REGISTRATION NO. 333-112256
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SPANISH BROADCASTING SYSTEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 4832 13-3827791
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</Table>
---------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
---------------------
<Table>
RAUL ALARCON, JR.
2601 SOUTH BAYSHORE DRIVE, PH II 2601 SOUTH BAYSHORE DRIVE, PH II
COCONUT GROVE, FLORIDA 33133 COCONUT GROVE, FLORIDA 33133
(305) 441-6901 (305) 441-6901
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA CODE,
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</Table>
---------------------
COPIES TO:
WILLIAM E. WALLACE, JR., ESQ.
KAYE SCHOLER LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 836-8000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
STATE OR PRIMARY STANDARD
OTHER INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
- ---- --------------- ---------------- ---------------
Spanish Broadcasting System of California, Inc.... California 4832 92-3952357
Spanish Broadcasting System Network, Inc. ........ New York 4899 13-3511101
SBS Promotions, Inc............................... New York 7999 13-3456128
SBS Funding, Inc. ................................ Delaware 4832 52-2176317
Alarcon Holdings, Inc............................. New York 6512 13-3475833
SBS of Greater New York, Inc...................... New York 4832 13-3888732
Spanish Broadcasting System of Florida, Inc....... Florida 4832 58-1700848
Spanish Broadcasting System of Greater Miami,
Inc............................................. Delaware 4832 65-0774450
Spanish Broadcasting System of Puerto Rico,
Inc............................................. Delaware 4832 52-2139546
Spanish Broadcasting System, Inc.................. New Jersey 4832 13-3181941
Spanish Broadcasting System of Illinois, Inc. .... Delaware 4832 36-4174296
Spanish Broadcasting System of San Antonio,
Inc............................................. Delaware 4832 65-0820776
Spanish Broadcasting System Finance Corporation... Delaware 4832 65-1081341
Spanish Broadcasting System SouthWest, Inc........ Delaware 4832 75-2130336
Spanish Broadcasting System -- San Francisco,
Inc............................................. Delaware 4832 94-3405231
Spanish Broadcasting System of Puerto Rico,
Inc............................................. Puerto Rico 4832 66-0564244
</Table>
The address, including zip code, and telephone number, including area code,
of each of the additional registrant's principal executive offices is: c/o
Spanish Broadcasting System, Inc., 2601 South Bayshore Drive, PHII, Coconut
Grove, Florida 33133, (305) 441-6901.
The address, including zip code, and telephone number, including area code,
of agent for service for each of the additional registrants is: Joseph A.
Garcia, c/o Spanish Broadcasting System, Inc., 2601 South Bayshore Drive, PHII,
Coconut Grove, Florida 33133, (305) 441-6901.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 2004
PRELIMINARY PROSPECTUS
(SBS LOGO)
SPANISH BROADCASTING SYSTEM, INC.
OFFER TO EXCHANGE
SHARES OF OUR REGISTERED 10 3/4% SERIES B CUMULATIVE
EXCHANGEABLE REDEEMABLE PREFERRED STOCK
FOR ANY AND ALL SHARES OF OUR UNREGISTERED 10 3/4% SERIES A
CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
---------------------
We are offering to exchange registered shares of our 10 3/4% Series B
cumulative exchangeable redeemable preferred stock, par value $.01 per share and
liquidation preference of $1,000 per share, which we refer to as the Series B
preferred stock and which we are registering under the Securities Act of 1933,
as amended (the "Securities Act") by the accompanying registration statement,
for any and all shares of our outstanding 10 3/4% Series A cumulative
exchangeable redeemable preferred stock, par value $.01 per share and
liquidation preference of $1,000 per share, which we refer to as the Series A
preferred stock. The Series A preferred stock and the Series B preferred stock
are collectively referred to as the preferred stock. The shares of Series A
preferred stock were issued on October 30, 2003 pursuant to a private offering.
The terms of the Series B preferred stock are substantially the same as the
terms of the Series A preferred stock except that the Series B preferred stock:
- is registered under the Securities Act and therefore is freely
transferable, subject to certain conditions;
- does not bear restrictive legends restricting its transfer under the
Securities Act;
- does not entitle holders to the registration rights that apply to the
Series A preferred stock; and
- does not contain provisions relating to additional dividends which become
payable in certain circumstances related to the timing of this exchange
offer.
You should consider the following:
- INVESTING IN THE SERIES B PREFERRED STOCK INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 19 OF THIS PROSPECTUS.
- Our offer to exchange shares of Series B preferred stock for shares of
Series A preferred stock will be open until 5:00 p.m., New York City
time, on , 2004, unless we extend the offer.
- If you fail to tender your shares of Series A preferred stock, you will
continue to hold unregistered securities and your ability to transfer
them could be adversely affected.
- No public trading market currently exists for the Series B preferred
stock. We do not intend to apply for listing of the Series B preferred
stock on any securities exchange or for inclusion of the Series B
preferred stock in any automated quotation system. However, we expect
that the Series B preferred stock will be eligible for trading in the
PORTAL(SM) market of the National Association of Securities Dealers, Inc.
