<PAGE> 1
Filed pursuant to Rule 424 (b)(3)
Registration No. 333-29449
PROSPECTUS
SPANISH BROADCASTING SYSTEM, INC.
416,063 SHARES OF 14 1/4% SENIOR EXCHANGEABLE PREFERRED STOCK, SERIES A
$340,676,522 14 1/4% EXCHANGE DEBENTURES DUE 2005, SERIES A
AND
23,836 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE
------------------------
These securities were originally sold in March 1997 in transactions that
did not require us to register with the Securities and Exchange Commission and
did not require us to deliver a prospectus. This prospectus has been prepared by
us for use by holders of our Senior Preferred Stock, Exchange Debentures or
Common Stock in connection with sales of our securities that may require
delivery of a prospectus. The Company will receive no part of the proceeds of
this offering.
We pay dividends on the Senior Preferred Stock on March 15 and September 15
of each year at an annual rate of 14 1/4%. Until March 15, 2002, we may pay
dividends either in cash or in additional shares of Senior Preferred Stock. On
or before March 15, 2000, we may redeem shares of the Senior Preferred Stock at
a price of $1,050 per share. After March 15, 2000 and before March 15, 2002, we
are not allowed to redeem the Senior Preferred Stock. On or after March 15,
2002, we may redeem shares of the Senior Preferred Stock at prices that are
described in shares of this prospectus. We are required to redeem all of the
Senior Preferred Stock outstanding on March 15, 2005 at a price of $1,000 per
share. If the ownership of Spanish Broadcasting System, Inc. changes, then we
are required to offer to purchase all of the Senior Preferred Stock at a price
of $1,010 per share.
If certain conditions are met, we may require you to exchange your Senior
Preferred Stock for 14 1/4% Exchange Debentures that mature in 2005. In
addition, if certain other conditions are met, we would be required to exchange
all outstanding Exchange Debentures for Senior Preferred Stock. Interest on the
Exchange Debentures would be payable at an annual rate of 14 1/4% and would be
payable on March 15 and September 15 of each year. Until March 15, 2002, we may
pay dividends in cash on the Exchange Debentures or by issuing additional
Exchange Debentures to our holders. On or before March 15, 2000 we may redeem
the Exchange Debentures at a price of 105% of the principal amount of each
debenture. After March 15, 2000 and prior to March 15, 2002, the Exchange
Debentures are not redeemable. On and after March 15, 2002, we may redeem
Exchange Debentures at the prices that are described in the body of this
prospectus.
The Exchange Debentures will be subordinated to our existing and future
senior debt. The Exchange Debentures will rank equally with or senior to certain
of our future debt, if the instrument governing that debt expressly states that
it ranks equally with or junior to the Exchange Debentures, as the case may be.
The Exchange Debentures will be unconditionally guaranteed on a senior
subordinated basis by each of our subsidiaries.
The Class A Shares may be issued to our holders of Senior Preferred Stock
or Exchange Debentures only upon the occurrence of certain events that are
described in this prospectus.
There is no established trading market for any of our securities. The
Company does not currently intend to list the securities on any securities
exchange. We cannot assure you of your ability to resell the securities in a
timely manner or at a fair price.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE
YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE
UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION IN THIS PROSPECTUS MAY NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, AS WELL AS
THE DOCUMENTS INCORPORATED BY REFERENCE IN THE PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION. ALL REFERENCES TO "WE", "US", "OUR", "SBS" OR THE "COMPANY"
IN THIS PROSPECTUS MEANS SPANISH BROADCASTING SYSTEM, INC. AND ALL ENTITIES
OWNED OR CONTROLLED BY SPANISH BROADCASTING SYSTEM, INC.
------------------------
Holders who sell their securities will bear their own underwriting
discounts and commissions. We will bear the expense of registering the
securities and we have agreed to indemnify our holders against certain
liabilities.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 2, 1999.
<PAGE> 2
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, therefore, we file reports,
proxy statements, information statements and other information with the
Securities and Exchange Commission (the "Commission"). You may inspect and copy
this information (at prescribed rates) at the Commission's public reference
facilities at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Please call the Commission at
1-800-SEC-0330 for more information on its public reference rooms. The
Commission also maintains an Internet Website at http://www.sec.gov that
contains reports, proxy statements and information statements and other
information regarding issuers that file electronically with the Commission. In
addition, this information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., located at 1735 K Street, N.W.,
Washington, D.C. 20006.
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act") with respect to the Securities offered
hereby. The 14 1/4% Senior Exchangeable Preferred Stock, Series A ("Senior
Preferred Stock"), the 14 1/4% Exchangeable Debentures due 2005, Series A
("Exchange Debentures") and the Class A Common Stock, $.01 par value ("Class A
Common Stock") are sometimes collectively referred to herein as the
"Securities". This prospectus does not contain all of the information set forth
in the Registration Statement and its exhibits and schedules. Statements
contained in this prospectus as to the contents of any document referred to are
not necessarily complete, and in each instance we refer you to the copy of such
document filed as an exhibit to the Registration Statement. For further
information with respect to us and the securities offered hereby, we refer you
to the Registration Statement and its exhibits and schedules, which may be
obtained at the locations described in the preceding paragraph.
Pursuant to the Certificate of Designation relating to the Senior Preferred
Stock, the Company has agreed to furnish to registered holders of the Senior
Preferred Stock, without cost to such registered holders, copies of all reports
and other information that would be required to be filed by the Company with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not the Company is then required to file reports with the
Commission. The Company has agreed that, whether or not the Company is subject
to filing requirements under Section 13 or 15(d) of the Exchange Act, and so
long as any shares of Senior Preferred Stock remain outstanding, it will file
such other reports as it may determine or as may be required by law.
SOURCES OF INFORMATION
Unless otherwise indicated, all market revenue rankings that are contained
in this prospectus are based on information for calendar year 1997 contained in
James H. Duncan, Jr., Duncan's Radio Market Guide (1997 ed.). Unless otherwise
indicated, rank in audience share data in this prospectus is based on the "12+
average quarter hour share" -- the number of persons, aged 12 and over, who
listen to a radio station for at least five minutes in a quarter-hour segment
Monday through Sunday, 6:00 a.m. to midnight in the most recent survey period
(Summer 1998) as reported by the Arbitron Company ("Arbitron"), Arbitron Radio
Market Reports (copyright 1997). Further, and unless otherwise noted, references
herein to the rank of a station among all the radio stations within a market has
been determined with reference to all radio stations rated by Arbitron within
the applicable market. Area of Dominant Influence ("ADI") information contained
herein is based on Arbitron's 1998 ADI definitions. Unless otherwise indicated,
all references to the demographic statistics in this Prospectus are derived from
Strategy Research Corporation's 1996 United States Hispanic Market Study (the
"SRC Study"), United States Census Bureau and Hispanic Business Magazine. The
SRC Study is sponsored by advertisers and other businesses targeting the
Hispanic market, including the Company and many of its principal competitors.
Radio weekly reach information is derived from the RADAR@ reports released on
national radio use, as compiled by Statistical Research, Inc. from RADAR 54,
Volume 1, Fall 1996.
ii
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain certain
forward-looking statements including, without limitation, statements concerning
our expectations of future sales, gross profits, research and development
expenses, selling, general and administrative expenses, product introductions
and cash requirements. Forward-looking statements often, although not always,
include words or phrases such as "will likely result", "expect", "will
continue", "anticipate", "estimate", "intend", 'plan", "project", "outlook" or
similar expressions. Actual results may vary materially from those expressed in
such forward-looking statements. Factors which could cause actual results to
differ from expectations include those set forth under "Risk Factors." We cannot
be certain that our results of operations will not be adversely affected by one
or more of these factors.
iii
<PAGE> 4
RISK FACTORS
In addition to the other information contained in this prospectus,
prospective investors should review carefully the following risks.
SUBSTANTIAL LEVERAGE, HISTORY OF NET LOSSES AND INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
We have consolidated indebtedness that is substantial when compared to our
common stockholders' equity. As of September 27, 1998 and September 28, 1997, we
had outstanding long-term indebtedness (including current portions) of
approximately $171.1 million and $183.0 million, respectively, Senior Preferred
Stock with an aggregate liquidation preference of $214.3 million and 186.7
million, respectively, and a stockholders' deficit of $46.2 million and $32.0
million, respectively.
We had net income of $18.8 million for the fiscal year ended September 27,
1998 and a net loss of $6.2 million for the year ended September 28, 1997 and
had an accumulated deficit of $50.6 million at September 27, 1998 and $35.1
million at September 28, 1997. Our earnings were insufficient to cover our fixed
charges and preferred stock dividends by $19.9 million (before extraordinary
loss) for the year ended September 28, 1997.
Our substantial level of indebtedness could have several important
consequences to the holders of our securities, including, but not limited to,
the following:
- a significant portion of our cash flow from operations will be dedicated
to the payment of our debt obligations and will not be available for other
purposes;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate or other
purposes may be limited;
- our leveraged position and the covenants contained in the indentures
governing our debt instruments could limit our ability to compete, as well
as our ability to expand and make capital improvements; and
- our substantial level of indebtedness could make us more vulnerable to
economic downturns, limit our ability to withstand competitive pressures
and reduce our flexibility in responding to changing business and economic
conditions.
Our ability to pay cash dividends on and to satisfy our obligations in
respect of the Senior Preferred Stock and to satisfy all of our debt obligations
depends upon our future operating performance. Our operating performance will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond our control. We believe that our operating
cash flow will be sufficient to meet our operating expenses and to service our
debt requirements as they become due. However, if we are unable to pay our
debts, whether upon acceleration of such indebtedness or in the ordinary course
of business, we will be forced to pursue alternative strategies such as selling
assets, restructuring or refinancing our indebtedness, or seeking additional
equity capital. We can not be certain that we can successfully complete any of
these strategies on satisfactory terms or that the approval of the Federal
Communications Commission (the "FCC") could be obtained on a timely basis, or at
all, for the transfer of any of the stations' licenses in connection with a
proposed sale of assets.
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The indentures that we entered into in connection with issuing debt contain
contractual restrictions that limit the amount of cash dividends we may pay on
our shares of preferred and common stock. However, for all dividend payment
dates for the Senior Preferred Stock through and including March 15, 2002, we
may pay dividends in additional shares of Senior Preferred Stock instead of
paying cash dividends.
In addition to the restrictions referred to above, under Delaware law we
are permitted to pay dividends on our capital stock, including our Senior
Preferred Stock, only out of our surplus or, in the event that we have no
surplus, out of our net profits for the year in which a dividend is declared or
for the immediately preceding
1
<PAGE> 5
fiscal year. Surplus is the excess of a company's total assets over the sum of
its total liabilities plus the par value of its outstanding capital stock. In
order to pay dividends in cash, we must have surplus or net profits equal to the
full amount of the cash dividend at the time such dividend is declared.
In determining whether we can pay dividends, Delaware law permits our board
of directors to revalue our assets and liabilities from time to time to their
fair market values in order to create surplus. We cannot predict what the value
of our assets or the amount of our liabilities will be in the future and,
accordingly, we can not be certain that we will be able to pay cash dividends on
the Senior Preferred Stock.
RISK RELATED TO GOVERNMENT REGULATION; LIMITATION ON ISSUANCES OF COMMON STOCK
The domestic broadcasting industry is subject to extensive federal
regulation which, among other things, requires approval by the FCC for the
issuance, renewal, transfer and assignment of broadcasting station operating
licenses and limits the number of broadcasting properties we may acquire. The
Telecommunications Act of 1996 (the "1996 Act") creates significant new
opportunities for broadcasting companies but also creates uncertainties as to
how the FCC and the courts will enforce and interpret the 1996 Act.
Our success will depend in part on acquiring and maintaining broadcast
licenses issued by the FCC, which are currently issued for a term of eight
years. While we believe that the FCC will grant our applications for renewal of
our existing broadcasting licenses when made, we can not be certain that pending
or future renewal applications submitted by us will be approved, or that
renewals will not include conditions or qualifications that could adversely
affect our operations. Moreover, governmental regulations and policies may
change over time and we can not be certain that such changes would not have a
material adverse impact upon our business, financial position or results of
operations. In addition, the loss of any of our existing Los Angeles or New York
stations' broadcasting licenses is an event of default under the indenture that
governs our 12 1/2% Senior Notes and could cause an acceleration of amounts due
under those notes prior to maturity.
If, as a result of the exercise of warrants to purchase our common stock or
the issuance of common stock following certain events described in this
prospectus, Raul Alarcon, Jr. no longer owns more than 50% of our voting common
stock, then a "change of control" for purposes of FCC ownership rules would
occur and such exercise or issuance would be subject to the prior approval by
the FCC. We are not be obligated to give effect to any such exercise of warrants
or issue our common stock until any such required approval is obtained, if at
all. In determining whether to approve a change of control, the FCC considers,
among other things, the financial and legal qualifications of the prospective
holders of Class A Common Stock, including compliance with FCC restrictions on
alien ownership and control, compliance with rules limiting certain of such
holders' interests in broadcast, cable and newspaper properties and the
character qualifications of the prospective holders and the individuals holding
such interests in them. We can not be certain that the FCC would grant such
approval or that such approval, if granted, would not be subject to significant
delay. In addition, there are certain other FCC regulations which restrict the
ability of certain persons to own our voting stock under certain circumstances.
COMPETITION
Broadcasting is a highly competitive business. Our radio stations compete
for audiences and advertising revenues with other radio stations of all formats,
as well as with other media, such as newspapers, magazines, television, cable
television, outdoor advertising, the internet and direct mail, within their
markets. Our stations' audience ratings and market shares may decline and any
adverse change in a particular market could have a material adverse effect on
the revenue of stations located in that market. Our future success is subject to
many other factors, any of which could have an adverse effect upon our financial
performance. These factors include:
- economic conditions, both general and relative to the broadcasting
industry;
- shifts in population and other demographics;
2
<PAGE> 6
- the level of competition for advertising dollars with other radio
stations and other entertainment and communications media; changes in
operating costs;
- technological changes and innovations; changes in labor conditions; and
- changes in governmental regulations and policies and actions of federal
regulatory bodies, including the FCC.
Although we believe that each of our stations is able to compete
effectively in its respective market, we can not be certain that any such
station will be able to maintain or increase its current audience ratings and
advertising revenues. Radio stations can change formats quickly. Any radio
station currently broadcasting could shift its format to duplicate the format of
any of our stations. If a station converted its programming to a format similar
to that of a station owned by us, the ratings and broadcast cash flow of such
station could be adversely affected.
NEW TECHNOLOGIES
The FCC is considering ways to introduce new technologies to the radio
broadcast industry, including satellite and terrestrial delivery of digital
audio broadcasting and the standardization of available technologies which
significantly enhance the sound quality of AM and FM broadcasts. We can not
predict the effect any such new technology will have on our financial condition
and results of operations. In addition, cable television operators are
introducing a new service commonly referred to as "cable radio" which provides
cable television subscribers with several high-quality channels of music, news
and other information, the internet is poised to offer new and diverse forms of
program distribution, and direct satellite broadcast television companies are
supplying subscribers with several high quality music channels.
RISK OF ECONOMIC DOWNTURN
Our broadcasting revenues could be adversely affected by a recession or
downturn in the United States economy. In addition, our operating results in
individual geographic markets could be adversely affected by local or regional
economic downturns. Our broadcasting revenues have been materially adversely
affected by past recessions. Future economic downturns might have a material
adverse effect on our ability to generate advertising revenue and might
materially and adversely affect our financial condition and operating results.
RISKS ASSOCIATED WITH ACQUISITIONS
In addition to the recent acquisitions of radio station KRIO-FM serving the
San Antonio area and WDOY-FM serving Puerto Rico, we have pursued and intend to
continue to pursue acquisitions of other radio stations as a key component of
our growth strategy. The success of any acquisition will depend in part on our
ability to integrate effectively the acquired radio stations. The process of
integrating such acquired businesses may involve unforeseen difficulties and may
utilize a substantial portion of our financial and other resources. No assurance
can be given that additional suitable acquisition candidates will be identified,
financed and purchased on acceptable terms, or that future acquisitions, if
completed, will be successful.
We can not predict whether any future acquisitions will occur or the
likelihood of such a transaction being completed on favorable terms and
conditions. Our ability to finance acquisitions may be limited by, among other
things, our high degree of debt. Such acquisitions commonly involve certain
risks, including, among others:
- the difficulty of integrating the acquired operations and personnel;
- the potential disruption of our ongoing business and diversion of
resources and management time;
- the potential inability of our management to maintain uniform standards,
controls, procedures and policies;
- the risks of entering markets in which we have little or no direct prior
experience; and
3
<PAGE> 7
- the potential impairment of relationships with employees or customers as
a result of changes in management.
We cannot assure you that any acquisition will be made, that we will be
able to obtain FCC approval or additional financing needed for any such
acquisition and, if any acquisitions are made, that the acquired business will
be successfully integrated into our operations or that the acquired business
will perform as expected.
SUBORDINATION OF EXCHANGE DEBENTURES
The payment of principal, premium, interest, and any other amounts owing in
respect of the Exchange Debentures, if issued, will be subordinated to the prior
payment in full of all of our existing and future senior debt. As of September
27, 1998, approximately $166.7 million of senior debt was outstanding. In the
event of our bankruptcy, liquidation, dissolution, reorganization or other
winding up, our assets will be available to pay obligations on the Exchange
Debentures only after all our senior debt has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on any or all of the
Exchange Debentures. In addition, under certain circumstances, we may not pay
principal of, premium, interest on or any other amounts owing in respect of the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if there is a payment default or a non-payment default exists with
respect to certain Senior Debt.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The indentures to which we are party contain certain covenants that
restrict, among other things, our ability to incur additional debt, incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, impose
restrictions on the ability of our subsidiaries to pay dividends or make certain
payments to us, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
assets. If an event of default occurs under those indentures, the lenders could
elect to declare all amounts outstanding thereunder, together with accrued
interest, to be immediately due and payable.
RISK OF FRAUDULENT TRANSFER CONSIDERATIONS
The Exchange Debentures are guaranteed on a senior subordinated basis by
our subsidiaries, which hold substantially all of our assets. The incurrence of
indebtedness by our subsidiaries under such guarantees would be subject to
review under relevant federal and state fraudulent transfer laws in a bankruptcy
case or a lawsuit by or on behalf of unpaid creditors of our subsidiaries or a
representative of such creditors, such as a trustee or such subsidiary, as
debtor-in-possession. We believe the indebtedness represented by the guarantees
of the Exchange Debentures if issued will be incurred for proper purposes and in
good faith, and that based on present forecasts, asset valuations and other
financial information, each subsidiary is solvent, will have sufficient capital
for carrying on its business and will be able to pay its debts as they mature.
Notwithstanding our belief, if a court were to find that, at the time of the
incurrence of indebtedness represented by a subsidiary, a subsidiary was
insolvent, was rendered insolvent by reason of such incurrence, was engaged in a
business or transaction for which its remaining assets constituted unreasonably
small capital, intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, such court could, among other things, void all or a
portion of such indebtedness and/or subordinate such indebtedness to other
existing and future indebtedness of such subsidiary, the effect of which would
be to entitle such other creditors to be paid in full before any payment could
be made on the guarantees of the Exchange Debentures. The measure of insolvency
for purposes of the foregoing will vary depending upon the law of the relevant
jurisdiction. Generally, however, a subsidiary would be considered insolvent for
purposes of the foregoing if the sum of its debts is greater than all its
property at a fair valuation, or if the present fair saleable value of its
assets is less than the amount that will be required to pay its probable
liability on its existing debts as they become absolute and matured.
4
<PAGE> 8
VOTING CONTROL BY PRINCIPAL STOCKHOLDER
We are privately held. Raul Alarcon Jr., our President and Chief Executive
Officer, owns 92% of the Company's outstanding shares of voting securities.
Accordingly, Mr. Alarcon Jr. has the ability to elect our directors and control
our policies and affairs. Such control may have the effect of discouraging
certain types of transactions involving an actual or potential change of control
of the Company.
CHANGE OF CONTROL
Upon a change of our ownership, we will be required to offer to purchase
all of the shares of Senior Preferred Stock then outstanding at 101% of their
liquidation preference, plus accumulated and unpaid dividends to the repurchase
date and to offer to purchase all of the outstanding Exchange Debentures at 101%
of the principal amount thereof, plus accrued and unpaid interest thereon to the
repurchase date. If a Change of Control occurs we cannot be certain that we
would have sufficient funds to pay the purchase price for all the shares of
Senior Preferred Stock and all of the Exchange Debentures that the Company might
be required to purchase. Moreover, as of the date of this Prospectus, we would
not have sufficient funds available to purchase all of the outstanding shares of
Senior Preferred Stock and all of the Exchange Debentures. In the event that we
were required to purchase shares of Senior Preferred Stock or Exchange
Debentures because of a change of control, we expect that we would require
third-party financing to the extent we do not have available funds to meet our
purchase obligations. However, we cannot be certain that we would be able to
obtain such financing on favorable terms, if at all. In addition, the indentures
to which we are a party restrict our ability to repurchase shares of Senior
Preferred Stock, including pursuant to a change of control. A change of control
will also require us to offer to purchase all the outstanding Old Notes, the
Exchange Debentures and Senior Preferred Stock. Our inability to purchase all of
the Exchange Debentures and Old Notes tendered in response to a change of
control required by the Indentures would result in an event of default under the
indentures and could result in the acceleration of the indebtedness thereunder.
In such event, it is unlikely that we would be able to purchase shares of Senior
Preferred Stock tendered in response to a change of control.
DEPENDENCE ON KEY PERSONNEL
Our business depends upon the efforts, abilities and expertise of our
executive officers and other key employees, including Raul Alarcon Jr., Joseph
Garcia and Carey Davis. The loss of any of these officers and key employees
could have a material adverse effect on our business. We do not maintain key man
life insurance on any of our personnel.
LACK OF PUBLIC MARKET FOR THE SENIOR PREFERRED STOCK AND CLASS A COMMON STOCK
There is no existing trading market for any of our securities. We have been
advised that at least one securities firm intends to make a market in the Senior
Preferred Stock. They are not obligated to do so, however, and any market-making
with respect to the Senior Preferred Stock may be discontinued at any time
without notice. In addition, such market-making activities in the Senior
Preferred Stock may be limited during the pendency of any shelf registration
statement. Therefore, there can be no assurance as to the liquidity of any
trading market for the Senior Preferred Stock. We do not intend to apply for
listing or quotation of the Senior Preferred Stock or the Class A Common Stock
on any securities exchange or stock market.
YEAR 2000 ISSUE
The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations in our broadcast and
corporate locations which could cause disruptions of operations, including,
among other things, a temporary inability to produce broadcast signals, process
financial transactions, or engage in similar normal business activities.
5
<PAGE> 9
We have performed a preliminary analysis of potential problems related to
the "Y2K" issue but have not completed our assessment. Internally, we bear some
risks in the following areas: computer hardware and software for our accounting
and administrative functions, computer-controlled programming of music and the
actual transmission of its signals. Externally, we are at risk, like most
companies, of losing power and phone lines.
In the administrative area, the vast majority of our hardware and software
has been purchased over the last two years and is Year 2000 compliant. There are
no more than 20 computers that may have to be replaced or upgraded. In the
programming areas, the system in use is year 2000 compliant. Studio equipment,
transmitters and other broadcasting equipment are not date sensitive and,
consequently, do not pose much of a threat, although we will continue to seek
assurances, compliance certificates and/or upgrades from all significant
vendors.
The greatest threat to our ability to broadcast is from the utilities upon
which we are dependent. We are not currently aware of any external vendor with a
Y2K issue that would materially impact our results of operations, liquidity, or
capital resources. However, we have no means for ensuring that third parties
will be Y2K ready. The inability of third parties to complete their Y2K
resolution process in a timely fashion could materially impact us. The effect of
non-compliance by external vendors is not determinable. In addition, disruptions
in the economy generally resulting from the Y2K issues could also materially
adversely affect us.
While we believe that our efforts will provide reasonable assurance that
material disruptions will not occur due to internal failure, the possibility of
interruption still exists. We are not anticipating having to spend more than
$50,000 to be Year 2000 compliant. We are performing this analysis with our MIS
manager, engineers and accounting staff. We anticipate that all assessments and
solutions will be in place by April, 1999.
6
<PAGE> 10
THE COMPANY
Unless the context otherwise indicates, as used herein, the "Company" or
"SBS" means Spanish Broadcasting System, Inc., a Delaware corporation, and its
wholly owned subsidiaries, the "Acquisitions" means the acquisition by the
Company of WLEY (formerly WYSY-FM) in Chicago and WRMA-FM and WXDJ-FM in Miami
and the "Dispositions" means the disposition by the Company of WCMQ-AM in Miami,
WXLX-AM in New York and KXMG-AM in Los Angeles. The Company's fiscal year is
defined as the twelve months ended on the last Sunday in September.
The Company is one of the leading Spanish-language radio broadcasting
companies in the United States. The Company owns and operates eight major market
FM radio stations in Los Angeles, New York, Miami, Chicago and San Antonio. The
Company also owns and operates FM radio stations in Puerto Rico, Key Largo and
Key West, Florida.
The Company was incorporated under the laws of Delaware in June 1994 to
serve as a holding company for subsidiary operating corporations which own,
operate or service radio stations and own real estate. The Company's principal
executive offices are located at 3191 Coral Way, Miami, Florida 33145, and its
telephone number is (305) 441-6901.
7
<PAGE> 11
THE OFFERINGS
On March 27, 1997, the Company consummated an offering (the "Notes
Offering") of the Company's 11% Senior Notes due 2004, Series A (the "Series A
Notes") and an offering (the "Units Offering," and together with the Notes
Offering, the "Offerings") of 175,000 units (the "Units"), each Unit consisting
of one share of the Senior Preferred Stock and one warrant (the "Warrants") to
purchase 0.428 shares of the Company's Class A Common Stock in transactions
exempt from the registration requirements of the Securities Act. In conjunction
with the Offerings, the Company effected a series of transactions (collectively,
including the Offerings, the "Transactions") including (i) the Acquisitions,
(ii) the refinancing (the "Refinancing") of the Company's Senior Secured Notes
due 2001 (the "Senior Secured Notes") and Senior Exchangeable Preferred Stock,
Series A (the "Series A Preferred Stock") and the repurchase of related warrants
to purchase an aggregate of 6.0% of the Company's Common Stock, on a
fully-diluted basis (the "Primary Warrants"), and (iii) the solicitation (the
"Consent Solicitation") of certain consents from the holders of the Company's
12 1/2% Senior Notes due 2002 (the "Old Notes").
The Acquisitions and The Refinancing
On March 27, 1997, the Company acquired from Infinity the FCC broadcast
license and substantially all of the assets used or useful in the operation of
radio station WYSY-FM (the name of which, the Company has changed to WLEY-FM)
serving the Chicago metropolitan area for a purchase price of approximately
$33.0 million, including a $3.0 million seller note.
On March 27, 1997, the Company acquired from New Age Broadcasting Inc. and
The Seventies Broadcasting Corporation (the "Miami Sellers") the FCC broadcast
licenses and substantially all of the assets used or useful in the operation of
WRMA-FM and WXDJ-FM for a cash purchase price of $111.0 million. As a result of
the acquisition of WRMA-FM and WXDJ-FM, the Company currently operates the only
FM triopoly in the Miami metropolitan market.
Concurrently with the consummation of the Offerings, the Company redeemed
or repurchased the Senior Secured Notes, Series A Preferred Stock and Primary
Warrants for approximately $90.6 million. The Company issued the Senior Secured
Notes and Series A Preferred Stock to partially finance the acquisition of
WPAT-FM in New York in March 1996. The Primary Warrants were redeemed pursuant
to the redemption price schedule which was determined at the time of issuance.
The Distribution
In March and April of 1998, the Company declared and paid a dividend of
$3.4 million in the aggregate (the "Distribution") to its stockholders and paid
approximately $326,000 to certain of its existing warrant holders who elected to
receive their pro rata portion of the Distribution in lieu of the anti-dilution
adjustment they would have otherwise received as a result of the Distribution.
Recent Developments
On January 8, 1999, the Company entered into an Asset Purchase Agreement
with Guayama Broadcasting Inc. and LaMega Estacion, Inc. (the "Guayama
Agreement") to buy the FCC broadcast license and substantially all of the assets
used or useful in the operation of radio stations WMEG-FM and WEGM-FM serving
Puerto Rico for $16.0 million. The Guayama Agreement contains customary
representations, warranties and conditions, including receipt of FCC approval to
the transfer of the FCC licenses. The Company expects to close on the
transaction by the end of March, 1999.
Use of Proceeds from Offerings
All of the net proceeds from the Offerings were used to (i) acquire radio
stations WRMA-FM and WXDJ-FM in Miami, Florida and WLEY-FM in Chicago, Illinois,
(ii) refinance the Company's Senior Secured Notes and Series A Preferred Stock
and repurchase the Primary Warrants, (iii) solicit certain consents from the
holders of the Old Notes and (iv) make the Distribution. The following table
sets forth the
8
<PAGE> 12
actual gross proceeds to the Company from the Offerings and the application of
such proceeds (dollars in thousands):
SOURCES OF PROCEEDS:
<TABLE>
<S> <C>
Series A Notes.............................................. $ 75,000
Senior Preferred Stock with Warrants........................ 175,000
Cash on hand................................................ 1,321
--------
Total Sources of Proceeds......................... $251,321
========
</TABLE>
USES OF PROCEEDS:
<TABLE>
<S> <C>
Purchase of WRMA-FM and WXDJ-FM............................. $111,000
Purchase of WLEY-FM(1)...................................... 30,000
Redemption of Senior Secured Notes, Series A Preferred Stock
and Primary Warrants(2)................................... 90,595
Distribution(3)............................................. 3,726
Transaction fees and expenses(4)............................ 16,000
--------
Total Uses of Proceeds............................ $251,321
========
</TABLE>
- ---------------
(1) Represents the cash portion of the purchase price and excludes the $3
million note issued by the Company to Infinity.
(2) The Senior Secured Notes bore interest at a rate of 12 1/4% per annum
payable quarterly and increased by 0.25% for each three-month period from
the issue date to March 1997. The Senior Secured Notes were due on June 1,
2001. The Series A Preferred Stock was entitled to dividends at the rate of
12.75% per annum payable quarterly. The Primary Warrants were redeemed
pursuant to the redemption price schedule which was determined at the time
of issuance.
(3) Includes approximately $326,000 of dividends paid to the holders of the
warrants issued in connection with the Old Notes and $3.4 million of
dividends paid to other holders of the Company's Common Stock.
(4) Includes fees and expenses incurred in connection with the Transactions,
including the Initial Purchaser's discounts, the consent fee paid to holders
of the Old Notes, acquisition costs related to the acquisitions of WLEY-FM,
WRMA-FM and WXDJ-FM and related legal, accounting and other expenses.
9
<PAGE> 13
CAPITALIZATION
The following table sets forth, as of September 27, 1998, the
capitalization of the Company. The information set forth below should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of the Company as of and for the fiscal year, ended September 28, 1997
and September 27, 1998 included elsewhere in this prospectus, "Pro Forma
Combined Financial Statements", "The Offerings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SEPTEMBER 27,
1998
---------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 37,642
========
Long-term debt (including current portion):
Old Notes(1).............................................. 91,668
Series A Notes............................................ 75,000
Note payable to Infinity.................................. 3,469
Other debt, including current maturities of $47........... 989
--------
Total long-term debt.............................. 171,126
Senior Preferred Stock(2)................................... 201,368
Stockholders' deficiency.................................... (46,193)
--------
Total capitalization.............................. $326,301
========
</TABLE>
- ---------------
(1) The Old Notes were issued at a discount from the principal amount to
maturity thereof and will be fully accreted to such principal amount at
maturity of approximately $95.5 million on June 15, 2002.
(2) The $175.0 million initial liquidation preference of the Senior Preferred
Stock has been reduced to its carrying value by approximately $16.6 million
related to the value attributed to the Warrants.
10
<PAGE> 14
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined statement of operations data for the
fiscal year ended September 28, 1997 is presented to give effect to the
Transactions as if they had occurred at the beginning of the year. The results
of WLEY-FM have not been included in the pro forma statement of operations
because such acquisition does not meet the significance test for presentation of
pro forma information and the Company does not believe that such information
would be meaningful to an understanding of the Company's pro forma results of
operations because the Company reformatted WLEY-FM from an English-language to a
Spanish-language station in July 1997. The results of KLEY-FM have not been
included in the pro-forma statement of operations because such acquisition does
not meet the significance test for presentation of pro-forma information. As a
result, the pro forma statement of operations data excludes the actual and pro
forma operating results of WLEY-FM and KLEY-FM
The purchase prices of WLEY-FM, WXDJ-FM and WRMA-FM were determined based
upon arms-length negotiations between the Company and the sellers. The purchase
price for the Acquisitions have been allocated primarily to franchise costs and
other intangibles. This preliminary allocation of purchase price may change upon
final appraisal of the fair market value of the net assets acquired.
In the opinion of management, all adjustments necessary to present fairly
this pro forma information have been made.
These pro forma combined financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto as of
and for the fiscal years ended September 27, 1998, September 28, 1997 and
September 29, 1996 and with the combined financial statements and the notes
thereto of New Age Broadcasting, Inc. and The Seventies Broadcasting Corporation
for the three months ended December 31, 1996 included elsewhere in the
Prospectus. The pro forma information is not necessarily indicative of the
results that would have been reported had such events actually occurred on the
dates specified, nor is it indicative of the Company's future results.
11
<PAGE> 15
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 28, 1997
----------------------------------------------
THE WXDJ/ PRO
COMPANY WRMA(A) ADJUSTMENTS FORMA
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Gross broadcasting revenues............................ $67,981 $7,798 $ $ 75,779
Less: agency commissions............................... (7,971) (1,046) (9,017)
-------- ------- --------
Net revenues......................................... 60,010 6,752 66,762
Station operating expenses............................. 31,041 2,104 33,145
Corporate expenses..................................... 5,595 238 (238)(b) 5,595
Depreciation and amortization.......................... 7,619 551 841(c) 9,011
-------- ------- --------
Operating income..................................... 15,755 3,859 19,011
Interest expense, net.................................. 22,201 1,003 547(d) 23,751
Other expense, net..................................... 791 -- 791
-------- ------- --------
Income (loss) before income taxes and extraordinary
item............................................... (7,237) 2,856 (5,531)
Income tax expense (benefit)........................... (2,715) -- 682(e) (2,033)
-------- ------- --------
Income (loss) before extraordinary item.............. (4,522) $2,856 (3,498)
=======
Dividends on preferred stock......................... (15,384) (11,330)(f) (26,714)
-------- --------
Loss applicable to common stock before extraordinary
items................................................ $(19,906) $(30,212)
======== ========
Ratio of earnings to fixed charges(g).................. -- --
EBITDA reconciliation:
Operating income..................................... $15,755 $ 19,011
Depreciation and amortization........................ 7,619 9,011
-------- --------
EBITDA............................................... $23,374 $ 28,022
======== ========
</TABLE>
12
<PAGE> 16
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
(a) To reflect the historical operating results for WXDJ-FM and WRMA-FM from
October 1, 1996 through March 27, 1997 based upon unaudited financial
statements. The fiscal year end for WXDJ-FM and WRMA-FM was September 30,
under the ownership of the sellers, New Age Broadcasting, Inc. and The
Seventies Broadcasting Corporation, respectively.
(b) To reflect adjustment to corporate expense for the elimination of corporate
expenses which would not be incurred following the WXDJ-FM/WRMA-FM
acquisition.
(c) To reflect additional pro forma depreciation and amortization related to
the acquisition of WXDJ-FM and WRMA-FM, for the period prior to
acquisition, based upon a preliminary allocation of the purchase price and
related amortization reflected as follows:
<TABLE>
<CAPTION>
WXDJ/WRMA
----------
<S> <C>
Franchise costs and other intangible assets, net............ $112,500
--------
Pro forma amortization.................................... $ 1,406
Less: depreciation and amortization-historical............ (565)
--------
Pro forma adjustment...................................... $ 841
========
</TABLE>
(d) To reflect adjustments to interest expense as a result of the Transactions:
<TABLE>
<S> <C>
Pro forma interest on the Notes at 11% per annum............ $ 4,126
Pro forma interest on the seller note to Infinity (assumed
interest rate of 10% per annum)........................... 150
Pro forma amortization of debt issuance costs of the
Notes..................................................... 262
Interest expense, including amortization of debt issuance
costs, on the Senior Secured Notes retired in the
Transactions.............................................. (2,988)
Interest expense -- WXDJ-FM/WRMA-FM-historical.............. (1,003)
-------
Pro forma adjustment........................................ $ 547
=======
</TABLE>
(e) To reflect income tax effect of the above items.
(f) To reflect adjustments to preferred stock dividends as a result of the
Transactions for the period prior to the Transactions:
<TABLE>
<S> <C>
Elimination of dividends on Preferred Stock................. $ 15,384
Assumed dividends on Senior Preferred Stock at 14 1/4%
per annum................................................. (26,714)
--------
Pro forma adjustment........................................ $(11,330)
========
</TABLE>
(g) For purposes of this computation, earnings are defined as earnings or loss
before extraordinary items and fixed charges. Fixed charges are the sum of
(i) interest costs, (ii) amortization of deferred financing costs, (iii)
the portion of operating lease rental expense that is representative of the
interest factor (deemed to be one third) and (iv) dividends on preferred
stock. Historical and pro forma earnings were inadequate to cover fixed
charges by $19,906 and $30,212, respectively, for the fiscal year ended
September 28, 1997.
13
<PAGE> 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
The selected consolidated financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" as of and for each of
the fiscal years in the five-year period ended September 27, 1998, are derived
from the consolidated financial statements of the Company, which consolidated
financial statements have been audited by KPMG LLP, independent certified public
accountants. The consolidated financial statements as of September 27, 1998 and
for each of the years in the three-year period ended September 27, 1998 and the
report thereon, are included elsewhere in this prospectus. The selected
consolidated financial data of the Company should be read in conjunction with
the consolidated financial statements of the Company as of September 27, 1998
and for each of the fiscal years in the three-year period ended September 27,
1998, the related notes and independent auditor's report, included elsewhere in
this prospectus. For additional information see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
9/25/94 9/24/95 9/29/96 9/28/97 9/27/98
--------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross broadcasting revenues................................. $ 45,825 $54,152 $ 55,338 $ 67,982 $ 86,766
Less: agency commissions.................................... (5,688) (6,828) (6,703) (7,972) 10,623
--------- ------- -------- --------- --------
Net revenues.............................................. 40,137 47,324 48,635 60,010 76,143
Station operating expenses(1)............................... 22,145 22,998 27,876 31,041 39,520
Corporate expenses(1)....................................... 2,884 4,281 3,748 5,595 6,893
Depreciation and amortization............................... 3,256 3,389 4,556 7,619 8,877
--------- ------- -------- --------- --------
Operating income (loss)................................... 11,852 16,656 12,455 15,755 20,853
Gain on sale of AM stations................................. -- -- -- -- 36,242
Interest expense, net....................................... 14,203 12,874 16,533 22,201 20,860
Financing costs............................................. 3,458 -- 876 299 213
Other expense (income)(2)................................... (35) 381 698 492 --
--------- ------- -------- --------- --------
Income (loss) before income taxes and extraordinary
items................................................... (5,774) 3,401 (5,652) (7,237) 36,022
Income tax expense (benefit)................................ (2,231) 1,411 (1,166) (2,715) 15,624
--------- ------- -------- --------- --------
Income (loss) before extraordinary items.................. (3,543) 1,990 (4,486) (4,522) 20,398
Extraordinary gain (loss) net of income taxes(3)............ 70,255 -- -- (1,647) (1,613)
--------- ------- -------- --------- --------
Net income (loss)......................................... $ 66,712 $ 1,990 (4,486) (6,169) 18,785
========= =======
Dividends on preferred stock................................ (2,452) (15,384) (27,718)
-------- --------- --------
Net income (loss) applicable to common stock.............. $ (6,938) $ (21,553) $ (8,933)
======== ========= ========
Dividends per share on common stock......................... -0- -0- -0- -0- $ 5.60
========= ======= ======== ========= ========
OTHER DATA:
Broadcast cash flow(4)...................................... $ 17,992 $24,326 $ 20,759 $ 28,969 $ 36,623
EBITDA(5)................................................... 15,108 20,045 17,011 23,374 29,730
Capital expenditures........................................ 897 4,888 3,811 2,022 1,645
Net cash interest........................................... 12,916 7,459 7,759 13,175 18,658
Non-cash interest........................................... 1,287 5,415 8,774 9,026 2,202
--------- ------- -------- --------- --------
Interest expense, net..................................... 14,203 12,874 16,533 22,201 20,860
Net cash provided by operating activities................... 4,121 14,438 8,813 6,386 10,923
Net cash provided by (used in) investing activities......... (897) (4,988) (90,195) (144,358) 32,190
Net cash provided by (used in) financing activities......... 4,514 3,769 69,036 144,791 (17,758)
Ratio of Earnings to Fixed Charges(6)....................... -- 1.5 -- -- 1.1
</TABLE>
<TABLE>
<CAPTION>
AT
------------------------------------------------------
9/25/94 9/24/95 9/29/96 9/28/97 9/27/98
BALANCE SHEET DATA: --------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................................... $ 12,137 $17,817 $ 5,468 $ 12,288 $ 37,642
Net working capital (deficiency)............................ 11,981 21,994 9,172 1,626 40,349
Total assets................................................ 98,733 103,629 176,860 334,367 351,034
Total debt (including current maturities)................... 93,573 95,523 135,914 183,013 171,126
Series A Preferred Stock.................................... -- -- 35,939 171,262 201,368
Shareholders' deficiency.................................... (2,960) (1,150) (3,569) (32,047) (46,193)
</TABLE>
14
<PAGE> 18
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) Station operating expenses include engineering, programming, selling and
general and administrative expenses.
(2) During the 1996 and 1997 fiscal years, the Company wrote down the value of
its land and building located on Sunset Boulevard in Los Angeles by $697,741
and $487,973, respectively. The write downs were based on current market
values of real estate in the Los Angeles area.
(3) On June 29, 1994, the Company sold 107,059 units, each consisting of $1,000
principal amount of the Company's Old Notes and the Old Warrants. The Old
Notes were issued at a substantial discount from their principal amount. The
sale of the Old Notes and Old Warrants generated gross proceeds of
$94,000,000 and proceeds to the Company of $87,774,002, net of financing
costs of $6,225,998. Of the $94,000,000 of gross proceeds from the sale of
the Old Notes and Old Warrants, $88,603,000 was allocated to the Old Notes
and $5,397,000 was determined to be the value of the Old Warrants. Of the
net proceeds from the sale of the Old Notes and the Old Warrants,
$83,000,000 was used to satisfy in full the Company's obligations to its two
former principal lenders and the balance was used to settle litigation with
a former stockholder and for general corporate purposes. The Company
realized a gain of $70,254,772 in connection with its repayment of all
obligations to its two former principal lenders because it was able to
satisfy in full these obligations at substantial discounts to their face
amounts in accordance with restructuring agreements between the Company and
such lenders.
For the fiscal year ended September 28, 1997, the Company recorded an
extraordinary loss resulting from the redemption of its Series A Senior
Notes at par which was approximately $1.5 million in excess of their
carrying value and from the write-off of the related unamortized deferred
financing costs of approximately $1.3 million, net of the related tax
benefit of approximately $1.1 million.
For the fiscal year ended September 27, 1998, the Company recorded an
extraordinary loss resulting from the repurchase of $13.2 million par value
of Old Notes, at a premium of approximately $2.2 million in excess of their
carrying value and from the write-off of the related unamortized deferred
financing costs of approximately $.5 million, net of the related tax
benefit of approximately $1.1 million.
(4) The term "broadcast cash flow" means operating income before depreciation
and amortization, write-down of franchise costs and corporate expenses.
Broadcast cash flow should not be considered in isolation from, or as a
substitute for, net income or cash flow and other consolidated income or
cash flow statement data or as a measure of the Company's profitability or
liquidity. Although broadcast cash flow is not a measure of performance
calculated in accordance with generally accepted accounting principles,
broadcast cash flow is widely used in the broadcasting industry as a measure
of a broadcasting company's operating performance.
(5) EBITDA represents income before extraordinary item, net interest expense,
financing costs, income taxes, depreciation and amortization, write-down of
franchise costs and other expenses and income. The Company has included
information concerning EBITDA in this Prospectus because it is used by
certain investors as a measure of a company's ability to service its debt
obligations. EBITDA should not be used as an alternative to, or be
considered more meaningful than, operating income, net income or cash flow
as an indicator of the Company's operating performance.
(6) For purposes of this computation, earnings are defined as earnings or loss
before extraordinary items and fixed charges. Fixed charges are the sum of
(i) interest costs, (ii) amortization of deferred financing costs, (iii) the
portion of operating lease rental expense that is representative of the
interest factor (deemed to be one third) and (iv) dividends on preferred
stock. Earnings were inadequate to cover fixed charges by $3,543,000,
$6,938,000 and $19,906,000 for fiscal years 1994, 1996 and 1997,
respectively.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's financial results depend on a number of factors, including
the strength of the national economy and the local economies served by the
Company's stations, total advertising dollars dedicated to the markets served by
the Company's stations, advertising dollars targeted to the Hispanic consumers
in the markets served by the Company's stations, the Company's stations'
audience ratings, the Company's ability to provide popular programming, local
market competition from other radio stations and other advertising media, and
government regulation and policies.
Gross revenues derived from radio advertising are affected primarily by the
advertising rates the Company's radio stations are able to charge and the number
of advertisements that can be broadcast without jeopardizing audience listening
levels and the resultant audience ratings. Advertising rates are, in large part,
based upon each station's ability to attract audiences in demographic groups
targeted by advertisers. Audience levels are generally measured by quarterly
Arbitron Radio Market Reports. Each of the Company's stations strives to
maximize net revenues by actively managing the amount of airtime available for
sale and adjusting prices based upon local market conditions and audience
ratings.
In the radio broadcasting industry, stations may utilize trade or barter
agreements to provide advertising time in exchange for goods or services (such
as travel and products used in promotional campaigns or "give-aways") instead of
cash compensation. In each of the 1996, 1997 and 1998 fiscal years, the Company
sold approximately 94%, 96% and 96%, respectively, of its available advertising
time for cash. The Company believes that its percentage of advertising time sold
for cash will remain at or about its current level in the near future.
