-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CiaS8W48YDg5FcnXtLlbHnIt3b3Hz1yKa0NMUBWum6FroV0D9HOEofkmtoShIk0H nbXR/wLWhCIU/o3IP+s8Sw== 0000950123-98-010916.txt : 19981229 0000950123-98-010916.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950123-98-010916 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000927720 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133827791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-82114 FILM NUMBER: 98775945 BUSINESS ADDRESS: STREET 1: 26 WEST 56TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125419200 MAIL ADDRESS: STREET 1: 26 WEST 56TH ST CITY: NEW YORK STATE: NY ZIP: 10019 10-K405 1 SPANISH BROADCASTING SYSTEM, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. Commission File Number 33-82114 SPANISH BROADCASTING SYSTEM, INC. (Exact name of registrant as specified in its charter) Delaware 13-3827791 (State or other jurisdiction of (I.R.S. employer identification) incorporation or organization number) 3191 Coral Way 33145 Miami, FL (Zip Code) (Address of principal executive offices) SEE TABLE OF ADDITIONAL REGISTRANTS Registrant's telephone number, including area code: (305) 441-6901 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Title of Class: NONE Name of each exchange on which registered: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 1 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] All of the Company's Common Stock is held by affiliates, accordingly, as of September 27, 1998, the aggregate value of the Company's voting common stock held by non-affiliates was $0.00. Number of shares of the Registrant's Common Stock, par value $.01 per share, outstanding as of September 27, 1998: 606, 668 shares of Common Stock all of which are designated Class A Common Stock. Documents Incorporated by Reference: NONE 2 3
- ------------------------------------------------------------------------------------------------------------------------- NAME STATE OR OTHER PRIMARY STANDARD I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER INCORPORATION CLASSIFICATION NUMBER - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM, INC. New Jersey 4832 13-3181941 - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM OF California 4832 92-3952357 CALIFORNIA, INC. - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM OF FLORIDA, Florida 4832 58-1700848 INC. - ------------------------------------------------------------------------------------------------------------------------- ALARCON HOLDINGS, INC. New York 6512 13-3475833 - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM NETWORK, INC. New York 4899 13-3511101 - ------------------------------------------------------------------------------------------------------------------------- SBS PROMOTIONS, INC. New York 7999 13-3456128 - ------------------------------------------------------------------------------------------------------------------------- SBS OF GREATER NEW YORK, INC. New York 4832 13-3888732 - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM OF GREATER Florida 4832 65-0774450 MIAMI, INC. - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM OF ILLINOIS, Illinois 4832 36-4174296 INC. - ------------------------------------------------------------------------------------------------------------------------- SPANISH BROADCASTING SYSTEM OF SAN Delaware 4832 65-0820776 ANTONIO, INC. - -------------------------------------------------------------------------------------------------------------------------
3 4 TABLE OF CONTENTS
PAGE ---- Item 1. BUSINESS ...............................................................................................1 Item 2. PROPERTIES.............................................................................................12 Item 3. LEGAL PROCEEDINGS......................................................................................13 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................13 Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS ..................................................................................13 Item 6. SELECTED FINANCIAL DATA...............................................................................15 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................................................18 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..........................................................................................26 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................26 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................27 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................27 Item 11. EXECUTIVE COMPENSATION................................................................................29 Item 12. COMMON STOCK..........................................................................................32 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................32 Item 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES............................................................34
i 5 ITEM 1. BUSINESS Spanish Broadcasting System, Inc. (the "Company"), incorporated in the State of Delaware in 1994, 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, Chicago, San Antonio and Miami. The Company also owns and operates FM radio stations in Key Largo and Key West, Florida. A description of each of the Company's stations, organized by market, is set forth below. The Company's strategy is to capitalize on the combined national marketing power derived from owning and operating radio stations in large Hispanic media markets in the United States and the economies of scale and ability to target multiple demographics resulting from multiple station ownership within a particular market. Multiple station ownership permits the Company to offer advertising packages on multiple radio stations at attractive price levels and expands the market for advertising targeted at Hispanics, thereby allowing the Company to capture a larger share of a market's overall advertising revenues. Los Angeles. KLAX-FM serves the Los Angeles market which has an Area of Dominant Influence ("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 #12 ranked station overall. KLAX-FM had a 3.2 share for the Summer 1998 Arbitron rating period. KLAX-FM is licensed at 97.9 MHz. On November 21, 1997 the Company received a construction permit from the Federal Communications Commission (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 #1 and #2 ranked Spanish-language radio stations and the #1 and #12 ranked stations overall. The Company's New York stations had a combined 9.2 share for the summer 1998 Arbitron 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 the area. 6 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 the area. Miami. WRMA-FM, WXDJ-FM and WCMQ-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, WXDJ-FM and WCMQ-FM are currently ranked #3, #4 and #5, respectively, among Spanish language radio stations and ranked #12, #15 and #18, respectively, among 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 is located 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 in the 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 in the 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 the area. 2 7 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 #2 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. 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 3.7% 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. THE ACQUISITIONS On March 27, 1997, the Company acquired from Infinity Holdings Corp. of Orlando ("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 broadcasting 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. 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 Exchangeable Preferred Stock (the "Senior Preferred Stock") and one warrant (the "1997 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. Concurrently with the consummation of the Offerings, the Company redeemed or repurchased the Company's Senior Secured Notes due 2001 (the "Senior Secured Notes") and Redeeemable Preferred Stock, Series A (the "Series A Preferred Stock") and the related warrants to purchase an aggregate of 6.0% of the Company's Common Stock on a fully diluted basis for approximately $90.6 million. The Company had issued the Senior Secured Notes and Series A Preferred Stock to partially finance the acquisition of WPAT-FM in New York in March 1996. 3 8 The Old Warrants were redeemed pursuant to the redemption price schedule, which was determined at the time of issuance. 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 $9.3 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 DISPOSITIONS On September 29, 1997, the Company sold the assets and FCC licenses of WXLX-AM serving the New York metropolitan area and WCMQ-AM serving the Miami metropolitan area to One-on-One Sports, Inc. (One-on-One) for a sales price of $26.0 million. On December 2, 1997, the Company sold the assets and FCC licenses of KXMG-AM serving the Los Angeles area to One-on-One for a sales price of $18.0 million. In accordance with the Company's certificate of designation governing the Senior Preferred Stock, the Company offered to use $25.0 million to repurchase 12 1/2% Senior Notes due 2002 ("Old Notes") and actually used $15.0 million of the net proceeds of the Dispositions to purchase Old Notes. RECENT DEVELOPMENTS 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. 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. In the major U.S. markets tracked by Duncan's Radio Market Guide, total radio advertising spending rose from an estimated $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 their music 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 audience's change. The largest portion of a radio station's 4 9 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 airtime 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. Rank in audience share data ("ratings") is based on the "12+ average quarter hour share", i.e. 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, in the most recent survey period (Summer, 1998) 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. Unless otherwise indicated, all market revenue rankings that are contained in this Annual Report are based on information for calendar year 1996 contained in James H. Duncan, Jr., Duncan's Radio Market Guide (1996 ed.). 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. ADI information contained herein is based on Arbitron's 1998 ADI definitions. Unless otherwise indicated, all references to the demographic statistics in this Annual Report 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. 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. 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. 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: 5 10 - 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 $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. 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 airtime and the availability of alternative media in the 6 11 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 has been for its stations to increase the level of national advertising since national advertising generally commands a higher dollar rate per advertising spot than does local advertising. The Company has been successful in this objective since 27% of its advertising has been national which is substantially higher than past years. 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 sales people 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 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). 7 12 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 10 were primarily involved in management, 115 in programming, 94 in sales, 72 in general administration and 9 in technical activities. The Company moved its headquarters 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 stations to monitor operations and ensure that headquarters' policies are implemented. FEDERAL REGULATIONS 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 operations of a radio broadcasting station except under a license by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency banks; 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 administrative 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. 8 13 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 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 1996 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 1996 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 ("LMA") through which the licensees of one radio station provide 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 9 14 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 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 10 15 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 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 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. 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 in the second stage, 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-stage renewal procedure and to eliminate the right to file an application that is mutually exclusive with 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. 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 the 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 11 16 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 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, 12 17 and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. ITEM 2. PROPERTIES The Company's corporate headquarters were moved from New York City to Miami between September and 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 buildings 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 1998 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. ITEM 3. 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 retained 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 13 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS MARKET INFORMATION AND HOLDERS The Company's Common Stock has not been registered under the Securities Act of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is not listed on any national securities exchange. There is no established public trading market for the Company's Common Stock. There are currently three holders of the Company's Common Stock. See "Item 12. Security Ownership of Certain Beneficial Owners and Management". DIVIDENDS 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 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. RECENT SALES OF UNREGISTERED SECURITIES On March 27, 1997, the Company consummated an offering (the "Notes Offering") of the 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) certain acquisitions, (ii) the refinancing (the "Refinancing") of the Company's Senior Secured Notes due 2001 and 14 19 Senior Preferred Stock, and the repurchase of the related warrants, and (iii) the solicitation (the "Consent Solicitation") of certain consents from the holders of the 12-1/2% Senior Notes due 2002. Concurrently with the consummation of the Offerings, the Company redeemed or repurchased the Senior Secured Notes, Senior Preferred Stock and Old Warrants for approximately $90.6 million. The Company issued the Senior Secured Notes and Senior Preferred Stock to partially finance the acquisition of WPAT-FM in New York in March 1996. The Old Warrants were redeemed pursuant to the redemption price schedule which was determined at the time of issuance. ITEM 6. SELECTED FINANCIAL 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 Peat Marwick LLP, independent certified public accountants. The consolidated financial statements for each of the years in the three-year period ended September 27, 1998 and the report thereon, are included elsewhere in this Annual Report. The selected consolidated financial data of the Company should be read in conjunction with the consolidated financial statements of the Company as of 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 Annual Report. For additional information see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 15 20 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT RATIOS)
FISCAL YEAR ENDED 9/25/94 9/24/95 9/29/96 9/28/97 9/27/98 ------- ------- ------- ------- ------- 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 ..................... 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 ....................... 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 22,021 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) (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 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 ............. (897) (4,988) (90,195) (144,358) 32,190 in) investing activities 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 9/25/94 9/24/95 9/29/96 9/28/97 9/27/98 --------- --------- --------- --------- --------- BALANCE SHEET DATA:
16 21
Cash and cash equivalents ................ $ 12,137 $ 17,817 $ 5,468 $ 12,288 $ 37,642 Net working capital ...................... 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 Shareholder's deficiency ................. (2,960) (1,150) (3,569) (32,047) (46,193)
NOTES TO SELECTED HISTORICAL FINANCIAL DATA (1) Station operating expenses include engineering, programming, selling and general and administrative expenses. (2) During 1996 and 1997, the Company wrote down the value of the land and building located on Sunset Boulevard in Los Angeles. The write downs, of $697,741 and $487,973 respectively, 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 Senior Secured Notes and the Old Warrants. The Senior Secured Notes were issued at a substantial discount from their principal amount. The sale of the Senior Secured Notes and the 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 Senior Secured Notes and the Old Warrants, $88,603,000 was allocated to the Senior Secured Notes and $5,397,000 was determined to be the value of the Old Warrants. Of the net proceeds from the sale of the Senior Secured 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 the Senior Secured 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 17 22 related unamortized deferred financing costs of approximately $ 0.5 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 cost 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 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. ITEM 7. 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 governmental 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. 18 23 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's Sales for cash were 94%, 96% and 96% respectively, of total sales. The Company believes that its percentage of cash sales will increase in the future as its stations' ratings increase. 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 an LMA, the Company began operating WPAT-FM on January 26, 1996 and the revenues of WPAT-FM and the costs associated with the LMA 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 purchase) in Chicago for $111 million and $33 million, respectively, including financing costs. 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. 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 19 24 income before depreciation 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 Annual Report 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. 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 20 25 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. 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, 21 26 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 $3.1 million in broadcasting operating expenses, $2.9 million in depreciation and amortization expense and an increase of $1.9 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. Higher salaries and higher professional fees caused the increase in corporate expenses. 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, as described above. 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 the increase in interest expenses of the 11% 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 11% 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 was $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%. 22 27 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 were financed with proceeds of 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 and Senior Preferred Stock and the repurchase of Old Warrants. In addition, simultaneously with the consummation of the Offerings, the Company announced its intention to declare a dividend of up to $4.0 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 $0.3 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 $25.0 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 23 28 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 sold 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 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 Preferred Stock Agreement. During fiscal 1998 the Company issued 27,554 additional shares of Preferred Stock in lieu of cash payments of $27.6 million for dividends on 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 24 29 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 ("Y2K") 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. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS The statements contained in this Annual Reports on Form 10-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of important factors could cause the Company's actual results for future periods to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors include, among other things: the Company's operating history and uncertainty as to the Company's future profitability; the ability to develop and implement operational and financial systems to manage rapidly growing operations; the uncertainly as to the consumer demand for Spanish-language radio; increasing competition in the Spanish-language radio market; the ability to integrate and successfully operate acquired stations and the risks associated with such stations; the ability to obtain financing on acceptable terms to finance the Company's growth strategy; and general economic conditions as they may impact the overall radio industry. 25 30 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item 8 is included following "Item 14. Index to Consolidated Financial Statements and Schedules, and Reports on Form 8-K" appearing at the end of this Annual Report on Form 10-K PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages and positions of the directors and executive officers of the Company. Each director of the Company serves until his successor is elected and qualifies.