EACH BROKER-DEALER THAT RECEIVES SERIES B PREFERRED STOCK FOR ITS OWN
ACCOUNT IN EXCHANGE FOR SHARES OF SERIES A PREFERRED STOCK, WHERE SUCH SERIES A
PREFERRED STOCK WAS ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES, MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH SHARES OF SERIES B PREFERRED
STOCK, OR IF ISSUED, EXCHANGE NOTES. SEE "PLAN OF DISTRIBUTION." The letter of
transmittal accompanying this prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Series B preferred stock, or if
issued, exchange notes, received in exchange for Series A preferred stock where
such Series A preferred stock was acquired by such broker-dealer as a result of
market-making activities or other trading activities. We have agreed that,
starting on the expiration date of this exchange offer and ending on the close
of business one year after the expiration date, we will make this prospectus
available to any broker-dealer for use in connection with any such resale.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. THIS
INFORMATION IS AVAILABLE TO SECURITY HOLDERS WITHOUT CHARGE UPON WRITTEN OR ORAL
REQUEST. SECURITY HOLDERS MUST MAKE A REQUEST BY CONTACTING US AT OUR PRINCIPAL
EXECUTIVE OFFICES, 2601 SOUTH BAYSHORE DRIVE, PH II, COCONUT GROVE, FL 33133,
TELEPHONE (305) 441-6901, ATTENTION: INVESTOR RELATIONS DEPARTMENT. TO OBTAIN
TIMELY DELIVERY OF THIS INFORMATION, SECURITY HOLDERS MUST REQUEST THE
INFORMATION NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE
EXCHANGE OFFER ON , 2004.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
About this Prospectus....................................... i
Forward-Looking Statements.................................. iii
Incorporation by Reference.................................. iv
Where You Can Find More Information......................... iv
Prospectus Summary.......................................... 1
Ratio of Earnings to Fixed Charges.......................... 13
Ratio of Combined Fixed Charges and Preference Dividends to
Earnings.................................................. 13
Risk Factors................................................ 19
Risks Related to the Series B Preferred Stock, the
Exchange Notes and this Exchange Offer................. 19
Risks Related to Our Business............................. 27
Use of Proceeds............................................. 30
Capitalization.............................................. 30
Ratio of Earnings to Fixed Charges.......................... 31
Ratio of Combined Fixed Charges and Preference Dividends to
Earnings.................................................. 31
Unaudited Pro Forma Condensed Consolidated Financial Data... 32
Selected Adjusted Historical Consolidated Financial
Information............................................... 38
Description of Indebtedness................................. 43
Description of Capital Stock................................ 46
The Exchange Offer.......................................... 50
Description of Series B Preferred Stock and Exchange
Notes..................................................... 58
Certain Material U.S. Federal Income Tax Considerations..... 98
Plan of Distribution........................................ 108
Legal Matters............................................... 109
Experts..................................................... 109
</Table>
------------------------------
ABOUT THIS PROSPECTUS
All references to "we," "us," "our," "SBS," "our company" or "the Company"
in this prospectus mean Spanish Broadcasting System, Inc., a Delaware
corporation, and all entities and subsidiaries owned or controlled by Spanish
Broadcasting System, Inc. and, if prior to 1994, refer to our predecessor parent
company Spanish Broadcasting System Inc., a New Jersey corporation.
We operate Web sites at www.spanishbroadcasting.com and www.lamusica.com.
The information on those Web sites is not a part of this prospectus.
Time brokerage agreement, or TBA, means an agreement under which a radio
station programmer agrees to purchase from a broadcast station licensee
substantially all of the broadcast time on a station, provides programming and
sells advertising during the purchased time, receives all the revenue derived
from advertising sold during the purchased time, pays certain expenses of the
station and performs other functions, with the licensee retaining responsibility
for ultimate control of the station in accordance with the Federal
Communications Commission (FCC) policies. A time brokerage agreement is also
known in the broadcast industry as a "local marketing agreement."
i
Unless otherwise indicated in this prospectus (except exhibits):
- references in this prospectus to the rank of a station among all the
radio stations within a market have been determined with reference to
all radio stations rated by Arbitron(R) within the applicable market
for the most recent survey period (Fall 2003) as reported by the
Arbitron(R) Company, Arbitron Radio Market Reports (copyright 2003).
Arbitron(R) does not rank radio stations. All references in this
prospectus to radio station rankings from Arbitron(R) Surveys reflect
our analysis of information published by Arbitron(R). When citing
Arbitron(R) Survey data, all references to the "United States" include
the 50 states, the District of Columbia and the Commonwealth of Puerto
Rico;
- all market revenue share and revenue rankings in this prospectus are
based on estimates for the calendar year 2003 contained in BIA
Research, Inc.'s Investing in Radio, 2003 Market Report;
- all references to Hispanic buying power in this prospectus are based
on the Arbitron(R) survey, Power of Hispanic Consumers (copyright 2003
Arbitron Inc.) and Accessories Magazine, March 2003;
- all references to Spanish-language advertising data in this prospectus
are based on Hispanic Business (copyright 1995 and 2002 Hispanic
Business Inc.);
- all references to the demographic statistics in this prospectus are
derived from BIA Research, Inc.'s Investing in Radio, 2003 Market
Report, Strategy Research Corporation, 2002 U.S. Hispanic Market
Report, U.S. Census Bureau Population Estimates for Puerto Rico, 2002,
and U.S. Census Bureau, Census 2000;
- morning drive-time is a broadcast time period (Monday through Friday 6
am to 10 am); and
- all references to "U.S. Hispanic", "Hispanic markets in the United
States" and similar phrases in this prospectus include Hispanics in
the United States and the Commonwealth of Puerto Rico.
Industry and market data used throughout this prospectus were obtained
through company research, surveys and studies conducted by third parties and
industry and general publications. We have not independently verified market and
industry data from third-party sources. While we believe this information is
reliable and market definitions are appropriate, neither this research, surveys
and studies nor these definitions have been verified by any independent sources.
Accordingly, we cannot assure you that such market and industry data are
accurate in all material respects.
The terms "station operating income," "station operating income margin,"
"broadcast cash flow," "broadcast cash flow margin," "Adjusted EBITDA" and
"Adjusted EBITDA margin" are non-Generally Accepted Accounting Principles (GAAP)
financial measures as defined by the Securities and Exchange Commission's
Regulation G and are used in various places in this prospectus and in documents
incorporated by reference. These non-GAAP financial measures should not be
construed as superior to GAAP financial measures. The GAAP financial measures
most directly comparable to each non-GAAP financial measure in this prospectus
and a reconciliation of the differences between each non-GAAP financial measure
and the comparable GAAP financial measure are included elsewhere in this
prospectus.
