acquired directly by the station.
The Network Company provides network programming to the Company's stations
pursuant to an affiliation agreement with the Company and related affiliation
agreements with the Company's owned and operated stations (collectively, the
"Affiliation Agreement"). The Affiliation Agreement also provides for the
Company and the Network Company to pool and share advertising revenue on a
predetermined basis. See "Business--Affiliation Agreement." Including the
Company's stations, the Network Company currently serves 63 markets in the
United States, including 44 of the 45 largest Hispanic markets, and reaches
approximately 85% of all U.S. Hispanic households.
FORWARD LOOKING DISCLOSURES
Except for the historical information contained in this report, certain
matters discussed herein, including (without limitation) under Part I, Item 1,
"Business", Item 3, "Legal Proceedings" and under Part II, Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition", are
forward looking disclosures that involve risks and uncertainties, including
(without limitation) those risks associated with the effect of economic
conditions; the Company's outstanding indebtedness and leverage; restrictions
imposed by the terms of the Company's indebtedness; changes in advertising
revenue which are caused by changes in national and local economic conditions,
the relative popularity of the Network Company's and the Company's programming,
the demographic characteristics of the Company's markets and other factors
outside the Company's control; future capital requirements; the impact of
competition, including its impact on market share and advertising revenue in
each of the Company's markets; the cost of programming; changes in technology;
the loss of key employees; the modification or termination of the Affiliation
Agreement; the impact of litigation; the impact of current or pending
legislation and regulations, including Federal Communications Commission ("FCC")
rulemaking proceedings; and
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other factors which may be described from time to time in filings of the Company
with the Securities and Exchange Commission.
THE MERGER AND RELATED TRANSACTIONS
As described above, Holdings was formed as a holding company for the
acquisition of Telemundo and its subsidiaries through the Merger. The Merger was
consummated on August 12, 1998 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 for each outstanding share of Telemundo's
common stock) was approximately $773 million. Of this amount, $300.0 million was
provided by borrowings under the Credit Facilities (as defined), $125.0 million
was provided from the proceeds of the Senior Discount Notes Offering (as
defined), $274.0 million was provided by the Equity Contributions (as defined)
and $74.0 million was provided from the proceeds of the Network Sale (as
defined).
CREDIT FACILITIES. Telemundo has entered into a credit facilities agreement
(the "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.
EQUITY CONTRIBUTIONS. In connection with the Merger, Holdings received
equity contributions (the "Equity Contributions") aggregating $274.0 million in
cash from Sony Pictures, Liberty and Station Partners. The Equity Contributions
were contributed by Holdings to TLMD Acquisition to fund a portion of the
consideration paid in the Merger.
NETWORK SALE. The Company sold its network operations, which consisted of
substantially all of the programming and production assets of Telemundo Network,
Inc. (the "Telemundo Network") to the Network Company for $74.0 million (the
"Network Sale"). 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 pool and
share advertising revenue 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 10.5% Senior Notes due
2006 (the "10.5% Notes") pursuant to an offer to purchase, as amended on July
20, 1998 (the "Tender Offer"). The aggregate principal amount purchased by TLMD
Acquisition pursuant to the Tender Offer represented 99.9% of the aggregate
principal amount outstanding.
THE SENIOR DISCOUNT NOTES OFFERING. Substantially contemporaneously with
the Merger, the Equity Contributions, the Network Sale, the Tender Offer and
initial borrowings under the Credit Facilities, Holdings issued its 11.5% Senior
Discount Notes due 2008, Series A (the "Series A Notes") in the aggregate
principal amount at maturity of $218.8 million (the "Senior Discount Notes
Offering"). On September 29, 1998, the Company filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-4
under the Securities Act of 1933, as amended, pursuant to which Holdings would
exchange each $1,000 principal amount at maturity of its 11.5% Senior Discount
Notes due 2008, Series B (the "Senior Discount Notes") for each $1,000 principal
amount outstanding of its Series A Notes (the "Exchange Offer"). The terms of
the Series A and Senior Discount Notes are identical in all material respects
with the exception of certain registration rights. The Registration Statement
was declared effective by the Commission on February 16, 1999. The Exchange
Offer commenced on February 16, 1999 and was terminated on March 18, 1999, with
100% of the aggregate principal amount outstanding of the Series A Notes being
exchanged for an equivalent amount of Senior Discount Notes.
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TELEVISION STATIONS
The Company owns and operates eight full-power and 16 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 certain 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.
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NUMBER OF
OTHER
RANKING OF RANKING OF FULL-POWER
NUMBER OF MARKET AREA MARKET AREA SPANISH-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)
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Los Angeles, CA KVEA (Ch. 52) 1,502,780 40% 1 2 3
New York, NY WNJU (Ch. 47) 1,031,330 18% 2 1 1
Miami, FL WSCV (Ch. 51) 486,850 38% 3 16 3
San Francisco, CA KSTS (Ch. 48) 348,410 20% 4 5 1
Chicago, IL(4) WSNS (Ch. 44) 331,250 14% 5 3 1
Houston, TX KTMD (Ch. 48) 326,280 25% 6 11 1
San Antonio, TX KVDA (Ch. 60) 318,230 55% 7 37 1
San Juan, PR WKAQ (Ch. 2) 1,205,348 -- -- -- 6
<FN>
(1) Estimated by Nielsen TV as of January 2000, except for Puerto Rico, which was estimated by Mediafax as of
January 2000.
(2) Claritas, Inc., 1999, 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.
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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 6.2 million Hispanics reside in the Los Angeles
DMA, constituting approximately 40% of the Los Angeles DMA population. The
Hispanic population in Los Angeles more than doubled between 1980 and 1999, and
immigration trends indicate that the Hispanic population will continue to grow
rapidly. 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 12% of the Hispanic television households in
the United States. An estimated 3.5 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 66% between 1980 and 1999.
Although approximately 46% of this market is of Puerto Rican origin, the
remainder of 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 market. WSCV began operating as a
Spanish-language station in 1985. Miami is the third largest U.S. Hispanic
market,
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representing approximately 6% of the Hispanic television households in the
United States. An estimated 1.4 million Hispanics reside in the Miami DMA (which
includes Ft. Lauderdale), constituting approximately 38% 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 1999. Approximately 53% 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 market. KSTS began operating
as a Spanish-language station in 1987. The San Francisco Hispanic market is the
fourth largest U.S. Hispanic market, representing approximately 4% of the
Hispanic television households in the United States. An estimated 1.3 million
Hispanics reside in the San Francisco DMA (which includes San Jose and Oakland),
constituting approximately 20% of the San Francisco DMA population. The Hispanic
population in this market doubled from 1980 to 1999 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 1.3 million
Hispanics reside in the Chicago DMA, constituting approximately 14% of the
Chicago DMA population. The Hispanic population in Chicago almost doubled from
1980 to 1999 and is approximately 69% of Mexican origin.
HOUSTON: The Company owns and operates KTMD, Channel 48, licensed to
Galveston, Texas and serving the Houston market. KTMD began operating as a
Spanish-language station in 1987. The Houston market is the sixth 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 Houston DMA (which includes Galveston), constituting approximately 25% of
the Houston DMA population. The Hispanic population in Houston more than doubled
between 1980 and 1999 and is principally of Mexican origin.
SAN ANTONIO: The Company owns and operates KVDA, Channel 60, licensed to
and serving the San Antonio market. KVDA began operating as a Spanish-language
station in 1989. The San Antonio 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 San Antonio
DMA, constituting approximately 55% of the San Antonio DMA population. The
Hispanic population in San Antonio, which is principally of Mexican origin,
increased by approximately 68% between 1980 and 1999.
SAN JUAN, PUERTO RICO: The Company owns and operates television station
WKAQ, Channel 2, licensed to San Juan, Puerto Rico, which together with its
affiliate, WOLE (Channel 12 in Aguadilla), 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 3.9 million.
LOW-POWER STATIONS
Low-power stations ("LPTVs") 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
full-power 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.
In addition to its 16 owned and operated LPTVs, the Company has received
permission from the FCC to build one additional LPTV.
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The following table sets forth certain information about the Company's
owned and operated LPTVs.
NUMBER OF HISPANIC
TELEVISION HOUSEHOLDS
MARKET AREA SERVED STATION(S) IN MARKET AREA(1)
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Albuquerque/Santa Fe, NM(2)............ K52BS 189,050
Sacramento, CA(2)(3)................... K47DQ, K52CK, K61FI 172,650
Austin, TX(2)(3)(4).................... K11SF 93,750
Boston, MA............................. W32AY 89,970
Salinas/Monterey, CA................... K15CU 60,820
Salt Lake City, UT..................... KEJT-LP 48,000
Colorado Springs, CO................... K49CJ 45,400
Santa Barbara/Santa Maria/San Luis
Obispo, CA(2)........................ K27EI, K47GD 44,590
Odessa/Midland, TX(2).................. K60EE, K49CD 41,890
Amarillo, TX........................... K36DV 31,460
Reno, NV............................... K52FF 23,640
Abilene, TX............................ K40DX 15,660
(1) Estimated by Nielsen TV as of January 2000.
(2) These areas are served by more than one LPTV, including affiliated LPTVs.
(3) These LPTVs no longer carry Telemundo network programming.
(4) Since December 1996, the Company has been operating K11SF pursuant to
special temporary authority ("STA") granted by the FCC, which expires on
April 22, 2000. The Company plans to seek an extension of the STA.
AFFILIATION AGREEMENT
Pursuant to the Affiliation Agreement, the Network Company provides
programming to the Company, and the Company and the Network Company pool and
share advertising revenue 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. All network-programming costs are 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 may elect to incur a portion of such expenditures in a subsequent year.
PROGRAMMING
The Affiliation Agreement provides that the Network Company will provide
all network programming. 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 expenses related to the
development of local programming will be borne by the Company. Each of the
stations is responsible for approximately 1 to 3 hours of local programming
daily, consisting primarily of local news and coverage of community affairs.
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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 is shared based on a formula applied to
a combination of the Company's revenue (excluding revenue from Puerto Rico) and
the Network Company's advertising revenue. 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 revenue contributed by the Network Company as
part of the pooled advertising revenue to be shared under the Affiliation
Agreement would be reduced proportionately.
CARRIAGE AGREEMENT
The Network Company has entered into a carriage agreement (the "Carriage
Agreement") with a subsidiary of AT&T Cable Services, formerly known as
Tele-Communications, Inc. ("TCI"). Pursuant to the Carriage Agreement, the
Network Company pays TCI 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. Liberty is the
programming unit of TCI.
PROGRAMMING
As a result of the Affiliation Agreement, the Company relies on the Network
Company for network programming. The Company's stations broadcast a wide variety
of network programming, including telenovelas, talk shows, movies, entertainment
programs, national and international news, sporting events, children's
programming, music, sitcoms and dramatic series. The programming provided by the
Telemundo network is either produced by the Network Company or purchased from
various program suppliers, primarily in Mexico and Latin America. The Telemundo
network's programming schedule is further supplemented by feature films from
Sony Pictures' library.
The Telemundo network's programming schedule for the 1999-2000 season
includes four prime-time telenovelas, the Emmy Award-winning show, OCURRIO ASI
(IT HAPPENED LIKE THIS), a one-hour reality-based investigative news magazine
show, LAURA EN AMERICA (LAURA IN AMERICA), a talk show designed to entertain and
educate the public with a mix of interviews and discussions about a wide
variety of issues, PADRE ALBERTO (FATHER ALBERT), a talk show hosted by Father
Albert Cutie that discusses a wide range of mainstream social issues, EL Y ELLA
(HE AND SHE), a talk show that discusses everyday topics and common problems
from the male and female perspective, and various sports-oriented programs,
including FUTBOL TELEMUNDO (TELEMUNDO SOCCER), FUTBOL MEXICANO (MEXICAN SOCCER),
TITULARES TELEMUNDO (TELEMUNDO SPORTS HEADLINES) and BOXEO TELEMUNDO (TELEMUNDO
BOXING).
The Telemundo network's programming currently includes newscasts of
NOTICIERO TELEMUNDO (TELEMUNDO NEWS), which is produced by the Network Company
and provides the latest developments on major national and international news
stories twice each weekday.
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In addition, the Company's full-power stations produce and broadcast local
news and limited other programming focused on the audience in each of their
respective local markets.
The programming lineup of WKAQ in Puerto Rico differs from that of the
Telemundo network, but includes approximately 6 hours per week of network
programming. Through its production studios, WKAQ produces approximately 34
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 for the Puerto Rico
market to purchase telenovelas and other programming produced by Televisa, S.A.
de C.V. ("Televisa"), the largest supplier of Spanish-language programming in
the world, pursuant to a programming agreement that expires in May 2005. WKAQ
also broadcasts programming from other Latin American countries and broadcasts
United States syndicated programming dubbed in Spanish.
NETWORK COMPANY AFFILIATES
In addition to the Company's owned and operated stations, the Network
Company provides programming to 183 affiliates serving 48 Hispanic markets in
the United States. These affiliates, which consist of 32 affiliated broadcast
stations and 151 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 advertising time. Revenue is shared between the Company and the
Network Company based on a formula applied to a combination of the Company's and
the Network Company's advertising revenue (excluding revenue from Puerto Rico).
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.
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 1999 total revenue. According to HISPANIC BUSINESS MAGAZINE, the top
ten advertisers in Spanish-language media in 1999, all of which broadcast
advertisements over the Telemundo network and the Company's owned and operated
stations, were:
The Procter & Gamble Co. Anheuser-Busch Companies Inc.
AT&T Corp. Toyota Motor Corp.
MCI Communications Corporation Kraft Foods, Inc.
Sears, Roebuck & Co. Johnson & Johnson
McDonald's Corporation Colgate-Palmolive 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. Since the Merger, the Company's stations have replaced and are
continuing to replace certain time periods historically sold to block time
programmers with network programming.
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AUDIENCE MEASUREMENT SYSTEMS
The Company's advertising revenue depends to a large extent on its 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. Effective March 1, 2000, the Company entered into a services agreement
with Nielsen TV to obtain Nielsen Station Index ("NSI") television ratings and
share data for all of its U.S. full-power stations, except KVDA. NSI
measures local station viewing of all households in a specific Market Area.
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 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 87% 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 2.9
million Hispanic subscribers, representing approximately 61% of all Hispanic
households that subscribe to cable television. Both 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 have traditionally provided Univision
with a competitive programming advantage.
From time to time, parties have announced intentions to form other national
Spanish-language broadcast networks in the United States. To date, the Company
is not aware of any substantive activity with respect to the establishment of
any 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 full-power Spanish-language
television stations compete with Company-owned stations in the Los Angeles and
Miami 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, internet
sites, 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.
8
<PAGE>
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. In October 1999, the ownership of WAPA, one of WKAQ's
significant competitors, was transferred from Pegasus Broadcasting of San Juan,
L.L.C. to a subsidiary of LIN Television Corporation. In addition, in August
1998 Raycom Media, Inc. received FCC consent to acquire ownership control of
WLII(TV), San Juan-Caguas, Puerto Rico, another significant competitor of WKAQ.
Such transactions were consummated in September 1998. It is not possible for the
Company to predict the effect that the acquisitions described above may have on
its Puerto Rico television station.
Further advances in technology such as video compression, programming
delivered through fiber optic telephone lines and programming broadcast on the
internet could lower entry barriers for new channels and encourage the
development of increasingly specialized niche programming.
Additionally, recent changes in FCC regulations, including new television
duopoly rules, may result in increased competition.
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 of 1934, as amended (the "Communications Act"). The
Communications Act was substantially amended by the Telecommunications Act of
1996 (the "Telecommunications Act"). 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: WKAQ and WSCV--February 1,
2005; WSNS--December 1, 2005; KTMD and KVDA--August 1, 2006; KSTS and
KVEA--December 1, 2006; aND WNJU--June 1, 2007. The Company must apply to renew
these licenses. Under the Communications Act, interested parties, including
members of the public, may file petitions to deny a license renewal application,
but competing applications for the license will not be accepted unless the
current licensee's renewal application is denied. In response to petitions to
deny or other facts raising a "substantial and material" question whether a
renewal grant would be in the public interest, the FCC will conduct a hearing on
specified issues to determine whether renewal should be granted. The FCC is
required to grant a license renewal application if (i) the licensee has served
the public interest; (ii) the licensee has not engaged in any serious violations
of the Communications Act or the FCC's rules and regulations; and (iii) the
licensee has not engaged in any other violations that would indicate a pattern
of abuse of FCC rules or the Communications Act. The FCC may deny a license
renewal application only if it finds that a licensee has failed to meet this
test and there are no mitigating circumstances to warrant renewal for less than
the full term or with conditions. 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.
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INITIAL FCC CONSENT
The Senior Discount Notes Offering, the Merger, the Equity Contributions,
the Network Sale, the Tender Offer, the closing of the Credit Facilities and the
related transactions are collectively referred to herein as the "Transactions".
On July 30, 1998, the FCC issued an initial consent to the transfer of control
of 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 an FCC consent to the transfer of
control of a licensee or the assignment of a license has 30 days after public
notice thereof to seek reconsideration or review of the FCC consent. If no
timely petition for reconsideration or review of the 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 consent becomes a final order and is no longer
subject to further administrative or judicial review at the close of business on
the 40th day after public notice of the consent. On August 6, 1998 Univision,
the Company's primary competitor, 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. The FCC has not yet acted upon the Univision
Application, which has substantially delayed the Initial FCC Consent becoming a
final order. The Company cannot predict the timing for FCC action on, or the
outcome of, the Univision Application or any timely judicial appeal of the FCC
decision on the Univision Application.
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 20% 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. Pursuant to recently adopted rules, the FCC
decided to treat equity and debt interests, which combined exceed 33% of a
station licensee's total assets, as an "attributable interest" if the party
holding such equity/debt interest supplies more than 15% of the station's total
weekly programming, or has an attributable interest in another media entity,
whether TV, radio, cable or newspaper, in the same market. Under these new
"equity/debt plus" rules, all non-conforming interests acquired before November
7, 1996 are permanently grandfathered and thus do not constitute attributable
ownership interests. Any nonconforming interests acquired after that date must
be brought into compliance by August 5, 2000.
TELEVISION ("TV") DUOPOLY RULES
In its review of its regulations governing television broadcasting, the FCC
adopted rules relating to television duopolies (the "TV Duopoly Rules"), which
also became effective in November 1999. The TV Duopoly Rules permit parties to
own more than one TV station without regard to signal contour overlap provided
they are located in separate DMA's. In addition, the new rules permit parties in
larger DMA's to own up to two television stations in the same DMA so long as (a)
at least eight independently owned and operating full-power commercial and
non-commercial television stations will remain in the market post-acquisition
and (b) at least one of the two stations in the proposed duopoly is not among
the top four-ranked stations in the market based on audience share. In addition,
without regard to numbers of remaining or independently owned TV stations, the
FCC will permit television duopolies within the same DMA so long as the
stations' Grade A service contours do not overlap. Satellite stations that
simply rebroadcast the programming of a "parent" station will continue to be
exempt from the TV Duopoly Rules if located in the same DMA as the "parent"
station. Further, the FCC may grant a waiver of the TV Duopoly Rules if one of
the two television stations is a "failed" or "failing" station, or the proposed
transaction would result in the construction of a new television station.
NATIONAL OWNERSHIP RULES
The FCC's Broadcast Television National Ownership Rules 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.) Under the
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ownership rules, the FCC will count the audience in each market only once.
If a broadcast licensee has an attributable interest in a second television
station in a market, whether by virtue of ownership, a local marketing agreement
or a parent-satellite operation, the audience for that market will not be
counted twice for purposes of determining compliance with the national cap.
CROSS-OWNERSHIP RULES
The FCC's rules adopted pursuant to the Telecommunications Act 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. As of November 1999, the FCC revised its
"cross-interest" policy, which generally prohibited a party (or parties under
common control) that had 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 Company does not have any attributable interests in other
broadcast stations, cable systems or newspapers. 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 were deemed not to be attributable to the
Company under FCC rules and not to be "meaningful" for purposes of the FCC's
cross-interest policy, which was then in effect.
On March 12, 1998, the FCC commenced a formal inquiry to review certain of
these broadcast ownership rules which were 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.
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"). 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 Initial
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%.
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 LPTVs' signals without their consent. The Company's owned and
operated full-power stations have elected must-carry rights. The
Telecommunications Act modified the way in which markets for carriage will be
determined for purposes of the must-carry
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rules by providing that the FCC will determine a broadcast station's market by
using commercial publications that delineate television markets based on viewing
patterns. This modification has resulted in the FCC ruling that for the election
period commencing January 1, 2000, a station's market will be defined by the DMA
to which it has been designated. The FCC is authorized to entertain requests for
expansion or other modification of television station markets, and is now
required to resolve any market modification request within 120 days after the
request is filed.
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
digital television technology ("DTV"), such LPTV stations operate on a secondary
basis, and therefore are subject to displacement, and they must tolerate defined
levels of electromagnetic interference from full-power stations.
DIGITAL TELEVISION ("DTV")
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
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. The most recent biennial review
commenced in March 2000. In accordance with FCC rules, applications for
construction permits for the Company's DTV stations were submitted by November
1, 1999, and construction must be completed by May 1, 2002. 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 during 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 revenue received from ancillary
or supplementary uses of their DTV spectrum for which the broadcasters charge
subscription fees or other compensation, other than advertising revenues derived
from free, over-the-air broadcasting.
The FCC also commenced a proceeding in December 1999 to consider additional
public interest obligations for television stations as they transition to
digital broadcast television operation. The FCC is considering various proposals
that would require DTV stations to use digital technology to increase program
diversity, political discourse, access for disabled viewers and emergency
warnings and relief. If these proposals are adopted, the Company's stations may
be required to increase their current level of public interest programming which
generally does not generate as much revenue from commercial advertisers.
CLASS A LOW-POWER TELEVISION
In November 1999, Congress passed the Community Broadcasters Act of 1999,
which directs the FCC to offer a new Class A status to qualifying LPTVs. To
qualify, LPTVs had to meet certain programming and operational criteria and were
required to notify the FCC of their eligibility by January 28, 2000. All of the
Company's LPTVs submitted such notification letters to the FCC by the January
28, 2000 deadline. The FCC must adopt rules regarding the new Class A service by
the end of March 2000, after which qualifying LPTVs must submit a formal
application. The FCC has commenced a proceeding to consider rules governing the
eligibility and operation of Class A stations. The Class A stations would
receive certain interference protection against full-power stations and other
LPTVs, which may benefit the Company's qualifying LPTVs but may also limit the
Company's ability to modify its full-power television facilities in the future.
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SATELLITE CARRIAGE OF TELEVISION BROADCAST SIGNALS
In November 1999, Congress passed legislation amending the Satellite Home
Viewer Act, which governs the delivery of television broadcast signals by
satellite companies. The legislation authorizes the satellite delivery of local
broadcast signals to customers located in a television station's local market.
Satellite carriers need not obtain consent from the television station to
retransmit the local signal until May 29, 2000. The legislation requires
television stations to negotiate in good faith with satellite companies
regarding retransmission consent. Pursuant to a rulemaking proceeding initiated
in December 1999 to address the legislation, the FCC adopted rules in March 2000
setting forth standards for negotiations to satisfy the "good faith" test and to
implement the legislative prohibition on television stations entering into
exclusive retransmission consent agreements, including those that would take
effect after the prohibition's expiration on January 1, 2006. The Company's
television stations may enter into retransmission consent negotiations with
satellite carriers during the first half of 2000. Congress also has imposed
"must-carry" obligations on satellite carriers with respect to certain local
television stations, beginning January 1, 2002.
CHILDREN'S PROGRAMMING/RESTRICTIONS ON BROADCAST ADVERTISING
Stations must provide "reasonable access" for the purchase of time by
legally qualified candidates for federal office and "equal opportunities" for
the purchase of equivalent amounts of comparable broadcast time by opposing
candidates for the same elective office. Prior to primaries and general
elections, legally qualified candidates may be charged no more than the
station's "lowest unit charge" for the same class of advertisement. Pursuant to
the Children's Television Act of 1990, the amount of commercial matter that may
be broadcast during 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) serves 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. Advertising of cigarettes and certain other tobacco products on
broadcast stations has been banned for many years. Various states restrict the
advertising of alcoholic beverages. Congressional committees have recently
examined proposals which may eliminate or severely restrict the advertising of
beer and wine.