NAME AGE CURRENT POSITION WITH THE COMPANY - ---- --- --------------------------------- 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
* 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 26 31 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 operates 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 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. 27 32 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. ITEM 11. 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 1998, 1997 and 1996 by the Company's Chief Executive Officer and the Company's next three highest paid executive officers at September 27, 1998, whose annual salary and bonus exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE OTHER ANNUAL NAME PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION - ---- ------------------ ---- ------ ----- ------------ Raul Alarcon, Jr. President and Chief 1998 $1,633,743 $215,000 (2) Executive Officer 1997 1,361,647 -- (2) 1996 746,584(1) 237,000 (2) Pablo Raul Alarcon, Sr. Chairman of the Board 1998 492,577 25,000 (2) of 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)
28 33 Joseph A. Garcia Executive Vice President 1998 266,346 27,500 (2) and Chief Financial Officer 1997 244,671 53,000 (2) 1996 214,659 5,000 (2) Carey Davis Vice President and 1998 225,000 264,300 (2) General Manager of the 1997 147,115 -- (2) New York stations 1996 -- -- (2)
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. and 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. 29 34 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 $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 in the agreement), or by Mr. Alarcon, Jr. for Good Reason (as defined), he will be entitled to receive all accrued salary, bonuses and Incentive Compensation to the date of termination plus his salary, bonuses and Incentive 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). 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 September 27, 1998, no options had been granted under the Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS 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." 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 30 35 dividends or unlawful stock repurchases or redemption's 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. ITEM 12. COMMON STOCK The following table sets forth information concerning the beneficial ownership of the Company's common stock 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.
Percentage of Economic Percent Ownership of of all Class A Class A Common Executive Officers (1) Shares (2) Shares Stock ---------------------- ---------- ------- ---------- Pablo Raul Alarcon, Sr. ........... 36,400 6% 6% Raul Alarcon, Jr. ................. 558,135 92% 92% Jose Grimalt ...................... 12,133 2% 2% Arnold Sheiffer ................... -- -- -- Joseph Garcia ..................... -- -- -- All executive officers and directors as a group .............. 606,668 100% 100%
(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, Suite 805, Miami, FL 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 31 36 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 airtime at standard station rates. Since early 1994, Nuestra has not utilized any airtime 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 32 37 $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 and 1997 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 a dividend to common stockholders in March 1998, it applied $1.1 million against the principal and interest due under the note. For the 1996, 1997 and 1998 fiscal years, the Company paid operating expenses each fiscal year 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. 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. Generally, the apartment is used by the Company's executives, customers and business associates. The Company believes that the lease for this apartment is at market rates. It is also leasing an apartment in the same area from Mr. Grimalt for a monthly rent of $3,000, which is being used by the Vice President of Programming when he is in New York. Mr. Grimalt's son was employed by the Company as an operations manager for which he was paid $128,345 and a bonus of $5,000 for the year ended September 27, 1998. ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. a. EXHIBITS 10.1 Amended and Restated Certificate of Incorporation of the Company, dated March 21, 1996 (incorporated by reference to Exhibit 3.1.1 of the Company's 33 38 Current Report on Form 8-K dated March 25, 1996 (the "1996 Current Report")). 10.2 By-Laws of the Company (incorporated by reference to Exhibit 3.1.2 of the Company's Registration Statement on Form S-4 (Commission File No. 33-82114) (the "1994 Registration Statement")). 10.3 Certificate of Designation of Senior Exchangeable Preferred Stock, Series A, filed March 27, 1997 (incorporated by reference to the Current Report). 10.4 Indenture dated June 29, 1994 among the Company, IBJ Schroder Bank & Trust Company, as Trustee, the Guarantors named therein and the Purchasers named therein (incorporated by reference to Exhibit 4.1 of the 1994 Registration Statement). 10.5 Second Supplemental Indenture dated as of March 21, 1997 to Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Current Report). 10.6 Indenture dated as of March 15, 1997, among the Company, the Guarantors named therein, IBJ Schroder Bank & Trust Company, as Trustee, and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.7 Exchange Debenture Indenture dated as of March 15, 1997, among the Company, the Guarantors named therein, U.S. Trust Company of New York, as Trustee, and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.8 Securities Purchase Agreement dated as of March 24, 1997 among the Company, the Guarantors named therein and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.9 Unit Agreement dated as of March 15, 1997 among the Company, the Guarantors and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Current Report). 10.10 Warrant Agreement dated as of March 15, 1997 among the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent (incorporated by reference to the Current Report). 34 39 10.11 Common Stock Registration Rights and Stockholders Agreement dated as of March 15, 1997 among the Company, certain Management Stockholders named therein and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.12 Notes Registration Rights Agreement dated as of March 15, 1997 among the Company, the Guarantors named therein and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.13 Preferred Stock Registration Rights Agreement dated as of March 15, 1997 among the Company, the Guarantors named therein and CIBC Wood Gundy Securities Corp., as Initial Purchaser (incorporated by reference to the Current Report). 10.14 National Radio Sales Representation Agreement dated as of February 3, 1997 between Caballero Spanish Media, L.L.C. and the Company (incorporated by reference to the Current Report). 10.15 Employment Agreement dated as of March 4, 1997 between Raul Alarcon, Jr. and the Company (incorporated by reference to the Current Report). 10.16 Asset Purchase Agreement dated September 16, 1996 among Raul Alarcon, Jr., New Age Broadcasting, Inc., The Seventies Broadcasting Corporation and the Company, and with respect only to Section 9.3 thereof, Alan Potamkin, Russell Oasis and Robert Potamkin (incorporated by reference to Exhibit 10.43 of the 1996 10-K). 10.17 First Amendment to Asset Purchase Agreement dated December 26, 1996 among Raul Alarcon, Jr., New Age Broadcasting, Inc., The Seventies Broadcasting Corporation and the Company, and with respect only to Section 9.3 thereof, Alan Potamkin, Russell Oasis and Robert Potamkin (incorporated by reference to the Current Report). 10.18 Second Amendment to Asset Purchase Agreement dated February 28, 1997 among Raul Alarcon, Jr., New Age Broadcasting, Inc., The Seventies Broadcasting Corporation and the Company, and with respect only to Section 9.3 thereof, Alan Potamkin, Russell Oasis and Robert Potamkin (incorporated by reference to the Current Report). 10.19 Asset Purchase Agreement dated August 22, 1996 between Infinity Holdings Corp. of Orlando and the Company (incorporated by reference to Exhibit 10.44 of the 1996 10-K). 35 40 10.20 Letter Agreement dated January 13, 1997 between the Company and Caballero Spanish Media, LLC (incorporated by reference to the Current Report). 10.21 1994 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.4 of the 1994 Registration Statement). 10.22 Broadcast Station License dated September 20, 1983 issued by the Federal Communications Commission ("FCC") to Sabre Broadcasting Corporation in connection with WXLX-AM, together with an Assignment thereof from Sabre Broadcasting Corporation to Spanish Broadcasting System, Inc., a New Jersey Corporation ("SBS-NJ") and evidence of license renewal (incorporated by reference to Exhibit 10.8.1 of the 1994 Registration Statement). 10.23 Construction Permit dated July 21, 1993 issued by the FCC to SBS-NJ in connection with WXLX-AM (incorporated by reference to Exhibit 10.8.2 of the 1994 Registration Statement). 10.24 AM Broadcast Station Construction Permit dated February 1, 1991 issued by the FCC to SBS-NJ in connection with WXLX-AM (incorporated by reference to the 1996 Current Report). 10.25 Ground Lease dated December 18, 1995 between Louis Viola Company and SBS-NJ (incorporated by reference to the 1996 Current Report). 10.26 Ground Lease dated December 18, 1995 between Frank F. Viola and Estate of Thomas C. Viola and SBS-NJ (incorporated by reference to the 1996 Current Report). 10.27 Broadcast Station License dated November 23, 1994 issued by the FCC to Spanish Broadcasting System of New York, Inc. ("SBS-NY"), in connection with WSKQ-FM (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994 (the "1994 10-K")). 10.28 Broadcast Station License dated September 24, 1990 issued by the FCC to Spanish Broadcasting System of Florida, Inc. ("SBS-Fla.") in connection with WCMQ-AM, together with evidence of license renewal (incorporated by reference to Exhibit 10.10 of the 1994 Registration Statement). 36 41 10.29 Evidence of renewal of Federal Communications Commission ("FCC") Broadcast Radio License of WCMQ-AM (incorporated by reference to the 1996 Current Report). 10.30 Broadcast Station License dated April 1, 1994 issued by the FCC to SBS-Fla. in connection with WCMQ-FM, together with evidence of license (incorporated by reference to Exhibit 10.11 of the 1994 Registration Statement). 10.31 Evidence of renewal of FCC Broadcast Radio License for WCMQ-FM (incorporated by reference to the 1996 Current Report). 10.32 Broadcast Station License dated July 28, 1993 issued by the FCC to SBS-Fla. in connection with WZMQ-FM (incorporated by reference to Exhibit 10.12 of the 1994 Registration Statement). 10.33 Evidence of renewal of FCC Broadcast Radio License for WZMQ-FM (incorporated by reference to the 1996 Current Report). 10.34 Broadcast Station License dated April 8, 1986 issued by the FCC to SBS-NJ in connection with KXMG-AM, together with evidence of license renewal (incorporated by reference to Exhibit 10.13 of the 1994 Registration Statement). 10.35 Broadcast Station License dated February 21, 1992 issued by the FCC to SBS-Fla. in connection with KLAX-FM, together with evidence of license renewal (incorporated by reference to Exhibit 10.14 of the 1994 Registration Statement). 10.36 Broadcast Station License dated June 26, 1995 issued by the FCC to CSJ Investments, Inc. in connection with WSKP-FM (the "WSKP Broadcast License") (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1995 (the "1995 10-K")). 10.37 Consent to Assignment of the WSKP Broadcast License from CSJ Investments, Inc. to SBS-Fla. issued by the FCC (incorporated by reference to the 1995 10-K). 10.38 Evidence of renewal of FCC Broadcast Radio License for WSKP-FM (incorporated by reference to the 1996 Current Report). 37 42 10.39 Lease and License Agreement dated February 1, 1991 between Empire State Building Company, as landlord, and SBS-NY, as tenant (incorporated by reference to Exhibit 10.15.1 of the 1994 Registration Statement). 10.40 Modification of Lease and License dated June 30, 1992 between Empire State Building Company and SBS-NY related to WSKQ-FM (incorporated by reference to Exhibit 10.15.2 of the 1994 Registration Statement). 10.41 Lease and License Modification and Extension Agreement dated as of June 30, 1992 between Empire State Building Company, as landlord, and SBS-NY as tenant (incorporated by reference to Exhibit 10.15.3 of the 1994 Registration Statement). 10.42 Employment Agreement dated July 19, 1993 by and between SBS-NJ and Alfredo Alonso (incorporated by reference to Exhibit 10.18 of the 1994 Registration Statement). 