Station operating income (our former broadcast cash flow) consists of
reported GAAP operating income from continuing operations excluding corporate
expenses and depreciation and amortization. Station operating income replaces
our former broadcast cash flow (BCF) as the metric used by our management to
assess the performance of our stations. Although it is calculated in the same
manner as BCF, management believes that using the term "station operating
income" provides a more accurate description of the performance measure.
Station operating income margin consists of station operating income
divided by net revenue.
EBITDA consists of earnings before interest expense, interest income,
income taxes, depreciation and amortization of assets, gain or loss from
extinguishments of debt, discontinued operations and the cumulative effect of a
change in accounting principle. We calculate our EBITDA differently. Our
"EBITDA" is EBITDA as defined above but excluding other income or expense, or,
alternatively, GAAP operating income from continuing operations before
depreciation and amortization. To distinguish our calculation of EBITDA from
other possible meanings of EBITDA, for periods ending after March 31, 2003 and
going forward we changed
ii
references to "EBITDA" in our financial reports to the term "Adjusted EBITDA."
Although our "Adjusted EBITDA" and what we formerly referred to as our "EBITDA"
are calculated in the same manner, management believes "Adjusted EBITDA" is a
more accurate description.
Adjusted EBITDA margin consists of Adjusted EBITDA divided by net revenue.
Station operating income, station operating income margin, Adjusted EBITDA
and Adjusted EBITDA margin, as we define the terms, are not measures of
performance or liquidity calculated in accordance with GAAP and may not be
comparable to similarly titled measures employed by other companies. Although
station operating income, station operating income margin, Adjusted EBITDA and
Adjusted EBITDA margin are not measures of performance calculated in accordance
with GAAP, we believe that they are useful to an investor in evaluating an
investment in our securities because they are measures widely used in the
broadcast industry to evaluate a radio company's operating performance and are
used by management for internal budgeting purposes and to evaluate the
performance of our radio stations. However, station operating income, station
operating income margin, Adjusted EBITDA and Adjusted EBITDA margin should not
be considered in isolation or as substitutes for operating income, net income
(loss), cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as measures of liquidity or
profitability. Also, because they are not calculated in the same manner by all
companies, they may not be comparable to other similarly titled measures used by
other companies.
------------------------------
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are forward-
looking statements for purposes of federal and state securities laws including:
any projections of earnings, revenues or other financial items; any statements
of our plans, strategies and objectives for our future operations; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of these statements.
The words "believes," "anticipates," "expects," "estimates," "plans," "intends,"
and similar expressions are intended to identify forward-looking statements. All
forward-looking statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from projected results.
Factors that may cause these differences include, but are not limited to:
- our substantial level of debt will limit our ability to grow and
compete;
- the terms of our debt restrict us from engaging in many activities and
require us to satisfy various financial tests;
- we have experienced net losses in the past and to the extent that we
experience net losses in the future, our ability to raise capital
could be adversely affected, as well as the market prices of our
securities;
- loss of key personnel could adversely affect our business, including
Raul Alarcon, Jr., our Chairman of the Board of Directors, Chief
Executive Officer and President;
- we compete for advertising revenue with other radio groups as well as
television and other media, many operators of which have greater
resources than we do;
- we must be able to respond to rapidly changing technology, services
and standards which characterize our industry in order to remain
competitive;
- our business depends on maintaining our FCC licenses, which we cannot
assure you that we will be able to maintain; and
- a national or regional recession could depress our revenues or limit
our ability to increase our revenues.
All forward-looking statements included in this prospectus are based on
information available to us on the date of this prospectus. We undertake no
obligation to update or revise any forward-looking statement,
iii
whether as a result of new information, future events or otherwise. All
subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this prospectus.
We urge you to review carefully "Risk Factors" in this prospectus for a
more complete discussion of the risks of an investment in the Series B preferred
stock.
INCORPORATION BY REFERENCE
The following documents filed by us with the SEC under the Exchange Act are
incorporated in this prospectus:
- our Annual Report on Form 10-K for the fiscal year ended December 29,
2002;
- our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003, June 30, 2003 and September 30, 2003; and
- our Current Reports on Form 8-K, filed on April 17, 2003, June 10,
2003, September 25, 2003, October 9, 2003 and November 12, 2003
(except with respect to any Item 9 information).
All documents we file with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this prospectus and prior to
the termination of this exchange offer shall also be deemed to be incorporated
by reference into this prospectus and to be a part of this prospectus from the
date of filing of such documents. Any statement in this prospectus or in a
document incorporated or deemed to be incorporated in this prospectus by
reference shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference in
this prospectus modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
The information relating to us in this prospectus should be read together
with the information in the documents incorporated or deemed to be incorporated
by reference. In addition, some of the information, including financial
information, contained in this prospectus or incorporated or deemed to be
incorporated by reference into this prospectus by reference should be read in
conjunction with documents filed with the SEC by us.