Although advertising contracts are generally short-term, the Company has
long-term relationships with many of its advertisers. In the 1998 fiscal year,
approximately 73% of the Company's gross revenues from the broadcast of
advertising was generated from local advertising and approximately 27% was from
national advertising. Each station's local sales staff solicits advertising
directly from local advertisers or through an advertising agency representing
local advertisers.
In March 1996, the Company acquired WPAT-FM in New York for $86.4 million
including financing costs and the Company's results include the operations of
WPAT-FM from such date. Pursuant to the terms of a local marketing agreement,
the Company began operating WPAT-FM on January 26, 1996 and the revenues of
WPAT-FM and costs of the local marketing agreement are included in the Company's
operating results from that date until the date of the acquisition.
In March 1997, the Company acquired WRMA-FM and WXDJ-FM in Miami and
WLEY-FM (named WYSY-FM at the time of the purchase) in Chicago for $111 million
and $33 million, respectively. On May 13, 1998, the Company acquired KRIO-FM in
San Antonio, Texas for $9.3 million. The Company subsequently changed the call
letters to KLEY-FM. The Company's results include the operations of these
stations from such dates.
On December 1, 1998, the Company purchased from Pan Caribbean Broadcasting
Corporation the FCC broadcast license and substantially all of the assets used
or useful in the operation of WDOY-FM serving Puerto Rico for $8.3 million. The
Company financed this purchase from cash on hand and cash from operations.
The Company reports its revenues and expenses on a broadcast month basis.
"Broadcast month basis" means a four or five week period ending on the last
Sunday of each calendar month. For fiscal 1996, the Company reported 53 weeks of
revenues and expenses as compared to 52 weeks for each of fiscal 1997 and 1998.
As is true of other radio groups, the Company's performance is customarily
measured by its ability to generate broadcast cash flow and EBITDA. "Broadcast
cash flow" means operating income before deprecia-
16
<PAGE> 20
tion and amortization, write-down of franchise costs and corporate expenses.
Although broadcast cash flow and EBITDA are not measures of performance
calculated in accordance with generally accepted accounting principles, the
Company believes that broadcast cash flow and EBITDA are useful in evaluating
the Company because such measures are accepted by the broadcasting industry as
generally recognized measures of performance and are used by securities industry
analysts who publish reports on the performance of broadcasting companies. In
addition, the Company has included information concerning EBITDA in this
Prospectus because it is used by certain investors as a measure of a company's
ability to service its debt obligations and it is also the basis for determining
compliance with certain covenants in the Indentures and the Certificate of
Designation. Broadcast cash flow and EBITDA are not intended to be substitutes
for operating income (as determined in accordance with generally accepted
accounting principles), or alternatives to cash flow from operating activities
(as a measure of liquidity), or alternatives to net income.
The Company's revenues fluctuate throughout the year. The Company's second
fiscal quarter (January through March) generally produces the lowest revenues
for the year and the third fiscal quarter (April through June) generally
produces the highest revenues, primarily due to increased levels of advertising
during this period. The Company's operating results in any period may also be
affected by the occurrence of advertising and promotional expenses that do not
produce revenues in the period in which the expenses are incurred.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Net Revenues. Net revenues increased from $60.0 million for the year ended
September 28, 1997 to $76.1 million for the year ended September 27, 1998, an
increase of $16.1 million or 26.9%. This increase was due primarily to the
inclusion of the full year results of WRMA-FM, WXDJ-FM, and WLEY-FM, which were
purchased on March 27, 1997. The increase in net revenues also resulted from a
significant increase in the net revenues of the New York stations, WPAT-FM and
WSKQ-FM whose results were positively impacted by increased ratings and a Miami
station, WCMQ-FM. The increase was offset by a decrease in net revenues from the
Company's Los Angeles station, KLAX-FM in addition to the decrease in revenues
attributable to the sale of the AM stations in New York, Miami and Los Angeles.
Operating Expenses. Total operating expenses increased from $44.3 million
for the year ended September 28, 1997 to $55.3 million for the year ended
September 27, 1998, an increase of $11.0 million or 24.9%. The higher operating
expenses were caused by an increase of $8.5 million in broadcasting operating
expenses, a $1.3 million increase in corporate expenses and an increase of $1.3
million in depreciation and amortization expense.
The increase in broadcasting operating expenses was caused mainly by the
inclusion of the results of WRMA-FM, WXDJ-FM and WLEY-FM. The increase in
corporate expenses was caused mainly by increased professional fees and
salaries. The increase in depreciation and amortization was the result of
increased amortization of franchise costs related to the acquisitions of
WRMA-FM, WXDJ-FM and WLEY-FM offset by the decrease attributable to the sale of
the AM stations.
Operating Income. Operating income increased from $15.8 million during the
year ended September 28, 1997 to $ 20.9 million during the year ended September
27, 1998, an increase of $5.1 million or 32.4%. The increase was due to the
significant increase in net revenues, partially offset by the increase in
operating expenses.
EBITDA. EBITDA (defined as income before extraordinary item, net interest
expense, income taxes, depreciation and amortization, gains on sales of radio
stations and other income and expenses) increased $6.4 million or 27.2% from
$23.4 million during the year ended September 28, 1997 to $29.7 million during
the year ended September 27, 1998. The increase in EBITDA was caused by the
increase in net revenues, partially offset by increases in broadcasting
operating expenses and corporate expenses, as described above.
Other (Income) Expenses. Other income and expenses, changed from an
expense of $22.8 million in the year ended September 28, 1997 to income of $15.2
million in the year ended September 28, 1998. The income was a result of the
sale of the AM Stations at a gain of $36.2 million.
17
<PAGE> 21
Extraordinary Item. The extraordinary loss of $1.6 million, net of taxes
of $1.1 million, in the year ended September 27, 1998 is a result of premiums
paid on the purchase of certain outstanding Old Notes and the write off of
related unamortized debt discount and deferred financing costs. In the year
ended September 28, 1997, the Company recorded an extraordinary loss of $1.6
million net of income taxes. This loss was from an amount paid in excess of the
Company's carrying value and the write off of related unamortized debt issuance
costs in conjunction with the refinancing of debt when the Company purchased
WRMA-FM, WXDJ-FM and WLEY-FM.
Net Income (loss). The Company's net income for the year ended September
27, 1998 was $18.8 million compared to the net loss of $6.2 million for the year
ended September 28, 1997. The net income resulted from the increase in operating
income, the gain from the sale of the AM stations and a slight decrease in
interest expense partially offset by additional income taxes.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net revenues. Net revenues increased to $60.0 million for fiscal 1997 from
$48.6 million for fiscal 1996, an increase of $11.4 million, or 23.5%. This
increase was due primarily to the inclusion of results of WRMA-FM and WXDJ-FM
which were purchased on March 27, 1997 and increased net revenues by $7.7
million and the inclusion of the results of WPAT-FM for the entire year as
opposed to the eight months during the previous year. The increase in net
revenues also resulted from an increase of $1.1 million in net revenues from the
Company's Los Angeles stations. These increases were offset by decreases in net
revenues from certain of the Company's existing stations, including a decrease
of $3.0 million from the operations of WCMQ-AM and WCMQ-FM, and a decrease of
$0.5 million from the operations of WSKQ-FM and WXLX-AM. Additionally, the
acquisition in the Chicago market, WLEY-FM, contributed $0.4 million in net
revenues.
Operating expenses. Total operating expenses increased to $44.3 million
for fiscal 1997 from $36.2 million in fiscal 1996, an increase of $8.1 million,
or 22.4%. The higher operating expenses were caused by an increase of $3.2
million in broadcasting operating expenses, $3.1 million in depreciation and
amortization expense and an increase of $1.8 million in corporate expenses.
The increase in broadcasting operating expenses was caused mainly by the
inclusion of the results of the recently acquired stations in Miami, WRMA-FM and
WXDJ-FM, the newly acquired station in Chicago, WLEY-FM as well as a full year
of expenses for WPAT-FM. The increase in corporate expenses was caused by higher
salaries and higher professional fees. The increase in depreciation and
amortization was the result of increased amortization of franchise costs related
to the acquisitions of WRMA-FM, WXDJ-FM, WLEY-FM and WPAT-FM.
Operating income. Operating income increased to $15.8 million in fiscal
1997 from $12.5 million in fiscal 1996, an increase of $3.3 million, or 26.4%.
The increase was due to the significant increase in net revenues partially
offset by the increase in operating expenses.
EBITDA. EBITDA increased $6.4 million, or 37.6% from $17.0 million in
fiscal 1996 to $23.4 million in fiscal 1997. The increase in EBITDA was caused
by the increase in net revenues, partially offset by an increase in operating
expenses, as described above.
Other expenses. Other expenses, comprised mostly of interest expense,
increased to $23.0 million for fiscal 1997 from $18.1 million in fiscal 1996, an
increase of $4.9 million, or 27.1%. The increase was caused mostly by interest
expense on the Notes issued to partially finance the acquisitions of WRMA-FM,
WXDJ-FM and WLEY-FM and the retirement of the Redeemed Notes.
Net loss. As a result of the Company's refinancing of its debt and the
issuance of the Notes which partially financed the acquisitions of WRMA-FM,
WXDJ-FM and WLEY-FM, the Company recorded an extraordinary loss on the
retirement of old debt for the amount paid in excess of the Company's carrying
value and the write-off of the related unamortized debt issuance costs. The
amount of this loss is $1.6 million, net of income taxes. Consequently, the
Company's net loss for fiscal year 1997 was $6.2 million compared to a net loss
of $4.5 million for fiscal year 1996, an increase in the net loss of $1.7
million, or 37.8%.
18
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from its debt service
obligations, preferred stock dividend requirements, funding of the Company's
working capital needs and capital expenditures. The Company's primary form of
financing is cash generated from operations, long-term indebtedness and the
issuance of preferred stock.
On March 27, 1997, the Company consummated the acquisitions of WRMA-FM,
WXDJ-FM and WLEY-FM (the "Acquisitions"). The Acquisitions were financed with
proceeds of the March 27, 1997 Units Offering and the Notes Offering (the
"Offerings"). Concurrently with the consummation of the Acquisitions and the
Offerings, the Company effected a series of transactions including the
redemption (the "Redemption") of the Company's Senior Secured Notes due 2002 and
Senior Exchangeable Preferred Stock, Series A and the repurchase of related
warrants to purchase an aggregate of 6.0% of the Company's Common Stock, on a
fully-diluted basis. In addition, simultaneously with the consummation of the
Offerings, the Company announced its intention to declare a dividend of up to $4
million in the aggregate (the "Distribution") to its stockholders and existing
warrantholders who elected to receive their pro rata portion of the Distribution
in lieu of the anti-dilution adjustment they would otherwise have been entitled
to as a result of the Distribution. A dividend of $5.60 per share of common
stock was declared and distributed to the stockholders in March 1998. In April
1998, holders of warrants to purchase shares of Class A Common Stock that were
issued pursuant to the Warrant Agreement dated June 29, 1994 were given the
option to participate in such dividend as if they were stockholders, subject to
agreeing to waive their anti-dilution rights with respect to such dividends.
Holders of warrants to purchase 58,209 shares participated in the dividend and
received $0.326 million in the aggregate. The warrantholders that elected not to
participate in the cash dividend continue to hold such 1994 warrants and are
entitled to purchase from the Company shares of Class A Common Stock at an
adjusted rate of 1.0133 shares of Class A Common Stock per 1994 Warrant.
On July 2, 1997, the Company entered into an agreement to sell the FCC
licenses and all of the assets used or useful in operating its AM stations,
KXMG-AM of Los Angeles, WXLX-AM of New York and WCMQ-AM of Miami for $44.0
million. The Company was required to use the greater of $25 million or 50% of
the net proceeds of such sale to make offers to purchase Old Notes at 110% of
the principal amount. Pursuant to this agreement, the Company sold the assets
and FCC licenses of WXLX-AM and WCMQ-AM to One-on-One for a purchase price of
$26.0 million on September 29, 1997. On December 2, 1997, the Company
consummated the sale of the assets and FCC license of KXMG-AM to One-on-One for
a purchase price of $18.0 million.
On May 13, 1998, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.2 million, plus closing costs of
$0.1 million. The Company financed this purchase from cash on hand and from
operations. The Company subsequently changed the call letters to KLEY-FM.
On June 16, 1998, the Company entered into an Asset Purchase Agreement with
Pan Caribbean Broadcasting Corporation to purchase the FCC broadcast license and
substantially all of the assets used or useful in the operation of WDOY-FM
serving Puerto Rico for $8.3 million. The Company closed on this purchase on
December 1, 1998 and financed this purchase from cash on hand and cash from
operations.
Cash flow generated from operations was $10.9 million for the year ended
September 27, 1998. A portion of the Company's cash flow was used to make its
semiannual interest payments on the Company's Notes of $15.9 million.
Additionally, the Company purchased KRIO-FM for $9.3 million, invested $1.6
million in capital expenditures, used $15.1 million to purchase Old Notes and
paid dividends of $2.6 million. Proceeds from the sales of WXLX-AM, WCMQ-AM and
KXMG-AM were approximately $43.2 million, net of closing costs of $0.8 million.
During fiscal 1997, the Company received proceeds of $69.3 million, net of
issuance costs, from the issuance of the Senior Notes and proceeds of $166.0
million, net of issuance costs, from the issuance of the Preferred Stock in
connection with the Offerings. The Company used $142.3 million of these proceeds
to acquire WRMA-FM, WXDJ-FM and WLEY-FM, $38.4 million for the redemption of
Senior Secured notes
19
<PAGE> 23
and $42.7 million for the redemption of preferred Stock and $8.3 million for the
redemption of warrants. Additionally, the Company invested $2.0 million in
capital expenditures, mostly for the construction of a new tower and antenna
system for WXLX-AM in anticipation of the sale of this station.
Management believes, together with cash on hand, that cash from operating
activities should be sufficient to permit the Company to meet required cash
interest obligations (which will consist of cash interest expense on the Senior
Notes and cash interest expense on the Company's Old Notes, which, commencing
June 15, 1997, began to accrue cash interest at a rate of 12 1/2% per annum) for
the foreseeable future as well as capital expenditures and operating
obligations. The Company anticipates paying dividends on its Preferred Stock
through the issuance of additional shares as permitted under the Senior
Preferred Stock Agreement. During fiscal 1998 the Company issued 27,554
additional shares of Senior Preferred Stock in lieu of cash payments of $27.6
million for dividends on Senior Preferred Stock. However, significant
assumptions (none of which can be assured) underlie the belief, including that
(i) economic conditions within the radio broadcasting market and economic
conditions generally will not deteriorate in any material respect, (ii) the
Company will be able to successfully implement its business strategy, (iii) the
Company will not incur any material unforeseen liabilities, including, without
limitation, environmental liabilities, and (iv) no future acquisitions will
adversely affect the Company's liquidity. The Company expects that it may be
required to refinance the Old Notes on or prior to their maturity date on June
15, 2002, and no assurances can be given that it will not be required to
refinance the Senior Notes and/or the Senior Preferred Stock. No assurance can
be given that any such refinancing, if required, will be obtained on terms
satisfactory to the Company, if at all.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations in the Company's
broadcast and corporate locations which could cause disruptions of operations,
including, among other things, a temporary inability to produce broadcast
signals, process financial transactions, or engage in similar normal business
activities.
The Company has performed a preliminary analysis of potential problems
related to the "Y2K" issue but has not completed its assessment. Internally, the
Company bears some risks in the following areas: computer hardware and software
for its accounting and administrative functions, computer-controlled programming
of music and the actual transmission of its signals. Externally, the Company is
at risk, like most companies, of losing power and phone lines.
In the administrative area, the vast majority of the hardware and software
has been purchased over the preceding two years and is Year 2000 compliant.
There are no more than 20 computers that may have to be replaced or upgraded. In
the programming areas the system in use is year 2000 compliant. Studio
equipment, transmitters and other broadcasting equipment are not date sensitive
and, consequently, do not pose much of a threat although the Company will
continue to seek assurances, compliance certificates and/or upgrades from all
significant vendors.
The greatest threat to the Company's ability to broadcast is from the
utilities upon which the Company is dependent. To date, the Company is not aware
of any external vendor with a Y2K issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means for ensuring that third parties will be Y2K ready. The
inability of third parties to complete their Y2K resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external vendors is not determinable. In addition, disruptions in the economy
generally resulting from the Y2K issues could also materially adversely affect
the Company.
While the Company believes its efforts will provide reasonable assurance
that material disruptions will not occur due to internal failure, the
possibility of interruption still exists. The Company is not anticipating having
to spend more than $50,000 to be Year 2000 compliant. It is performing this
analysis with its MIS manager, its engineers and its accounting staff. It is
anticipated that all assessments and solutions will be in place by April, 1999.
20
<PAGE> 24
BUSINESS
The Company is one of the leading Spanish-language radio broadcasting
companies in the United States. The Company operates eight major market FM radio
stations in Los Angeles, New York, Miami, Chicago and San Antonio. The Company
also owns and operates FM stations in Puerto Rico, Key Largo and Key West,
Florida.
INDUSTRY BACKGROUND
General. Radio reaches approximately 96% of all Americans over the age of
12. Radio stations derive their gross revenues primarily from the sale of
advertising. Total radio advertising spending in the United States rose from
$5.6 billion in 1993 to an estimated $7.4 billion in 1996. Advertisers generally
regard radio as an efficient means of reaching specifically identified
demographic groups. Stations are typically identified by format, such as
country, adult/contemporary, news/talk and Spanish-language, among others.
Through a station's format, a broadcaster focuses on specific demographic
groups, making its station attractive to advertisers who also target these
groups. The ability to deliver an audience comprised of individuals targeted by
a particular advertiser may make a station attractive to that advertiser even
though the station may not command a large share of total radio listeners in
that market. Formats evolve or change as new formats gain popularity and the
composition of audiences change. The largest portion of a radio station's
programming is usually produced by the radio station itself. This programming
includes locally produced shows featuring recorded music, news and talk shows.
Additional programming may be obtained from various radio syndication services
on a cash, barter (the exchange of goods and services for advertising) or
cash-plus-barter basis.
Ratings. A station's programming determines the demographics of each
station's listeners and, in part, the station's market share. These factors, in
turn, largely determine the price of commercial air time paid by advertisers. A
station's listening audience is measured by rating service surveys of the number
of radios tuned to the station at various times of the day. The generally
accepted method of measuring the overall size of a radio station's audience
("ratings") is by reference to "12+ average quarter hour share"-- the number of
persons, aged 12 and over, who listen to the station for at least five minutes
in a quarter-hour segment Monday through Sunday, 6 a.m. to midnight, as
published by Arbitron. Arbitron periodically samples radio listeners in defined
market areas, principally through the use of diaries maintained by randomly
selected listeners. A station's audience share is calculated by dividing (i) the
average number of persons listening to a particular station for at least five
minutes during an average quarter hour in a given time period by (ii) the
average number of such persons for all stations in the market area. Arbitron
also measures listener levels in a number of demographic categories classified
by the age and gender of the audience. This information is used by advertisers
to target specific audience segments.
THE HISPANIC MARKET IN THE UNITED STATES
The Company broadcasts primarily to United States Hispanics which is one of
the most rapidly growing segments of the United States population. With
approximately 27.2 million Hispanics, representing approximately 10.3% of the
total population, the United States has the fifth largest Hispanic population in
the world. The United States Hispanic population is highly concentrated in
discrete geographic areas, with approximately 63% of all Hispanics residing in
the ten largest Hispanic markets in the United States. By the year 2010,
Hispanics are projected to account for approximately 13.5% of the total
population of the United States and will be the country's largest minority
group. According to market studies, the United States Hispanic population has an
estimated annual disposable income in excess of $228 billion and is more brand
conscious than the general population. In addition, approximately 78% of
Hispanics living in the United States prefer to speak Spanish at home, further
contributing to the popularity of Spanish-language radio as a source of
Spanish-language entertainment, information and culture.
21
<PAGE> 25
In addition to its anticipated rapid growth, the Hispanic market has
several other characteristics which, the Company believes, make it attractive to
advertisers, including the following:
- United States Census Bureau data indicate that Hispanic households are
larger than those of the general population, with 3.4 persons living in
an average Hispanic household compared to 2.6 persons living in the
average household;
- the Hispanic population is generally younger than the general population,
with a median age of 26.6 years compared to 34.0 years;
- Hispanic consumers generally spend a higher percentage of their
disposable income on consumer goods than the general public; and
- market studies have shown that Hispanics are generally more brand
conscious than the general population.
Primarily due to these factors, the Company believes that the United States
Hispanic population represents an attractive market for local and national
advertisers. Total media advertising expenditures targeting Hispanics have
increased significantly from $166 million in 1983 to an estimated approximately
$1.4 billion in 1997, with $375 million, or 27%, of the total Hispanic media
advertising allocated to radio advertising. In 1996, Hispanics accounted for
approximately 6.0% of total purchasing power while the Company estimates that
Spanish-language advertising expenditures accounted for less than 2.7% of total
advertising expenditures in all media. The Company believes that the current
disparity between the level of Hispanic contribution to total U.S. purchasing
power and the level of media expenditures targeting the Hispanic market will
lessen and that Spanish-language radio advertising rates will approach general
market rate levels. In addition the Company believes that advertisers are
increasingly realizing that radio advertising is an effective means of reaching
the Hispanic population.
The Hispanic population is concentrated in major markets making it more
accessible to national advertisers. Approximately 47% of the Hispanic population
in the United States resides in the Company's markets -- Los Angeles, New York,
Miami, Chicago and San Antonio. The following table sets forth the top ten
Hispanic markets in the United States and the percentage of the national
Hispanic population contained in each market.
TOP TEN UNITED STATES HISPANIC MARKETS
<TABLE>
<CAPTION>
HISPANIC POPULATION PERCENTAGE OF UNITED STATES
RANK MARKET IN THE MARKET HISPANIC POPULATION IN MARKET
- ---- ---------------------- ------------------- -----------------------------
<S> <C> <C> <C>
1. Los Angeles 6,012,300 22.1%
2. New York 3,278,100 12.0
3. Miami 1,358,100 5.0
4. San Francisco-San Jose 1,120,000 4.1
5. Chicago 1,106,800 4.1
6. Houston 1,078,600 4.0
7. San Antonio 1,018,000 3.7
8. McAllen/Brownsville 803,800 3.0
9. Dallas-Ft. Worth 740,000 2.7
10. El Paso 644,800 2.4
</TABLE>
BUSINESS STRATEGY
To capitalize on the opportunities provided by the growing Hispanic market,
the Company has developed a strategy to own, operate and acquire radio stations
in areas with large Hispanic populations, increase its existing market shares
and enter new markets through focused programming, promotion and marketing. The
Company believes that this strategy will provide the basis for enhanced
Spanish-language media penetration, increased advertising rates and improved
operating results. In addition, by appealing to different demographic
22
<PAGE> 26
groups, the Company believes that its strategy will result in an increased
customer base for its advertisers. Specific elements of this strategy are
described as follows:
Market Specific Programming. The Company formats the programming of each
of its stations to capture a dominant position within each market. Most of the
Company's stations emphasize music programming due to a strong audience
preference for music and because music programming is comparatively less
expensive to produce than other radio formats. The Company utilizes research
consultants and performs periodic music testing to assess listener preferences
for the station's music and services and refines its programming to reflect the
results of its research. The Hispanic population in the United States is
diverse, consisting of numerous identifiable groups each with its own cultural
and musical heritage. Examples of such groups are the Mexicans in California,
Texas and Illinois, Puerto Ricans and Dominicans in New York and Cubans in
Florida. The Company is intimately familiar with the musical tastes and the
preferences of these various ethnic Hispanic groups and customizes its
programming accordingly within each market.
Multiple Station Ownership. The Company intends to capitalize on those
situations where it owns multiple radio stations in a single market which access
a broad demographic cross section of the Hispanic population. Multiple station
ownership is expected to allow the Company to offer advertisers the ability to
increase penetration of the local Hispanic population through advertising
packages on multiple radio stations at attractive price levels and expand the
market for advertising targeted at Hispanics, thereby allowing the Company to
capture a larger share of the market's overall radio advertising revenue.
Multiple station ownership also allows the Company to leverage shared resources
and expertise in administration, programming and sales which reduces the overall
operating costs of the stations in the market. Further cost savings can be
achieved through consolidating broadcasting facilities and eliminating
duplicative overhead. The Company believes that these factors represent a
competitive advantage over other radio stations which operate as stand-alone
entities. In March 1996, the Company acquired WPAT-FM, which together with
WSKQ-FM created the first Spanish-language FM duopoly serving the New York
metropolitan market. Similarly, as a result of the acquisition of WRMA-FM and
WXDJ-FM, the Company operates the first FM triopoly in the Miami metropolitan
market.
Local Management and Focused Cost Control. The Company employs talented
local management teams in each of its markets which are responsible for the
day-to-day operations of the Company's radio stations. The local management
teams generally consist of a general manager, sales manager, programming
director and business manager. The Company generally prefers to staff stations
with managers who have experience and knowledge of the local radio market and
the local Hispanic market. Because of the diversity of the Hispanic populations
from region to region in the United States, this team-oriented approach allows
decisions regarding day-to-day programming, sales and promotional efforts to be
made by local managers and improves the Company's flexibility and responsiveness
to changing conditions in each of the markets it serves. Corporate management
regularly provides stations with advice and support in the development of
advertising and marketing strategies and in sales force training, and is
responsible for national sales development, overall programming strategies,
long-range strategic planning, corporate policies and procedures, resource
allocation, monitoring performance and maintaining overall control of the
stations.
Management believes that it is important to maintain the lowest possible
cost structure while achieving its operating objectives. The Company seeks to
reduce station operating costs by consolidating multiple station facilities in a
given market. The Company's financial review process examines expense items for
possible reduction and its financial reporting system allows management to
monitor expense variances on a monthly basis at the station level.
Effective Utilization of Promotions. The Company believes an effective
promotional effort plays a significant role in adding new listeners and
increasing time spent listening. Special promotional appearances, such as
station van appearances at client events, concerts and tie-ins to major events
form an important part of the Company's marketing strategy. Many of these events
enable the Company to offer its advertisers an additional means of reaching
their target audiences. In addition, the Company's stations use promotional
events to promote listener participation by having celebrities and radio
personalities in attendance and by running contests in conjunction with the
event. Many of these activities are co-sponsored by local television
23
<PAGE> 27
stations and newspapers, providing the Company's advertisers with a larger
combined audience. The Company's promotional and marketing campaigns focus on
increasing Hispanic consumer awareness of advertisers' products, creating and
reinforcing consumer awareness of stores which sell specific brands, creating
consumer incentives to visit the stores and to purchase the brands and building
and sustaining the images of particular brands and stores.
Increase Community Involvement. The Company has historically been, and
plans to continue to be, actively involved within the local communities that it
serves. The Company's radio stations participate in numerous community programs,
fund-raisers and activities benefiting the local community and Hispanics
overseas. Other examples of the Company's community involvement include free
public service announcements, free equal-opportunity employment announcements,
tours and discussions held by station radio personalities with school and
community groups designed to limit drug and gang involvement, free concerts and
events designed to support the stability of the family and the local Hispanic
community, and extended coverage, when necessary, of significant events which
have an impact on the Hispanic population. In addition, the Company's stations
and members of its management have received numerous community service awards
and acknowledgments from government entities and community and philanthropic
organizations for their service to the community. The Company believes this
involvement helps to build and maintain station awareness and listener loyalty.
Expansion Strategy. The Company has historically grown through a
combination of internal growth and through acquisitions. The Company's expansion
strategy is to selectively acquire FM radio stations in major Hispanic markets
at prices that are attractive relative to the Company's potential to increase
the acquired stations' operating cash flow. The Company may acquire stations in
its existing markets to take advantage of the benefits of multiple station
ownership or in other markets with a large Hispanic population where the Company
believes opportunities exist for the Company to achieve significant audience and
revenue share. In analyzing a potential radio station acquisition, the Company
considers many factors including: (i) the size of the Hispanic market the
station may serve; (ii) the characteristics and the anticipated growth of the
market; (iii) the nature and number of competitive stations in the market; (iv)
the possibility of obtaining a synergistic combination with additional stations
in a given market; (v) the existing quality and potential quality of the
station's broadcast signal and transmission facility; (vi) the station's
ratings, revenue and operating cash flow if the station is a Spanish-language
station; (vii) the price and terms of the purchase in relation to the estimated
potential broadcast cash flow for the station or stations; and (viii) the radio
and other media competition in the market. The relative importance of these
factors will vary with each situation, although the size and anticipated growth
of the Hispanic market, number and nature of competitive stations in the market
and likelihood of creating a synergistic combination of stations within the
market are typically prime considerations.
RADIO STATION PORTFOLIO
The Company owns and operates seven FM radio stations in the four largest
Hispanic media markets, as well as one FM radio station in San Antonio, Texas,
two in Key Largo and Key West, Florida and one newly acquired station in Puerto
Rico.
Los Angeles. KLAX-FM serves the Los Angeles market which has an ADI
population of approximately 16.1 million, of which approximately 37.3% is
Hispanic. The station features a Ranchera format, best described as regional
Mexican music including Grupo (romantic ballads) and Norteno (music from border
states in northern Mexico). Of the 49 Arbitron-ranked radio stations serving the
Los Angeles metropolitan area, KLAX-FM is currently the #3 ranked
Spanish-language radio station and the #3 ranked station overall. KLAX-FM had a
4.1 share for the Fall 1998 Arbitron rating period. KLAX-FM is licensed at 97.9
MHz. On November 21, 1997, the Company received a construction permit from the
FCC to change its city of license from Long Beach to East Los Angeles and to
move its transmitting facilities to Flint Peak which it has since done, thereby
allowing the station to extend its coverage to an additional 1.9 million
listeners.
New York City. WSKQ-FM and WPAT-FM serve the New York City metropolitan
area, which has an ADI population of approximately 20.0 million, of which
approximately 16.4% is Hispanic. Of the 47 Arbitron-ranked radio stations
serving the New York metropolitan area, WSKQ-FM and WPAT-FM are currently the
24
<PAGE> 28
#1 and #2 ranked Spanish-language radio stations and the #3 and #12 ranked
stations overall. The Company's New York stations had a combined 8.2 share for
the Fall 1998 rating period.
WSKQ-FM. WSKQ-FM was the first Spanish-language FM station to serve the
New York City metropolitan area, making its debut in 1989. In 1993, the Company
changed the station format to a Latin Power format to increase ratings and
revenues. The Latin Power format is a mix of fast paced music such as salsa and
merengue. WSKQ-FM is licensed at 97.9 MHz. The antenna for WSKQ-FM is on the top
of the Empire State Building and covers New York City, northern New Jersey, much
of Suffolk, Nassau and Westchester counties in New York, and parts of Fairfield
County in Connecticut. WSKQ-FM's signal in the New York metropolitan area is
comparable to other leading FM stations serving this area.
WPAT-FM. The Company acquired WPAT-FM in March 1996 because the Company
believed that the New York Spanish-language radio market was underserved. Upon
its acquisition, WPAT-FM was reformatted with a Spanish-language romantic adult
contemporary format designed to complement WSKQ-FM's upbeat salsa and merengue
format. The Company believes that the acquisition and reformatting of WPAT-FM
has served to expand the Spanish-language listening audience in the New York
metropolitan area. WPAT-FM is licensed at 93.1 MHz and transmits from an antenna
on top of the World Trade Center. The station's signal covers New York City,
northern New Jersey, much of Suffolk, Nassau and Westchester counties in New
York and parts of Fairfield County in Connecticut. WPAT-FM has clarity of sound
within the New York metropolitan area comparable to other leading FM stations
serving this area.
Miami. WRMA-FM, WCMQ-FM and WXDJ-FM serve the Miami metropolitan market,
which has an ADI population of approximately 3.7 million, of which approximately
37.1% is Hispanic. Of the 37 Arbitron-ranked radio stations serving the Miami
metropolitan area, WRMA-FM, WCMQ-FM and WXDJ-FM are currently the #3, #4 and #5
ranked Spanish-language radio stations and the #12, #15 and #18 ranked stations
overall.
WRMA-FM. WRMA-FM was acquired by the Company in March 1997. The station
features a Spanish-language adult contemporary format, consisting of a blend of
ballads and pop songs from the 1970's to today. WRMA-FM is licensed at 106.7
MHz. Its transmitter location is on top of the Biscayne Tower in downtown Miami.
The Company believes WRMA-FM's signal provides market coverage of the Miami
metropolitan area comparable to other FM stations licensed to this area.
WXDJ-FM. WXDJ-FM was acquired by the Company in March 1997. Together with
WRMA-FM, WXDJ-FM formed the first Spanish-language FM duopoly serving the Miami
metropolitan market. WXDJ-FM plays a blend of salsa and merengue targeting the
emerging musical tastes of the rapidly changing face of the Miami Hispanic
population. WXDJ-FM is licensed at 95.7 MHz. Its transmitter is located on top
of the Biscayne Tower located in downtown Miami. The Company believes WXDJ-FM's
signal provides market coverage of the Miami metropolitan area comparable to
other FM stations licensed to this area.
WCMQ-FM. The Company reformatted WCMQ-FM in October 1996 with a "Spanish
Oldies" format consisting of pop hits from the 1960's and 1970's to fill a
programming void and to complement the formats of WRMA-FM and WXDJ-FM. WCMQ-FM
is licensed at 92.3 MHz. Its main transmitter location is on top of the Biscayne
Tower in downtown Miami and its auxiliary transmitter is located in Hialeah,
Florida. The Company believes WCMQ-FM's signal provides market coverage of the
Miami metropolitan area comparable to other FM stations licensed in this area.
Chicago. WLEY-FM was acquired by the Company in March 1997. WLEY-FM serves
the Chicago metropolitan area, which has an ADI population of approximately 9.4
million of which 11.8% is Hispanic. Of the 40 Arbitron-ranked radio stations in
the Chicago metropolitan area, there are currently only two other high power
Spanish-language FM stations. Accordingly, the Company believes that this market
is underserved and offers significant opportunities for growth. The Company
changed this station's format from 70's rock to Spanish-language in July of
1997. WLEY-FM is currently the #1 ranked Spanish-language radio station. WLEY-FM
is licensed at 107.9 MHz. The Company believes WLEY-FM's signal provides market
coverage of the Chicago metropolitan area comparable to other FM stations
licensed to this area.
25
<PAGE> 29
San Antonio. KLEY-FM (formerly KRIO-FM) serves the San Antonio
metropolitan area, which has an ADI population of approximately 1.3 million of
which approximately 55.6% is Hispanic. The Company completed the acquisition of
KLEY-FM in May 1998 and switched the programming in July 1998, from only
"Tejano" to regional Mexican, including Tejano.
Puerto Rico. The Company purchased WDOY-FM serving Puerto Rico on December
1, 1998. The Company is in the process of integrating this newly acquired asset,
its operations and personnel.
ADVERTISING
Virtually all radio station revenue is derived from advertising. This
revenue is usually classified in one of two categories --"national" and "local."
"National" connotes advertising that is solicited by a national representative
firm that represents the station and is compensated on a commission-only basis.
"Local" refers to advertising purchased by advertisers in the local community
served by a particular station.
The Company believes that radio is one of the most efficient and
cost-effective means for advertisers to reach targeted demographic groups.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract listeners in a given market and on the
attractiveness to advertisers of the station's listener demographics. Rates vary
depending upon a program's popularity among the listeners an advertiser is
seeking to attract, the number of advertisers vying for available air time and
the availability of alternative media in the market. Radio advertising rates
generally are highest during the morning and afternoon drive-time hours which
are the peak hours for radio audience listening. The Company believes that
having multiple stations in a market is desirable to national advertisers and,
as a result, commands attractive advertising rates. The Company believes it will
be able to increase its rates as new and existing advertisers recognize the
increasing desirability of targeting the growing Hispanic population in the
United States.
Each station broadcasts a predetermined number of advertisements each hour
with the actual number depending upon the format of a particular station. The
Company determines the number of advertisements broadcast hourly that can
maximize the station's available revenue dollars without jeopardizing its
audience listener levels. While there may be shifts from time to time in the
number of advertisements broadcast during a particular time of the day, the
total number of advertisements broadcast on a particular station generally does
not vary significantly from year to year.
The Company's revenue mix between local and national advertising varies
significantly by market. Management's objective for its stations is to increase
the level of national advertising since national advertising generally commands
a higher dollar rate per advertising spot than does local advertising.
Approximately 73% of the Company's advertising is local and 27% is national.
During the first quarter of fiscal 1997, the Company terminated its
relationship with Katz who had served as the Company's national sales
representative for national broadcast advertising. Katz's termination resulted
from a dispute over the Company's exclusivity arrangement with Katz. The Company
and Katz have entered into a settlement agreement pursuant to which the Company
released Katz from any further obligation under the contract. During the second
quarter of fiscal 1997, the Company entered into a new five year agreement with
Caballero Spanish Media, LLC, a division of Interep, to act as its new national
sales representative.
Although the majority of the Company's advertising contracts are short-term
(generally running for less than one month), the Company has long-term
relationships with some of its advertisers. In each of its broadcasting markets,
the Company employs salespeople to obtain local advertising revenues. The
Company believes that its local sales force is crucial in maintaining
relationships with key local advertisers and agencies and identifying new
advertisers. The Company generally pays sales commissions to its local sales
staff upon the receipt from advertisers of the payments related to such sales.
The Company offers assistance to local advertisers by providing them with studio
facilities to produce 60-second commercials free of charge.
COMPETITION
The success of each of the Company's stations depends significantly upon
its audience ratings and its share of the overall advertising revenue within its
market. The radio broadcasting industry is a highly
26
<PAGE> 30
competitive business. Each of the Company's radio stations competes with other
radio stations in its market area (both Spanish-language and English-language),
as well as with other advertising media such as newspapers, broadcast
television, cable television, magazines, outdoor advertising, transit
advertising and direct mail marketing. Several of the stations with which the
Company competes are subsidiaries of large national or regional companies that
have substantially greater resources than the Company. Factors which are
material to competitive position include management experience, the station's
rank in its market, power, signal and frequency, and audience demographics
(including the nature of the Spanish market targeted by a particular station).
SEASONALITY
The Company's revenues and cash flow are typically lowest in the first
calendar quarter and highest in the second calendar quarter. Seasonal
fluctuations are common in the radio broadcasting industry and are due primarily
to fluctuations in advertising expenditures.
MANAGEMENT AND PERSONNEL
As of September 27, 1998, the Company had approximately 300 full-time
employees of whom ten were primarily involved in management, 115 in programming,
94 in sales, 72 in general administration and nine in technical activities.
The Company moved its headquarters' staff to Miami in late September and
early October of 1997. To facilitate efficient management from its headquarters,
the Company accesses and utilizes computerized accounting systems from its
properties to provide current information to management on station operations
and to assist in cost control and the preparation of monthly financial
statements. Corporate executives regularly visit each station to monitor its
operations and ensure that headquarters' policies are implemented.
FEDERAL REGULATION OF RADIO BROADCASTING
Existing Regulation and Legislation. Radio broadcasting is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act"), and by the Telecommunications Act of 1996 (the "1996
Act"). The Communications Act prohibits the operation of a radio broadcasting
station except under a license issued by the FCC and empowers the FCC, among
other things, to issue, renew, revoke and modify broadcasting licenses; assign
frequency bands; determine stations' frequencies, locations, and power; regulate
the equipment used by stations; adopt other regulations to carry out the
provisions of the Communications Act; impose penalties for violation of such
regulations; and impose fees for processing applications and other
administrative functions. The Communications Act prohibits the assignment of a
license or the transfer of control of a licensee without prior approval of the
FCC.
The 1996 Act represents the most comprehensive overhaul of the country's
telecommunications laws in more than 60 years. The 1996 Act significantly
changes both the broadcast ownership rules and the process for renewal of
broadcast station licenses. The 1996 Act also relaxes local radio ownership
restrictions, and the FCC continues to explore implementation of new ownership
policies in a series of rule makings. The FCC has already implemented some
changes through Commission orders. The 1996 Act establishes a "two-step" renewal
process that limits the FCC's discretion to consider applications filed in
competition with an incumbent's renewal application. Additionally, the 1996 Act
substantially liberalizes the national broadcast ownership rules, eliminating
the national radio limits.
This new regulatory flexibility has engendered aggressive local, regional,
and/or national acquisition campaigns. Removal of previous station ownership
limitations on leading incumbents (i.e., existing networks and major station
groups) has increased sharply the competition for, and the prices of, attractive
stations.
Multiple Ownership Restrictions. The FCC has promulgated rules that, among
other things, limit the ability of individuals and entities to own or have an
official position or ownership interest above a certain level (an "attributable"
interest, as defined more fully below) in broadcast stations, as well as other
specified mass media entities. Prior to the passage of the 1996 Act, these rules
included limits on the number of radio stations
27
<PAGE> 31
that could be owned on both a national and local basis. On a national basis, the
rules generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations and 20 FM radio stations.
The 1996 Act substantially relaxed the radio ownership limitations. The FCC
began its implementation of the 1996 Act with several orders issued on March 8,
1996. The Act and the FCC's subsequently issued rule changes eliminated the
national ownership restriction, allowing a single entity to own nationally any
number of AM or FM broadcast stations. The Act and the FCC's new rules also
greatly eased local radio ownership restrictions. As with the old rules, the
maximum allowable varies depending on the number of radio stations within a
market. In markets with more than 45 stations, one company may own, operate or
control eight stations, with no more than five in any one service (AM or FM). In
markets of 30-44 stations, one company may own seven stations, with no more than
four in any one service; in markets with 15-29 stations, one entity may own six
stations, with no more than four in any one service. In markets with 14
commercial stations or less, one company may own up to five stations or 50% of
all of the stations, whichever is less, with no more than three in any one
service.
In 1992, the FCC placed limitations on time brokerage (local marketing)
agreements through which the licensee of one radio station provides programming
for another licensee's station in the same market. Stations operating in the
same service (e.g., where both stations are AM) and in the same market are
prohibited from simulcasting more than 25% of their programming. Moreover, in
determining the number of stations that a single entity may control, an entity
programming a station pursuant to an LMA is required, under certain
circumstances, to count that station toward its maximum even though it does not
own the station.
A number of cross-ownership rules pertain to licensees of television and
radio stations. FCC rules, the Communications Act or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, daily newspaper or cable television system that is
located in the same local market area served by the television station. The FCC
has employed a liberal waiver policy with respect to the TV/radio
cross-ownership restriction (the so-called "one-to-a-market" rule), generally
permitting common ownership of one AM, one FM, and one TV station in any of the
25 largest markets, provided there are at least 30 separately owned stations in
the market. The 1996 Act directed the FCC to extend its one-to-a-market waiver
policy to the top 50 markets, consistent with the public interest, convenience
and necessity; however, the FCC has not yet implemented this provision.
Moreover, in a pending 1995 rulemaking the FCC has proposed eliminating the
one-to-a-market rule entirely. In addition, there is now pending a Notice of
Inquiry which explores possible changes in the newspaper/radio cross-ownership
waiver policy.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
further changes the FCC or Congress may adopt. Significantly, the 1996 Act
requires the Commission to review its remaining ownership rules biennially -- as
part of its regulatory reform obligations -- to determine whether its various
rules are still necessary. The Company cannot predict the impact of the biennial
review process or any other agency or legislative initiatives upon the FCC's
broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules
may increase the level of competition in one or more of the markets in which the
Company's stations are located, particularly to the extent that any of the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in other
media properties in the same areas as stations owned by the Company or in a
manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, limited partners who are not properly
"insulated" from management activities, and stockholders who own five percent or
more of the outstanding voting stock of a licensee (either directly or
indirectly), generally will be deemed to have an attributable interest in the
licensee. Certain institutional investors who exert no control or influence over
a licensee may own up to ten percent of such outstanding voting stock without
being considered "attributable." Under current FCC regulations, debt
instruments, non-voting stock, properly insulated limited
28
<PAGE> 32
partnership interests (as to which the licensee certifies that the limited
partners are not "materially involved" in the management and operation of the
subject media property), warrants and voting stock held by minority stockholders
in cases in which there is a single majority stockholder generally are not
attributable. The FCC's "cross-interest" policy, which precludes an individual
or entity from having a "meaningful" (even though not attributable) interest in
one media property and an attributable interest in a broadcast, cable or
newspaper property in the same area, may be invoked in certain circumstances to
reach interests not expressly covered by the multiple ownership rules. See the
Notice of Inquiry referred to above.
In January 1995, the FCC initiated a rulemaking proceeding designed to
permit a "thorough review of [its] broadcast media attribution rules." Among the
issues on which comment was sought were (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which non-voting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should eliminate its single majority shareholder exception (pursuant to
which voting interests in excess of five percent are not considered cognizable
if a single shareholder owns more than fifty percent of the voting power); (iv)
whether to relax insulation standards for business development companies and
other widely-held limited partnerships; (v) how to treat limited liability
companies and other new business forms for attribution purposes; (vi) whether to
eliminate or modify the cross-interest policy; and (vii) whether to adopt a new
policy which would consider whether multiple cross interests or other
significant business relationships (such as time brokerage agreements, debt
relationships or holdings of nonattributable interests), which individually do
not raise concerns, raise issues with respect to diversity and competition. In
November 1996, the FCC issued a Further Notice of Proposed Rulemaking intended
to change rules regarding attribution in light of the 1996 Act. The Company
cannot predict with certainty when this proceeding will be concluded or whether
any of these standards will be changed. Should the attribution rules be changed,
the Company is unable to predict what effect, if any, such changes would have on
the Company or its activities.
License Grant and Renewal. Prior to the passage of the 1996 Act, radio
broadcasting licenses generally were granted or renewed for a period of seven
years upon a finding by the FCC that the "public interest, convenience, and
necessity" would be served thereby. At the time an application is made for
renewal of a radio license, parties in interest may file petitions to deny the
application, and such parties, including members of the public, may comment upon
the service the station has provided during the preceding license term. In
addition, prior to passage of the 1996 Act, any person was permitted to file a
competing application for authority to operate on the station's channel and
replace the incumbent licensee. Renewal applications were granted without a
hearing if there were not competing applications or if issues raised by
petitioners to deny such applications were not serious enough to cause the FCC
to order a hearing. If competing applications were filed, a full comparative
hearing was required, sometimes encompassing years of expensive litigation and
uncertainty.