10.43 Employment Agreement dated October 24, 1995 between SBS-NY and Beatriz Pino (incorporated by reference to Exhibit 10.18 of 1995 10-K). 10.44 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-NJ in connection with WXLX-AM (incorporated by reference to Exhibit 10.20 of the 1994 Registration Statement). 10.45 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-NY in connection with WSKQ-FM (incorporated by reference to Exhibit 10.21 of the 1994 Registration Statement). 10.46 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-CA in connection with KXMG-AM (incorporated by reference to Exhibit 10.22 of the 1994 Registration Statement). 10.47 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-CA in connection with KLAX-FM (incorporated by reference to Exhibit 10.23 of the 1994 Registration Statement). 38 43 (incorporated by reference to Exhibit 10.24 of the 1994 Registration Statement). 10.49 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-Fla. in connection with WCMQ-FM (incorporated by reference to Exhibit 10.25 of the 1994 Registration Statement). 10.50 Representation Agreement dated as of September 27, 1993 between Katz Communications, Inc. and SBS-Fla. in connection with WZMQ-FM (incorporated by reference to Exhibit 10.26 of the 1994 Registration Statement). 10.51 Promissory Note, dated as of December 31, 1995 of Raul Alarcon, Sr. to SBS-NJ in the principal amount of $577,323 (incorporated by reference to Exhibit 10.26 of the 1995 10-K). 10.52 Promissory Note, dated as of December 31, 1995 of Raul Alarcon, Jr. to SBS-NJ in the principal amount of $1,896,913 (incorporated by reference to Exhibit 10.27 of the 1995 10-K). 10.53 Lease Agreement dated June 1, 1992 among Raul Alarcon, Sr., Raul Alarcon, Jr. and SBS-Fla. (incorporated by reference to Exhibit 10.30 of the 1994 Registration Statement). 10.54 Transmitted Facility Sublicense (KTYM/KSKQ-FM) dated as of June 1, 1991 between Trans-America Broadcasting Corporation and SBS-CA relating to KSKQ-FM (Baldwin Hills Tower Lease) (incorporated by reference to Exhibit 10.31 of the 1994 Registration Statement). 10.55 Indenture dated October 12, 1988 between Alarcon Holdings, Inc. and SBS-NJ related to the studio located at 26 West 56th Street, NY, NY (incorporated by reference to Exhibit 10.32 of the 1994 Registration Statement). 10.56 Communications Equipment Site Lease Agreement between Freeman Properties, Inc. and SBS-Fla. dated July 1, 1992 (WZMQ/WKLG-FM) (incorporated by reference to Exhibit 10.33 of the 1994 Registration Statement). 10.57 Lease Option Agreement made as of October 1, 1995 between KPWR, Inc. and the Company relating to Flint Peak (incorporated by reference to the 1996 Current Report). 39 44 10.58 Form of Lease Agreement by and between KPWR, Inc. and the Company relating to KLAX (incorporated by reference to the 1996 Current Report). 10.59 Asset Purchase Agreement dated as of October 30, 1995 between SBS-NJ and Park Radio of Greater New York, Inc. ("Park Radio") (incorporated by reference to Exhibit 10.32 of the 1995 10-K). 10.60 First Amendment dated as of March 18, 1996 to the Asset Purchase Agreement dated as of October 1995, among SBS-NJ, Park Radio and SBS of Greater New York ("SBS-GNY") (incorporated by reference to the 1996 Current Report). 10.61 Escrow Agreement dated as of October 30, 1995 by and among SBS-NJ, Park Radio and Media Ventures (incorporated by reference to the 1996 Current Report). 10.62 Time Brokerage Agreement dated as of January 20, 1995 between the SBS-GNY and Park Radio (incorporated by reference to the 1996 Current Report). 10.63 Broadcast Station License dated June 1, 1984 issued by the FCC to Capital Cities Communications, Inc. ("Capital Cities") in connection with WPAT-FM, together with FCC License Renewal authorization granted October 29, 1991 to Park Radio, as assignee of Capital Cities and the assignment of the Broadcast Station License for WPAT-FM from Park Radio to SBS-NY (incorporated by reference to the 1996 Current Report). 10.64 Agreement of Lease dated as of March 1, 1996. No WT-1744-A119 1067 between The Port Authority of New Jersey and SBS-GNY as assignee of Park Radio (incorporated by reference to the 1996 Current Report). 10.65 Asset Purchase Agreement dated as of July 2, 1998, by and between Spanish Broadcasting System, Inc. (New Jersey), Spanish Broadcasting System of California, Inc., Spanish Broadcasting System of Florida, Inc., Spanish Broadcasting System, Inc., and One-on-One Sports, Inc. (incorporated by reference to Exhibit 10.62 of the Company's Registration Statement on Form S-4 (Commission File No. 333-26295)). 10.66 Amendment No. 1 dated as of September 28, 1998 to the Asset Purchase Agreement dated as of July 2, 1998, by and between Spanish Broadcasting System, Inc. (New Jersey), Spanish Broadcasting System of California, Inc., Spanish Broadcasting System of Florida, Inc., Spanish Broadcasting System, Inc. and One-on-One Sports, Inc. (incorporated by reference to the 40 45 Company's Current Report on Form 8-K dated October 15, 1997 (Commission File No. 33-82114). 10.67 Promissory Note, dated July 16, 1997 of Raul Alarcon, Jr. to the Company in the principal amount of $1,050,229.63 (incorporated by reference to Exhibit 10.63 of the Company's Registration Statement on Form S-4 (Commission File No. 333-26295). 10.68 Asset Purchase Agreement dated January 28, 1998 by and between Spanish Broadcasting System of San Antonio, Inc. and Radio KRIO, Ltd. (incorporated by reference in the Company's Form 10-Q dated February 12, 1998). 10.69 Asset Purchase Agreement dated June 16, 1998 by and between Spanish Broadcasting System of Puerto Rico, Inc. and Pan Caribbean Broadcasting Corporation. 10.70 Extension of lease of a Condominium Unit (Metropolitan Tower Condominium) between Raul Alarcon, Jr. ("Landlord") and Spanish Broadcasting System, Inc. ("Tenant"). 41 46 SIGNATURES Pursuant to the requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 24 day of December, 1998. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and as of December 24, 1998. SPANISH BROADCASTING SYSTEM, INC. By: /s/ RAUL ALARCON, JR. ------------------------------------------------------------- Name: Raul Alarcon, Jr. Title: President and Chief Executive Officer By: /s/ RAUL ALARCON, JR. ------------------------------------------------------------- Name: Raul Alarcon, Jr. Title: President, Chief Executive Officer and a Director (Principal executive officer) By: /s/ JOSEPH A. GARCIA ------------------------------------------------------------- Name: Joseph A. Garcia Title: Executive Vice President and Chief Financial Officer (Principal financial and accounting officer) By: /s/ PABLO RAUL ALARCON, SR. ------------------------------------------------------------- Name: Pablo Raul Alarcon, Sr. Title: Chairman of the Board of Directors By: /s/ JOSE GRIMALT ------------------------------------------------------------- Name: Jose Grimalt Title: Secretary and a Director By: /s/ ARNOLD SHEIFFER ------------------------------------------------------------- Name: Arnold Sheiffer Title: Director 47 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedule Covered by Independent Auditors' Report (Item 14 (A) 1) Independent Auditors' Report F - 1 Consolidated Balance Sheets as of September 28, 1997 and September 27, 1998 F - 2 Consolidated Statements of Operations for each of the fiscal years in the three-year period ended September 27, 1998 F - 3 Consolidated Statements of Changes in Stockholders' Deficiency for each of the fiscal years in the three-year period ended September 27, 1998 F - 4 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended September 27, 1998 F - 5 Notes to Consolidated Financial Statements F - 7 Financial statement schedule for each of the fiscal years in the three-year period ended September 27, 1998: Schedule II Valuation and Qualifying Accounts F - 25
All other schedules have been omitted because the required information either is not applicable or is included in the consolidated financial statements or notes thereto. 48 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Spanish Broadcasting System, Inc.: We have audited the consolidated financial statements of Spanish Broadcasting System, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Miami, Florida December 11, 1998 F-1 49 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 28, 1997 and September 27, 1998
1997 1998 ------------- ------------- 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 ============= =============
See accompanying notes to consolidated financial statements. F-2 50 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998
1996 1997 1998 ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes to consolidated financial statements. F-3 51 SPANISH BROADCASTING SYSTEM, INC. Consolidated Statements of Changes in Stockholders' Deficiency Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998
TOTAL PAR CLASS A COMMON STOCK CLASS B COMMON STOCK VALUE --------------------------- --------------------------- NO. OF SHARES PAR VALUE NO. OF SHARES PAR VALUE COMMON STOCK ------------- ------------ ------------- ----------- ------------ Balance at September 24, 1995 558,135 $ 5,581 48,533 $ 485 6,066 Increase in loans receivable from stockholders -- -- -- -- -- Costs associated with issuance of Redeemable Series A Preferred Stock (note 5) -- -- -- -- -- Issuance of warrants (note 5) -- -- -- -- -- Accretion of preferred stock -- -- -- -- -- Preferred stock issued as dividends (note 5) -- -- -- -- -- Net loss -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance at September 29, 1996 558,135 5,581 48,533 485 6,066 Retirement of preferred stock and warrants -- -- -- -- -- Issuance of warrants -- -- -- -- -- Accretion of preferred stock -- -- -- -- -- Preferred stock issued as dividends -- -- -- -- -- Cash dividends on preferred stock -- -- -- -- -- Issuance costs for preferred stock -- -- -- -- -- Increase in loans receivable from stockholders -- -- -- -- -- Net loss -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance at September 28, 1997 558,135 5,581 48,533 485 6,066 Preferred stock issued as dividends -- -- -- -- -- Accretion of preferred stock -- -- -- -- -- Decrease in loans receivable from stockholders -- -- -- -- -- Cash dividends on common stock -- -- -- -- -- Dividends on preferred stock -- -- -- -- -- Issuance of warrants as dividends -- -- -- -- -- Conversion of common stock 48,533 485 (48,533) (485) -- Net income -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance at September 27, 1998 606,668 $ 6,066 -- $ -- 6,066 =========== =========== =========== =========== ===========
LESS: LOANS ADDITIONAL RECEIVABLE TOTAL PAID-IN ACCUMULATED FROM STOCKHOLDERS' CAPITAL DEFICIT STOCKHOLDERS DEFICIENCY ---------- ----------- ------------ ------------ Balance at September 24, 1995 5,690,934 (4,425,882) (2,421,272) (1,150,154) Increase in loans receivable from stockholders -- -- (52,964) (52,964) Costs associated with issuance of Redeemable Series A Preferred Stock (note 5) (1,718,437) -- -- (1,718,437) Issuance of warrants (note 5) 6,833,507 -- -- 6,833,507 Accretion of preferred stock -- (541,416) -- (541,416) Preferred stock issued as dividends (note 5) -- (2,452,910) -- (2,452,910) Net loss -- (4,486,482) -- (4,486,482) ----------- ----------- ----------- ----------- Balance at September 29, 1996 10,806,004 (11,906,690) (2,474,236) (3,568,856) Retirement of preferred stock and warrants (11,887,981) -- -- (11,887,981) Issuance of warrants 16,625,000 -- -- 16,625,000 Accretion of preferred stock -- (1,659,695) -- (1,659,695) Preferred stock issued as dividends -- (13,030,211) -- (13,030,211) Cash dividends on preferred stock -- (2,353,725) -- (2,353,725) Issuance costs for preferred stock (8,952,550) -- -- (8,952,550) Increase in loans receivable from stockholders -- -- (1,050,230) (1,050,230) Net loss -- (6,168,863) -- (6,168,863) ----------- ----------- ----------- ----------- Balance at September 28, 1997 6,590,473 (35,119,184) (3,524,466) (32,047,111) Preferred stock issued as dividends -- (27,553,543) -- (27,553,543) Accretion of preferred stock -- (2,552,465) -- (2,552,465) Decrease in loans receivable from stockholders -- -- 14,827 14,827 Cash dividends on common stock -- (3,726,579) 1,050,231 (2,676,348) Dividends on preferred stock -- (163,599) -- (163,599) Issuance of warrants as dividends 273,828 (273,828) -- -- Conversion of common stock -- -- -- -- Net income -- 18,784,762 -- 18,784,762 ----------- ----------- ----------- ----------- Balance at September 27, 1998 6,864,301 (50,604,436) (2,459,408) (46,193,477) =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 52 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998
1996 1997 1998 ------------ ------------ ------------ 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 ------------ ------------ ------------