We will provide, without charge, to each person to whom a copy of this
prospectus is delivered, upon request of such person, a copy of any documents
incorporated into this prospectus by reference other than exhibits unless such
exhibits are specifically incorporated by reference in the document that this
prospectus incorporates. Requests for such copies should be directed to us at
Spanish Broadcasting System, Inc., 2601 South Bayshore Drive, PH II, Coconut
Grove, Florida 33133, Attention: Joseph A. Garcia, Telephone: (305) 441-6901.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting and other information requirements of the
Exchange Act. We file reports and other information with the SEC. Such reports
and other information filed by us pursuant to the Exchange Act may be inspected
and copied at the public reference facility maintained by the SEC at 450 Fifth
Street, N.W., Washington D.C. 20549. Please call 1-800-SEC-0330 for further
information on the public reference room. The SEC maintains a site on the World
Wide Web containing reports, proxy materials, information statements and other
items. The address is http://www.sec.gov. Our reports, proxy materials,
information statements and other information can also be inspected and copied at
the offices of The Nasdaq Stock Market, on which our common stock is listed
(symbol: SBSA). You can find more information about us at our Internet website
located at www.spanishbroadcasting.com. Our annual report on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act are available free of charge on our Internet website
as soon as reasonably practicable after we electronically file such material
with, or furnish such material to, the SEC.
iv
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus or documents incorporated by reference in this prospectus. Because it
is a summary, it does not contain all the information that may be important to
you. Before making a decision to exchange your shares of Series A preferred
stock for registered shares of Series B preferred stock, you should read this
entire prospectus and the documents to which we have referred you under the
section "Where You Can Find More Information," including our financial
statements and data and the information set forth under the heading "Risk
Factors." All references to "we," "us," "our," "SBS," "our company" or "the
Company" in this prospectus mean Spanish Broadcasting System, Inc., a Delaware
corporation, and all entities and subsidiaries owned or controlled by Spanish
Broadcasting System, Inc. and, if prior to 1994, refer to our predecessor parent
company Spanish Broadcasting System Inc., a New Jersey corporation. The address
and telephone number of our principal executive offices is: 2601 South Bayshore
Drive, PH II, Coconut Grove, Florida 33133, (305) 441-6901.
As used in this prospectus, the term "Series A preferred stock" refers to
our unregistered 10 3/4% Series A cumulative exchangeable redeemable preferred
stock, and the term "Series B preferred stock" refers to our registered 10 3/4%
Series B cumulative exchangeable redeemable preferred stock. The term "exchange
notes" refers to our registered 10 3/4% subordinated exchange notes due 2013,
issuable in exchange for the shares of Series B preferred stock, the term
"unregistered exchange notes" refers to our unregistered 10 3/4% subordinated
exchange notes due 2013, issuable in exchange for the shares of Series A
preferred stock, and "existing 9 5/8% notes" refers to our registered 9 5/8%
senior subordinated notes due 2009.
OUR COMPANY
We are the largest Hispanic-controlled radio broadcasting company in the
United States. After giving effect to the proposed sale of our San Francisco
station, we own and operate 24 radio stations which reach approximately 43% of
the U.S. Hispanic population. Our stations are located in the top five Hispanic
markets in the United States: Los Angeles, New York, Puerto Rico, Miami and
Chicago. Los Angeles and New York have the largest and second largest Hispanic
populations, and are the largest and second largest radio markets in the United
Sates in terms of advertising revenue, respectively. Our top three markets,
based on net revenues, are New York, Los Angeles and Miami. In New York, we own
two of the three FM Spanish-language radio stations in that market, and believe
that we have the strongest franchise in our target demographic groups. Our
WSKQ-FM station in New York is ranked as both the number one Spanish language
and English language station among all demographic groups in the very important
morning drive category. Our Miami cluster of stations is ranked as the number
one Spanish-language FM radio group in all demographic groups. Our Los Angeles
cluster of stations is ranked as the number one Spanish-language FM radio group
in the attractive 18-34 demographic group.
MARKET OPPORTUNITY
We believe that our focus on formats targeting U.S. Hispanic audiences in
the largest Hispanic radio markets, together with our skill in programming and
marketing to these audiences, provide us with significant opportunity for the
following reasons:
- HISPANIC POPULATION GROWTH. The U.S. Hispanic population is the
largest minority group and the fastest growing segment of the U.S.
population, growing at approximately 7.3 times the rate of the
non-Hispanic U.S. population between 1996 and 2002.
- HISPANIC BUYING POWER. The U.S. Hispanic population accounted for
estimated buying power of $580.0 billion in 2002 and Hispanic buying
power is growing at nearly twice the annual rate of non-Hispanic
buying power. Hispanic buying power is expected to increase to $1.0
trillion by 2010, positioning this demographic as an extremely
attractive group for advertisers.
- GROWTH IN SPANISH LANGUAGE ADVERTISING SPENDING. In 2002, a total of
$2.5 billion was spent on Spanish-language media advertising, compared
to $1.1 billion in 1995. This represents a compound annual growth rate
of 12.8% over the past seven years.
1
We operate stations in each of the top five Hispanic radio markets in the
United States, including Puerto Rico:
TOP 5 HISPANIC MARKETS
<Table>
<Caption>
2003 TOTAL
% OF TOTAL % OF TOTAL ESTIMATED
HISPANIC POPULATION IN U.S. MARKET RADIO # OF OUR
POPULATION MKT. WHICH IS HISPANIC REVENUE STATIONS
RANK MARKET (000)(A) HISPANIC(A) POPULATION(A) ($MM)(B) OPERATED
1... Los Angeles 7,001 41% 17% $1,042 4
2... New York 3,971 19% 9% 824 2
3... Puerto Rico 3,813 99% 9% 100 11
4... Miami 1,719 41% 4% 288 3
5... Chicago 1,604 17% 4% 590 4
TOTAL FOR OUR
MARKETS 18,108 33% 43% $2,844 24
</Table>
- ------------
(a) Sources: Strategy Research Corporation, 2002 U.S. Hispanic Market Report;
U.S. Census Bureau Population Estimates for Puerto Rico, 2002; U.S. Census
Bureau, Census 2000
(b) Source: BIA Research Inc.'s Investing in Radio, 2003 Market Report
OUR STRATEGY
We focus on maximizing the revenue and profitability of our radio station
portfolio by strengthening the performance of our existing radio stations. We
also focus on long-term growth by continuously investing in advertising,
programming research and on-air talent. In addition, we have completed strategic
acquisitions and divestitures in order to achieve a significant presence with
clusters of stations in the top Hispanic markets.