Under the 1996 Act, the statutory restriction on the length of broadcast
licenses has been amended to allow the FCC to grant broadcast licenses for terms
of up to eight years, although the FCC has not yet implemented this provision.
The 1996 Act also requires renewal of a broadcast license if the FCC finds that
(1) the station has served the public interest, convenience, and necessity; (2)
there have been no serious violations of either the Communications Act or the
FCC's rules and regulations by the licensee; and (3) there have been no other
serious violations which taken together constitute a pattern of abuse. In making
its determination, the FCC may still consider petitions to deny but cannot
consider whether the public interest would be better served by a person other
than the renewal applicant. Instead, under the 1996 Act, competing applications
for the same frequency may be accepted only after the Commission has denied an
incumbent's application for renewal of license.
By order dated April 12, 1996, the FCC modified its rules to implement the
new two-step renewal procedure and to eliminate the right to file an application
that is mutually exclusive with a renewal. Also on April 12, 1996, the FCC
issued a notice of Proposed Rulemaking to consider how to implement the new
(longer) license term provision of the 1996 Act.
29
<PAGE> 33
Although in the vast majority of cases broadcast licenses are granted by
the FCC even when petitions to deny are filed against them, there can be no
assurance that any of the Company's stations' licenses will be renewed.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities or individuals to own or hold certain interests in broadcast
licenses. Foreign governments, representatives of foreign governments, non-U.S.
citizens, representatives of non-U.S. citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-U.S. citizens, collectively, may directly or indirectly own or
vote up to twenty percent of the capital stock of a licensee. In addition, a
broadcast license may not be granted to representatives or held by any
corporation that is controlled, directly or indirectly, by any other corporation
more than one-fourth of whose capital stock is owned or voted by non-U.S.
citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted this provision of the Communications Act to require an
affirmative public interest finding before a broadcast license may be granted to
or held by any such corporation, and the FCC has made such an affirmative
finding only in limited circumstances. The Communications Act previously also
prohibited grant of a broadcast station license (i) to any corporation with an
alien officer or director, or (ii) to any corporation controlled by another
corporation with any alien officers or more than one-fourth alien directors. The
restrictions on non-U.S. citizens serving as officers or directors of licensees
and their parent corporations have been eliminated, however, by the 1996 Act
effective October 7, 1996.
Other Regulations Affecting Radio Broadcasting Stations. The FCC has
significantly reduced its past regulation of broadcast stations, including
elimination of formal ascertainment requirements and guidelines concerning
amounts of certain types of programming and commercial matter that may be
broadcast. In 1990, the U.S. Supreme Court refused to review a lower court
decision that upheld the FCC's 1987 action invalidating most aspects of the
Fairness Doctrine, which had required broadcasters to present contrasting views
on controversial issues of public importance. The FCC has, however, continued to
regulate other aspects of fairness obligations in connection with certain types
of broadcasts. In addition, there are FCC rules and policies, and rules and
policies of other federal agencies, that regulate matters such as political
advertising practices, equal employment opportunity, application procedures and
other areas affecting the business or operations of broadcast stations.
Recent Developments, Proposed Legislation and Regulation. The FCC
presently is seeking comment on its policies designed to increase minority
ownership of mass media facilities. Congress, however, has enacted legislation
that eliminated the minority tax certificate program of the FCC, which gave
favorable tax treatment to entities selling broadcast stations to entities
controlled by an ethnic minority. In addition, a recent Supreme Court decision
has cast into doubt the continued validity of other FCC programs designed to
increase minority ownership of mass media facilities.
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 affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes and proposed
changes noted above, such matters include, for example, the license renewal
process, spectrum use fees, political advertising rates, potential restrictions
on the advertising of certain products (liquor, beer and wine, for example) and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the 1996 Act, nor of the regulations
and policies of the FCC thereunder. The 1996 Act also covers satellite and
terrestrial delivery of digital audio radio service, and direct broadcast
satellite systems. Proposals for additional or revised regulations and
requirements are pending before and are being considered by Congress and federal
regulatory agencies from time to time. Also, various of the foregoing matters
are now, or may become, the subject of court litigation, and the Company cannot
predict the outcome of any such litigation or the impact on its broadcast
business.
30
<PAGE> 34
PROPERTIES
The Company's corporate headquarters were moved from New York City to Miami
between late September and early November 1997. The types of properties required
to support each of the Company's radio stations include offices, broadcasting
studios and antenna towers where its broadcasting transmitters and antenna
equipment are located. The Company owns the building housing the office and
studios in New York City for WSKQ-FM and WPAT-FM, and in Los Angeles for
KLAX-FM. The Company owns the auxiliary transmitter site for KLAX-FM in Long
Beach, California and leases its other transmitter sites, with lease terms that
respectively expire between 1999 and 2035, assuming all renewal options are
exercised. The studios and offices of the Company's Miami and South Florida
stations are currently located in leased facilities with lease terms that
respectively expire in 2000 and 2012. See "Certain Relationships and Related
Transactions." The Company leases its office and studio facilities in Chicago
and San Antonio for its WLEY-FM and KLEY-FM stations.
The transmitter sites for the Company's stations are material to the
Company's overall operations. Management believes that its properties are in
good condition and are suitable for its operations; however, the Company
continually seeks opportunities to upgrade its properties. The Company owns
substantially all of the equipment used in its radio broadcasting business.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation incidental to the
conduct of its business, such as contract matters and employee-related matters.
The Company is not currently a party to litigation which, in the opinion of
management, is likely to have a materially adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company sublets the transmitter for WXLX-AM in Lyndhurst, New Jersey,
which is located on a former landfill. Although WXLX-AM has since been sold as
part of the Dispositions, the Company retains certain potential environmental
liabilities relating to such transmitter. As the lessee of the property under a
long-term lease, the Company may become liable for costs associated with
remediation of the site. There can be no assurance that material costs or
liabilities will not be incurred in the event that cleanup of this site is
required.
31
<PAGE> 35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the names, ages and positions of the
directors, executive officers and certain key employees of the Company upon
consummations of the Offerings. Each director of the Company serves until his
successor is elected and qualifies.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION WITH THE COMPANY
- ---- --- ---------------------------------
<S> <C> <C>
Pablo Raul Alarcon Sr.................... 72 Chairman of the Board of Directors of the
Company
Raul Alarcon Jr.......................... 42 President and Chief Executive Officer and
a Director of the Company
Jose Grimalt............................. 70 Secretary and a Director of the Company
Arnold Sheiffer*......................... 65 Director of the Company
Joseph Garcia............................ 53 Executive Vice President, Chief Financial
Officer of the Company and Assistant
Secretary
Carey Davis.............................. 44 Vice President and General Manager of the
New York Stations
Jesus Salas.............................. 23 Vice President of Programming
Luis Diaz-Albertini...................... 47 Vice President-Group Sales
</TABLE>
- ---------------
* Member of the Audit and the Compensation Committees of the Board of Directors.
Pablo Raul Alarcon Sr. has been the Chairman of the Board of Directors of
the Company since its formation in June 1994. He also serves as the Chairman of
the Board of SBS-NJ, and those of the Company's other subsidiaries that own and
operate the Company's radio stations. Mr. Alarcon Sr. has been involved in
Spanish language radio broadcasting for much of his life. Mr. Alarcon Sr. is the
father of Raul Alarcon Jr.
Raul Alarcon Jr. has been the President and Chief Executive Officer of the
Company since its formation in June 1994. He also serves as the President and a
Director of Spanish Broadcasting System, Inc., a New Jersey corporation that is
wholly-owned by the Company ("SBS-NJ"), and President or Vice President of those
of the Company's other subsidiaries that own and operate the Company's radio
stations. Mr. Alarcon Jr. joined SBS-NJ as a sales manager in 1983 and became a
Director and the President and Chief Executive Officer of SBS-NJ in 1986. Mr.
Alarcon Jr. is responsible for the Company's long-range strategic planning and
was instrumental in the acquisition and financing of each of the Company's radio
stations. Mr. Alarcon Jr. is the son of Mr. Alarcon Sr. and the son-in-law of
Mr. Grimalt.
Jose Grimalt has been the Secretary of the Company since its formation in
June 1994. He also serves as a Director and the Secretary of SBS-NJ and those of
the Company's subsidiaries that own and operate the Company's radio stations.
From 1969 to 1986, Mr. Grimalt owned and operated Spanish language station
WLVH-FM in Hartford, Connecticut with a contemporary Spanish language music
format. In 1984, Mr. Grimalt became a stockholder and the President of the
Company's California subsidiary which operated KXMG-AM in Los Angeles. Mr.
Grimalt is Mr. Alarcon Jr.'s father-in-law. Mr. Grimalt recently assumed
management responsibilities for the Los Angeles station.
Arnold Sheiffer was elected to the Company's Board of Directors in December
1994. He is a private investor. From January 1990 until September 30,1994, Mr.
Scheiffer was an officer, director and stockholder of Katz, the largest national
sales representation firm in the broadcasting industry. From January 1992 until
September 30, 1994, Mr. Sheiffer served as Executive Vice President and Chief
Operating Officer of Katz.
Joseph Garcia has been the Chief Financial Officer of the Company since the
Company was formed in June 1994. He was appointed Vice President in March 1996.
He joined SBS-NJ in 1984 and since then has served as the Chief Financial
Officer of SBS-NJ and those of the Company's subsidiaries that own and operate
the Company's radio stations. Before joining SBS-NJ, Mr. Garcia spent thirteen
years in financial positions with General Foods, Philip Morris and Revlon, where
he was Manager of Financial Planning for
32
<PAGE> 36
Revlon -- Latin America. In addition to conventional financial duties, Mr.
Garcia assists the Company's President in formulating strategic plans for the
acquisition of radio properties and negotiating for bank financing and capital
formation.
Carey Davis has been the Vice President and General Manager of the New York
stations since February 1997. Mr. Davis previously spent 11 years with
Westinghouse/CBS Corp., including six years as the General Sales Manager for
WINS-AM in New York City and most recently as Vice President/Sales Development
for the CBS and Westinghouse stations.
JESUS SALAS has been the Vice President of Programming for the Company
since April 1998. He joined the Company in March 1997 as the Programming
Director for the Miami stations. Prior to that he worked for New Age
Broadcasting, Inc., where he began his career in November 1993 as a disc jockey.
He was promoted to assistant program director and then became the program
director.
LUIS DIAZ-ALBERTINI was named the Vice President of Sales for the Company
in September 1998. He began his employment with SBS as the General Manager of
WLEY-FM in Chicago in March 1997. Prior to this, Mr. Diaz-Albertini's experience
included being VP/General Manager of the four stations located in Miami for
Heftel Broadcasting Corporation. Mr. Diaz-Albertini has worked in the
broadcasting industry for 26 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Alarcon, Jr. and
Scheiffer. Mr. Alarcon, Jr. is the President and Chief Executive Officer of the
Company. The Compensation Committee did not meet in fiscal 1998. Compensation
for the Company's executive officers for fiscal 1998 was determined by Mr.
Alarcon, Jr. See "Item 13. Certain Relationships and Related Transactions."
33
<PAGE> 37
EXECUTIVE COMPENSATION
The following sets forth all compensation awarded to, earned by or paid for
services rendered to the Company and its subsidiaries in all capacities during
the fiscal years 1997, 1996 and 1995 by the Company's Chief Executive Officer
and the Company's next three highest paid executive officers at September 28,
1997, whose annual salary and bonus exceeded $100,000 (the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ---- ------------------ ---- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Raul Alarcon, Jr............ President and Chief 1998 $1,633,743(1) $215,000 (2)
Executive Officer 1997 1,361,647 -- (2)
1996 746,584 237,000 (2)
Pablo Raul Alarcon, Sr...... Chairman of the Board of 1998 492,577 25,000 (2)
Directors 1997 474,000 200,000 (2)
1996 464,000 112,000 (2)
Jose Grimalt................ Secretary and Director 1998 250,000 25,000 (2)
1997 310,184 -- (2)
1996 250,000 12,000 (2)
Joseph A. Garcia............ Executive Vice President and 1998 266,346 27,500 (2)
Chief Financial Officer 1997 244,671 53,000 (2)
1996 214,659 5,000 (2)
Carey Davis................. Vice President and General 1998 225,000 264,300 (2)
Manager of the New York 1997 147,115 -- (2)
stations 1996 -- -- (2)
</TABLE>
- ---------------
(1) Excludes amounts paid by the Company in connection with the lease by the
Company of an apartment in New York, New York owned by Mr. Alarcon, Jr.
which is used by the Company's employees and customers. See "Certain
Relationships and Related Transactions."
(2) Excludes perquisites and other personal benefits, securities or property
which aggregate the lesser of $50,000 or 10% of the total of annual salary
and bonus.
DIRECTOR COMPENSATION
Directors do not receive any compensation for serving on the Company's
Board of Directors. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with their service as directors. The Company also
maintains a directors' and officers' liability insurance policy for its
directors.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
In February 1997, the Company entered into a three-year employment
agreement with Carey Davis, pursuant to which Mr. Davis will serve as the Vice
President and General Manager of the New York stations. Mr. Davis will be paid a
base salary of $225,000 per year and will receive customary executive benefits.
Additionally, he will be paid a cash bonus in the event the New York stations
achieve certain broadcast cash flow targets. The agreement also contains a
non-competition provision for a three-month period following termination of Mr.
Davis' employment.
In March 1997, the Company entered into a five-year employment agreement
with Raul Alarcon, Jr. pursuant to which Mr. Alarcon, Jr. will continue to serve
as President and Chief Executive Officer of the Company. The agreement provides
for a base salary of not less than $1.3 million, which may be increased by the
Board of Directors in its sole discretion. Under the terms of the agreement, Mr.
Alarcon, Jr. will be paid a cash bonus equal to the sum of (i) 2.5% of the
dollar increase in same station revenue in the aggregate for any fiscal year and
(ii) 5.0% of the dollar increase in same station broadcast cash flow for any
fiscal year (collectively "Incentive Compensation"). The Company has accrued
bonuses of $215,000 which have not been paid. If Mr. Alarcon, Jr.'s employment
is terminated by the Company as a result of Mr. Alarcon, Jr.'s disability (as
defined), or by Mr. Alarcon, Jr. for Good Reason, he will be entitled to receive
all accrued salary, bonuses and Incentive Compensation to the date of
termination plus his salary, bonuses and Incentive
34
<PAGE> 38
Compensation for the remainder of the term of his employment agreement. Mr.
Alarcon, Jr. will also receive certain executive benefits, including use of
automobiles, and an apartment in New York City (not to exceed $150,000 per
year). Mr. Alarcon, Jr. will also be reimbursed for his relocation expenses to
Miami, Florida in an amount not to exceed $100,000. Pursuant to Mr. Alarcon,
Jr.'s employment agreement, and in connection with the Offerings, the Company
declared and paid a dividend of $3.4 million of which Mr. Alarcon, Jr. received
$3.1 million less the amounts owed under the promissory note executed in 1997,
from him to the Company.
OPTION PLAN
The Company adopted a stock option plan in 1994 (the "Plan") pursuant to
which 26,750 shares of the Company's Class A Common Stock are reserved for
issuance upon the exercise of options to be granted thereunder. Officers,
directors and/or key employees of the Company are eligible to participate in the
Plan. As of the date of this prospectus, no options had been granted under the
Plan.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") limits the liability of directors to the maximum extent permitted by
Delaware law, which specifies that a director of a company adopting such a
provision will not be personally liable for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director denied an
improper personal benefit.
The Company's By-laws provide for mandatory indemnification of directors
and authorize indemnification for officers (and others) in such manner, under
such circumstances and to the fullest extent permitted by the Delaware General
Corporation Law, which generally authorizes indemnification as to all expenses
incurred or imposed as a result of actions, suits or proceedings if the
indemnified parties act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the Company. The Company believes
that these provisions are necessary or useful to attract and retain qualified
persons as directors and officers.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought.
35
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Company's common stock as of the date of this Prospectus by:
(i) each person known to the Company to own beneficially more than 5% of any
class of common stock; (ii) each director and each named executive officer; and
(iii) all directors and executive officers of the Company as a group. All shares
are owned with sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT
OF
CLASS A CLASS A
EXECUTIVE OFFICERS(1) SHARES(2) SHARES
--------------------- --------- -------
<S> <C> <C>
Pablo Raul Alarcon Sr....................................... 36,400 6%
Raul Alarcon Jr............................................. 558,135 92%
Jose Grimalt................................................ 12,133 2%
Arnold Sheiffer............................................. -- --
Joseph Garcia............................................... -- --
All executive officers and directors as a group............. 606,668 100%
</TABLE>
- ---------------
(1) The address of all directors and executive officers in this table, unless
otherwise specified, is c/o Spanish Broadcasting System, Inc., 3191 Coral
Way, Miami, Florida 33145.
(2) As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed as of any date to have
"beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person named above, any
security that such person has the right to acquire within 60 days of the
date of calculation is deemed to be outstanding, but is not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person.
36
<PAGE> 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation."
In 1992, Mr. Alarcon, Jr. organized Nuestra Telefonica, Inc., a New York
corporation ("Nuestra") to operate long distance telephone service in Spanish to
serve the Hispanic population in the markets served by the Company's radio
stations. In February 1993, Nuestra entered into an access agreement with a
common carrier and commenced operations. Nuestra advertised its Spanish language
long distance telephone service on the Company's radio stations in Los Angeles
and New York and purchased such air time at standard station rates. Since early
1994, Nuestra has not utilized any air time on the Company's radio stations. As
of September 28, 1997 and September 27, 1998, Nuestra owed the Company $0.4
million related to unpaid air time and $0.3 million related to certain expenses
paid by the Company on Nuestra's behalf. The amounts due are recorded on the
Company's books as a receivable and due from related party asset, respectively.
Mr. Alarcon, Jr. has personally guaranteed the payment of $0.5 million of
Nuestra's obligations to the Company. Mr. Alarcon, Jr., the Company's President
and Chief Executive Officer, is Nuestra's Chairman and majority shareholder.
Joseph A. Garcia, the Company's Chief Financial Officer, is Nuestra's President
and a minority shareholder.
In 1992, Messrs. Alarcon, Sr. and Alarcon, Jr. acquired a building in Coral
Gables, Florida, for the purpose of housing the studios of WCMQ-AM (which has
since been sold as part of the Dispositions) and WCMQ-FM. In June 1992,
SBS-Florida, a subsidiary of the Company, entered into a 20-year net lease with
Messrs. Alarcon, Sr. and Alarcon, Jr. for the Coral Gables building which
provides for a base monthly rent of $9,000. Effective June 1, 1998 the lease on
this building was assigned to SBS Realty Corp., a realty management company
owned by Messrs. Alarcon Sr. and Jr. This building currently houses the offices
and studios of all of the Miami stations. The lease on the stations' previous
studios expired in October 1993, was for less than half the space of the
stations' present studios and had a monthly rental of approximately $7,500.
Based upon its prior lease for studio space, the Company believes that the lease
for the current studio is at market rates.
Effective July 1993, Messrs. Alarcon, Sr. and Alarcon, Jr. executed
promissory notes to the Company for the principal amounts of $0.5 million and
$1.6 million, respectively. Those promissory notes evidenced loans made by the
Company to Messrs. Alarcon, Sr. and Alarcon, Jr. over several prior years. They
were to mature in 2001 and bore interest at the rate of six (6%) percent per
annum until July 19, 1994 and thereafter at the lesser of nine (9%) percent per
annum or the prime rate charged by the Chase Manhattan Bank, N.A. Interest on
the unpaid principal amount was payable annually. In December 1995, the Company
exchanged the promissory notes described above for amended and restated notes in
the principal amounts of $0.6 million and $1.9 million due from Messrs. Alarcon,
Sr. and Alarcon, Jr., respectively. The amended and restated notes bear interest
at the rate of 6.36% per annum, and mature on December 30, 2025, and are payable
in thirty (30) equal annual installments of $43,570 and $143,158, respectively,
on December 30th of each year commencing December 30, 1996. The payments due on
December 30, 1996, 1997 and 1998 have not yet been made. As of September 27,
1998 $0.6 million and $1.9 million, plus accrued and unpaid interest to date,
was outstanding, respectively, on such promissory notes.
In connection with Mr. Alarcon, Jr.'s relocation from the New York
metropolitan area to the Miami metropolitan area, the Company advanced to Mr.
Alarcon, Jr. an aggregate of $1.1 million to pay certain relocation expenses. On
July 16, 1997, Mr. Alarcon, Jr. executed a promissory note to the Company for
the principal amount of $1.1 million to evidence such advances. The note was
payable on demand and bore interest at a rate of 7% per annum. When the Company
paid the Distribution, it applied $1.1 million against the principal and
interest due under the note.
For the year ended September 27, 1998, the Company paid operating expenses
aggregating approximately $0.1 million for a boat owned by CMQ Radio, Inc.
("CMQ"), a North Carolina corporation owned equally by Messrs. Alarcon, Sr. and
Alarcon, Jr. The boat is used by the Company for business entertainment. For the
year ended September 27, 1998, the amount paid by the Company for its use of the
boat owned by CMQ was comparable to amounts it would have paid had the Company
leased the boat from an unaffiliated party.
37
<PAGE> 41
The Company leases a two-bedroom furnished condominium apartment in midtown
Manhattan from Mr. Alarcon, Jr. for a monthly rent of $9,000. The lease
commenced in August 1987 and will expire in August 2007. During fiscal year
1998, the Company began renovations on the apartment of approximately $0.1
million which will ultimately cost about $0.2 million. It is also leasing an
apartment in the same area from Mr. Grimalt for a monthly rent of $3,000.
Generally, the apartments are used by the Company's executives, customers and
business associates. The Company believes that the lease for these apartments
are at market rates.
Mr. Grimalt's son is employed by the Company as an operations manager. He
was paid $128,345 and a bonus of $5,000 for the fiscal year ended September 27,
1998.
38
<PAGE> 42
SELLING SECURITYHOLDERS
The following table sets forth information provided to the Company by the
holders of the Company's Senior Preferred Stock, Exchange Debentures, and Class
A Common Stock, which may be offered from time to time by or for the account of
the holders thereof (the "Selling Securityholders") as to the number of shares
of Senior Preferred Stock beneficially owned by each of them as of December 28,
1997 (except for Value Line Aggressive Income Trust who provided their
information as of February 26, 1998, The High View Fund, LP, High View Fund II,
LP and High View Fund LLC who each provided their information as of December 7,
1998). The Selling Securityholders acquired the Senior Preferred Stock on March
27, 1997 in connection with the Offerings. The offering covers all of the shares
of Senior Preferred Stock included in the following table. See "Plan of
Distribution."
No Exchange Debentures or shares of Class A Common Stock have been issued
or are outstanding, and it is unknown as of the date of this Prospectus whether
any such securities will be issued. Accordingly, no Selling Securityholder
information with respect to such securities is available.
<TABLE>
<CAPTION>
SHARES OF SENIOR PREFERRED STOCK
NAME OF SELLER BENEFICIALLY OWNED (PERCENT OF CLASS)
-------------- --------------------------------------
<S> <C>
Abbott Laboratories Annuity Retirement Plan(3).............. 310*
Ameritech Corporation Pension Plan(3)....................... 775*
Amoco Corp. Pension Plan(2)................................. 310*
Capital Asset Trust(3)...................................... 75*
Central States, Southeast and Southwest Areas Pension
Fund(3)................................................... 3,975(2.06%)
CIBC Wood Gundy Securities Corp.(1)......................... 16,455(8.54%)
Continental Casualty Company................................ 22,500(11.68%)
Dreyfus Asset Allocation.................................... 1,677*
Dreyfus High Yield Securities............................... 5,570(2.89%)
Dreyfus Intermediate Term Income............................ 1,124*
Dreyfus Short Term High Yield............................... 1,071*
Dreyfus Strategic Income.................................... 10,585(5.49%)
EOS Partners, L.P........................................... 500*
Fidelity Advisor Series II: Fidelity Advisor High Yield
Fund...................................................... 1,141*
Fidelity Management Trust Company on behalf of accounts
managed by it............................................. 1,714*
French Global Strategic Yield(2)............................ 360*
Gleacher Nat West........................................... 1,000*
High View Fund II, LP(6).................................... 269*
High View Fund LLC(6)(7).................................... 1,112*
Highbridge Capital Corporation(5)........................... 500*
Highbridge International LLC................................ 3,213(1.67%)
ING Baring (U.S.) Capital Corp.............................. 9,445(4.90%)
Lazard Strategic Yield(2)................................... 1,250*
Lazard Global Strategic Yield(2)............................ 150*
LB Series Fund, Inc. High Yield(RFO3)....................... 4,900(2.54%)
LF International Fixed Income(2)............................ 435*
Legg Mason High Yield Fund(4)............................... 3,500(1.82%)
Legg Mason Offshore High Yield Fund(4)...................... 1,500*
Lincoln National Global Asset Allocation Fund, Inc.(3)...... 35*
Lutheran Brotherhood Family of Funds-Lutheran Brotherhood
High Yield Fund(RF06)..................................... 3,100(1.61%)
MainStay VP Series Fund, Inc., on behalf of its High Yield
Corporate Bond Portfolio(5)............................... 4,500(2.34%)
NYC Employee Retirement(2).................................. 1,500*
Police Officers Pension System of the City of Houston(5).... 730*
Post Balance Fund, L.P...................................... 2,000(1.04%)
Putnam Asset Allocation Funds -- Balanced Portfolio(3)...... 220*
Putnam Asset Allocation Funds -- Conservative
Portfolio(3).............................................. 75*
Putnam Asset Allocation Funds -- Growth Portfolio(3)........ 80*
Putnam Convertible Opportunities and Income Trust(3)........ 100*
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
SHARES OF SENIOR PREFERRED STOCK
NAME OF SELLER BENEFICIALLY OWNED (PERCENT OF CLASS)
-------------- --------------------------------------
<S> <C>
Putnam Diversified Income Portfolio/Smith Barney/Travelers
Series Fund(3)............................................ 75*
Putnam Diversified Income Trust(3).......................... 3,450(1.79%)
Putnam Diversified Income Trust II(3)....................... 350*
Putnam Equity Income Fund(3)................................ 10*
Putnam High Income Convertible and Bond Fund(3)............. 105*
Putnam High Yield Advantage Fund(3)......................... 8,675(4.50%)
Putnam High Yield Fixed Income Trust(DBT)(3)................ 85*
Putnam High Yield Managed Trust(3).......................... 970*
Putnam High Yield Total Return Fund(3)...................... 120*
Putnam High Yield Trust(3).................................. 11,120(5.77%)
Putnam Managed High Yield Trust(3).......................... 465*
Putnam Master Income Trust(3)............................... 590*
Putnam Master Intermediate Income Trust(3).................. 265*
Putnam Premier Income Trust(3).............................. 1,490*
Putnam Variable Trust -- Putnam VT Diversified Income
Fund(3)................................................... 815*
Putnam Variable Trust -- Putnam VT Global Asset Allocation
Fund(3)................................................... 80*
Putnam Variable Trust -- Putnam VT High Yield Fund(3)....... 3,125(1.62%)
Robert Fleming Inc.......................................... 4,000(2.07%)
Saffra Republic(2).......................................... 1,100*
Southern Company(2)......................................... 280*
Southern Farm Bureau Annuity Insurance Company(3)........... 110*
T. Rowe Price High Yield Fund 7016.......................... 3,000(1.58%)
The Brown & Williamson Master Retirement Trust(5)........... 800*
The High View Fund, LP(6)................................... 1,740*
The MainStay Funds, on behalf of its High Yield Corporate
Bond Fund Series(5)....................................... 39,570(20.54%)
The MainStay Funds, on behalf of its Strategic Income Fund
Series(5)................................................. 125*
The TCW Shared Opportunity Fund II, L.P..................... 2,000(1.04%)
University of Iowa #1(2).................................... 60*
University of Iowa #2(2).................................... 55*
Vulcan Materials Company High Yield Account(5).............. 150*
Value Line Aggressive Income Trust.......................... 2,133(1.10%)
Walter Industries(5)........................................ 25*
Wheat First Securities Inc. ................................ 1,071*
------
TOTAL....................................................... 195,765
</TABLE>
(1) CIBC Wood Gundy Securities Corp. (a) is the financial advisor to the
Company, (b) was the Initial Purchaser of the Senior Preferred Stock and
the Series A Notes in the Offerings consummated on March 27, 1997 and (c)
is a market-maker in the Company's securities.
(2) Lazard Asset Management holds discretionary power to vote, dispose of and
direct the voting and disposition of such securities.
(3) Shares voting and investment control with The Putnam Advisory Company, Inc.
(4) Western Asset Management serves as investment advisor to these entities.
(5) MacKay-Shields Financial Corporation holds discretionary power to vote,
dispose of and direct the voting and disposition of such securities.
(6) Ernest Werlin holds discretionary power to vote, dispose of and direct the
voting and disposition of such securities.
(7) High View Asset Management Corp. serves as investment advisor to this
entity.
* Less than 1%.
40
<PAGE> 44
PLAN OF DISTRIBUTION
The Selling Securityholders have advised the Company that the Securities
may be sold from time to time in one or more transactions (which may include
"block" transactions) through underwriters, brokers, dealers or agents or
directly to purchasers, and that sales may be effected in the over-the-counter
market, in negotiated transactions or otherwise, or a combination of the
foregoing, and at market prices prevailing at the time of sale, prices related
to such prevailing market prices, fixed prices or negotiated prices (which may
be changed).
Any underwriter, broker, dealer or agent through whom the Selling
Securityholders may effect transactions may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of Securities for whom they may act as
agent. Each Selling Securityholder reserves the sole right to accept and,
together with its agents from time to time, to reject, in whole or in part, any
proposed purchase of Securities to be made directly or through agents.
To the extent required, the specific Securities to be sold, the names of
the Selling Securityholder(s) thereof, the purchase price and/or public offering
price, the names of any underwriter, broker, dealer or agent, and any applicable
discount, concession or commission with respect thereto, will be set forth in an
accompanying Prospectus Supplement.
In order to comply with certain states' securities or "blue sky" laws, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Securities may not be sold unless the Securities have been registered or
qualified for sale in such states or an exemption from registration or
qualification is available and is complied with.
The Senior Preferred Stock was sold in transactions exempt from the
registration requirements of the Securities Act, by the Company on March 27,
1997 to CIBC Wood Gundy Securities Corp., the initial purchaser (the "Initial
Purchaser") of the Senior Preferred Stock, pursuant to a Securities Purchase
Agreement by and among the Company, the Guarantors named therein and the Initial
Purchaser (the "Purchase Agreement"). The Securities are being offered pursuant
to the Prospectus in accordance with the terms of the Preferred Stock
Registration Rights Agreement dated March 15, 1997 (the "Preferred Stock
Registration Rights Agreement") which granted the holders of the Senior
Preferred Stock certain registration rights. Pursuant to such agreement, the
Company is required to file with the Commission a shelf registration statement
to cover resales of the Senior Preferred Stock by the holders thereof and to use
its best efforts to keep the shelf registration statement continuously
effective, supplemented and amended until the third anniversary of the Issue
Date or such shorter period that will terminate when all the shares of transfer
restricted Senior Preferred Stock covered by the shelf registration statement
have been sold pursuant thereto or cease being transfer restricted Senior
Preferred Stock. The Registration Statement of which this Prospectus is a part
is intended to satisfy such obligations.
In addition, pursuant to the Preferred Stock Registration Rights Agreement,
the Company has agreed to file a registration statement registering the issuance
of shares of Class A Common Stock by the Company under certain circumstances,
and if any such shares are issued prior to the effectiveness of the registration
statement, the resale of such shares by the holder thereof. See "Description of
Senior Preferred Stock and Exchange Debentures -- Senior Preferred Stock -- Sale
of AM Stations," "-- Future Equity Infusion" and "Voting" and "Description of
Senior Preferred Stock and Exchange Debentures -- Exchange Debentures -- Sale of
AM Stations." The Company has agreed to keep such registration statement
continuously effective for so long as any shares of Senior Preferred Stock
remain outstanding. The Registration Statement of which this Prospectus is a
part is intended to satisfy such obligations.
Except for underwriting concessions, discounts and commissions payable in
connection with the sale of Securities, the Company will bear all expenses
incurred in connection with the performance of its obligations under the
Preferred Stock Registration Rights Agreement.
The Company has also agreed to indemnify, the Selling Securityholders,
their respective officers, directors, partners, employees, agents and
controlling persons, and each underwriter, dealer manager, selling broker and
similar securities industry professional participating in the distribution of
Securities, from liabilities arising under the Securities Act for any untrue or
alleged untrue statement of a material fact in the Registration Statement or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make any statement made therein not misleading,
except to the extent that such liabilities arise from information provided by
such person to the Company for inclusion in the Registration Statement.
41
<PAGE> 45
DESCRIPTION OF SENIOR PREFERRED STOCK AND EXCHANGE DEBENTURES
THE SENIOR PREFERRED STOCK
The following is a summary of the material terms and provisions of the
Senior Preferred Stock. This summary does not purport to be a complete
description of the Senior Preferred Stock and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the provisions of
the Certificates of Designation relating thereto (including the definitions
contained therein). Definitions relating to certain capitalized terms are set
forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Certificates of Designation and such
definitions are incorporated herein by reference.
GENERAL
Pursuant to the Certificate of Designation for the Series A Senior
Preferred Stock, 175,000 shares of Senior Preferred Stock with a liquidation
preference of $1,000 per share were authorized for issuance in the Units
Offering, plus up to 238,930 additional shares as may be issued in payment of
dividends in the event the Company elects to pay dividends on the Senior
Preferred Stock by issuing additional shares of Senior Preferred Stock. See
"-- Dividends" below. Subject to certain conditions, the Senior Preferred Stock
is exchangeable for Exchange Debentures at the option of the Company on any
dividend payment date. The Senior Preferred Stock, when issued, will be fully
paid and nonassessable, and the holders thereof will not have any subscription
or preemptive rights.
RANKING
The Senior Preferred Stock ranks, with respect to dividend distributions
and distributions upon the liquidation, winding-up or dissolution of the
Company, senior to all classes of common stock of the Company, and to each other
class of capital stock or series of preferred stock established after the date
of this Prospectus (collectively, "Junior Securities"). The Company may not
issue any class or series of capital stock ranking senior to or on a parity with
the Senior Preferred Stock with respect to dividend distributions or
distributions upon liquidation, winding-up or dissolution of the Company without
the approval of the holders of at least a majority of the shares of Senior
Preferred Stock then outstanding, voting or consenting, as the case may be,
together as one class; provided, however, that the Company can issue additional
shares of Senior Preferred Stock to satisfy dividend payments on outstanding
shares of Senior Preferred Stock.
DIVIDENDS
Holders of the Senior Preferred Stock will be entitled to receive, when, as
and if declared by the board of directors of the Company, out of funds legally
available therefor, dividends on the Senior Preferred Stock at a rate per annum
equal to 14 1/4% of the liquidation preference per share of Senior Preferred
Stock, payable semiannually; provided that so long as a Voting Rights Triggering
Event shall have occurred and be continuing, additional dividends will
accumulate on the Senior Preferred Stock at a rate per annum equal to 2% of the
liquidation preference per share of the Senior Preferred Stock, payable
semiannually. All dividends will be cumulative whether or not earned or declared
on a daily basis from the Issue Date and will be payable semi-annually in
arrears on March 15 and September 15 of each year, commencing on September 15,
1997, to holders of record on March 1 and September 1 immediately preceding the
relevant dividend payment date. Dividends may be paid, at the Company's option,
on any dividend payment date occurring on or prior to March 15, 2002 either in
cash or by the issuance of additional shares of Senior Preferred Stock
(including fractional shares) having an aggregate liquidation preference equal
to the amount of such dividends. On September 15, 1997, March 15, 1998 and
September 15, 1998 the Company declared and paid dividends by the issuance of
additional shares of Senior Preferred Stock to holders of record on September 1,
1997, March 1, 1998 and September 1, 1998, respectively. In the event that on or
prior to March 15, 2002 dividends are declared and paid through the issuance of
additional shares of Senior Preferred Stock, as provided in the previous
sentence, such dividends shall be deemed paid in full and will not accumulate.
After March 15, 2002, dividends must be paid in cash. The Indenture and the Old
Indenture restrict the Company's ability to pay
42
<PAGE> 46
cash dividends on its Capital Stock and will prohibit such payments in certain
instances and other future agreements may provide the same. See "Description of
Notes" and "Description of Old Notes."
Unpaid dividends accumulating after March 15, 2002 on the Senior Preferred
Stock for any past dividend period and dividends in connection with any optional
redemption may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date, not more than
forty-five days prior to the payment thereof, as may be fixed by the board of
directors of the Company. "Dividend Period" is the period from the Issue Date to
September 15, 1997, and, thereafter the period from a dividend payment date to
the next succeeding dividend payment date.
The dividend rate on the Senior Preferred Stock is subject to increase, and
such Additional Dividends (as defined below) will be payable on the dividend
payment dates set forth above, in certain circumstances, if the Senior Preferred
Stock (or other securities substantially similar to the Senior Preferred Stock)
are not registered with the Commission within the prescribed time periods. In
the event that (i) the Preferred Stock Shelf Registration Statement is not filed
with the Commission on or prior to the date specified herein for such filing,
(ii) the Preferred Stock Shelf Registration Statement has not been declared
effective by the Commission on or prior to the date specified herein for such
effectiveness after such obligation arises, or (iii) the Preferred Stock Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective or usable in connection with resales of transfer
restricted Preferred Stock during a period in which it is required to be
effective hereunder without being succeeded immediately by any additional
Registration Statement covering the Preferred Stock, as the case may be (each
such event, a "Preferred Stock Registration Default"), then the dividend rate on
transfer restricted Preferred Stock will increase ("Additional Dividends"), with
respect to the first 90-day period immediately following the occurrence of such
Preferred Stock Registration Default by 0.50% per annum and will increase by an
additional 0.25% per annum with respect to each subsequent 90-day period until
all Preferred Stock Registration Defaults have been cured, up to a maximum
amount of 2.00% per annum. Following the cure of all Preferred Stock
Registration Defaults, the accrual of Additional Dividends will cease and the
dividend rate will revert to the original rate. Upon the effective date of the
Registration Statement of which this Prospectus is a part, such registration
requirements will have been met and no Additional Dividends will be payable with
respect to the Senior Preferred Stock.
REDEMPTION
Optional Redemption. The Senior Preferred Stock will be redeemable, at the
Company's option, in whole at any time or in part from time to time on or prior
to March 15, 2000 at a redemption price equal to 105% of the liquidation
preference thereof, plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the immediately preceding dividend payment
date to the redemption date). After March 15, 2000 and prior to March 15, 2002,
the Senior Preferred Stock is not redeemable. On or after March 15, 2002, the
Senior Preferred Stock will be redeemable, at the Company's option, in whole at
any time or in part from time to time, at the following redemption prices
(expressed as a percentage of liquidation preference) if redeemed during the
twelve-month period commencing on March 15 of the applicable year set forth
below plus, without duplication, an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
the period from the immediately preceding dividend payment date to the
redemption date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................ 107.00%
2003............................................ 105.00%
2004 and thereafter............................. 100.00%
</TABLE>
Mandatory Redemption. The Senior Preferred Stock will also be subject to
mandatory redemption (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) in whole on March 15,
2005 at a price equal to the liquidation preference thereof, plus, without
duplication, all accumulated and unpaid dividends to the date of redemption.
43
<PAGE> 47
In the event of redemption of fewer than all of the outstanding shares of
Senior Preferred Stock, the Senior Preferred Stock will be redeemed on a pro
rata basis. The Senior Preferred Stock will be redeemable upon not less than 30
nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Transfer Agent of the Senior Preferred Stock. On and after any redemption date,
dividends will cease to accrue on the Senior Preferred Stock or portions thereof
called for redemption unless the Company shall fail to redeem any such Senior
Preferred Stock.
SALE OF AM STATIONS
If the Company had not (a) consummated Asset Sales including the FCC
broadcast licenses of WXLX-AM, New York, KXMG-AM, Los Angeles, and WCMQ-AM,
Miami, and applied the lesser of (i) $15.0 million of the Asset Sale Proceeds
with respect to such Asset Sales or (ii) the excess of the Asset Sale Proceeds
with respect to such Asset Sales above $25.0 million, to repurchase Notes or Old
Notes, (b) received Net Proceeds from issuances of its Capital Stock (other than
Disqualified Capital Stock) after the Issue Date in an amount equal to or
greater than $45.0 million or (c) utilized $40.0 million of Asset Sale Proceeds
from any Asset Sale(s) to repurchase Notes or Old Notes, in each case, on or
prior to the AM Stations Asset Sale Date (as defined below), the Company would
have been required to issue to the holders of Senior Preferred Stock and
Exchange Debentures then outstanding (on a pro rata basis, based upon the
liquidation preference and principal amount, respectively, thereof), to the
extent permitted by applicable law, (x) on the AM Stations Asset Sale Date,
shares of Class A Common Stock representing, in the aggregate, 1.5% of the
Common Stock of the Company on a fully diluted basis as of the AM Stations Asset
Sale Date and (y) on each anniversary of the AM Stations Asset Sale Date until
such time as the Company would have (A) received Net Proceeds from issuances of
its Capital Stock (other than Disqualified Capital Stock) after the Issue Date
in an amount equal to or greater than $45.0 million or (B) utilized $40.0
million of Asset Sale Proceeds from any Asset Sale(s) to repurchase Notes or Old
Notes, shares of Class A Common Stock representing 1.5% of the Common Stock of
the Company on a fully diluted basis as of such anniversary. See "Risk
Factors -- Risks Related to Government Regulation; Limitation on Issuances of
Common Stock."
As used herein, "AM Stations Asset Sale Date" means April 1, 1998.
In accordance with the certificate of designation governing the Senior
Preferred Stock, the Company offered to use $25 million to repurchase Old Notes
and actually used $15 million of the proceeds of the Dispositions to repurchase
Old Notes.
FUTURE EQUITY INFUSION
If, on any dividend payment date commencing with the March 15, 2000
dividend payment date, the sum of (i) the Net Proceeds received by the Company
from issuances of its Capital Stock (other than Disqualified Capital Stock)
after the Issue Date, (ii) the aggregate liquidation preference of Senior
Preferred Stock redeemed or repurchased by the Company and (iii) the aggregate
liquidation preference of Senior Preferred Stock exchanged for Exchange
Debentures does not equal or exceed $50.0 million, the Company shall issue to
the holders of Senior Preferred Stock, to the extent permitted by applicable
law, on each such dividend payment date shares of Class A Common Stock in an
amount equal to 1% of Common Stock of the Company on a fully diluted basis as of
such dividend payment date. See "Risk Factors -- Risks Related to Government
Regulation; Limitation on Issuances of Common Stock."
EXCHANGE
The Company may at its option from time to time on any dividend payment
date exchange, in whole or in part, on a pro rata basis, the then outstanding
shares of Senior Preferred Stock for Exchange Debentures; provided that
immediately after giving effect to any partial exchange, there shall be
outstanding shares of Senior Preferred Stock with an aggregate liquidation
preference of not less than $75,000,000 and not less than $50,000,000 aggregate
principal amount of Exchange Debentures; and provided, further, that (i) on the
date of such exchange there are no accumulated and unpaid dividends on the
Senior Preferred Stock (including the dividend payable on such date) or other
contractual impediments to such exchange; (ii) there shall be legally available
funds sufficient therefor; (iii) immediately after giving effect to such
exchange, no Default or Event of Default (each as defined in the Exchange
Indenture) would exist under the Exchange Indenture, no default
44
<PAGE> 48
or event of default would exist under the Indenture or the Old Indenture and no
default or event of default under any other material instrument governing
Indebtedness outstanding at the time would be caused thereby; and (iv) the
Exchange Indenture has been qualified under the Trust Indenture Act, if such
qualification is required at the time of exchange. Subject to the satisfaction
of clauses (i) through (iv) above, the Company has agreed to exchange all
outstanding shares of Senior Preferred Stock for Exchange Debentures within 60
days after such exchange is permitted without the Company obtaining any waiver,
consent, approval or authorization under the Indenture, the Old Indenture or any
other instrument governing Indebtedness outstanding at the time.
The Company will comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
The holders of outstanding shares of Senior Preferred Stock will be
entitled to receive, subject to the second succeeding sentence, $1.00 principal
amount of Exchange Debentures for each $1.00 liquidation preference of Senior
Preferred Stock held by them. The Exchange Debentures will be issued in
registered form, without coupons. Exchange Debentures issued in exchange for
Senior Preferred Stock will be issued in principal amounts of $1,000 and
integral multiples thereof to the extent possible, and will also be issued in
principal amounts less than $1,000 so that each holder of Senior Preferred Stock
will receive certificates representing the entire amount of Exchange Debentures
to which such holder's shares of Senior Preferred Stock entitle such holder;
provided that the Company may pay cash in lieu of issuing an Exchange Debenture
in a principal amount less than $1,000. The Company will send a written notice
of exchange by mail to each holder of record of shares of Senior Preferred Stock
not less than 30 nor more than 60 days before the date fixed for such exchange.
On and after the exchange date, dividends will cease to accumulate on the
outstanding shares of Senior Preferred Stock that are to be exchanged, and all
rights of the holders of Senior Preferred Stock that is to be exchanged (except
the right to receive the Exchange Debentures, an amount in cash equal to the
accumulated and unpaid dividends to the exchange date and, if the Company so
elects, cash in lieu of any Exchange Debenture which is in an amount that is not
an integral multiple of $1,000) will terminate. The person entitled to receive
the Exchange Debentures issuable upon such exchange will be treated for all
purposes as the registered holder of such Exchange Debentures. See "-- The
Exchange Debentures."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the Senior Preferred Stock will initially be entitled to
be paid, out of the assets of the Company available for distribution, $1,000 per
share, plus an amount in cash equal to accumulated and unpaid dividends thereon
to the date fixed for liquidation, dissolution or winding-up (including an
amount equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities. If
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Senior Preferred Stock are not
paid in full, the holders of the Senior Preferred Stock will share equally and
ratably in any distribution of assets of the Company first in proportion to the
full liquidation preference to which each is entitled until such preferences are
paid in full, and then in proportion to their respective amounts of accumulated
but unpaid dividends.