F-5 53 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998
1996 1997 1998 ------------- ------------- ------------- 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 ============= ============= =============
See accompanying notes to consolidated financial statements. F-6 54 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. F-7 55 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (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 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). F-8 56 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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 57 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (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:
1996 1997 1998 ---- ---- ---- New York 51% 49% 44% Miami 17% 22% 28% Los Angeles 32% 28% 17% Chicago - 1% 11% San Antonio - - --- --- --- 100% 100% 100% === === ===
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. F-10 58 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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 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.
YEAR ENDED SEPTEMBER 28, 1997 ------------------ (UNAUDITED) Net revenues $ 66,762,000 Loss before extraordinary item (3,498,000) Net loss (5,145,000)
(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. F-11 59 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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. (5) PROPERTY AND EQUIPMENT Property and equipment consist of the following at September 28, 1997 and September 27, 1998:
1997 1998 ESTIMATED ----------- ---------- USEFUL LIVES ------------ 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 =========== ----------
F-12 60 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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 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. F-13 61 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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. F-14 62 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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. 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 F-15 63 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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:
YEAR PERCENTAGE ---- ---------- 2002 107% 2003 105% 2004 and thereafter 100%
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 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. F-16 64 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (7) OTHER LONG-TERM DEBT Other long-term debt consists of the following at September 28, 1997 and September 27, 1998:
1997 1998 ---- ---- 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 ========== ==========
The scheduled maturities of other long-term debt are as follows at September 27, 1998:
Fiscal year ending September ---------------------------- 1999 $ 47,496 2000 50,572 2001 53,825 2002 57,287 2003 60,972 Thereafter 4,187,849 ---------- $4,458,001 ==========
(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 F-17 65 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 approved the terms of the exchange of the notes. In 1998, the loan of $1.1 million was repaid by the stockholder, along with 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. F-18 66 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (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. At September 27, 1998, future minimum lease payments under such leases are as follows:
CAPITAL OPERATING FISCAL YEAR LEASE LEASES ----------- ----- ------ 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 ==========
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. F-19 67 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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:
FISCAL YEAR AMOUNT ----------- ------ 1999 $ 666,741 2000 320,674 2001 259,893 2002 109,330 ---------- $1,356,638 ==========
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:
PROGRAMMING EMPLOYMENT FISCAL YEAR CONTRACTS CONTRACTS TOTAL ----------- --------- --------- ----- 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 ======= ========= =========
Certain employment contracts provide for additional amounts to be paid if station ratings or cash flow targets are met. F-20 68 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (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:
1996 ----------------------------------------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------------- --------------- ---------------- ---------------- Loss from operations $ 191,922 -- (1,357,722) (1,165,800) =============== =============== ================ ================ 1997 ----------------------------------------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------------- --------------- ---------------- ---------------- 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) =============== =============== ================ ================
F-21 69 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998
1998 ----------------------------------------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------------- --------------- ---------------- ---------------- 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 =============== =============== ================ ================
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. 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:
1997 1998 ---- ---- 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) =========== ===========
F-22 70 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 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:
NET OPERATING LOSS EXPIRING IN SEPTEMBER CARRYFORWARDS --------------------- ------------- 2007 $ 5,772,000 2008 12,213,000 2009 11,445,000 2010 12,868,000 ----------- $42,298,000 ===========
(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. F-23 71 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 28, 1997 and September 27, 1998 (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-24 72 Schedule II SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998
COLUMN C COLUMN B ADDITIONS COLUMN E BALANCE AT CHARGED TO CHARGED TO BALANCE AT COLUMN A BEGINNING COSTS AND OTHER COLUMN D END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ----------- ---------- --------- --------- ---------- ---------- Fiscal year 1996: Allowance for doubtful accounts $5,184,886 4,908,699 -- 5,582,822 4,510,763 Fiscal year 1997: Allowance for doubtful accounts $4,510,763 3,530,259 -- 2,635,927 5,405,095 Fiscal year 1998: Allowance for doubtful accounts $5,405,095 2,634,509 -- 269,544 7,770,060
73 EXHIBIT INDEX ------------- Exhibit No. Description ------- ----------- 10.68 Asset Purchase Agreement dated January 28, 1998 by and between Spanish Broadcasting System of San Antonio, Inc. and Radio KRIO, Ltd. 10.69 Asset Purchase Agreement dated June 16, 1998 by and between Spanish Broadcasting System of Puerto Rico, Inc. and Pan Caribbean Broadcasting Corporation. 10.70 Extension of lease of a Condominium Unit (Metropolitan Tower Condominium) between Raul Alarcon, Jr. ("Landlord") and Spanish Broadcasting System, Inc. ("Tenant"). 27 Financial Data Schedule EX-10.69 2 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.69 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of June 16, 1998, by and between Spanish Broadcasting System of Puerto Rico, Inc., a Puerto Rico corporation ("Buyer"), and Pan Caribbean Broadcasting Corporation, a Connecticut corporation ("Seller"). W I T N E S S E T H: WHEREAS, Seller is the licensee of Radio Station WMDD(AM) and Radio Station WDOY(FM), licensed to Fajardo, Puerto Rico, and related licenses and authorizations issued by the Federal Communications Commission ("FCC"); and WHEREAS, Seller desires to sell certain properties and assets pertaining to WDOY(FM) only (the "Station"), and Buyer desires to purchase the same, all subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained herein, Seller and Buyer hereby agree as follows: 2 Section 1. Purchase and Sale of Properties and Assets. (a) Station's Assets. Subject to and in reliance upon the representations, warranties and agreements herein set forth, and subject to the terms and conditions herein contained, on the Closing Date (as defined in Section 4), Seller agrees to convey, sell, assign, transfer and deliver to Buyer, and Buyer agrees to purchase certain of the assets of the Station, including, but not limited to, the following assets (collectively, the "Station's Assets"): (i) Licenses and Authorizations. The licenses, permits and authorizations issued by the FCC listed on Schedule 1(a)(i) hereto (collectively, the "Licenses"), and all the rights of Seller in and to the call letters "WDOY(FM)". (ii) Records, Etc. Except as excluded in Section 1(b), all files, logs and books (or true copies thereof) relating to the operation of the Station, including all records, reports, logs and documents required by the FCC to be maintained and the complete local public file (collectively, the "Records"); provided, however, that Seller shall be entitled to keep the originals of records for periods prior to January 1, 1997 (the "Seller-Retained Records"), it being understood that as to the Records (1) Seller shall have the right on reasonable request and at its expense to make copies thereof; (2) Buyer shall have the right on reasonable request and at its expense to make copies of the Seller-Retained Records; and (3) Buyer shall preserve and 2 3 protect the originals of all records (except Seller-Retained Records) for a period of six (6) years from and after the Closing Date. (iii) Personal Property. The tangible personal property of Seller located at the El Yunque transmission site and listed on Schedule (1)(a)(iii) hereto. (iv) Goodwill. All of Seller's goodwill in, and going concern value of, the Station. (v) Agreements, Etc. To the extent Seller, using its best efforts, is able to secure consents to assignment, the agreements, leases and contracts listed on Schedule 1(a)(v) hereto, including any renewals, extensions, amendments or modifications thereof, and any additional agreements, leases and contracts made or entered into by Seller in the ordinary course of business including, but not limited to, all unperformed agreements for the sale of advertising on the Station. (b) Excluded Assets. It is understood that no: (i) real property; (ii) cash; (iii) inter-company receivables; (iv) notes receivable; (v) bank deposits; (vi) other cash equivalents and/or investment securities; (vii) accounts receivable; (viii) contracts that have expired prior to the Closing Date in the ordinary course of business; (ix) the articles of incorporation, by-laws, minute books, stock transfer records and all other corporate, tax and accounting records relating to the corporate affairs of Seller; (x) sales, income and other tax refunds and 3 4 claims therefore relating to the period prior to the Closing; (xi) insurance polices; (xii) claims against third parties, based on activities occurring prior to Closing, not specifically conveyed and not specifically related to the Station's Assets; (xiii) any and all insurance proceeds or claims made by Seller relating to property or equipment repaired, replaced or restored by Seller prior to the Closing Date; (xiv) all pension, profit-sharing or cash or deferred compensation plans and trusts and the assets thereof and any other employee benefit plan or arrangement and the assets thereof, if any; (xv) all choses in action of Seller relating to the Station, which exist on or prior to the Closing Date and which related entirely to the period before the Closing Date; (xvi) assets of Seller used or useful in the operation of Station WMDD(AM); (xvii) all deposits with utilities, governmental agencies, landlords and the like; (xviii) broadcast auxiliary licenses issued for use by Station WMDD alone or with the Station (under its former call letters, WMDD-FM); (xix) the lease for office space occupied by Seller in San Juan; and (xx) all other assets not specifically included as the Station's Assets (all of which are referred to as "Excluded Assets") shall be included in the assets being purchased by Buyer. (c) Liens. Seller agrees that the Station's Assets to be conveyed on the Closing Date pursuant to this Agreement will 4 5 be conveyed free and clear of all liens, charges, claims and encumbrances of any kind. (d) Liabilities. Buyer shall assume and undertake to pay, discharge and perform the obligations and liabilities of Seller relating to the Station and the Station's Assets which are referenced in this Agreement for the period beginning, or arising out of events occurring on or after, 12:01 A.M. on the Closing Date. Except as otherwise expressly provided in this