Our operating strategy focuses on maximizing our radio stations' appeal to
our targeted audiences and advertisers while minimizing operating expenses in
order to increase revenue and cash flow. To achieve these goals, we focus on the
following:
FORMAT HIGH QUALITY PROGRAMMING. We format the programming of each of our
stations to capture a significant share of the Spanish-language audience. We use
market research, including third party consultants, in-house research and
periodic music testing, to assess listener preferences and the diverse groups in
the Hispanic population in each station's target demographic audience.
ATTRACT AND RETAIN STRONG LOCAL MANAGEMENT TEAMS. We employ local
management teams in each of our markets that are responsible for the day-to-day
operations of our radio stations. Because of the cultural diversity of the
Hispanic population from market to market in the United States, our stations are
staffed with managers who have experience in and knowledge of the local radio
market and/or the local Hispanic market.
UTILIZE FOCUSED SALES EFFORTS. To capture market share, our sales force
focuses on converting audience share into rate and revenue increases.
Strategically, we hire sales professionals who are experts at Hispanic and
general market advertising. We also value knowledgeable account managers skilled
at dealing directly with clients in the local market. Spanish-language radio is
uniquely positioned for national campaigns, regional marketing plans and local
promotions in our diverse markets. We believe that our focused sales efforts are
working to increase media spending targeted at the Hispanic consumer market and
will enable us to continue to achieve rate and revenue growth, and to narrow the
gap between the level of advertising currently targeted towards U.S. Hispanics
and the real and potential buying power of our communities.
CONTROL STATION OPERATING COSTS. We employ a disciplined approach to
operating our radio stations. We emphasize control of each station's operating
costs through detailed budgeting, tight control over staffing levels and
constant expense analysis. While local management is responsible for the
day-to-day operation of each station, corporate management is responsible for
long-term and strategic planning, establishing policies
2
and procedures, maximizing cost savings through centralized activity where
appropriate, allocating corporate resources and maintaining overall control of
the stations.
EFFECTIVE USE OF PROMOTIONS AND SPECIAL EVENTS. We use our expertise in
marketing to the Hispanic consumer in each of the markets in which we operate
stations to attract a large share of advertising revenue. We believe that
effective promotional efforts play a significant role in both adding new
listeners and increasing listener loyalty. We organize special promotional
appearances, such as station van appearances at client events, concerts and
tie-ins to major events, which form an important part of our marketing strategy.
MAINTAIN STRONG COMMUNITY INVOLVEMENT. We have been, and will continue to
be, actively involved in the local communities that we serve. Our radio stations
participate in numerous community programs, fund-raisers and activities
benefiting the local community and Hispanics abroad. Our stations and members of
our management have received numerous community service awards and
acknowledgments from governmental entities and community and philanthropic
organizations for their service. We believe that this involvement helps build
and maintain station awareness and listener loyalty.
RECENT DEVELOPMENTS
PROPOSED SALE
On October 2, 2003, we entered into an asset purchase agreement with 3
Point Media -- San Francisco, LLC ("Three Point Media") to sell the assets of
radio station KPTI-FM, serving the San Francisco, California market, for a cash
purchase price of $30.0 million. Three Point Media did not close under the asset
purchase agreement, and on February 3, 2004, we terminated the agreement. We are
currently considering other written offers to purchase the assets of radio
station KPTI-FM for a purchase price equal to the purchase price under the Three
Point Media asset purchase agreement. We intend to sell the assets of radio
station KPTI-FM; however, we cannot assure you that the sale will be completed.
ACQUISITIONS
San Antonio
On January 30, 2004, we completed the sale of the assets of radio stations
KLEY-FM and KSAH-AM, serving the San Antonio, Texas market, to Border Media
Partners, LLC ("Border Media") for a cash purchase price of $24.4 million. The
sale was made pursuant to the terms of our asset purchase agreement dated as of
September 18, 2003 with Border Media. The assets sold consisted of $12.8 million
of intangible assets and $0.6 million of property and equipment.
Los Angeles
On October 30, 2003, we completed the acquisition of the assets of radio
station KXOL-FM (formerly KFSG-FM), serving the Los Angeles, California market,
from the International Church of the FourSquare Gospel ("ICFG") at a cash
purchase price of $250.0 million plus the issuance to ICFG on February 8, 2002
of a warrant exercisable for an aggregate of 2,000,000 shares of our Class A
common stock at an exercise price of $10.50 per share. This warrant is
exercisable for a period of thirty-six months from the date of issuance after
which it will expire if not exercised. To date, this warrant has not been
exercised. We assigned the warrant a fair market value of approximately $8.9
million based on the Black-Scholes option pricing model in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation." The fair market value of
this warrant was recorded as an increase to intangible assets and additional
paid-in capital on the date of grant. Additionally, we paid $2.9 million in
broker's fees in connection with the KXOL-FM acquisition.
In addition to the FCC license of KXOL-FM, the assets acquired by us from
ICFG include certain radio transmission equipment and a fifty-year lease at a
rent of $1.00 per year for the KXOL-FM tower site, all of which were used by
ICFG for radio broadcasting and which we also intend to use for radio
broadcasting. The consideration for the acquisition of the assets of KXOL-FM was
determined through arm's-length negotiations between us and ICFG. On November 2,
2000, pursuant to the asset purchase agreement between
3
us and ICFG for the acquisition of the assets of KXOL-FM, we made a
non-refundable deposit of $5.0 million which was credited towards the $250.0
million cash purchase price at closing. Pursuant to amendments to the asset
purchase agreement, prior to the closing we made additional non-refundable
deposits toward the cash purchase price in the aggregate amount of $55.0 million
which were also credited towards the $250.0 million cash purchase price at
closing. Cash on hand was used to make all the non-refundable deposits toward
the cash purchase price. The remaining $190.0 million of the cash purchase price
was funded from (1) the proceeds of our private offering of $75,000,000 of
10 3/4% Series A cumulative exchangeable redeemable preferred stock which closed
on October 30, 2003 and (2) borrowings under senior secured credit facilities,
consisting of a $125.0 million term loan facility and a $10.0 million revolving
credit facility, which we entered into on October 30, 2003.