VOTING RIGHTS
Holders of the Senior Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by Delaware law or as
set forth in the Certificate of Designation. The Certificate of Designation
provides that if (i) after March 15, 2002, dividends on the Senior Preferred
Stock required to be paid in cash are in arrears and unpaid for two or more
semi-annual dividend periods (whether or not consecutive) or (ii) the Company
fails to redeem the Senior Preferred Stock on or before March 15, 2005 or fails
to discharge any redemption obligation with respect to the Senior Preferred
Stock or (iii) the Company fails to make a Change of Control Offer if such an
offer is required by the provisions set forth under "-- Change of Control" below
or fails to purchase shares of Senior Preferred Stock from holders who elect to
have such shares purchased pursuant to the Change of Control Offer or (iv) a
breach or violation of any of the
45
<PAGE> 49
provisions described under the captions "-- Sale of AM Stations," "-- Future
Equity Infusion" or "-- Certain Covenants" occurs and the breach or violation
continues for a period of 60 days or more after the Company receives notice
thereof specifying the default from the holders of at least 25% of the shares of
Senior Preferred Stock then outstanding or (v) the Company fails to pay at the
final stated maturity (giving effect to any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the final stated maturity of any such Indebtedness is accelerated,
if the aggregate principal amount of such Indebtedness, together with the
aggregate principal amount of any other such Indebtedness in default for failure
to pay principal at the final stated maturity (giving effect to any extensions
thereof) or which has been accelerated, aggregates $3,000,000 or more at any
time, in each case, after a 20-day period during which such default shall not
have been cured or such acceleration rescinded, then the number of directors
constituting the board of directors of the Company will be adjusted to permit
the holders of a majority of the then outstanding shares of Senior Preferred
Stock, voting separately and as a class, to elect the lesser of two directors
and that number of directors constituting 25% of the members of the board of
directors of the Company. Such voting rights will continue until such time as,
in the case of a dividend default, all accumulated and unpaid dividends on the
Senior Preferred Stock are paid in full in cash and, in all other cases, any
failure, breach or default giving rise to such voting rights is remedied, cured
or waived by the holders of at least a majority of the shares of Senior
Preferred Stock then outstanding, at which time the term of any directors
elected pursuant to the provisions of this paragraph shall terminate. Each such
event described in clauses (i) through (v) above is referred to herein as a
"Voting Rights Triggering Event."
Upon the occurrence of a Voting Rights Triggering Event, the Company shall
issue to the holders of Senior Preferred Stock, to the extent permitted by
applicable law, on a pro rata basis shares of Class A Common Stock in an amount
equal to 2% of the Common Stock on a fully diluted basis on the date of
issuance. If, on any dividend payment date after the occurrence of such Voting
Rights Triggering Event, any Voting Rights Triggering Event shall be continuing,
the Company shall issue to the holders of Senior Preferred Stock, to the extent
permitted by applicable law, on a pro rata basis shares of Class A Common Stock
in an amount in the aggregate equal to the product of (a) that number of shares
of Class A Common Stock equal to 2% of the Common Stock on a fully diluted basis
as of each such dividend payment date and (b) a fraction, the numerator of which
is the number of days (not to exceed 180 days) during the Dividend Period ending
on such dividend payment date that a Voting Rights Triggering Event shall have
occurred and been continuing, and the denominator of which is 180. See "Risk
Factors -- Risks Related to Government Regulation; Limitation on Issuances of
Common Stock."
In addition, the Certificate of Designation provides that the Company will
not authorize any additional shares of Senior Preferred Stock or any class or
series of capital stock ranking prior to or on a parity with the Senior
Preferred Stock with respect to dividend distributions or distributions upon
liquidation, winding-up or dissolution without the affirmative vote or consent
of holders of at least a majority of the shares of Senior Preferred Stock of the
Company then outstanding which are entitled to vote thereon, voting or
consenting, as the case may be, as one class. The Certificate of Designation
also provides that the Company may not amend the Certificate of Designation so
as to affect adversely the specified rights, preferences, privileges or voting
rights of the holders of shares of Senior Preferred Stock, without the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of Senior Preferred Stock which are entitled to vote thereon,
voting or consenting, as the case may be, as one class.
Under Delaware law, holders of Senior Preferred Stock are entitled to vote
as a class upon a proposed amendment to the certificate of incorporation of the
Company, whether or not entitled to vote thereon by the certificate of
incorporation, if the amendment would increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
make an offer to purchase (the "Change of Control Offer") the outstanding Senior
Preferred Stock at a purchase price equal to 101% of the liquidation preference
thereof plus, without duplication, an amount in cash equal to all accumulated
and
46
<PAGE> 50
unpaid dividends thereon (including an amount in cash equal to a prorated
dividend for the period from the immediately preceding dividend payment date to
the Change of Control Payment Date (such applicable purchase price being
hereinafter referred to as the "Change of Control Purchase Price") in accordance
with the procedures set forth in this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to each holder of Senior
Preferred Stock, at the address appearing in the register maintained by the
Transfer Agent, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Senior Preferred Stock tendered will be accepted for
payment, and otherwise subject to the terms and conditions set forth
herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Senior Preferred Stock not tendered will continue to
accumulate dividends;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Senior Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accumulate dividends
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Senior Preferred
Stock purchased pursuant to a Change of Control Offer will be required to
surrender their certificates representing Senior Preferred Stock to the
Company at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Company receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the number of shares of Senior Preferred Stock delivered for
purchase, and a statement that such holder is withdrawing his election to
have such Senior Preferred Stock purchased;
(7) that holders whose Senior Preferred Stock is being purchased only
in part will be issued new certificates representing the number of shares
of Senior Preferred Stock equal to the unpurchased portion of the
certificates surrendered; and
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall accept for payment
the Senior Preferred Stock tendered pursuant to the Change of Control Offer and
promptly mail to each holder of Senior Preferred Stock so accepted payment in an
amount equal to the purchase price for such Senior Preferred Stock, and the
Company shall execute and issue a new Senior Preferred Stock certificate equal
to any unpurchased shares represented by a certificate surrendered.
In the event that a Change of Control occurs and the holders of Senior
Preferred Stock exercise their right to require the Company to purchase Senior
Preferred Stock, if such purchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase.
Prior to the mailing of the notice referred to above, but in any event
within 20 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the Senior Preferred Stock would
violate or constitute a default or be prohibited under the Indenture, the Old
Indenture or any other instrument governing Indebtedness outstanding at the
time, then the Company will, to the extent needed to permit such purchase of
Senior Preferred Stock, either (i) repay in full all Indebtedness under the
Indenture, the Old Indenture or any such other instrument, as the case may be,
or (ii) obtain the requisite consents under
47
<PAGE> 51
the Indenture, the Old Indenture or any such other instrument, as the case may
be, to permit the redemption of the Senior Preferred Stock as provided above.
The Company will first comply with the covenant in the preceding sentence before
it will be required to redeem Senior Preferred Stock pursuant to the provisions
described above.
CERTAIN COVENANTS
The Certificate of Designation contains the following covenants.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness), provided that the Company may incur
Indebtedness and any Restricted Subsidiary created after the Issue Date may
incur Acquisition Indebtedness if (a) after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
ratio of the Company's total consolidated Indebtedness to the Company's EBITDA
(determined on a pro forma basis for the last four fiscal quarters of the
Company for which financial statements are available at the date of
determination) is less than 6.75 to 1; provided, however, that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness or Acquisition Indebtedness, then such ratio shall be
determined by giving effect to (on a pro forma basis as if the transaction had
occurred at the beginning of the four-quarter period) both the incurrence or
assumption of such Acquired Indebtedness or Acquisition Indebtedness by the
Company or a Restricted Subsidiary, as the case may be, and the inclusion in the
Company's EBITDA of the EBITDA of the acquired person, business, property or
assets, and (b) no Voting Rights Triggering Event shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company shall not incur any
Permitted Indebtedness that ranks junior in right of payment to the Exchange
Debentures that has a maturity or mandatory sinking fund payment prior to the
maturity of the Exchange Debentures.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment, unless:
(a) no Voting Rights Triggering Event shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(b) immediately after giving effect to such Restricted Payment, (i)
the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness" and (ii) the ratio of the Company's EBITDA
(determined on a pro forma basis for the last four fiscal quarters of the
Company for which financial statements are available at the date of
determination) to the Company's Consolidated Interest Expense (determined
on a pro forma basis for the last four fiscal quarters of the Company for
which financial statements are available) is equal to or greater than 1.4
to 1; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Company's EBITDA from the Issue
Date to the date of determination minus 1.4 times the Company's
Consolidated Interest Expense from the Issue Date to the date of
determination (or in the event such amount shall be a deficit, minus 100%
of such deficit), (2) 100% of the aggregate Net Proceeds and the fair
market value of marketable securities or other property received by the
Company from the issue or sale, after the Issue Date, of Capital Stock
(other than Disqualified Capital Stock, Capital Stock of the Company issued
to any Subsidiary of the Company and the proceeds from the issuance of
Capital Stock pursuant to the Warrants or the Old Warrants) of the Company
or any Indebtedness or other securities of the Company
48
<PAGE> 52
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which has been so converted
or exercised or exchanged, as the case may be. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Certificate of Designation, (ii) so long as no Voting Rights Triggering Event
shall have occurred and be continuing, the retirement of any shares of Capital
Stock of the Company or Indebtedness subordinated to the Exchange Debenture by
conversion into, or by or in exchange for, shares of Capital Stock (other than
Disqualified Capital Stock) of the Company, or out of, the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Capital Stock of the Company (other than Disqualified Capital
Stock), (iii) so long as no Voting Rights Triggering Event shall have occurred
and be continuing, the redemption or retirement of Indebtedness of the Company
subordinated to the Exchange Debentures in exchange for, by conversion into, or
out of the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company
that is contractually subordinated in right of payment to the Exchange
Debentures to at least the same extent as the subordinated Indebtedness being
redeemed or retired, (iv) so long as no Voting Rights Triggering Event shall
have occurred and be continuing, the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Disqualified
Capital Stock; provided that (a) such Disqualified Capital Stock is not subject
to mandatory redemption earlier than the maturity of the Exchange Debentures,
(b) such Disqualified Capital Stock is in an aggregate liquidation preference
that is equal to or less than the sum of (x) the aggregate liquidation
preference of the Disqualified Capital Stock being retired, (y) the amount of
accrued and unpaid dividends, if any, and premiums owed, if any, on the
Disqualified Capital Stock being retired and (z) the amount of customary fees,
expenses and costs related to the incurrence of such Disqualified Capital Stock
and (c) such Disqualified Capital Stock is incurred by the same person that
initially incurred the Disqualified Capital Stock being retired, except that the
Company may incur Disqualified Capital Stock to refund or refinance Disqualified
Capital Stock of any Wholly-Owned Restricted Subsidiary of the Company, (v) the
payment of dividends (whether or not in cash) on the Senior Preferred Stock in
the manner provided in the Certificate of Designation, (vi) so long as no Voting
Rights Triggering Event shall have occurred and be continuing, the payment of
dividends and distributions to the stockholders and warrantholders of the
Company on or after the Issue Date in an amount not to exceed $4,000,000 in the
aggregate, (vii) the exchange of Senior Preferred Stock for Exchange Debentures
and (viii) so long as no Voting Rights Triggering Event shall have occurred and
be continuing, other Restricted Payments in an aggregate amount not to exceed
$3,000,000. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (c) of the immediately
preceding paragraph, amounts expended pursuant to clauses (i) (excluding
dividends and distributions pursuant to clause (vi)), (ii) and (viii) shall be
included in such calculation.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
entities in which the Company or any of its Restricted Subsidiaries own a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be, and
the terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1,000,000
49
<PAGE> 53
which is not permitted under clause (i) above, such Affiliate Transaction(s)
must be approved by a majority of the board of directors of the Company
(including a majority of the disinterested directors). In transactions with a
value in excess of $3,000,000 which are not permitted under clause (i) above, in
addition to the requirements set forth in the immediately preceding sentence,
the Company must obtain a written opinion as to the fairness of such a
transaction from a nationally recognized expert with experience in appraising
the terms or conditions of the type of business or transaction or series of
transactions for which approval is required.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein or (ii) any transaction approved by the board of
directors of the Company, with an officer or director of the Company or of any
Subsidiary of the Company in his or her capacity as officer or director entered
into in the ordinary course of business, including compensation and employee
benefit arrangements with any officer or director of the Company or of any
Subsidiary of the Company that are customary for public companies in the radio
broadcasting industry.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary of the Company to
issue any Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the covenant described under "Limitation on Additional Indebtedness" in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Merger, Consolidation and Sale of Assets. Without the affirmative vote of
the holders of a majority of the issued and outstanding shares of Senior
Preferred Stock, voting or consenting, as the case may be, as a separate class,
the Company will not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to,
another person or adopt a plan of liquidation unless (i) either (1) the Company
is the surviving or continuing person or (2) the person (if other than the
Company) formed by such consolidation or into which the Company is merged or the
person that acquires by conveyance, transfer or lease the properties and assets
of the Company substantially as an entirety or, in the case of a plan of
liquidation, the person to which assets of the Company have been transferred
shall be a corporation existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) the Senior Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor,
transferee or resulting person, having in respect of such successor, transferee
or resulting person the same powers, preferences and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon, that the Senior Preferred Stock had immediately prior to
such transaction; (iii) immediately after giving effect to such transaction and
the use of the proceeds therefrom (on a pro forma basis, including giving effect
to any Indebtedness incurred or anticipated to be incurred in connection with
such transaction), the Company (in the case of clause (1) of the foregoing
clause (i)) or such person (in the case of clause (2) of the foregoing clause
(i)) shall be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation of Additional
Indebtedness" covenant; and (iv) immediately after giving effect to such
transactions, no Voting Rights Triggering Event shall have occurred or be
continuing.
Transfer Agent and Registrar. IBJ Schroder Bank & Trust Company is the
transfer agent (the "Transfer Agent") and registrar for the Senior Preferred
Stock.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Senior Preferred Stock. The
Certificate of Designation provides that even if the Company is entitled under
the Exchange Act not to furnish such information to the Commission or to the
holders of the Senior Preferred
50
<PAGE> 54
Stock, it will nonetheless continue to furnish such information to the
Commission and holders of the Senior Preferred Stock.
THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under an Indenture (the
"Exchange Indenture"), dated as of March 15, 1997 among the Company, the
Debenture Guarantors and U.S. Trust Company of New York, as Trustee (the
"Debenture Trustee"). The terms of the Exchange Debentures include those stated
in the Exchange Indenture and those made a part of the Exchange Indenture by
reference to the Trust Indenture Act as in effect on the date of the Exchange
Indenture. The Exchange Debentures are subject to all such terms, and holders
are referred to the Exchange Indenture and the Trust Indenture Act for a
statement of provisions of the Exchange Debentures. The following is a summary
of the material terms and provisions of the Exchange Debentures. This summary
does not purport to be a complete description of the Exchange Debentures and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Exchange Debentures and the Exchange Indenture (including the
definitions contained therein). A copy of the form of Exchange Indenture may be
obtained from the Company by any holder or prospective investor upon request.
Definitions relating to certain capitalized terms are set forth under
"-- Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Exchange Indenture and such definitions are incorporated by reference
herein.
GENERAL
The Exchange Debentures will be general unsecured obligations of the
Company and will be limited in aggregate principal amount to the liquidation
preference of the Senior Preferred Stock, plus, without duplication, accumulated
and unpaid dividends, on the date or dates on which it is exchanged for Exchange
Debentures (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). The Exchange Debentures will be issued in fully
registered form only, in denominations of $1,000 and integral multiples thereof
(other than as described in "-- The Senior Preferred Stock -- Exchange" or with
respect to additional Exchange Debentures issued in lieu of cash interest as
described herein). The Exchange Debentures will be subordinated to all existing
and future Senior Debt of the Company (including the Notes and the Old Notes).
The Exchange Debentures will be unconditionally guaranteed (each, a
"Debenture Guarantee"), on a senior subordinated basis, as to payment of
principal, premium, if any, and interest, jointly and severally, by the
Debenture Guarantors (together with each other Restricted Subsidiary which
guarantees the Exchange Debentures pursuant to the covenant described under
"Certain Covenants -- Limitation on Creation of Subsidiaries").
The Exchange Debentures will mature on March 15, 2005. The Exchange
Debentures will bear interest at the rate of 14 1/4% per annum from the date of
exchange for the applicable Senior Preferred Stock (each, an "Exchange Date").
Interest will be payable semi-annually in cash (or, on or prior to March 15,
2002, in additional Exchange Debentures, at the option of the Company) in
arrears on each March 15 and September 15, commencing with the first such date
after the applicable Exchange Date, to holders of record of the Exchange
Debentures at the close of business on the immediately preceding March 1 and
September 1, respectively.
REDEMPTION
Optional Redemption. The Exchange Debentures will be redeemable, at the
Company's option, in whole at any time or in part from time to time on or prior
to March 15, 2000 at a redemption price equal to 105% of the principal amount
thereof, plus accrued interest thereon to the date of redemption. After March
15, 2000 and prior to March 15, 2002, the Exchange Debentures are not
redeemable. On or after March 15, 2002, the Exchange Debentures will be
redeemable, at the Company's option, in whole at any time or in part from time
to time, the following redemption prices (expressed as percentages of the
principal
51
<PAGE> 55
amount) if redeemed during the twelve-month period commencing on March 15 of the
applicable year set forth below, plus, in each case, accrued interest thereon to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................. 107.00%
2003.............................................. 105.00%
2004 and thereafter............................... 100.00%
</TABLE>
SALE OF AM STATIONS
If the Company had not (a) consummated Asset Sales including the FCC
broadcast licenses of WXLX-AM, New York, KXMG-AM, Los Angeles, and WCMQ-AM,
Miami, and applied the lesser of (i) $15.0 million of the Asset Sale Proceeds
with respect to such Asset Sales or (ii) the excess of the Asset Sale Proceeds
with respect to such Asset Sales above $25.0 million, to repurchase Notes or Old
Notes, (b) received Net Proceeds from issuances of its Capital Stock (other than
Disqualified Capital Stock) after the Issue Date in an amount equal to or
greater than $45.0 million or (c) utilized $40 million of Asset Sale Proceeds
from any Asset Sale(s) to repurchase Notes or Old Notes, in each case, on or
prior to the AM Stations Asset Sale Date, the Company would have been required
to issue to the holders of Senior Preferred Stock and Exchange Debentures then
outstanding (on a pro rata basis, based upon the liquidation preference and
principal amount, respectively, thereof), to the extent permitted by applicable
law, (x) on the AM Stations Asset Sale Date, shares of Class A Common Stock
representing, in the aggregate, 1.5% of the Common Stock of the Company on a
fully diluted basis as of the AM Stations Asset Sale Date and (y) on each
anniversary of the AM Stations Asset Sale Date until such time as the Company
would have (A) received Net Proceeds from issuances of its Capital Stock (other
than Disqualified Capital Stock) after the Issue Date in an amount equal to or
greater than $45.0 million or (B) utilized $40.0 million of Asset Sale Proceeds
from any Asset Sale(s) to repurchase Notes or Old Notes, shares of Class A
Common Stock representing 1.5% of the Common Stock of the Company on a fully
diluted basis as of such anniversary. See "Risk Factors -- Risks Related to
Government Regulation; Limitation on Issuances of Common Stock."
In accordance with the certificate of designation governing the Senior
Preferred Stock, the Company offered to use $25 million to repurchase Old Notes
and actually used $15 million of the proceeds of the Dispositions to repurchase
Old Notes.
SUBORDINATION
The Obligations represented by the Exchange Debentures are, to the extent
and in the manner provided in the Exchange Indenture, subordinated in right of
payment to the prior indefeasible payment and satisfaction in full of all
existing and future Senior Debt of the Company.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshaling of assets or liabilities of the
Company (except in connection with the merger or consolidation of the Company or
its liquidation or dissolution following the transfer of substantially all of
its assets, upon the terms and conditions permitted under the circumstances
described under "-- Merger, Consolidation and Sale of Assets") (all of the
foregoing referred to herein individually as a "Bankruptcy Proceeding" and
collectively as "Bankruptcy Proceedings"), the holders of Senior Debt of the
Company will be entitled to receive payment and satisfaction in full of all
amounts due on or in respect of all Senior Debt of the Company before the
holders of the Exchange Debentures are entitled to receive or retain any payment
or distribution of any kind on account of the Exchange Debentures. In the event
that, notwithstanding the foregoing, the Debenture Trustee or any holder of
Exchange Debentures receives any payment or distribution of assets of the
Company of any kind, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Exchange
Debentures before all Senior Debt of the Company is paid and satisfied in full,
then such payment or distribution will be held by the recipient in trust for the
benefit of holders of Senior Debt and will be immediately paid over or delivered
to the holders of Senior Debt or their
52
<PAGE> 56
representative or representatives to the extent necessary to make payment in
full of all Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the holders of Senior
Debt.
No payment or distribution of any assets or securities of the Company or
any Restricted Subsidiary of the Company of any kind or character (including,
without limitation, cash, property and any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Company being subordinated to the payment of the Exchange Debentures by the
Company) may be made by or on behalf of the Company or any Restricted Subsidiary
of the Company, including, without limitation, by way of set-off or otherwise,
for or on account of the Exchange Debentures, or for or on account of the
purchase, redemption or other acquisition of the Exchange Debentures, and
neither the Debenture Trustee nor any holder or owner of any Exchange Debentures
shall take or receive from the Company or any Restricted Subsidiary of the
Company, directly or indirectly in any manner, payment in respect of all or any
portion of Exchange Debentures following the delivery by the representative of
the holders of Designated Senior Debt (the "Representative") to the Debenture
Trustee of written notice of the occurrence of a Payment Default, and in any
such event, such prohibition shall continue until such Payment Default is cured,
waived in writing or ceases to exist. At such time as the prohibition set forth
in the preceding sentence shall no longer be in effect, subject to the
provisions of the following paragraph, the Company shall resume making any and
all required payments in respect of the Exchange Debentures, including any
missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Debt, no payment or distribution of any assets of the Company of any kind may be
made by the Company, including, without limitation, by way of set-off or
otherwise, on account of the Exchange Debentures, or on account of the purchase
or redemption or other acquisition of Exchange Debentures, for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Debenture
Trustee of written notice from the Representative of such Non-Payment Event of
Default unless and until (subject to any blockage of payments that may then be
in effect under the preceding paragraph) the earliest of (w) more than 179 days
shall have elapsed since receipt of such written notice by the Debenture
Trustee, (x) such Non-Payment Event of Default shall have been cured or waived
in writing or shall have ceased to exist, (y) such Designated Senior Debt shall
have been paid in full or (z) such Payment Blockage Period shall have been
terminated by written notice to the Company or the Debenture Trustee from such
Representative, after which, in the case of clause (w), (x), (y) or (z), the
Company shall resume making any and all required payments in respect of the
Exchange Debentures, including any missed payments. Notwithstanding any other
provision of the Exchange Indenture, in no event shall a Payment Blockage Period
commenced in accordance with the provisions of the Exchange Indenture described
in this paragraph extend beyond 179 days from the date of the receipt by the
Debenture Trustee of the notice referred to above (such period, an "Initial
Blockage Period"). Any number of additional Payment Blockage Periods may be
commenced during the Initial Blockage Period; provided, however, that no such
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the Exchange Indenture, no Non-Payment Event of Default with respect to
Designated Senior Debt which existed or was continuing on the date of the
commencement of any Payment Blockage Period initiated by the Representative
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by the Representative, whether or not within the
Initial Blockage Period, unless such Non-Payment Event of Default shall have
been waived for a period of not less than 90 consecutive days.
Each Debenture Guarantee will, to the extent set forth in the Exchange
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Debt of the respective Debenture Guarantor (including a Guarantee of
the Notes or a guarantee of the Old Notes by such Debenture Guarantor), and will
be subject to the rights of holders of Designated Senior Debt of such Debenture
Guarantor to initiate blockage periods, upon terms substantially comparable to
the subordination of the Exchange Debentures to all Senior Debt of the Company.
If the Company or any Debenture Guarantor fails to make any payment on the
Exchange Debentures or any Debenture Guarantee, as the case may be, when due or
within any applicable grace period, whether or not
53
<PAGE> 57
on account of payment blockage provisions, such failure would constitute an
Event of Default under the Exchange Indenture and would enable the holders of
the Exchange Debentures to accelerate the maturity thereof. See "-- Events of
Default."
A holder of Exchange Debentures by his acceptance of Exchange Debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Debenture Trustee, on his behalf, to take such action as may be necessary or
appropriate to effectuate the subordination provided for in the Exchange
Indenture and appoints the Debenture Trustee his attorney-in-fact for such
purpose.
CERTAIN COVENANTS
The Exchange Indenture contains, among others, the following covenants:
Limitation on Other Senior Subordinated Debt
The Company will not, and will not permit any Debenture Guarantor to,
directly or indirectly, incur, contingently or otherwise, any Indebtedness that
is both (i) subordinate in right of payment to any Senior Debt of the Company or
such Debenture Guarantor, as the case may be, and (ii) senior in right of
payment to the Exchange Debentures or the Debenture Guarantee, of such Debenture
Guarantor, as the case may be. For purposes of this covenant, Indebtedness is
deemed to be senior in right of payment to the Exchange Debentures and a
Debenture Guarantee, as the case may be, if it is not explicitly subordinate in
right of payment to Senior Debt at least to the same extent as the Exchange
Debentures or the applicable Debenture Guarantee, as the case may be, are
subordinate to Senior Debt.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness), provided that the Company may incur
Indebtedness and any Restricted Subsidiary created after the Issue Date may
incur Acquisition Indebtedness if (a) after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
ratio of the Company's total consolidated Indebtedness to the Company's EBITDA
(determined on a pro forma basis for the last four fiscal quarters of the
Company for which financial statements are available at the date of
determination) is less than 7.0 to 1; provided, however, that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness or Acquisition Indebtedness, then such ratio shall be
determined by giving effect (on a pro forma basis as if the transaction had
occurred at the beginning of the four-quarter period) to both the incurrence or
assumption of such Acquired Indebtedness or Acquisition Indebtedness by the
Company or a Restricted Subsidiary, as the case may be, and the inclusion in the
Company's EBITDA of the EBITDA of the acquired person, business, property or
assets, and (b) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company shall not incur any
Permitted Indebtedness that ranks junior in right of payment to the Exchange
Debentures that has a maturity or mandatory sinking fund payment prior to the
maturity of the Exchange Debentures.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(b) immediately after giving effect to such Restricted Payment, (i)
the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness" and (ii) the ratio of the Company's EBITDA (as
determined
54
<PAGE> 58
on a pro forma basis for the last four fiscal quarters of the Company for
which financial statements are available at the date of determination) to
the Company's Consolidated Interest Expense (determined on a pro forma
basis for the last four fiscal quarters of the Company for which financial
statements are available) is equal to or greater than 1.4 to 1; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Company's EBITDA from the Issue
Date to the date of determination minus 1.4 times the Company's
Consolidated Interest Expense from the Issue Date to the date of
determination (or in the event such amount shall be a deficit, minus 100%
of such deficit), (2) 100% of the aggregate Net Proceeds and the fair
market value of marketable securities or other property received by the
Company from the issue or sale, after the Issue Date, of Capital Stock
(other than Disqualified Capital Stock, Capital Stock of the Company issued
to any Subsidiary of the Company and the proceeds from the issuance of
Capital Stock pursuant to the Warrants or the Old Warrants) of the Company
or any Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted or exercised or
exchanged, as the case may be. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) so long as no Default or Event of Default shall have occurred
and be continuing, the retirement of any shares of Capital Stock of the Company
or Indebtedness subordinated to the Exchange Debentures by conversion into, or
by or in exchange for, shares of Capital Stock (other than Disqualified Capital
Stock) of the Company, or out of, the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Capital Stock of the Company (other than Disqualified Capital Stock), (iii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption or retirement of Indebtedness of the Company subordinated to the
Exchange Debentures in exchange for, by conversion into, or out of the Net
Proceeds of, a substantially concurrent sale or incurrence of Indebtedness
(other than any Indebtedness owed to a Subsidiary) of the Company that is
contractually subordinated in right of payment to the Exchange Debentures to at
least the same extent as the subordinated Indebtedness being redeemed or
retired, (iv) so long as no Default or Event of Default shall have occurred and
be continuing, the retirement of any shares of Disqualified Capital Stock by
conversion into, or by exchange for, shares of Disqualified Capital Stock, or
out of the Net Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of Disqualified Capital Stock;
provided that (a) such Disqualified Capital Stock is not subject to mandatory
redemption earlier than the maturity of the Exchange Debentures, (b) such
Disqualified Capital Stock is in an aggregate liquidation preference that is
equal to or less than the sum of (x) the aggregate liquidation preference of the
Disqualified Capital Stock being retired, (y) the amount of accrued and unpaid
dividends, if any, and premiums owed, if any, on the Disqualified Capital Stock
being retired and (z) the amount of customary fees, expenses and costs related
to the incurrence of such Disqualified Capital Stock and (c) such Disqualified
Capital Stock is incurred by the same person that initially incurred the
Disqualified Capital Stock being retired, except that the Company may incur
Disqualified Capital Stock to refund or refinance Disqualified Capital Stock of
any Wholly-Owned Restricted Subsidiary of the Company, (v) the payment of
dividends (whether or not in cash) on the Senior Preferred Stock in the manner
provided in the Certificate of Designation and, (vi) so long as no Default or
Event of Default shall have occurred and be continuing, the payment of dividends
and distributions to the stockholders and warrantholders of the Company on or
after the Issue Date in an amount not to exceed $4,000,000 (vii) the exchange of
Senior Preferred Stock for Exchange Debentures and (viii) so long as no Default
or Event of Default shall have occurred and be continuing, other Restricted
Payments in an aggregate amount not to exceed $3,000,000. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with Clause (c) of the immediately preceding paragraph, amounts
expended pursuant to clauses (i) (excluding dividends and distributions pursuant
to clause (vi)), (ii) and (viii) shall be included in such calculation.
55
<PAGE> 59
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Debenture Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Limitation on Restricted Payments" were
computed, which calculations may be based upon the Company's latest available
financial statements, and that no Default or Event of Default will result from
making the Restricted Payment.
Limitations on Investments
The Company will not and will not permit any of its Restricted Subsidiaries
to, make any Investment other than (i) a Permitted Investment or (ii) an
Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind upon any property or asset of the Company or any
of its Restricted Subsidiaries or any shares of stock or debt of any of its
Restricted Subsidiaries which owns property or assets, now owned or hereafter
acquired, other than Liens securing Senior Debt of the Company and the Debenture
Guarantors and Permitted Liens.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
entities in which the Company or any of its Restricted Subsidiaries own a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be, and
the terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1,000,000 which is not permitted under clause (i) above,
such Affiliate Transaction(s) must be approved by a majority of the board of
directors of the Company (including a majority of the disinterested directors).
In transactions with a value in excess of $3,000,000 which are not permitted
under clause (i) above, in addition to the requirements set forth in the
immediately preceding sentence, the Company must obtain a written opinion as to
the fairness of such a transaction from a nationally recognized expert with
experience in appraising the terms or conditions of the type of business or
transaction or series of transactions for which approval is required.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein or (ii) any transaction approved by the board of
directors of the Company, with an officer or director of the Company or of any
Subsidiary of the Company in his or her capacity as officer or director entered
into in the ordinary course of business, including compensation and employee
benefit arrangements with any officer or director of the Company or of any
Subsidiary of the Company that are customary for public companies in the radio
broadcasting industry.
Limitation on Creation of Subsidiaries
The Company shall not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Exchange Indenture, (ii) a Restricted
Subsidiary that is acquired in connection with the acquisition by the Company of
a radio station or radio broadcast license (and which Restricted Subsidiary was
not expressly created in
56
<PAGE> 60
contemplation of such acquisition); (iii) a Restricted Subsidiary created after
the Issue Date; or (iv) an Unrestricted Subsidiary; provided, however, that each
Restricted Subsidiary acquired or created pursuant to clause (ii) or (iii) shall
have executed a Debenture Guarantee, satisfactory in form and substance to the
Debenture Trustee (and with such documentation relating thereto as the Debenture
Trustee shall require, including, without limitation a supplement or amendment
to the Exchange Indenture and opinions of counsel as to the enforceability of
such Debenture Guarantee), pursuant to which such Restricted Subsidiary shall
become a Debenture Guarantor. As of the Issue Date, the Company will have no
Subsidiaries, other than the Debenture Guarantors.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's board of directors, and evidenced
by a board resolution); (ii) not less than 85% of the consideration received by
the Company or its Restricted Subsidiaries, as the case may be, is in the form
of cash or cash equivalents (those equivalents allowed under "Temporary Cash
Investments"); and (iii) the Asset Sale Proceeds received by the Company or any
such Restricted Subsidiary are applied (a) to the extent the Company elects, (x)
to an investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another person) used or useful in media businesses, provided that such
investment occurs or the Company or a Restricted Subsidiary enters into
contractual commitments to make such investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 181st day
following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and
Asset Sale Proceeds contractually committed are so applied within 360 days
following the receipt of such Asset Sale Proceeds or (y) to repay Senior Debt of
the Company or a Debenture Guarantor; and (b) to the extent not applied pursuant
to clause (iii)(a), if on the Reinvestment Date with respect to any Asset Sale,
the Available Asset Sale Proceeds exceed $5 million, the Company shall apply an
amount equal to such Available Asset Sale Proceeds to an offer to repurchase the
Exchange Debentures, at a purchase price in cash equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Exchange Debentures.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Exchange Debentures at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase; (2) the purchase date, which shall be no earlier than 30 days and
not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Company, that each holder must follow in order
to have such Exchange Debentures repurchased; and (4) the calculations used in
determining the amount of Available Asset Sale Proceeds to be applied to the
repurchase of such Exchange Debentures.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary of the Company to
issue any Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the covenant described under "Limitation on Additional Indebtedness" in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
57
<PAGE> 61
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary of the Company, other
than Capital Stock of a Restricted Subsidiary of the Company which owns or holds
only property or assets acquired by the Company and its Restricted Subsidiaries
after the Issue Date, or (ii) permit any of its Restricted Subsidiaries to issue
any Capital Stock, other than to the Company or a Wholly-Owned Restricted
Subsidiary of the Company. The foregoing restrictions shall not apply to (a) an
Asset Sale made in compliance with "Limitation on Certain Asset Sales", (b) the
issuance of Preferred Stock in compliance with the covenant described under
"Limitation on Preferred Stock of Subsidiaries" or (c) a pledge or hypothecation
or other Lien on Capital Stock of a Restricted Subsidiary pursuant to a
Permitted Lien securing Bank Indebtedness.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the fair market value of the property sold, as determined by a board
resolution of the Company and (ii) the Company could incur the Attributable Debt
in respect of such Sale and Lease-Back Transaction in compliance with the
covenant described under "Limitation on Additional Indebtedness."
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Exchange Debentures for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Exchange Indenture or the Exchange Debentures unless such
consideration is offered to be paid or agreed to be paid to all holders of the
Exchange Debentures which so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Debenture Trustee in writing of such occurrence and shall make an
offer to purchase (the "Change of Control Offer") the outstanding Exchange
Debentures at a purchase price equal to 101% of the principal amount thereof
plus any accrued and unpaid interest thereon to the Change of Control Payment
Date (such applicable purchase price being hereinafter referred to as the
"Change of Control Purchase Price") in accordance with the procedures set forth
in this covenant,
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Debenture
Trustee and to each holder of the Exchange Debentures, at the address appearing
in the register maintained by the Registrar of the Exchange Debentures, a notice
stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Exchange Debentures tendered will be accepted for
payment, and otherwise subject to the terms and conditions set forth
herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Exchange Debenture not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Exchange Debentures accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
58
<PAGE> 62
(5) that holders accepting the offer to have their Exchange Debentures
purchased pursuant to a Change of Control Offer will be required to
surrender the Exchange Debentures to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Exchange Debentures delivered for
purchase, and a statement that such holder is withdrawing his election to
have such Exchange Debentures purchased;
(7) that holders whose Exchange Debentures are being purchased only in
part will be issued new Exchange Debentures equal in principal amount to
the unpurchased portion of the Exchange Debentures surrendered, provided
that each Exchange Debenture purchased and each such new Exchange Debenture
issued shall be in an original principal amount in denominations of $1,000
and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall (i) accept for
payment Exchange Debentures or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Exchange Debentures or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Debenture Trustee Exchange
Debentures or portions thereof so accepted for cancellation. The Paying Agent
shall promptly mail to each holder of Exchange Debentures so accepted payment in
an amount equal to the purchase price for such Exchange Debentures, and the
Company shall execute and issue, and the Debenture Trustee shall promptly
authenticate and mail to such holder, a new Exchange Debenture equal in
principal amount to any unpurchased portion of the Exchange Debentures
surrendered; provided that each such new Exchange Debenture shall be issued in
an original principal amount in denominations of $1,000 and integral multiples
thereof.
The Exchange Indenture will provide that, if the Company or any Restricted
Subsidiary thereof has issued any outstanding (i) Indebtedness that is
subordinated in right of payment to the Exchange Debentures or any Debenture
Guarantee or (ii) Preferred Stock (other than the Senior Preferred Stock), and
the Company or such Subsidiary is required to repay, repurchase, redeem or to
make a distribution with respect to such subordinated Indebtedness or Preferred
Stock (other than the Senior Preferred Stock) in the event of a change of
control of the Company, the Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate any such repayment, repurchase,
redemption or distribution with respect to such subordinated Indebtedness or
Preferred Stock (other than the Senior Preferred Stock) until such time as the
Company shall have paid the Change of Control Purchase Price in full to the
holders of Exchange Debentures that have accepted the Company's Change of
Control Offer and shall otherwise have consummated the Change of Control Offer
made to holders of the Exchange Debentures.
Prior to the mailing of the notice referred to above, but in any event
within 20 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the Exchange Debentures would violate
or constitute a default or be prohibited under the Indenture, the Old Indenture
or any other instrument governing Indebtedness outstanding at the time, then the
Company will, to the extent needed to permit such purchase of Exchange
Debentures, either (i) repay in full all Indebtedness under the Indenture, the
Old Indenture and any such other instrument, as the case may be, or (ii) obtain
the requisite consents under the Indenture, the Old Indenture and any such other
instrument, as the case may be, to permit the redemption of the Exchange
Debentures as provided above. The Company will first comply with the covenant in
the preceding sentence before it will be required to purchase Exchange
Debentures pursuant to the provisions described above.
In the event that a Change of Control occurs and the holders of Exchange
Debentures exercise their right to require the Company to purchase Exchange
Debentures, if such purchase constitutes a "tender offer" for
59
<PAGE> 63
purposes of Rule 14e-1 under the Exchange Act at that time, the Company will
comply with the requirements of Rule 14e-1 as then in effect with respect to
such repurchase.
MERGER AND CONSOLIDATION
The Company will not and will not permit any Debenture Guarantor (other
than a Debenture Guarantor to be released from its obligations under its
Debenture Guarantee as described under "Debenture Guarantees"), to consolidate
with, merge with or into, or transfer all or substantially all of its assets (as
an entirety or substantially as an entirety in one transaction or a series of
related transactions), to any person unless: (i) the Company or the Debenture
Guarantor, as the case may be, shall be the continuing person, or the person (if
other than the Company or the Debenture Guarantor) formed by such consolidation
or into which the Company or the Debenture Guarantor, as the case may be, is
merged or to which the properties and assets of the Company or the Debenture
Guarantor, as the case may be, are transferred shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Debenture Trustee, in form satisfactory to the
Debenture Trustee, all of the obligations of the Company or the Debenture
Guarantor, as the case may be, under the Exchange Debentures or its Debenture
Guarantee and the Exchange Indenture, and the obligations under the Exchange
Indenture shall remain in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iii) immediately after
giving effect to such transaction on a pro forma basis the Company or such
person could incur at least $1.00 additional Indebtedness (other than Permitted
Indebtedness) under the covenant set forth under "Limitation on Additional
Indebtedness," provided that a Debenture Guarantor may merge into the Company or
another person that is a Debenture Guarantor without complying with this clause
(iii).
In connection with any consolidation, merger or transfer contemplated by
this provision, the Company shall deliver, or cause to be delivered, to the
Debenture Trustee, in form and substance reasonably satisfactory to the
Debenture Trustee, an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger or transfer and the supplemental
indenture in respect thereto comply with this provision and that all conditions
precedent herein provided for relating to such transaction or transactions have
been complied with.
DEBENTURE GUARANTEES
The Exchange Debentures are guaranteed on a senior subordinated basis by
the Debenture Guarantors. All payments pursuant to a Debenture Guarantee by a
Debenture Guarantor are subordinated in right of payment to the prior payment in
full of all Senior Debt of such Debenture Guarantor, to the same extent and in
the same manner that all payments pursuant to the Exchange Debentures are
subordinated in right of payment to the prior payment in full of all Senior Debt
of the Company. The obligations of each Debenture Guarantor are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Debenture Guarantor (including, without limitation, any
guarantees of other Indebtedness) and after giving effect to any collections
from or payments made by or on behalf of any other Debenture Guarantor in
respect of the obligations of such other Debenture Guarantor under its Debenture
Guarantee or pursuant to its contribution obligations under the Exchange
Indenture, result in the obligations of such Debenture Guarantor under the
Debenture Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Debenture Guarantor that makes a
payment or distribution under a Debenture Guarantee shall be entitled to a
contribution from each other Debenture Guarantor in a pro rata amount based on
the Adjusted Net Assets of each Debenture Guarantor.
A Debenture Guarantor shall be released from all of its obligations under
its Debenture Guarantee if all or substantially all of its assets are sold or
all of its Capital Stock owned by the Company and its Restricted Subsidiaries is
sold, in each case in a transaction in compliance with the covenant described
under "Limitation on Certain Asset Sales," or the Debenture Guarantor merges
with or into or consolidates with, or transfers all or substantially all of its
assets to, the Company or another Debenture Guarantor in a transaction in
compliance with "Merger and Consolidation," and such Debenture Guarantor has
delivered to the Debenture
60
<PAGE> 64
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent herein provided for relating to such transaction have
been complied with.
EVENTS OF DEFAULT
The following events are defined in the Exchange Indenture as "Events of
Default":
(i) default in payment of any principal of, or premium, if any, on the
Exchange Debentures;
(ii) default for 30 days in payment of any interest on the Exchange
Debentures;
(iii) default by the Company or any Debenture Guarantor in the
observance or performance of any other covenant in the Exchange Debentures,
Debenture Guarantees or the Exchange Indenture for 60 days after written
notice from the Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of the Exchange Debentures then outstanding;
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $3,000,000 or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof, or the acceleration of
any such Indebtedness aggregating $3,000,000 or more which default shall
not be cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 30 days after written notice as provided in the
Exchange Indenture, or such acceleration shall not be rescinded or annulled
within 10 days after written notice as provided in the Exchange Indenture;
(v) any final judgment or judgments for the payment of money in excess
of $3,000,000 shall be rendered against the Company or any Restricted
Subsidiary thereof, and shall remain undischarged for any period of 60
consecutive days during which a stay of enforcement shall not be in effect;
or
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary thereof.
The Exchange Indenture provides that the Debenture Trustee may withhold
notice to the holders of the Exchange Debentures of any default (except in
payment of principal or premium, if any, or interest on the Exchange Debentures)
if the Debenture Trustee considers it to be in the best interest of the holders
of the Exchange Debentures to do so.
The Exchange Indenture will provide that if an Event of Default (other than
an Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Debenture
Trustee or the holders of not less than 25% in aggregate principal amount of the
Exchange Debentures then outstanding may declare to be immediately due and
payable, the entire principal amount of all the Exchange Debentures then
outstanding plus accrued interest to the date of acceleration; provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Debenture Trustee, the holders of a majority in
aggregate principal amount of outstanding Exchange Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than nonpayment of accelerated principal, premium, or interest, have been
cured or waived as provided in the Exchange Indenture. In case an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, such principal, premium and interest amount with
respect to all of the Exchange Debentures shall be due and payable immediately
without any declaration or other act on the part of the Debenture Trustee or the
holders of the Exchange Debentures.
The holders of a majority in principal amount of the Exchange Debentures
then outstanding shall have the right to waive any existing default or
compliance with any provision of the Exchange Indenture or the Exchange
Debentures and to direct the time, method and place of conducting any proceeding
for any remedy available to the Debenture Trustee, subject to certain
limitations specified in the Exchange Indenture.
No holder of any Exchange Debenture will have any right to institute any
proceeding with respect to the Exchange Indenture or for any remedy thereunder,
unless such holder shall have previously given to the Debenture Trustee written
notice of a continuing Event of Default and unless also the holders of at least
25% in aggregate principal amount of the outstanding Exchange Debentures shall
have made written request and
61
<PAGE> 65
offered reasonable indemnity to the Debenture Trustee to institute such
proceeding as a trustee, and unless the Debenture Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
outstanding Exchange Debentures a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted on such Exchange Debenture on or
after the respective due dates expressed in such Exchange Debenture.