Agreement, Buyer will not assume, incur or be charged with, in connection with the transactions herein contemplated, any liabilities or obligations of any nature whatsoever, contingent or otherwise, of the Seller or the Station arising (i) prior to the Closing, or (ii) in connection with the operation of the Station or the Station's Assets or any claims asserted against the Station or the Station's Assets relating to any event (whether act or omission) prior to the Closing. Except as specified in this Agreement, Seller retains all obligations and liabilities not expressly assumed by Buyer hereunder without any liability to Buyer. (e) Trade Agreements. Schedule 1(e) includes, but is not limited to, a description of agreements for the sale of time on the Station for merchandise or services ("Trade Agreements") on the date hereof and correctly sets forth Seller's current obligations under each such Trade Agreement. On the Closing Date, Buyer shall assume the Trade Agreements listed on this 5 6 Schedule; provided, however, that if Seller's aggregate obligations under Trade Agreements as of the Closing Date exceed $20,000.00, then all amounts in excess of $20,000.00 shall be considered an operating expense of Seller to be pro-rated in accordance with Section 3. The Trade Agreements shall be considered assumed by Buyer. Seller shall use reasonable efforts to eliminate any negative balance in excess of $20,000.00 for Trade Agreements prior to the Closing Date. Section 2. Purchase Price and Method of Payment. (a) Purchase Price and Method of Payment. The purchase price for the assets acquired hereunder shall be Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000) ("Purchase Price"), which shall be paid to Seller at Closing in same day funds by wire transfer to an account specified by Seller at least two business days prior to Closing. (b) Pre-Payment. Buyer has deposited the sum of Four Hundred Twelve Thousand Five Hundred Dollars ($412,500) with Seller to be credited against the Purchase Price at Closing by Seller (the "Pre-Paid Deposit"). (c) Allocation of Purchase Price. Buyer and Seller agree that the Purchase Price shall be allocated to the Assets by Buyer, which allocation shall be reasonably acceptable to Seller. Buyer and Seller each shall file IRS Form 8594 with their respective federal income tax return for the tax year in which the Closing occurs, containing the information agreed upon by the 6 7 parties pursuant to the immediately preceding sentence. Buyer and Seller each shall deliver to the other a copy of the IRS Form 8594 as filed with their respective federal income tax return within 30 days of the filing of such return. Section 3. Adjustments and Assumptions; Accounts Receivable. The expenses and income attributable to the operation of the Station up to 12:01 a.m. on the Closing Date (the "adjustment time") shall be for the account of Seller and thereafter shall be for the account of Buyer. Any and all expenses and income (excepting categories of income not included within the Station's Assets) including, but not limited to, power and utility charges, lease rents, taxes (excluding taxes arising by reason of the transfer of the Station's Assets, which shall be paid as specified in Section 15 hereof), Fajardo municipal license fees and FCC regulatory fees, and similar prepaid and deferred items shall be prorated between Seller and Buyer as of the adjustment time. In furtherance hereof: (a) Preliminary Adjustment. Ten (10) days prior to the Closing Date, Seller shall prepare and deliver to Buyer, a balance sheet (the "Preliminary Closing Balance Sheet"), setting forth the adjustment to the Purchase Price determined in accordance with this Section 3. The Preliminary Closing Balance Sheet shall be prepared in a form which sets forth the amounts due to or from Buyer or Seller, as the case may be. Upon receipt 7 8 of the Preliminary Closing Balance Sheet, Buyer and its accounts shall have the right to examine, at Buyer's expense, the Preliminary Closing Balance Sheet and all work papers, schedules, and other books and records used in the preparation of such Preliminary Closing Balance Sheet, and to make reasonable inquiry of Seller and its accountants. If Buyer objects to the Preliminary Closing Balance Sheet, Seller and Buyer shall each use their best efforts to resolve their differences concerning the Preliminary Closing Balance Sheet as soon as possible but, in any event, prior to the Closing Date. If Seller and Buyer are unable to resolve the matter, and the amount in dispute is $20,000 or less, the parties shall proceed to Closing, making prorations then only with respect to undisputed items with the disputed items to be resolved as postclosing adjustments pursuant to Section 3(b). If the amount in dispute is more than $20,000, the disputed shall be submitted to a mutually-acceptable accountant (the "Accountant") for resolution as soon as practical but in any event within fifteen (15) days, and the Closing shall be postponed (and all deadlines set forth herein extended) for the number of days taken by the Accountant to deliver its decision plus three (3) days. The parties shall use their respective best efforts to cause the Accountant to reach a decision at the earliest possible date. The decision of the Accountant shall be final and binding upon the parties. The fees of the Accountant shall be paid by the parties in inverse 8 9 proportion to the award of the disputed amount to the parties (i.e., if Party A contends it is due $6,000, Party B contends Party A is due $4,000, and the Accountant determines that $5,200 is due Party A, then Party A shall pay 40% of the fees and Party B shall pay 60% of the fees). (b) Final Adjustment. Within sixty (60) days following the Closing Date, Buyer shall prepare and deliver to Seller a statement (the "Final Closing Balance Sheet") indicating the prorations as set forth above. Within ten (10) days of receipt of the Final Closing Balance Sheet, Seller shall either accept the prorations set forth in the Final Closing Balance Sheet or give Buyer a notice disputing such prorations ("Notice of Disagreement"). If Seller fails either to accept the prorations set forth in the Final Closing Balance Sheet or to give Buyer a Notice of Disagreement within ten (10) days of receipt of the Final Closing Balance Sheet, then Seller shall be deemed to have accepted such prorations. The Notice of Disagreement shall state the amount that Seller believes is due to Seller ("Seller's Amount"), and Buyer shall have ten (10) days to accept or reject Seller's Amount. If Buyer rejects Seller's Amount, the dispute shall be submitted to Accountant for resolution as provided above in Section 3(a), which resolution shall be final and binding on the parties. The fees of the Accountant shall be paid as provided in Section 3(a). All amounts owed pursuant to this Section 3 shall be paid within ten (10) days of resolution of the 9 10 amount due. If such amount is not paid within such ten (10) day period, interest on such amount shall accrue until paid at the prime rate as published from time to time in the Wall Street Journal plus five percent (5%). (c) Accounts Receivable. All accounts receivable arising out of the conduct of the business and operations of the Station prior to the Closing Date ("Seller's Accounts Receivable") shall be identified and valued as of the day immediately prior to that date. Seller hereby assigns to Buyer Seller's Accounts Receivable, effective upon the Closing Date, solely for the collection hereof. For a period of 120 days after the Closing Date, Buyer shall use reasonable efforts to collect Seller's Accounts Receivable in the normal and ordinary course of business. Buyer's authority shall not extend to the compromise of any Seller's Accounts Receivable or the institution of litigation, employment of counsel or a collection agency or any other extraordinary means of collection unless authorized by Seller in writing. Buyer shall apply all such amounts collected on Seller's Accounts Receivable to the debtor's oldest account receivable first (except that any such accounts collected by Buyer from persons who are also indebted to Buyer for the purchase of advertising time on the Station may be applied to Buyer's account where there is a pre-existing bona fide dispute between Seller and such account debtor with respect to such account), and Buyer shall provide to Seller an aging report and a 10 11 collections report and shall pay Seller the full amount collected on Seller's Accounts Receivable, net of commissions, within fifteen (15) days after the end of each calendar month during the above-mentioned 120 day period. Any of Seller's Accounts Receivable remaining uncollected at the earlier of the termination date of this Agreement or the end of such 120 day period shall be re-assigned to Seller for collection. All accounts receivable arising out of the conduct of the business and operation of the Station on and after the Closing Date shall be and remain the property of Buyer. Section 4. The Closing. (a) FCC Consent. Consummation of the transactions contemplated hereunder is conditioned upon the FCC having given its consent in writing to the assignment to Buyer of the FCC licenses and other authorizations set forth in subparagraph 1(a)(i) hereof, and such consent having become "final", i.e., no longer subject to timely review by the FCC or by any court or, in the event of reconsideration upon its own motion or otherwise by the FCC or an appeal by any person to any court, upon the decision of such body becoming no longer subject to review (unless the Buyer agrees to close without such consent having become "final"). The Closing shall take place on a date not later than March 31, 1999 ("Outside Closing Date"). (b) FCC Application. The parties agree to proceed, as expeditiously as practicable, to file or cause to be filed an 11 12 application requesting FCC consent to the transactions here involved. The parties agree that said application shall be duly filed with the FCC not later than five (5) business days after the date of execution of this Agreement, and that such application shall be prosecuted by all parties in good faith and with due diligence. The parties hereto shall each bear their own legal fees and any and all costs and expenses not specified herein with respect to the sale and purchase of the Station's Assets including, without limitation, the preparation of the applicable sections of the FCC application. However, all FCC filing fees shall be paid one-half each by Seller and Buyer. (c) Closing. The date of Closing and the time thereof (herein referred to as the "Closing Date"), shall be as mutually agreed to by the parties; provided, that absent such agreement the Closing shall take place at 10:00 a.m. on the fifth business day after the FCC consent shall have become a "final order." Closing shall take place at the offices of Buyer's counsel in Washington, D.C., or at such other place as may be mutually agreed to by the parties to this Agreement. Section 5. Seller's Representations and Warranties. Seller represents, warrants and agrees now and as of the Closing as follows: (a) Organization. Seller is a corporation duly organized and validly existing and in good standing under the laws of the State of Connecticut and in good standing in the 12 13 Commonwealth of Puerto Rico, the only jurisdiction in which it conducts the business of operating the Station. Seller has the full power and authority to own the Station's Assets and to carry on the business of the Station as now being conducted. (b) Authorization of Agreement; No Breach. (1) All corporate action necessary to be taken by or on the part of Seller in connection with the transactions contemplated hereby has been duly and validly taken, and the execution, delivery and performance of this Agreement have been duly and validly authorized. Seller has the full power and authority to execute, deliver and perform this Agreement and to consummate all the transactions hereby contemplated. Neither such execution, delivery and performance nor compliance by Seller with the terms and provisions hereof will (i) conflict with or result in a breach of any of the terms, conditions or provisions of the Articles of Incorporation and By-Laws of Seller, (ii) (assuming receipt of all necessary approvals from the FCC) constitute a violation of, conflict with or result in any breach of or default under, result in any termination or modification of, or cause any acceleration of any obligation of the Station, to which Seller is a party or by which it is bound, or by which the Station or any of the Station's Assets may be affected, or any judgment, order, injunction, decree, law, regulation, rule or ruling of any court or other governmental authority to which Seller, the