From April 30, 2001 until the closing of the acquisition, we broadcast our
programming over KXOL-FM pursuant to a time brokerage agreement with ICFG. ICFG
broadcast its programming over our radio stations KZAB-FM and KZBA-FM pursuant
to a time brokerage agreement with us from April 30, 2001 until February 28,
2003. Pursuant to the amended asset purchase agreement and amended time
brokerage agreements, we were required to issue additional warrants to ICFG from
the date that ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM
until the closing of the acquisition of KXOL-FM. On each of March 31, 2003,
April 30, 2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and
September 30, 2003, we granted ICFG a warrant exercisable for 100,000 shares (an
aggregate of 700,000 shares) of our Class A common stock at an exercise price of
$6.14, $7.67, $7.55, $8.08, $8.17, $7.74 and $8.49 per share, respectively. The
warrant issued on September 30, 2003 was the final warrant required under the
amended time brokerage agreement due to the closing of the acquisition of
KXOL-FM. We assigned each warrant a fair market value of approximately $0.3
million, $0.4 million, $0.4 million, $0.4 million, $0.4 million, $0.4 million
and $0.5 million, respectively, based on the Black-Scholes option pricing model
in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." The
fair market value of each warrant was recorded as a stock-based programming
expense on the respective date of grant. These warrants are exercisable for a
period of thirty-six months after the date of issuance after which they will
expire if not exercised.
PRIVATE OFFERING
On October 30, 2003, we completed a private offering of $75,000,000 of
10 3/4% Series A cumulative exchangeable redeemable preferred stock, par value
$.01 per share, with a liquidation preference of $1,000 per share, without a
specified maturity date. The initial purchasers in the private offering sold the
Series A preferred stock within the United States to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and outside the United
States to non-U.S. persons in reliance on Regulation S under the Securities Act.
SENIOR SECURED CREDIT FACILITIES
On October 30, 2003, we also entered into senior secured credit facilities
with Lehman Commercial Paper Inc. as syndication agent and administrative agent
and the several banks and other financial institutions or entities from time to
time a party to the credit agreement. The senior secured credit facilities
include a six-year $125.0 million term loan facility and a five-year $10.0
million revolving credit facility.
We used the net proceeds from the offering of our preferred stock, together
with most of the term loan facility, to fund the purchase of KXOL-FM. We are
obligated to repay a portion of the borrowings under the senior secured credit
facilities with a portion of the net proceeds we receive from the sale of our
San Antonio and San Francisco stations. The $10.0 million revolving credit
facility remains undrawn and may be used for working capital purposes, capital
needs and general corporate purposes.
The credit agreement contains a number of financial covenants which, among
other things, require us to maintain specified financial ratios and impose
certain limitations on us with respect to indebtedness, capital expenditures,
transactions with affiliates and consolidations and mergers, among other things.
4
SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange registered Series B preferred stock for the
outstanding shares of our Series A preferred stock. In order to exchange your
shares of Series A preferred stock, you must properly tender them. The following
is a brief summary of certain terms of this exchange offer. For a more complete
description of the terms of this exchange offer, see "The Exchange Offer" in
this prospectus.
Exchange Offer................ We will issue shares of registered Series B
preferred stock in exchange for shares of
Series A preferred stock.
Expiration Date............... This exchange offer will expire at 5:00 p.m.,
New York City time, on , 2004, unless
extended or earlier terminated.
Conditions to the Exchange
Offer......................... We will complete this exchange offer only if:
- the exchange offer does not violate
applicable law or any applicable
interpretation of the staff of the
Securities and Exchange Commission;
- no action or proceeding shall have been
instituted or threatened in any court or by
any governmental agency which might
materially impair our ability to proceed
with the exchange offer, and no material
adverse development shall have occurred in
any existing action or proceeding with
respect to us; and
- all governmental approvals shall have been
obtained, which approvals we deem necessary
for the consummation of the exchange offer.
Please refer to the section in this prospectus
entitled "The Exchange Offer -- Conditions to
the Exchange Offer."
Procedures for Tendering
Shares of Series A Preferred
Stock......................... To participate in this exchange offer, you must
complete, sign and date the letter of
transmittal accompanying this prospectus, or
its facsimile and transmit it, together with
delivery of your Series A preferred stock to be
exchanged and all other documents required by
the letter of transmittal, to Wachovia Bank,
N.A., as exchange agent, at its address
indicated in the letter of transmittal. In the
alternative, you can tender your shares of
Series A preferred stock by book-entry delivery
following the procedures described in this
prospectus. If your shares of Series A
preferred stock are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee, you should contact that
person promptly to tender your shares of Series
A preferred stock in this exchange offer. For
more information on tendering your Series A
preferred stock, please refer to the section in
this prospectus entitled "The Exchange
Offer -- Procedures for Tendering Shares of
Series A Preferred Stock."
Guaranteed Delivery
Procedures.................... If you wish to tender your shares of Series A
preferred stock and you cannot get the required
documents to the exchange agent on time, you
may tender your shares of Series A preferred
stock by using the guaranteed delivery
procedures described under the section of this
prospectus entitled "The Exchange
Offer -- Procedures for Tendering Shares of
Series A Preferred Stock -- Guaranteed Delivery
Procedure."