DEFEASANCE AND COVENANT DEFEASANCE
The Exchange Indenture provides the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to the Exchange
Debentures (except for the obligations to register the transfer or exchange of
such Exchange Debentures, to replace temporary or mutilated, destroyed, lost or
stolen Exchange Debentures, to maintain an office or agency in respect of the
Exchange Debentures and to hold monies for payment in trust) ("defeasance") or
(b) to be released from their obligations with respect to the Exchange
Debentures under certain covenants contained in the Indenture and described
above under "Covenants" ("covenant defeasance"), upon the deposit with the
Debenture Trustee (or other qualifying trustee), in trust for such purpose, of
money and/or U.S. government obligations which through the payment of principal
and interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of, premium, if any, and interest on the
Exchange Debentures, on the scheduled due dates therefor or on a selected date
of redemption in accordance with the terms of the Exchange Indenture. Such a
trust may only be established if, among other things, the Company has delivered
to the Debenture Trustee an opinion of counsel (as specified in the Exchange
Indenture) (i) to the effect that neither the trust nor the Debenture Trustee
will be required to register as an investment company under the Investment
Company Act of 1940, as amended, and (ii) describing either a private ruling
concerning the Exchange Debentures or a published ruling of the Internal Revenue
Service, to the effect that holders of the Exchange Debentures or persons in
their positions will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times, as would have been the case if such deposit, defeasance and
discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Company, the Debenture Guarantors and the Debenture
Trustee may, without the consent of holders of the Exchange Debentures, amend
the Exchange Indenture or the Exchange Debentures or supplement the Exchange
Indenture for certain specified purposes, including providing for uncertificated
Exchange Debentures in addition to certificated Exchange Debentures, and curing
any ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Exchange Indenture
contains provisions permitting the Company, the Debenture Guarantors and the
Debenture Trustee, with the consent of holders of at least a majority in
principal amount of the outstanding Exchange Debentures, to modify or supplement
the Exchange Indenture or the Exchange Debentures, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Exchange Debentures whose holders must consent to an
amendment, supplement, or waiver to the Exchange Indenture, Debenture Guarantees
or the Exchange Debentures, (ii) reduce the rate of or change the time for
payment of interest on any Exchange Debenture, (iii) reduce the principal of or
premium on or change the stated maturity of any Exchange Debenture, (iv) make
any Exchange Debenture payable in money other than that stated in the Exchange
Debenture or change the place of payment from New York, New York, (v) change the
amount or time of any payment required by the Exchange Debentures or reduce the
premium payable upon any redemption of Exchange Debentures, or change the time
when such redemption may be made, (vi) waive a default on the payment of the
principal of, interest on, or redemption payment with respect to any Exchange
Debenture, or (vii) take any other action otherwise prohibited by the Exchange
Indenture to be taken without the consent of each holder affected thereby.
62
<PAGE> 66
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Exchange Debentures. The Exchange
Indenture provides that even if the Company is entitled under the Exchange Act
not to furnish such information to the Commission or to the holders of the
Exchange Debentures, they will nonetheless continue to furnish such information
to the Commission and holders of the Exchange Debentures.
COMPLIANCE CERTIFICATE
The Company will deliver to the Debenture Trustee on or before 100 days
after the end of the Company's fiscal year and on or before 50 days after the
end of each of the first, second and third fiscal quarters in each year an
Officers' Certificate stating whether or not the signers know of any Default or
Event of Default that has occurred. If they do, the certificate will describe
the Default or Event of Default and its status.
THE DEBENTURE TRUSTEE
The Debenture Trustee under the Exchange Indenture will be the Registrar
and Paying Agent with regard to the Exchange Debentures. The Exchange Indenture
provides that, except during the continuance of an Event of Default, the
Debenture Trustee will perform only such duties as are specifically set forth in
the Exchange Indenture. During the existence of an Event of Default, the
Debenture Trustee will exercise such rights and powers vested in it under the
Exchange Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
TRANSFER AND EXCHANGE
Holders of the Exchange Debentures may transfer or Exchange Debentures in
accordance with the Exchange Indenture. The Registrar under the Exchange
Indenture may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Exchange Indenture. The Registrar is not required to
transfer or exchange any Exchange Debenture selected for redemption. Also, the
Registrar is not required to transfer or exchange any Exchange Debenture for a
period of 15 days before selection of the Exchange Debentures to be redeemed.
The registered holder of an Exchange Debenture may be treated as the owner
of it for all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation and the Exchange Indenture. Reference is made to the
Certificate of Designation and the Exchange Indenture for the full definition of
all such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a person (including an
Unrestricted Subsidiary) existing at the time such person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
person.
"Acquisition Indebtedness" means Indebtedness incurred by the Company or by
a Restricted Subsidiary the proceeds of which are used for the acquisition of a
media business and related facilities and assets or for the construction of a
facility pursuant to a construction permit issued by the FCC.
"Adjusted Net Assets" of a Debenture Guarantor at any date shall mean the
lesser of the amount by which (x) the fair value of the property of such
Debenture Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities), but excluding liabilities under the Debenture
Guarantee, of such Debenture Guarantor at such date and (y) the present fair
ratable value of the assets of such Debenture Guarantor at such date exceeds the
amount that will be required to pay the probable liability of such Debenture
Guarantor on its debts (after
63
<PAGE> 67
giving effect to all other fixed and contingent liabilities and after giving
effect to any collection from any Subsidiary of such Debenture Guarantor in
respect of the obligations of such Subsidiary under the Debenture Guarantee),
excluding Indebtedness in respect of the Debenture Guarantee, as they become
absolute and matured.
"Affiliate" of any specified person means any other person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise; provided that (a) beneficial ownership of at least 10% of the voting
securities of a person shall be deemed to be control and (b) for purposes of the
"Limitation on Transactions with Affiliates" covenant, for so long as Raul
Alarcon Sr., Raul Alarcon Jr. or Jose Grimalt are directors, officers or
shareholders of the Company, they, their respective spouses, lineal descendants
and any person controlled by any of them shall be Affiliates of the Company and
its Subsidiaries.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of transactions of (a) any Capital Stock of or other equity interest in
any Restricted Subsidiary of the Company, (b) all or substantially all of the
assets of the Company or of any Restricted Subsidiary thereof, or (c) all or
substantially all of the assets of any radio station, or part thereof, owned by
the Company or any Restricted Subsidiary thereof, or a division, line of
business or comparable business segment of the Company or any Restricted
Subsidiary thereof; provided that Asset Sales shall not include sales, leases,
conveyances, transfers or other dispositions to the Company or to a Restricted
Subsidiary or to any other person if after giving effect to such sale, lease,
conveyance, transfer or other disposition such other person becomes a Restricted
Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary of the Company from such
Asset Sale (including cash received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset Sale),
after (a) provision for all income or other taxes measured by or resulting from
such Asset Sale, (b) payment of all brokerage commissions, underwriting and
other fees and expenses related to such Asset Sale, (c) provision for minority
interest holders in any Restricted Subsidiary of the Company as a result of such
Asset Sale and (d) deduction of appropriate amounts to be provided by the
Company or any such Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Company or any such Restricted Subsidiary after
such Asset Sale, including, without limitation, pension and other post
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the assets sold or
disposed of in such Asset Sale, and (ii) promissory notes and other noncash
consideration received by the Company or any such Restricted Subsidiary from
such Asset Sale or other disposition upon the liquidation or conversion of such
notes or noncash consideration into cash.
"Attributable Debt" in respect of a Sale and Lease-Back Transaction means,
as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the board of directors of
the Company) and (ii) the present value (discounted at the interest rate
implicit in such transaction) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and that have not been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(b) of the
first paragraph of "Certain Covenants -- Limitation on Certain Asset Sales".
"Bank Indebtedness" means (i) Indebtedness of the Company incurred in
accordance with the Indenture owing to one or more commercial banking
institutions that are members of the Federal Reserve System and
64
<PAGE> 68
(ii) any guarantee by a Guarantor of any Indebtedness of the Company of the type
set forth in clause (i) of this definition.
"Capital Stock" means, with respect to any person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Certificate of Designation" means the Certificate of Designation creating
the Senior Preferred Stock, as in effect on the Issue Date.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any person (including a person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting power of the Company's Common Stock,
(ii) prior to a Public Equity Offering, Permitted Holders shall cease to own
beneficially at least 40% of the total voting power of the Company's Common
Stock, (iii) any person (including a person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner of more than 30% of the
total voting power of the Company's Common Stock, and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the Company, (iv)
there shall be consummated any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
the Common Stock of the Company would be converted into cash, securities or
other property, other than a merger or consolidation of the Company in which the
holders of the Common Stock of the Company outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at least a majority of the
Common Stock of the surviving corporation immediately after such consolidation
or merger, or (v) during any period of two consecutive years, individuals who at
the beginning of such period constituted the board of directors of the Company
(together with any new directors whose election by such board of directors or
whose nomination for election by the shareholders of the Company has been
approved by 66 2/3% of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
board of directors of the Company.
"Common Stock" of any person means all Capital Stock of such person that is
generally entitled to (i) vote in the election of directors of such person or
(ii) if such person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such person.
"Consolidated Interest Expense" means, with respect to any person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such person and its Subsidiaries on a consolidated basis
(including, but not limited to, cash dividends paid on Preferred Stock, imputed
interest included in Capitalized Lease Obligations, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, the net costs associated with hedging obligations,
amortization of other financing fees and expenses, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other non-cash interest expense (other than interest amortized to cost of
sales)) plus, without duplication, all net capitalized interest for such period
and all interest incurred or paid under any guarantee of Indebtedness (including
a guarantee of principal, interest or any combination thereof) of any person,
plus the amount of all dividends or distributions paid on Disqualified Capital
Stock (other than dividends paid or payable in shares of Capital Stock of the
Company).
65
<PAGE> 69
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the Net Income of such person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any person (the "other person") in
which the person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other person to
be consolidated into the net income of the person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Exchange Debentures or the Exchange
Indenture) shall be excluded to the extent of such restriction or limitation,
(c) (i) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (ii) any
net gain (but not loss) resulting from an Asset Sale by the person in question
or any of its Subsidiaries other than in the ordinary course of business shall
be excluded, and (d) extraordinary gains and losses shall be excluded.
"Credit Facility" means Indebtedness of the Company and its Restricted
Subsidiaries under a revolving credit facility in an aggregate principal amount
not to exceed the greater of (a) $10,000,000 or (b) 75% of the net book value of
the Company's accounts receivable.
"Designated Senior Debt" means any Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $10,000,000 (or accredit value in the case of Indebtedness issued at a
discount) and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Exchange Debentures, for cash or securities
constituting Indebtedness. Without limitation of the foregoing, Disqualified
Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted
Subsidiary of the Company and (ii) any Preferred Stock of the Company, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Restricted Subsidiary or the Company is obligated
to pay current dividends or distributions in cash during the period prior to
March 15, 2005; provided, however, that Preferred Stock of the Company or any
Restricted Subsidiary thereof that is issued with the benefit of provisions
requiring a change of control offer to be made for such Preferred Stock in the
event of a change of control of the Company or such Restricted Subsidiary, which
provisions have substantially the same effect as the provisions of the Exchange
Indenture described under "Change of Control," shall not be deemed to be
Disqualified Capital Stock solely by virtue of such provisions; and provided,
further, that the Senior Preferred Stock shall be deemed not to be Disqualified
Capital Stock.
"EBITDA" means, for any person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such Period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only, provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such person shall be included only (x) if cash income
has been received by such person with respect to such Investment during each of
the
66
<PAGE> 70
previous four fiscal quarters, or (y) if the cash income derived from such
Investment is attributable to Temporary Cash Investments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect on the
Issue Date.
"Guarantee" means a guarantee of the Notes.
"incur" means, with respect to any Indebtedness or other obligation of any
person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
property or assets owned or held by such person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed, (iii)
guarantees of items of other persons which would be included within this
definition for such other persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) in the case of the Company, Disqualified Capital Stock of the
Company or any Restricted Subsidiary thereof, and (vi) obligations of any such
person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such person prepared in accordance with GAAP).
The amount of Indebtedness of any person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount, including the Old Notes, is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Infinity Note" means the $3,000,000 aggregate principal amount of
Indebtedness issued by the Company to Infinity Holding Corp. of Orlando on the
Issue Date.
"Interest Rate Agreement" means, for any person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business), loan or capital contribution to (by means of transfers of property to
others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the
67
<PAGE> 71
acquisition, by purchase or otherwise, of all or substantially all of the
business or assets or stock or other evidence of beneficial ownership of, any
person or the making of any investment in any person. Investments shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date of original issuance of the Senior Preferred
Stock.
"Lien" means with respect to any property or asset of any person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention, agreement having substantially the same economic effect
as any of the foregoing).
"Net Income" means, with respect to any person for any period, the net
income (loss) of such person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company or any of its Restricted Subsidiaries, the aggregate net proceeds
received by the Company or such Restricted Subsidiary, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors of the Company,
at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of outstanding securities of any kind for or into shares
of Capital Stock of the Company or any of its Restricted Subsidiaries which is
not Disqualified Capital Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to the Company or such
Restricted Subsidiary upon such exchange, exercise, conversion or surrender,
less any and all payments made to the holders, e.g., on account of fractional
shares and less all expenses incurred by the Company in connection therewith).
For the avoidance of doubt, the issuance of Senior Preferred Stock as payment of
dividends on Senior Preferred Stock shall be deemed to result in no Net Proceeds
received by the Company from any such issuance.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more persons to accelerate the
maturity of any Designated Senior Debt.
"Notes" means the $75,000,000 aggregate principal amount of 11% Senior
Notes issued by the Company on the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Officers' Certificate" means, with respect to any person, a certificate
signed by the Chairman of the Board of Directors, the President or any Vice
President and the Treasurer or any assistant Treasurer of such person that shall
comply with applicable provisions of the Certificate of Designation or the
Exchange Indenture, as the case may be.
"Old Notes" means the $107,059,000 aggregate principal amount of 12 1/2%
Senior Notes due 2002 of the Company.
"Old Warrants" means Warrants issued pursuant to the Warrant Agreement
dated as of June 29, 1994 between the Company and IBJ Schroder Bank & Trust
Company, as Warrant Agent.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Debt.
68
<PAGE> 72
"Permitted Holders" means (i) Raul Alarcon Jr., (ii) the heirs, executors,
administrators testamentary, trustees, legatees or beneficiaries of the person
described in (i) and (iii) a trust, the beneficiaries of which include only
persons described in (i) and (ii) and their respective spouses and lineal
descendants.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Credit Facility;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date (including the Old Notes and
guarantees thereof and the Infinity Note);
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in the aggregate
exceed 5% of the Company's consolidated total assets;
(vi) Refinancing Indebtedness;
(vii) Indebtedness represented by any guarantee by a Guarantor or
Debenture Guarantor of Indebtedness of the Company permitted to be incurred
under the Indenture;
(viii) other Indebtedness of the Company not to exceed $2,000,000 at
any one time outstanding; and
(ix) Indebtedness under the Exchange Debentures and the Debenture
Guarantees.
"Permitted Investments" means, for any person, Investments made on or after
the Issue Date consisting of
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a person, if as a result of such Investment (a) such person
becomes a Restricted Subsidiary of the Company or (b) such person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof;
(iv) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Limitation on Sale of
Assets";
(v) Investments by the Company or any of its Restricted Subsidiaries
in any other person pursuant to the terms of a "local marketing agreement"
or similar arrangement relating to a radio station owned or licensed by
such person; and
(vi) other Investments not to exceed $3,000,000 at any one time
outstanding.
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries,
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness, provided that any such Lien does not
extend to or cover any Property,
69
<PAGE> 73
shares or debt other than the Property, shares or debt securing the Indebtedness
so refunded, refinanced or extended, (iii) Liens in favor of the Company or any
of its Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds,
(v) Liens to secure Purchase Money Indebtedness that is otherwise permitted
under the Exchange Indenture, provided that (a) any such Lien is created solely
for the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property,
(b) the principal amount of the Indebtedness secured by such Lien, does not
exceed 100% of such costs, and (c) such Lien does not extend to or cover any
Property other than such item of Property and any improvements on such item,
(vi) Liens on Capital Stock of Restricted Subsidiaries and accounts receivable,
the proceeds thereof and related records to secure the Credit Facility, (vii)
statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business, which do not secure any Indebtedness and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (viii)
Liens securing Bank Indebtedness, (ix) other Liens securing obligations incurred
in the ordinary course of business which obligations do not exceed $500,000 in
the aggregate at any one time outstanding, (x) Liens securing Acquisition
Indebtedness, provided that such Liens do not extend to or cover any Property
other than the Property acquired with the proceeds of such Acquisition
Indebtedness and any improvements thereto, (xi) any extensions, substitutions,
replacements or renewals of the foregoing, and (xii) Liens on Property or assets
of the Company and its Restricted Subsidiaries acquired after the Issue Date.
"Preferred Stock" means any Capital Stock of a person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such person over the holders of other
Capital Stock issued by such person.
"Property" of any person means all types of real, personal, tangible,
intangible or mixed property owned by such person whether or not included in the
most recent consolidated balance sheet of such person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such person incurred in connection therewith.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries (other than pursuant to clause (iv) of the definition of "Permitted
Indebtedness") pursuant to the terms of the Certificate of Designation or the
Exchange Indenture, as the case may be, but only to the extent that (i) the
Refinancing Indebtedness is subordinated to the Exchange Debentures to at least
the same extent as the Indebtedness being refunded, refinanced or extended, if
at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or (b)
after the maturity date of the Exchange Debentures, (iii) the portion, if any,
of the Refinancing Indebtedness that is scheduled to mature on or prior to the
maturity date of the Exchange Debentures has a weighted average life to maturity
at the time such Refinancing Indebtedness is incurred that is equal to or
greater than the weighted average life to maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Exchange Debentures, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not
70
<PAGE> 74
in excess of preexisting prepayment provisions on such Indebtedness being
refunded, refinanced or extended and (c) the amount of customary fees, expenses
and costs related to the incurrence of such Refinancing Indebtedness, and (v)
such Refinancing Indebtedness is incurred by the same person that initially
incurred the Indebtedness being refunded, refinanced or extended, except that
the Company may incur Refinancing Indebtedness to refund, refinance or extend
Indebtedness of any Wholly-Owned Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), and (y) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Wholly-Owned Restricted Subsidiary of the Company), (ii) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company or any of its Restricted Subsidiaries (other than (i)
Senior Preferred Stock and (ii) Capital Stock owned by the Company), (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Exchange
Debentures or a Debenture Guarantee (other than any such subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), (iv) the making of any Investment or guarantee
of any Investment in any person other than a Permitted Investment, (v) any
designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (vi)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Restricted Subsidiary existing on the Issue Date.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary or any person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
person in contemplation of such leasing.
"Senior Debt" of any person means, the principal of and premium, if any,
and interest (including, without limitation, interest accruing or that would
have accrued but for the filing of a bankruptcy, reorganization or other
insolvency proceeding whether or not such interest constitutes an allowed claim
in such proceeding) on, and any and all other fees, expense reimbursement
obligations, indemnities and other amounts due pursuant to their terms of all
agreements, documents and instruments providing for, creating, securing or
evidencing or otherwise entered into in connection with (a) all obligations of
such person with respect to any Interest Rate Agreement, (b) all obligations of
such person to reimburse any bank or other person in respect of amounts paid
under letters of credit, acceptances or other similar instruments, (c) all other
Indebtedness of such person which does not provide that it is to rank pari passu
with or subordinate to the Exchange Debentures or the Debenture Guarantee of
such person, as the case may be, and (d) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Debt described above. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (i) Indebtedness of the Company to any
of its Subsidiaries, (ii) Indebtedness represented by the Exchange Debentures,
(iii) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Debt, (iv) any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business or (v) Indebtedness incurred in violation of the Exchange Indenture.
71
<PAGE> 75
"Senior Preferred Stock" means the 14 1/4% Senior Exchangeable Preferred
Stock of the Company.
"Subsidiary" of any specified person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named person for financial statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500,000,000 and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the board of
directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments." The Debenture Trustee shall be given prompt notice by the
Company of each resolution adopted by the board of directors of the Company
under this provision, together with a copy of each such resolution adopted.
"Warrants" means the Warrants issued pursuant to the Warrant Agreement
dated as of March 15, 1997 between the Company and IBJ Schroder Bank & Trust
Company, as Warrant Agent.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary which
is a Wholly-Owned Subsidiary.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
72
<PAGE> 76
DESCRIPTION OF THE OLD NOTES
The following summary of the Old Notes does not purport to be complete and
is qualified in its entirety by reference to the Old Indenture.
In June 1994, the Company issued approximately $107.1 million of 12 1/2%
Senior Notes due 2002 (the "Old Notes") under an Indenture (the "Old Indenture")
dated as of June 29, 1994 among the Company, the Guarantors named therein and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). Capitalized terms
used in this section and not otherwise defined herein shall have the meanings
set forth in the Old Indenture.
The Old Notes bore cash interest at a rate of 7 1/2% per annum on their
principal amount until June 15, 1997 and bear cash interest at a rate of 12 1/2%
per annum on their principal amount from and after such date until maturity. The
Old Notes are senior unsecured obligations of the Company. The Old Notes rank
senior to all future subordinated indebtedness of the Company. The Old Notes are
unconditionally guaranteed, on a senior basis, as to the payment of principal,
premium, if any, and interest, jointly and severally, by all of the active
direct and indirect subsidiaries of the Company.
The Old Notes are not redeemable at the option of the Company. There are no
mandatory redemption requirements with respect to the Old Notes.
In the event of a Change of Control, the Company is required to make an
offer to purchase all of the outstanding Old Notes at a purchase price equal to
101% of the Accreted Value of the Old Notes, in the case of a purchase prior to
June 15, 1997, and thereafter at a purchase price equal to 101% of the principal
amount thereof, in each case plus accrued and unpaid interest thereon to the
date of purchase.
The Old Indenture restricts, among other things, the incurrence of
additional indebtedness, the payment of dividends and distributions, the
creation of liens, the issuance of stock of subsidiaries, transactions with
affiliates, the making of certain investments, asset sales, merger or
consolidation of the Company and the Guarantors or the transfer of their assets,
subject to certain exceptions.
In connection with the Offerings, the Company obtained consents from the
holders of the Old Notes to permit (i) the issuance of the Notes, (ii) the
issuance of the $3 million seller note in connection with the acquisition of
WYSY-FM, (iii) the repurchase of the Primary Warrants and (iv) the payment of
the Distribution. In addition as required the Company used $25.0 million of the
net proceeds from asset sales including the radio broadcast licenses of WXLX-AM,
KXMG-AM and WCMQ-AM to make an offer to purchase Old Notes at a purchase price
of 110% of the accreted value thereof, plus accrued and unpaid interest, if any,
to the date of purchase and actually used $15.0 million to repurchase Old Notes.
DESCRIPTION OF THE NOTES
Pursuant to a Notes Registration Rights Agreement dated March 15, 1997, the
Company agreed to exchange (the "Exchange Offer") Series A Notes for the
Company's 11% Senior Notes due 2004, Series B (the "Series B Notes") in the same
form and on the same terms as the Series A Notes except that (i) the Series B
Notes will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the Series B Notes
will not be entitled to certain rights of holders of the Series A Notes under
the Notes Registration Rights Agreement, which will terminate upon consummation
of the Exchange Offer.
The Company has filed a Registration Statement on Form S-4 relating to the
registration of the Series B Notes. Such registration statement is intended to
satisfy the Company's obligations under the Notes Registration Rights Agreement.
The Series A Notes and the Series B Notes are sometimes collectively referred to
herein as the "Notes."
The Series A Notes were, and the Series B Notes will be, issued under an
Indenture, dated as of March 15, 1997 (the "Indenture") among the Company, the
Guarantors and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
The form and term of the Series B Notes will be the same as the form
73
<PAGE> 77
and terms of the Series A Notes except that (i) the Series B Notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) holders of the Series B Notes will not
be entitled to certain rights of holders of the Series A Notes under the Notes
Registration Rights Agreement, which will terminate upon consummation of the
Exchange Offer. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The following is a summary of the material terms and provisions of
the Notes. This summary does not purport to be a complete description of the
Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Notes and the Indenture (including the definitions
contained therein). Definitions relating to certain capitalized terms are set
forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture and such definitions are incorporated
herein by reference.
GENERAL
The Notes are limited in aggregate principal amount to $75,000,000. The
Notes are general unsecured obligations of the Company, ranking pari passu with
the Old Notes and senior in right of payment to the Senior Preferred Stock and
any future subordinated indebtedness of the Company.
The Notes will be fully and unconditionally guaranteed (each, a
"Guarantee"), as to payment of principal, premium, if any, and interest, jointly
and severally, by the Guarantors (together with each other Restricted Subsidiary
which guarantees payment of the Notes pursuant to the covenant described under
"Certain Covenants -- Limitation on Creation of Subsidiaries").
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on March 15, 2004. The Notes will bear cash interest
at a rate of 11% per annum from the date of original issuance. Interest will be
payable semi-annually in arrears on March 15 and September 15, commencing
September 15, 1997, to holders of record of the Notes at the close of business
on the immediately preceding March 1, and September 1, respectively. Interest on
the Series B Notes will accrue from (A) the later of (i) the last interest
payment date on which interest was paid on the Series A Notes surrendered in
exchange therefor or (ii) if the Series A Notes are surrendered for exchange on
a date in a period which includes the record date for an interest payment date
to occur on or after the date of such exchange and as to which interest will be
paid, the date of such interest payment, or (B) if no interest has been paid on
the Series A Notes, from the Issue Date.
The interest rate on the Notes is subject to increase, and such Additional
Interest (as defined below) will be payable on the payment dates set forth
above, in certain circumstances, if the Notes (or other securities substantially
similar to the Notes) are not registered with the Commission within the
prescribed time periods. If (i) the Company is not permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy, (ii) any holder of Notes notifies the Company within the
specified time period that (a) due to a change in law or policy it is not
entitled to participate in the Exchange Offer, (b) due to a change in law or
policy it may not resell the Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such holder or (c) it is a broker-dealer and owns Notes acquired
directly from the Company or an affiliate of the Company or (iii) the Company
has not consummated the Exchange Offer within 180 days of the Issue Date and
holders of a majority in principal amount of Notes outstanding so request, the
Company and the Guarantors shall use their best efforts to have a shelf
registration statement (the "Notes Shelf Registration Statement") covering
resales of the Series A Notes declared effective and kept effective,
supplemented and amended until the third anniversary of the Issue Date or such
shorter period that will terminate when all the transfer restricted Notes
covered by the Notes Shelf Registration Statement are sold pursuant thereto or
cease to be transfer restricted Notes. In the event that (i) the applicable
Registration Statement is not filed with the Commission on or prior to the date
specified herein for such filing, (ii) the applicable Registration Statement has
not been declared effective by the Commission on or prior to the date specified
herein for such effectiveness after such obligation arises,
74
<PAGE> 78
(iii) if the Exchange Offer is required to be consummated hereunder, the Company
has not exchanged Series B Notes for all Series A Notes validly tendered and not
validly withdrawn in accordance with the terms of the Exchange Offer by the
Consummation Date or (iv) the applicable Registration Statement is filed and
declared effective but shall thereafter cease to be effective or usable in
connection with the Exchange Offer or resales of transfer restricted Notes
during a period in which it is required to be effective hereunder without being
succeeded immediately by any additional Registration Statement covering the
Notes, (each such event referred to in clauses (i) through (iv) above, a "Notes
Registration Default"), then the interest rate on transfer restricted Notes will
increase ("Additional Interest"), with respect to the first 90-day period
immediately following the occurrence of such Notes Registration Default by 0.50%
per annum and will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all Notes Registration Defaults have been
cured, up to a maximum amount of 2.00% per annum. Following the cure of all
Notes Registration Defaults, the accrual of Additional Interest will cease and
the interest rate will revert to the original rate. Upon consummation of the
Exchange Offer, such registration requirements will have been met and no
Additional Interest will be payable with respect to the Notes.
REDEMPTION
Optional Redemption. The Notes are redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after March 15, 2001, at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on March
15 of the applicable year set forth below, plus, in each case, accrued and
unpaid interest thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................. 105.50%
2002............................................. 102.75%
2003 and thereafter.............................. 100.00%
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time, or from
time to time, on or prior to March 15, 2000, the Company may, at its option, use
the Net Proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to 25% of the Notes originally issued at a redemption price of 110% of
the principal thereof, plus accrued and unpaid interest thereon, if any, to the
date of redemption; provided that at least $56,250,000 principal amount of Notes
would remain outstanding immediately after giving effect to any such redemption.
In order to effect the foregoing redemption with the proceeds of any Public
Equity Offering, the Company shall make such redemption not more than 90 days
after the consummation of any such Public Equity Offering.
As used herein, "Public Equity Offering" means an underwritten public
offering of Common Stock of the Company pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable upon not less than 30 nor
more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless the Company
shall fail to redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness), provided that the
75
<PAGE> 79
Company may incur Indebtedness and any Restricted Subsidiary created after the
Issue Date may incur Acquisition Indebtedness if (a) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the ratio of the Company's total consolidated Indebtedness to the
Company's EBITDA (determined on a pro forma basis for the last four fiscal
quarters of the Company for which financial statements are available at the date
of determination) is less than 6.75 to 1 if the Indebtedness is incurred on or
prior to March 15, 2000 and 6.25 to 1 if the Indebtedness is incurred
thereafter; provided, however, that if the Indebtedness which is the subject of
a determination under this provision is Acquired Indebtedness or Acquisition
Indebtedness, then such ratio shall be determined by giving effect to (on a pro
forma basis as if the transaction had occurred at the beginning of the
four-quarter period) to both the incurrence or assumption of such Acquired
Indebtedness or Acquisition Indebtedness by the Company or a Restricted
Subsidiary, as the case may be, and the inclusion in the Company's EBITDA of the
EBITDA of the acquired Person, business, property or assets, and (b) no Default
or Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company shall not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
Notes.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment:
(b) immediately after giving effect to such Restricted Payment, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the covenant set forth under "Limitation on Additional
Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Company's EBITDA from the Issue
Date to the date of determination minus 1.4 times the Company's
Consolidated Interest Expense from the Issue Date to the date of
determination (or in the event such amount shall be a deficit, minus 100%
of such deficit), (2) 100% of the aggregate Net Proceeds and the fair
market value of marketable securities or other property received by the
Company from the issue or sale, after the Issue Date, of Capital Stock
(other than Disqualified Capital Stock, Capital Stock of the Company issued
to any Subsidiary of the Company and the proceeds from the issuance of
Capital Stock pursuant to the Warrants or the Old Warrants) of the Company
or any Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted or exercised or
exchanged, as the case may be. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) so long as no Default or Event of Default shall have occurred
and be continuing, the retirement of any shares of Capital Stock of the Company
or subordinated Indebtedness by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock) of the Company,
or out of, the Net Proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company) of other shares of Capital Stock of the Company
(other than Disqualified Capital Stock), (iii) so long as no Default or Event of
Default shall have occurred and be continuing, the redemption or retirement of
Indebtedness of the Company subordinated to the Notes in exchange for, by
conversion into, or out of the Net Proceeds of, a substantially concurrent sale
or incurrence of Indebtedness (other than any Indebtedness owed to a
76
<PAGE> 80
Subsidiary) of the Company that is contractually subordinated in right of
payment to the Notes to at least the same extent as the subordinated
Indebtedness being redeemed or retired, (iv) so long as no Default or Event of
Default shall have occurred and be continuing, the retirement of any shares of
Disqualified Capital Stock by conversion into, or by exchange for, shares of
Disqualified Capital Stock, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock; provided that (a) such Disqualified Capital Stock is
not subject to mandatory redemption earlier than the maturity of the Notes, (b)
such Disqualified Capital Stock is in an aggregate liquidation preference that
is equal to or less than the sum of (x) the aggregate liquidation preference of
the Disqualified Capital Stock being retired, (y) the amount of accrued and
unpaid dividends, if any, and premiums owed, if any, on the Disqualified Capital
Stock being retired and (z) the amount of customary fees, expenses and costs
related to the incurrence of such Disqualified Capital Stock and (c) such
Disqualified Capital Stock is incurred by the same person that initially
incurred the Disqualified Capital Stock being retired, except that the Company
may incur Disqualified Capital Stock to refund or refinance Disqualified Capital
Stock of any Wholly-Owned Restricted Subsidiary of the Company, (v) the payment
of cash dividends on the Senior Preferred Stock when such dividends are required
to be paid in cash in accordance with the Certificate of Designation, (vi) as
long as no Default or Event of Default shall have occurred and be continuing,
the payment of dividends and distributions to the stockholders and
warrantholders of the Company on or after the Issue Date in an amount not to
exceed $4,000,000 in the aggregate, (vii) the exchange of Senior Preferred Stock
for Exchange Debentures and (viii) so long as no Default or Event of Default
shall have occurred and be continuing, other Restricted Payments in an aggregate
amount not to exceed $3,000,000. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with clause
(c) of the immediately preceding paragraph, amounts expended pursuant to clauses
(i) (excluding dividends and distributions pursuant to clause (vi)), (ii), (v)
and (viii) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default or Event of Default will result from making the
Restricted Payment.
Limitation on Investments
The Company will not and will not permit any of its Restricted Subsidiaries
to, make any Investment other than (i) a Permitted Investment or (ii) an
Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitation on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind upon any property or asset of the Company or any
of its Restricted Subsidiaries or any shares of stock or debt of any of its
Restricted Subsidiaries which owns property or assets, now owned or hereafter
acquired, other than Permitted Liens.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
entities in which the Company or any of its Restricted Subsidiaries own a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be, and
the terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's-length basis between
77
<PAGE> 81
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1,000,000 which is not permitted under clause (i) above,
such Affiliate Transaction(s) must be approved by a majority of the board of
directors of the Company (including a majority of the disinterested directors).
In transactions with a value in excess of $3,000,000 which are not permitted
under clause (i) above, in addition to the requirements set forth in the
immediately preceding sentence, the Company must obtain a written opinion as to
the fairness of such a transaction from a nationally recognized expert with
experience in appraising the terms of conditions of the type of business or
transaction or series of transactions for which approval is required.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein or (ii) any transaction approved by the board of
directors of the Company, with an officer or director of the Company or of any
Subsidiary of the Company in his or her capacity as officer or director entered
into in the ordinary course of business, including compensation and employee
benefit arrangements with any officer or director of the Company or of any
Subsidiary of the Company that are customary for public companies in the radio
broadcasting industry.
Limitation on Creation of Subsidiaries
The Company shall not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Indenture, (ii) a Restricted
Subsidiary that is acquired in connection with the acquisition by the Company of
a radio station or radio broadcast license (and which Restricted Subsidiary was
not expressly created in contemplation of such acquisition); (iii) a Restricted
Subsidiary created after the Issue Date; or (iv) an Unrestricted Subsidiary;
provided, however, that each Restricted Subsidiary acquired or created pursuant
to clause (ii) or (iii) shall have executed a Guarantee, satisfactory in form
and substance to the Trustee (and with such documentation relating thereto as
the Trustee shall require, including, without limitation a supplement or
amendment to the Indenture and opinions of counsel as to the enforceability of
such Guarantee), pursuant to which such Restricted Subsidiary shall become a
Guarantor. As of the Issue Date, the Company will have no active Subsidiaries,
other than the Guarantors. See "Description of the Notes -- General."
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's board of directors, and evidenced
by a board resolution); (ii) not less than 85% of the consideration received by
the Company or its Restricted Subsidiaries, as the case may be, is in the form
of cash or cash equivalents (those equivalents allowed under "Temporary Cash
Investments"); and (iii) the Asset Sale Proceeds received by the Company or any
such Restricted Subsidiary are applied (a) to the extent the Company elects, (x)
to an investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another person) used or useful in media businesses, provided that such
investment occurs or the Company or a Restricted Subsidiary enters into
contractual commitments to make such investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 181st day
following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and
Asset Sale Proceeds contractually committed are so applied within 360 days
following the receipt of such Asset Sale Proceeds or (y) to repay, repurchase or
redeem any Indebtedness of the Company or a Guarantor incurred in compliance
with this Indenture which is not subordinate in right of payment to the Notes or
the Guarantee of such Guarantor, as the case may be; and (b) to the extent not
applied pursuant to clause (iii)(a), if on the Reinvestment Date with respect to
any Asset Sale, the Available Asset Sale Proceeds exceed $10,000,000, the
Company shall apply an amount equal to such Available Asset Sale Proceeds to an
offer to repurchase the Notes, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (an "Excess Proceeds
78
<PAGE> 82
Offer"). If an Excess Proceeds Offer is not fully subscribed, the Company may
retain the portion of the Available Asset Sale Proceeds not required to
repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary of the Company to
issue any Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the covenant described under "Limitation on Additional Indebtedness" in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary of the Company, other
than Capital Stock of a Restricted Subsidiary of the Company which owns or holds
only property or assets acquired by the Company and its Restricted Subsidiaries
after the Issue Date, or (ii) permit any of its Restricted Subsidiaries to issue
any Capital Stock, other than to the Company or a Wholly-Owned Restricted
Subsidiary of the Company. The foregoing restrictions shall not apply to (a) an
Asset Sale made in compliance with "Limitation on Certain Asset Sales", (b) the
issuance of Preferred Stock in compliance with the covenant described under
"Limitation on Preferred Stock of Subsidiaries" or (c) a pledge or hypothecation
or other Lien on Capital Stock of a Restricted Subsidiary pursuant to a
Permitted Lien securing Bank Indebtedness.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the fair market value of the property sold, as determined by a board
resolution of the Company and (ii) the Company could incur the Attributable Debt
in respect of such Sale and Lease-Back Transaction in compliance with the
covenant described under "Limitation on Additional Indebtedness."
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and unpaid
interest
79
<PAGE> 83
thereon to the Change of Control Payment Date (such applicable purchase price
being hereinafter referred to as the "Change of Control Purchase Price") in
accordance with the procedures set forth in this covenant,
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered and (iii) deliver or cause to
be delivered to the Trustee Notes or portions thereof so accepted for
cancellation. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture provides that, if the Company or any Restricted Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or any Guarantee or (ii) Preferred Stock, and the
Company or such Subsidiary is required to repay, repurchase, redeem or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a change of control of the Company, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, consummate any such
repayment, repurchase, redemption or distribution with respect to such
subordinated Indebtedness or Preferred Stock until such time as the Company
shall have paid the Change of Control
80
<PAGE> 84
Purchase Price in full to the holders of Notes that have accepted the Company's
Change of Control Offer and shall otherwise have consummated the Change of
Control Offer made to holders of the Notes.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER AND CONSOLIDATION
The Company will not and will not permit any Guarantor (other than a
Guarantor to be released from its obligations under its Guarantee as described
under "-- Guarantees"), to consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions), to any Person
unless: (i) the Company or the Guarantor, as the case may be, shall be the
continuing Person, or the Person (if other than the Company or the Guarantor)
formed by such consolidation or into which the Company or the Guarantor, as the
case may be, is merged or to which the properties and assets of the Company or
the Guarantor, as the case may be, are transferred shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all of the obligations of the Company or the Guarantor, as the case may
be, under the Notes or its Guarantee and the Indenture, and the obligations
under the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and (iii) immediately
after giving effect to such transaction on a pro forma basis the Company or such
person could incur at least $1.00 additional Indebtedness (other than Permitted
Indebtedness) under the covenant set forth under "Limitation on Additional
Indebtedness," provided that a Guarantor may merge into the Company or another
person that is a Guarantor without complying with this clause (iii).
In connection with any consolidation, merger or transfer contemplated by
this provision, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
The Notes are unconditionally guaranteed on a senior unsecured basis by
each of the Company's subsidiaries (the "Guarantors"). The obligations of each
Guarantor are limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities of such Guarantor (including, without
limitation, any guarantees of other Indebtedness) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock owned by the Company and its Restricted Subsidiaries is sold, in
each case in a transaction in compliance with the covenant described under
"Limitation on Certain Asset Sales," or the Guarantor merges with or into or
consolidates with, or transfers all or substantially all of its assets to, the
Company or another Guarantor in a transaction in compliance with "Merger and
Consolidation," and such Guarantor has delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent herein provided for relating to such transaction have been complied
with.
81
<PAGE> 85
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes, Guarantees or the Indenture
for 60 days after written notice from the Trustee or the holders of not
less than 25% in aggregate principal amount of the Notes then outstanding;
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $3,000,000 or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof, or the acceleration of
any such Indebtedness aggregating $3,000,000 or more which default shall
not be cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 30 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
10 days after written notice as provided in the Indenture;
(v) any final judgment or judgments for the payment of money in excess
of $3,000,000 shall be rendered against the Company or any Restricted
Subsidiary thereof, and shall remain undischarged for any period of 60
consecutive days during which a stay of enforcement shall not be in effect;
or
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable, the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the Trustee, the holders
of a majority in aggregate principal amount of outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than nonpayment of accelerated principal, premium, or interest,
have been cured or waived as provided in the Indenture. In case an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, such principal, premium and interest amount with
respect to all of the Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
82
<PAGE> 86
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "Covenants" ("covenant defeasance"), upon the deposit with the Trustee (or
other qualifying trustee), in trust for such purpose, of money and/or U.S.
government obligations which through the payment of principal and interest in
accordance with their terms will provide money, in an amount sufficient to pay
the principal of, premium, if any, and interest on the Notes, on the scheduled
due dates therefor or on a selected date of redemption in accordance with the
terms of the Indenture. Such a trust may only be established if, among other
things, the Company has delivered to the Trustee an opinion of counsel (as
specified in the Indenture) (i) to the effect that neither the trust nor the
Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (ii) describing either a private
ruling concerning the Notes or a published ruling of the Internal Revenue
Service, to the effect that holders of the Notes or persons in their positions
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred.
MODIFICATION OF INDENTURE
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Indenture contains
provisions permitting the Company, the Guarantors and the Trustee, with the
consent of holders of at least a majority in principal amount of the outstanding
Notes, to modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture, Guarantees or the Notes, (ii) reduce the
rate of or change the time for payment of interest on any Note, (iii) reduce the
principal of or premium on or change the stated maturity of any Note, (iv) make
any Note payable in money other than that stated in the Note or change the place
of payment from New York, New York, (v) change the amount or time of any payment
required by the Notes or reduce the premium payable upon any redemption of
Notes, or change the time when such redemption may be made, (vi) waive a default
on the payment of the principal of, interest on, or redemption payment with
respect to any Note, or (vii) take any other action otherwise prohibited by the
Indenture to be taken without the consent of each holder affected thereby.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, it will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
83
<PAGE> 87
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under the Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Acquisition Indebtedness" means Indebtedness incurred by the Company or by
a Restricted Subsidiary the proceeds of which are used for the acquisition of a
media business and related facilities and assets or for the construction of a
facility pursuant to a construction permit issued by the FCC.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair ratable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
"Affiliate" of any specified person means any other person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise; provided that (a) beneficial ownership of at least 10% of the voting
securities of a person shall be deemed to be control and (b) for purposes of the
"Limitation on Transactions with Affiliates" covenant for so long as Raul
Alarcon Sr., Raul Alarcon Jr. or Jose Grimalt are directors, officers or
shareholders of the Company, they, their respective spouses, lineal descendants
and any person controlled by any of them shall be Affiliates of the Company and
its Subsidiaries.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of transactions of (a) any Capital Stock of or other
84
<PAGE> 88
equity interest in any Restricted Subsidiary of the Company, (b) all or
substantially all of the assets of the Company or of any Restricted Subsidiary
thereof, or (c) all or substantially all of the assets of any radio station, or
part thereof, owned by the Company or any Restricted Subsidiary thereof, or a
division, line of business or comparable business segment of the Company or any
Restricted Subsidiary thereof; provided that Asset Sales shall not include
sales, leases, conveyances, transfers or other dispositions to the Company or to
a Restricted Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Restricted Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary of the Company from such
Asset Sale (including cash received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset Sale),
after (a) provision for all income or other taxes measured by or resulting from
such Asset Sale, (b) payment of all brokerage commissions, underwriting and
other fees and expenses related to such Asset Sale, (c) provision for minority
interest holders in any Restricted Subsidiary of the Company as a result of such
Asset Sale and (d) deduction of appropriate amounts to be provided by the
Company or any such Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Company or any such Restricted Subsidiary after
such Asset Sale, including, without limitation, pension and other post
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the assets sold or
disposed of in such Asset Sale, and (ii) promissory notes and other noncash
consideration received by the Company or any such Restricted Subsidiary from
such Asset Sale or other disposition upon the liquidation or conversion of such
notes or noncash consideration into cash.
"Attributable Debt" in respect of a Sale and Lease-Back Transaction means,
as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the board of directors of
the Company) and (ii) the present value (discounted at the interest rate
implicit in such transaction) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and that have not been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(b) of the
first paragraph of "Certain Covenants -- Limitation on Certain Asset Sales".
"Bank Indebtedness" means (i) Indebtedness of the Company incurred in
accordance with the Indenture owing to one or more commercial banking
institutions that are members of the Federal Reserve System and (ii) any
guarantee by a Guarantor of any Indebtedness of the Company of the type set
forth in clause (i) of this definition.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Certificate of Designation" means the Certificate of Designation creating
the Senior Preferred Stock, as in effect on the Issue Date.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any person (including a person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting power of the Company's Common Stock,
(ii) prior to a Public Equity Offering, Permitted Holders shall cease to own
beneficially at least 40% of the total voting power of the
85
<PAGE> 89
Company's Common Stock, (iii) any person (including a person's Affiliates and
associates), other than a Permitted Holder, becomes the beneficial owner of more
than 30% of the total voting power of the Company's Common Stock, and the
Permitted Holders beneficially own, in the aggregate, a lesser percentage of the
total voting power of the Common Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the board of directors of the Company,
(iv) there shall be consummated any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which the Common Stock of the Company would be converted into cash, securities
or other property, other than a merger or consolidation of the Company in which
the holders of the Common Stock of the Company outstanding immediately prior to
the consolidation or merger hold, directly or indirectly, at least a majority of
the Common Stock of the surviving corporation immediately after such
consolidation or merger, or (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the board of
directors of the Company (together with any new directors whose election by such
board of directors or whose nomination for election by the shareholders of the
Company has been approved by 66 2/3% of the directors then still in office who
either were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the board of directors of the Company.
"Common Stock" of any person means all Capital Stock of such person that is
generally entitled to (i) vote in the election of directors of such person or
(ii) if such person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such person.
"Consolidated Interest Expense" means, with respect to any person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such person and its Subsidiaries on a consolidated basis
(including, but not limited to, cash dividends paid on Preferred Stock, imputed
interest included in Capitalized Lease Obligations, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, the net costs associated with hedging obligations,
amortization of other financing fees and expenses, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other non-cash interest expense (other than interest amortized to cost of
sales)) plus, without duplication, all net capitalized interest for such period
and all interest incurred or paid under any guarantee of Indebtedness (including
a guarantee of principal, interest or any combination thereof) of any person,
plus the amount of all dividends or distributions paid on Disqualified Capital
Stock (other than dividends paid or payable in shares of Capital Stock of the
Company).