Station or the Station' Assets is subject, or (iii) 13 14 result in the creation or imposition of any lien, charge or encumbrance against the Station or the Station's Assets which is not released on or prior to Closing. Except for the consent of the FCC and the U.S. Forest Service, and except for the consent of certain third parties as may be required in contracts to be assigned to Buyer hereunder (including, but not limited to, the consent of the Puerto Rico Telephone Company), which consents Seller shall use reasonable, good faith efforts to obtain but which shall not be a condition precedent to Closing, no other consent, approval or authorization of, or filing with, any person, entity or agency of any kind not yet obtained is required. This Agreement constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. (2) Seller is not in violation or breach of any of the terms, conditions or provisions of its Articles of Incorporation or By-Laws, or any court order, judgment, arbitration award, or decree relating to or affecting the Station or the Station's Assets to which Seller is a party or by which it is bound and has received no notices of same. (c) Licenses and Authorizations. Seller is, and on the Closing Date will be, the holder of the Licenses relating to the Station, all of which are in full force and effect (and none of which shall be altered or modified between the date hereof and the Closing Date). Except as listed and described on Schedule 14 15 1(a)(i), there is not pending, or to the knowledge of Seller threatened, any action by or before the FCC to revoke, suspend, cancel, rescind or modify any of the FCC Licenses. (d) Personal Property. Schedule 1(a)(iii) hereto contains a complete and accurate list, as of the date hereof, of the tangible personal property at El Yunque used in the operation of the Station. At the Closing, all of such property shall be owned by, and transferred to, Buyer free and clear of all liens, charges, claims and encumbrances of any kind. (e) No Litigation. There is no suit, action or other proceeding pending or, so far as is known to Seller, threatened against Seller or the Station which would, if determined against Seller or the Station, have a material adverse effect on the Station or the Station's Assets. There are no judgments, orders, decrees or injunctions against the Seller or the Station which adversely affect the Station. (f) Taxes. All federal, state and local tax returns required to be filed by Seller by the Closing Date (the "Tax Returns"), have or will have been filed with the appropriate governmental agencies in all jurisdictions in which Tax Returns are required to be filed, and all Tax Returns properly reflect the taxes of Seller for the periods covered thereby. (g) Brokerage. Seller agrees to indemnify and hold harmless Buyer against any loss, liability, damage, cost, claim or expense incurred by reason of any brokerage, commission or 15 16 finder's fee alleged to be payable because of any act, omission or statement of the Seller. (h) Compliance With Laws. Seller has materially complied with, and is not knowingly in violation of any federal or local laws, regulations, or orders affecting the Station's Assets, or the operation of the Station. Without limiting the generality of the foregoing: (i) The Station's transmitting and studio equipment is operating in material compliance with the terms and conditions of the Station's Licenses, including without limitation all regulations concerning equipment authorizations and human exposure to radio frequency radiation. (ii) Seller has complied, in all material respects, with all applicable laws, rules and regulations relating to the employment of labor, including those concerning wages, hours, equal employment opportunity, collective bargaining, pension and welfare benefit plans, and the payment of Social Security and similar taxes, and Seller is not liable for any arrearages of wages, tax withholding obligations, or any tax penalties due to any failure to comply with any of the foregoing. (i) Insurance. Seller maintains insurance policies providing general coverage against risks commonly insured against. To Seller's knowledge, all of such policies are in full force and effect and Seller is not in default of any material provision thereof. Seller has not received notice from any 16 17 issuer of any such policies of its intention to cancel, terminate or refuse to renew any policy issued by it. Seller will continue to maintain such insurance coverage in full force and effect through the Closing Date. Section 6. Buyer's Representations and Warranties. Buyer represents, warrants and agrees now and as of the date of Closing as follows: (a) Organization. Buyer is a corporation organized, validly existing and in good standing in the State of Delaware. (b) Authorization of Agreement; No Breach. The execution, delivery and performance of this Agreement have been duly and validly authorized by Buyer, and Buyer has the full corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions hereby contemplated. Neither such execution, delivery and performance nor compliance by Buyer with the terms and provisions hereof will (assuming receipt of all necessary approvals from the FCC) conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By-Laws of Buyer or any judgment, order, or decree of any court or other governmental authority to which Buyer is subject, or any material agreement to which the Buyer is subject. (c) Qualification. Buyer has no knowledge of any facts which would, under present law (including the Communications Act) and present rules, regulations and practices 17 18 of the FCC, disqualify Buyer as an assignee of the Licenses, or as an owner and/or operator of the Station's Assets, and Buyer will not take, or unreasonably fail to take, any action which Buyer knows or has reason to know would cause such disqualification. (d) Litigation. There is no litigation or proceeding pending or, so far as is known to Buyer, threatened against Buyer that would affect Buyer's ability to carry out this Agreement. (e) Brokerage. Buyer agrees to indemnify and hold harmless Seller against any loss, liability, damage, cost, claim or expense incurred by reason of any brokerage, commission or finder's fee alleged to be payable because of any act, omission or statement of the Buyer. (f) Financial Qualification. Buyer is, and as of the Closing Date will be, financially qualified to enter into and undertake the performance of the obligations set forth in this Agreement. Section 7. Performance by Buyer. The obligations of Buyer hereunder are subject to the following conditions, which conditions shall be waivable by Buyer in its sole discretion: (a) Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall be true and correct at the time of Closing hereunder as though made at and as of such time, and each and all of the agreements of the Seller to be performed on or prior to 18 19 the Closing hereunder pursuant to the terms of this Agreement shall have been duly performed, and Seller shall have delivered to Buyer certificates, dated as of the Closing Date, to such effect reasonably acceptable in form and substance to Buyer. (b) Litigation, Etc. No litigation, action, suit, investigation or proceeding of any kind shall have been instituted or threatened before any court or governmental body, which might reasonably have a material adverse effect upon the Station's Assets. (c) FCC Licenses. At the Closing, the Licenses shall be assigned and transferred to Buyer, shall be valid for the full license term then currently issued to the Station, and shall contain no material adverse modifications of the terms of any such License from the terms in effect as of the date of this Agreement. (d) Legal Opinion. Buyer shall have received the respective written opinions of corporate and communications counsel for Seller, dated the Closing Date, in form and content reasonably acceptable to counsel for Buyer and collectively to the effect that: (i) Seller is organized and validly existing and in good standing under the laws of the State of Connecticut and qualified to do business in the Commonwealth of Puerto Rico. (ii) The Agreement has been duly authorized, executed and delivered by Seller and is the valid and binding 19 20 obligation of Seller, enforceable against Seller in accordance with its terms (subject to any applicable bankruptcy, reorganization, insolvency or other laws, now or hereafter in effect, affecting creditors' rights generally as well as all rights in equity). (iii) Neither the execution, delivery and performance of this Agreement nor any instrument of sale required hereunder nor compliance by Seller with the terms and provisions of this Agreement will conflict with or result in a breach of any of the terms, conditions or provisions of the Articles of Incorporation of Seller or any judgment, order or decree known to such counsel, or any agreement known to such counsel other than an agreement listed in Schedule 1(a)(v). Such opinion, at the option of such counsel rendering the opinion, may be in the form and be governed by and interpreted in accordance with the Legal Opinion Accord of the ABA Section of Business Law (1991). (e) Performance. Seller shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing hereunder. Section 8. Seller's Performance. The obligations of Seller hereunder are subject to the following conditions, which conditions shall be waivable by Seller in its sole discretion: (a) Payments, Etc. All payments hereunder which are due and payable by Buyer on or before the Closing Date shall have 20 21 been paid in accordance with the terms of this Agreement, and Buyer shall have executed all of the documents required of it herein. (b) Representations and Warranties. Each of Buyer's representations and warranties contained herein shall be true at the time of Closing, as though made at and as of such time and Buyer shall have delivered to Seller certificates to that effect, dated as of the Closing Date, reasonably acceptable in form and substance to Seller. (c) Performance. Buyer shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing hereunder. (d) Litigation. No litigation, investigation or proceeding of any kind shall have been instituted or threatened which would adversely affect the ability of Buyer to comply in all material respects with the provisions of this Agreement. (e) Legal Opinion. Seller shall have received an opinion of counsel for Buyer, dated the Closing Date, in form and content reasonably acceptable to Seller's counsel to the effect that: (i) Buyer is organized and validly existing and in good standing under the laws of each state in which it conducts business. 21 22 (ii) The Agreement has been duly authorized, executed and delivered by the Buyer, and duly ratified by Buyer's Board of Directors, and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms (subject to any applicable bankruptcy, reorganization, insolvency or other laws, now or hereafter in effect, affecting creditors, rights generally as well as all rights in equity). (iii) Neither the execution, delivery and performance of this Agreement nor compliance by Buyer with the terms of this Agreement will conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By-Laws of Buyer or any judgment, order or decree known to such counsel, or any material agreement known by such counsel to which Buyer is subject. Such opinion, at the option of such counsel rendering the opinion, may be in the form and be governed by and interpreted in accordance with the Legal Opinion Accord of the ABA Section of Business Law (1991). Section 9. Rights of Indemnification. (a) Except as specifically assumed by Buyer hereunder, it is understood and agreed that Buyer does not assume and shall not be obligated to pay, any liabilities of the Seller under the terms of this Agreement, and it shall not be obligated to perform any obligations of the Seller, of any kind or manner. All representations, warranties and agreements by Seller shall survive the Closing for a period of one (1) year from the date of 22 23 Closing notwithstanding any investigation at any time by or on behalf of Buyer. Seller hereby agrees to indemnify and hold Buyer and its successors and assigns (collectively, "Indemnified Parties" and individually, an "Indemnified Party") harmless for a period of one (1) year from the date of Closing from and against any and all damage, liability, deficiency or expense (including, without limitation, reasonable attorney's fees) arising out of or resulting from any material misrepresentation or breach of warranty on the part of Seller under this Agreement. Seller hereby agrees to indemnify and hold Buyer and its successors and assigns (collectively, "Indemnified Parties", and individually, an "Indemnified Party") for