EQUAL EMPLOYMENT OPPORTUNITY REQUIREMENTS
The FCC's rules formerly required that broadcast licensees develop and
implement programs designed to promote equal employment opportunities and submit
reports on these matters on an annual basis and at renewal time. In 1998, the
United States Court of Appeals for the District of Columbia Circuit declared
these rules unconstitutional. Subsequently, the FCC initiated a rulemaking
procedure to reestablish employment regulations, and in January 2000, the FCC
adopted new equal employment opportunity rules for broadcasters. The FCC's new
rules reaffirm the prior rule prohibiting discrimination on the basis of race,
religion, color, national origin or gender, and require broadcasters to maintain
a recruitment outreach program to ensure that all qualified applicants have the
opportunity to apply for job vacancies. Broadcasters will be required to prepare
reports concerning equal employment opportunity outreach programs on an annual
basis and to file those reports with the FCC periodically throughout the license
term. The FCC will review the reports and a station's compliance midway through
the license term and in connection with the station's license renewal.
Broadcasters will also be required to complete annual reports regarding their
employment profile that will be used by the FCC to monitor industry trends. The
FCC's new rules are not yet effective and therefore are subject to
reconsideration and modification in subsequent proceedings.
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PROPOSED REGULATORY CHANGES
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. Congress and the FCC currently have
under consideration, and may in the future adopt, new laws, regulations and
policies regarding a wide variety of matters that could, directly or indirectly:
(i) affect the operation, ownership and profitability of the Company and its
television broadcast stations; (ii) result in the loss of audience share and
advertising revenue of the Company's television broadcast stations; and (iii)
affect the ability of the Company to acquire additional television broadcast
stations or finance such acquisitions. Such matters include proposals to impose
spectrum use or other fees upon licensees; proposals to change rules relating to
political broadcasting; technical and frequency allocation matters, including
DTV; proposals to restrict or prohibit the advertising of alcoholic beverages;
changes in the FCC's multiple ownership, alien ownership, and attribution rules
and policies; and proposals to limit the tax deductibility of advertising
expenses. 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 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 foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the Telecommunications Act, or of the
regulations and policies of the FCC. From time to time, proposals for additional
or revised regulations and requirements are pending before or are being
considered by Congress and the FCC. At this time, the Company cannot predict the
impact of current FCC regulations outlined above, the timing or outcome of any
of the pending FCC rulemaking proceedings referenced above, the outcome of any
reconsideration or appellate proceedings concerning any changes in FCC rules or
policies noted above, the possible outcome of any proposed or pending
Congressional legislation, or the ultimate impact of any of those changes on the
Company's broadcast operations.
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.
SEASONALITY OF BUSINESS
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 revenue for the fourth quarter. The seasonality is more
pronounced in Puerto Rico and as a result, the Company may experience seasonal
fluctuations to a greater degree than the U.S. broadcasting industry in general.
Because costs are more ratably spread throughout the year, the impact of this
seasonality on operating income is more pronounced. Seasonal revenue
fluctuations in the Company's revenue may also be impacted by the revenue
sharing formula in the Affiliation Agreement.
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EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries had approximately
808 full-time employees, approximately 214 of whom were employees of WKAQ in
Puerto Rico. Approximately 55 employees of KVEA, 63 employees of WNJU, 36
employees of KSTS, 132 employees of WKAQ and 28 employees of WSNS are unionized.
The collective bargaining agreements covering the union employees at WNJU and
WSNS are currently being negotiated. The Company believes its relations with its
employees and unions are satisfactory.
ITEM 2. PROPERTIES
The table below sets forth the Company's principal properties as of
December 31, 1999.
<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 2003/2007
Transmission tower site(3) Leased 2004
KVEA Glendale, CA Office & studio Leased 32,000 2002/2007
Transmission tower site Leased (4)
KTMD Houston, TX Office & studio Leased 17,000 2003
Transmission tower site Owned N/A
KSTS San Jose, CA Office & studio Leased 16,000 2003
Transmission tower site Leased 2015/2025
WSNS Chicago, IL Office & studio Owned 21,000 N/A
Transmission tower site Leased 2009/2019
KVDA San Antonio, TX Office & studio Owned 20,000 N/A
Transmission tower site Owned N/A
WKAQ San Juan, Puerto Rico Office & studio Owned 200,000 N/A
Transmission tower site(5) Leased 2009
<FN>
(1) WSCV and the Company also share 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 in New York, New York.
(4) The Company currently uses this site pursuant to an oral lease whose term will expire in 2003, with options
to extend until 2013.
(5) Located on property owned by the Department of Natural Resources of the Commonwealth of Puerto Rico.
</FN>
</TABLE>
The Company also leases various properties throughout the country for its
LPTVs. None of these lease commitments are material to the Company.
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ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock. As of March 27, 2000, there were three holders of record of the Company's
common stock. The Company has not paid dividends on its common stock and does
not expect to pay dividends on its common stock in the foreseeable future. The
Senior Discount Notes and the Credit Facilities contain restrictions on the
Company's ability to pay dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company, set forth in the Company's 1999
Annual Report to Stockholders under "Selected Historical Consolidated Financial
Data," at page 1, are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition, set forth in the Company's 1999 Annual Report to Stockholders at
pages 2 through 8, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information related to quantitative and qualitative disclosures about
market risk, set forth in the Company's 1999 Annual Report to Stockholders under
"Liquidity and Sources of Capital," at pages 6 through 8, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes thereto,
set forth in the Company's 1999 Annual Report to Stockholders at pages 9 through
26, are incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each executive
officer and director of Holdings:
NAME AGE POSITION
---- --- --------
Roland A. Hernandez....... 42 Chief Executive Officer and Chairman
Richard J. Blangiardi..... 53 President
Peter J. Housman II....... 48 Chief Financial Officer and Treasurer
Vincent L. Sadusky........ 34 Vice President, Finance
Leon D. Black............. 48 Director
Guillermo Bron............ 48 Director
Brian D. Finn............. 39 Director
Yair Landau............... 36 Director
Enrique F. Senior......... 56 Director
Bruce H. Spector.......... 57 Director
Barry Thurston............ 58 Director
Edward M. Yorke........... 41 Director
ROLAND A. HERNANDEZ. Mr. Hernandez has been Chief Executive Officer and
Chairman of the Board of Directors of Holdings since August 1998, President of
Holdings from August 1998 to November 1999, a director of Telemundo since 1989,
Chief Executive Officer of Telemundo since March 1995 and President of Telemundo
from March 1995 to November 1999. 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 broadcast affiliate of the Telemundo
network 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 also a
director of Wal-Mart Stores, Inc. and Eritmo.com.
RICHARD J. BLANGIARDI. Mr. Blangiardi has been President of the Company
since November 17, 1999. From March to November 1999, Mr. Blangiardi served as
the Chief Operating Officer and Director of Brad Marks International, an
executive search firm dedicated to the entertainment, broadcast communications,
new media and convergence industries. From January 1997 to December 1998, Mr.
Blangiardi served as Chief Executive Officer of Premier Horse Network, a
start-up network devoted to programming for equine enthusiasts. From June 1994
to December 1996, Mr. Blangiardi served as the Group President of River City
Broadcasting.
PETER J. HOUSMAN II. Mr. Housman has been the Chief Financial Officer and
Treasurer of the Company since August 1998 and the Chief Financial Officer and
Treasurer of Telemundo since February 1987.
VINCENT L. SADUSKY. Mr. Sadusky has been Vice President, Finance of the
Company since November 1998. From March 1994 to November 1998, Mr. Sadusky held
various financial positions with Telemundo, most recently as Vice President,
Finance. 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 was Chairman of the Board of Directors of Telemundo from December 1994 to
August 1998. Mr. Black is one of the founding principals and, since its
formation, has
17
<PAGE>
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.
GUILLERMO BRON. Mr. Bron has been a director of Holdings since August 1998
and was a director of Telemundo from December 1994 to August 1998. From July
1993 to the 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 also a director of United PanAm
Financial Corp.
BRIAN D. FINN. Mr. Finn has been a director of Holdings since August 1998.
Mr. Finn has been a principal of Clayton, Dubilier & Rice, Inc., a private
investment firm, since 1997. 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 U.S. Office Products Company and Dynatech Corporation.
YAIR LANDAU. Mr. Landau has been a director of Holdings since August 1998.
Mr. Landau joined Sony Pictures in May 1991 and from October 1997 to March 2000
served as Sony Pictures' Executive Vice President, Corporate Development and
Strategic Planning. Mr. Landau became President of Sony Pictures Digital
Entertainment, Inc. on March 13, 2000.
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 also
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 was a director of Telemundo from December 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. Mr. Spector is also a
director of Metropolis Realty Trust, Inc., Vail Resorts, Inc. and Pacer
International, 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, an affiliate of Sony Pictures, and its predecessors since 1986. In
this capacity, Mr. Thurston is responsible for the domestic distribution to
television outlets of all of Sony Pictures' television and feature film product.
EDWARD M. YORKE. Mr. Yorke has been a director of Holdings since August
1998 and was a director of Telemundo from June 1995 to August 1998. 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.
Pursuant to the Stockholders Agreement (as defined), Station Partners, Sony
Pictures and Liberty agreed to elect nine directors to the Board of Directors of
Holdings, of which four directors are designated by Station Partners, two
directors are designated by Sony Pictures, one director is 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 are
designated as independent. One of the independent directors is nominated by
Station Partners, subject to the approval of Liberty and Sony Pictures, and the
other independent director is 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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ITEM 11. 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, 1999,
1998 and 1997 paid to (a) the Chief Executive Officer and (b) the other four
most highly compensated executive officers of the Company during 1999
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (#)
-------------------- -----------
ANNUAL SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION DURING 1999 YEAR SALARY ($) ($)(1) OPTIONS (#) ($)(2)
- --------------------------------------- ---- ----------- ------- ----------- ------
<S> <C> <C> <C> <C> <C>
Roland A. Hernandez................. 1999 800,000 400,000 0 9,305
Chief Executive Officer and 1998 782,700 733,333 0 9,116
Chairman 1997 700,000 0 30,000 8,438
Richard J. Blangiardi............... 1999 43,077(3) 0 0 120
President 1998 0 0 0 0
1997 0 0 0 0
Peter J. Housman II................. 1999 400,000 200,000 0 7,329
Chief Financial Officer and 1998 387,000 366,666 0 7,140
Treasurer 1997 325,000 0 30,000 6,233
Osvaldo F. Torres(4)................ 1999 209,230 75,000 0 6,634
Senior Vice President, Business 1998 177,400 52,500 0 5,587
Affairs, General Counsel 1997 142,900 30,000 15,000 5,729
and Secretary
Vincent L. Sadusky.................. 1999 147,930 60,000 0 6,086
Vice President, Finance 1998 120,700 37,500 0 5,696
1997 102,700 30,000 15,000 5,495
<FN>
(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--$6,488 for 1999, $6,600 for 1998 and $4,750 for 1997; Mr. Blangiardi--$0 for 1999, $0 for 1998 and $0
for 1997; Mr. Housman--$6,488 for 1999, $6,600 for 1998 and $4,750 for 1997; Mr. Torres--$5,809 for 1999, $5,047 for
1998 and $4,750 for 1997; and Mr. Sadusky--$5,273 for 1999, $5,221 for 1998 and $4,750 for 1997. Life insurance
premium payments: Mr. Hernandez--$2,705 for 1999, $2,516 for 1998 and $3,688 for 1997; Mr. Blangiardi--$120 for 1999,
$0 for 1998 and $0 for 1997; Mr. Housman--$729 for 1999, $540 for 1998 and $1,483 in 1997; Mr. Torres--$729 for
1999, $540 for 1998 and $979 in 1997; and Mr. Sadusky--$729 for 1999, $475 for 1998 and $745 in 1997.
(3) The salary figure for Mr. Blangiardi represents compensation paid from November 17, 1999 to December 31, 1999.
His current annual salary is $400,000.
(4) Mr. Torres' employment agreement with Telemundo, dated as of September 10, 1997, remained in effect until December
31, 1999. Mr. Torres was no longer employed by the Company as of January 14, 2000.
</FN>
</TABLE>
19
<PAGE>
OPTION GRANTS IN 1999
No options were granted by Holdings or Telemundo in 1999. Currently, the
Company has no stock option plans.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUE
No options were exercised in 1999.
DIRECTORS' COMPENSATION
Each of the directors of Holdings, other than Mr. Hernandez, serving on the
Board of Directors of Holdings receives for services as a director (i) $18,000
as an annual retainer, (ii) $2,500 for each regularly scheduled Board meeting
attended, (iii) a $2,500 annual fee for each committee such director serves on
and (iv) $1,500 for each extraordinary meeting of the Board attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of Holdings are Bruce H. Spector,
Brian D. Finn and Barry Thurston. None of the members of the Compensation
Committee has ever served as an officer or employee of Holdings, 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 1999,
except that Mr. Finn served on the compensation committee for U.S. Office
Products Company and Dynatech Corporation.
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. Mr. Hernandez's employment agreement provides for an
annual base salary of $800,000 from February 29, 1998 through the remainder of
his term of employment and annual bonuses for each of the 1999, 2000 and 2001
fiscal years of up to 100% of his base salary, in each case, if Telemundo
achieves certain EBITDA targets (as defined in the employment agreement). If Mr.
Hernandez's employment is terminated because of death, disability or other event
rendering him 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 him a bonus, if earned, for the year
in which such termination occurred. If Mr. Hernandez is terminated for "cause"
(as defined in the employment agreement) or if he resigns without "good reason"
(as defined in the employment agreement) pursuant to a resignation that is not a
"specified resignation" (as defined in the employment agreement), Telemundo is
obligated to pay Mr. Hernandez only his base salary and certain other benefits
through the date of termination or resignation. The agreement provides that if
Mr. Hernandez is terminated by Telemundo "without cause" or if Mr. Hernandez
terminates the employment agreement for "good reason" (as defined in the
employment agreement), Mr. Hernandez 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 his 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. Mr. Hernandez's agreement also provides that if (a) there is a
"change of control transaction" (as defined in the employment agreement), (b) he
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 employment agreement) would have occurred but for the offer of a position
as described in clause (b) above, then Mr. Hernandez will have the option of
declining the position offered as described in clause (b) above and instead
modify his position to a position (but not senior to that offered) that has such
work location, time commitment, duties, responsibilities and terms as he may
specify in his sole and absolute discretion after consultation with Telemundo.
In addition, his employment agreement provides for "specified resignation
rights" (as defined in the applicable employment agreement) which allow Mr.
Hernandez, 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).
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<PAGE>
Mr. Blangiardi's employment agreement with Holdings, dated as of November
17, 1999, remains in effect until November 16, 2002. The employment agreement
provides for an annual base salary of $400,000 from November 17, 1999 through
November 16, 2000, $425,000 from November 17, 2000 through November 16, 2001 and
$450,000 from November 17, 2001 through November 16, 2002. Mr. Blangiardi's
employment agreement provides for annual bonuses for each of the 2000, 2001 and
2002 fiscal years of (i) up to 50% of his base salary if Telemundo achieves
certain revenue and EBITDA targets (as defined in the employment agreement) for
each respective year and (ii) an additional discretionary performance bonus of
up to 25% of his base salary based solely upon an assessment of Mr. Blangiardi's
performance under his employment agreement, without regard to the financial
performance of Holdings. If Mr. Blangiardi resigns without "good reason" (as
defined in the employment agreement) he shall only be entitled to receive (i)
his base salary earned up to the date of resignation and (ii) all benefits due
to him up to the date of resignation. Mr. Blangiardi also has the right to
terminate his employment agreement if a "designated relocation," a "failure to
adopt an SAR plan," "bankruptcy of the company," or any "other good reason
event" (each as defined in the employment agreement) occurs, and is entitled to
receive (i) his base salary for six months after the date of termination, (ii)
his bonus, if any, earned for the fiscal year in which such termination occurs,
which will be prorated to the date of termination, and (iii) all benefits to
which he is entitled for six months after the date of termination. Mr.
Blangiardi may be asked to relocate from Los Angeles, California to Hialeah,
Florida after his first year of employment. Holdings has the right to terminate
the employment agreement if a "failure to relocate" (as defined in the
employment agreement) occurs, in which case Mr. Blangiardi is entitled to
receive (i) his base salary through the date of termination, (ii) his bonus, if
any, earned for the fiscal year in which such termination occurs, which is
prorated to the date of termination, and (iii) all benefits to which he is
entitled through the date of termination. If Mr. Blangiardi's employment is
terminated because of death or disability, in addition to his base salary and
certain benefits through the date of termination, Holdings is obligated to pay
Mr. Blangiardi a bonus, if earned, for the year in which such termination
occurred. If Mr. Blangiardi is terminated for "cause" (as defined in the
employment agreement) or if he resigns without "good reason" (as defined in the
employment agreement), Holdings is obligated to pay him only his base salary and
certain other benefits through the date of termination or resignation. The
agreement provides that if Mr. Blangiardi is terminated by Holdings "without
cause" or if Mr. Blangiardi terminates the agreement for "good reason" (each as
defined in the employment agreement), he will be entitled to receive through an
entitlement date that is the later of November 16, 2002, or the first
anniversary of the date of termination his 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.
In addition, the employment agreement provides for "specified resignation
rights" (as defined in the employment agreement) which allow Mr. Blangiardi,
during the one-month period beginning 6 months after a Change of Control
Transaction (as defined in the employment agreement), 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).
Mr. Housman's amended and restated employment agreement with Holdings,
dated as of November 1, 1999, remains in effect until November 30, 2001 and
automatically extends for additional one-year terms thereafter unless either
party elects to terminate the agreement. Mr. Housman's employment agreement
provides for an annual base salary of $400,000 from November 1, 1999 through the
remainder of the term of his employment agreement. For fiscal year 1999, Mr.
Housman's employment agreement provides that he is entitled to a $200,000 bonus
payment. For fiscal year 2000, Mr. Housman's employment agreement provides that
he is entitled to a bonus of up to 100% of his base salary if Holdings achieves
certain EBITDA targets (as defined in the employment agreement); provided,
however, that his bonus for fiscal year 2000 or any portion thereof will be at
least $200,000. However, in the event a transaction is announced that would
result in a Change of Control (as defined in the employment agreement), Mr.
Housman is entitled to a transaction bonus equal to $400,000 in lieu of the
previously described fiscal year 2000 bonus payment. Finally, for fiscal year
2001 and each subsequent fiscal year during the term of Mr. Housman's employment
agreement, he is entitled to a bonus of up to 100% of his base salary if
Holdings achieves certain EBITDA targets (as defined in the employment
agreement). If Mr. Housman's employment is terminated because of death or
disability, in addition to his base salary and certain benefits through the date
of termination, Holdings is obligated to pay him a bonus, if earned, for the
year in which such termination occurred. If Mr. Housman is terminated for
"cause" (as defined in the employment agreement) or if he resigns without "good
reason" (as defined in the employment agreement) pursuant to a resignation that
is not a "specified resignation" (as defined in the employment agreement),
Holdings is obligated to pay Mr. Housman only his base salary and certain other
benefits through the date of termination or resignation. In addition, his
employment agreement provides for "specified resignation rights" (as defined in
the applicable employment agreement) which allow Mr. Housman, at any time after
June 30, 2000, to terminate his employment for any reason whatsoever and any
such termination will be treated as if it were a termination for "good reason"
(the consequences of which
21
<PAGE>
are described below). The agreement provides that if Mr. Housman is terminated
by Holdings "without cause" or if Mr. Housman terminates the employment
agreement for "good reason" (as defined in the employment agreement), Mr.
Housman will be entitled to receive through an entitlement date that is the
later of November 30, 2001, or the first anniversary of the date of termination
of his 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. Mr. Housman's agreement also
provides that if (a) there is a "change of control transaction" (as defined in
the employment agreement), (b) he is offered a position allowing him to keep his
title with the successor to all or any part of Holdings' business and (c) a
"diminution in duty" (as defined in the employment agreement) would have
occurred but for the offer of a position as described in clause (b) above, then
Mr. Housman will have the option of declining the position offered as described
in clause (b) above and instead modify his position to a position (but not
senior to that offered) that has such work location, time commitment, duties,
responsibilities and terms as he may specify in his sole and absolute discretion
after consultation with Holdings.
Mr. Torres' employment agreement with Telemundo, dated as of September 10,
1997, remained in effect until December 31, 1999. Mr. Torres was no longer
employed by the Company as of January 14, 2000. The Company has no further
compensation obligations under Mr. Torres' employment agreement.
Mr. Sadusky entered into a new employment agreement with Holdings dated as
of January 1, 2000. Pursuant to Mr. Sadusky's employment agreement, his current
annual base salary is $170,000. For the 2000 fiscal year, Mr. Sadusky is
entitled to a Bonus (as defined in the employment agreement) equal to forty
percent of his then current base salary. The Bonus is awarded without regard to
Holdings' EBITDA for such fiscal year. Effective December 31, 2000, Mr. Sadusky
has the right to resign without "good reason" (as defined in the employment
agreement) and is entitled to receive (i) his base salary through June 30, 2001
and (ii) all benefits through June 30, 2001. Mr. Sadusky also has the right to
terminate his 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 through June
30, 2001, (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 June
30, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, 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.
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS
------------------------------------ ------ --------
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
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<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS:
Roland A. Hernandez........................ -- --
Richard J. Blangiardi...................... -- --
Peter J. Housman II........................ -- --
Osvaldo F. Torres(3)....................... -- --
Vincent L. Sadusky......................... -- --
Leon D. Black (4).......................... -- --
Guillermo Bron (5)......................... -- --
Brian D. Finn.............................. -- --
Yair Landau (6)............................ -- --
Enrique F. Senior.......................... -- --
Bruce H. Spector (4)....................... -- --
Barry Thurston (6)......................... -- --
Edward M. Yorke............................ -- --
All directors and officers as a group(7)... -- --
(1) Station 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, 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, 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) Mr. Torres was no longer employed by the Company as of January 14, 2000.
(4) 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.
(5) Mr. Bron is associated with Bastion and disclaims beneficial ownership of
all shares of Holdings held by Station Partners.
(6) Messrs. Landau and Thurston are associated with Sony Pictures and disclaim
beneficial ownership of all shares of Holdings held by Sony Pictures.
(7) Excludes shares shown in the table above as held by Station Partners,
Liberty and Sony Pictures.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS RELATED TO THE MERGER
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 used to fund the consummation of the Merger and refinance existing
indebtedness of Telemundo.
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 pool and share advertising revenue on a predetermined basis. See
"Business--Affiliation Agreement."
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, Sony Pictures, Liberty and Station Partners
(collectively, 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, (v) selling assets of the Company with a fair value in excess of
$10 million, (vi) 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.
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 Selling Price") equal to a
proportional
24
<PAGE>
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, the
parties also agreed to certain minimum and maximum values with respect to the
Station Partners Selling Price derived from a predetermined and agreed upon
formula. Finally, 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 certain rights to interests in the
Network Company held by Station Partners (the "Network Rights") at a price
derived from a predetermined and agreed upon formula.
At any time after the fifth anniversary of the Merger, and subject to
regulatory approval, including FCC approval, Liberty and Sony Pictures have the
right to purchase Station Partners' ownership interest in Holdings. If Liberty
and Sony Pictures exercise this right, Station Partners is obligated to sell,
and Liberty and Sony Pictures are severally obligated to purchase 50% of such
ownership interest for a price (the "Liberty-Sony Pictures 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, the parties also agreed to certain minimum and
maximum values with respect to the Liberty-Sony Pictures Purchase Price derived
from a predetermined and agreed upon formula. Finally, if Liberty and Sony
Pictures exercise their right to purchase Station Partners' ownership interest
in Holdings, Sony Pictures and Liberty also will be required to purchase certain
rights to interests in the Network Company held by Station Partners (the
"Network Rights") at a price derived from a predetermined and agreed upon
formula.
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 is
shared and borne ratably between the parties.
OTHER TRANSACTIONS
TELEMUNDO TRANSACTIONS WITH SONY PICTURES
Telemundo Network, Inc. has entered into various agreements with Columbia
TrisTar Television and Columbia TriStar 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.
The Company purchases broadcast equipment in the normal course of its
business from various equipment suppliers, including Sony Corporation of America
and other affiliates of Sony Pictures. The Company believes such equipment was
purchased at fair market value.
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 (as defined in the Merger Agreement). 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.
25
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts (page F-1).
All other matters have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the Company's
Consolidated Financial Statements or notes thereto.
(a) 2. Exhibits.
A list of the exhibits required to be filed as part of this report is
set forth in the Index to Exhibits commencing on page F-2 of this
report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended December
31, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hialeah, Florida, on the 27th day of March, 2000.
TELEMUNDO HOLDINGS, INC.
(Registrant)
By: /s/ Richard J. Blangiardi
--------------------------
Richard J. Blangiardi
President
The undersigned directors and officers of Telemundo Holdings, Inc. hereby
constitute and appoint Peter J. Housman II with full power to act as our true
and lawful attorney-in-fact, with full power to execute in our name and behalf
in the capacities indicated below this report and any and all amendments thereto
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and hereby
ratify and confirm all that such attorney-in-fact shall lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
March 27, 2000.