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the Net Income of such person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any person (the "other person") in
which the person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other person to
be consolidated into the net income of the person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c) (i) the Net Income
of any person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
and (d) extraordinary gains and losses shall be excluded.
"Credit Facility" means Indebtedness of the Company and its Restricted
Subsidiaries under a revolving credit facility in an aggregate principal amount
not to exceed the greater of (a) $10,000,000 or (b) 75% of the net book value of
the Company's accounts receivable.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable
86
<PAGE> 90
at the option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of
the Company and (ii) any Preferred Stock of the Company, with respect to either
of which, under the terms of such Preferred Stock, by agreement or otherwise,
such Restricted Subsidiary or the Company is obligated to pay current dividends
or distributions in cash during the period prior to March 15, 2004; provided,
however, that Preferred Stock of the Company or any Restricted Subsidiary
thereof that is issued with the benefit of provisions requiring a change of
control offer to be made for such Preferred Stock in the event of a change of
control of the Company or such Restricted Subsidiary, which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control," shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions; and provided, further that the Senior Preferred
Stock shall be deemed not to be Disqualified Capital Stock.
"EBITDA" means, for any person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such Period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only, provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such person shall be included only (x) if cash income
has been received by such person with respect to such Investment during each of
the previous four fiscal quarters, or (y) if the cash income derived from such
Investment is attributable to Temporary Cash Investments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means 14 1/4% Exchange Debentures due 2005 of the
Company issuable in exchange for Senior Preferred Stock.
"GAAP" means generally accepted accounting principles as in effect on the
Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
property or assets owned or held by such person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed, (iii)
guarantees
87
<PAGE> 91
of items of other persons which would be included within this definition for
such other persons (whether or not such items would appear upon the balance
sheet of the guarantor), (iv) all obligations for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) in the case of the Company, Disqualified Capital Stock of the
Company or any Restricted Subsidiary thereof, and (vi) obligations of any such
person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such person prepared in accordance with GAAP).
The amount of Indebtedness of any person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount, including the Old Notes, is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Infinity Note" means the $3,000,000 aggregate principal amount of
Indebtedness issued by the Company to Infinity Holding Corp. of Orlando on the
Issue Date.
"Interest Rate Agreement" means, for any person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business), loan or capital contribution to (by means of transfers of property to
others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any person or the making of any
investment in any person. Investments shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Lien" means with respect to any property or assets of any person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention, agreement having substantially the same economic effect
as any of the foregoing).
"Net Income" means, with respect to any person for any period, the net
income (loss) of such person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company or any of its Restricted Subsidiaries, the aggregate net proceeds
received by the Company or such Restricted Subsidiary, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors of the Company,
at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of outstanding securities of any kind for or into shares
of Capital Stock of the Company or any of its Restricted Subsidiaries which is
not Disqualified Capital Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount
88
<PAGE> 92
required to be paid by the holder to the Company or such Restricted Subsidiary
upon such exchange, exercise, conversion or surrender, less any and all payments
made to the holders, e.g., on account of fractional shares and less all expenses
incurred by the Company in connection therewith). For the avoidance of doubt,
the issuance of Senior Preferred Stock as payment of dividends on Senior
Preferred Stock shall be deemed to result in no Net Proceeds received by the
Company from any such issuance.
"Officers' Certificate" means, with respect to any person, a certificate
signed by the Chairman of the Board of Directors, the President or any Vice
President and the Treasurer or any assistant Treasurer of such person that shall
comply with applicable provisions of the Indenture.
"Old Notes" means the $107,059,000 aggregate principal amount of 12 1/2%
Senior Notes due 2002 of the Company.
"Old Warrants" means Warrants issued pursuant to the Warrant Agreement
dated as of June 29, 1994 between the Company and IBJ Schroder Bank & Trust
Company, as Warrant Agent.
"Permitted Holders" means (i) Raul Alarcon Jr., (ii) the heirs, executors.
administrators testamentary, trustees, legatees or beneficiaries of the person
described in (i) and (iii) a trust, the beneficiaries of which include only
persons described in (i) and (ii) and their respective spouses and lineal
descendants.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Credit Facility;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture (including the Old Notes
and guarantees thereof and the Infinity Note);
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in the aggregate
exceed 5% of the Company's consolidated total assets;
(vi) Refinancing Indebtedness;
(vii) Indebtedness represented by any guarantee by a Guarantor of
Indebtedness of the Company permitted to be incurred under the Indenture;
and
(viii) other Indebtedness of the Company not to exceed $2,000,000 at
any one time outstanding.
"Permitted Investments" means, for any person, Investments made on or after
the date of the Indenture consisting of
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such person
becomes a Restricted Subsidiary of the Company or (b) such person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof;
(iv) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Limitation on Sale of
Assets";
89
<PAGE> 93
(v) Investments by the Company or any of its Restricted Subsidiaries
in any other person pursuant to the terms of a "local marketing agreement"
or similar arrangement relating to a radio station owned or licensed by
such person; and
(vi) other Investments not to exceed $3,000,000 at any one time
outstanding.
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Ratio Indebtedness, (iii) Liens securing Refinancing
Indebtedness; provided that any such Lien does not extend to or cover any
Property, shares or debt other than the Property, shares or debt securing the
Indebtedness so refunded, refinanced or extended, (iv) Liens in favor of the
Company or any of its Restricted Subsidiaries, (v) Liens securing industrial
revenue bonds, (vi) Liens to secure Purchase Money Indebtedness that is
otherwise permitted under the Indenture, provided that (a) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including sales and excise
taxes, installation and delivery charges and other direct costs of, and other
direct expenses paid or charged in connection with, such purchase or
construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien, does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (vii) Liens on Capital Stock of Restricted
Subsidiaries and accounts receivable, the proceeds thereof and related records
to secure the Credit Facility, (viii) Liens securing Bank Indebtedness, (ix)
statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business, which do not secure any Indebtedness and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (x)
other Liens securing obligations incurred in the ordinary course of business
which obligations do not exceed $500,000 in the aggregate at any one time
outstanding, (xi) Liens securing Acquisition Indebtedness, provided that such
Liens do not extend to or cover any Property other than the Property acquired
with the proceeds of such Acquisition Indebtedness and any improvements thereto,
and (xii) any extensions, substitutions, replacements or renewals of the
foregoing.
"Preferred Stock" means any Capital Stock of a person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such person over the holders of other
Capital Stock issued by such person.
"Property" of any person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such person incurred in connection therewith.
"Ratio Indebtedness" means (i) Indebtedness of the Company incurred
pursuant to the first paragraph of the covenant described under "Certain
Covenants -- Limitation on Additional Indebtedness" which is not Refinancing
Indebtedness and (ii) any guarantee by a Guarantor of any Indebtedness of the
Company of the type set forth in clause (i) of this definition.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
90
<PAGE> 94
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries (other than pursuant to clause (iv) of the definition of "Permitted
Indebtedness") pursuant to the terms of the Indenture, but only to the extent
that (i) the Refinancing Indebtedness is subordinated to the Notes to at least
the same extent as the Indebtedness being refunded, refinanced or extended, if
at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or (b)
after the maturity date of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the maturity
date of the Notes has a weighted average life to maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the
weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid interest,
if any, and premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced or extended and (c)
the amount of customary fees, expenses and costs related to the incurrence of
such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred
by the same person that initially incurred the Indebtedness being refunded,
refinanced or extended, except that the Company may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned
Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), and (y) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Wholly-Owned Restricted Subsidiary of the Company), (ii) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company or any of its Restricted Subsidiaries (other than Capital
Stock owned by the Company or a Wholly-Owned Restricted Subsidiary of the
Company), (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to the
Notes or a Guarantee (other than subordinated Indebtedness acquired in
anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition), (iv) the making of any Investment or guarantee of any Investment
in any person other than a Permitted Investment, (v) any designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (vi) forgiveness of any
Indebtedness of an Affiliate of the Company to the Company or a Restricted
Subsidiary existing on the Issue Date.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary or any person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
person in contemplation of such leasing.
"Senior Preferred Stock" means the 14 1/4% Senior Exchangeable Preferred
Stock of the Company.
91
<PAGE> 95
"Subsidiary" of any specified person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named person for financial statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500,000,000 and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the board of
directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments." The Trustee shall be given prompt notice by the Company of
each resolution adopted by the board of directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Warrants" mean the Warrants issued pursuant to the Warrant Agreement dated
as of March 15, 1997 between the Company and IBJ Schroder Bank & Trust Company,
as Warrant Agent.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary which
is a Wholly-Owned Subsidiary.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
92
<PAGE> 96
DESCRIPTION OF CAPITAL STOCK
The following summary of the capital stock of the Company does not purport
to be complete and is qualified in its entirety by reference to the detailed
provisions of the Company's Charter and the Company's By-laws.
The Company's authorized capital stock consists of 5,000,000 shares of
Class A Common Stock, $.01 par value, 200,000 shares of Class B Common Stock,
$.01 par value, 500,000 shares of preferred stock and 413,930 shares of Senior
Preferred Stock.
COMMON STOCK
All of the outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. On June 30, 1998, all shares of Class B Common Stock
were automatically converted to an equal number of Class A Common Stock pursuant
to the terms of the Company's Amended and Restated Certificate of Incorporation.
Voting Rights. Holders of Class A Common Stock are entitled to one vote
per share on all matters that are submitted to holders of Common Stock for a
vote.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of Common Stock which is entitled to vote is
required to approve any amendment to the Restated and Amended Certificate of
Incorporation of the Company which would increase or decrease the aggregate
number of authorized shares of any class, increase or decrease the par value of
the shares of any class, or modify or change the powers, preferences or special
rights of the shares of any class so as to affect such class adversely.
Other Provisions. Subject to the rights of any Preferred Stock, the
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors in its discretion from
funds legally available therefor, and upon liquidation or dissolution are
entitled to receive all assets available for distribution to the stockholders.
The holders of Common Stock have no preemptive or other subscription rights, and
there are no redemption or sinking fund provisions with respect to such shares.
PREFERRED STOCK
The only outstanding preferred stock will be the Senior Preferred Stock.
See "Description of Senior Preferred Stock and Exchange Debentures."
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
(i) prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock; or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
DIRECTORS' LIABILITY
The Company has included in its Charter and By-laws provisions to: (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty (provided that such provisions do not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, violations under Section 174 of the Delaware General Corporation Law, or
for any transaction from which the director derived an improper
93
<PAGE> 97
personal benefit); and (ii) indemnify its directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
In addition, the Company has obtained liability insurance for each director
and officer for certain losses arising from claims or charges made against them
while acting in their capacities as directors or officers of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
WARRANTS
The Warrants were issued under a Warrant Agreement (the "Warrant
Agreement") dated March 24, 1997 between the Company and IBJ Schroder Bank &
Trust Company, as Warrant Agent (the "Warrant Agent"). The following summary of
certain provisions of the Warrant Agreement does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Warrants and the Warrant Agreement, including the definitions
therein of certain terms.
Each Warrant will entitle the registered holder thereof, subject to and
upon compliance with the provisions thereof and of the Warrant Agreement, at
such holder's option, prior to 5:00 P.M., New York City time, on June 30, 1999
Warrant (the "Expiration Date"), to purchase at a price of $.01 per Warrant (the
"Exercise Price") from the Company 0.428 shares of Class A Common Stock (or such
other number as may result from adjustments as provided in the Warrant
Agreement). The number of shares of Class A Common stock for which a Warrant may
be exercised is subject to adjustment as set forth in the Warrant Agreement.
Warrants may be exercised on or after the Exercisability Date, and before
the Warrant Expiration Date, by surrendering the Warrant Certificate evidencing
such Warrants with the form of election to purchase shares set forth on the
reverse side thereof duly completed and executed by the holder thereof and
paying in full the Exercise Price for such Warrants at the office or agency
designated for such purpose, which will initially be the corporate trust office
of the Warrant Agent in New York, New York. Each Warrant may only be exercised
in whole and the Exercise Price may be paid only in cash or by certified or
official bank check. "Exercisability Date" is defined in the Warrant Agreement
as the date of occurrence of both an Exercise Event (as defined below) and the
Separability Date (as defined below). "Exercise Event" is defined in the Warrant
Agreement as the date of the earliest of: (1) a Change of Control (as defined in
the Warrant Agreement), (2) seven days prior to consummation of a Public Equity
Offering (as defined in the Warrant Agreement), (3) the date on which any class
of equity securities of the Company is listed on a national securities exchange
or authorized for quotation on the National Association of Securities Dealers,
Inc. Automated Quotation System, or (4) June 29, 1998. "Separability Date" is
defined in the Warrant Agreement to mean June 1, 1997 or such earlier date as
may be determined by the Initial Purchaser, such date to be confirmed by written
notice from the Company to the Warrant Agent; provided that if such date is not
a business day, the Separability Date shall be the next succeeding business day.
The Warrant Agreement provides that, if in the opinion of counsel to the
Company approval of the FCC is required before the Company may issue shares upon
the exercise of any Warrant, the Company may defer the issuance of such Warrant
Shares until such time as approval of the FCC is obtained or is no longer
required. The Company has agreed to promptly commence any proceeding before the
FCC required to permit the exercise of the outstanding Warrants and to use its
best efforts to obtain any order of the FCC or similar approval necessary to
permit such exercise and maintain such approval in full force and effect. In the
event that at the Warrant Expiration Date, the exercise of Warrants has been
suspended such that the Warrants have not been exercised for a period of one
full year, the Warrant Expiration Date shall be extended to such date as is
necessary so that the Warrants will have been exercisable for one full year
prior to the Warrant
94
<PAGE> 98
Expiration Date. See "Risk Factors -- Risks Related to Government Regulation;
Limitation on Issuances of Common Stock."
The certificates evidencing the Warrants (the "Warrant Certificates") may
be surrendered for exercise or exchange, and the transfer of Warrant
Certificates will be registrable, at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent in New York, New York. The Warrant Certificates will be
issued only in fully registered form. No service charge will be made for any
exercise, exchange or registration of transfer of Warrant Certificates, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Holders of Warrants will not be entitled, by virtue of being such holders,
to receive dividends, vote, receive notice of any meetings of stockholders or
otherwise have any right of stockholders of the Company.
The number of shares of Class A Common Stock issuable upon exercise of a
Warrant (the "Exercise Rate") is subject to adjustment from time to time upon
the occurrence of certain events, including (a) dividends or distributions on
Common Stock of the Company payable in the Common Stock of the Company or
certain other Capital Stock of the Company; (b) subdivisions, combinations or
certain reclassifications of the Common Stock of the Company; (c) distributions
to all holders of Common Stock of the Company of rights, warrants or options to
purchase Common Stock of the Company at a price per share less than the Current
Market Value (as defined below) at the Time of Determination (as defined in the
Warrant Agreement); (d) sales by the Company of Common Stock of the Company or
of securities convertible into or exchangeable or exercisable for Common Stock
of the Company (other than pursuant to (1) the exercise of the Warrants or the
Old Warrants, (2) any options, warrants or rights outstanding as of the date of
the Warrant Agreement, (3) without limiting any options, warrants or rights
outstanding pursuant to the immediately preceding clause (2), any directors'
plans and employee stock option or purchase plans to the extent that the
aggregate number of shares of Common Stock of the Company (or securities
convertible into or exchangeable or exercisable for the Common Stock of the
Company) distributed under all such directors' plans and employee stock option
and purchase plans does not exceed 25,000 shares of the Company's Common Stock
at any time, and (4) any security convertible into, or exchangeable or
exercisable for, the Company's Common Stock as to which the issuance thereof has
previously been the subject of any required adjustment pursuant to the Warrant
Agreement and exercisable securities of the Company for which the applicable
adjustment has already been made) at a price per share less than the Current
Market Value at the Time of Determination, and (e) distributions to stockholders
of assets, debt securities or certain rights, warrants or options to purchase
securities of the Company (excluding the Distribution and cash dividends or
other cash distributions from current or retained earnings other than any
extraordinary cash dividend). The Warrant Agreement permits the Company
voluntarily to increase the Exercise Rate from time to time for a period of time
not less than 20 business days.
"Current Market Value" per share of Common Stock of the Company or any
other security at any date means (1) if the security is not registered under the
Exchange Act, (i) the value of the security determined in good faith by the
Board of Directors of the Company and certified in a board resolution, based on
the most recently completed arm's-length transaction between the Company and a
person other than an affiliate of the Company and the closing of which occurs on
such date or shall have occurred within the six months preceding such date, (ii)
if no such transaction shall have occurred on such date or within such six-month
period, the value of the security most recently determined as of a date within
the six months preceding such date by an independent financial expert or (iii)
if neither clause (i) nor (ii) is applicable, the value of the security
determined as of such date by an independent financial expert, or (2) if the
security is registered under the Exchange Act, the average of the daily closing
bid prices for each business day during the period commencing 15 business days
before such date and ending on the date one day prior to such date or, if the
security has been registered under the Exchange Act for less than 15 consecutive
business days before such date, then the average of the daily closing bid prices
for all of the business days before such date for which daily closing bid prices
are available. If the closing bid price is not determinable for at least 10
business days in such period, the Current Market Value of the security shall be
determined as if the security were not registered under the Exchange Act.
95
<PAGE> 99
If the Company is a party to a consolidation, merger or binding share
exchange, or certain transfers of all or substantially all of its assets occur,
the right to exercise a Warrant for Class A Common Stock of the Company may be
changed by the Company into a right to receive securities, cash or other assets
of the Company or another person.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States Federal income tax as a dividend.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the holders of Warrant Certificates under the Warrant Agreement at
any time by the Company and the Warrant Agent with the consent of the holders of
Warrant Certificates representing a majority in number of the then outstanding
Warrants.
REGISTRATION AND TAKE-ALONG RIGHTS
The Company, the Management Stockholders (as defined below) and the Initial
Purchaser entered into a Registration Rights and Stockholders' Agreement dated
March 15, 1997 (the "Common Stock Registration Rights Agreement") with respect
to the shares of Class A Common Stock (and other securities, if any) issuable
upon exercise of the Warrants ("Registrable Securities"). The Common Stock
Registration Rights Agreement provides that the Initial Purchaser and persons to
whom Registrable Securities are transferred (collectively, "Holders") will have
the registration rights and other rights and obligations with respect to the
Registrable Securities described below.
Registration Rights. Holders of Registrable Securities will have the
demand registration rights described in this paragraph only following the
occurrence of an Exercise Event. After the occurrence of an Exercise Event, the
Holders of at least 25% of the outstanding Warrants and Registrable Securities
will be entitled to require the Company to effect up to two registrations under
the Securities Act of Registrable Securities (each a "Demand Registration"),
subject to certain limitations. Upon a demand, the Company will prepare, file
and cause to be effective within 180 days of such demand a registration
statement in respect of all of the Registrable Securities; provided that in lieu
of filing such registration statement the Company may make an offer to
repurchase all of the Warrants and Registrable Securities at a price per share
equal to the fair market value per share of Class A Common Stock (without any
discount for lack of liquidity, the amount of Class A Common Stock proposed to
be sold or the fact that the Warrants and shares of Class A Common Stock held by
the Holders may represent a minority interest in a private company) determined
by a nationally recognized investment banking firm selected by the Company.
Holders of Registrable Securities will also have the right to include such
Registrable Securities in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
securityholders (other than (i) a registration statement on Form S-4 or S-8,
(ii) a registration statement filed in connection with an offer of securities
solely to existing securityholders or (iii) a demand registration with respect
to the Old Warrants) for sale on the same terms and conditions as the securities
of the Company or any other selling securityholder included therein (a
"Piggy-Back Registration") in the case of a Piggy-Back Registration, the number
of Registrable Securities requested to be included therein is subject to
reduction to the extent that the Company is advised by the managing underwriter
therefor that the total number of shares proposed to be included therein is such
as to materially and adversely affect the success of the offering.
The Common Stock Registration Rights Agreement will include customary
covenants on the part of the Company and will provide that the Company will
indemnify the Holders of Registrable Securities included in any registration
statement and any underwriter with respect thereto against certain liabilities.
Take-Along Rights. In the event of any proposed transfer, sale or other
disposition (collectively, a "Transfer") of Common Stock by any of the Existing
Stockholders in any transaction, or a series of related transactions involving
shares of Common Stock aggregating at least 15% of the shares of Common Stock
then
96
<PAGE> 100
owned by the Existing Stockholders to a person (such other person being
hereinafter referred to as the "proposed purchaser"), other than pursuant to an
Exempt Transfer (as defined below), each of the Holders and the holders of
Contingent Class A Shares shall have the right to require the proposed purchaser
to purchase from each of them up to a percentage of the number of Warrants,
Registrable Securities and Contingent Class A Shares owned by such Holder or
holder of Contingent Class A Shares equaling the percentage derived by dividing
the total number of shares of Common Stock the Existing Stockholder proposes to
transfer by the total number of shares of Common Stock outstanding. Any
Warrants, Registrable Securities and Contingent Class A Shares purchased from
the Holders pursuant to such provision shall be paid for at the same price per
security and upon the same terms and conditions of such proposed transfer by
such Existing Stockholder; provided that the price per Warrant to be paid by the
proposed purchaser shall equal the product of (i) the price proposed to be paid
per share of Common Stock and (ii) the fractional interest in a share of Class A
Common Stock for which such Warrant is exercisable, less the exercise price of
such Warrant. The Company shall notify, or cause to be notified, each Holder and
holder of Contingent Class A Shares in writing of each such proposed transfer at
least 20 days prior to the date thereof. Such notice shall set forth (i) the
name of the proposed purchaser and the number of shares of Common Stock proposed
to be transferred, (ii) the name and address of the proposed purchaser, (iii)
the proposed amount of consideration and terms and conditions of payment offered
by such proposed purchaser (if the proposed consideration is not cash, the
notice shall describe the terms of the proposed consideration) and (iv) that
either the proposed purchaser has been informed of the "take-along right" and
has agreed to purchase Warrants, Registrable Securities and Contingent Class A
Shares in accordance with the terms hereof or that the selling Existing
Stockholder will make such purchase.
The take-along right may be exercised by any Holder or holder of Contingent
Class A Shares by delivery of a written notice to the Company (the "Take-Along
Notice"), within 10 days following their receipt of the notice specified in the
preceding paragraph. The Take-Along Notice shall state the amount of Warrants,
Registrable Securities and Contingent Class A Shares that such Holder or holder
of Contingent Class A Shares proposes to include in such transfer to the
proposed purchaser determined as aforesaid. Failure to provide a Take-Along
Notice within the 10-day notice period shall be deemed to constitute an election
by such holder not to exercise its take-along rights.
In the event that the proposed purchaser does not purchase Warrants,
Registrable Securities and Contingent Class A Shares from the Holders and
holders of Contingent Class A Shares on the same terms and conditions as
purchased from the Existing Stockholder, then the Existing Stockholder making
such Transfer shall purchase such Warrants, Registrable Securities and
Contingent Class A Shares if the Transfer occurs.
Take-along rights shall terminate upon the effectiveness of any
registration statement filed with the Commission with respect to shares of
Common Stock in an initial public offering or subsequent public offering if,
after giving effect to such offering, at least 20% of the Company's Common Stock
on a fully-diluted basis would be held by persons unaffiliated with the Company
and without restriction on transfer under the Securities Act.
As used herein, the term "Exempt Transfer" shall mean a transfer by a
Existing Stockholder to another Existing Stockholder.
As used herein, the term "Existing Stockholders" shall mean (i) Mr. Raul
Alarcon, Jr., Mr. Pablo Alarcon Sr. and Mr. Jose Grimalt, (ii) any employee
benefit plan of the Company or any participants therein, (iii) the heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries of
any person described in (i) or (ii), and (iv) a trust the beneficiaries of which
include any persons described in (i) and their respective spouses and lineal
descendants.
OLD WARRANTS
As part of the private offering of the Old Notes in June 1994, the Company
also sold Warrants to purchase shares of Class A Common Stock (the "Old
Warrants"). Each Old Warrant may be exercised at a price of $.01 per share at
any time after the earliest to occur of: (i) a change in control of the Company;
97
<PAGE> 101
(ii) seven days prior to the consummation of a public offering of equity
securities of the Company, unless FCC approval is required prior to the date the
Old Warrants may be exercised; (iii) the date on which any equity securities of
the Company are listed on a national securities exchange or authorized for
quotation on the Nasdaq National Market; (iv) the making of any adjustment of
the exercise rate after which the Old Warrants may be exercised only for cash;
and (v) June 29, 1998, provided, however, that such dates may be extended by the
Company in order to comply with FCC rules and regulations. The Warrant Agreement
governing the Old Warrants contains antidilution provisions which entitle the
Warrantholders to receive their pro rata share of any stock splits or dividends
payable on any Class A Common Stock.
REGISTRATION RIGHTS
The Company is a party to the Registration Rights Agreement pursuant to
which holders of shares of Class A Common Stock issuable upon the exercise of
the Old Warrants have the registration rights and other rights and obligations
with respect to the Registrable Securities described below.
Pursuant to the Registration Rights Agreement, the holders of at least 25%
of the outstanding Registrable Securities are entitled to require the Company to
effect up to two registrations under the Securities Act of such Registrable
Securities (each a "demand registration"), subject to certain limitations. Upon
a demand, the Company is required to prepare, file and cause to be effective
within 180 days of such demand a registration statement in respect of all of the
Registrable Securities; provided, that in lieu of filing such registration
statement, the Company may make an offer to repurchase all of the Registrable
Securities at a price per share equal to the fair market value per share of
Common Stock (without any discount for lack of liquidity, the amount of Common
Stock proposed to be sold or the fact that such shares of Common Stock may
represent a minority interest in a private company) determined by a nationally
recognized investment banking firm selected by the Company.
Holders of Registrable Securities also have the right to include
Registrable Securities in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
securityholders (other than (i) a registration statement on Form S-4 or S-8,
(ii) a registration statement filed in connection with an offer of securities
solely to existing securityholders or (iii) a demand registration) for sale on
the same terms and conditions as the securities of the Company or any other
selling securityholder included therein ("piggy-back registration"). In the case
of a piggy-back registration, the number of Registrable Securities requested to
be included therein is subject to reduction to the extent that the Company is
advised by the managing underwriter therefor that the total number of shares
proposed to be included therein is such as to materially and adversely affect
the success of the offering.
The Registration Rights Agreement includes customary covenants on the part
of the Company including the Company's agreement to indemnify the holders of
Registrable Securities included in any registration statement and any
underwriter with respect thereto against certain liabilities.
ALIEN OWNERSHIP
The Company's Charter restricts the ownership and voting of the Company's
capital stock, including its Common Stock, in accordance with the Communications
Act and the rules of the FCC to prohibit direct ownership of more than 25% of
the Company's outstanding capital stock (or beneficial ownership of more than
25% of the Company's capital stock through others) by or for the account of
aliens, foreign governments, or non-U.S. corporations or corporations otherwise
subject to control by such persons or entities. The Company's Charter also
prohibits any transfer of the Company's capital stock which would cause the
Company to violate this prohibition. In addition, the Company's Charter
authorizes the Board of Directors of the Company to adopt such provisions as it
deems necessary to enforce these prohibitions. See "Business -- Federal
Regulation of Broadcasting -- Alien Ownership Restrictions."
98
<PAGE> 102
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain material United States federal
income tax considerations generally applicable to purchasers of Senior Preferred
Stock. The federal income tax considerations set forth below are based upon
currently existing provisions of the Code (the "Code"), applicable permanent,
temporary and proposed Treasury Regulations ("Treasury Regulations"), judicial
authority, and current administrative rulings and pronouncements of the Service.
There can be no assurance that the Service will not take a contrary view, and no
ruling from the Service has been, or will be, sought on the issues discussed
herein. Legislative, judicial, or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences discussed below. This discussion applies
only to a person who is (i) a citizen or resident of the United States for U.S.
federal income tax purposes, (ii) a corporation, partnership or other entity
created or organized under the laws of the United States or any political
subdivision thereof, or (iii) an estate, the income of which is includable in
gross income for United States federal income tax purposes regardless of its
source or (iv) a trust if (a) a U.S. court can exercise primary supervision over
the administration of such trust and (b) one or more fiduciaries has the
authority to control all of the substantial interests of such trust (a "U.S.
Holder").
The summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular U.S. Holders,
and does not address foreign, state, local or other tax consequences. This
summary does not purport to address special classes of taxpayers (such as S
corporations, mutual funds, insurance companies, financial institutions, small
business investment companies, foreign companies, nonresident alien individuals,
regulated investment companies, broker-dealers and tax-exempt organizations) who
are subject to special treatment under the federal income tax laws, or persons
that hold Senior Preferred Stock that are a hedge against, or that are hedged
against, currency risk or that are part of a straddle or conversion transaction,
or persons whose functional currency is not the U.S. dollar. Furthermore, estate
and gift tax consequences are not discussed herein. No opinion of counsel or
ruling from the IRS will be requested with respect to any of the matters
discussed herein.
The discussion assumes that the Senior Preferred Stock and the Exchange
Debentures that may be issued in redemption of the Senior Preferred Stock will
be held as capital assets within the meaning of section 1221 of the Code.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF
THE SENIOR PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING AND DISPOSITION OF
THE SENIOR PREFERRED STOCK OR THE EXCHANGE DEBENTURES.
THE SENIOR PREFERRED STOCK
TAX BASIS OF PREFERRED STOCK
The purchase price of the Senior Preferred Stock with the Warrants was
treated as the purchase of an investment unit for Federal income tax purposes.
In order to determine the issue price for each security, the aggregate issue
price of the Senior Preferred Stock and Warrants was allocated between each of
the securities based on their relative fair market value on the date of
issuance.
DISPOSITION OF THE SENIOR PREFERRED STOCK
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of Senior
Preferred Stock will be a taxable event for U.S. federal income tax purposes. In
such event, in general, a U.S. Holder of Senior Preferred Stock will recognize
gain or loss equal to the difference between (i) the amount of cash plus the
fair market value of property received and (ii) the Holder's tax basis in the
Senior Preferred Stock. If the Senior Preferred Stock has been held for more
than 18 months, such gain or loss will be long-term capital gain or loss (which
gain will be entitled to be taxed at a 20% maximum federal income tax rate in
the case of Holders who are individuals). If the Senior Preferred
99
<PAGE> 103
Stock has been held for more than one year but not more than 18 months, any gain
will be mid-term gain or loss (which gain will be entitled to be taxed at a 28%
maximum federal income tax rate). Special rules (and generally lower maximum
rates) apply to individuals in lower tax brackets. The deductibility of capital
losses is subject to limitations.
DIVIDENDS ON THE SENIOR PREFERRED STOCK OR THE COMMON STOCK
Dividends paid on the Senior Preferred Stock (including dividends of
additional shares of Senior Preferred Stock and issuances of shares of Class A
Common Stock with respect to the Senior Preferred Stock) or the Class A Common
Stock acquired with respect to the Senior Preferred Stock will be taxable as
ordinary income to the extent of the Company's current or accumulated earnings
and profits (as determined for federal income tax purposes). To the extent that
the amount of distributions paid on the Senior Preferred Stock or the Class A
Common Stock exceeds the Company's current or accumulated earnings and profits
(as determined for federal income tax purposes), the distributions will be
treated as a return of capital, thus reducing the holder's adjusted tax basis in
such Senior Preferred Stock or Class A Common Stock and increasing the amount of
gain (or reducing the amount of loss) which may be realized by such holder upon
a sale or exchange of the Senior Preferred Stock or the Class A Common Stock.
The amount of any distribution which exceeds the holder's adjusted basis in the
Senior Preferred Stock or the Class A Common Stock will be taxed as capital
gain, and will be eligible for the maximum federal income tax rate limitations
described above if the holder's holding period for such Senior Preferred Stock
or Class A Common Stock exceeds one year or 18 months, as the case may be. For
purposes of the remainder of this discussion, the term "dividend" refers to a
distribution paid out of the Company's allocable earnings and profits, unless
the context indicates otherwise.
Dividends Received Deduction. Dividends paid to a corporate holder who
owns less than 20 percent of the Company (by vote or value) will be eligible for
the 70 percent dividends-received deduction under section 243 of the Code,
subject to the limitations contained in sections 246 and 246A of the Code. The
dividends-received deduction is not available if the stock in respect of which
the dividends are paid is held for 45 days or less (90 days in the case of a
preference dividend attributable to a period or periods aggregating more than
366 days) during the 90-day period (180 days in the case of the above-described
preference dividends) surrounding the date of the dividend. A taxpayer's holding
period for these purposes is reduced by periods during which the taxpayer's risk
of loss with respect to the stock is considered diminished by reason of the
existence of options, contracts to sell or similar transactions. The
dividends-received deduction will also not be available if the taxpayer is under
an obligation to make related payments with respect to positions in
substantially similar or related property. The dividends-received deduction will
be limited to specified percentages of a corporate holder's taxable income and
may be reduced or eliminated if the corporate holder has indebtedness "directly
attributable" to its investment in the stock. Prospective corporate purchasers
of the Senior Preferred Stock should consult their own tax advisors to determine
whether these limitations might apply to them.
For purposes of computing its alternative minimum tax, dividends eligible
for the 70 percent dividends-received deduction are included in a corporate
holder's "adjusted current earnings." If such adjusted current earnings exceed
the corporate holder's alternative minimum taxable income (determined without
regard to the adjustments for adjusted current earnings or the alternative tax
net operating loss deduction), 75 percent of the excess is added to the holder's
alternative minimum taxable income.
Extraordinary Dividends. Under section 1059 of the Code, if a corporate
holder receives an "extraordinary dividend" from the Company with respect to the
Senior Preferred Stock or the Class A Common Stock which it has not held for
more than two years on the dividend announcement date, the basis of the Senior
Preferred Stock or the Class A Common Stock will be reduced (but not below zero)
by the non-taxed portion of the dividend. If, because of the limitation on
reducing basis below zero, any amount of the non-taxed portion of an
extraordinary dividend has not been applied to reduce basis, such amount will be
treated as gain from the sale or exchange of the Senior Preferred Stock or the
Class A Common Stock in the year in which the extraordinary dividend is
received. Generally, the non-taxed portion of an extraordinary dividend is the
amount excluded from income under section 243 of the Code (relating to the
dividends-received deduction). An extraordinary dividend on the Senior Preferred
Stock (or the Class A Common Stock) generally would include any dividend that
(i) equals or exceeds five percent of the holder's adjusted tax basis in the
Senior Preferred Stock (10 percent of the holder's adjusted basis in the Class A
Common Stock), treating all dividends having ex-dividend dates within an 85-day
period as one dividend or (ii) exceeds 20 percent of the
100
<PAGE> 104
holder's adjusted tax basis in the Senior Preferred Stock (or the Class A Common
Stock), treating all dividends having ex-dividend dates within a 365-day period
as one dividend. In determining whether a dividend paid on the Senior Preferred
Stock or the Class A Common Stock is an extraordinary dividend, a holder may
elect to use the fair market value of such stock rather than its adjusted tax
basis for purposes of determining the five percent (or 20 percent) limitation if
the holder is able to establish to the satisfaction of the Secretary of the
Treasury the fair market value of the Senior Preferred Stock (or the Class A
Common Stock) as of the day before the ex-dividend date. An extraordinary
dividend would also include any amount treated as a dividend in the case of a
redemption of the Senior Preferred Stock or the Class A Common Stock that is
either non-pro rata as to all holders or part of a partial liquidation, without
regard to the period the holder held the stock. Corporate holders should see
"Certain Federal Income Tax Considerations -- Redemption of the Senior Preferred
Stock" for a discussion of when a redemption of the Senior Preferred Stock will
constitute an extraordinary dividend.
Certain "qualified preferred dividends," however, are not considered
extraordinary dividends. A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in arrears
as to dividends when acquired, provided, however, that the actual rate of return
(as determined under section 1059(e)(3) of the Code) on such stock does not
exceed 15 percent. If a qualified preferred dividend announced within two years
of the date of acquisition of the preferred stock exceeds the five percent (or
20 percent) threshold for extraordinary dividend status described above, (i)
section 1059(a) will not apply (and no reduction in basis will be required) if
the holder holds the stock for more than five years and (ii) if the holder
disposes of the stock before it has been held for more than five years, the
aggregate reduction in basis under section 1059(a) will not exceed the excess of
the qualified preferred dividends paid on such stock during the period held by
the holder over the qualified preferred dividends that would have been paid
during such period on the basis of the stated rate of return, as determined
under section 1059(e)(3) of the Code. The length of time that a holder is deemed
to have held stock for purposes of section 1059 of the Code is determined under
principles similar to those contained in section 246(c) of the Code discussed
above.
SENIOR PREFERRED STOCK DISCOUNT
The Senior Preferred Stock is subject to mandatory redemption on March 15,
2005 (the "Mandatory Redemption"). In addition, subject to certain restrictions,
the Senior Preferred Stock is redeemable at any time at the option of the
Company at specified redemption prices (the "Optional Redemption"). See
"Description of Senior Preferred Stock and Exchange Debentures -- Redemption".
Pursuant to Section 305(c) of the Code, U.S. Holders of Senior Preferred Stock
may be required to treat a portion of the difference between the Senior
Preferred Stock's issue price and its redemption price as constructive
distributions of property includible in income on a periodic basis. For purposes
of determining whether such constructive distribution treatment applies, the
Mandatory Redemption and the Optional Redemption are tested separately.
Constructive distribution treatment is required if either (or both) of these
tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the holders of such preferred stock on an
economic accrual basis. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price (as determined in accordance
with an allocation of the issue price of the Units, as discussed above) by more
than a de minimis amount. For this purpose, such excess (the "Senior Preferred
Stock Discount") will be treated as zero if it is less than 1/4 of 1% of the
Redemption Price multiplied by the number of complete years from the date of
issuance of the stock until the stock must be redeemed. Senior Preferred Stock
Discount is taxable as a constructive distribution to the U.S. Holder (treated
as a dividend to the extent of the Company's current and accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions) over the term of the preferred stock using a constant interest
rate method similar to that described above for accruing Original Issue
Discount. See "Certain Federal Income Tax Consequences -- Interest on the
Exchange Debentures Original Issue Discount" below.
Under recently issued regulations (the "Regulations") Senior Preferred
Stock Discount will arise due to the Optional Redemption feature only if, based
on all of the facts and circumstances as of the date the Senior
101
<PAGE> 105
Preferred Stock is issued, redemption pursuant to the Optional Redemption is
more likely than not to occur. Even if redemption were more likely than not to
occur, however, constructive distribution treatment would not result if the
redemption premium were solely in the nature of a penalty for premature
redemption. For this purpose, a penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which neither
the issuer nor the U.S. Holder has legal or practical control, such as changes
in prevailing dividend rates. The Regulations provide a safe harbor pursuant to
which constructive distribution treatment will not result from an issuer call
right if (i) the issuer and the U.S. Holder are unrelated, (ii) there are no
arrangements that effectively require the issuer to redeem the stock and (iii)
exercise of the option to redeem would not reduce the yield of the stock.
Although the issue is not free from doubt, the Company believes that the
Senior Preferred Stock will be considered to have been issued with an
unreasonable redemption premium.
Dividend Shares received by U.S. Holders of the Senior Preferred Stock may
bear Senior Preferred Stock Discount depending upon the issue price of such
shares (i.e. the fair market value of the Dividend Shares on the date of their
issuance). If shares of Senior Preferred Stock (including Dividend Shares) bear
Senior Preferred Stock Discount, such shares generally will have different tax
characteristics from other shares of Senior Preferred Stock and might trade
separately, which might adversely affect the liquidity of such shares.
REDEMPTION OF THE SENIOR PREFERRED STOCK
A redemption of shares of the Senior Preferred Stock for cash or for
Exchange Debentures will be a taxable event. A redemption of shares of the
Senior Preferred Stock for cash may be treated as a dividend to the extent of
the Company's current or accumulated earnings and profits (as determined for
federal income tax purposes), unless the redemption (i) results in a "complete
termination" of the holder's stock interest in the Company under section
302(b)(3) of the Code, or (ii) results in a "substantially disproportionate"
redemption of stock with respect to the holder under Section 302(b)(2) of the
Code or (iii) is "not essentially equivalent to a dividend" with respect to the
holder under section 302(b)(1) of the Code. In the case of a redemption of
shares of the Senior Preferred Stock for Exchange Debentures, the amount of the
dividend will not exceed the gain realized upon the exchange. In determining
whether the redemption is treated as a dividend, the holder must take into
account not only stock he actually owns, but also stock he constructively owns
within the meaning of section 318 of the Code. A distribution to a holder will
be "not essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the holder's stock interest in the Company. For these purposes, a
redemption of the Senior Preferred Stock for cash that results in a reduction in
the proportionate interest in the Company (taking into account any ownership of
the Class A Common Stock and any stock of the Company that is constructively
owned) of a holder whose relative stock interest in the Company is minimal (an
interest of less than one percent should satisfy this requirement) and who
exercises no control over corporate affairs should be regarded as a meaningful
reduction in the holder's stock interest in the Company.
If the redemption of the Senior Preferred Stock for cash or for Exchange
Debentures is not treated as a distribution taxable as a dividend, the
redemption would result in capital gain or loss equal to the difference between
the amount of cash (or the value of the Exchange Debentures) received and the
holder's adjusted tax basis in the Senior Preferred Stock redeemed. This gain or
loss would be long-term capital gain or loss if the holder's holding period for
the Senior Preferred Stock exceeded one year. Under the Code, capital gains
recognized by corporations currently are taxed at a maximum rate of 35 percent.
The maximum rate on long-term capital gains in the case of individuals currently
is 20 percent with respect to property that has been held for more than 18
months, and 28 percent with respect to property that has been held for more than
one year but not more than 18 months.
If a redemption of the Senior Preferred Stock is treated as a distribution,
the amount of the distribution will be measured by the amount of cash (or the
value of the Exchange Debentures) received by a holder. As described above, the
distribution will be taxable as a dividend to the extent of the Company's
earnings and profits (but not, in the case of the receipt of Exchange
Debentures, in excess of the gain realized upon the
102
<PAGE> 106
exchange). The amount of the distribution in excess of the Company's earnings
and profits will reduce the holder's basis in the redeemed Senior Preferred
Stock, and, to the extent the amount of the distribution exceeds such basis,
will result in capital gain. If a holder is left with basis in the redeemed
Senior Preferred Stock, such basis will be transferred to any remaining stock
holdings in the Company.
Under section 1059 of the Code, as discussed above, the term extraordinary
dividend includes any redemption of stock that is treated as a dividend and that
is non-pro rata as to all holders of the stock of the Company, including holders
of the Common Stock, irrespective of the holding period. Consequently, to the
extent an exchange of the Senior Preferred Stock constitutes a dividend, it will
constitute an extraordinary dividend to a corporate holder. See "Certain Federal
Income Tax Considerations -- Dividends on the Senior Preferred Stock or the
Common Stock." Holders are required to recognize gain immediately under section
1059 of the Code with respect to any redemption treated as a dividend (in whole
or in part) when the non-taxed portion of the dividend exceeds the basis of the
shares surrendered if the redemption is treated as a dividend due to options
being counted as stock ownership.
INTEREST ON THE EXCHANGE DEBENTURES
Interest on the Exchange Debentures will be taxable to a U.S. Holder as
ordinary interest income at the time such amounts are accrued or received, in
accordance with the U.S. Holder's method of accounting for U.S. federal income
tax purposes.
Original Issue Discount. There is a risk that the Exchange Debentures will
be treated as having OID (and such will be the case if any interest payments
made by the Company are paid with additional Exchange Debentures in lieu of
cash). In such case, a U.S. Holder (including a cash basis holder) generally
would be required to include the interest on the Exchange Debentures in income
for U.S. federal income tax purposes under the accrual method on a constant
yield basis (or perhaps at the beginning of each interest period) resulting in
the inclusion of interest in income somewhat in advance of the receipt of cash
attributable to that income.
In general, the amount of OID, if any, on a debt instrument is the excess
of its "stated redemption price at maturity" over its "issue price," subject to
a statutorily defined de minimis exception. The "issue price" of a debt
instrument issued for publicly traded stock is equal to the fair market value of
such stock. The "stated redemption price at maturity" of a debt instrument is
the sum of its principal amount plus all other payments required thereunder,
other than payments of "qualified stated interest" (defined generally as stated
interest that is unconditionally payable in cash or in property (other than the
debt instruments of the issuer), at least annually at a single fixed rate that
appropriately takes into account the length of intervals between payments).
In general, the amount of OID that a holder of a debt instrument with OID
must include in gross income for United States federal income tax purposes will
be the sum of the "daily portions" of OID with respect to such debt instrument
for each day during the taxable year or portion of a taxable year on which such
holder holds the debt instrument. The daily portion is determined under a
constant yield method by allocating to each day of an accrual period (generally,
a six month period) a pro rata portion of an amount equal to the "adjusted issue
price" of the debt instrument at the beginning of the accrual period multiplied
by the yield to maturity of the debt instrument. The yield to maturity of a debt
instrument is the discount rate that, when applied to all payments due under the
debt instrument produces a present value equal to the issue price of the debt
instrument. The "adjusted issue price" is the issue price of the debt instrument
increased by the accrued OID for all prior accrual periods (and decreased by the
amount of cash payments made in all prior accrual periods, other than qualified
stated interest payments).
Under certain circumstances described more fully above in "Description of
Senior Preferred Stock and Exchange Debentures -- The Exchange
Debentures -- Sale of AM Stations," the Company may issue shares of Class A
Common Stock to U.S. Holders of the Exchange Debentures. The Company intends to
treat the issuance of Class A Common Stock as additional interest for Federal
income tax purposes. If the issuance of Class A Common Stock is treated as
additional interest, regulations governing the treatment of debt instruments
that provide for contingent payments (the "Contingent Payment Regulations")
would apply to the Exchange Debentures. The Contingent Payment Regulations
provide that contingencies that are remote or
103
<PAGE> 107
incidental are ignored. The Company intends to treat the obligation to issue the
Class A Common Stock as remote or incidental. Such treatment is binding on U.S.
Holders (although it is not binding on the IRS) unless a U.S. Holder explicitly
discloses on its tax return for the taxable year which includes the acquisition
date of the Exchange Debentures that the treatment for such holder is different.
If circumstances change so that the Company becomes obligated to issue shares of
Class A Common Stock, then the Exchange Debentures will be treated as retired
and reissued for an amount equal to the Exchange Debentures' adjusted issue
price on that date.