5
Withdrawal Rights............. You may withdraw the tender of your shares of
Series A preferred stock at any time before
5:00 p.m., New York City time, on the
expiration date of the exchange offer. To
withdraw, you must send a written or facsimile
transmission notice of withdrawal to the
exchange agent at its address indicated in the
letter of transmittal before 5:00 p.m., New
York City time, on the expiration date of the
exchange offer.
Acceptance of Shares of Series
A Preferred Stock and Delivery
of Series B Preferred Stock... If all the conditions to the completion of this
exchange offer are satisfied, we will accept
any and all shares of Series A preferred stock
that are properly tendered in this exchange
offer on or before 5:00 p.m., New York City
time, on the expiration date. We will return
any shares of Series A preferred stock that we
do not accept for exchange to you without
expense as promptly as practicable after the
expiration date. We will deliver the shares of
Series B preferred stock to you as promptly as
practicable after the expiration date and
acceptance of your shares of Series A preferred
stock for exchange. Please refer to the section
in this prospectus entitled "The Exchange
Offer -- Acceptance of the Shares of Series A
Preferred Stock for Exchange; Delivery of
Series B Preferred Stock."
Federal Income Tax
Considerations Relating to the
Exchange Offer................ Exchanging your shares of Series A preferred
stock for shares of Series B preferred stock
will not be a taxable event to you for United
States federal income tax purposes. Please
refer to the section of this prospectus
entitled "Certain Material U.S. Federal Income
Tax Considerations."
Exchange Agent................ Wachovia Bank, N.A. is serving as exchange
agent in connection with this exchange offer.
Fees and Expenses............. We will pay substantially all expenses related
to this exchange offer. Please refer to the
section of this prospectus entitled "The
Exchange Offer -- Fees and Expenses."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the shares of Series B preferred
stock. We are making this exchange offer to
satisfy some of our obligations under our
registration rights agreement dated October 30,
2003 with the initial purchasers of the Series
A preferred stock.
Consequences to Holders who do
not Participate in the
Exchange Offer................ If you do not participate in this exchange
offer:
- you will not necessarily be able to require
us to register your shares of Series A
preferred stock or, if issued, the
unregistered exchange notes under the
Securities Act; and
- you will not be able to resell, offer to
resell or otherwise transfer your shares of
Series A preferred stock or, if issued, the
unregistered exchange notes unless that
resale or transfer is registered under the
Securities Act or unless you resell, offer
to resell or otherwise transfer them under
an exemption from the
6
registration requirements of, or in a
transaction not subject to, the Securities
Act.
Please refer to the section in this prospectus
entitled "Risk Factors -- Risks Related to the
Series B Preferred Stock, the Exchange Notes
and this Exchange Offer."
Resales....................... If you are not an affiliate of SBS or a
broker-dealer, you may be able to resell the
shares of Series B preferred stock issued in
the exchange offer without compliance with the
registration and prospectus delivery provisions
of the Securities Act, subject to some
conditions. Each broker-dealer that receives
shares of Series B preferred stock for its own
account in exchange for the shares of Series A
preferred stock, where the shares of Series A
preferred stock were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of the shares of
Series B preferred stock. See "Risk Factors"
and "Plan of Distribution."
7
SUMMARY OF THE TERMS OF THE SERIES B PREFERRED STOCK
The terms of the Series B preferred stock are substantially the same as the
terms of the Series A preferred stock except that the Series B preferred stock:
- is registered under the Securities Act of 1933, as amended, and therefore
is freely transferable, subject to certain conditions;
- does not bear restrictive legends restricting its transfer under the
Securities Act;
- does not entitle holders to the registration rights that apply to the
Series A preferred stock; and
- does not contain provisions relating to additional dividends which become
payable in certain circumstances related to the timing of this exchange
offer.
The following is a brief summary of certain terms of the Series B preferred
stock. For a more complete description of the terms of the Series B preferred
stock and exchange notes into which the Series B preferred stock is
exchangeable, see "Description of Series B Preferred Stock and Exchange Notes"
in this prospectus.
ISSUER........................ Spanish Broadcasting System, Inc.
OFFERING...................... We are offering to exchange registered shares
of our Series B preferred stock for any and all
shares of our outstanding unregistered Series A
preferred stock.
NO MATURITY................... The Series B preferred stock has no maturity
date and we are not required to redeem the
Series B preferred stock. However, the Series B
preferred stock may be redeemed at our option
and at the option of the holders as described
below under "Optional Redemption" and
"Repurchase at the Option of Holder,"
respectively.
DIVIDEND...................... The holders of shares of Series B preferred
stock are entitled to receive cumulative
dividends at a rate of 10 3/4% per year of the
$1,000 liquidation preference per share. All
dividends will be cumulative from the date of
issuance of the Series B preferred stock and
will be payable quarterly in arrears on October
15, January 15, April 15 and July 15 of each
year. On or before October 15, 2008, we at our
option may pay dividends in cash or in
additional fully paid and non-assessable shares
of Series B preferred stock (including
fractional shares or, at our option, cash in
lieu of fractional shares) having an aggregate
liquidation preference equal to the amount of
such dividends. After October 15, 2008,
dividends may be paid only in cash. Our ability
to pay cash dividends is subject to, and will
be limited by the terms of our existing 9 5/8%
notes and our senior secured credit facilities.
LIQUIDATION PREFERENCE........ $1,000 per share, plus accumulated and unpaid
dividends.
VOTING RIGHTS................. The holders of shares of Series B preferred
stock have no voting rights with respect to
general corporate matters except as provided by
law or, in certain limited circumstances, as
set forth in the certificate of designations
creating the Series B preferred stock.