SIGNATURE TITLE
--------- -----
/s/ Roland A. Hernandez Chief Executive Officer
---------------------------------- and Chairman
Roland A. Hernandez
/s/ Richard J. Blangiardi President
----------------------------------
Richard J. Blangiardi
/s/ Peter J. Housman II Chief Financial Officer and Treasurer
----------------------------------
Peter J. Housman II
/s/ Vincent L. Sadusky Vice President, Finance
----------------------------------
Vincent L. Sadusky
Director
----------------------------------
Leon D. Black
/s/ Guillermo Bron Director
----------------------------------
Guillermo Bron
/s/ Brian D. Finn Director
----------------------------------
Brian D. Finn
Director
----------------------------------
Yair Landau
Director
----------------------------------
Enrique F. Senior
27
<PAGE>
/s/ Bruce H. Spector Director
----------------------------------
Bruce H. Spector
/s/ Barry Thurston Director
----------------------------------
Barry Thurston
/s/ Edward M. Yorke Director
----------------------------------
Edward M. Yorke
28
<PAGE>
<TABLE>
<CAPTION>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ---------- ---------------------------------- ------------ -------------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO DEDUCTED FROM
BEGINNING OF CHARGED TO PROFIT OTHER ACCOUNTS RESERVES - BALANCE AT
DESCRIPTION PERIOD AND LOSS OR INCOME - DESCRIBE DESCRIBE (a) END OF PERIOD
- ----------------------------------------- ------ ------------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
COMPANY:
Year Ended December 31, 1999:
Allowance for doubtful accounts........ $7,585 $1,423 $ - $1,016 $7,992
====== ======= ===== ====== ======
Period August 13 to December 31, 1998
Allowance for doubtful accounts........ $8,634 $542 $ - $1,591 $7,585
====== ==== ===== ====== ======
PREDECESSOR:
Period January 1 to August 12, 1998:
Allowance for doubtful accounts........ $7,583 $1,720 $ - $ 669 $8,634
====== ====== ===== ====== ======
Year Ended December 31, 1997:
Allowance for doubtful accounts........ $5,943 $3,479 $ - $1,839 $7,583
====== ====== ===== ====== ======
</TABLE>
(a) Amounts written off, net of recoveries.
F-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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
(regarding 11.5% Senior Discount Notes due 2008).*
4.2 Form of 11.5% 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.*
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.*
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 Employment Agreement dated as of November 17, 1999 between
Holdings and Richard J. Blangiardi.
F-2
<PAGE>
10.12 Amended and Restated Employment Agreement dated as of
November 1, 1999 between Holdings and Peter J. Housman II.
10.13 Employment Agreement dated as of January 1, 2000 between
Holdings and Vincent L. Sadusky.
13.1 Company's 1999 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.*
23.1 Independent Auditors' Report.
27.1 Financial Data Schedule.
* Incorporated by reference to the Telemundo Holdings, Inc. Registration
Statement on Form S-4, as amended (Registration number 333-64709 filed
with the Commission on September 29, 1998).
** Incorporated by reference to the Telemundo Holdings, Inc. Registration
Statement on Form S-4, as amended (Registration number 333-64709 filed
with the Commission on September 29, 1998). 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.
F-3
EXHIBIT 10.11
RICHARD J. BLANGIARDI
EMPLOYMENT AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, between Telemundo Holdings, Inc., a
Delaware corporation (the "Company"), and Rick Blangiardi (the "Executive"),
dated as of November 17, 1999.
1. EMPLOYMENT AND TERM. The Company hereby agrees to employ Executive,
and Executive hereby agrees to enter into such employment as President of the
Company reporting to the Board of Directors of the Company (or, at the
discretion of the Board, the Chief Executive Officer of the Company) for the
period commencing on November 17, 1999 and ending on November 16, 2002, subject,
however, to earlier termination as provided in Section 9 herein (the "Employment
Period"). The Executive also agrees, during the Employment Period, to serve
(without additional compensation) on the Board of Directors (and appropriate
committees thereof) of the Company, if requested by the Board of Directors.
Executive will have duties and responsibilities consistent with his office.
2. TERMS OF EMPLOYMENT. (a) During the Employment Period, Executive
agrees to devote all but a DE MINIMUS amount of his business time and attention
to the business and affairs of the "Telemundo Holdings Group" (as defined below)
and to use his best efforts to perform faithfully and efficiently such
responsibilities. For purposes of this Agreement, the term "Telemundo Holdings
Group" shall mean any and all of the Company and any of its current or future
divisions or subsidiaries.
(b) During the first 12 months of the Employment Period, the
principal place of employment of Executive shall be Los Angeles, California. In
the sole discretion of the Board of Directors of the Company, Executive may be
asked to change his principal place of employment to Hialeah, Florida at any
time after the first 12 months of the Employment Period. Executive understands
and agrees that in connection with his employment hereunder, he may be required
to travel extensively on behalf of the Telemundo Holdings Group.
3. BASE SALARY. During the Employment Period Executive shall receive a
base salary (the "Base Salary") as follows. For the period of the Employment
Period beginning on November 17, 1999 and ending on November 16, 2000, the Base
Salary shall be payable to Executive at an annual rate of $400,000. For the
period of the Employment Period beginning on November 17, 2000 and ending on
November 16, 2001, the Base Salary shall be payable to Executive at an annual
rate of $425,000. For the period of the Employment Period beginning on November
17, 2001 and ending on the last day of the Employment Period, the Base Salary
shall be payable to Executive at an annual rate of $450,000. The Base Salary
shall be payable consistent with the executive payroll practices of the Company.
4. BONUS. (a) For each of the 2000, 2001 and 2002 fiscal years (or
portion thereof) during the Employment Period, Executive will be eligible to
receive, in addition to the Budget Bonus or Revenue Bonus described below, a
performance bonus in an amount equivalent to not more than twenty-five percent
of Executive's then current Base Salary ("Performance Bonus"). All Performance
Bonuses shall be awarded in the sole discretion of the Compensation Committee
based upon its assessment of the Executive's performance of his duties hereunder
during the applicable fiscal year and without regard to the financial condition
or performance of the Company. Executive shall receive the Performance Bonuses
only if Executive is employed by the Company on the last
<PAGE>
day of the fiscal year to which the Performance Bonus relates or, with respect
to the 2002 fiscal year, the last day of the Employment Period, all subject to
the provisions of Sections 9(a), 9(c) and 9(d).
(b) For each of the 2000, 2001 and 2002 fiscal years (or portion
thereof) during the Employment Period, Executive will be paid an additional
bonus (the "Budget Bonus") based upon the Company's achievement of targets with
respect to its earnings, before interest, taxes, depreciation and amortization
("EBITDA") during such fiscal year (which fiscal year target shall not be
greater than the Company's budget for EBITDA for such fiscal year), as follows.
During the first quarter of each such fiscal year, the Compensation Committee in
consultation with Executive shall establish a reasonably attainable budgeted
EBITDA target (the "EBITDA Target") for such fiscal year and notify Executive in
writing of the EBITDA Target. Pursuant to subsection (d), the Committee shall
determine the Company's EBITDA for such fiscal year and shall notify Executive
of its determination of the amount of the Company's EBITDA for such fiscal year
and of the amount of Executive's Budget Bonus for such year, which Budget Bonus
shall be equal to (i) no less than 25% of Executive's Base Salary for such
fiscal year if the Company's EBITDA is 100% or more of the EBITDA Target, (ii)
no less than 12.5% of Executive's Base Salary for such fiscal year if the
Company's EBITDA is 90% of the EBITDA Target and (iii) pro rated between 12.5%
and 25% of Executive's Base Salary for such fiscal year if the Company's EBITDA
is more than 90% of the EBITDA Target but less than 100% of the EBITDA Target.
Executive shall be paid no Budget Bonus for any such fiscal year in which the
Company's EBITDA is less than 90% of the EBITDA Target for such fiscal year.
(c) For each of the 2000, 2001 and 2002 fiscal years (or portion
thereof) during the Employment Period, Executive will be paid an additional
bonus (the "Revenue Bonus") based upon the Company's achievement of targets with
respect to its Net Revenue (as defined below and determined in accordance with
Generally Accepted Accounting Principles and the Company's standard practices
and procedures) during such fiscal year (which fiscal year target shall not be
greater than the Company's budget for Net Revenue for such fiscal year), as
follows (the Performance Bonus, Revenue Bonus and the Budget Bonus are
hereinafter collectively referred to as the "Bonus"). During the first quarter
of each such fiscal year, the Compensation Committee in consultation with
Executive shall establish a reasonably attainable budgeted Net Revenue target
(the "Net Revenue Target") for such fiscal year and notify Executive in writing
of the Net Revenue Target. Pursuant to subsection (d), the Committee shall
determine the Company's Net Revenue for such fiscal year and shall notify
Executive of its determination of the amount of the Company's Net Revenue for
such fiscal year and of the amount of Executive's Revenue Bonus for such year,
which Revenue Bonus shall be equal to (i) no less than 25% of Executive's Base
Salary for such fiscal year if the Company's Net Revenue is 100% or more of the
Net Revenue Target, (ii) no less than 12.5% of Executive's Base Salary for such
fiscal year if the Company's Net Revenue is 92.5% of the Net Revenue Target and
(iii) pro rated between 12.5% and 25% of Executive's Base Salary for such fiscal
year if the Company's Net Revenue is more than 92.5% of the Net Revenue Target
but less than 100% of the Net Revenue Target. Executive shall be paid no Revenue
Bonus for any such fiscal year in which the Company's Net Revenue is less than
92.5% of the Net Revenue Target for such fiscal year. For purposes of this
Agreement, the term "Net Revenue" means the Company's revenue net of the
Company's formula-based allocation of advertising revenue generated pursuant to
that certain umbrella affiliation agreement between Telemundo Group, Inc. and
Telemundo Network Group LLC dated as of August 12, 1998.
2
<PAGE>
(d) Each Budget Bonus and/or Revenue Bonus shall be paid upon
certification by the Compensation Committee (which the Compensation Committee
will make within 30 days after the certification by the Company's independent
auditors of the financial statements for such fiscal year) that the performance
targets entitling Executive to a Budget Bonus and/or Revenue Bonus with respect
to such fiscal year have been met. If the Compensation Committee so certifies,
the Budget Bonus and/or Revenue Bonus will be paid promptly but in no event
later than ten days after such certification.
(e) For purposes of this Agreement, the "Compensation Committee"
shall mean a committee consisting of at least two (2) directors of the Company,
each of whom is a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
5. EMPLOYEE BENEFIT PLANS; ETC. (a) Executive shall be entitled during
the Employment Period to participate in all retirement, disability, pension,
savings, medical, insurance and other plans of the Company generally available
to senior executives (other than any performance based bonus or stock
appreciation rights (or similar) plans, subject to Section 7 below). Executive
shall be entitled to paid vacations during each year of his employment
consistent with the Company's vacation policy for executive level employees
(which shall provide for at least 20 vacation days per year).
(b) The Company agrees that it will provide Executive, in his
capacity as an officer and, if applicable, as a director, with indemnification
rights which are not materially less favorable to the Executive, in his capacity
as an officer and as a director, than those provided as of the date of this
Agreement in the By-laws of the Company.
6. [Intentionally omitted]
7. STOCK APPRECIATION RIGHTS PROGRAM. The Company shall give good
faith consideration to the implementation, on or before expiration of the first
12 months of the Employment Period, of an equity participation program for
senior executives of the Company involving stock appreciation rights ("Stock
Appreciation Rights Program"); PROVIDED, HOWEVER, that the final decision with
regard to such program implementation, if any, shall be in the Company's sole
discretion. In the event such program is implemented, Executive shall be granted
stock appreciation rights consistent with his position in the Company and
Executive's vesting schedule shall be one (1) year shorter than the average
vesting schedule applicable to all other senior executives of the Company.
8. EXPENSES. The Company shall reimburse Executive for all reasonable
expenses properly incurred by him in accordance with the policies of the
Telemundo Holdings Group in effect from time to time, on behalf of the Telemundo
Holdings Group in the performance of his duties hereunder, provided that proper
vouchers are submitted to the Company by Executive evidencing such expenses and
the purposes for which the same were incurred. Such expenses shall include,
without limitation, all reasonable and actual moving expenses incurred by
Executive in connection with his relocation to South Florida, including plane
fare and temporary housing expenses while locating a permanent residence, and,
in connection with such relocation, the following non-moving expenses: any real
estate commission payable by Executive in connection with the sale of his
residence and any closing costs payable by Executive in connection with the
purchase of his new
3
<PAGE>
residence. In the event the Employment Period is not extended after the third
year or terminates for any reason other than Cause, Failure to Relocate or
resignation without Good Reason (except for a resignation without Good Reason
within six months after a Change of Control Transaction (as defined below)) and
in connection therewith Executive (or his family in the case of Executive's
death) relocates elsewhere from South Florida within six (6) months after
November 16, 2002 or the date of termination, if sooner, the Company shall
reimburse Executive for all reasonable and actual moving expenses incurred by
Executive in connection with such relocation.
9. TERMINATION. The Company shall have the right to terminate
Executive's employment only as expressly provided in this Agreement.
(a) DEATH OR DISABILITY. Except as otherwise provided herein,
this Agreement shall terminate automatically upon Executive's death.
The Company may terminate this Agreement after having established
Executive's "Disability" (as defined below), by giving Executive written notice
of its intention to terminate Executive's employment. For purposes of this
Agreement, "Disability" means Executive's inability to perform substantially all
his duties and responsibilities to the Telemundo Holdings Group by reason of a
physical or mental disability or infirmity (i) for a continuous period of twelve
consecutive months or (ii) at such earlier time as Executive submits medical
evidence satisfactory to the Company or the Board of Directors determines in
good faith and upon competent medical advice that Executive has a physical or
mental disability or infirmity that will likely prevent Executive from
substantially performing his duties and responsibilities for twelve consecutive
months or longer. The date of Disability shall be the day on which Executive
receives notice from the Company pursuant to this Section 9.
Upon termination of Executive's employment because of death or
Disability, the Company shall pay Executive or his estate or other personal
representative (i) within 60 days, the amount of Executive's Base Salary earned
up to the date of death or Disability, as the case may be, (ii) all benefits and
other items referred to in Sections 5 and 8 which are due up to the date of
death or Disability and (iii) when otherwise due in accordance with the
provisions of Section 4, the Bonus, if any, earned for the year in which such
termination occurred, without regard to whether Executive is an employee of the
Company on the last day of such fiscal year.
(b) CAUSE AND RESIGNATION WITHOUT GOOD REASON. The Company shall
have the right to terminate Executive's employment for "Cause" as defined below.
Except as provided in Section 15 herein, (i) upon termination of Executive's
employment for Cause or (ii) upon Executive's resigning as an employee without
Good Reason, this Agreement shall terminate and the Executive shall not be
entitled to receive any compensation or other benefits other than (x) Base
Salary earned up to the date of termination or resignation and (y) all benefits
and other items referred to in Sections 5 and 8 which are due up to the date of
termination or resignation. Notwithstanding anything herein to the contrary,
Executive shall have the right to resign without Good Reason and terminate this
Agreement at any time within six months after a "Change of Control Transaction"
(for purposes of this Agreement, a Change of Control Transaction means the sale,
directly or indirectly, of 90% or more of either the stock or assets of the
Company) occurs, without any obligation or liability to the Company, effective
upon thirty days' prior written notice to the Company, in which event this
Agreement shall terminate and the Executive shall not be entitled to receive any
compensation or other benefits, except that the Company shall (x) through
November 16, 2002 (the "Entitlement Date") continue to pay to Executive the Base
Salary in effect immediately prior to the
4
<PAGE>
date of resignation, such payments to be made in installments at the times such
amounts would have been paid if the Agreement had not been so terminated, (y)
pay to the Executive, when otherwise due in accordance with Section 4, the
Budget Bonus and/or Revenue Bonus, if any, earned for the fiscal year in which
such termination occurs, without regard to whether Executive is employed on the
last day of such fiscal year, multiplied by a fraction, the numerator of which
is equal to the number of days elapsed between the beginning of the fiscal year
in which such termination occurred and the termination date, and the denominator
of which is equal to 365 days and (z) through November 16, 2002 continue
Executive's benefits and other items referred to in Section 5 or, to the extent
the Company is legally unable to provide any such benefits or other items as a
result of Executive no longer being an employee, reimburse Executive for his
cost (not to exceed the actual cost to the Company if he were still an employee)
of obtaining the equivalent coverage and benefits.
For purposes of this Agreement, "Cause" shall mean (i) the
willful and continued failure by Executive to perform substantially all his
duties to the Company or the failure by the Executive to comply with the
reasonable written policies and procedures of the Company and the directives of
the Board of Directors (other than any such failure resulting from his death or
Disability), in each case after being given written notice by the Board of a
failure to perform or comply (which notice specifically identifies the manner in
which Executive has failed to perform or comply) and a reasonable opportunity to
cure such noncompliance or nonperformance; (ii) the willful misconduct by
Executive in the performance of his duties to the Company, provided that (for
purposes of clauses (i) and (ii) only and not for any other purpose or
interpretation of this Agreement) an act shall be considered "willful" only if
done in bad faith and not in the best interests of the Company; (iii) the
grossly negligent performance by Executive of his duties to the Company; (iv)
the conviction of Executive by a court of competent jurisdiction of the
commission of (x) a felony or (y) a crime involving moral turpitude; or (v) a
material breach by Executive of Sections 10 or 11 hereof.
(c) TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary contained herein, the Company shall have the right to terminate the
employment of Executive at any time without Cause. Subject to subsection (e)
below, upon a termination without Cause, except as provided in Section 15, this
Agreement shall terminate and the Executive shall not be entitled to receive any
compensation or other benefits, except that the Company shall (i) through the
Entitlement Date continue to pay to Executive the Base Salary in effect
immediately prior to the date of termination, such payments to be made in
installments at the times such amounts would have been paid if the Agreement had
not been so terminated, and (ii) pay to the Executive, when otherwise due in
accordance with Section 4, the Bonus, if any, earned for the fiscal year in
which such termination occurs, without regard to whether Executive is employed
on the last day of such fiscal year, and (iii) through the Entitlement Date
continue Executive's benefits and other items referred to in Section 5 or, to
the extent the Company is legally unable to provide any such benefits or other
items as a result of Executive no longer being an employee, reimburse Executive
for his cost (not to exceed the actual cost to the Company if he were still an
employee) of obtaining the equivalent coverage and benefits. During
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<PAGE>
the period in which, Executive receives the payments required by the immediately
preceding sentence, Executive shall be subject to the provisions set forth in
Sections 10 and 11 below (provided, however, in no event shall the restrictions
contained in Sections 10 and 11 continue for more than one year beyond the
termination of Executive's employment). In the event that Company elects not to
extend the Employment Period, then, absent any termination pursuant to Section
9, the Company shall continue paying to Executive his Base Salary during the
period, if any, beginning on the date Executive's employment terminates and
ending on the date which is six months after the date on which the Company gives
its notice of non-renewal to Executive. During the period in which Executive
receives the payments required by the immediately preceding sentence, Executive
shall be subject to the provisions set forth in Sections 10 and 11 below
(provided, however, in no event shall the restrictions contained in Sections 10
and 11 continue for more than one year beyond the termination of Executive's
employment).
(d) TERMINATION FOR GOOD REASON.
(i) Executive shall have the right to terminate his employment
under this Agreement upon the occurrence of any event that constitutes Good
Reason by giving written notice to the Company within thirty days of the
occurrence of such alleged event. Such termination shall take effect no earlier
than six months from the date of such notice. "Good Reason" means any of the
following: (A) a Designated Relocation (as defined below), (B) a Failure to
Adopt SAR Plan (as defined below), (C) Bankruptcy of the Company or (D) any
Other Good Reason Event (as defined below); PROVIDED, HOWEVER, that an Other
Good Reason Event shall not be deemed to have occurred prior to the giving of
written notice by the Executive to the Company generally describing the alleged
Good Reason, and the actions the Executive believes are necessary to cure such
alleged Good Reason, and the Company's failure to so cure within 15 days of
receipt of such notice. The giving of such notice and the action or failure to
take action by the Company shall be irrelevant in determining whether a Good
Reason has in fact occurred. Upon a termination for Good Reason, except as
provided in Section 15, this Agreement shall terminate and the Executive shall
not be entitled to receive any compensation or other benefits, except that the
Company shall (i) through the date which is six months after the date of
termination continue to pay to Executive the Base Salary in effect immediately
prior to the date of termination, such payments to be made in installments at
the times such amounts would have been paid if the Agreement had not been so
terminated, (ii) pay to the Executive, when otherwise due in accordance with
Section 4, the Budget Bonus and/or Revenue Bonus, if any, earned for the fiscal
year in which such termination occurs, without regard to whether Executive is
employed on the last day of such fiscal year, multiplied by a fraction, the
numerator of which is equal to the number of days elapsed between the beginning
of the fiscal year in which such termination occurred and the termination date,
and the denominator of which is equal to 365 days and (iii) through the date
which is six months after the date of termination continue Executive's benefits
and other items referred to in Section 5 or, to the extent the Company is
legally unable to provide any such benefits or other items as a result of
Executive no longer being an employee, reimburse Executive for his cost (not to
exceed the actual cost to the Company if he were still an employee) of obtaining
the equivalent coverage and benefits. During such period, Executive shall be
subject to the provisions set forth in Sections 10 and 11 below (provided,
however, in no event shall the restrictions contained in Sections 10 and 11
continue for more than one year beyond the termination of Executive's
employment).
(ii) A "Designated Relocation" means any of the following: (A)
the Company requiring Executive's work location to be other than within thirty
(30) miles of the Company's current corporate offices in Los Angeles,
California; PROVIDED, HOWEVER, that neither a request or requirement by the
Company that Executive change his principal place of employment to Hialeah,
Florida pursuant to Section 2(b) nor a termination of Executive's employment for
Failure to Relocate (as defined below) shall constitute a Designated Relocation,
or (B) in the event that the Executive relocates to Hialeah, Florida, the
Company requiring Executive's work location to be other than within thirty (30)
miles of the Company's current corporate offices in Hialeah, Florida.
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(iii) A "Failure to Adopt SAR Plan" means the Company's failure
to adopt a Stock Appreciation Rights Program on or before November 16, 2000 or
the failure to grant Executive the participation therein set forth in Section 7
hereof.
(iv) "Other Good Reason Event" means any of the following: (A) a
material breach of this Agreement by the Company (which shall include, without
limitation, any reduction in the amount of any compensation or benefits provided
to Executive under this Agreement) or (B) any termination or attempted
termination by the Company of Executive's employment other than as expressly
permitted in this Agreement. Notwithstanding anything to the contrary contained
herein, in the event Executive terminates his employment under this Agreement
upon the occurrence of an Other Good Reason Event, (A) such termination shall
take effect no earlier than 30 days from the date of the respective notice and
(B) Executive shall not be entitled to receive any compensation or other
benefits, except that the Company shall (i) through the Entitlement Date
continue to pay to Executive the Base Salary in effect immediately prior to the
date of termination, such payments to be made in installments at the times such
amounts would have been paid if the Agreement had not been so terminated, (ii)
pay to the Executive, when otherwise due in accordance with Section 4, the
Budget Bonus and/or Revenue Bonus, if any, earned for the fiscal year in which
such termination occurs, without regard to whether Executive is employed on the
last day of such fiscal year and (iii) through the Entitlement Date continue
Executive's benefits and other items referred to in Section 5 or, to the extent
the Company is legally unable to provide any such benefits or other items as a
result of Executive no longer being an employee, reimburse Executive for his
cost (not to exceed the actual cost to the Company if he were still an employee)
of obtaining the equivalent coverage and benefits.
(e) FAILURE TO RELOCATE. The Company shall have the right to
terminate Executive's employment for "Failure to Relocate" (as defined below) by
providing written notice to the Executive within ninety (90) days of such event.
Such termination shall take effect six months from the date of such notice. Upon
a termination for Failure to Relocate, except as provided in Section 15, this
Agreement shall terminate and the Executive shall not be entitled to receive any
compensation or other benefits, except that the Company shall (i) through the
date of termination continue to pay to Executive the Base Salary in effect
immediately prior to the date of notice, such payments to be made in
installments at the times such amounts would have been paid if the Agreement had
not been so terminated, (ii) pay to the Executive, when otherwise due in
accordance with Section 4, the Budget Bonus and/or Revenue Bonus, if any, earned
for the fiscal year in which such termination occurs, without regard to whether
Executive is employed on the last day of such fiscal year, multiplied by a
fraction, the numerator of which is equal to the number of days elapsed between
the beginning of the fiscal year in which such termination occurred and the
termination date, and the denominator of which is equal to 365 days, and (iii)
pay to the Executive all benefits and other items referred to in Sections 5 and
8 which are due up to the date of termination. During the period in which
Executive receives the payments required by the immediately preceding sentence,
Executive shall be subject to the provisions set forth in Sections 10 and 11
below (provided, however, in no event shall the restrictions contained in
Sections 10 and 11 continue for more than one year beyond the termination of
Executive's employment).