However, there can be no assurance that the IRS will respect the treatment
described above, and there is a risk that the issuance of the Class A Common
Stock will not be considered remote or incidental. In such case, under the
Contingent Payment Regulations, the Company must construct a projected payment
schedule for the Exchange Debentures and U.S. Holders generally must recognize
interest income on a constant yield basis (similar to the method prescribed for
including OID in income) based on the projected payment schedule, with certain
adjustments if actual payments differ from projected payments. The Company's
projected payment schedule is binding on U.S. Holders, unless a U.S. Holder
explicitly discloses on its return for the taxable year that includes the
acquisition date of the Exchange Debentures its intention to use a different
payment schedule and the reason for using a different payment schedule.
The projected payment schedule will be determined by including all
noncontingent payments (including stated interest) and the "expected value" of
all contingent payments on the Exchange Debentures. The projected payment
schedule must produce the "comparable yield," which is the yield at which the
Company would issue a fixed rate debt instrument with terms and conditions
similar to those of the Exchange Debentures. The amount of interest that accrues
each accrual period is the product of the "comparable yield" and the Exchange
Debentures' "adjusted issue price" at the beginning of each accrual period
(generally, the six month period ending on each interest payment date). The
"adjusted issue price" of an Exchange Debenture is equal to the issue price of
the Exchange Debentures (as discussed above), increased by interest previously
accrued on the Exchange Debenture (determined without adjustments), and
decreased by the amount of any noncontingent payments and the projected amount
of any contingent payments previously made on the Exchange Debentures. Except
for adjustments made for differences between actual and projected payments, the
amount of interest included in income by a U.S. Holder of an Exchange Debenture
is the sum of the "daily portions" of interest income with respect to the
Exchange Debenture for each day during the taxable year (or portion thereof) on
which such U.S. Holder held such Exchange Debenture. The "daily portions" of
interest income are determined by allocating to each day in any accrual period a
ratable portion of the interest income allocable to that accrual period. If
actual payments differ from projected payments, then U.S. Holders will generally
be required in any given taxable year either to include additional interest in
gross income, in the case where the actual payments exceed projected payments in
such taxable year, or, in the case where the actual payments are less than the
projected payments in such taxable year, to reduce the amount of interest income
otherwise accounted (or, in certain circumstances, take an ordinary loss). As
applied to the Exchange Debentures, the actual payments will include stated
interest and the fair market value of any Class A Common Stock at the time of
its issuance.
If the Exchange Debentures are sold or otherwise disposed of when there are
remaining contingent payments under the projected payment schedule, then any
gain recognized upon such sale or other disposition will be ordinary interest
income. Any loss recognized will be ordinary loss to the extent the U.S.
Holder's total interest inclusions on an Exchange Debenture exceed the total
amount of ordinary loss the U.S. Holder took into account pursuant to the
adjustments described above.
Thus, under the rules described above, U.S. Holders of Exchange Debentures
may be required to include amounts in income prior to the receipt of cash
payments attributable to such income. U.S. Holders are strongly urged to consult
their tax advisors with respect to the application of the Contingent Payment
Regulations to their individual situations. In addition to the rules described
above, the Contingent Payment Regulations provide special rules for U.S. Holders
whose basis in an Exchange Debenture is different from the adjusted issue price
of the Exchange Debenture.
104
<PAGE> 108
TAX BASIS OF EXCHANGE DEBENTURES
A U.S. Holder's initial tax basis in the Exchange Debentures will be equal
to the U.S. Holder's tax basis in the Senior Preferred Stock exchanged therefor
plus the amount of gain, if any, recognized upon such exchange. The tax basis of
the Exchange Debentures in the hands of each U.S. Holder will be increased by
the amount of OID, if any, on such Exchange Debentures that is included in the
U.S. Holder's gross income and will be decreased by the amount of any cash
payments received with respect to the debt instrument (other than payments of
qualified stated interest), whether such payments are denominated as principal
or interest.
ELECTION
A U.S. Holder of Exchange Debentures, subject to certain limitations, may
elect to include all interest and discount on the Exchange Debentures in gross
income under the constant yield method. For this purpose, interest includes
stated and unstated interest, acquisition discount, OID, de minimis market
discount and market discount, as adjusted by any amortizable bond premium or
acquisition premium. Any such election, if made in respect of a market discount
bond, will constitute an election to include market discount in income currently
on all market discount bonds acquired by such U.S. Holder on or after the first
day of the first taxable year to which the election applies.
ACQUISITION PREMIUM
If a U.S. Holder of an Exchange Debenture acquired such Exchange Debenture
for an amount in excess of its "adjusted issue price" but less than or equal to
the sum of all amounts payable on the Exchange Debenture after the date of such
purchase, such Exchange Debenture will have an acquisition premium to the extent
of such excess. Notwithstanding the OID rules described in "Original Issue
Discount" above, the U.S. Holder of an Exchange Debenture with an acquisition
premium would be entitled to reduce the daily portion of OID includible in
income by a fraction, the numerator of which is the excess of the adjusted tax
basis of the Exchange Debenture immediately after its acquisition over the
adjusted issue price of the Exchange Debenture and the denominator of which is
the excess of the sum of all payments (other than payments of qualified state
interest) after the purchase date over such Exchange Debenture's adjusted issue
price.
MARKET DISCOUNT ON RESALE OF THE EXCHANGE DEBENTURES
The market discount provisions of sections 1276-1278 of the Code may affect
the resale of the Exchange Debentures. If a U.S. Holder acquires an Exchange
Debenture (generally other than in an original issue) at a market discount that
equals or exceeds one-quarter percent of the stated redemption price at maturity
times the number of complete years to maturity of the Exchange Debenture at the
time of acquisition and thereafter recognizes gain upon a disposition (or makes
a gift) of the Exchange Debenture, the lesser of (i) such gain (or appreciation,
in the case of a gift) or (ii) the portion of the market discount that accrued
while the Exchange Debenture was held by such U.S. Holder, will be treated as
ordinary income at the time of the disposition. For these purposes, market
discount equals the excess of the stated redemption price at maturity (or, if
the Exchange Debenture is issued with OID, its "revised issued price" as defined
in the Code) over the basis of the Exchange Debenture in the hands of such U.S.
Holder immediately after its acquisition. A U.S. Holder of an Exchange Debenture
may elect to include any market discount in income currently as it accrues
rather than upon disposition of the Exchange Debenture. This election is
revocable only with the consent of the IRS and applies to all market discount
bonds acquired by the U.S. Holder on or after the first day of the taxable year
in which the holder makes the election. In addition, although market discount
generally accrues on a straight line basis over the term of the Exchange
Debenture, at the election of the U.S. Holder, it may accrue on a constant
interest basis. If this election is made, the holder is deemed to make the
election to take market discount into income as it accrues.
A U.S. Holder of any Exchange Debenture who acquired it at a market
discount may be required to defer the deduction of all or a portion of any
interest paid or accrued on any indebtedness incurred or continued to purchase
or carry the Exchange Debenture until the market discount is recognizable upon a
subsequent
105
<PAGE> 109
disposition of the Exchange Debenture. Such a deferral is not required, however,
if the U.S. Holder elects to include accrued market discount in income
currently.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the holder may elect to amortize under
the constant yield method over the period from his acquisition date to the
obligation's maturity date. A holder who elects to amortize bond premium must
reduce his tax basis in the related obligation by the amount of the aggregate
amortization allowable for amortizable bond premium. Amortizable bond premium
will be treated under the Code as an offset to interest income on the related
debt instrument for federal income tax purposes, subject to the promulgation of
Treasury Regulations altering such treatment.
DISPOSITION OF THE EXCHANGE DEBENTURES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of an
Exchange Debenture, will be a taxable event for U.S. federal income tax
purposes. In such event, in general, a U.S. Holder of Exchange Debentures will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of property received (except to the extent
attributable to accrued interest on the Exchange Debentures) and (ii) the U.S.
Holder's tax basis in the Exchange Debentures (as increased by any OID and
market discount previously included in income by the U.S. Holder and decreased
by any amortizable bond premium, if any, deducted over the term of the Exchange
Debentures). Subject to the market discount rules discussed above, any such gain
or loss generally will be capital gain or loss, and such capital gain will be
eligible for the maximum federal income tax limitations described above provided
the Exchange Debentures have been held for more than one year or 18 months, as
the case may be. The deductibility of capital losses is subject to limitations.
At the time of sale, exchange, disposition, retirement or redemption, a U.S.
Holder of the Exchange Debentures must also include in income any previously
accrued but unrecognized OID.
BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate holder of the Preferred Stock, the Common Stock acquired with
respect to the Senior Preferred Stock or the Exchange Debentures may be subject
to backup withholding at the rate of 31 percent with respect to "reportable
payments," which include dividends paid on or the proceeds of a sale, exchange
or redemption of, the Notes, the Senior Preferred Stock, the Class A Common
Stock or the Exchange Debentures, as the case may be. The payor will be required
to deduct and withhold the prescribed amounts if (i) the payee fails to furnish
a TIN to the payor in the manner required, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) there has been a "notified
payee underreporting" described in section 3406(c) of the Code or (iv) there has
been a failure of the payee to certify under penalty of perjury that the payee
is not subject to withholding under section 3406(a)(1)(C) of the Code. As a
result, if any one of the events listed above occurs, the Company will be
required to withhold an amount equal to 31 percent from any dividend or interest
payment made with respect to the Notes, the Senior Preferred Stock, the Class A
Common Stock or the Exchange Debentures or any payment of proceeds of a
redemption of the Notes, the Senior Preferred Stock or the Exchange Debentures
to a noncorporate holder. Amounts paid as backup withholding do not constitute
an additional tax and will be credited against the holder's federal income tax
liabilities, so long as the required information is provided to the IRS. The
Company will report to the holders of the Notes, the Senior Preferred Stock, the
Class A Common Stock and the Exchange Debentures and to the IRS the amount of
any "reportable payments" for each calendar year and the amount of tax withheld,
if any, with respect to payment on those securities.
CERTAIN TAX CONSEQUENCES TO THE COMPANY
As of the end of September 27, 1998 the Company had net operating loss
("NOL") carryovers of approximately $42.3 million. A significant portion of the
available NOL from fiscal 1997 was utilized as a result of the gain from the
sale of the AM stations. The issuance of the Senior Preferred Stock and Warrants
in connection with the Unit Offering likely caused the Company to have an
ownership change, as defined under section 382 of the Code. As a result, the
Company's NOLs are subject to an annual limitation equal to
106
<PAGE> 110
the product of the federal long-term tax-exempt interest rate in effect during
the month in which the ownership change occurred (5.50%) times the fair market
value of all of the outstanding stock of the Company immediately prior to the
ownership change (subject to certain adjustments). The annual limitation on the
use of the Company's NOLs may be increased to the extent that the Company sells
certain built-in gain assets, as defined in the Code.
Generally, under Sections 163(e)(5) and 163(i) of the Code, a C corporation
that is an issuer of debt obligations subject to the high yield discount
obligations ("HYDOs") rules may not deduct any portion of OID on the obligations
until such portion is actually paid. A debt obligation generally is subject to
the HYDO rules, and the OID is not deductible until paid with respect thereto,
if it is issued by a corporation and the debt obligation (i) has a maturity date
which is more than five years from the date of its issue, (ii) has a yield to
maturity which equals or exceeds five percentage points over the applicable
federal rate for the calendar month in which the obligation is issued and (iii)
has "significant original issue discount." Moreover, if the debt obligation's
yield to maturity exceeds the applicable federal rate plus six percentage
points, a ratable portion of the issuing corporation's deduction for OID (the
"Disqualified OID") will be denied. For purposes of the dividends received
deduction under Section 243 of the Code, the Disqualified OID will be treated as
a dividend to the extent it would have been so treated if it had been
distributed by the issuing corporation with respect to its stock. Amounts
treated as dividends will be nondeductible by the issuer, and may qualify for
the dividend received deduction for corporate U.S. Holders, but will be treated
as OID and not as dividends for withholding tax purposes. Due to their maturity
date, yield to maturity, and de minimis amount of OID, it is anticipated that
neither the Notes nor the Exchange Debentures will constitute HYDOs.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY
BE RELEVANT TO A PARTICULAR U.S. HOLDER OF SENIOR PREFERRED STOCK, OR EXCHANGE
DEBENTURES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY TAX
CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP, AND DISPOSITION OF SENIOR
PREFERRED STOCK, OR EXCHANGE DEBENTURES INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed upon
for the Company by Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, New
York, counsel to the Company.
EXPERTS
The consolidated historical financial statements of Spanish Broadcasting
System, Inc. and subsidiaries as of September 28, 1997 and September 27, 1998,
and for each of the fiscal years in the three-year period ended September 27,
1998, included in this Prospectus and elsewhere in this Registration Statement
have been audited by KPMG LLP, independent public accountants as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting.
The combined historical financial statements for New Age Broadcasting Inc.
("New Age") and The Seventies Broadcasting Corporation ("Seventies") as of and
for the year ended September 30, 1996 included in the Prospectus and elsewhere
in this Registration Statement have been audited by KPMG LLP, independent public
accountants, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting.
107
<PAGE> 111
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES:
AUDITED FINANCIAL STATEMENTS
Report of KPMG LLP, independent auditors.................... F-2
Consolidated Balance Sheets as of September 27, 1997 and
September 27, 1998........................................ F-3
Consolidated Statements of Operations for each of the fiscal
years in the three-year period ended September 27, 1998... F-4
Consolidated Statements of Changes in Stockholders'
Deficiency for each of the fiscal years in the three-year
period ended September 27, 1998........................... F-5
Consolidated Statements of Cash Flows for each of the fiscal
years in the three-year period ended September 27, 1998... F-6
Notes to Consolidated Financial Statements.................. F-8
NEW AGE BROADCASTING INC. AND THE SEVENTIES BROADCASTING
CORPORATION:
AUDITED FINANCIAL STATEMENTS
Report of KPMG LLP, independent auditors'................... F-27
Combined Balance Sheet at September 30, 1996................ F-28
Combined Statement of Income for the year ended September
30, 1996.................................................. F-29
Combined Statement of Cash Flows for the year ended
September 30, 1996........................................ F-30
Combined Statement of Changes in Stockholders' Equity for
the year ended September 30, 1996......................... F-31
Notes to Combined Financial Statements...................... F-32
</TABLE>
F-1
<PAGE> 112
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Spanish Broadcasting System, Inc.:
We have audited the accompanying consolidated balance sheets of Spanish
Broadcasting System, Inc. as of September 28, 1997 and September 27, 1998, and
the related consolidated statements of operations, changes in stockholder's
deficiency and cash flows for each of the fiscal years in the three year period
ended September 27, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spanish
Broadcasting System, Inc. and subsidiaries as of September 28, 1997 and
September 27, 1998, and the results of their operations and their cash flows for
each of the fiscal years in the three-year period ended September 27, 1998, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
--------------------------------------
Miami, Florida
December 11, 1998
F-2
<PAGE> 113
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1997 AND SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 12,287,764 37,642,227
Receivables:
Trade (note 8)........................................... 17,226,345 20,777,151
Barter................................................... 3,290,728 3,582,751
------------ -----------
20,517,073 24,359,902
Less allowance for doubtful accounts....................... 5,405,095 7,770,060
------------ -----------
Net receivables...................................... 15,111,978 16,589,842
Other current assets....................................... 1,409,906 1,822,584
------------ -----------
Total current assets................................. 28,809,648 56,054,653
Property and equipment, net (notes 5 and 10)................ 18,409,415 14,942,933
Franchise costs, net of accumulated amortization of
$22,048,929 in 1997 and $27,563,051 in 1998................ 273,631,766 272,261,440
Deferred financing costs, net of accumulated amortization of
$3,038,202 in 1997 and $4,257,074 in 1998 (note 6)......... 9,262,314 7,275,980
Due from related party (note 8)............................. 289,869 289,869
Deferred income taxes (note 11)............................. 3,674,287 --
Other assets................................................ 289,784 209,301
------------ -----------
$334,367,083 351,034,176
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of Senior unsecured notes (note 6)......... $ 15,000,000 --
Current portion of other long-term debt (note 7)........... 44,644 47,496
Accounts payable........................................... 1,367,572 2,612,952
Accrued expenses........................................... 3,722,777 5,838,808
Accrued interest........................................... 4,536,627 3,941,088
Unearned revenue........................................... 1,551,255 2,141,456
Dividends payable.......................................... 960,761 1,124,360
------------ -----------
Total current liabilities............................ 27,183,636 15,706,160
12.5% Senior unsecured notes due 2002, net of unamortized
discount of $3,238,037 in 1997 and $2,724,535 in 1998 (note
6)......................................................... 88,820,963 91,668,465
11% Senior secured notes due 2004 (note 6).................. 75,000,000 75,000,000
Other long-term debt, less current portion (note 7)......... 4,147,676 4,410,505
Deferred income taxes (note 11)............................. -- 9,074,596
Redeemable Preferred Stock:
14.25% Senior Exchangeable Preferred Stock, $.01 par value.
Authorized 413,930 shares, issued and outstanding 186,706
shares (liquidation value $186,706,000) in 1997 and
214,260 shares (liquidation value $214,260,000) in 1998
(note 6)................................................. 171,261,919 201,367,927
Stockholders' deficiency (notes 6 and 9):
Class A common stock, $.01 par value. Authorized 5,000,000
shares; issued and outstanding 558,135 shares in 1997 and
606,668 in 1998.......................................... 5,581 6,066
Class B common stock, $.01 par value. Authorized 200,000
shares; issued and outstanding 48,533 shares in 1997 and
-0- in 1998.............................................. 485 --
Additional paid-in capital................................. 6,590,473 6,864,301
Accumulated deficit........................................ (35,119,184) (50,604,436)
------------ -----------
(28,522,645) (43,734,069)
Less loans receivable from stockholders (note 8)............ (3,524,466) (2,459,408)
------------ -----------
Total stockholders' deficiency....................... (32,047,111) (46,193,477)
Commitments and contingencies (notes 10 and 12).............
------------ -----------
$334,367,083 351,034,176
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 114
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 29, 1996,
SEPTEMBER 28, 1997
AND SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
Gross revenues..................................... $ 55,337,720 67,981,407 86,766,158
Less agency commissions............................ 6,702,302 7,971,827 10,623,062
------------ ----------- -----------
Net revenues............................. 48,635,418 60,009,580 76,143,096
------------ ----------- -----------
Operating expenses:
Engineering...................................... 1,773,027 2,099,116 1,924,744
Programming...................................... 5,864,066 7,081,521 8,462,258
Selling.......................................... 13,864,695 14,980,035 18,574,529
General and administrative....................... 6,374,622 6,879,443 10,558,965
Corporate expenses............................... 3,747,714 5,595,403 6,892,705
Depreciation and amortization.................... 4,555,978 7,618,921 8,876,876
------------ ----------- -----------
36,180,102 44,254,439 55,290,077
------------ ----------- -----------
Operating income......................... 12,455,316 15,755,141 20,853,019
Other income (expense):
Interest expense, net of interest income of
$547,952 in 1996, $462,358 in 1997 and
$1,902,762 in 1998............................ (16,533,278) (22,201,114) (20,860,210)
Financing costs.................................. (876,579) (299,240) (213,239)
Other, net (note 5).............................. (697,741) (491,308) --
Gain on sale of AM stations (note 4)............. -- -- 36,241,947
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary item..................... (5,652,282) (7,236,521) 36,021,517
Income tax expense (benefit) (note 11)............. (1,165,800) (2,714,411) 15,624,032
------------ ----------- -----------
Income (loss) before extraordinary item............ (4,486,482) (4,522,110) 20,397,485
Extraordinary item-loss on extinguishment of debt,
net of income taxes of $1,097,836 in 1997 and
$1,075,149 in 1998 (note 4)...................... -- (1,646,753) (1,612,723)
------------ ----------- -----------
Net income (loss)........................ $ (4,486,482) (6,168,863) 18,784,762
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 115
SPANISH BROADCASTING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FISCAL YEARS ENDED SEPTEMBER 29, 1996, SEPTEMBER 28, 1997 AND SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK LESS: LOANS
------------------ ----------------- TOTAL ADDITIONAL RECEIVABLE
NUMBER PAR NUMBER PAR PAR VALUE PAID-IN ACCUMULATED FROM
OF SHARES VALUE OF SHARES VALUE COMMON STOCK CAPITAL DEFICIT STOCKHOLDERS
--------- ------ --------- ----- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 24,
1995........................ 558,135 $5,581 48,533 $ 485 6,066 5,690,934 (4,425,882) (2,421,272)
Increase in loans receivable
from stockholders........... -- -- -- -- -- -- -- (52,964)
Costs associated with
issuance of Redeemable
Series A Preferred Stock
(note 5).................... -- -- -- -- -- (1,718,437) -- --
Issuance of warrants (note
5).......................... -- -- -- -- -- 6,833,507 -- --
Accretion of preferred
stock....................... -- -- -- -- -- -- (541,416) --
Preferred stock issued as
dividends (note 5).......... -- -- -- -- -- -- (2,452,910) --
Net loss..................... -- -- -- -- -- -- (4,486,482) --
--------- ------ --------- ----- ------------ ----------- ----------- ------------
Balance at September 29,
1996........................ 558,135 5,581 48,533 485 6,066 10,806,004 (11,906,690) (2,474,236)
Retirement of preferred stock
and warrants................ -- -- -- -- -- (11,887,981) -- --
Issuance of warrants......... -- -- -- -- -- 16,625,000 -- --
Accretion of preferred
stock....................... -- -- -- -- -- -- (1,659,695) --
Preferred stock issued as
dividends................... -- -- -- -- -- -- (13,030,211) --
Cash dividends on preferred
stock....................... -- -- -- -- -- -- (2,353,725) --
Issuance costs for preferred
stock....................... -- -- -- -- -- (8,952,550) -- --
Increase in loans receivable
from stockholders........... -- -- -- -- -- -- -- (1,050,230)
Net loss..................... -- -- -- -- -- -- (6,168,863) --
--------- ------ --------- ----- ------------ ----------- ----------- ------------
Balance at September 28,
1997........................ 558,135 5,581 48,533 485 6,066 6,590,473 (35,119,184) (3,524,466)
Preferred stock issued as
dividends................... -- -- -- -- -- -- (27,553,543) --
Accretion of preferred
stock....................... -- -- -- -- -- -- (2,552,465) --
Decrease in loans receivable
from stockholders........... -- -- -- -- -- -- -- 14,827
Cash dividends on common
stock....................... -- -- -- -- -- -- (3,726,579) 1,050,231
Dividends on preferred
stock....................... -- -- -- -- -- -- (163,599) --
Issuance of warrants as
dividends................... -- -- -- -- -- 273,828 (273,828) --
Conversion of common stock... 48,533 485 (48,533) (485) -- -- -- --
Net income................... -- -- -- -- -- -- 18,784,762 --
--------- ------ --------- ----- ------------ ----------- ----------- ------------
Balance at September 27,
1998........................ 606,668 $6,066 -- $ -- 6,066 6,864,301 (50,604,436) (2,459,408)
========= ====== ========= ===== ============ =========== =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
<S> <C>
Balance at September 24,
1995........................ (1,150,154)
Increase in loans receivable
from stockholders........... (52,964)
Costs associated with
issuance of Redeemable
Series A Preferred Stock
(note 5).................... (1,718,437)
Issuance of warrants (note
5).......................... 6,833,507
Accretion of preferred
stock....................... (541,416)
Preferred stock issued as
dividends (note 5).......... (2,452,910)
Net loss..................... (4,486,482)
-------------
Balance at September 29,
1996........................ (3,568,856)
Retirement of preferred stock
and warrants................ (11,887,981)
Issuance of warrants......... 16,625,000
Accretion of preferred
stock....................... (1,659,695)
Preferred stock issued as
dividends................... (13,030,211)
Cash dividends on preferred
stock....................... (2,353,725)
Issuance costs for preferred
stock....................... (8,952,550)
Increase in loans receivable
from stockholders........... (1,050,230)
Net loss..................... (6,168,863)
-------------
Balance at September 28,
1997........................ (32,047,111)
Preferred stock issued as
dividends................... (27,553,543)
Accretion of preferred
stock....................... (2,552,465)
Decrease in loans receivable
from stockholders........... 14,827
Cash dividends on common
stock....................... (2,676,348)
Dividends on preferred
stock....................... (163,599)
Issuance of warrants as
dividends................... --
Conversion of common stock... --
Net income................... 18,784,762
-------------
Balance at September 27,
1998........................ (46,193,477)
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 116
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED SEPTEMBER 29,
1996, SEPTEMBER 28, 1997 AND
SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (4,486,482) $ (6,168,863) $ 18,784,762
------------ ------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss on extinguishment of debt.............. 2,744,589 2,687,872
Gain on sale of AM stations................. -- -- (36,241,947)
Depreciation and amortization............... 4,555,978 7,618,921 8,876,876
Change in allowance for doubtful accounts... (674,123) 894,332 2,364,965
Amortization of debt discount............... 5,591,004 4,772,539 658,297
Interest satisfied through issuance of
notes..................................... 2,199,121 1,185,722
Amortization of deferred financing costs.... 984,001 1,390,736 1,555,016
Write down of fixed assets.................. 697,741 487,973 --
Accretion of interest to principal on other
long-term debt............................ -- 161,523 307,200
Deferred income taxes....................... (1,357,722) (4,062,247) 12,748,883
Changes in operating assets and liabilities:
Decrease (increase) decrease in
receivables............................ 1,043,961 (5,176,284) (3,842,829)
Increase in other current assets.......... (762,897) (294,574) (412,678)
Decrease (increase) decrease in other
assets................................. 148,272 (158,490) 80,483
Increase (decrease) in accounts payable... 310,374 (196,443) 1,245,380
Increase in accrued expenses.............. 292,468 368,585 2,116,031
Increase (decrease) in accrued interest... 52,702 2,142,006 (595,539)
Increase in unearned revenue.............. 218,381 675,999 590,201
------------ ------------ ------------
Total adjustments...................... 13,299,261 12,554,887 (7,861,789)
------------ ------------ ------------
Net cash provided by operating
activities........................... 8,812,779 6,386,024 10,922,973
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of AM stations, net of
disposal costs of $838,167 in 1998.......... -- -- 43,161,833
Additions to property and equipment............ (3,811,436) (2,022,344) (1,644,533)
Acquisition of radio licenses.................. (86,358,962) (142,335,513) (9,327,713)
Increase in franchise costs.................... (24,980) -- --
------------ ------------ ------------
Net cash provided by (used in)
investing activities................. (90,195,378) (144,357,857) 32,189,587
------------ ------------ ------------
</TABLE>
F-6
<PAGE> 117
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 29,
1996, SEPTEMBER 28, 1997 AND
SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends on common stock...................... $ -- $ -- $ (2,676,348)
Purchase of Senior unsecured notes............. -- (15,055,055)
Retirement of Senior secured notes............. -- (38,414,562) --
Retirement of Series A preferred stock......... -- (42,699,590) --
Redemption of warrants......................... -- (8,323,000) --
Repayments of debt, including accrued
interest.................................... (120,691) (56,143) (41,521)
Proceeds from senior notes, net of financing
costs of $1,605,426 in 1996 and $5,712,407
in 1997..................................... 33,394,574 69,287,593 --
Proceeds from Redeemable Series A Preferred
stock and warrants, net of issuance cost of
$1,718,437 in 1996 and $8,952,550 in 1997... 35,781,563 166,047,450 --
Decrease in deferred financing costs........... 33,999 -- --
Decrease (increase) in loans receivable from
stockholders................................ (52,964) (1,050,230) 14,827
Advances to related party...................... (2,922) -- --
------------ ------------ ------------
Net cash provided by (used in)
financing activities................. 69,033,559 144,791,518 (17,758,097)
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents..................... (12,349,040) 6,819,685 25,354,463
Cash and cash equivalents at beginning of year... 17,817,119 5,468,079 12,287,764
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 5,468,079 $ 12,287,764 $ 37,642,227
============ ============ ============
Supplemental cash flow information:
Interest paid during the year.................. $ 8,254,402 $ 13,175,308 $ 20,561,613
============ ============ ============
Income taxes paid during the year.............. $ 632,990 $ 294,262 $ 1,787,191
============ ============ ============
Noncash investing and financing activities:
Issuance of notes as payment for interest...... $ 2,199,122 $ 1,185,722 $ --
============ ============ ============
Issuance of preferred stock as payment of
dividends................................... $ 2,452,910 $ 13,030,211 $ 27,553,543
============ ============ ============
Issuance of warrants as payment of dividends... $ -- $ -- $ 273,828
============ ============ ============
Issuance of note as payment towards purchase
price of radio station...................... $ -- $ 3,000,000 $ --
============ ============ ============
Repayment of stockholder loan and accrued
interest through dividend withholding....... $ -- $ -- $ 1,098,368
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 118
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997 AND SEPTEMBER 27, 1998
(1) ORGANIZATION AND NATURE OF BUSINESS
The Company owns and operates eleven Spanish-language radio stations
serving the New York, Miami, Chicago, San Antonio and Los Angeles markets
through its subsidiaries, SBS of Greater New York, Inc., Spanish Broadcasting
System of Florida, Inc. Spanish Broadcasting System of California, Inc., Spanish
Broadcasting System of Greater Miami, Inc., Spanish Broadcasting System of San
Antonio, Inc. and Spanish Broadcasting System of Illinois, Inc. Additionally,
the Company's other subsidiaries include Alarcon Holdings, Inc. ("Alarcon"),
Spanish Broadcasting System Network, Inc. ("SBS Network") and SBS Promotions,
Inc. ("SBS Promotions"). Alarcon owns and operates the building where the
Company's New York offices are located. SBS Network and SBS Promotions are
currently dormant. SBS Network was formerly the Company's exclusive agency
representative for national advertising sales. SBS Promotions formerly performed
promotional services for the Company's radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(A) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company is a holding company with no independent
assets or operations other than its investments in subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company's subsidiaries (hereinafter referred to in this paragraph
collectively as "Subsidiary Guarantors") are fully, unconditionally, and jointly
and severally liable for the Company's senior unsecured notes and new senior
secured notes referred to in note 6. The Subsidiary Guarantors are wholly owned
and constitute all of the Company's subsidiaries. The Company has not included
separate financial statements of the aforementioned subsidiaries because (i) the
aggregate assets, liabilities, earnings and equity of such subsidiaries are
substantially equivalent to the assets, liabilities, earnings and equity of the
Company on a consolidated basis, and (ii) the separate financial statements and
other disclosures concerning such subsidiaries are not deemed material to
investors.
The Company's fiscal year is the 52-week period which ends on the last
Sunday of September.
(B) Revenue Recognition
Revenues are recognized when advertisements are aired.
(C) Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost
of its property and equipment using the straight-line method over the respective
estimated useful lives. Leasehold improvements are amortized on a straight-line
basis over the shorter of the remaining life of the lease or the useful life of
the improvements.
The Company capitalized interest in connection with the renovation of its
facilities. The capitalized interest is recorded as part of the related building
and is amortized over the estimated useful life of the building.
(D) Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121, (Statement 121) "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Statement 121 requires that
long-lived assets and certain identifiable intangibles to be held and
F-8
<PAGE> 119
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
used or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. See note 5 for impairment losses related to fixed assets.
(E) Franchise Costs
Franchise costs represent the excess cost to acquire the Company's radio
station assets over the allocated fair value of the net tangible assets acquired
and are amortized on a straight-line basis over periods not exceeding 40 years,
based on the industry practice of renewing franchises periodically. In
evaluating the recoverability of franchise costs, management gives consideration
to a number of factors, including analysis of the estimated future undiscounted
cash flows from operations for each market, the dispositions of other radio
properties in specific markets and input from appraisers.
(F) Financing Costs
During fiscal 1996, the Company expensed $0.9 million of costs related to
an initial public offering that was aborted. The net deferred financing costs at
September 28, 1997 and September 27, 1998 amount to $9.3 million and $7.3
million, respectively. These balances relate to the successful refinancing of
the Company's debt and additional financing obtained in connection with
Company's acquisition of WXDJ-FM and WRMA-FM in Miami and WLEY-FM in Chicago
(see note 6).
Deferred financing costs are being amortized using a method which
approximates the effective interest method over the respective lives of the
related indebtedness.
(G) Barter Transactions
The Company records barter transactions at the fair value of goods or
services received.
(H) Cash Equivalents
Cash equivalents, consisting primarily of interest-bearing money market
accounts and certificates of deposits, totaled $12.3 million and $37.6 million
at September 28, 1997 and September 27, 1998, respectively.
(I) Income Taxes
The Company files a consolidated Federal income tax return with its
subsidiaries. The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(J) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE> 120
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(K) Concentration of Risk
All of the Company's business is conducted in the New York, Miami, Los
Angeles, Chicago and San Antonio markets. Net revenue earned from radio stations
in these markets as a percentage of total revenue for the fiscal years ended
September 29, 1996, September 28, 1997 and September 27, 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
New York.................................................... 51% 49% 44%
Miami....................................................... 17% 22% 28%
Los Angeles................................................. 32% 28% 17%
Chicago..................................................... -- 1% 11%
San Antonio................................................. -- --
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The increase in market concentration risk in Miami and Chicago in fiscal
1997 and 1998 results from the acquisitions of WRMA-FM and WXDJ-FM in Miami and
WYSY-FM in Chicago as discussed in note 3.
(3) ACQUISITIONS
On March 25, 1996, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
WPAT-FM for $84.6 million, plus financing and closing costs of $1.8 million. The
Company assumed operational responsibility of WPAT-FM on January 20, 1996 under
an interim agreement, at which time the Company changed the musical format of
WPAT-FM to Spanish language adult contemporary. The Company financed the
acquisition of WPAT-FM through the issuance of the Senior Notes and Preferred
Stock in March 1996 (See Note 6).
On March 27, 1997, the Company acquired the FCC broadcast licenses and
substantially all of the assets used or useful in the operation of WYSY-FM in
Chicago for $33.0 million plus financing and closing costs of $0.5 million.
On March 27, 1997, the Company acquired the FCC broadcast licenses and
substantially all of the assets used or useful in the operation of WRMA-FM and
WXDJ-FM in Miami for $111.0 million plus financing and closing costs of $0.8
million.
The Company financed the purchases of WYSY-FM, WRMA-FM and WXDJ-FM with
proceeds from a combination of issuances consisting of 175,000 shares of the
Company's 14 1/4% Series A, Senior Exchangeable Preferred Stock (see note 6) and
warrants to purchase 74,900 shares of the Company's Class A common stock (par
value $.01 per share) and $75 million aggregate principal amount of the
Company's 11% Senior Notes due 2004 (see note 6), plus a note payable to the
seller of WYSY-FM for $3.0 million.
On May 13, 1998, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.2 million, plus closing costs of
$0.1 million. The Company financed this purchase from cash on hand and from
operations. The Company subsequently changed the call letters to KLEY-FM.
The Company's consolidated results of operations include the results of
WPAT-FM, WYSY-FM, WRMA-FM, WXDJ-FM and KRIO-FM from the respective dates of
acquisition. These acquisitions have been accounted for under the purchase
method of accounting. The purchase price has been allocated to the assets
acquired, principally franchise costs, based on their estimated fair values at
the date of acquisition.
The following unaudited proforma summary presents the consolidated results
of operations as if the acquisitions had occurred as of the beginning of fiscal
1997 after giving effect to certain adjustments, including
F-10
<PAGE> 121
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization of franchise costs and interest expense on the acquisition debt.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
been made as of that date or of results which may occur in the future. The
results of WYSY-FM and KRIO-FM prior to their respective acquisition dates have
not been included in the proforma summary as these acquisitions do not meet the
significance test for presentation of proforma information.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 28, 1997
------------------
(UNAUDITED)
<S> <C>
Net revenues................................................ $66,762,000
Loss before extraordinary item.............................. (3,498,000)
Net loss.................................................... (5,145,000)
</TABLE>
(4) SALE OF AM STATIONS
On July 2, 1997, the Company entered into a definitive agreement (as
amended, the "One-on-One Agreement") with One-on-One Sports, Inc. ("One-on-One")
for the sale of the assets and FCC licenses of radio stations WXLX-AM, serving
the New York metropolitan area, KXMG-AM, serving the Los Angeles metropolitan
area, and WCMQ-AM, serving the Miami metropolitan area. The One-on-One Agreement
contained customary representations, warranties and conditions, including
receipt of FCC approval to the transfer of the FCC licenses. Pursuant to the
One-on-One Agreement, on September 29, 1997, the Company sold the assets and FCC
licenses of WXLX-AM and WCMQ-AM to One-on-One for a sales price of $26.0 million
and recorded a gain of $18.6 million. On December 2, 1997, the Company
consummated the sale of the assets and FCC license of KXMG-AM to One-on-One for
a sales price of $18.0 million and recorded a gain of $17.6 million. These
transactions are classified under other income as Gain on sale of AM stations.
Pursuant to the 1994 12.5% Senior Notes due 2002 (the "Notes") (see note 6)
the Company is required to use the greater of $25.0 million or 50% of the net
proceeds from any disposition of certain asset sales including the FCC broadcast
licenses of the aforementioned AM stations to make offers to purchase the Notes
at 110% of the principal value thereof.
On October 17, 1997, the Company made a "Tender Offer" to purchase for cash
any and all of the Notes up to $22.7 million plus accrued interest up to, but
not including the payment date. The amount payable by the Company was 110% of
the principal amount of the Notes. The Company paid $15.7 million to the
noteholders who responded to the "Tender Offer" and purchased $13.2 million in
principal amount of Notes for $15.0 million plus accrued interest of $0.7
million in October and November 1997. The Company recognized a loss on the
"Tender Offer" of $1.6 million, net of income taxes of $1.1 million, due to the
premium paid for the Notes and the subsequent write-off of the deferred
financing costs and original issue discounts related to the Notes purchased.
This amount has been classified as an extraordinary item in the accompanying
Consolidated Statement of Operations.
Prior to the sale of the assets of WCMQ-AM, the Station operated on the
frequency of 1210 kHz. As part of the sale of WCMQ-AM, the Company entered into
a five-year local marketing agreement ("LMA") with One-on-One in November 1997.
Under the terms of the LMA, the Company began programming and selling
advertising on WCMQ-AM using a newly-authorized frequency of 1700 kHz. The 1700
kHz transmitter is co-located at the 1210 kHz transmitter/antenna site which was
part of the aforementioned asset sale.
F-11
<PAGE> 122
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 28, 1997 and
September 27, 1998:
<TABLE>
<CAPTION>
ESTIMATED
1997 1998 USEFUL LIVES
----------- ----------- ------------
<S> <C> <C> <C>
Land......................................... $ 1,413,287 $ 1,368,407 --
Building and building leasehold
improvements............................... 15,324,227 11,250,742 20 years
Tower and antenna systems.................... 6,709,991 2,138,824 7-15 years
Studio and technical equipment............... 4,874,321 5,135,586 10 years
Furniture and fixtures....................... 1,549,749 1,685,745 3-10 years
Transmitter equipment........................ 1,266,747 931,750 7-10 years
Leasehold improvements....................... 1,135,176 1,405,759 5-13 years
Computer equipment........................... 1,378,908 1,333,888 5 years
Other........................................ 205,276 520,369 5 years
----------- -----------
33,857,682 25,771,070
Less accumulated depreciation and
amortization............................... 15,448,267 10,828,137
----------- -----------
$18,409,415 $14,942,933
=========== ===========
</TABLE>
During fiscal 1996 and 1997, the Company wrote down the value of its land
and building located on Sunset Boulevard in Los Angeles (which was part of the
assets acquired in the purchase of the Los Angeles AM radio station) by $0.7
million and $0.4 million, respectively. The write downs were based on current
market values of real estate in the Los Angeles area. This amount is included in
other, net in the accompanying consolidated statement of operations.
(6) SENIOR NOTES AND PREFERRED STOCK
On June 29, 1994, the Company, through a private placement offering (the
"Offering") completed the sale of 107,059 units (the "Units"), each consisting
of $1,000 principal amount of 12 1/2% Senior Notes (the "Notes") due 2002 and
107,059 Warrants (the "Warrants") each to purchase one share of Class A voting
common stock at a price of $0.01 per share. The Notes and Warrants became
separately transferable on June 29, 1994. The Notes were issued at a substantial
discount from their principal amount and generated proceeds to the Company of
$87.8 million, net of financing costs of $6.2 million. Of the $94.0 million of
gross proceeds, $88.6 million was allocated to the Notes and $5.4 million was
determined to be the value of the Warrants.
The Notes bear interest at a rate of 7 1/2% per annum from the date of
original issue until June 15, 1997 and at a rate of 12 1/2% per annum from and
after such date until maturity on June 15, 2002. Interest is payable
semiannually on June 15 and December 15, commencing December 15, 1994. The Notes
are not redeemable at the option of the Company. The Notes are senior unsecured
obligations of the Company and are unconditionally guaranteed, on a senior
unsecured basis, as to payment of principal, premium, if any, and interest,
jointly and severally, by each subsidiary of the Company. In the event of a
change of control, as defined in the offering, the Company will be required to
make an offer to purchase all of the outstanding Notes at a purchase price equal
to 101% of the principal amount thereof, in each case plus accrued and unpaid
interest to the date of purchase. The indenture pursuant to which the Notes are
issued contains covenants restricting the incurrence of additional indebtedness,
the payment of dividends and distributions, the creation of liens, asset sales,
mergers or consolidations, among other things. The Company registered the Notes
with the Securities and Exchange Commission, which registration became effective
on October 26, 1994. The
F-12
<PAGE> 123
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discount on the Notes is being amortized over the term of the Notes to result in
an effective interest rate of 12 1/2% per annum.
The Warrants expire on June 30, 1999. Each warrant entitles the holder to
acquire prior to the expiration date, one share of Class A voting common stock
at $0.01 per share, subject to adjustment from time to time upon the occurrence
of certain changes in common stock, common stock distributions, issuances of
options or convertible securities, dividends and distributions and certain other
increases in the number of shares of common stock, as defined.
On March 25, 1996 the Company financed the purchase of radio station
WPAT-FM with a combination of the proceeds from the sale in a private placement
of 37,500 shares of the Company's Redeemable Series A Preferred Stock (Preferred
Stock) and $35.0 million of the Company's 12 1/4% Senior Secured Notes due 2001
(Senior Notes) together with cash on hand. The Company also issued to the
holders of the Preferred Stock and Senior Notes warrants to purchase, in the
aggregate, 6% of the Company's common stock on a fully diluted basis which
expired unexercised.
On March 27, 1997, the Senior Notes and Preferred Stock and the related
warrants redeemed were retired with a portion of the proceeds from issuance of
the 1997 Preferred Stock and Senior Notes described below. The Company realized
a loss on the extinguishment of the Senior Notes of $1,646,753, net of taxes of
$1,097,836 resulting from the purchase price exceeding the Company's carrying
value and the write-off of unamortized deferred financing costs. This amount has
been classified as an extraordinary item in the accompanying fiscal 1997
consolidated statement of operations.
On March 27, 1997, the Company financed the purchase of radio stations
WYSY-FM (renamed WLEY-FM by the Company), WRMA-FM and WXDJ-FM with proceeds from
the sale through a private placement of 175,000 shares of the Company's 14 1/4%
Series A Senior Exchangeable Preferred Stock (1997 Preferred Stock) and warrants
to purchase 74,900 shares of the Company's Class A Common Stock (1997 Warrants).
The gross proceeds from the issuance of the 1997 Preferred Stock and 1997
Warrants amounted to $175.0 million. The value of the 1997 Warrants was
determined to be $16.6 million. The Company also issued $75.0 million aggregate
principal amount of the Company's 11%. Senior Notes (the "New Senior Notes") due
2004. In connection with this transaction, the Company capitalized financing
costs of $5.7 million related to the New Senior Notes and charged issuance costs
of $9.0 million related to the 1997 Preferred Stock and 1997 Warrants to
paid-in-capital.
The New Senior Notes are secured by the FCC licenses of radio stations
WLEY-FM, WRMA-FM and WXDJ-FM and are guaranteed by each of the Company's
subsidiaries. The New Senior Notes are senior obligations of the Company that
rank senior in right of payment to all subordinated indebtedness of the Company
and are equally ranked with all existing and future senior indebtedness of the
Company including the Notes. The New Senior Notes are due on March 15, 2004 and
bear interest at a rate of 11% per annum payable on each March 15 and September
15, commencing September 15, 1997.
The carrying value of the Notes and the New Senior Notes approximates
market value.
The New Senior Notes will be redeemable at the Company's option at any time
on or after March 15, 2001 at the redemption prices set forth, together with
accrued and unpaid interest thereon to the redemption date. In addition, the
Company, at its option, may redeem in the aggregate up to 25% of the original
principal amount of New Senior Notes at any time prior to March 15, 2000, at a
redemption price equal to 110% of the principal amount plus accrued and unpaid
interest to the redemption date.
Convenants under the indebentures governing the New Senior Notes and 1997
Preferred Stock are substantially identical to the covenants of the Notes.
F-13
<PAGE> 124
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1997 Preferred Stock is entitled to dividends at the rate of 14 1/4%
per annum payable semi-annually beginning September 15, 1997. The Company, at
its option, may pay dividends on any dividend payment date occurring on or
before March 15, 2002 either in cash or by the issuance of additional shares of
1997 Preferred Stock. In September 1997, the Company elected to satisfy the
dividends due of $11.7 million through the issuance of 11,706 additional
preferred shares. In March 1998 and September 1998, the Company elected to
satisfy the dividends due of $13.3 million and $14.3 million, respectively,
through the issuance of additional preferred shares of 13,303 and 14,251,
respectively.
The 1997 Preferred Stock is exchangeable at the option of the Company, on
any dividend payment date for the Company's 14 1/4% Exchange Debentures due
March 15, 2005. The Exchange Debentures are redeemable, at the option of the
Company, at any time, on or prior to March 15, 2000 at a redemption price equal
to 105% of the aggregate principal amount thereof, plus accrued interest to the
date of redemption. After March 15, 2000 and prior to March 15, 2002 the
Exchange Debentures are not redeemable. On or after March 15, 2002, the Exchange
Debentures are redeemable at the option of the Company.