a period of one (1) year from the date of Closing, harmless from and against: (i) Any and all claims, liabilities and obligations, damages, liability, deficiency or expense not expressly assumed by Buyer pursuant to this Agreement, arising from or related to the Seller's ownership or operation of the Station or the Station's Assets prior to the Closing hereunder, including without limitation, any claims arising in connection with any failure by Seller to pay or discharge any liability relating to the Station that is not expressly assumed by Buyer pursuant to the provisions of this Agreement; (ii) Any and all damage, liability, deficiency or expense (including, without limitation, reasonable attorneys' fees arising out of all third party disputes), excepting such 23 24 matters as may arise under the lease contemplated in Section 12 (the "Lease"). (iii) Any and all fees, costs and expenses of any kind, related or incident to any of the foregoing (including, without limitation, reasonable legal fees and expenses). (iv) Any and all severance pay or other payment required to be paid with respect to any employee of the Station prior to Closing terminated by Seller or arising by reason of the sale of the Station or any liability or obligation arising under any assumed employment contract relating to the payment of compensation, bonuses or benefits accrued prior to the Closing Date or as respects the deferred compensation or phantom equity arising by reason of the sale of Station or otherwise. (v) Notwithstanding the foregoing, Seller shall have no obligation to indemnify Buyer unless and until the aggregate amount of damages exceeds Ten Thousand Dollars ($10,000) (the "Basket"), at which time indemnification for the full amount of all damages (including the first $10,000) shall be due; provided, however, that payments due or made in connection with the prorations specified in Section 3 shall not be applied to the Basket. (b) If any claim or liability shall be asserted against any Indemnified Party which would give rise to a claim by such Indemnified Party against Seller for indemnification under the provisions of this Section, such Indemnified Party shall 24 25 promptly notify the Seller in writing of the same and give all reasonable cooperation in the defense thereof and the Seller shall be entitled at its own expense to compromise or defend any such claim provided. Failure to give prompt notification shall not limit the Seller's obligation except to the extent it is actually prejudiced by the delay in notice. (c) Except for obligations arising under the Lease (for which there are separate indemnification provisions), Buyer hereby agrees to indemnify and hold the Seller and its successors and assigns (collectively, "Indemnified Parties", and individually, an "Indemnified Party"), for a period of one year from the date of Closing, harmless from and against: (i) Any and all claims, liabilities and obligations arising from or related to the ownership or operation of the Station subsequent to the Closing hereunder; and (ii) Any and all damage, liability, deficiency or expense (including, without limitation, reasonable attorneys' fees) resulting from any material misrepresentation or breach of warranty, or obligation of Buyer arising under this Agreement. (iii) Notwithstanding the foregoing, Buyer shall have no obligation to indemnify Seller unless and until the aggregate amount of damages exceeds the Basket, at which time indemnification for the full amount of all damages (including the amount of the Basket) shall be due; provided, however, that 25 26 payments due or made in connection with the prorations specified in Section 3 shall not be applied to the Basket. (d) If any claim or liability shall be asserted against the Seller which would give rise to a claim by the Seller against Buyer for indemnification under the provisions of this Section, Seller shall promptly notify Buyer of the same and give all reasonable cooperation in the defense thereof and Buyer shall be entitled at its own expense to compromise or defend any such claim. (e) Anything in this Section 9 to the contrary notwithstanding, the indemnifying party shall not, without the written consent of the Indemnified Party, settle or compromise any third party claim or consent to the entry of judgment (i) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of an unconditional release from all liability in respect of the third party claim, or (ii) if there is a reasonable probability that a claim may impose any non-monetary obligation upon the Indemnified Party. (f) Except for specific performance of Seller's obligation to effectively and lawfully convey the Station's Assets to Buyer as provided in this Agreement, the right to indemnification hereunder shall be the exclusive post-Closing remedy of any party in connection with or arising out of this Agreement including, without limitation, any breach by another 26 27 party of its representations, warranties or covenants in this Agreement. SELLER MAKES NO REPRESENTATIONS OR WARRANTIES EXCEPT AS EXPRESSLY SET FORTH HEREIN, AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Except for specific performance of Seller's obligation to effectively and lawfully convey the Station's Assets to Buyer as provided in this Agreement, and except as provided in the Lease referenced in Section 12, each party hereby releases and discharges the other party from any liability or claim with respect to post-Closing remedies for which there is not an express indemnity under this Agreement. Section 10. Risk of Loss. The risk of any loss, damage or destruction to any of the Station's Assets to be transferred hereunder from fire or other casualty or cause shall be borne by the Seller at all times prior to the Closing Date hereunder. Subject to the provisions hereof, Buyer shall have the option in the event the loss or damage exceeds Fifty Thousand Dollars ($50,000.00) and the property cannot be substantially repaired or restored before the Closing Date, exercisable within ten (10) days after receipt of such notice from Seller to: (i) Postpone the Closing until such time as the property has been completely repaired, replaced or restored to Buyer's reasonable satisfaction, unless the same cannot be 27 28 reasonably effected within five (5) months of notification, at which time Buyer may terminate this Agreement. (ii) Elect to consummate the Closing and accept the property in its "then" condition, in which event Seller shall assign all rights under any insurance claims covering the loss and pay over (as part of the Station's Assets) any proceeds under any such insurance policy theretofore received by Seller with respect thereto. Upon the assignment of such insurance claims to Buyer, Seller shall have no further obligation to Buyer for any loss of value to the Station's Assets. In the event Buyer elects to postpone the Closing Date as provided in Subparagraph (i) above, the parties hereto will cooperate and extend the time during which this Agreement must be closed as specified in Section 4(a) hereof. Section 11. Seller's Performance at Closing. At the Closing hereunder, the Seller will: (a) FCC Licenses. Deliver to Buyer assignments of all Licenses to Buyer in customary form and substance. (b) Personal Property. Deliver to Buyer a bill of sale and all other appropriate documents and instruments in customary form and substance assigning good title to all personal property being sold to Buyer pursuant to this Agreement, free and clear of any liens, charges, claims or encumbrances of any kind. (c) Assignment of Agreements. Except as qualified in Section 5(b)(1), deliver to Buyer such assignments and further 28 29 instruments of transfer as Buyer may reasonably require to effectuate the assignment to it of those Station contracts, leases and agreements to be assigned to it as set forth on Schedule 1(a)(v) to this Agreement, as updated with Buyer's reasonable consent, not to be unreasonably withheld. (d) Adjustments and Payment. If the adjustments and assumptions provided for in Section 3 result in a net amount owing by the Seller to Buyer, deliver a cashier's check or wire transfer to Buyer for such amount at the Closing. (e) Opinions. Deliver to Buyer the written opinions of Seller's respective corporate and communications counsel, dated as of the Closing Date, pursuant to the provisions of this Agreement. (f) Officer's Certificate. Deliver to Buyer its certificate attesting to the accuracy of all representations and warranties and due performance of all obligations. (g) Originals. Deliver to Buyer the originals, if available, of all contracts, leases, agreements, commitments and trademark and copyright registrations to be assigned to Buyer under this Agreement. (h) Consents. Deliver to Buyer copies of any consents and approvals Seller has been able to obtain including, but not limited to, estoppel certificates and consents to assignment and collateral assignments to Buyer's senior lender from all landlords. 29 30 (i) Resolutions. Deliver to Buyer certified resolutions of Seller's directors and stockholders authorizing Seller to enter into this Agreement. (j) Other Documents. Deliver to Buyer such other documents as counsel for Buyer may reasonably request for the purpose of consummating the transactions described herein. Section 12. Buyer's Performance at Closing. At the Closing: (a) Payment. Buyer will deliver to Seller by confirmed wire transfer, the monies payable at the Closing as set forth in the appropriate provisions of Section 2 hereof. (b) Adjustments and Payment. Buyer will, if the adjustments and assumptions provided for in Section 3 hereof result in a net amount owing to the Seller by Buyer, deliver a cashier's check or wire transfer to Seller for such amount at the Closing. (c) Opinion. Deliver the written opinion of its counsel, dated as of the Closing Date, pursuant to the provisions of this Agreement. (d) Officer's Certificate. Deliver to Seller its certificate attesting to the accuracy of all of Buyer's representations and warranties and due performance of all obligations. (e) Assumptions. Buyer shall deliver to Seller such assumption agreements and other documents in form and substance 30 31 reasonably satisfactory to Seller as are required to make, confirm and evidence Buyer's assumption of and obligation to pay, perform, or discharge Seller's obligations under those contracts to be assumed by Buyer pursuant to this Agreement. (f) Resolutions. Buyer shall deliver certified resolutions of Buyer's directors and stockholders authorizing Buyer to enter into this Agreement. (g) Certificate. Buyer shall deliver a Certificate of Incorporation regarding Delaware and a Certificate of Good Standing regarding the Commonwealth of Puerto Rico, dated not more than five (5) business days prior to the Closing Date. (h) Lease. Buyer shall deliver the Lease attached hereto as Exhibit A duly executed. (i) Other Documents. Deliver to the Seller such other documents as counsel for Seller may reasonably request for the purpose of consummating the transactions described herein. Section 13. Default and Remedies. (a) Breach and Opportunity to Cure. If either party believes the other to be in default hereunder, the nondefaulting party shall provide the defaulting party with notice specifying in reasonable detail the nature of such default. If such default has not been cured by the earlier of: (i) the Closing Date, or (ii) within twenty (20) days after delivery of such notice (a "Default Notice"), then the party giving such notice may (x) terminate this Agreement, (y) extend the Closing Date under 31 32 Section 4 (but no such extension shall constitute a waiver of such nondefaulting party's right to terminate as a result of such default), and/or (z) exercise the remedies available to such party pursuant to Section 13(b) or 13(c), subject to the right of the other party to contest such action through appropriate proceedings. (b) Seller's Remedies. Buyer recognizes that if, as a result of Buyer's default, the transactions contemplated hereby are not consummated, Seller would be entitled to compensation, the extent of which is extremely difficult and impractical to ascertain. The parties, therefore, agree that if this Agreement is not consummated due to the material default of Buyer (any failure on Buyer's part to consummate in accordance with its obligations under this Agreement being deemed "material"), provided that Seller is not in material default, Seller shall be entitled to retain the Pre-Paid Deposit (plus interest). The parties agree that this sum shall constitute liquidated damages and shall be Seller's sole and exclusive remedy and shall be in lieu of any and all other relief to which Seller might otherwise be entitled due to Buyer's failure to consummate, or