For purposes of this Agreement, "Failure to Relocate" shall mean
the Executive's failure (whether by written notice to the Company, failure to
act, or otherwise), following a request by the Company, to change his principal
place of employment to Hialeah, Florida after the first 12 months of the
Employment Period; PROVIDED, HOWEVER, that if the Company does not, within
ninety (90) days after the first event constituting a Failure to Relocate,
exercise its right to terminate the Executive's employment for Failure to
Relocate, then the Company shall not thereafter have the right to
7
<PAGE>
terminate the Executive's employment for Failure to Relocate.
(f) OFFICER AND BOARD POSITIONS. Upon the termination of
employment with the Company for any reason, Executive shall be deemed to have
resigned any and all of his positions as an officer and a member of the Board of
Directors of the Company and any of its subsidiaries and as a member of any
committees of such Board, effective on the date of termination.
(g) CERTAIN CONDITION. Notwithstanding anything to the contrary
contained in this Section 9, the obligations of the Company under this Section 9
shall continue only so long as the Executive does not breach his obligations
under Section 10 and 11.
(h) CERTAIN EFFECT. As used in this Agreement, termination of
this Agreement shall also result in and mean termination of the Employment
Period hereunder.
(i) MITIGATION OF DAMAGES. In the event of any termination of
Executive's employment by the Company other than for Cause or Failure to
Relocate, Executive shall not be required to seek other employment to mitigate
damages and any income earned by Executive from other employment or self
employment shall not be offset by any obligation of the Company to Executive
under this Agreement.
10. CONFIDENTIALITY, ETC. Executive will not willfully divulge,
furnish or make accessible to anyone (otherwise than in the regular course of
business of the Telemundo Holdings Group) any confidential information, plans or
materials or trade secrets of the Telemundo Holdings Group, or with respect to
any other confidential or secret aspects of the business of the Telemundo
Holdings Group; PROVIDED, HOWEVER, that during his employment, Executive shall
have the latitude customarily given a corporate president to disclose
information in good faith for the benefit of the Company and its stockholders
(taken as a whole). All memoranda, notes, lists, records and other documents or
papers (and all copies thereof), including such items stored in computer
memories, on microfiche or by any other means, made or compiled by or on behalf
of Executive, or made available to him relating to the Telemundo Holdings Group
are and shall be the Company's property and shall be delivered to the Company
promptly upon the termination of his employment with the Company; PROVIDED,
HOWEVER, that (i) this obligation shall not apply to information that (A) is not
confidential (other than as a result of Executive's breach of this Section), (B)
does not contain certain trade secrets of the Company or (C) is limited to
Executive's personal "rolodex" files or papers relating to personal matters,
(ii) Executive shall have the right to retain and use such of the foregoing as
shall be reasonably necessary to enforce his rights under this Agreement and to
comply with and enforce his rights, including the right to defend himself
against claims, provided copies of such retained information are provided to the
Company and the retained information remain subject to the provision of this
Section, and (iii) Executive shall have no obligation to return information that
is no longer in his possession, custody or control. This Section 10 shall
survive the expiration or termination of this Agreement, the Employment Period
and the term of employment; PROVIDED, HOWEVER, that if Executive's employment is
terminated pursuant to Section 9(c) or for any Other Good Reason Event (as
defined in Section 9(d)), then this Section 10 will terminate subject to Section
9(c) on the Entitlement Date.
11. NO INTERFERENCE; AFFILIATE TRANSACTIONS. (a) During the Employment
Period and for one year after such period, Executive agrees and covenants that
he will not (other than with respect to his duties and responsibilities
hereunder) directly or indirectly, for himself, or as agent of
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or on behalf of, or in conjunction with, any person, firm, corporation, or other
entity, engage or participate in the Company Business (as hereinafter defined),
whether as employee, consultant, partner, principal, shareholder or
representative, or render advisory or other services to or for any person, firm,
corporation or other entity, which is engaged primarily, directly or indirectly,
in the Company Business; PROVIDED, HOWEVER, that (i) Executive may own less than
5% of the common stock of a publicly traded company that is engaged in the
Company Business and (ii) Executive may own Common Stock and securities
convertible into Common Stock (or securities into which Common Stock is
converted in any business combination transaction). For purposes of this Section
11(a), "Company Business" shall mean and be limited to any of (x) the provision
of Spanish language television programming in the United States (which includes
Puerto Rico), (y) the ownership of television broadcast stations, networks or
any over-the-air television signal, and cable in the United States (which
includes Puerto Rico) that broadcast primarily Spanish language programming, and
(z) the sale of television advertising time and programs inside and outside the
United States (which includes Puerto Rico) for Spanish language television
stations, cable and networks.
(b) During the Employment Period and for one year after such
period, Executive agrees and covenants that he will not willfully interfere
directly or indirectly in any way with the Company. "Interfere" means to
influence or attempt to influence, directly or indirectly, present or active
prospective customers, employees, suppliers, performers, directors,
representatives, agents or independent contractors of the Company, or any of its
network affiliates to restrict, reduce, sever or otherwise alter their
relationship with the Telemundo Holdings Group or any of its network affiliates.
(c) Executive agrees that during the Employment Period, he will
not at any time enter into, on behalf of the Telemundo Holdings Group, or cause
the Telemundo Holdings Group to enter into, directly or indirectly, any
transactions (each, a "Transaction") with any business organization in which he
or, to his knowledge after due inquiry, any member of his family may be
interested as a partner, trustee, director, officer, employee, shareholder,
lender of money or guarantor, except to the extent disclosed to the Company and
agreed to by the board of directors of the Company in writing. Executive will
use his best efforts to ensure that any Transaction is disclosed to the Board of
Directors of the Company and approved thereby prior to entering into a contract
relating thereto and/or consummation thereof, as contemplated by the preceding
sentence.
(d) From and after the termination of Executive's employment,
Executive shall not disparage the Company, its officers, directors, employees or
business, nor shall the Company or any of its officers, directors, employees or
agents disparage the Executive or members of his family, and neither party shall
disclose any facts relating to such termination; provided, that nothing
contained in this Section 11(d) shall restrict the parties from making any
statements or disclosure believed necessary to enforce in any judicial or
similar proceeding the provisions of this Agreement or as a party believes may
be required by applicable law.
(e) In the event any court having jurisdiction determines that
any part of this Section 11 is unenforceable, such court shall have the power to
reduce the duration or scope of such provision and such provision, in its
reduced form, shall be enforceable. This Section 11 shall survive the expiration
or termination of this Agreement and the Employment Period; PROVIDED, HOWEVER,
that if Executive's employment is terminated pursuant to Section 9(c) or for any
Other Good Reason Event (as defined in Section 9(d)), then this Section 11 will
terminate, subject to Section 9(c), on the Entitlement Date.
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12. INJUNCTIVE RELIEF. Executive acknowledges that the provisions of
Sections 10 and 11 herein are reasonable and necessary for the protection of the
Telemundo Holdings Group and that the Telemundo Holdings Group will be
irrevocably damaged if such provisions are not specifically enforced.
Accordingly, Executive agrees that, in addition to any other relief to which the
Company may be entitled in the form of damages, the Company shall be entitled to
seek injunctive relief from a court of competent jurisdiction for the purposes
of restraining Executive from any actual or threatened breach of such
provisions.
13. REMEDIES; SERVICE OF PROCESS.
(a) Except when a party is seeking an injunction or specific
performance hereunder, the parties agree to submit any dispute concerning this
Agreement to binding arbitration. The parties may agree to submit the matter to
a single arbitrator or to several arbitrators, may require that arbitrators
possess special qualifications or expertise or may agree to submit a matter to a
mutually acceptable firm of experts for decision. In the event the parties shall
fail to thus agree upon terms of arbitration within twenty (20) days from the
first written demand for arbitration, then such disputed matter shall be settled
by arbitration under the Rules of Employment Arbitration of the American
Arbitration Association, by three arbitrators appointed in accordance with such
Rules. Such arbitration shall be held in the location of employment of Executive
at the time of the notice of arbitration. Once a matter has been submitted to
arbitration pursuant to this Section, the decision of the arbitrators shall be
final and binding upon all parties. The cost of arbitration shall be shared
equally by the parties and each party shall pay the expenses of his/its
attorneys, except that the arbitrators shall be entitled to award the costs of
arbitration, attorneys and accountants' fees, as well as costs, to the party
that they determine to be the prevailing party in any such arbitration.
(b) The Company and Executive hereby irrevocably consent to the
jurisdiction of the Courts of the State of Florida and of any Federal Court
located in such State in connection with any action or proceedings for
injunctive relief arising out of or relating to the provisions of Sections 10
and 11 of this Agreement. Executive further agrees that he will not commence or
move to transfer any action or proceeding arising out or relating to the
provisions of Sections 10 and 11 of this Agreement to any Court other than one
located in the State of Florida.
14. SUCCESSORS. This Agreement and the rights and obligations
hereunder are personal to Executive and without the prior written consent of the
Company and Executive shall not be assignable.
15. SURVIVAL OF PROVISIONS. Notwithstanding anything to the contrary
contained herein, the provisions of Sections 5(b), 8, 9, 10, 11, 12, 13, 14, 15
and 17 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reasons therefor.
16. [Intentionally omitted]
17. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without reference
to principles of conflict of laws.
(b) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered, telecopied or
mailed, certified or registered mail, return receipt requested:
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If to Executive:
Rick Blangiardi
10415 Woodbridge Street
Toluca Lake, California 91602
Phone: (818) 754-1331
Telecopy No.: (818) 754-1303
If to the Company:
Telemundo Holdings, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attention: Chief Financial Officer
Phone: (305) 889-7999
Telecopy No.: (305) 889-7997
with a copy to:
Telemundo Holdings, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attention: General Counsel
Phone: (305) 889-7987
Telecopy No.: (305) 889-7980
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee or upon refusal if properly delivered.
(c) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(d) Executive represents and warrants that he is not a party to
any agreement, contract or understanding, whether employment or otherwise, which
would in any way restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
(e) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, and no statement,
representation, warranty or covenant has been made by either party except as
expressly set forth herein. This Agreement shall not be changed or terminated
orally. This Agreement supersedes and cancels all prior agreements between the
parties, whether written or oral, relating to the employment of Executive. The
headings and captions contained in this Agreement are for convenience only and
shall not be deemed to affect the meaning or construction of any provision
hereof.
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(f) If, at any time subsequent to the date hereof, any provision
of this Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall be of no force and effect,
but the illegality or unenforceability of such provision shall have no effect
upon and shall not impair the enforceability of any provision of this Agreement.
(g) The Company's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof. Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision hereof.
(h) This Agreement shall inure to the benefit of and be binding
upon any successor to the Company and shall inure to the benefit of Executive's
successors, heirs and personal representatives.
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IN WITNESS WHEREOF, Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.
EXECUTIVE:
/s/ Rick Blangiardi
-----------------------------------
Rick Blangiardi
TELEMUNDO HOLDINGS, INC.:
By: /s/ Peter J. Housman II
--------------------------------------
Name: Peter J. Housman II
Title: Chief Financial Officer & Treasurer
13
EXHIBIT 10.12
PETER J. HOUSMAN II
EMPLOYMENT AGREEMENT
<PAGE>
1999 AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
1999 AMENDED AND RESTATED EMPLOYMENT AGREEMENT, between Telemundo
Holdings, Inc., a Delaware corporation (the "Company"), and Peter J. Housman II
("Executive"), dated as of November 1, 1999.
WHEREAS, Telemundo Group, Inc. and Executive entered into that certain
Employment Agreement dated as of March 7, 1997 (the "Original Agreement");
WHEREAS, Telemundo Group, Inc. and Executive amended and restated the
Original Agreement pursuant to that certain Amended and Restated Employment
Agreement dated as of September 10, 1997 (the "1997 Amended and Restated
Agreement"); and
WHEREAS, the Company and Executive desire to amend and restate the
1997 Amended and Restated Agreement in its entirety by entering into this 1999
Amended and Restated Employment Agreement (the "Agreement").
IT IS, THEREFORE, AGREED THAT THE 1997 AMENDED AND RESTATED AGREEMENT
IS HEREBY AMENDED AND RESTATED, AND THE PARTIES HEREBY AGREE, AS FOLLOWS:
1. EMPLOYMENT AND TERM. The Company hereby agrees to continue
Executive in its employ, and Executive hereby agrees to continue such employment
as Chief Financial Officer and Treasurer of the Company (or such other position
determined in accordance with Section 9(d)(ii) of this Agreement) reporting to
the President and Chief Executive Officer of the Company for the period
commencing on the date first above written and ending on November 30, 2001;
PROVIDED, HOWEVER, that effective on December 1, 2001 and on each December 1
thereafter, the term of this Agreement shall be extended for an additional
period of one year from the then current expiration date unless the Company or
Executive shall have given written notice to the other of its or his election
not to so extend the term of this Agreement on or before the immediately prior
September 1, subject, however, to earlier termination as provided in Section 9
herein (the "Employment Period"). The Executive also agrees, during the
Employment Period, to serve (without additional compensation) on the Board of
Directors (and appropriate committees thereof) of the Company, if requested by
the Board of Directors.
2. TERMS OF EMPLOYMENT. (a) During the Employment Period, Executive
agrees, subject to the provisions of Section 9(d)(ii) of this Agreement, to
devote all but a DE MINIMUS amount of his business time and attention to the
business and affairs of Telemundo Holdings (as defined below) and to use his
best efforts to perform faithfully and efficiently such responsibilities. For
purposes of this Agreement, the term "Telemundo Holdings" shall mean any and all
of the Company and any of its current or future divisions or subsidiaries.
<PAGE>
(b) The principal place of employment of Executive shall be
Hialeah, Florida. Executive understands and agrees that in connection with his
employment hereunder, he will be required to travel extensively on behalf of
Telemundo Holdings.
3. BASE SALARY. During the Employment Period Executive shall receive a
base salary (the "Base Salary") at an annual rate of $400,000. The Base Salary
shall be payable consistent with the executive payroll practices of the Company.
Executive acknowledges and agrees that he has been paid in full his Base Salary
for periods prior to the effective date of this Agreement.
4. BONUS. (a) For the 1999 fiscal year of the Company (or portion
thereof), Executive will be paid a bonus in an amount equivalent to $200,000,
payable not later than January 31, 2000. For each subsequent fiscal year of the
Company (or portion thereof) during the Employment Period, Executive will be
paid a bonus as set forth below in subsections (b) (the "2000 Bonus") and (c)
(the "Budget Bonus"). The bonus described in the first sentence of this Section
4, the 2000 Bonus and the Budget Bonus are hereinafter collectively referred to
as the "Bonus". Executive shall receive the Bonus only if Executive is employed
by the Company on the last day of the fiscal year to which the Bonus relates,
subject to the provisions of Sections 9(a), 9(c) and 9(d).
(b) For the 2000 fiscal year of the Company (or portion thereof),
Executive will be paid, irrespective of whether Executive exercises his
Specified Resignation right (as defined in Section 9(d)(i) below), a 2000 Bonus
based upon the Company's achievement of targets with respect to its earnings,
before interest, taxes, depreciation and amortization ("EBITDA") during such
fiscal year (which fiscal year target shall not be greater than the Company's
budget for EBITDA for such fiscal year), as follows: During the first quarter of
each such fiscal year, the Compensation Committee shall establish a budgeted
EBITDA target (the "EBITDA Target") for such fiscal year and notify Executive in
writing of the EBITDA Target. Pursuant to subsection (d), the Committee shall
determine the Company's EBITDA for such fiscal year and shall notify Executive
of its determination of the amount of the Company's EBITDA for such fiscal year
and of the amount of Executive's 2000 Bonus for such year, which 2000 Bonus
shall be equal to (i) $400,000, which represents 100% of Executive's Base Salary
if the Company's EBITDA is 100% or more of the EBITDA Target, (ii) $200,000,
which represents 50% of Executive's Base Salary if the Company's EBITDA is 90%
or less of the EBITDA Target and (iii) pro rated between 50% and 100% of
Executive's Base Salary if the Company's EBITDA is more than 90% of the EBITDA
Target but less than 100% of the EBITDA Target; PROVIDED, HOWEVER, that in no
event shall the 2000 Bonus be less than $200,000. Notwithstanding the foregoing,
in the event that during the Employment Period and prior to such time, if any,
as the Executive exercises his Specified Resignation right, the Company (or any
other party to the transaction) announces that the Company has entered into a
transaction that, if consummated, would result in a Change of Control (as
defined below) of the Company, Executive will be paid a special transaction
bonus in an amount equivalent to $400,000 (a "Special Transaction Bonus") in
lieu of his 2000 Bonus. The Special Transaction Bonus shall be paid to Executive
as soon as practicable (but in no event more than ten (10) days) following such
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announcement, and shall be paid in full regardless of whether the transaction
that would result in a Change of Control is consummated.
For purposes of this Agreement, a "Change of Control" of the
Company shall mean any change in either (i) fifty percent (50%) or more of the
ownership of the Company's equity interests as of the date hereof, or (ii) fifty
percent (50%) or more of the voting interests in the Company as of the date
hereof; PROVIDED, HOWEVER, that any such change that occurs solely as a result
of a transfer of equity interests or voting interests to an affiliate (as
defined in Rule 12b-2 promulgated under Section 12 of the Securities Exchange
Act of 1934, as amended) or subsidiary of the transferring entity shall not
constitute a Change of Control for purposes of this Agreement.
(c) For the 2001 fiscal year of the Company (or portion thereof)
and each subsequent fiscal year of the Company (or portion thereof) during the
Employment Period, Executive will be paid a Budget Bonus based upon the
Company's achievement of its EBITDA targets for such fiscal year (which fiscal
year target shall not be greater than the Company's budget for EBITDA for such
fiscal year), in the manner set forth in subsection (b) above with respect to
the 2000 Bonus, except that the Executive's Budget Bonus for the 2001 fiscal
year and each subsequent fiscal year (or portion thereof) during the Employment
Period shall be equal to (i) 100% of Executive's Base Salary for such fiscal
year if the Company's EBITDA is 100% or more of the EBITDA Target, (ii) 50% of
Executive's Base Salary for such fiscal year if the Company's EBITDA is 90% of
the EBITDA Target and (iii) pro rated between 50% and 100% of Executive's Base
Salary for such fiscal year if the Company's EBITDA is more than 90% of the
EBITDA Target but less than 100% of the EBITDA Target. For the 2001 fiscal year
of the Company (or portion thereof) and any subsequent fiscal year of the
Company (or portion thereof) during the Employment Period, Executive shall be
paid no Budget Bonus for any such fiscal year in which the Company's EBITDA is
less than 90% of the EBITDA Target for such fiscal year.
(d) The 2000 Bonus (to the extent that the amount of such Bonus
exceeds $200,000) and each Budget Bonus shall be paid upon certification by the
Compensation Committee (which the Compensation Committee will make within thirty
(30) days after the certification by the Company's independent auditors of the
financial statements for such fiscal year) that the performance targets
entitling Executive to the 2000 Bonus (to the extent that the amount of such
Bonus exceeds $200,000) or Budget Bonus with respect to such fiscal year have
been met. If the Compensation Committee so certifies, such Bonus will be paid
promptly but in no event later than ten (10) days after such certification.
(e) For purposes of this Agreement, the "Compensation Committee"
shall mean a committee consisting of at least two (2) directors of the Company,
each of whom is a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
5. EMPLOYEE BENEFIT PLANS; ETC. (a) Executive shall be entitled during
the Employment Period to participate (at a level commensurate with his position)
in all retirement,
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disability, pension, savings, medical, insurance and other plans of the Company
which are generally made available from time to time to senior executives of the
Company (other than any performance based bonus plans). Executive shall be
entitled to paid vacations during each year of his employment consistent with
the Company's vacation policy for executive level employees (which shall provide
for a least 20 vacation days per year).
(b) The Company agrees that it will provide Executive, in his
capacity as an officer and, if applicable, as a director, with indemnification
rights which are not materially less favorable to the Executive, in his capacity
as an officer and as a director, than those provided as of the date of this
Agreement in the By-laws of the Company.
6. Intentionally omitted.
7. Intentionally omitted.
8. EXPENSES. The Company shall reimburse Executive for all reasonable
expenses properly incurred by him in accordance with the policies of Telemundo
Holdings in effect from time to time, on behalf of Telemundo Holdings in the
performance of his duties hereunder, provided that proper vouchers are submitted
to the Company by Executive evidencing such expenses and the purposes for which
the same were incurred.
9. TERMINATION. The Company shall have the right to terminate
Executive's employment only as expressly provided in this Agreement.
(a) DEATH OR DISABILITY. Except as otherwise provided herein,
this Agreement shall terminate automatically upon Executive's death.
The Company may terminate this Agreement after having established
Executive's "Disability" (as defined below), by giving Executive written notice
of its intention to terminate Executive's employment. For purposes of this
Agreement, "Disability" means Executive's inability to perform substantially all
his duties and responsibilities to Telemundo Holdings by reason of a physical or
mental disability or infirmity (i) for a continuous period of twelve consecutive
months or (ii) at such earlier time as Executive submits medical evidence
satisfactory to the Company or the Board of Directors determines in good faith
and upon competent medical advice that Executive has a physical or mental
disability or infirmity that will likely prevent Executive from substantially
performing his duties and responsibilities for twelve consecutive months or
longer. The date of Disability shall be the day on which Executive receives
notice from the Company pursuant to this Section 9.
Upon termination of Executive's employment because of death or
Disability, the Company shall pay Executive or his estate or other personal
representative (i) within 60 days, the amount of Executive's Base Salary earned
up to the date of death or Disability, as the case may be, (ii) all benefits and
other items referred to in Sections 5 and 8 which are due up to the date of
death or Disability and (iii) when otherwise due in accordance with the
provisions of Section 4, the Bonus, if any, earned for the year in which such
termination
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occurred, without regard to whether Executive is an employee of the Company on
the last day of such year.
(b) CAUSE; RESIGNATION WITHOUT GOOD REASON OR AS A SPECIFIED
RESIGNATION. The Company shall have the right to terminate Executive's
employment for "Cause" as defined below. Except as provided in Section 15
herein, (i) upon termination of Executive's employment for Cause or (ii) upon
Executive resigning as an employee pursuant to a resignation that is without
Good Reason and is not a Specified Resignation (as defined in Section 9(d)(i)),
this Agreement shall terminate and the Executive shall not be entitled to
receive any compensation or other benefits other than (x) Base Salary earned up
to the date of such termination or resignation and (y) all benefits and other
items referred to in Sections 5 and 8 which are due up to the date of such
termination or resignation.
For purposes of this Agreement, "Cause" shall mean (i) the
willful and continued failure by Executive to perform substantially all his
duties to the Company or the failure by the Executive to comply with the
reasonable written policies, procedures and directives of the Board of Directors
(other than any such failure resulting from Executive's death or Disability), in
each case after being given written notice by the Board of Directors of a
failure to perform or comply (which notice specifically identifies the manner in
which Executive has failed to perform or comply) and a reasonable opportunity to
cure such noncompliance or nonperformance; (ii) the willful misconduct by
Executive in the performance of his duties to the Company, provided that (for
purposes of this clause (ii) only and not for any other purpose or
interpretation of this Agreement) an act shall be considered "willful" only if
done in bad faith and not in the best interests of the Company; (iii) the
grossly negligent performance by Executive of his duties to the Company; (iv)
the conviction of Executive by a court of competent jurisdiction of the
commission of (x) a felony or (y) a crime involving moral turpitude; or (v) a
material breach by Executive of Sections 10 or 11 hereof.
Notwithstanding the foregoing, the Company shall not be entitled
to terminate Executive for any of the reasons specified in clause (i), (ii),
(iii) or (v) of the immediately preceding paragraph unless such termination is
authorized by a resolution adopted by the Board of Directors of the Company at a
meeting called and held for this purpose (after five business days' prior
written notice to Executive, which prior written notice shall state the general
facts, circumstances or deficiencies supporting a claim for Cause termination,
and after affording Executive and his counsel an opportunity to be heard before
the Board of Directors).