The 14 1/4% Exchange debentures due 2005 are issuable in exchange for the
1997 Preferred Stock in an aggregate principal amount equal to the liquidation
preference of the 1997 Preferred Stock so exchanged, plus accumulated and unpaid
dividends to the date fixed for the exchange thereof, plus any additional
Exchange debentures issued from time to time in lieu of cash interest. The
maturity date is March 15, 2005.
The 1997 Preferred Stock will be redeemable, at the option of the Company,
in whole or in part, at any time on or prior to March 15, 2000 at the redemption
price equal to 105% of the liquidation preference thereof, plus accumulated and
unpaid dividends to the date of redemption. After March 15, 2000 and prior to
March 15, 2002, the 1997 Preferred Stock is not redeemable. On or after March
2002, the Preferred Stock will be redeemable, at the option of the Company, in
whole or in part at any time, at the following redemption prices (expressed as a
percentage of liquidation preference) if redeemed during the twelve-month period
commencing March 15, of the applicable year set forth below plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends to
the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 107%
2003........................................................ 105%
2004 and thereafter......................................... 100%
</TABLE>
The Company is required, subject to certain conditions, to redeem all of
the 1997 Preferred Stock outstanding on March 15, 2005 at a redemption price
equal to 100% of the liquidation preference thereof, plus accumulated and unpaid
dividends to the date of the redemption.
The 1997 Preferred Stock and 1997 Warrants became separately transferable
on June 1, 1997. The 1997 Warrants, which expire on June 30, 1999, entitle the
holder to acquire 0.428 shares of Class A Common Stock at a price equal to $0.01
per 0.428 shares, subject to adjustment from time to time upon the occurrence of
certain changes in Common Stock, certain Common Stock distributions, certain
issuances of options or convertible securities, certain dividends and
distributions and certain other increases in the number of shares of Common
Stock.
In March 1998, the Company declared a dividend of $5.60 per share of common
stock. In April 1998, holders of Warrants were given the option to participate
in such dividend as if they were stockholders, subject to agreeing to waive
their anti-dilution rights with respect to such dividends. Holders of Warrants
to purchase 58,209 shares participated in the dividend. In May 1998, the Company
paid $0.326 million to these warrantholders and issued replacement warrants
entitling each warrantholder to purchase from the Company shares of Class A
Common Stock at a rate of one share of Class A Common Stock per Warrant. The
F-14
<PAGE> 125
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrantholders that elected not to participate in the cash dividend continue to
hold such Warrants and are entitled to purchase from the Company shares of Class
A Common Stock at an adjusted rate of 1.01133 shares of Class A Common Stock per
Warrant.
On July 22, 1997, the Company commenced an exchange offer whereby shares of
Series A Preferred Stock were exchanged for an equal number of Series B Senior
Exchangeable Preferred Stock (the "Series B Preferred Stock"). The Exchange of
Series A Preferred Stock for Series B Preferred Stock has been registered under
the Act. Such exchange was completed in August 1997.
On July 22, 1997, the Securities and Exchange Commission declared effective
a shelf registration statement relating to the Series A Preferred Stock, and to
$338,930 in aggregate principal amount of 14 1/4% Exchange Debentures due 2005,
Series A and 23,836 shares of Common Stock that may be issued upon the
occurrence of certain events, each of which may be offered from time to time by
or for the account of the holders thereof. The Company is using its best efforts
to keep such shelf registration continuously effective.
(7) OTHER LONG-TERM DEBT
Other long-term debt consists of the following at September 28, 1997 and
September 27, 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Obligation under capital lease with related party payable in
monthly installments of $9,000, including interest at
6.25%, commencing June 1992 (see note 10)................. $1,030,797 $ 989,278
Note payable due on March 27, 2003 including interest which
accrues at an annual rate of three month LIBOR plus 450
basis points.............................................. 3,161,523 3,468,723
---------- ----------
4,192,320 4,458,001
Less current portion........................................ 44,644 47,496
---------- ----------
$4,147,676 $4,410,505
========== ==========
</TABLE>
The scheduled maturities of other long-term debt are as follows at
September 27, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER
- ----------------------------
<S> <C>
1999........................................................ $ 47,496
2000........................................................ 50,572
2001........................................................ 53,825
2002........................................................ 57,287
2003........................................................ 60,972
Thereafter.................................................. 4,187,849
----------
$4,458,001
==========
</TABLE>
(8) LOANS WITH STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
At September 28, 1997 and September 27, 1998, the Company had loans
receivable from stockholders totaling $3.0 million and $2.5 million
respectively. The notes bear interest at 6.36% per annum and mature on December
30, 2025. The notes are payable in 30 equal annual aggregate installments of
$0.2 million, commencing on December 30, 1996. In July 1997, the Company issued
a loan to a stockholder in the amount of $1.1 million bearing interest at 7% per
annum and due on demand. The board of directors approved the terms of the
exchange of the notes. In 1998, the loan of $1.1 million was repaid by the
stockholder, along with
F-15
<PAGE> 126
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accrued interest, through withholding of dividends on common stock in the amount
of $1.1 million that the stockholder was entitled to. Loans receivable from
stockholders have been classified as an increase in stockholders' deficiency in
the accompanying consolidated balance sheets. Interest receivable on stockholder
loans of $0.2 million is included in other current assets at September 28, 1997
and September 27, 1998.
At September 28, 1997 and September 27, 1998, the Company has advances
totaling $0.3 million due from a party related through common ownership. Payment
of this balance is guaranteed by an officer of the Company. Additionally, at
September 28, 1997 and September 27, 1998, the Company had trade receivables
totaling $0.4 million due from this related party which have been fully
reserved.
The Company pays the operating expenses for a boat owned by a party related
through common ownership which is used by the Company for business entertainment
purposes. Such expenses approximated $0.1 million for each of the fiscal years
ended September 29, 1996, September 28, 1997 and September 27, 1998.
The Company leases an apartment from the Chief Executive Officer and
stockholder of the Company for annual rentals of $0.1 million through August
2007. Additionally, the Company occupies a building under a capital lease
agreement with certain stockholders (see note 10).
(9) CAPITAL STOCK
During fiscal 1996, the Company amended and restated its Certificate of
Incorporation to increase the aggregate number of authorized shares of $0.01 par
value Class A common stock from 2,000,000 to 5,000,000 and create and authorize
500,000 shares of $0.01 par value preferred stock. Characteristics and
privileges concerning the preferred stock are at the discretion of the board of
directors. During fiscal 1996, 49,201 of preferred shares were designated as
Redeemable Series A Preferred Stock (see note 6). In addition, the Company has
authorized 200,000 shares of $0.01 par value Class B common stock. The Class A
common stock is entitled to one vote per share and the Class B common stock is
entitled to eight votes per share. The remaining shares of Class B common stock
were converted into an equal number of shares of Class A common stock during
fiscal 1998.
The Company maintains a stock option plan pursuant to which the Company has
reserved up to 26,750 shares of Class A common stock for issuance upon the
exercise of options granted under the plan. The plan covers all regular salaried
employees of the Company and its subsidiaries. No options have been granted
under this plan to date.
(10) COMMITMENTS
The Company occupies a building under a capital lease agreement with
certain stockholders of the Company expiring in June 2012. The amount
capitalized under this lease agreement and included in property and equipment at
September 27, 1997 and September 27, 1998 is $0.9 million and $0.8 million, net
of accumulated depreciation of $0.3 million and $0.4 million, respectively.
The Company leases office space and facilities and certain equipment under
operating leases, one of which is with a related party (see note 8), that expire
at various dates through 2035. Certain leases provide for base rental payments
plus escalation charges for real estate taxes and operating expenses.
F-16
<PAGE> 127
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 27, 1998, future minimum lease payments under such leases are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASE LEASES
- ----------- ---------- ----------
<S> <C> <C>
1999....................................................... $ 149,000 $ 945,300
2000....................................................... 149,000 737,300
2001....................................................... 149,000 538,600
2002....................................................... 149,000 370,600
2003....................................................... 149,000 374,400
Thereafter................................................. 1,291,333 3,765,400
----------
Total minimum lease payments..................... 1,036,333
Less executory costs............................. 560,333 $6,681,600
---------- ----------
1,476,000
Less interest at 6.25%........................... (486,722)
----------
Present value of minimum lease payments.......... $ 989,278
==========
</TABLE>
Total rent expense for the fiscal years ended September 29, 1996, September
28, 1997 and September 27, 1998 amounted to $1.1 million, $1.6 million and $1.1
million, respectively.
The Company has agreements to sublease its radio frequencies and portions
of its tower sites. Such agreements provide for payments through 2002. The
future minimum rental income to be received under these agreements as of
September 27, 1998 is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ----------
<S> <C>
1999............................................. $ 666,741
2000............................................. 320,674
2001............................................. 259,893
2002............................................. 109,330
----------
$1,356,638
==========
</TABLE>
At September 27, 1998, the Company is committed to the purchase of
broadcast rights for various news and other programming and has employment
contracts for certain on-air talent and general managers expiring through 2003.
Future payments under such contracts are as follows:
<TABLE>
<CAPTION>
PROGRAMMING EMPLOYMENT
FISCAL YEAR CONTRACTS CONTRACTS TOTAL
- ----------- ----------- ---------- ---------
<S> <C> <C> <C>
1999............................................ $15,242 2,806,033 2,821,275
2000............................................ -- 2,247,950 2,247,950
2001............................................ -- 1,886,433 1,886,433
2002............................................ -- 1,282,917 1,282,917
2003............................................ -- 62,500 62,500
------- --------- ---------
$15,242 8,285,833 8,301,075
======= ========= =========
</TABLE>
Certain employment contracts provide for additional amounts to be paid if
station ratings or cash flow targets are met.
F-17
<PAGE> 128
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
Income tax expense (benefit) for the fiscal years ended September 29, 1996,
September 28, 1997 and September 27, 1998 consists of the following and were
allocated as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------
CURRENT-
STATE AND CURRENT DEFERRED
LOCAL FEDERAL FEDERAL TOTAL
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Loss from operations.................. $191,922 -- (1,357,722) (1,165,800)
======== ======= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------
CURRENT-
STATE AND CURRENT DEFERRED
LOCAL FEDERAL FEDERAL TOTAL
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Loss from operations.................. $250,000 -- (2,964,411) (2,714,411)
Extraordinary item -- loss on
extinguishment of debt.............. -- -- (1,097,836) (1,097,836)
-------- ------- ---------- ----------
$250,000 -- (4,062,247) (3,812,247)
======== ======= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------
CURRENT-
STATE AND CURRENT DEFERRED
LOCAL FEDERAL FEDERAL TOTAL
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Income from operations................ $950,000 850,000 13,824,032 15,624,032
Extraordinary item -- loss on
extinguishment of debt.............. -- -- (1,075,149) (1,075,149)
-------- ------- ---------- ----------
$950,000 850,000 12,748,883 14,548,883
======== ======= ========== ==========
</TABLE>
During fiscal 1996, 1997 and 1998, the Company utilized net operating loss
carryforwards of approximately 0.8 million, $0.7 million and $38.8 million,
respectively.
The difference between the fiscal 1996 and 1997 income tax benefit at the
Federal statutory rate and the effective rate was primarily attributable to
state and local income taxes, recurring non-deductible expenses and
non-deductible expenses incurred in connection with the Company's financing
transactions. The difference between the fiscal 1998 income tax expense at the
Federal statutory rate and the effective rate was primarily attributable to
state and local income taxes.
F-18
<PAGE> 129
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences and carryforwards that give rise to
deferred tax assets and deferred tax liabilities at September 28, 1997 and
September 27, 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $32,955,490 16,919,249
Deferred interest........................................ 5,717,617 6,080,278
Allowance for doubtful accounts.......................... 2,162,038 3,108,024
Fixed assets............................................. 474,286 474,286
Unearned revenue......................................... -- 856,582
AMT credit............................................... -- 850,000
----------- ----------
Total deferred tax assets........................ 41,309,431 28,288,419
----------- ----------
Deferred tax liabilities:
Depreciation and amortization............................ 11,776,023 14,463,595
Intangible assets........................................ 8,382,950 5,502,950
Deferred debt forgiveness................................ 17,396,470 17,396,470
Unearned revenue......................................... 79,701 --
----------- ----------
Total deferred tax liabilities................... 37,635,144 37,363,015
----------- ----------
Net deferred tax asset (liability)............... $ 3,674,287 (9,074,596)
=========== ==========
</TABLE>
During fiscal 1994, as a result of a refinancing of the Company's debt, the
Company recognized an extraordinary gain on debt extinguishment of $70.3
million, net of income taxes of $3.1 million, for financial statement purposes.
For Federal income tax purposes, income from the discharge of this indebtedness
reduced available net operating loss carryforwards and reduced the tax basis of
certain assets. As a result, the valuation allowance for gross deferred tax
assets was eliminated in fiscal 1994, reflecting the utilization, as a result of
the extraordinary gain, of net operating loss carryforwards for financial
statement purposes. In addition, certain timing differences were created which
gave rise to deferred tax liabilities that will result in taxable income in
future years when the assets are realized or settled.
During fiscal 1995, the recognition of the $70.3 million gain on debt
extinguishment for Federal income tax purposes was redistributed upon filing of
the fiscal 1994 tax returns. This resulted in additional amounts used to reduce
the tax basis of certain assets, additional deferred debt forgiveness and
preservation of available net operating loss carryforwards. The net effect of
the redistribution of the discharge of indebtedness for Federal income tax
purposes did not significantly affect the Company's net deferred tax position.
At September 27, 1998, the Company has net operating loss carryforwards of
approximately $42.3 million available to offset future taxable income expiring
as follows:
<TABLE>
<CAPTION>
NET OPERATING
EXPIRING IN SEPTEMBER LOSS CARRYFORWARDS
- --------------------- ------------------
<S> <C>
2007.................................................... $ 5,772,000
2008.................................................... 12,213,000
2009.................................................... 11,445,000
2010.................................................... 12,868,000
-----------
$42,298,000
===========
</TABLE>
F-19
<PAGE> 130
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) LITIGATION
The Company is the defendant in a number of lawsuits and claims incidental
in its ordinary course of business, certain of which have been brought by former
employees. The litigation which is probable to result in an unfavorable outcome
and can be reasonably estimated amounts to $0.3 million which the Company has
accrued. The Company does not believe the outcome of any litigation, current or
pending, would have a material adverse impact on the financial position or the
results of operations of the Company.
(13) SUBSEQUENT EVENT -- (UNAUDITED)
On December 1, 1998, the Company acquired from Pan Caribbean Broadcasting
Corporation the FCC broadcast license and substantially all of the assets of
WDOY-FM in Puerto Rico for $8.3 million. The acquisition of WDOY-FM was
accounted for as a purchase transaction and was financed from cash on hand and
cash from operations.
F-20
<PAGE> 131
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 28,
1997 1998
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 12,287,764 $ 32,134,056
Receivables:
Trade.................................................. 17,226,345 19,730,808
Less allowance for doubtful accounts................... 2,385,267 3,984,120
------------ ------------
Net receivables -- Trade............................. 14,841,078 15,746,688
Barter (net of allowance for doubtful accounts of
$3,019,828 at September 28, 1997 and $4,200,418 at
June 28, 1998)....................................... 270,900 79,650
------------ ------------
Net receivables...................................... 15,111,978 15,826,338
Other current assets........................................ 1,409,906 2,383,176
------------ ------------
Total current assets................................... 28,809,648 50,343,570
Property and equipment, net................................. 18,409,415 14,901,979
Franchise costs, net........................................ 273,631,766 273,971,175
Due from related party...................................... 289,869 289,869
Deferred financing costs, net............................... 9,262,314 7,782,659
Deferred income taxes....................................... 3,674,287 --
Other assets................................................ 289,784 217,060
------------ ------------
$334,367,083 $347,506,312
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of senior secured notes..................... 15,000,000 $ --
Current portion of other long term debt..................... 44,644 36,335
Accounts payable and accrued expenses....................... 5,090,349 7,534,026
Accrued interest............................................ 4,536,627 3,069,432
Unearned revenue............................................ 1,551,255 1,805,865
Dividends payable........................................... 960,761 8,165,089
------------ ------------
Total current liabilities.............................. 27,183,636 20,610,747
12 1/2% Senior Secured Notes, net of unamortized discount... 88,820,963 91,520,331
11% Senior Secured Notes.................................... 75,000,000 75,000,000
Deferred income taxes payable............................... -- 7,571,291
Other Long-term debt, less current portion.................. 4,147,676 4,337,546
14 1/4% Senior Exchangeable Redeemable Preferred Stock, $.01
par value. Authorized 413,930 shares; issued and outstanding
186,706 shares.............................................. 171,261,919 186,448,154
Stockholders' Deficiency:
Class A Common Stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding 558,135
shares............................................... 5,581 5,581
Class B Common Stock, $.01 par value. Authorized
200,000 shares; issued and outstanding 48,533
shares............................................... 485 485
Additional paid in capital.................................. 6,590,473 6,864,301
Accumulated deficit......................................... (35,119,184) (42,392,715)
------------ ------------
(28,522,645) (35,522,348)
Less: loans receivable from stockholders.................... (3,524,466) (2,459,409)
------------ ------------
Total stockholders' deficiency......................... (32,047,111) (37,981,757)
------------ ------------
$334,367,083 $347,506,312
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-21
<PAGE> 132
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JUNE 29, JUNE 28,
1997 1998
-------- --------
<S> <C> <C>
Gross broadcasting revenues....................... $ 47,393,913 $ 62,098,840
Less: Agency commissions....................... 5,448,511 7,508,229
------------ ------------
Net broadcasting revenues.................... 41,945,402 54,590,611
------------ ------------
Operating expenses
Engineering.................................. 1,563,250 1,380,656
Programming.................................. 4,981,721 5,996,108
Selling...................................... 10,417,849 13,108,606
General and administrative................... 4,589,278 7,811,811
Corporate expenses........................... 4,081,114 5,122,297
Depreciation and amortization................ 5,094,240 6,866,961
------------ ------------
30,727,452 40,286,439
------------ ------------
Operating income........................ 11,217,950 14,304,172
Other (income) expenses:
Gain on sale of AM stations.................. -- (36,246,947)
Interest expense, net........................ 16,402,849 16,002,451
Other, net................................... 25,989 --
------------ ------------
Income (loss) before income taxes and
extraordinary item.............................. (5,210,888) 34,548,668
Income tax expense (benefit)...................... (1,961,106) 13,819,467
------------ ------------
Income (loss) before extraordinary item........... (3,249,782) 20,729,201
Extraordinary item, net of income taxes........... (1,715,206) (1,612,723)
------------ ------------
Net income (loss)................................. (4,964,988) 19,116,478
Accumulated deficit at beginning of period........ (11,906,690) (35,119,184)
Dividends on preferred stock...................... (8,952,027) (20,507,976)
Accretion of preferred stock...................... (1,037,859) (1,883,377)
Dividends on common stock......................... -- (3,998,656)
------------ ------------
Accumulated deficit at end of period.............. $(26,861,564) $(42,392,715)
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-22
<PAGE> 133
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 29, 1997 AND JUNE 28, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
JUNE 29, JUNE 28,
1997 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (4,964,988) $ 19,116,478
------------- ------------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Loss on extinguishment of debt......................... 2,766,460 2,687,872
Gain on sale of radio stations......................... -- (36,246,947)
Depreciation and amortization.......................... 5,094,240 6,866,961
Change in provision for losses on receivables.......... 75,494 2,779,443
Amortization of debt discount.......................... 4,629,084 477,029
Interest satisfied through the issuance of new notes... 2,433,230 --
Amortization of deferred financing costs............... 948,580 1,013,387
Interest added to face amount of note payable.......... -- 230,400
Deferred income taxes.................................. (2,329,030) 11,245,578
Changes in operating assets and liabilities:
Increase in receivables........................... (3,436,161) (3,493,803)
Increase in other current assets.................. (1,222,431) (973,270)
Decrease (increase) in other assets............... (150,808) 72,724
(Decrease) increase in accounts payable and
accrued expenses................................ 722,279 2,443,677
Increase (decrease) in accrued interest........... 459,128 (1,467,195)
(Decrease) increase in unearned revenue........... 880,235 254,610
------------- ------------
Total adjustments............................ 10,870,300 (14,109,534)
------------- ------------
Net cash provided by operating activities......... 5,905,312 5,006,944
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of radio stations, net of closing
costs................................................ -- 43,165,854
Acquisitions of radio stations net of $3,000,000 note
payable issued to seller in 1997..................... (143,000,000) (9,327,713)
Additions to property and equipment.................... (1,740,645) (1,290,128)
------------- ------------
Net cash (used in) provided by investing
activities...................................... (144,740,645) 32,548,013
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Senior Secured Notes....................... -- (15,000,055)
Proceeds from issuance of Senior Secured Notes net of
issuance costs....................................... 71,258,995 --
Proceeds from issuance of redeemable preferred stock
and warrants, net of issuance costs.................. 164,734,530 --
Redemption of Senior Secured Notes..................... (39,662,074) --
Redemption of Preferred Stock.......................... (42,699,590) --
Redemption of Primary Warrants......................... (8,323,000) --
Payment of dividends................................... -- (3,724,828)
Repayments of other long-term debt..................... (29,775) (48,839)
Decrease (increase) in loans receivables from
stockholders......................................... (1,004,929) 1,065,057
------------- ------------
Net cash provided by (used in) financing
activities...................................... 144,274,157 (17,708,665)
------------- ------------
Net increase in cash and cash equivalents................... 5,438,824 19,846,292
Cash and cash equivalents at the beginning period........... 5,468,079 12,287,764
------------- ------------
Cash and cash equivalents at the end of period.............. $ 10,906,903 $ 32,134,056
============= ============
Cash paid for:
Interest............................................... $ 8,070,338 $ 15,913,831
============= ============
Income taxes........................................... $ 369,162 $ 1,693,335
============= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
<PAGE> 134
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997 AND JUNE 28, 1998 -- (UNAUDITED)
(IN THOUSANDS)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its direct and indirect subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The
accompanying unaudited condensed consolidated financial statements for the three
and nine month periods ended June 29, 1997 and June 28, 1998 do not contain all
disclosures required by generally accepted accounting principles. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements of the Company as of and for the fiscal
year ended September 28, 1997 included in the Company's 1997 Form 10K.
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, which are
all of a normal, recurring nature, necessary for a fair presentation of the
results of the interim periods. The results of operations for the three and nine
month periods ended June 28, 1998 are not necessarily indicative of the results
for a full year.
(2) ACQUISITIONS AND DISPOSITIONS
On March 27, 1997, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
WYSY-FM, serving the Chicago metropolitan area, for a purchase price of $33.0
million, including a $3.0 million seller note, plus closing costs of $0.5
million. The Company subsequently changed the call letters to WLEY-FM.
Additionally, on March 27, 1997, the Company acquired the FCC broadcast licenses
and substantially all of the assets used or useful in the operations of radio
stations WRMA-FM and WXDJ-FM, serving the Miami metropolitan area, for a
purchase price of $111 million plus closing costs of $0.8 million.
On March 27, 1997, the Company completed offerings of (a) 175,000 units
(the "Units Offering") comprised of 175,000 shares of the Company's Series A
Senior Exchangeable Preferred Stock (the "Series A Preferred Stock"),
liquidation preference $1,000 per share, and warrants to purchase 74,900 shares
of the Company's Class A Common Stock, par value $.01 per share ("Common Stock")
and (b) $75.0 million aggregate principal amount of the Company's 11% Senior
Notes due 2004 (the "Senior Notes") (the "Notes Offering") in transactions not
registered under the Securities Act of 1933, as amended (the "Act") in reliance
upon the exemption provided in Section 4(2) of the Act. The proceeds of these
offerings were used to finance the acquisitions of radio stations WRMA-FM,
WXDJ-FM and WLEY-FM (the "Acquisitions") and to retire the notes issued in 1996.
On May 13, 1998, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.25 million, plus closing costs of
$0.08 million. The Company financed this purchase from cash on hand and from
operations. The Company subsequently changed the call letters to KLEY-FM.
The Company's consolidated results of operations for the nine month periods
ended June 29, 1997 and June 28, 1998 include the operations of WRMA-FM,
WXDJ-FM, WLEY-FM and KRIO-FM from the dates of acquisition. The following
unaudited pro-forma summary presents the consolidated results of operations as
if the acquisition of WRMA-FM and WXDJ-FM had occurred as of the beginning of
fiscal year 1997 after giving effect to certain adjustments, including
amortization of franchise costs and interest expense on the acquisition debt.
These pro-forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or of results which may occur in the future.
The results of WLEY-FM and KRIO-FM prior to their acquisition have not been
included in the pro-forma summary as the acquisitions do not meet the
significance test for presentation of pro-forma information.
F-24
<PAGE> 135
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 29, 1997
-----------------
<S> <C>
Pro-Forma Results:
Net Revenues............................................ $48,698
Net Loss Before Extraordinary Item...................... $(2,127)
</TABLE>
On July 22, 1997, the Company commenced an exchange offer whereby shares of
Series A Preferred Stock were exchanged for an equal number of Series B Senior
Exchangeable Preferred Stock (the "Series B Preferred Stock"). The exchange of
Series A Senior Notes for Series B Senior Notes has been registered under the
Act. Such exchange was completed in August 1997.
On July 22, 1997, the Securities and Exchange Commission declared effective
a shelf registration statement relating to the Series A Preferred Stock, and to
$338,930 in aggregate principal amount of 14 1/4% Exchange Debentures due 2005,
Series A and 23,836 shares of Common Stock that may be issued upon the
occurrence of certain events, each of which may be offered from time to time by
or for the account of the holders thereof. The Company is using its best efforts
to keep such shelf registration continuously effective.
The Company has completed the transfer of certain assets to its newly
formed subsidiaries, Spanish Broadcasting System of Greater Miami, Inc. and
Spanish Broadcasting System of Illinois, Inc. (together the "New Subsidiaries").
The Company has not included separate financial statements for its guarantor
subsidiaries because (a) such guarantor subsidiaries (including the New
Subsidiaries) have jointly and severally guaranteed the Senior Notes on a full
and unconditional basis, (b) the aggregate assets, liabilities, earnings and
equity of the guarantor subsidiaries are substantially equivalent to the assets,
liabilities, earnings and equity of the parent on a consolidated basis and (c)
the separate financial statements and other disclosures concerning the
subsidiary guarantors are not deemed material to investors.
On July 2, 1997, the Company entered into an agreement (as amended, the
"One-on-One Agreement") with One-on-One Sports, Inc. ("One-on-One") to sell the
FCC licenses and all of the assets used or useful in operating its AM stations,
KXMG-AM of Los Angeles, WXLX-AM of New York and WCMQ-AM of Miami for $44
million. Pursuant to the One-on-One Agreement, on September 29, 1997, the
Company sold the assets and FCC licenses of WXLX-AM and WCMQ-AM to One-on-One
for a purchase price of $26 million. On December 2, 1997, the Company
consummated the sale of the assets and FCC license of KXMG-AM to One-on-One for
a purchase price of $18 million (together with the sale of WXLX-AM and WCMQ-AM,
the "Dispositions"). The gain from the sale of these stations amounts to
approximately $36.2 million before income taxes. The Company was required to use
the greater of $25 million or 50% of the net proceeds of such sale to make
offers to purchase 12 1/2% Senior Notes due 2002 ("Old Notes") at 110% of the
principal amount.
Pursuant to the terms of the Company's debt agreements, in October 1997,
the Company made an offer to holders of its Old Notes to acquire $22,730 in
principal amount of Notes at a purchase price of $1,100 for each $1,000 in
principal amount. Pursuant to this tender offer, the Company purchased $5,500 in
principal amount of Notes for $6,050. In November 1997, the Company purchased an
additional $7,666 in principal amount of Notes for $8,950. The Company
recognized a loss on the transactions of $1.6 million, resulting from the
premiums paid and the write off of related unamortized debt discount and
deferred financing costs, net of income taxes. This amount has been classified
as an extraordinary item in the accompanying condensed consolidated financial
statements.
In March 1998, the Company declared a dividend of $5.60 per share of common
stock. In April 1998, holders of warrants to purchase shares of Class A Common
Stock that were issued pursuant to the Warrant Agreement dated June 29, 1994
(the "1994 Warrants") were given the option to participate in such dividend as
if they were stockholders, subject to agreeing to waive their anti-dilution
rights with respect to such dividends. Holders of warrants to purchase 58,209
shares participated in the dividend. In May 1998, the
F-25
<PAGE> 136
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company paid $0.326 million to these warrantholders and issued replacement
warrants entitling each warrantholder to purchase from the Company shares of
Class A Common Stock at a rate of one share of Class A Common Stock per Warrant.
The warrantholders that elected not to participate in the cash dividend continue
to hold such 1994 Warrants and are entitled to purchase from the Company shares
of Class A Common Stock at an adjusted rate of 1.01133 shares of Class A Common
Stock per 1994 Warrant.
On June 16, 1998, the Company entered into an Asset Purchase Agreement with
Pan Caribbean Broadcasting Corporation to purchase the FCC broadcast license and
substantially all of the assets used or useful in the operation of WDOY-FM
serving Puerto Rico for $8.25 million. The Company has made a $412.5 deposit in
connection with this acquisition. The purchase of this station is subject to
certain closing conditions, including FCC approval. The Company expects this
transaction to close during the fourth fiscal quarter. The Company expects to
finance this purchase from cash on hand and from operations.
F-26
<PAGE> 137
INDEPENDENT AUDITORS' REPORT
The Stockholders
New Age Broadcasting Inc.
and The Seventies Broadcasting Corporation:
We have audited the accompanying combined balance sheet of New Age
Broadcasting Inc. and The Seventies Broadcasting Corporation as of September 30,
1996 and the related combined statements of income, changes in stockholders'
equity and cash flows for the year then ended. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of New Age Broadcasting
Inc. and The Seventies Broadcasting Corporation as of September 30, 1996, and
the results of their operations and their cash flows for the year ended
September 30, 1996, in conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
November 15, 1996
F-27
<PAGE> 138
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS (NOTES 2 AND 6)
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 535,243
Receivables, net of allowance for doubtful accounts of
$47,669................................................ 2,468,932
Prepaid expenses and other current assets................. 113,360
-----------
Total current assets.............................. 3,117,535
Property and equipment, net of accumulated depreciation of
$1,299,069 (note 4)....................................... 1,751,679
Intangible assets, net of accumulated amortization of
$2,705,959 (note 5)....................................... 25,382,210
Other assets................................................ 306,722
-----------
$30,558,146
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 6)................ 1,912,594
Current portion of capital lease obligation (note 8)...... 3,621
Accounts payable.......................................... 56,122
Accrued expenses (note 9)................................. 550,948
Unearned revenue.......................................... 62,878
-----------
Total current liabilities......................... 2,586,163
Long-term debt, less current portion (note 6)............... 20,462,743
Capital lease obligation, less current portion (note 8)..... 635,336
Commitments and contingencies (notes 2, 8 and 9)
Stockholders' equity:
New Age Broadcasting common stock, $10 par value.
Authorized 1,000 shares; 180 shares issued and
outstanding............................................ 1,800
The Seventies Broadcasting Corporation common stock, $.01
par value. Authorized 7,500 shares; 1,000 shares issued
and outstanding........................................ 10
Additional paid-in-capital................................ 1,078,190
Retained earnings......................................... 5,793,904
-----------
Total stockholders' equity........................ 6,873,904
-----------
$30,558,146
===========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE> 139
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Gross revenues (note 7)..................................... $16,070,961
Less agency commissions..................................... (2,110,537)
-----------
Net revenues...................................... 13,960,424
-----------
Operating expenses (notes 8 and 9):
Selling................................................... 1,524,965
General and administrative................................ 1,521,784
Programming............................................... 1,360,601
Advertising and promotion................................. 581,510
Engineering............................................... 245,943
Officers' salaries........................................ 275,000
Depreciation and amortization............................. 1,076,224
-----------
6,586,027
-----------
Operating income.................................. 7,374,397
Interest expense, net of interest income of $43,864 (note
7)........................................................ (2,261,202)
-----------
Net income........................................ $ 5,113,195
===========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE> 140
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 5,113,195
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,076,224
Change in allowance for doubtful accounts.............. (17,088)
Amortization of deferred financing costs............... 99,205
Changes in operating assets and liabilities:
Increase in receivables.............................. (73,173)
Increase in prepaid expenses and other current
assets.............................................. (33,687)
Decrease in other assets............................. 3,860
Decrease in accounts payable......................... (154,276)
Increase in accrued expenses......................... 337,172
Decrease in unearned revenue......................... (6,747)
-----------
Total adjustments................................. 1,231,490
-----------
Net cash provided by operating activities......... 6,344,685
-----------
Cash flows from investing activities:
Additions to property and equipment....................... (145,881)
Additions to intangible assets............................ (910)
-----------
Net cash used in investing activities............. (146,791)
-----------
Cash flows from financing activities:
Repayments of long-term debt.............................. (1,080,212)
Repayment of stockholders' loans.......................... (1,450,000)
Payments of capital lease obligation...................... (2,566)
Distributions to stockholders............................. (4,543,000)
-----------
Net cash used in financing activities............. (7,075,778)
-----------
Net decrease in cash and cash equivalents......... (877,884)
Cash and cash equivalents at beginning of year.............. 1,413,127
-----------
Cash and cash equivalents at end of year.................... $ 535,243
===========
Supplemental cash flow information:
Cash paid for interest.................................... $ 2,298,491
===========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 141
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NEW AGE BROADCASTING INC. THE SEVENTIES BROADCASTING CORP.
------------------------------------------- ----------------------------------------- COMBINED
COMMON STOCK COMMON STOCK ----------
---------------- ADDITIONAL ---------------- ADDITIONAL ADDITIONAL
NO. OF PAR PAID-IN RETAINED NO. OF PAR PAID-IN RETAINED PAID-IN
SHARES VALUE CAPITAL EARNINGS SHARES VALUE CAPITAL EARNINGS CAPITAL
------- ------ ---------- ----------- ------- ----- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1995....................... 180 $1,800 $998,200 $ 4,991,242 1,000 $10 $79,990 $ 232,467 $1,078,190
Distributions to
stockholders............... -- -- -- (3,683,000) -- -- -- (860,000) --
Net income................... -- -- -- 4,260,991 -- -- -- 852,204 --
--- ------ -------- ----------- ----- --- ------- --------- ----------
Balance at September 30,
1996....................... 180 $1,800 $998,200 $ 5,569,233 1,000 $10 $79,990 $ 224,671 $1,078,190
=== ====== ======== =========== ===== === ======= ========= ==========
<CAPTION>
COMBINED
---------------------------
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
----------- -------------
<S> <C> <C>
Balance at September 30,
1995....................... $ 5,223,709 $ 6,303,709
Distributions to
stockholders............... (4,543,000) (4,543,000)
Net income................... 5,113,195 5,113,195
----------- -----------
Balance at September 30,
1996....................... $ 5,793,904 $ 6,873,904
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 142
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) ORGANIZATION AND NATURE OF BUSINESS
New Age Broadcasting Inc. ("New Age") and The Seventies Broadcasting
Corporation ("SBC") (collectively, the "Companies") are each incorporated under
the laws of the State of Florida and have their principal places of business in
the Miami, Florida area. The Companies are owned by the same principal
stockholders and are engaged in the business of operating radio stations. New
Age owns and operates radio station WXDJ-FM and SBC owns and operates radio
station WRMA-FM, both serving the greater Miami area.
(2) DISPOSITION OF ASSETS
In September 1996, the Companies entered into an agreement to sell
substantially all of the Companies' collective assets used or useful in the
operation of its radio stations for approximately $111 million, subject to
adjustments based on broadcast cash flow, as defined in the agreement.
Completion of the transaction is pending FCC approval, among other things. Under
the terms of the agreement, the buyer has delivered a $10 million letter of
credit to the Companies. The Companies may draw upon the letter of credit if an
event of default occurs, as defined in the agreement. If an event of default
occurs, liquidated damages are limited to $30 million, as defined in the
agreement.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The combined financial statements include the accounts of both New Age and
SBC. All significant intercompany balances and transactions have been eliminated
in combination.
(b) Revenue Recognition
Revenues are recognized when advertisements are aired.
(c) Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost
of its office and radio station equipment and furniture and fixtures using the
straight-line method over estimated useful lives, which range from five to ten
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of the remaining life of the lease or the useful life of the
improvements.
(d) Intangible Assets
Intangible assets consist of the excess of cost over the aggregate fair
value of the net assets acquired, as well as the values attributed to
identifiable intangibles. Such costs are being amortized on a straight-line
basis over the respective estimated useful lives, which range from five to 40
years. In evaluating the recoverability of intangible assets, management gives
consideration to a number of factors, including the operating performance of its
stations and dispositions of other radio properties in specific markets, among
other things.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-32
<PAGE> 143
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(f) Barter Transactions
The Company records barter transactions at the fair value of goods or
services received.
(g) Income Taxes
New Age and SBC have elected to be taxed as S corporations, with fiscal
years ending on September 30 and December 31, respectively, under the Internal
Revenue Code and the State of Florida Code. Accordingly, the Companies do not
pay Federal or state income taxes, as their stockholders will include their
pro-rata share of taxable income or loss in their individual income tax returns.
New Age has $278,885 on deposit with the Internal Revenue Service relating to
the difference in taxes that would be payable for its stockholders on a calendar
year basis versus a fiscal year basis. This amount is classified as other assets
in the accompanying combined balance sheet.
From inception to February 29, 1988, New Age was taxed under the provisions
of subchapter C of the Internal Revenue Code. During that period, the Company
incurred net operating losses of $360,260 for tax purposes, which are available
to be carried forward to offset taxable income in future years up to 2002,
should S corporation status be terminated before then.
(h) Fair Value of Financial Instruments
The carrying amounts reported in the accompanying combined balance sheet
for cash and cash equivalents, receivables, accounts payable and accrued
expenses approximate fair values.
(i) Cash Equivalents
The Companies consider all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1996:
<TABLE>
<S> <C>
Transmitter equipment....................................... $ 1,059,548
Studio and technical equipment.............................. 792,826
Capitalized tower lease..................................... 643,686
Furniture and fixtures...................................... 378,515
Leasehold improvements...................................... 61,894
Vehicles.................................................... 46,346
Computer equipment.......................................... 28,448
Construction in progress.................................... 39,485
-----------
3,050,748
Less accumulated depreciation............................... (1,299,069)
-----------
$ 1,751,679
===========
</TABLE>
F-33
<PAGE> 144
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets consist of the following at September 30, 1996:
<TABLE>
<S> <C>
FCC licenses................................................ $27,552,060
Loan acquisition costs...................................... 496,040
Trademarks.................................................. 35,431
Tower lease costs........................................... 4,638
-----------
28,088,169
Less accumulated amortization............................... (2,705,959)
-----------
$25,382,210
===========
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1996:
<TABLE>
<S> <C>
AT&T Commercial Finance Corporation note, payable in monthly
installments plus interest at the 30-day commercial paper
rate plus 3.75%(a)........................................ $22,365,921
Barnett Bank note, payable in monthly installments of $375,
including interest at 7.75%(b)............................ 3,284
Barnett Bank note, payable in monthly installments of $367,
including interest at 6.25%(b)............................ 6,132
-----------
22,375,337
Less current portion........................................ (1,912,594)
-----------
$20,462,743
===========
</TABLE>
(a) A term note was secured on January 26, 1995 from AT&T Commercial Finance
Corporation. The original principal amount of approximately $25,400,000 was
used to finance the purchase of the operating assets of WRMA-FM by SBC in
January 1995 and to refinance existing debt of New Age in the amount of
$3,322,000.
The term note was amended on February 16, 1995 and August 1, 1996 to remove
or replace certain provisions of the original loan agreement.
The Companies may elect to defer principal payments in the event that
certain criteria are met, including adherence to certain financial ratio
covenants and the existence of no events of default. In July 1996, the
Company elected to defer principal payments under this provision, totalling
$450,000.
Interest is due monthly in arrears on the balance of principal outstanding
at the beginning of each month, at a rate based on the 30-day commercial
paper rate plus 3.75%. At September 30, 1996, this rate was 9.15%.
Substantially all of the Companies' assets have been pledged as security
under this agreement. In addition, the stockholders of the companies have
personally guaranteed the obligation in an aggregate amount of $3,000,000.
The agreement contains covenants and stipulations, including limits on
capital expenditures, directors' compensation, investment and
distributions, and the maintenance of various financial ratios, among other
things.
F-34
<PAGE> 145
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The loan agreement requires monthly principal payments according to the
following schedule:
<TABLE>
<S> <C>
March 1, 1995 through February 1, 1996...................... $ 80,000
March 1, 1996 through February 1, 1997...................... 150,000
March 1, 1997 through February 1, 1998...................... 165,000
March 1, 1998 through February 1, 1999...................... 180,000
March 1, 1999 through February 1, 2000...................... 200,000
</TABLE>
The remaining principal balance is due on February 1, 2000. At September
30, 1996, the carrying value of this indebtedness approximates market
value.
(b) The Companies also secured financing from Barnett Bank of South Florida for
station vehicles purchased in 1993 and 1994. These obligations are secured
by the vehicles that were financed and by the personal guarantees of
certain stockholders.
The scheduled maturities of long-term debt are as follows at September 30,
1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER 30,
--------------------------------
<S> <C>
1997............................................ $ 1,912,594
1998............................................ 2,086,822
1999............................................ 2,300,000
2000............................................ 16,075,921
-----------
$22,375,337
===========
</TABLE>
(7) RELATED PARTY TRANSACTIONS
The Companies have had transactions in the normal course of business with
entities whose owners are also stockholders of the Companies. The Companies have
sold commercial air time to entities owned by the Companies' stockholders at
varying rates, which were consistent with market rates. Revenue from the sale of
air time to entities owned by stockholders of the Companies during 1996 amounted
to $71,430. At September 30, 1996, receivables included $19,975 due from such
related parties.
The Companies had subordinated loans payable to stockholders in the
aggregate amount of $1,450,000 at September 30, 1995, which bore interest at 6%
per annum. The AT&T loan agreement was amended during 1996 to allow these loans
to be repaid in full during 1996. Interest expense related to these loans
payable included in the accompanying combined statement of income totalled
$30,750 for fiscal 1996.
(8) COMMITMENTS
(a) Leases
The Company leases office space and facilities, and certain equipment under
operating leases that expire at various dates through 2000. Certain leases
provide for base rental payments plus escalation charges for real estate taxes
and operating expenses.
New Age is broadcasting from its antenna tower facility in Miami, Florida
under the authority of a special temporary authorization granted by the FCC and
has been granted a construction permit by the FCC to construct a new antenna by
January 3, 1997 related to its pending city of license change. This matter is a
direct result of the destruction of New Age's permanent tower in Homestead,
Florida by Hurricane Andrew in 1992. Management has requested an extension of
this deadline, and believes that its request will be granted by the FCC with no
interruption of operations.
F-35
<PAGE> 146
NEW AGE BROADCASTING INC. AND
THE SEVENTIES BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases transmission tower space under a capital lease agreement
that expires in February 2038. The amount capitalized under this lease agreement
and included in property and equipment at September 30, 1996 is $643,686, net of
accumulated depreciation of $24,949.
At September 30, 1996, future minimum lease payments under such leases are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASE LEASES
----------- ----------- ---------
<S> <C> <C>
1997................................................ $ 44,576 $229,968
1998................................................ 44,576 224,004
1999................................................ 44,576 185,504
2000................................................ 44,576 92,685
2001................................................ 44,576 19,992
Thereafter.......................................... 1,619,296 --
----------- --------
Total minimum lease payments........................ 1,842,176 $752,153
========
Less interest at 6%................................. (1,203,219)
-----------
Present value of minimum lease payments............. 638,957
Less current portion................................ 3,621
-----------
$ 635,336
===========
</TABLE>
Total rent expense for the fiscal year ended September 30, 1996 amounted to
$578,683, which includes a contingent liability arising from litigation (see
note 9).
(b) Employment Contracts
At September 30, 1996, the Company had employment contracts for certain
on-air talent, general managers and other employees expiring through February
1999. Future payments under such contracts are as follows at September 30, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997.............................................. $810,534
1998.............................................. 169,058
1999.............................................. 5,000
--------
$984,592
========
</TABLE>
Certain contracts contain provisions for severance and provisions whereby
employees terminated without cause are entitled to the remaining payments due
under the contract. The Companies' minimum liability under such contracts was
$462,273 at September 30, 1996.
(c) Standby Letter of Credit
In connection with the litigation discussed in note 9, the Companies have
been required to maintain a standby letter of credit in the amount of $325,000.
It is anticipated that this amount will approximate the monetary value of the
final settlement of the litigation.
(9) LITIGATION
SBC is involved in litigation relating to an alleged breach of a studio
lease plus interest and attorneys' fees and costs. An adverse judgment delivered
by the Bankruptcy Court is currently in appeal. While management is vigorously
contesting the findings of the Bankruptcy Court, the likelihood of success of
the pending appeal is considered uncertain, and therefore SBC has accrued
$350,000, which is included in accrued expenses in the accompanying combined
balance sheet, in connection with this matter.
F-36
<PAGE> 147
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where you can find more Information... ii
Risk Factors.......................... 1
The Company........................... 7
The Offerings......................... 8
Capitalization........................ 10
Pro Forma Combined Financial
Statements.......................... 11
Selected Historical Consolidated
Financial Data...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 32
Principal Stockholders................ 37
Certain Relationships and Related
Transactions........................ 38
Selling Securityholders............... 39
Plan of Distribution.................. 41
Description of Senior Preferred Stock
and Exchange Debentures............. 42
Description of the Old Notes.......... 73
Description of the Notes.............. 73
Description of Capital Stock.......... 93
Certain Federal Income Tax
Considerations...................... 99
Legal Matters......................... 107
Experts............................... 107
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SPANISH BROADCASTING
SYSTEM, INC.
416,063 SHARES OF
14 1/4% SENIOR EXCHANGEABLE
PREFERRED STOCK, SERIES A
$340,676,522
14 1/4% EXCHANGEABLE DEBENTURES
DUE 2005, SERIES A
23,836 SHARES OF
CLASS A COMMON STOCK,
$.01 PAR VALUE
------------------------
PROSPECTUS
------------------------
FEBRUARY 2, 1999
------------------------------------------------------
------------------------------------------------------