default under, this Agreement. (c) Buyer's Remedies. Seller agrees that the Station's Assets include unique property that cannot be readily obtained on the open market and that Buyer would be irreparably injured if this Agreement is not specifically enforced after 32 33 default. Therefore, Buyer shall have the right to specifically enforce Seller's performance under this Agreement, and Seller agrees to waive the defense in any such suit that Buyer has an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of specific performance as a remedy. In the event Buyer elects to terminate this Agreement as a result of Seller's material default instead of seeking specific performance (the remedies being alternative, not cumulative), Buyer shall be entitled to return of the Pre-Paid Deposit (plus interest) and any other legal remedies for damages which may be available. Section 14. Termination. (a) Absence of Commission Consent or Court Approval. This Agreement may be terminated at the option of either party upon notice to the other if the FCC consent has not become a final order by March 31, 1999; provided, however, that a party may not terminate this Agreement if (i) such party's action, inaction or qualifications, has caused, or materially contributed to, a delay in any decision or determination by the FCC, or (ii) the party seeking to terminate the Agreement pursuant to this Section 14(a) is in material default hereunder. In the event of termination pursuant to this Section, the Pre-Paid Deposit (plus interest) shall be returned to Buyer (unless the Buyer's action, inaction or qualifications shall have caused, or materially contributed to, the delay or Buyer be in material default 33 34 hereunder) or retained by Seller (unless Seller's action, inaction or qualifications shall have caused, or materially contributed to, the delay or Seller be in material default hereunder), and the parties shall be released and discharged from any further obligation hereunder. (b) Designation for Hearing. The provisions of Section 14(a) notwithstanding, either party may terminate this Agreement upon notice to the other, if, for any reason, the assignment application is designated for hearing by the FCC, unless such designation for hearing arises from, is based upon, or relates to the action, inaction or qualifications of the party seeking to terminate, in which case such party shall have no right of termination; provided, however, that notice of termination must be given within twenty (20) days after release of the hearing designation order. Upon termination pursuant to this Section 14(b), the Pre-Paid Deposit (plus interest) shall be retained by Seller in the event the application is designated for hearing on grounds relating to Buyer's qualifications, or returned to Buyer in the event the application is designated for hearing on grounds relating to Seller's qualifications, and the parties shall then be released and discharged from any further obligation hereunder. (c) Legal Actions. If, prior to the Closing Date, any action, suit, or proceeding shall have been instituted by or before any court or other governmental authority (other than the 34 35 FCC) to enjoin, restrain, or prohibit the consummation of the transactions contemplated hereby, the Closing may be adjourned at the option of either party (with prior consent of the FCC if necessary, which consent both parties will use their reasonable best efforts to obtain), for a period of up to ninety (90) days, and if, at the end of such period, the action, suit, or proceeding shall not have been favorably resolved, either party may, by written notice to the other, terminate this Agreement, provided, however, that if such action, suit, or proceeding shall have been solicited or encouraged by, or instituted as a result of, any act or omission of, Seller or Buyer, then such party shall not have any right of adjournment or termination pursuant to this Section. (d) In addition, this Agreement may be terminated at any time on or prior to the Closing Date: (i) by the mutual written consent of Seller and Buyer; or (ii) by any non-defaulting party hereto if within seven (7) business days after the date hereof, an application for FCC consent to the assignment of the FCC Licenses to Buyer and the consummation of the transactions contemplated by this Agreement that is acceptable for filing, subject to reasonable supplementation and modification, has not been tendered for filing with the FCC (provided that the non-defaulting party shall have used all reasonable efforts to cooperate in the preparation of such application). A termination pursuant to this Section 14 shall 35 36 not relieve any party of any liability it may otherwise have for a breach of this Agreement. Section 15. Sales and Transfer Taxes and Fees. All Sales, Transfer and Gains Taxes incident to this transaction shall be paid one-half each by Seller and Buyer. Section 16. Survival of Representations and Warranties. The several representations and warranties of the parties contained herein shall survive the Closing for a period of one (1) year; provided, however, that the representations and warranties set forth in Section 5(f) (Taxes) and Section 9(a)(iv) (obligations to employees) shall survive until the expiration of the applicable statute of limitations, as may be extended by waiver thereof, as the case may be. Section 17. Public Announcements. (a) Prior to the Closing Date, no party shall, without the approval of the other party hereto, make any press release or other public announcement concerning the transactions contemplated by this Agreement, except as and to the extent that such party shall be so obligated by law, in which case such party shall give advance notice to the other party and the parties shall use their best efforts to cause a mutually agreeable release or announcement to be issued. Nothing in this Agreement shall be construed to limit Seller's normal duty to publish all announcements required by the FCC and to make the filings with the FCC contemplated by this Agreement. 36 37 (b) Notwithstanding the foregoing, the parties acknowledge that the rules and regulations of the FCC require that public notice of the transactions contemplated by this Agreement be made after the application for the FCC's consent has been filed with the FCC. The form and substance of such public notice, to the extent not dictated by the Communications Act or the rules and regulations of the FCC, shall be mutually agreed upon by Seller and Buyer. Section 18. Miscellaneous. (a) Schedules and Exhibits. All schedules and exhibits attached to this Agreement (and all other documents referred to therein) shall be deemed part of this Agreement and incorporated herein, where applicable, as if fully set forth herein. (b) No Assignment, Successors, Assigns, Etc. This Agreement shall not be assigned or conveyed by any party hereto to any other person or entity without the prior written consent of the other parties hereto, except that Buyer may assign this Agreement and the rights and obligations hereunder to any of its affiliates which will not release Buyer from any of the obligations and undertakings provided for herein, and except that Seller may assign its rights and duties to a commonly-controlled entity, which assignment will not release Seller from any of its obligations and undertakings provided for herein. 37 38 (c) Construction. This Agreement shall be construed and enforced in accordance with the laws of the District of Columbia. (d) Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (e) Notices. Any notice or other communications shall be in writing and shall be considered to have been duly given when personally delivered or deposited into first class certified mail, postage prepaid, return receipt requested: (i) If to the Buyer to: Spanish Broadcasting System of Puerto Rico, Inc. c/o 1001 Ponce de Leon Blvd Coral Gables, Florida 33134 ATTN: Raul Alarcon, Jr., President cc: Jason L. Shrinsky, Esq. Kaye, Scholer, Fierman, Hays & Handler, LLP 901 Fifteenth Street, N.W. Washington, D.C. 20005 (ii) If to Seller to: Pan Caribbean Broadcasting Corporation Condomino Emajagua #9A-B Calle Emajagua Punta Las Marias San Juan, Puerto Rico 00913 ATTN: Richard Friedman 38 39 cc: William K. Keane, Esq. Arter & Hadden LLP 1801 K Street, N.W. Suite 400K Washington, D.C. 20006 (g) Integration. Except as herein expressly provided, this Agreement embodies the entire agreement and understanding among Seller and Buyer, and supersedes all prior agreements and understandings, whether oral or in writing, with respect to the purchase and sale of the Station's Assets. (h) Amendment. This Agreement shall not be amended or modified in any manner except by a written document executed by the party or parties against whom enforcement of such amendment or modification may be sought. (i) Confidentiality. Buyer and Seller agree that each will use its best efforts to keep confidential all of the information of a business or confidential nature obtained by it from the other (including, but not limited to, the identity of Buyer, the proposed terms of this Agreement, and information pertaining to Seller, whether related to the Station or otherwise; and, in the event that the transactions contemplated herein are not consummated, in addition to the other continuing obligations of the parties which shall survive the term of this Agreement, the duties and obligations of the parties and their respective agents and confidants shall continue for a term of twelve (12) months from its termination regarding maintaining confidentiality as hereinabove set forth; and, further, each of 39 40 the parties will return to the other all documents, copies and other materials obtained from the other in connection therewith. This Section shall not prevent either party from disclosing such confidential information to their respective attorneys, bankers, underwriters or investors as may be appropriate in furtherance of this transaction (provided, however, such party shall similarly be bound by this confidentiality provision) or to comply with any governmental policy, regulation or law. IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed through their duly authorized officers on the day and year first above written. SPANISH BROADCASTING SYSTEM OF OF PUERTO RICO, INC. By:/s/ Raul Alarcon, Jr. Name: Raul Alarcon, Jr. Title: President PAN CARIBBEAN BROADCASTING CORPORATION By:/s/ Richard J. Friedman Name: Richard J. Friedman Title: President 40 41 WDOY LIST OF SCHEDULES & EXHIBITS Schedule 1(a)(i) Licenses & Authorizations Page 2 Schedule 1(a)(iii) Personal Property Page 3 Schedule 1(a)(v) Contracts, Leases & Agreements Page 3 Schedule 1(e) Trade Agreements Page 5 Exhibit A Studio Lease 41 EX-10.70 3 EXTENSION OF LEASE OF CONDOMINIUM UNIT 1 EXHIBIT 10.70 EXTENSION OF LEASE OF A CONDOMINIUM UNIT (Metropolitan Tower Condominium) between RAUL ALARCON, JR. ("Landlord") and SPANISH BROADCASTING SYSTEM, INC. ("Tenant") This will serve to extend that certain Lease of a Condominium unit dated August 14, 1997 by and between Raul Alarcon, Jr., as Landlord and Spanish Broadcasting System, Inc., as Tenant. The lease term, for purposes of this extension, shall be from September 1, 1997 through and including August 31, 2007. It is specifically agreed to and understood that Landlord has the unrestricted right upon thirty (30) days notice to Tenant, if Landlord wishes to use the Premises as his exclusive residence or if the Landlord wishes to sell the Unit; or (ii) upon ninety (90) days notice, for any reason whatsoever. Upon the expiration of the thirty (30) day or ninety (90) day period set forth in the notice, as the case may be, Tenant must quit possession of the Unit and shall redeliver the Unit to Landlord in the same condition in which it was tendered to Tenant at the beginning of the term of the Lease, subject to reasonable wear and tear. All other terms and conditions, except paragraph 50 of that certain Rider to Lease of A Condominium Unit between Raul Alarcon, Jr., as Landlord, and Spanish Broadcasting System, Inc., as Tenant, shall remain in full force and effect throughout the term of this lease extension. LANDLORD /s/ Raul Alarcon, Jr. RAUL ALARCON, JR. TENANT SPANISH BROADCASTING SYSTEM, INC. By:/s/ Joseph A. Garcia Name: Joseph A. Garcia Title: Executive Vice President and Chief Financial Officer DATE: November 11, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED SEPTEMBER 27, 1998 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-27-1998 SEP-29-1997 SEP-27-1998 37,642,227 0 24,359,902 7,770,000 0 56,054,653 14,942,933 0 351,034,176 15,706,160 0 0 201,367,927 6,066 0 351,034,176 86,766,158 0 0 0 (15,168,498) 0 20,860,310 36,021,517 15,624,032 20,397,485 0 (1,612,723) 0 18,784,762 0 0
-----END PRIVACY-ENHANCED MESSAGE-----