(c) TERMINATION WITHOUT CAUSE; NON-RENEWAL. Notwithstanding
anything to the contrary contained herein, the Company shall have the right to
terminate the employment of Executive at any time without Cause and the Company
shall be entitled to determine, in its sole and absolute discretion, not to
extend the Employment Period as provided in Section 1. Upon a termination
without Cause, except as provided in Section 15, this Agreement shall terminate
and the Executive shall not be entitled to receive any compensation or other
benefits not theretofore earned or accrued, except that the Company shall (i)
through the later of November 30, 2001 or the first anniversary of the date of
termination of Executive's employment (the later of such dates, the "Entitlement
Date") continue to pay to Executive the
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Base Salary in effect immediately prior to the date of termination, such
payments to be made in installments at the times such amounts would have been
paid if the Agreement had not been so terminated, and (ii) pay to the Executive,
when otherwise due in accordance with Section 4, the Bonus, if any, earned for
the fiscal year in which such termination occurs, without regard to whether
Executive is employed on the last day of such fiscal year and (iii) through the
Entitlement Date continue Executive's benefits and other items referred to in
Section 5 or, to the extent the Company is legally unable to provide any such
benefits or other items as a result of Executive no longer being an employee,
reimburse Executive for his cost (not to exceed the actual cost to the Company
if he were still an employee) of obtaining the equivalent coverage and benefits.
During the period in which Executive receives the payments required by the
immediately preceding sentence, Executive shall be subject to the provisions set
forth in Sections 10 and 11 below. In the event that Company elects not to
extend the Employment Period, then, absent any termination pursuant to Section
9, the Company shall continue paying to Executive his Base Salary during the
period, if any, beginning on the date Executive's employment terminates and
ending on the first anniversary of the date on which the Company gives its
notice of non-renewal to Executive. During the period in which Executive
receives the payments required by the immediately preceding sentence, Executive
shall be subject to the provisions set forth in Sections 10 and 11 below.
(d) TERMINATION FOR GOOD REASON; SPECIFIED RESIGNATION RIGHT.
(i) Executive shall have the right to terminate his
employment under this Agreement upon the occurrence of any event that
constitutes Good Reason by giving written notice to the Company. "Good Reason"
means any of the following: (A) a Diminution in Duty (as defined below), (B) a
Designated Relocation (as defined below), or (C) any Other Good Reason Event (as
defined below); PROVIDED, HOWEVER, that Good Reason shall not be deemed to have
occurred prior to the giving of written notice by the Executive to the Company
generally describing the alleged Good Reason, and the actions the Executive
believes are necessary to cure such alleged Good Reason, and the Company's
failure to so cure within 15 days of receipt of such notice. The giving of such
notice and the action or failure to take action by the Company shall be
irrelevant in determining whether a Good Reason has in fact occurred. In
addition, at any time after June 30, 2000, Executive shall have the right to
terminate his employment under this Agreement for any reason whatsoever by
giving written notice of such termination to the Company (such termination being
a "Specified Resignation" and, for purposes of this Agreement, a Specified
Resignation shall be treated exactly like a termination for Good Reason). Upon a
termination for Good Reason or a Specified Resignation, except as provided in
Section 15, this Agreement shall terminate and the Executive shall not be
entitled to receive any compensation or other benefits not theretofore earned or
accrued, except that the Company shall (i) through the Entitlement Date continue
to pay to Executive the Base Salary in effect immediately prior to the date of
termination, such payments to be made in installments at the times such amounts
would have been paid if the Agreement had not been so terminated, (ii) pay to
the Executive, when otherwise due in accordance with Section 4, the Bonus, if
any, earned for the fiscal year in which such termination occurs, without regard
to whether Executive is employed on the last day of such fiscal year and (iii)
through the Entitlement Date continue
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Executive's benefits and other items referred to in Section 5 or, to the extent
the Company is legally unable to provide any such benefits or other items as a
result of Executive no longer being an employee, reimburse Executive for his
cost (not to exceed the actual cost to the Company if he were still an employee)
of obtaining the equivalent coverage and benefits. During such period, Executive
shall be subject to the provisions set forth in Sections 10 and 11 below.
(ii) "Diminution in Duty" means, without Executive's express
prior written consent: (A) the assignment to Executive of any duties
inconsistent in any respect with Executive's position on the date of this
Agreement, or (B) any adverse change in Executive's status, offices, titles,
reporting requirements, authority, duties or responsibilities as in effect on
the date of this Agreement; PROVIDED, HOWEVER, that after a Change of Control
(as defined above), a "Diminution in Duty" means a change in Executive's
position with the Company so that he is neither (1) the Chief Financial Officer
and Treasurer of the Company, nor (2) the Chief Financial Officer and Treasurer
of a successor to any part of the Company's business or assets. Notwithstanding
anything whatsoever to the contrary contained in this Agreement, if after a
Change of Control, any of the events described in clause (A) or (B) of the
immediately preceding sentence occurs (without regard to the application of the
proviso in such sentence), Executive shall have the absolute right to change his
position with the Company to a position that has such work location, time
commitment, duties, responsibilities and terms as shall be specified by
Executive in his sole and absolute discretion after consultation with the
Company, and the requirement of Section 2(a) that Executive devote his full time
and attention to Telemundo Holdings shall cease to apply.
(iii) "Designated Relocation" means the Company requiring
Executive's work location to be other than within thirty (30) miles of the
Company's current corporate offices in Hialeah, Florida.
(iv) "Other Good Reason Event" means any of the following:
(A) a material breach of this Agreement by the Company (which shall include,
without limitation, any reduction in the amount of any compensation or benefits
provided to Executive under this Agreement) or (B) any termination or attempted
termination by the Company of Executive's employment other than as expressly
permitted in this Agreement.
(e) OFFICER AND BOARD POSITIONS. Upon the termination of
employment with the Company for any reason, Executive shall be deemed to have
resigned any and all of his positions as an officer and a member of the Board of
Directors of the Company and any of its subsidiaries and as a member of any
committees of such Boards, effective on the date of termination.
(f) CERTAIN CONDITION. Notwithstanding anything to the contrary
contained in this Section 9, the obligations of the Company under this Section 9
shall continue only so long as the Executive does not breach his obligations
under Section 10 and 11.
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(g) CERTAIN EFFECT. As used in this Agreement, termination of
this Agreement shall also result in and mean termination of the Employment
Period hereunder.
(h) MITIGATION OF DAMAGES. Executive shall have no duty to
mitigate any of his damages in the event of any breach of or default or failure
in performance under this Agreement by the Company.
(i) STOCK OPTIONS. The references in Section 9(a), 9(b), 9(c) or
9(d) to Executive, other than as therein stated, not being entitled to receive
compensation or benefits upon termination of his employment under any of such
Sections shall not affect Executive's rights under any stock option or similar
award agreements between Executive and Telemundo Holdings.
10. CONFIDENTIALITY, ETC. Executive will not divulge, furnish or make
accessible to anyone (otherwise than in the regular course of business of
Telemundo Holdings) any confidential information, plans or materials or trade
secrets of Telemundo Holdings or with respect to any other confidential or
secret aspects of the business of Telemundo Holdings; PROVIDED, HOWEVER, that
during his employment, Executive shall have the latitude customarily given a
chief financial officer to disclose information in good faith for the benefit of
the Company and its stockholders (taken as a whole). All memoranda, notes,
lists, records and other documents or papers (and all copies thereof), including
such items stored in computer memories, on microfiche or by any other means,
made or compiled by or on behalf of Executive, or made available to him relating
to Telemundo Holdings are and shall be the Company's property and shall be
delivered to the Company promptly upon the termination of his employment with
the Company; PROVIDED, HOWEVER, that (i) this obligation shall not apply to
information that (A) is not confidential (other than as a result of Executive's
breach of this Section) and (B) does not contain certain trade secrets of the
Company, (ii) Executive shall have the right to retain such of the foregoing as
shall be reasonably necessary to enforce his rights under this Agreement and to
comply with and enforce his rights, including the right to defend himself
against claims, provided copies of such retained information are provided to the
Company and the retained information remain subject to the provision of this
Section, and (iii) Executive shall have no obligation to return information that
is no longer in his possession, custody or control. This Section 10 shall
survive the expiration or termination or termination of this Agreement, the
Employment Period and the term of employment; PROVIDED, HOWEVER, that if
Executive's employment is terminated pursuant to Section 9(c) or Section 9(d),
then this Section 10 will terminate on the Entitlement Date.
11. NO INTERFERENCE; AFFILIATE TRANSACTIONS.
(a) During the Employment Period and for one year thereafter,
Executive will not (other than with respect to his duties and responsibilities
hereunder), directly or indirectly, for himself, or as agent of or on behalf of,
or in conjunction with, any person, firm, corporation, or other entity, engage
or participate in any Company Business (as hereinafter defined), whether as
employee, consultant, partner, principal, shareholder or representative, or
render advisory or other services to or for any person, firm, corporation or
other entity, which is
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engaged, directly or indirectly, in the Company Business; PROVIDED, however,
that (i) Executive may own less than 5% of the common stock of a publicly traded
company that is engaged in the Company Business and (ii) Executive may own
common stock of the Company and securities convertible into such common stock
(or securities into which such common stock is converted in any business
combination transaction). For purposes of this Section 11(a), "Company Business"
shall mean and be limited to any of (x) the provision of Spanish language
television programming in the United States (which includes Puerto Rico), (y)
the ownership of television broadcast stations, networks or any over-the-air
television signal, and cable in the United States (which includes Puerto Rico)
that broadcast primarily Spanish language programming, and (z) the sale of
television advertising time and programs inside and outside the United States
(which includes Puerto Rico) for Spanish language television stations, cable and
networks.
(b) During the Employment Period and for one year after such
period, Executive agrees and covenants that he will not interfere directly or
indirectly in any way with the Company. "Interfere" means to influence or
attempt to influence, directly or indirectly, present or active prospective
customers, employees, suppliers, performers, directors, representatives, agents
or independent contractors of the Company, or any of its network affiliates to
restrict, reduce, sever or otherwise alter their relationship with Telemundo
Holdings or any of its network affiliates.
(c) Executive agrees that during the Employment Period, he will
not at any time enter into, on behalf of Telemundo Holdings, or cause Telemundo
Holdings to enter into, directly or indirectly, any transactions (each, a
"Transaction") with any business organization in which he or, to his knowledge
after due inquiry, any member of his family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or guarantor,
except to the extent disclosed to the Company and agreed to by the board of
directors of the Company in writing; PROVIDED, HOWEVER, that no such disclosure
and agreement shall be required for the Company or Telemundo Holdings to enter
into any transaction with Marlene May or May International Productions or their
affiliates or successors (if such transaction would otherwise be subject to this
Section 11(c)) so long as such transaction (i) is in the ordinary course of
business of Marlene May or May International Productions on one hand and the
Company or Telemundo Holdings on the other hand, (ii) is on no less favorable
terms to the Company or Telemundo Holdings than would be available if no such
relationship existed or (iii) does not involve an amount of more than $10,000
during any 12-month period. Executive will use his best efforts to ensure that
any Transaction is disclosed to the Board of Directors of the Company and
approved thereby prior to entering into a contract relating thereto and/or
consummation thereof, as contemplated by the preceding sentence.
(d) From and after the termination of Executive's employment,
Executive shall not disparage the Company, its officers, directors, employees or
business, nor shall the Company or any of its officers, directors, employees or
agents disparage the Executive or members of his family, and neither party shall
disclose any facts relating to such termination; provided, that nothing
contained in this Section 11(d) shall restrict the parties from making any
statements or disclosure believed necessary to enforce in any judicial or
similar proceeding the provisions of this Agreement or as a party believes may
be required by applicable law.
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(e) In the event any court having jurisdiction determines that
any part of this Section 11 is unenforceable, such court shall have the power to
reduce the duration or scope of such provision and such provision, in its
reduced form, shall be enforceable. This Section 11 shall survive the expiration
or termination of this Agreement and the Employment Period; PROVIDED, HOWEVER,
that if Executive's employment is terminated pursuant to Section 9(c) or Section
9(d), then this Section 11 will terminate on the Entitlement Date.
12. INJUNCTIVE RELIEF. Executive acknowledges that the provisions of
Sections 10 and 11 herein are reasonable and necessary for the protection of
Telemundo Holdings and Telemundo Holdings will be irrevocably damaged if such
provisions are not specifically enforced. Accordingly, Executive agrees that, in
addition to any other relief to which the Company may be entitled in the form of
damages, the Company shall be entitled to seek and obtain injunctive relief from
a court of competent jurisdiction (without the posting of a bond therefor) for
the purposes of restraining Executive from any actual or threatened breach of
such provisions.
13. REMEDIES; SERVICE OF PROCESS.
(a) Except when a party is seeking an injunction or specific
performance hereunder, the parties agree to submit any dispute concerning this
Agreement to binding arbitration. The parties may agree to submit the matter to
a single arbitrator or to several arbitrators, may require that arbitrators
possess special qualifications or expertise or may agree to submit a matter to a
mutually acceptable firm of experts for decision. In the event the parties shall
fail to thus agree upon terms of arbitration within twenty (20) days from the
first written demand for arbitration, then such disputed matter shall be settled
by arbitration under the Rules of Employment Arbitration of the American
Arbitration Association, by three arbitrators appointed in accordance with such
Rules. Such arbitration shall be held in Miami, Florida. Once a matter has been
submitted to arbitration pursuant to this section, the decision of the
arbitrators shall be final and binding upon all parties. The cost of arbitration
shall be shared equally by the parties and each party shall pay the expenses of
his/its attorneys, except that the arbitrators shall be entitled to award the
costs of arbitration, attorneys and accountants' fees, as well as costs, to the
party that they determine to be the prevailing party in any such arbitration.
(b) The Company and Executive hereby irrevocably consent to the
jurisdiction of the Courts of the State of Florida and of any Federal Court
located in such State in connection with any action or proceedings arising out
of or relating to the provisions of Sections 10 and 11 of this Agreement.
Executive further agrees that he will not commence or move to transfer any
action or proceeding arising out or relating to the provisions of Sections 10
and 11 of this Agreement to any Court other than one located in the State of
Florida. In any such litigation, Executive waives personal service of any
summons, complaint or other process and agrees that the service thereof may be
made by certified mail directed to Executive at his address for purposes of
notice under Section 17(b) hereof.
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14. SUCCESSORS. This Agreement and the rights and obligations
hereunder are personal to Executive and without the prior written consent of the
Company and Executive shall not be assignable.
15. SURVIVAL OF PROVISIONS. Notwithstanding anything to the contrary
contained herein, the provisions of Sections 5(b), 9, 10, 11, 12, 13, 14, 15, 16
and 17 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reasons therefor.
16. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything to the contrary contained herein, if
it shall be determined that any payment, distribution or benefit received or to
be received by Executive from Telemundo Holdings ("Payments"), whether under
this Agreement, the Original Agreement or the 1997 Amended and Restated
Agreement, or otherwise (including without limitation, that certain Nonqualified
Stock Option Agreement For Corporate Officers, as amended and restated as of
September 10, 1997, between Telemundo Group, Inc. and the Executive, with
respect to an aggregate of 50,000 shares of Telemundo Group, Inc. Series A
Common Stock, and that certain Nonqualified Stock Option Agreement For Corporate
Officers, dated as of September 10, 1997, between Telemundo Group, Inc. and the
Executive, with respect to an aggregate 30,000 shares of Telemundo Group, Inc.
Series A Common Stock), would be subject to the excise tax imposed by Section
4999 of the Code, or any successor or counterpart section thereto (the "Excise
Tax"), then Executive shall be entitled to receive an additional payment (the
"Excise Tax Gross-Up Payment") in an amount such that the net amount retained by
Executive, after the calculation and deduction of any Excise Tax on the Payments
and any federal, state and local income taxes, employment taxes and excise tax
on the Excise Tax Gross-Up Payment provided for in this Section 16, shall be
equal to the Payments. For the avoidance of doubt, in determining the amount of
the Excise Tax Gross-Up Payment attributable to federal income taxes the Company
shall take into account the maximum reduction in federal income taxes that could
be obtained by the deduction of the portion of the Excise Tax Gross-Up Payment
attributable to state and local income taxes. Finally, the Excise Tax Gross-Up
Payment shall be net of any income or excise tax withholding payments made by
the Company or any affiliate to any federal, state or local taxing authority
with respect to the Excise Tax Gross-Up Payment that was not deducted from
compensation payable to Executive.
(b) All determinations required to be made under this Section 16,
including whether and when an Excise Tax Gross-Up Payment is required and the
amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, except as specified in Section 16(a) above,
shall be made by Deloitte & Touche LLP (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and Executive
within 15 business days after the Company becomes obligated to make any Payments
to Executive. The determination of tax liability made by the Accounting Firm
shall be subject to review by Executive's tax advisor and, if Executive's tax
advisor does not agree with the determination reached by the Accounting Firm,
then the Accounting Firm and Executive's tax advisor shall jointly designate a
nationally recognized public accounting firm, which shall make the
determination. All fees and expenses of the accountants and tax advisors
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retained by either Executive or the Company shall be borne by the Company. Any
Excise Tax Gross-Up Payment, as determined pursuant to this Section 16 shall be
paid by the Company to Executive within five days after the receipt of the
determination. Any determination by a jointly designated public accounting firm
shall be binding upon the Company and Executive.
(c) As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination hereunder, it is
possible that Excise Tax Gross-Up Payments will not have been made by the
Company that should have been made consistent with the purpose of this Section
16 ("Underpayment"). In the event that Executive is required to make a payment
of any Excise Tax, any such Underpayment calculated in accordance with and in
the same manner as the Excise Tax Gross-Up Payment in Section 16 above shall be
promptly paid by the Company to or for the benefit of Executive. In the event
that the Excise Tax Gross-Up Payment exceeds the amount subsequently determined
to be due, such excess shall constitute a loan from the Company to Executive
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).
17. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without reference
to principles of conflict of laws.
(b) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered, telecopied or
mailed, certified or registered mail, return receipt requested:
If to Executive:
Peter J. Housman II
2203 Alhambra Circle
Coral Gables, Florida 33134
If to the Company:
Telemundo Holdings, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attention: Chairman
Phone: (305) 884-8200
Telecopy No.: (305) 889-7997
with a copy to:
Telemundo Holdings, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attention: General Counsel
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or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee or upon refusal if properly delivered.
(c) The Company may withhold from any amounts payable under this
Agreement such Federal, state of local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(d) Executive represents and warrants that he is not a party to
any agreement, contract or under-standing, whether employment or otherwise,
which would in any way restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
(e) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, and no statement,
representation, warranty or covenant has been made by either party except as
expressly set forth herein. This Agreement shall not be changed or terminated
orally. This Agreement amends and restates the Original Agreement and the 1997
Amended and Restated Agreement and supersedes and cancels all other prior
agreements between the parties, whether written or oral, relating to the
employment of Executive. The headings and captions contained in this Agreement
are for convenience only and shall not be deemed to affect the meaning or
construction of any provision hereof.
(f) If, at any time subsequent to the date hereof, any provision
of this Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall be of no force and effect,
but the illegality or unenforceability of such provision shall have no effect
upon and shall not impair the enforceability of any provision of this Agreement.
(g) The Company's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof. Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision hereof.
(h) This Agreement shall inure to the benefit of and be binding
upon any successor to the Company and shall inure to the benefit of Executive's
successors, heirs and personal representatives.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name and on its behalf, all as of the day and
year first above written.
/s/ Peter J. Housman II
____________________________
Peter J. Housman II
TELEMUNDO HOLDINGS, INC.
/s/ Roland A. Henandez
By:_________________________
Name: Roland A. Henandez
Title: Chief Executive Officer
14
EXHIBIT 10.13
VINCENT L. SADUSKY
EMPLOYMENT AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into by and
between Telemundo Holdings, Inc., a Delaware corporation (the "Company"), and
Vincent L. Sadusky (the "Executive"), dated as of January 1, 2000.
WHEREAS, Telemundo Network, Inc. and Executive entered into that
certain Employment Agreement dated as of September 10, 1997 (the "Original
Agreement"); and
WHEREAS, the Company and Executive desire to enter into a new
employment agreement on the terms and conditions set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. EMPLOYMENT AND TERM. The Company hereby agrees to employ Executive,
and Executive hereby agrees to enter into such employment, as Vice President,
Finance of the Company reporting to the Chief Financial Officer and Treasurer of
the Company for the period commencing on January 1, 2000 and ending on December
31, 2000 (the "Employment Period"). The Executive also agrees, during the
Employment Period, to serve (without additional compensation) on the Board of
Directors (and appropriate committees thereof) of the Company, if requested by
the Company.
2. TERMS OF EMPLOYMENT. (a) During the Employment Period, Executive
agrees, subject to the provisions of Section 9(d)(ii) of this Agreement, to
devote all but a DE MINIMUS amount of his business time and attention to the
business and affairs of the "Telemundo Group" (as defined below) and to use his
best efforts to perform faithfully and efficiently such responsibilities. For
purposes of this Agreement, the term "Telemundo Group" shall mean any and all of
the Company and any of its current or future divisions or subsidiaries.
(b) The principal place of employment of Executive shall be
Hialeah, Florida. Executive understands and agrees that in connection with his
employment hereunder, he may be required to travel extensively on behalf of the
Telemundo Group.
3. BASE SALARY. During the Employment Period Executive shall receive a
base salary (the "Base Salary") as follows. For the period of the Employment
Period beginning on January 1, 2000 and ending on February 7, 2000, the Base
Salary shall be payable to Executive at an annual rate of $150,000. For the
period of the Employment Period beginning on February 8, 2000 and ending on
December 31, 2000, the Base Salary shall be payable to Executive at an annual
rate to be mutually agreed upon by Executive and the Company after negotiating
in good faith, but in no event shall the Base Salary be increased by an amount
equivalent to less than ten percent of the then current Base Salary. The Base
Salary shall be payable consistent with the executive payroll practices of the
Company. Executive acknowledges and agrees that he has been paid in full his
Base Salary for periods prior to the effective date of this Agreement.
<PAGE>
4. BONUS. (a) For the 1999 fiscal year, the parties
acknowledge and agree that the Company shall pay Executive a performance bonus
("Performance Bonus") equal to 20% of Executive's then current Base Salary for
such fiscal year (or a total of $30,000) and a budget bonus ("Budget Bonus")
equal to 20% of Executive's then current Base Salary for such fiscal year (or a
total of $30,000), regardless of the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the 1999 fiscal year. The
Performance Bonus and the Budget Bonus are hereinafter collectively referred to
as the "Bonus". Such Bonus shall be payable on January 31, 2000.
(b) For the 2000 fiscal year, the Company shall pay Executive a
Performance Bonus equal to 20% of Executive's then current Base Salary for such
fiscal year and a Budget Bonus equal to 20% of Executive's then current Base
Salary for such fiscal year, regardless of the Company's EBITDA for the 2000
fiscal year. Such Bonus shall be payable on January 31, 2001.
5. EMPLOYEE BENEFIT PLANS; ETC. (a) Executive shall be entitled during
the Employment Period to participate in all retirement, disability, pension,
savings, medical, insurance and other plans of the Company generally available
to all senior executives (other than any performance based bonus plans).
Executive shall be entitled to paid vacations during each year of his employment
consistent with the Company's vacation policy for executive level employees
(which shall provide for at least 20 vacation days per year).
(b) The Company agrees that it will provide Executive, in his
capacity as an officer and, if applicable, as a director, with indemnification
rights which are not materially less favorable to the Executive, in his capacity
as an officer and as a director, than those provided as of the date of this
Agreement in the By-laws of the Company.
6. [Intentionally omitted]
7. [Intentionally omitted]
8. EXPENSES. The Company shall reimburse Executive for all reasonable
expenses properly incurred by him in accordance with the policies of the
Telemundo Group in effect from time to time on behalf of the Telemundo Group in
the performance of his duties hereunder, provided that proper vouchers are
submitted to the Company by Executive evidencing such expenses and the purposes
for which the same were incurred.
9. TERMINATION. The Company shall have the right to terminate
Executive's employment only as expressly provided in this Agreement.
(a) DEATH OR DISABILITY. Except as otherwise provided herein,
this Agreement shall terminate automatically upon Executive's death.
The Company may terminate this Agreement after having established
Executive's "Disability" (as defined below), by giving Executive written notice
of its intention to terminate Executive's employment. For purposes of this
Agreement, "Disability" means Executive's inability to perform substantially all
his duties and responsibilities to the Telemundo Group by reason of a physical
or mental disability or infirmity (i) for a continuous period of twelve
consecutive months or (ii) at such earlier time as Executive submits medical
evidence satisfactory to
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<PAGE>
the Company or the Board of Directors determines in good faith and upon
competent medical advice that Executive has a physical or mental disability or
infirmity that will likely prevent Executive from substantially performing his
duties and responsibilities for twelve consecutive months or longer. The date of
Disability shall be the day on which Executive receives notice from the Company
pursuant to this Section 9.
Upon termination of Executive's employment because of death or
Disability, the Company shall pay Executive or his estate or other personal
representative (i) within 60 days, the amount of Executive's Base Salary earned
up to the date of death or Disability, (ii) all benefits and other items
referred to in Sections 5 and 8 which are due up to the date of death or
Disability and (iii) when otherwise due in accordance with the provisions of
Section 4, the Bonus, if any, earned for the year in which such termination
occurred, without regard to whether Executive is an employee of the Company on
the last day of such fiscal year.
(b) CAUSE AND RESIGNATION WITHOUT GOOD REASON. The Company shall
have the right to terminate Executive's employment for "Cause" (as defined
below). Except as provided in Section 15 herein, (i) upon termination of
Executive's employment for Cause or (ii) upon Executive's resigning as an
employee without "Good Reason" (as defined below), this Agreement shall
terminate and the Executive shall not be entitled to receive any compensation or
other benefits other than (x) Base Salary earned up to the date of termination
and (y) all benefits and other items referred to in Sections 5 and 8 which are
due up to the date of termination or resignation.
For purposes of this Agreement, "Cause" shall mean (i) the
willful and continued failure by Executive to perform substantially all his
duties to the Company or the failure by the Executive to comply with the
reasonable written policies, procedures and directives of the President and
Chief Executive Officer (other than any such failure resulting from his death or
Disability), in each case after being given written notice by the President and
Chief Executive Officer of a failure to perform or comply (which notice
specifically identifies the manner in which Executive has failed to perform or
comply) and a reasonable opportunity to cure such noncompliance or
nonperformance; (ii) the willful misconduct by Executive in the performance of
his duties to the Company, provided that (for purposes of this clause (ii) only
and not for any other purpose or interpretation of this Agreement) an act shall
be considered "willful" only if done in bad faith and not in the best interests
of the Company; (iii) the grossly negligent performance by Executive of his
duties to the Company; (iv) the conviction of Executive by a court of competent
jurisdiction of the commission of (x) a felony or (y) a crime involving moral
turpitude; or (v) a material breach by Executive of Sections 10 or 11 hereof.
Notwithstanding the foregoing, the Company shall not be entitled
to terminate Executive for any of the reasons specified in clause (i), (ii),
(iii) or (v) of the immediately preceding paragraph unless the Company shall
have provided at least five business days' prior written notice to Executive,
which prior written notice shall state the general facts, circumstances or
deficiencies supporting a claim for Cause termination and after affording
Executive an opportunity to be heard before the President and Chief Executive
Officer.
(c) TERMINATION WITHOUT CAUSE BY COMPANY; RESIGNATION WITHOUT
GOOD REASON EFFECTIVE DECEMBER 31, 2000 BY EXECUTIVE. Notwithstanding anything
to the contrary contained herein, the Company shall have the right to terminate
the employment of Executive at any time without Cause. Upon a termination
without Cause, except as provided in Section 15, this Agreement shall terminate
and the Executive shall not be entitled to receive any compensation or
-3-
<PAGE>
other benefits, except that the Company shall (i) through June 30, 2001 continue
to pay to Executive the Base Salary in effect immediately prior to the date of
termination, such payments to be made in installments at the times such amounts
would have been paid if the Agreement had not been so terminated, and (ii) pay
to the Executive, when otherwise due in accordance with Section 4, the Bonus, if
any, earned for the fiscal year in which such termination occurs, without regard
to whether Executive is employed on the last day of such fiscal year, and (iii)
through June 30, 2001 continue Executive's benefits and other items referred to
in Section 5 or, to the extent the Company is legally unable to provide any such
benefits or other items as a result of Executive no longer being an employee,
reimburse Executive for his cost (not to exceed the actual cost to the Company
if he were still an employee) of obtaining the equivalent coverage and benefits.
Notwithstanding anything to the contrary contained herein,
Executive shall have the right to resign as an employee without Good Reason
effective December 31, 2000 upon at least 30 days prior written notice to the
Company. Upon such resignation, except as provided in Section 15, this Agreement
shall terminate and the Executive shall not be entitled to receive any
compensation or other benefits, except that the Company shall (i) through June
30, 2001 continue to pay to Executive the Base Salary in effect immediately
prior to the date of termination, such payments to be made in installments at
the times such amounts would have been paid if the Agreement had not been so
terminated, and (ii) pay to the Executive, when otherwise due in accordance with
Section 4, the Bonus for the 2000 fiscal year and (iii) through June 30, 2001
continue Executive's benefits and other items referred to in Section 5 or, to
the extent the Company is legally unable to provide any such benefits or other
items as a result of Executive no longer being an employee, reimburse Executive
for his cost (not to exceed the actual cost to the Company if he were still an
employee) of obtaining the equivalent coverage and benefits.
(d) TERMINATION FOR GOOD REASON.
(i) Executive shall have the right to terminate his
employment under this Agreement upon the occurrence of any event that
constitutes Good Reason by giving written notice to the Company. "Good Reason"
means any of the following: (A) a "Diminution in Duty" (as defined below), (B) a
"Designated Relocation" (as defined below) or (C) any "Other Good Reason Event"
(as defined below); PROVIDED, HOWEVER, that Good Reason shall not be deemed to
have occurred prior to the giving of written notice by the Executive to the
Company generally describing both the alleged Good Reason and the actions the
Executive believes are necessary to cure such alleged Good Reason, and the
Company's failure to so cure within 15 days of receipt of such notice. The
giving of such notice and the action or failure to take action by the Company
shall be irrelevant in determining whether a Good Reason has in fact occurred.
Upon a termination for Good Reason, except as provided in Section 15, this
Agreement shall terminate and the Executive shall not be entitled to receive any
compensation or other benefits other than the Company shall (i) through June 30,
2001 continue to pay to Executive the Base Salary in effect immediately prior to
the date of termination, such payments to be made in installments at the times
such amounts would have been paid if the Agreement had not been so terminated,
(ii) pay to the Executive, when otherwise due in accordance with Section 4, the
Bonus, if any, earned for the fiscal year in which such termination occurs,
without regard to whether Executive is employed on the last day of such fiscal
year and (iii) through June 30, 2001 continue Executive's benefits and other
items referred to in Section 5 or, to the extent the Company is legally unable
to provide any such benefits or other items as a result of Executive no longer
being an employee, reimburse Executive for his cost (not to exceed the actual
cost to the Company if he were still an employee) of obtaining the equivalent
coverage and benefits.
-4-
<PAGE>
(ii) A "Diminution in Duty" means that, without Executive's
express prior written consent, that Executive is required to report to anyone
other than the Chief Financial Officer and Treasurer of the Company or the
President of the Company. Effective upon the parties' execution and delivery of
this Agreement, Executive hereby waives any right, power or remedy, if any,
accruing to Executive resulting from any "Diminution in Duty" under the terms of
the Original Agreement prior to the date of this Agreement.
(iii) "Designated Relocation" means the Company requiring
Executive's work location to be other than within thirty (30) miles of the
Company's current corporate offices in Hialeah, Florida.
(iv) "Other Good Reason Event" means any of the following:
(A) a material breach of this Agreement by the Company (which shall include,
without limitation, any reduction in the amount of any compensation or benefits
provided to Executive under this Agreement), or (B) any termination or attempted
termination by the Company of Executive's employment other than as expressly
permitted in this Agreement.
(e) OFFICER AND BOARD POSITIONS. Upon the termination of
employment with the Company for any reason, Executive shall be deemed to have
resigned any and all of his positions as an officer and a member of the Board of
Directors of the Company and any of its subsidiaries and as a member of any
committees of such Board, effective on the date of termination.
(f) CERTAIN CONDITION. Notwithstanding anything to the contrary
contained in this Section 9, the obligations of the Company under this Section 9
shall continue only so long as the Executive does not breach his obligations
under Section 10 and 11.
(g) CERTAIN EFFECT. As used in this Agreement, termination of
this Agreement shall also result in and mean termination of the Employment
Period hereunder.
(h) MITIGATION OF DAMAGES. Executive shall have no duty to
mitigate any of his damages in the event of any breach of or default or failure
in performance under this Agreement by the Company.
(i) STOCK OPTIONS. The references in Section 9(a), 9(b), 9(c) or
9(d) to Executive, other than as therein stated, not being entitled to receive
compensation or benefits upon termination of his employment under any of such
Sections shall not affect Executive's rights under any stock option or similar
award agreements between Executive and the Company.
10. CONFIDENTIALITY, ETC. During the Employment Period and at all
times thereafter, Executive agrees and covenants that he will not divulge,
furnish or make accessible to anyone (otherwise than in the regular course of
business of the Telemundo Group) any confidential information, plans or
materials or trade secrets of the Telemundo Group or with respect to any aspect
of the business of the Telemundo Group; PROVIDED, HOWEVER, that during his
employment, Executive shall have the latitude customarily given a vice president
of finance to disclose information in good faith for the benefit of the Company
and its stockholders (taken as a whole). All memoranda, notes, lists, records
and other documents or papers (and all copies thereof), including such items
stored in computer memories, on microfiche or by any other means, made or
compiled by or on behalf of Executive, or made available to him relating to the
Telemundo Group are and shall be the Company's property and shall be delivered
to the Company promptly upon the termination of his
-5-
<PAGE>
employment with the Company; PROVIDED, HOWEVER, that (i) this obligation shall
not apply to information that (A) is not confidential (other than as a result of
Executive's breach of this Section) and (B) does not contain certain trade
secrets of the Company, (ii) Executive shall have the right to retain such of
the foregoing as shall be reasonably necessary to enforce his rights under this
Agreement and to comply with and enforce his rights, including the right to
defend himself against claims, provided copies of such retained information are
provided to the Company and the retained information remain subject to the
provision of this Section, and (iii) Executive shall have no obligation to
return information that is no longer in his possession, custody or control.
11. NO INTERFERENCE; AFFILIATE TRANSACTIONS. (a) During the Employment
Period and for one (1) year thereafter, Executive agrees and covenants that he
will not, directly or indirectly, for himself, or as agent of or on behalf of,
or in conjunction with, any person, firm, corporation, or other entity, engage
or participate in the "Company Business" (as hereinafter defined), whether as
employee, consultant, partner, principal, shareholder or representative, or
render advisory or other services to or for any person, firm, corporation or
other entity, which is engaged, directly or indirectly, in the Company Business;
PROVIDED, HOWEVER, that (i) Executive may own less than 5% of the common stock
of a publicly traded company that is engaged in the Company Business and (ii)
Executive may own Common Stock and securities convertible into Common Stock (or
securities into which Common Stock is converted in any business combination
transaction). For purposes of this Section 11(a), "Company Business" shall mean
and be limited to any of (x) the provision of Spanish language television
programming in the United States (which includes Puerto Rico), (y) the ownership
of television broadcast stations, networks or any over-the-air television
signal, and cable in the United States (which includes Puerto Rico) that
broadcast primarily Spanish language programming, and (z) the sale of television
advertising time and programs inside and outside the United States (which
includes Puerto Rico) for Spanish language television stations, cable and
networks.
(b) During the Employment Period and for one (1) year thereafter,
Executive agrees and covenants that he will not interfere directly or indirectly
in any way with the Company. "Interfere" means to influence or attempt to
influence, directly or indirectly, present or active prospective customers,
employees, suppliers, performers, directors, representatives, agents or
independent contractors of the Company, or any of its network affiliates to
restrict, reduce, sever or otherwise alter their relationship with the Telemundo
Group or any of its network affiliates.
(c) Executive agrees that during the Employment Period, he will
not at any time enter into, on behalf of the Telemundo Group, or cause the
Telemundo Group to enter into, directly or indirectly, any transactions (each, a
"Transaction") with any business organization in which he or, to his knowledge
after due inquiry, any member of his family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or guarantor,
except to the extent disclosed to the Company and agreed to by the board of
directors of the Company in writing. Executive will use his best efforts to
ensure that any Transaction is disclosed to the Board of Directors of the
Company and approved thereby prior to entering into a contract relating thereto
and/or consummation thereof, as contemplated by the preceding sentence.
(d) During the Employment Period and at all times thereafter,
Executive agrees and covenants that he will not disparage the Company, its
officers, directors, employees or business, nor shall the Company or any of its
officers, directors, employees or agents disparage the Executive or members of
his family, and neither party shall disclose any facts relating to such
termination; PROVIDED, HOWEVER, that nothing contained in this Section 11(d)
shall restrict the parties
-6-
<PAGE>
from making any statements or disclosure believed necessary to enforce in any
judicial or similar proceeding the provisions of this Agreement or as a party
believes may be required by applicable law.
(e) In the event any court having jurisdiction determines that
any part of this Section 11 is unenforceable, such court shall have the power to
reduce the duration or scope of such provision and such provision, in its
reduced form, shall be enforceable. This Section 11 shall survive the expiration
or termination of this Agreement and the Employment Period; PROVIDED, HOWEVER,
that if Executive's employment is terminated pursuant to Section 9(c) or Section
9(d), then this Section 11 will terminate on June 30, 2001.
12. INJUNCTIVE RELIEF. Executive acknowledges that the provisions of
Sections 10 and 11 herein are reasonable and necessary for the protection of the
Telemundo Group and that the Telemundo Group will be irrevocably damaged if such
provisions are not specifically enforced. Accordingly, Executive agrees that, in
addition to any other relief to which the Company may be entitled in the form of
damages, the Company shall be entitled to seek and obtain injunctive relief from
a court of competent jurisdiction (without the posting of a bond therefor) for
the purposes of restraining Executive from any actual or threatened breach of
such provisions.
13. REMEDIES; SERVICE OF PROCESS.
(a) Except when a party is seeking an injunction or specific
performance hereunder, the parties agree to submit any dispute concerning this
Agreement to binding arbitration. The parties may agree to submit the matter to
a single arbitrator or to several arbitrators, may require that arbitrators
possess special qualifications or expertise or may agree to submit a matter to a
mutually acceptable firm of experts for decision. In the event the parties shall
fail to thus agree upon terms of arbitration within twenty (20) days from the
first written demand for arbitration, then such disputed matter shall be settled
by arbitration under the Rules of Employment Arbitration of the American
Arbitration Association, by three arbitrators appointed in accordance with such
Rules. Such arbitration shall be held in Miami, Florida. Once a matter has been
submitted to arbitration pursuant to this Section, the decision of the
arbitrators shall be final and binding upon all parties. The cost of arbitration
shall be shared equally by the parties and each party shall pay the expenses of
his/its attorneys, except that the arbitrators shall be entitled to award the
costs of arbitration, attorneys and accountants' fees, as well as costs, to the
party that they determine to be the prevailing party in any such arbitration.
(b) The Company and Executive hereby irrevocably consent to the
jurisdiction of the Courts of the State of Florida and of any Federal Court
located in such State in connection with any action or proceedings arising out
of or relating to the provisions of Sections 10 and 11 of this Agreement.
Executive further agrees that he will not commence or move to transfer any
action or proceeding arising out or relating to the provisions of Sections 10
and 11 of this Agreement to any Court other than one located in the State of
Florida. In any such litigation, Executive waives personal service of any
summons, complaint or other process and agrees that the service thereof may be
made by certified mail directed to Executive at his address for purposes of
notice under Section 17(b) hereof.
14. SUCCESSORS. This Agreement and the rights and obligations
hereunder are personal to Executive and without the prior written consent of the
Company and Executive shall not be assignable.
-7-
<PAGE>
15. SURVIVAL OF PROVISIONS. Notwithstanding anything to the contrary
contained herein, the provisions of Sections 5(b), 9, 10, 11, 12, 13, 14, 15 and
17 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reasons therefor.
16. [Intentionally omitted]
17. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without reference
to principles of conflict of laws.
(b) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered, telecopied or
mailed, certified or registered mail, return receipt requested:
If to Executive:
Vincent L. Sadusky
1350 S.W. 12th Terrace
Boca Raton, Florida 33486
If to the Company:
Telemundo Holdings, Inc.
West 8th Avenue
Hialeah, Florida 33010
Attention: Chief Financial Officer
Phone: (305) 889-7999
Telecopy No.: (305) 889-7997
With a copy to:
Telemundo Holdings, Inc.
West 8th Avenue
Hialeah, Florida 33010
Attention: General Counsel
Phone: (305) 889-7987
Telecopy No.: (305) 889-7980
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee or upon refusal if properly delivered.
(c) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
-8-
<PAGE>
(d) Executive represents and warrants that he is not a party to
any agreement, contract or understanding, whether employment or otherwise, which
would in any way restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
(e) The parties agree that the Original Agreement is superseded
by this Agreement and terminated upon the parties' execution and delivery of
this Agreement and, therefore, the Original Agreement is of no further force or
effect and that this Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, and no statement,
representation, warranty or covenant has been made by either party except as
expressly set forth herein. This Agreement shall not be changed or terminated
orally. This Agreement supersedes and cancels all prior agreements between the
parties, whether written or oral, relating to the employment of Executive. The
headings and captions contained in this Agreement are for convenience only and
shall not be deemed to affect the meaning or construction of any provision
hereof.
(f) If, at any time subsequent to the date hereof, any provision
of this Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall be of no force and effect,
but the illegality or unenforceability of such provision shall have no effect
upon and shall not impair the enforceability of any provision of this Agreement.
(g) The Company's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof. Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision hereof.
(h) This Agreement shall inure to the benefit of and be binding
upon any successor to the Company and shall inure to the benefit of Executive's
successors, heirs and personal representatives.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name and on its behalf, all as of the day and
year first above written.
/s/ Vincent L. Sadusky
__________________________________________
Vincent L. Sadusky
TELEMUNDO HOLDINGS, INC.
/s/ Peter J. Housman II
By:_______________________________________
Print Name: Peter J. Housman II
Title: Chief Financial Officer & Treasurer
-9-
EXHIBIT 13.1
COMPANY'S 1999 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY (A) PREDECESSOR (B)
------------------------ ------------------------------------------------------
AUGUST 13 JANUARY 1
YEAR ENDED TO TO YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, AUGUST 12, ---------------------------------------
1999 1998 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue ................... $ 165,534 $ 68,667 $ 124,671 $ 197,588 $ 202,713 $ 169,148
Operating income .............. 20,377 17,075 3,595 16,121 29,306 14,275
Merger related expenses ....... -- -- (5,506) (1,707) -- --
Interest expense--net ......... (36,447) (14,618) (13,067) (20,849) (18,920) (14,489)
Minority interest ............. (1,475) (606) (1,898) (2,808) (2,125) --
Income (loss) before
extraordinary item .......... (13,551) 472 (19,989) (13,444) (1,179) (10,088)
Extraordinary item--
extinguishment of debt ...... -- -- -- -- (17,243) --
Net income (loss) ............. (13,551) 472 (19,989) (13,444) (18,422) (10,088)
Dividends declared on common
shares .................... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
(AT END OF PERIOD):
COMPANY (A) PREDECESSOR (B)
------------------------ ---------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital ................ $ 6,862 $ 15,619 $ 44,177 $ 44,769 $ 35,541
Broadcast licenses and
other intangible assets, net.. 621,585 650,907 128,366 132,831 90,200
Total assets ................... 746,886 771,398 290,086 295,560 224,459
Long-term debt, less current
portion ..................... 396,962 398,889 189,081 179,695 108,032
Common stockholders'
equity ....................... 200,934 214,485 29,909 42,893 60,251
<FN>
(a) Historical financial data for Telemundo Holdings, Inc. ("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 (as defined).
(b) On August 12, 1998 TLMD Acquisition Co., a wholly-owned subsidiary of Holdings, acquired all the
equity interests of Telemundo Group, Inc. ("Telemundo") and was merged with and into Telemundo,
whereby Telemundo became a wholly-owned subsidiary of Holdings (the "Merger"). The purchase
method of accounting was used to record assets acquired and liabilities assumed. As a result of
the Merger and related transactions, the accompanying financial statements of the Predecessor
(for purposes of the financial statements and related notes, the term "Predecessor" refers to
Telemundo for periods prior to August 13, 1998) and the Company are not comparable in all
material respects and are separated by a line, since the financial statements report financial
position, results of operations, and cash flows of these two separate entities.
</FN>
</TABLE>
1
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
INTRODUCTION
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 in the United States--Los Angeles, New York, Miami, San Francisco,
Chicago, Houston and San Antonio. Four of these markets are among the five
largest general Market Areas in the United States ("Market Area" refers to
Designated Market Area, a term developed by Nielsen Media Research, Inc. and
used by the television industry to describe a geographically distinct television
market). The Company also owns and operates the leading full-power television
station and related production facilities in Puerto Rico and 16 domestic
low-power television stations.
On August 12, 1998, TLMD Acquisition Co., a wholly-owned subsidiary of Holdings,
acquired all the equity interests of Telemundo Group, Inc. ("Telemundo") and was
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.
("Sony Pictures") and 24.95% by Liberty Media Corporation ("Liberty")
(collectively, the "Purchaser"). Station Partners, LLC is owned 68% by Apollo
Investment Fund III, L.P. ("Apollo Investment") and 32% by Bastion Capital Fund,
L.P. ("Bastion").
The Company's stations broadcast a wide variety of network programming,
including telenovelas (soap operas), talk shows, movies, entertainment programs,
national and international news, sporting events, children's programming, music,
sitcoms and dramatic series. In addition, the Company's stations supplement
network programming with local programming focused on local news and community
events. Network programming is provided 24-hours a day to the Company's U.S.
stations by Telemundo Network Group LLC (the "Network Company"), a company
formed in connection with the Merger which is equally owned by a subsidiary of
Sony Pictures and a subsidiary of Liberty. The Company's Puerto Rico station
broadcasts a similar variety of programs, however a substantial amount of its
programming is developed and produced or acquired directly by the station.
Including the Company's stations, the Network Company currently serves 63
markets in the United States, including 44 of the 45 largest Hispanic markets,
and reaches approximately 85% of all U.S. Hispanic households.
The Network Company entered into an affiliation agreement with the Company and
related affiliation agreements with the Company's stations (collectively, the
"Affiliation Agreement"), pursuant to which the Network Company provides network
programming to the Company, and the Company and the Network Company pool and
share advertising revenue pursuant to a revenue sharing arrangement. Pursuant to
the Affiliation Agreement, the Company receives a formula-based share of pooled
advertising revenue generated by the Company and the Network Company. The
following revenue sources (collectively, the "Aggregate Net Advertising
Receipts") are included in the pooled revenue: (i) 61% of the net advertising
revenue 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 revenue received by the Company (excluding WKAQ in
Puerto Rico) from the sale of local and national spot advertising time and local
and national block time. The pooled revenue is shared between the Company and
the Network Company, with the Company's share based on the following formula for
the first year of the agreement: (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
first year, the threshold levels (i.e., $130 million and $230 million) increase
3% annually.
2
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Company incurs non-network marketing/promotional expenditures, programming
expenditures and capital expenditures for its stations. All network programming
costs are 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.
The following discussion and analysis of results of operations and financial
condition should be read in conjunction with the Company's consolidated
financial statements and related notes. Except for historical information
contained herein, certain matters discussed are forward-looking disclosures that
involve risks and uncertainties, including (without limitation) those risks
associated with the effect of economic conditions; the Company's outstanding
indebtedness and leverage; restrictions imposed by the terms of the Company's
indebtedness; changes in advertising revenue which are caused by changes in
national and local economic conditions, the relative popularity of the Network
Company's and the Company's programming, the demographic characteristics of the
Company's markets and other factors outside the Company's control; future
capital requirements; the impact of competition, including its impact on market
share and advertising revenue in each of the Company's markets; the cost of
programming; changes in technology; the loss of key employees; the modification
or termination of the Affiliation Agreement; the impact of litigation; the
impact of current or pending legislation and regulations, including Federal
Communications Commission ("FCC") rulemaking proceedings; and other factors
which may be described from time to time in filings of the Company with the
Securities and Exchange Commission.
All statements, other than statements of historical facts, included in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" ("MD&A") 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.
TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
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. In connection with the Merger, the Company
sold its network operations (the "Network Sale"), which consisted of
substantially all of the programming and production assets and the related
liabilities of the Telemundo network, to the Network Company. As a result of the
Merger and related transactions, the accompanying financial statements of the
Predecessor (for purposes of 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 and are separated by a line, 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
For the year ended December 31, 1997, the Predecessor's results included its
network operations, which were sold to the Network Company in connection with
the Merger and do not reflect other Merger related transactions. Consequently,
the results for the year ended December 31, 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 to December 31,
1998, and are not comparable to the year ended 1999. Accordingly, MD&A for 1998
and 1997 has been presented on a historical basis and has been supplemented with
certain pro forma disclosures. The pro forma results of operations for years
ended December 31, 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
resulting from the Merger, 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 years ended December
31, 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.
3
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Net revenue for each of the three years in the period ended December 31, 1999
was as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 Change 1998 (a) Change 1997
----------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Local ..................... $ 98,973 7 % $ 92,145 10 % $ 84,115
Network and national spot.. 23,828 (63)% 65,219 (23)% 84,297
Incremental revenue from
Affiliation Agreement... 24,870 8,011 -
Other revenue ............. 17,863 (36)% 27,963 (4)% 29,176
-------- -------- --------
Net revenue ............... $165,534 (14)% $193,338 (2)% $197,588
======== ======== ========
<FN>
(a) The aggregate of the period from August 13 to December 31, 1998 and the period from
January 1 to August 12, 1998 (Predecessor) (the "1998 Combined Periods").
</FN>
</TABLE>
The increase in local revenue in 1999 is primarily the result of WKAQ-Puerto
Rico maintaining its dominant audience share in a market with overall growth.
Local revenue for the U.S. stations increased marginally from the prior year,
where strong growth in the local Spanish-language television markets more than
offset an overall decline in audience shares. The increase in local revenue in
1998 is primarily the result of an increase at KVEA-Los Angeles and other major
stations, where growth in the local Spanish-language television market led to
increased local revenue. The increase in 1998 is also due to WKAQ maintaining
its dominant audience share in a market with overall growth.
The decrease in network and national spot revenue in 1999 and 1998 is primarily
the result of the Network Sale. Excluding network revenue, national spot revenue
would have decreased by 5% in 1999 and by 6% in 1998. This was a result of the
decline in overall average audience shares in the U.S., offset in part by the
continued strong growth in the overall Spanish-language television market. In
addition, certain national spot advertising was shifted to network advertising.
The Telemundo network's average share of the Spanish-language television network
audience was 13%, 13%, 15% and 17% for the first through fourth quarters of
1999, respectively, and was 16% during the first through third quarters of 1998
and 14% during the fourth quarter of 1998. A change in audience share typically
has a delayed impact on revenue.
As noted above, during the fourth quarter of 1998 and the first two quarters of
1999, audience share levels decreased. To address the decline in audience share,
the Network Company launched a new programming schedule in August 1999. The new
schedule includes replacing several Monday through Friday prime time variety
shows with telenovelas, creating original and acquiring talk shows and improving
sports programming. These initiatives are reflected in the improvement in the
Telemundo network's audience share during the third and fourth quarters of 1999.
4
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Incremental revenue from the Affiliation Agreement represents the share of the
pooled revenue pursuant to the Affiliation Agreement in excess of revenue
generated by the Company's U.S. stations.
Other revenue decreased in 1999 primarily due to a decrease in the hours of
blocks of broadcast time sold to independent programmers and the elimination of
international program sales and affiliate representation revenue as a result of
the Network Sale. Other revenue decreased for the 1998 Combined Periods
primarily due to a decrease in trade revenue and decreases in international
program sales and affiliate representation revenue as a result of the Network
Sale, offset in part by an increase in the sale of blocks of broadcast time to
independent programmers.
On a pro forma basis, net revenue would have increased by $6.3 million or 4% and
by $10.4 million or 7% in 1999 and 1998, respectively, due to an increase in
network revenue included in the share of pooled revenue received pursuant to the
Affiliation Agreement, as well as the increase in local revenue, decrease in
national spot revenue and decrease in other revenue as discussed above.
Direct operating costs decreased by 27% in 1999 from the prior year as a result
of the Network Sale. Excluding those costs relating to the Telemundo network,
direct operating costs would have increased by 12% in 1999. This was primarily
the result of an increase of $6.2 million in station programming and production
expenses related to costs incurred to produce and acquire programming at
WKAQ-Puerto Rico and produce local news in the U.S. As discussed above, pursuant
to the Affiliation Agreement, the Network Company bears all network programming
costs. The Company will continue to incur non-network programming expenditures
in connection with its stations, including all programming expenditures for
WKAQ. The 8% decrease in direct operating costs for the 1998 Combined Periods
from the prior year was a result of the Network Sale. Excluding those costs
relating to the Telemundo network, direct operating costs would have increased
by 8% in 1998. This was primarily the result of an increase of $3.8 million in
costs incurred to produce and acquire programming for all stations, including
WKAQ.
Selling, general and administrative expenses other than network and corporate
increased by 14% in 1999. This was primarily the result of an increase in
advertising and promotional expenditures and contractual increases in research
service fees. The increase of 10% for the 1998 Combined Periods from the prior
year was primarily the result of greater commissions related to the increase in
revenue and increases in general and administrative and advertising and
promotional expenditures.
Pursuant to the Network Sale, 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, are no longer
incurred by the Company. The 39% decrease in network expenses in 1998 was a
result of the Network Sale.
Corporate expenses decreased by $125,000 in 1999 from the prior year. This was
primarily the result of a reduction in corporate staffing in connection with the
Merger and lower performance-based compensation, offset in part by the
classification of certain functions as corporate expenses that were classified
as network expenses prior to the Merger, such as corporate engineering, human
resources and management information systems. Corporate expenses increased by
$1.2 million for the 1998 Combined Periods from the prior year primarily as a
result of an increase in executive performance-based compensation and additional
legal costs.
Depreciation and amortization increased by $8.7 million in 1999 and by $5.7
million for the 1998 Combined Periods from the prior year. This was primarily a
result of the additional 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 through August 12, 1998 for services provided to the Predecessor
in connection with the Merger.
5
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Interest expense increased by 32% in 1999 from the prior year as a result of the
restructuring of the Company's capital structure in connection with the Merger.
Interest expense for 1999 and the period August 13 to December 31, 1998
includes: (i) interest and amortization of fees accrued and paid on the credit
facilities providing for aggregate borrowings of up to $350.0 million (the
"Credit Facilities"), at an average interest rate of 7.23% during 1999, (ii)
interest accreted on the $218.8 million aggregate principal amount at maturity
11.5% Senior Discount Notes Due 2008 which were issued at a discount and
structured to produce a yield to maturity of 11.5% per annum (the "Senior
Discount Notes"), (iii) amortization of deferred issuance costs for the Credit
Facilities and the Senior Discount Notes and (iv) interest accrued and accreted
on the 10.5% Senior Notes due 2006 (the "10.5% Senior Notes") (approximately
99.9% of which were tendered in a repurchase offer on August 12, 1998). Interest
expense for the period January 1 to August 12, 1998 and the year ended 1997
includes: (i) interest accrued and accreted on the 10.25% Senior Notes which
were outstanding during such period (approximately 99.8% of which were tendered
in a repurchase offer on February 26, 1996, and the balance was retired in
connection with the Merger), (ii) interest accrued and accreted on the 10.5%
Senior Notes, (iii) amortization of deferred issuance costs for the 10.5% Senior
Notes, and (iv) interest and amortization of fees on the Predecessor's revolving
credit facility (the "Old Credit Facility") which was terminated on August 12,
1998. Interest expense was offset by interest income of $345,000 for 1999,
$197,000 for the period August 13 to December 31, 1998, $180,000 for the period
January 1 to August 12, 1998 and $303,000 for the year ended 1997.
As a result of the Merger and related transactions, the Company recorded a net
deferred tax liability of $77.2 million. This primarily represents the tax
effect of approximately $457.0 million of FCC broadcast licenses and other
identifiable intangible assets that will be expensed over periods extending up
to 40 years for financial reporting purposes that have lower tax basis, and
certain intangible assets that will not be deductible for tax purposes.
The income tax benefit in 1999 results primarily from the tax effect of the
reversal of federal and state deferred temporary differences, offset in part by
a deferred provision resulting from the utilization of Puerto Rico net operating
loss carryforwards ("NOLs"), a current provision for federal and state income
and franchise taxes, Puerto Rico income taxes and Puerto Rico withholding taxes
related to intercompany interest. The income tax provision recorded for the 1998
Combined Periods resulted primarily from a current provision for federal and
state income and franchise taxes, Puerto Rico income taxes and Puerto Rico
withholding taxes related to intercompany interest. The Company is in a net
operating loss position for federal income tax purposes. The Company's use of
its NOLs incurred prior to August 12, 1998 are subject to certain limitations
imposed by Section 382 of the Internal Revenue Code and their use will be
limited.
Minority interest represents the accounting impact of distributions to the 25.5%
partner in Video 44, which is based on a minimum preferred distribution to such
partner. Video 44 is a partnership that owns and operates WSNS-Chicago.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows provided from operating activities were $31.0 million for 1999, $34.3
million for the 1998 Combined Periods and $486,000 for 1997. The decrease in
1999 is primarily the result of changes in certain asset and liability accounts,
including the collection of network operations receivables in 1998, and the
change in deferred taxes, offset in part by the increase in operating income
before depreciation and amortization. The increase in the 1998 Combined Periods
is primarily the result of the increase in operating income before depreciation
and amortization, which included the net effect of the Network Sale. In
addition, changes in certain asset and liability accounts, including the
collection of network operations receivables which were retained as part of the
Network Sale, also contributed to the increase in 1998.
6
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Company had working capital of $6.9 million at December 31, 1999.
Capital expenditures of approximately $14.6 million were made during 1999 for
the replacement and upgrading of equipment and upgrading of facilities,
including upgrading stations to a digital technology platform. As a result of
the Network Sale, the Company no longer has capital expenditure requirements
with respect to network operations. The Company expects to incur capital
expenditures of approximately $17 million in 2000 related to the continued
conversion to digital technology as well as regular maintenance capital
spending.
The Company's principal sources of liquidity are cash from operations and a $150
million revolving credit facility with a final maturity of September 30, 2005
(the "Revolving Credit Facility"). The Company plans on financing cash needs
through cash generated from operations and the Revolving Credit Facility, under
which there was $56 million outstanding at December 31, 1999. The Company does
not presently anticipate the need to obtain any additional financing to fund
operations.
The Credit Facilities consist of a $25 million amortizing term loan with a final
maturity of September 30, 2005 (the "Tranche A Term Loan"), a $175 million
amortizing term loan with a final maturity of March 31, 2007 (the "Tranche B
Term Loan") and the Revolving Credit Facility.
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 principal repayments 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 Credit Facilities require mandatory prepayments under certain circumstances
related to an asset sale, an equity issuance or the incurrence of additional
indebtedness. In addition, the Company is required to prepay outstanding
principal within 90 days of year end, beginning December 31, 1999, in an amount
equal to 75% of excess cash flow (as defined in the Credit Facilities) if the
Company's total debt to EBITDA (as defined in the Credit Facilities) is greater
than or equal to five to one, less $5 million. If the Company's total debt to
EBITDA is less than five to one, then the Company is required to pay outstanding
principal in an amount equal to 50% of "excess cash flow", less $5 million. No
principal payments pursuant to this provision were required for 1999. The
Company can prepay the Credit Facilities at any time. Prepayments are allocated
pro-rata to the Tranche A Term Loan and the Tranche B Term Loan in the inverse
order of maturity.
Telemundo entered into two floating for fixed interest rate swap transactions,
fixing a 5.145% London Interbank Offered Rates ("LIBOR") equivalent interest
rate on $100 million principal amount, effective from September 29, 1998 to
August 13, 2003 and a 5.135% LIBOR equivalent interest rate on $100 million
principal amount, effective from December 10, 1998 to August 13, 2003. Pursuant
to the Credit Facilities, Telemundo is required to hedge the interest rate on
50% of the outstanding Tranche A and Tranche B Term Loans through August 13,
2000. If the Company were to have borrowings outstanding for the maximum amount
possible under the Credit Facilities, it would have $150 million principal
amount subject to changes in interest rates, whereby a change of 100 basis
points would have a $1.5 million impact on pre-tax earnings and pre-tax cash
flows over a one-year period.
The Senior Discount Notes were issued at a substantial discount from their
stated principal amount at maturity and were structured to produce a yield to
maturity of 11.5% per annum. The Senior Discount Notes begin accruing cash
interest on August 15, 2003. Interest becomes payable commencing February 15,
2004. The Senior Discount Notes will mature on August 15, 2008.
7
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Credit Facilities require the Company to maintain certain financial ratios
and, along with the Senior Discount Notes, impose on the Company certain
limitations or prohibitions, including those relating to: (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) change of
control and (vii) investments and acquisitions.
The Company's interest income and expense are sensitive to changes in the
general level of U.S. and certain European interest rates. In this regard,
changes in these rates affect the interest earned on the Company's cash
equivalents as well as interest paid on its Credit Facilities. To mitigate the
impact of fluctuations in interest rates, the Company entered into fixed rate
for LIBOR swap transactions, as discussed above.
YEAR 2000 ISSUE
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 had upgraded or replaced many of its
accounting and traffic computer system, including the conversion of new software
which is Year 2000 compliant. In 1999, the Company completed its program to
ensure Year 2000 compliance, but continues to monitor and test its internal
business processes. To date, the Company has experienced no Year 2000 problems
that affected its business, results of operations or financial condition.
8
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
----------------------------- -------------------------
Year ended August 13 to January 1 to Year ended
December 31, December 31, August 12, December 31,
1999 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue ............................................... $ 165,534 $ 68,667 $ 124,671 $ 197,588
--------- --------- --------- ---------
Costs and expenses:
Direct operating costs ................................ 62,511 22,109 63,861 93,297
Selling, general and administrative expenses other than
network and corporate .............................. 48,325 16,921 25,515 38,707
Network expenses ...................................... -- -- 18,546 30,650
Corporate expenses .................................... 5,927 1,922 4,130 4,875
Depreciation and amortization ......................... 28,394 10,640 9,024 13,938
--------- --------- --------- ---------
145,157 51,592 121,076 181,467
--------- --------- --------- ---------
Operating income .......................................... 20,377 17,075 3,595 16,121
Merger related expenses ................................... -- -- (5,506) (1,707)
Interest expense, net ..................................... (36,447) (14,618) (13,067) (20,849)
Other expense ............................................. (473) -- -- --
--------- --------- --------- ---------
Income (loss) before income taxes and minority interest ... (16,543) 2,457 (14,978) (6,435)
Income tax benefit (provision) ............................ 4,467 (1,379) (3,113) (4,201)
Minority interest ......................................... (1,475) (606) (1,898) (2,808)
--------- --------- --------- ---------
Net income (loss) ......................................... $ (13,551) $ 472 $ (19,989) $ (13,444)
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 7,204 $ 8,680
Accounts receivable, less allowance for doubtful accounts of $7,992
and $7,585 ..................................................... 30,487 30,768
Television programming ............................................ 4,442 7,742
Prepaid expenses and other ........................................ 3,292 2,819
Due from Network Company, net ..................................... 7,491 3,624
--------- ---------
Total current assets ..................................... 52,916 53,633
Property and equipment, net ........................................... 57,642 50,021
Television programming ................................................ 1,270 846
Other assets .......................................................... 13,473 15,991
Broadcast licenses and other intangible assets, net ................... 621,585 650,907
--------- ---------
$ 746,886 $ 771,398
========= =========
<CAPTION>
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses ............................. $ 38,657 $ 35,648
Television programming obligations ................................ 1,928 1,303
Current portion of long-term debt ................................. 5,469 1,063
--------- ---------
Total current liabilities ................................. 46,054 38,014
Long-term debt ........................................................ 396,962 398,889
Deferred taxes, net ................................................... 69,980 81,812
Other liabilities ..................................................... 27,445 32,770
--------- ---------
540,441 551,485
--------- ---------
Minority interest ..................................................... 5,511 5,428
--------- ---------
Contingencies and commitments
Common stockholders' equity:
Common Stock, $.01 par value, 10,000 shares authorized and
outstanding at December 31, 1999 and 1998 ....................... -- --
Additional paid-in capital ............................................ 214,013 214,013
Retained earnings (accumulated deficit) ............................... (13,079) 472
--------- ---------
200,934 214,485
--------- ---------
$ 746,886 $ 771,398
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(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 PAID-IN '
STOCK STOCK STOCK STOCK STOCK STOCK CAPITAL
---------- ---------- ---------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance, December 31, 1996 ......... -- 6,621,983 3,530,232 $ -- $ 66 $ 36 $ 71,301
Net loss ........................... -- -- -- -- -- -- --
Warrant conversions ................ -- 65,740 -- -- -- -- 460
Stock conversions .................. -- 441,891 (441,891) -- 5 (5) --
---------- ---------- ---------- ------- ---------- ---------- ----------
Balance, December 31, 1997 ......... -- 7,129,614 3,088,341 -- 71 31 71,761
Net loss ........................... -- -- -- -- -- --
Warrant conversions ................ -- 523,988 -- -- 5 -- 3,742
Stock conversions .................. -- 1,843 (1,843) -- -- -- --
---------- ---------- ---------- ------- ---------- ---------- ----------
Balance, August 12, 1998 ........... -- 7,655,445 3,086,498 -- 76 31 75,503
COMPANY:
Elimination of former equity
interests ...................... -- (7,655,445) (3,086,498) -- (76) (31) (75,503)
Common Stock issued in connection
with the Merger .............. 10,000 -- -- -- -- -- 273,993
Distribution in excess of continuing
shareholder's basis .......... -- -- -- -- -- -- (59,980)
Net income ......................... -- -- -- -- -- -- --
---------- ---------- ---------- ------- ---------- ---------- ----------
Balance, December 31, 1998 ......... 10,000 -- -- -- -- -- 214,013
Net loss ........................... -- -- -- -- -- -- --
---------- ---------- ---------- ------- ---------- ---------- ----------
Balance, December 31, 1999 ......... 10,000 -- -- $ -- $ -- $ -- $ 214,013
========== ========== ========== ======= ========== ========== ==========
<CAPTION>
RETAINED
EARNINGS COMMON
(ACCUMULATED STOCKHOLDERS'
DEFICIT) EQUITY
---------- ----------
<S> <C> <C>
PREDECESSOR:
Balance, December 31, 1996 ......... $ (28,510) $ 42,893
Net loss ........................... (13,444) (13,444)
Warrant conversions ................ -- 460
Stock conversions .................. -- --
---------- ----------
Balance, December 31, 1997 ......... (41,954) 29,909
Net loss ........................... (19,989) (19,989)
Warrant conversions ................ -- 3,747
Stock conversions .................. -- --
---------- ----------
Balance, August 12, 1998 ........... (61,943) 13,667
COMPANY:
Elimination of former equity
interests ...................... 61,943 (13,667)
Common Stock issued in connection
with the Merger .............. -- 273,993
Distribution in excess of continuing
shareholder's basis .......... -- (59,980)
Net income ......................... 472 472
---------- ----------
Balance, December 31, 1998 ......... 472 214,485
Net loss ........................... (13,551) (13,551)
---------- ----------
Balance, December 31, 1999 ......... $ (13,079) $ 200,934
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------- ----------------------
Year ended August 13 January 1 to Year ended
December 31, to December 31, August 12, December 31,
1999 1998 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ (13,551) $ 472 $ (19,989) $ (13,444)
Charges not affecting cash:
Depreciation and amortization .................................... 28,394 10,640 9,024 13,938
Interest accretion ............................................... 15,479 5,657 3,732 5,557
Provision for losses on accounts receivable ...................... 1,423 542 1,720 3,479
Minority interest ................................................ 1,475 606 1,898 2,808
Deferred taxes ................................................... (6,669) (605) -- --
Changes in assets and liabilities:
Accounts receivable .............................................. (126) 13,570 5,956 (3,971)
Television programming ........................................... 2,876 167 (462) (3,283)
Television programming obligations ............................... 625 (909) (1,684) 794
Due from Network Company, net .................................... (3,867) (3,624) -- --
Accounts payable and accrued expenses and other .................. 4,893 (5,837) 13,467 (5,392)
---------- --------- --------- ---------
Cash flows provided from operating activities ............. 30,952 20,679 13,662 486
---------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Additions to property and equipment .................................. (14,608) (3,506) (6,569) (11,156)
---------- --------- --------- ---------
Cash flows used in investing activity ..................... (14,608) (3,506) (6,569) (11,156)
---------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under Credit Facilities ..................... 2,000 300,000 -- --
Payments under Credit Facilities ..................................... (15,000) (31,000) -- --
Proceeds from Equity Contributions ................................... -- 273,993 -- --
Proceeds from issuance of Senior Discount Notes ...................... -- 125,000 -- --
Proceeds from Network Sale ........................................... -- 73,993 -- --
Repurchase of Predecessor equity interests ........................... -- (518,282) -- --
Repurchase of 10.5% Senior Notes, consent fees and related costs ..... -- (217,452) -- --
Repayment of other indebtedness and related costs .................... -- (192) -- --
Deferred financing costs ............................................. -- (14,500) -- --
Merger costs ......................................................... (1,527) (5,791) -- --
Proceeds from exercise of options and warrants ....................... -- -- 3,747 460
Payments of obligations under capital leases ......................... -- -- (424) (727)
Borrowings under Old Credit Facility ................................. -- -- 7,925 9,854
Payments under Old Credit Facility and related costs ................. -- (272) (11,721) (6,025)
Payments to minority interest partner ................................ (3,293) (996) (1,992) (2,720)
Payments of reorganization items and other ........................... -- -- -- (381)
---------- --------- --------- ---------
Cash flows provided from (used in) financing activities..... (17,820) (15,499) (2,465) 461
---------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ..................... (1,476) 1,674 4,628 (10,209)
Cash and cash equivalents, beginning of period ....................... 8,680 7,006 2,378 12,587
---------- --------- --------- ---------
Cash and cash equivalents, end of period ............................. $ 7,204 $ 8,680 $ 7,006 $ 2,378
========== ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Telemundo Holdings, Inc. ("Holdings", and 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, Houston
and San Antonio. 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
telenovelas (soap operas), talk shows, movies, entertainment programs, national
and international news, sporting events, children's programming, music, sitcoms
and dramatic series. Network programming is provided by Telemundo Network Group
LLC as described in Note 2. In addition, the Company supplements its network
programming with local programming focused on local news and community events.
BASIS OF PRESENTATION
On August 12, 1998 TLMD Acquisition Co., a wholly-owned subsidiary of
Holdings, acquired all the equity interests of Telemundo Group, Inc.
("Telemundo") and was merged with and into Telemundo, with Telemundo being the
surviving corporation and becoming a wholly-owned subsidiary of Holdings (the
"Merger"). The purchase method of accounting was used to record assets acquired
and liabilities assumed. As a result of the Merger and related transactions, the
accompanying financial statements of the Predecessor (for purposes of the
financial statements and related notes, the term "Predecessor" refers to
Telemundo prior to the Merger and related transactions) and the Company are not
comparable in all material respects and are separated by a line, since the
financial statements report, results of operations and cash flows of these two
separate entities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holdings and its
subsidiaries from August 13, 1998 and the Predecessor and its subsidiaries for
periods prior to August 13, 1998. All significant intercompany balances and
transactions have been eliminated in consolidation. The operations of the
Company's and the Predecessor's 74.5% interest in a joint venture ("Video 44")
which owns WSNS-TV, Channel 44 in Chicago, are consolidated with those of the
Company and of the Predecessor. The accounting impact of the interest
attributable to the partner which owns the remaining 25.5% of the venture is
reflected as minority interest.
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.
13
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 and broadcast licenses and other intangible assets are
depreciated by the straight-line method over estimated useful lives.
BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS
Broadcast licenses and other intangible assets represent the portions of the
Merger consideration not attributable to specific tangible assets at the time of
the Merger.
The Company evaluates the recoverability of its investment in long-term tangible
and 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 for the Company is derived primarily from the sale of advertising time
on a national spot and local basis and is net of advertising agency commissions.
In addition, the Company earns revenue from the sale of blocks of broadcast time
during non-network programming hours. The Company's revenue is also impacted by
the revenue sharing aspect of the Affiliation Agreement (see Note 2). Revenue
was derived by the Predecessor from the sale of national spot and local
advertising time, the sale of blocks of broadcast time, the sale of advertising
time on a network basis, international program sales and also from affiliate
representation fees. 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 1999, 1998 and 1997, no customer
accounted for more than 10% of the Company's or the Predecessor's revenue.
INCOME TAXES
Income taxes provided reflect the current and deferred tax consequences of
events that have been recognized in the 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.
INTEREST RATE ARRANGEMENTS
The Company uses interest rate swaps to hedge interest rate exposures. In this
type of hedge, the differential to be paid or received (which is a function of
market interest rates) is accrued and recognized in interest expense. Any
premium paid or received to acquire the hedge is amortized over the duration of
the hedged instrument. 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
is recognized immediately.
14
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which 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 the fair value of the derivative are either (i) offset against
the change in fair value of assets, liabilities or firm commitments through
earnings, or (ii) recognized in other comprehensive income until the hedged item
is recognized in earnings. The portion of a derivative's change in fair value
that is not an effective hedge will be immediately recognized in earnings. In
June 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133", which defers the implementation of
SFAS 133 until years beginning after June 15, 2000. The Company will adopt SFAS
133 in the first quarter of 2001 and cannot determine the impact that the
adoption of SFAS 133 will have on the earnings and financial position of the
Company at that time.
SEGMENT REPORTING
The Company operates in one principal industry segment, television broadcasting.
Separate segment disclosures are not applicable.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' financial
statements to conform with the current year's presentation.
2. MERGER AND RELATED TRANSACTIONS
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. Holdings is owned 50.1% by Station Partners, LLC, 24.95% by Sony
Pictures Entertainment Inc. ("Sony Pictures") and 24.95% by Liberty Media
Corporation ("Liberty")(collectively, the "Purchaser"). Station Partners, LLC is
owned 68% by Apollo Investment Fund III, L.P. ("Apollo Investment") and 32% by
Bastion Capital Fund, L.P. ("Bastion").
Pursuant to the Merger, each outstanding share of Telemundo common stock 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 99.9% of such issue) tendered in connection with a
tender offer by TLMD Acquisition Co. pursuant to an Offer to Purchase and
Consent Solicitation Statement (the "Tender Offer").
Prior to the Merger, Telemundo produced or acquired and distributed its network
programming through its network operations (the "Telemundo Network"), which
provided programming 24-hours a day to Telemundo's stations and network
affiliates. In connection with the Merger, the Company sold its network
operations (the "Network Sale"), which consisted of substantially all of the
programming and production assets and the related liabilities of the Telemundo
Network, to Telemundo Network Group LLC (the "Network Company"), a company
formed in connection with the Merger which is equally owned by a subsidiary of
Sony Pictures and a subsidiary of Liberty. The Network Company entered into an
affiliation agreement with the Company and related affiliation agreements with
the Company's stations (collectively, the "Affiliation Agreement"), pursuant to
which the Network Company provides network programming to the Company, and the
Company and the Network Company pool and share advertising revenues pursuant to
a revenue sharing arrangement. As a result, the Company is no longer required to
bear the 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.
15
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Pursuant to the Affiliation Agreement, the Company receives a formula-based
share of pooled advertising revenue generated by the Company and the Network
Company. The following revenue sources (collectively, the "Aggregate Net
Advertising Receipts") are included in the pooled revenue: (i) 61% of the net
advertising revenue 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 revenue received by the Company (excluding
WKAQ - Puerto Rico) from the sale of local and national spot advertising time
and local and national block time. The pooled revenue is shared between the
Company and the Network Company, with the Company's share based on the following
formula for the first year of the agreement: (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 first year, the threshold levels (i.e., $130 million and $230
million) increase 3% annually.
The Company incurs non-network marketing/promotional expenditures, programming
expenditures and capital expenditures for its stations. All network programming
costs are 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.
Holdings had no operations prior to the Merger. Approximately $773.0 million was
required to fund the Merger and the related transactions. Of this amount, $300.0
million was provided from borrowings under Credit Facilities providing for
aggregate borrowings of up to $350.0 million (the "Credit Facilities"), $125.0
million was provided from the proceeds of an offering of $218.8 million
aggregate principal amount at maturity Senior Discount Notes due 2008 (the
"Senior Discount Notes"), $274.0 was provided from Purchaser equity
contributions (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 $622 million has been allocated to the
net assets acquired based upon fair value. The net assets of Holdings were
adjusted to reflect the continuing ownership of Bastion (15.1% prior to the
merger). This adjustment of $60 million, a "deemed dividend", represents the
difference between the proceeds this shareholder received for its ownership
interest in Telemundo and its basis in the Predecessor, adjusted for the Network
Sale. The following is a summary of the allocation of purchase consideration and
deferred financing fees (in thousands):
Accounts receivable.......................................... $ 43,796
Other current assets (excluding television programming)...... 26,512
Television programming....................................... 8,755
Property and equipment....................................... 48,910
Other assets................................................. 16,099
Broadcast licenses and other intangible assets............... 651,976
Accounts payable............................................. 11,289
Accrued liabilities.......................................... 28,592
Television programming obligations........................... 2,212
Long-term debt............................................... 425,318
Other non-current liabilities................................ 32,057
Deferred tax liabilities, net................................ 77,176
Minority interest............................................ 5,391
Stockholders' equity......................................... 214,013
The carrying value of accounts receivable, other current assets, television
programming, other assets, accounts payable, accrued liabilities, television
programming obligations, other non-current liabilities and minority interest
were considered to closely approximate fair value. The allocation of the
purchase consideration to property and equipment and broadcast licenses and
other intangible assets was based upon independent appraisals. Deferred taxes
reflect the tax effect of differences in financial reporting and tax basis of
assets and liabilities. Goodwill was adjusted during 1999, totaling $7.4
million, for accrued liabilities and deferred taxes, as certain initial
estimates used in the application of the purchase method of accounting were
finalized.
16
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following summarized, unaudited pro forma results of operations for 1998
assumes the Merger, the Tender Offer, initial borrowings under the Credit
Facilities, the Equity Contributions, issuance of the Senior Discount Notes and
the Network Sale occurred on January 1, 1997. The unaudited 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.
(In thousands) 1998
------------------------------------------------------ ---------------
Net revenue......................................... $159,247
Operating income.................................... 27,212
Net loss............................................ (20,051)
3. PROPERTY AND EQUIPMENT
The components, useful lives and accumulated depreciation and amortization of
the Company's property and equipment are as follows (dollars in thousands):
Estimated
Useful Lives
December 31 (in years) 1999 1998
---------------------------------------------------------------------------
Land ............................. N/A $ 7,690 $ 7,690
Buildings and improvements ....... 20 to 40 14,752 14,752
Broadcast and other equipment .... 2 to 13 37,732 22,590
Construction in progress ......... N/A 2,696 3,892
Leasehold improvements ........... * 3,475 3,253
-------- --------
66,285 52,177
Less: accumulated depreciation and
amortization .................. (8,643) (2,156)
-------- --------
$ 57,642 $ 50,021
======== ========
*Shorter of life of lease or useful life of asset
17
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS
The components, useful lives and accumulated amortization of the Company's
intangible assets are as follows (dollars in thousands):
Estimated
Useful Lives
December 31 (in years) 1999 1998
---------------------------------------------------------------------------
FCC broadcast licenses ............. 40 $ 427,593 $ 427,593
Goodwill* .......................... 40 195,002 202,417
Affiliation Agreement .............. 10 1,000 1,000
Advertiser base .................... 5 25,110 25,110
Other .............................. 3 3,271 3,271
--------- ---------
651,976 659,391
Less: accumulated amortization...... (30,391) (8,484)
--------- ---------
$ 621,585 $ 650,907
========= =========
*Goodwill was adjusted during 1999 as certain initial estimates used in
the application of the purchase method of accounting were finalized.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of the Company's accounts payable and accrued expenses are as
follows (in thousands):
December 31 1999 1998
----------------------------------------------------------------------
Accounts payable ......................... $ 6,185 $ 5,042
Accrued compensation and commissions...... 5,537 4,545
Accrued agency commissions ............... 7,412 5,909
Accrued merger costs ..................... 6,998 11,109
Accrued interest expense ................. 2,203 2,205
Other accrued expenses ................... 10,322 6,838
------- -------
$38,657 $35,648
======= =======
6. LONG-TERM DEBT
The components of the Company's long-term debt are as follows (in thousands):
December 31 1999 1998
-------------------------------------------------------------
Credit Facilities ........... $ 256,000 $ 269,000
Senior Discount Notes........ 146,126 130,657
10.5% Senior Notes .......... 305 295
--------- ---------
402,431 399,952
Less: current portion ....... (5,469) (1,063)
--------- ---------
$ 396,962 $ 398,889
========= =========
18
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Significant terms of the Company's debt agreements are as follows:
CREDIT FACILITIES: In connection with the Merger, Telemundo entered
into the Credit Facilities, providing for aggregate borrowings of up to
$350 million. The Credit Facilities consist of a $25 million amortizing
term loan with a final maturity of September 30, 2005 (the "Tranche A
Term Loan"), a $175 million amortizing term loan with a final maturity
of March 31, 2007 (the "Tranche B Term Loan") and a $150 million
revolving credit facility with a final maturity of September 30, 2005
(the "Revolving Credit Facility").
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 principal repayments 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. There was $56 million
outstanding under the Revolving Credit Facility at December 31, 1999.
The Tranche A Term Loan and the Revolving Credit Facility bear
interest based upon either the London Interbank Offered Rates
("LIBOR") or the Alternate 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 in
the Credit Facilities) for the four fiscal quarters most recently
concluded (the "Leverage Ratio"). The interest rate margins applicable
to LIBOR borrowing range from 0.75% to 1.875% per annum. The interest
rate margins applicable to Alternate Base Rate borrowing range from
zero to 0.875%. At December 31, 1999, the interest rate applicable to
the Tranche A Term Loan and the Revolving Credit Facility was 7.820%
and 7.913%, respectively, which is based upon LIBOR, and includes an
interest rate margin of 1.75% (and excludes the effects of the
interest rate hedges described below). 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. At
December 31, 1999 the commitment fee was 0.5%.
The interest rate margins applicable to the Tranche B Term Loan LIBOR
borrowing and the Alternate Base Rate borrowing are fixed at 2.125% and
1.125%, respectively. At December 31, 1999, the interest rate
applicable to the Tranche B Term Loan was 8.195%, which is based upon
LIBOR, and includes an interest rate margin of 2.125%.
The Credit Facilities require mandatory prepayments under certain
circumstances related to an asset sale, an equity issuance or the
incurrence of additional indebtedness. In addition, the Company is
required to prepay outstanding principal within 90 days of year end,
beginning December 31, 1999, in an amount equal to 75% of excess cash
flow (as defined in the Credit Facilities) if the Company's total debt
to EBITDA (as defined in the Credit Facilities) is greater than or
equal to five to one, less $5 million. If the Company's total debt to
EBITDA is less than five to one, then the Company is required to pay
outstanding principal in an amount equal to 50% of "excess cash flow",
less $5 million. No principal payments pursuant to this provision were
required for 1999. The Company can prepay the Credit Facilities at any
time. Prepayments are allocated pro-rata to the Tranche A Term Loan and
the Tranche B Term Loan in the inverse order of maturity. The Credit
Facilities are collateralized by substantially all of the assets of
Holdings and each wholly-owned domestic U.S. subsidiary of Telemundo.
SENIOR DISCOUNT NOTES: In connection with the Merger, the Company
completed the sale of $218.8 million in aggregate principal amount of
the Senior Discount Notes which are unsecured obligations of the
Company. The Senior Discount Notes were issued at a substantial
discount from their stated principal amount at maturity and were
structured to produce a yield to maturity of 11.5% per annum. The
Senior Discount Notes begin accruing cash interest on August 15, 2003
and require semi-annual interest payments beginning on February 15,
2004 on their principal amount at maturity at a rate of 11.5% per
annum. The principal balance is due in its entirety on August 15, 2008.
19
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
10.5% SENIOR NOTES: The 10.5% Senior Notes were issued at a discount in
1996 and were structured to produce a yield to maturity of 10.5% per
annum. The 10.5% Senior Notes are unsecured obligations and 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 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. In connection with the Merger, 99.9% of
the outstanding principal amount was repurchased.
The Credit Facilities require the Company to maintain certain financial ratios
and, along with the Senior Discount Notes, impose on the Company certain
limitations or prohibitions, including those relating to: (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) change of
control and (vii) investments and acquisitions.
The Credit Facilities financial ratios require Telemundo to maintain certain
ratios of consolidated debt to EBITDA consolidated interest expense coverage
ratios and consolidated fixed charge coverage ratios.
Interest paid was $20.0 million, $6.3 million, $13.8 million and $14.3 million
for 1999, for the period August 13 to December 31, 1998, the period January 1 to
August 12, 1998, and 1997, respectively.
Pursuant to the Credit Facilities, Telemundo is required to hedge the interest
rate on 50% of the outstanding Tranche A and Tranche B Term Loans through August
13, 2000. The Company manages interest rate exposure by swapping floating rate
for fixed rate interest. As part of such management of interest rate exposure,
the Company entered into derivative instruments to swap a floating interest rate
for a fixed rate for a portion of its debt. At December 31, 1999, the Company
had two interest rate swap contracts exchanging a floating interest rate for a
fixed rate for notional values of $100 million each. 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. These contracts are effective from
September 29, 1998 (with a fixed LIBOR equivalent interest rate of 5.145%) and
December 10, 1998 (with a fixed LIBOR equivalent interest rate of 5.135%),
respectively, to August 13, 2003. The fair value of these arrangements as of
December 31, 1999 was $11.1 million. The Company does not reflect the carrying
value or changes in the carrying value of these arrangements in the financial
statements.
20
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
7. 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 (benefit) provision consisted of the
following (in thousands):
Company Predecessor
-------------------------- -----------------------
Year Ended August 13 to January 1 to Year Ended
December 31, December 31, August 12, December 31,
1999 1998 1998 1997
- -----------------------------------------------------------------------------
Current:
Federal, state and other... $ 168 $ 318 $ 467 $ 407
Puerto Rico (a) ........... 2,034 1,666 2,646 3,794
------- ------- ------- -------
2,202 1,984 3,113 4,201
Deferred:
Federal and state ......... (9,518) (605) -- --
Puerto Rico ............... 2,849 -- -- --
------- ------- ------- -------
(6,669) (605) -- --
------- ------- ------- -------
$(4,467) $ 1,379 $ 3,113 $ 4,201
======= ======= ======= =======
(a) Primarily a provision for withholding taxes related to intercompany
interest.
The following reconciles the amount which would be provided by applying the 35%
federal statutory rate to net income (loss) before income taxes to the federal
income taxes actually provided (in thousands):
<TABLE>
<CAPTION>
Company Predecessor
--------------------------------- ------------------------------
Year Ended August 13 to January 1 to Year Ended
December 31, December 31, August 12, December 31,
1999 1998 1998 1997
- ------------------------------------------------ --------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Provision (benefit) assuming federal
statutory rate .............................. $(6,306) $ 648 $(5,907) $(3,235)
Puerto Rico withholding tax, net of federal
benefit ..................................... 1,214 1,083 1,720 2,466
State and other taxes, net of federal benefit... (523) 146 304 265
Goodwill ....................................... 1,751 684 -- --
Other .......................................... (603) 139 2,761 216
Change in valuation allowance .................. -- (1,321) 4,235 4,489
------- ------- ------- -------
Total income tax (benefit) provision ........... $(4,467) $ 1,379 $ 3,113 $ 4,201
======= ======= ======= =======
</TABLE>
21
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The tax effects comprising the Company's net deferred taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards ("NOLs") ...... $ 101,072 $ 96,257
Allowance for doubtful accounts ................ 2,808 2,597
Senior Discount Notes original issue discount .. 8,172 2,139
Other .......................................... 6,913 4,855
--------- ---------
118,965 105,848
Valuation allowance ............................ (40,039) (34,683)
--------- ---------
78,926 71,165
--------- ---------
Deferred Tax Liabilities:
Amortization of FCC broadcast licenses and other
identifiable intangibles ................... (146,117) (150,603)
Accelerated depreciation ....................... (2,789) (2,374)
--------- ---------
(148,906) (152,977)
--------- ---------
Net deferred tax liability ........................... $ (69,980) $ (81,812)
========= =========
</TABLE>
Limitations imposed by Section 382 of the Internal Revenue Code limit the amount
of NOLs incurred prior to August 12, 1998 which will be available to offset the
Company's future U.S. taxable income. Accordingly, a valuation allowance has
been established to offset the NOLs that the Company will be unable to utilize.
The Company has NOLs expiring as follows (in thousands):
Commonwealth of
U.S. Puerto Rico
----------------------- ----------------------
2001.......... $11,947 2000.......... $ 1,448
2002.......... 43,317 2001.......... 1,931
2003.......... 31,227 2002.......... 313
2004.......... 6,294 2004.......... 21
2005.......... 31,855 -------
2006.......... 27,012 $ 3,713
2007.......... 8,779 =======
2008.......... 289
2009.......... 10,843
2010.......... 24,337
2011.......... 8,363
2017.......... 8,042
2018.......... 43,142
--------
$255,447
========
22
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Company also has state tax NOLs in various jurisdictions.
The Company paid $5.4 million and the Predecessor paid $708,000 for withholding
taxes related to operations in Puerto Rico in 1999 and 1997, respectively. The
Company paid federal and state income and franchise taxes of $330,000 and
$210,000 during 1999 and the period August 13 to December 31, 1998,
respectively. In addition, the Predecessor paid state income and franchise and
foreign withholding taxes of $185,000 and $289,000 for the period January 1 to
August 12, 1998 and the year 1997, respectively.
8. COMMON STOCK
Holdings has one class of common stock. Each share of common stock entitles the
holder to one vote on all matters brought before the Annual Meeting of
Stockholders.
In connection with the Merger, Station Partners, LLC, Sony Pictures and Liberty
(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 are designated by Station Partners, LLC, two directors are designated
by Sony Pictures, one director is 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 are designated as
independent. One of the independent directors is nominated by Station Partners,
LLC subject to the approval of Liberty and Sony Pictures, and the other
independent director is nominated by Liberty and Sony Pictures, subject to the
approval of Station Partners, LLC.
9. EMPLOYEE RETIREMENT AND INCENTIVE PLANS
The Company maintains qualified defined contribution retirement and savings
plans for its U.S. employees. The Company's contributions to these plans totaled
$662,000, $253,000, $632,000 and $549,000 for 1999, the periods August 13 to
December 31, 1998, January 1 to August 12, 1998 and 1997, respectively. As a
result of the Network Sale, the Company is no longer responsible for retirement
benefit costs associated with Network Company employees.
The Company's television station in Puerto Rico-WKAQ, maintains a defined
benefit pension plan which covers substantially all of its non-union employees.
WKAQ's policy is to fund pension costs as they accrue pursuant to ERISA
guidelines. For employees with one or more years of service, WKAQ's plan
provides pension benefits which are computed based on each employee's annual
compensation up to $160,000 for 1999 and 1998.
23
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following table sets forth the funded status of WKAQ's plan and the amounts
in the Company's balance sheets as of December 31, 1999 and 1998 (in thousands):
1999 1998
------- -------
Change in Benefit Obligation:
Benefit obligation at beginning of year .......... $ 4,625 $ 3,876
Service cost ..................................... 189 490
Interest cost .................................... 319 217
Assumption change ................................ - 199
Benefits paid .................................... (144) (157)
------- -------
Benefit obligation at end of year ................ $ 4,989 $ 4,625
======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year.... $ 5,257 $ 5,086
Actual return on plan assets ..................... 467 193
Employer contributions ........................... - 135
Benefits paid .................................... (144) (157)
------- -------
Fair value of plan assets at end of year ......... $ 5,580 $ 5,257
======= =======
Funded Status .................................... $ 591 $ 632
Unrecognized net asset existing at January 1, 1987 (152) (211)
Unrecognized net actuarial loss .................. 35 35
Unrecognized prior service cost .................. 339 379
------- -------
Prepaid benefit cost ............................. $ 813 $ 835
======= =======
Weighted-average assumptions as of December 31:
Discount rate .................................... 7.0% 7.5%
Expected return on plan assets ................... 9.0% 9.0%
Rate of compensation increase .................... 5.0% 5.0%
Components of net periodic benefit cost:
Service cost ..................................... $ 189 $ 490
Interest cost .................................... 319 217
Expected return on plan assets ................... (467) (193)
Amortization of prior service costs .............. 39 39
Amortization of initial asset .................... (58) (58)
------- -------
Net periodic benefit cost ........................ $ 22 $ 495
======= =======
10. CONTINGENCIES AND COMMITMENTS
The Company and its subsidiaries are involved in a number of 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.
24
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Company is obligated under various leases, some of which contain renewal
options and provide for cost escalation payments. At December 31, 1999, future
minimum rental payments under such leases are as follows (in thousands):
Operating
Leases
-------
2000........................................... $ 2,770
2001........................................... 2,690
2002........................................... 2,410
2003........................................... 2,251
2004 .......................................... 2,202
2005 and later................................. 3,853
-------
Total minimum lease payments................... $16,176
=======
Rent expense was $3,759,000, $951,000, $2,259,000 and $3,881,000 for 1999, the
periods August 13 to December 31, 1998, January 1 to August 12, 1998 and for
1997, respectively. In connection with the Network Sale, the Company is not
responsible for rent costs associated with Network Company facilities.
The Company has employment agreements with certain officers pursuant to which
the Company has commitments for compensation through 2002, which also provide
for compensation in the event such officers' 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 $4,058,000, $916,000, $733,000
and $784,000 in 2000, 2001, 2002 and 2003, respectively, for these services.
The Company has certain programming contracts for which the Company is committed
to pay $1,750,000 in each of 2000 through 2003 and $208,000 in 2004 for these
services.
As a result of the Affiliation Agreement, 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 is dependent upon the Network Company's ability to produce or
acquire and distribute programming which attracts significant viewership 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 will be impaired. There can be no assurance
that the programming provided by the Network Company will achieve or maintain
satisfactory viewership levels or that the Company or the Network Company will
be able to generate significant advertising revenues.
11. TRANSACTIONS WITH AFFILIATES
Apollo Investment and Bastion, through Station Partners, LLC, are significant
shareholders of the Company. Apollo Investment 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.
Sony Pictures and Liberty, through their subsidiaries, own the Network Company
and are significant shareholders of the Company. Pursuant to the revenue sharing
arrangement under the Affiliation Agreement, the Company recorded $24.9 million
and $8.0 million in incremental net revenue for 1999 and the period August 13 to
December 31, 1998, the outstanding portion of which is included in Due from
Network Company, net. In addition, pursuant to other contractual arrangements,
the Network Company pays certain costs on behalf of the Company and the Company
pays certain costs on behalf of the Network Company, which are fully reimbursed.
The Company believes these costs to be at fair value and are included in Due
from Network Company, net.
The Predecessor paid compensation pursuant to an affiliation agreement of
approximately $923,000 and $1,433,000 for the period January 1 to August 12,
1998 and for 1997, respectively, to a broadcast television station affiliate in
which the Chairman and Chief Executive Officer of the Company has a financial
interest.
The Company purchases broadcast equipment in the normal course of its business
from various equipment suppliers, including Sony Corporation of America and
related companies ("Sony"), which are affiliates of Sony
25
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Pictures. The Company purchased approximately $3.1 million and $1.4 million of
equipment from Sony in 1999 and the period August 13 to December 31, 1998,
respectively, and believes these purchases to be at fair market value.
12. 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 (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------- -----------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ............ $ 7,204 $ 7,204 $ 8,680 $ 8,680
Accounts receivable, net ............. 30,487 30,487 30,768 30,768
Interest rate swap contracts.......... -- 11,131 -- 571
Accounts payable and accrued.......... 39,149 39,149 35,648 35,648
Long-term debt:
Credit Facilities ................ 256,000 256,000 269,000 269,000
Senior Discount Notes ............ 146,126 133,491 130,657 124,716
10.5% Senior Notes ............... 305 305 295 295
</TABLE>
The carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable and accrued approximate
fair value because of the short-term maturity of these financial instruments.
The Credit Facilities approximate fair value because it is a variable rate
instrument. Estimated fair values for the Senior Discount Notes and the interest
rate swap contracts are based upon market prices. Estimated fair value for the
10.5% Notes is based upon the face amount of such notes.
26
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of DIrectors and Stockholders of
Telemundo Holdings, Inc.
Hialeah, Florida
We have audited the accompanying consolidated balance sheets of Telemundo
Holdings, Inc. and subsidiaries ("Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1999 and for the period August 13,
1998 to December 31, 1998 and as to Telemundo Group, Inc. and subsidiaries
("Predecessor"), the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the period January 1, 1998 to August 12,
1998 and for the year ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a).1. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Telemundo Holdings, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999 and for the
period from August 13, 1998 to December 31, 1998; and as to the Predecessor, the
results of their operations and their cash flows for the period January 1, 1998
to August 12, 1998 and for the year ended December 31, 1997, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As more fully disclosed in Note 2 to the consolidated financial statements, in
1998 the Predecessor Company was acquired in a business combination accounted
for as a purchase. As a result of the acquisition, the consolidated financial
statements for the period subsequent to the acquisition are presented on a
different basis of accounting than those for the periods prior to the
acquisition and, therefore, are not directly comparable.
/s/ Deloitte & Touche LLP
New York, New York
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,204
<SECURITIES> 0
<RECEIVABLES> 38,479
<ALLOWANCES> 7,992
<INVENTORY> 0
<CURRENT-ASSETS> 52,916
<PP&E> 66,285
<DEPRECIATION> 8,643
<TOTAL-ASSETS> 746,886
<CURRENT-LIABILITIES> 46,546
<BONDS> 396,962
0
0
<COMMON> 0
<OTHER-SE> 200,934
<TOTAL-LIABILITY-AND-EQUITY> 746,886
<SALES> 165,534
<TOTAL-REVENUES> 165,534
<CGS> 0
<TOTAL-COSTS> 145,157
<OTHER-EXPENSES> 473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,447
<INCOME-PRETAX> (18,018)
<INCOME-TAX> (4,467)
<INCOME-CONTINUING> (13,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,551)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