OPTIONAL REDEMPTION........... Except as described below, we may not redeem
shares of the Series B preferred stock prior to
October 15, 2008. On or after October 15, 2008,
at our option, we may redeem all or some of the
shares of Series B preferred stock at the
redemption prices
8
specified in this prospectus plus all
accumulated and unpaid dividends, if any, to
the date of redemption.
In addition, before October 15, 2006, we may,
at our option, but subject to certain
conditions, redeem up to 40% of the aggregate
liquidation preference of the Series B
preferred stock (whether initially issued or
issued in lieu of cash dividends), with the
proceeds of certain equity offerings at a
redemption price equal to 110.75% of the
aggregate liquidation preference thereof, plus
all accumulated and unpaid dividends to the
date of redemption; provided, however, that
after any such redemption, at least 60% of the
aggregate liquidation preference of the Series
B preferred stock (whether initially issued or
issued in lieu of cash dividends) remains
outstanding after the occurrence of such
redemption; and provided further that such
redemption occurs within 90 days of the closing
date of such equity offering.
REPURCHASE AT THE OPTION OF
HOLDER........................ On October 15, 2013, each holder of shares of
Series B preferred stock will have the right to
require us to redeem all or a portion of the
Series B preferred stock held by such holder at
a purchase price of 100% of the liquidation
preference thereof, plus all accumulated and
unpaid dividends to the date of repurchase.
CHANGE OF CONTROL............. If we experience specific kinds of changes of
control, subject to certain restrictions in our
debt instruments, we will be required to make
an offer to purchase the Series B preferred
stock for cash at a purchase price of 101% of
the liquidation preference, plus all
accumulated and unpaid dividends to the date of
repurchase.
RANKING....................... With respect to dividend rights and
distribution rights in the event of our
liquidation, winding up or dissolution, the
Series B preferred stock will rank (i) senior
to our common stock and senior to all other
classes of capital stock that we may issue in
the future which do not expressly provide that
such classes rank on parity with the Series B
preferred stock and (ii) subject to certain
conditions, on parity with the Series A
preferred stock or any other class of capital
stock established after the date of issuance of
the Series A preferred stock, the terms of
which expressly provide that such class or
series will rank on parity with the Series B
preferred stock.
Our creditors will have priority over the
Series B preferred stock with respect to claims
on our assets. As of September 30, 2003, we had
approximately $335.0 million principal amount
of our existing 9 5/8% notes outstanding. As of
September 30, 2003, after giving pro forma
effect to this exchange offer (which had no pro
forma effect), the offering of our Series A
preferred stock which closed on October 30,
2003, borrowings under our senior secured
credit facilities (which we entered into on
October 30, 2003), the completion of our
purchase of KXOL-FM on October 30, 2003, the
sale of our San Antonio stations which closed
on January 30, 2004 and the sale of our San
Francisco station as if each had occurred on
September 30, 2003, we would have approximately
$428.5 million of total debt ($438.5 million of
total debt outstanding less $10.0 million of
unamortized discount).
9
RESTRICTIVE COVENANTS......... The certificate of designations creating the
Series B preferred stock, among other things,
will restrict our ability and the ability of
our subsidiaries to:
- incur additional debt;
- redeem or repurchase securities ranking
junior to the Series B preferred stock;
- pay dividends or distributions on junior
securities or make other specified
restricted payments;
- enter into certain transactions with
affiliates;
- merge or consolidate with any other person
or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially
all of our assets.
However, all these limitations and prohibitions
are subject to a number of important
qualifications and exceptions.
SECURITY...................... None.
EXCHANGE FEATURE.............. On any scheduled dividend payment date prior to
October 15, 2013, at our option we may exchange
all but not less than all of the shares of the
Series B preferred stock then outstanding for
the exchange notes. Our ability to do this is
subject to, and will be limited by, the terms
of our existing 9 5/8% notes and our senior
secured credit facilities.
ABSENCE OF AN EXISTING PUBLIC
MARKET........................ We do not intend to apply for listing of the
shares of Series B preferred stock on any
securities exchange or for inclusion of the
Series B preferred stock in any automated
quotation system. The shares are expected to be
eligible for trading in the PORTAL(SM) Market.
FEDERAL INCOME TAX
CONSIDERATIONS RELATING TO THE
SERIES B PREFERRED STOCK...... For a discussion of certain United States
federal income tax consequences to holders of
the Series B preferred stock, please refer to
"Certain Material U.S. Federal Income Tax
Considerations" in this prospectus.
SUMMARY OF THE EXCHANGE NOTES
THE EXCHANGE NOTES............ In connection with this exchange offer, we are
registering 10 3/4% subordinated exchange notes
due 2013 issuable in exchange for the Series B
preferred stock in an aggregate principal
amount equal to the liquidation preference of
the Series B preferred stock exchanged, plus
accumulated and unpaid dividends to the date
fixed for the exchange, plus any additional
exchange notes issued from time to time in lieu
of cash interest.
MATURITY...................... The exchange notes, if issued, will mature on
October 15, 2013.
INTEREST...................... The exchange notes, if issued, will bear
interest at a rate of 10 3/4% per year, with
interest payable semi-annually in cash (or on
or prior to October 15, 2008, in additional
exchange notes, at our
10
option) in arrears on October 15 and April 15
of each year, commencing with the first such
date after the exchange date.
OPTIONAL REDEMPTION........... Except as described below, we may not redeem
the exchange notes prior to October 15, 2008.
On or after October 15, 2008, at our option, we
may redeem all or some of the exchange notes,
at the redemption prices specified in this
prospectus plus all accumulated and unpaid
interest, if any, to the date of redemption. In
addition, before October 15, 2006, we may, at
our option, but subject to certain conditions,
redeem up to 40% of the aggregate principal
amount of the exchange notes (whether issued in
exchange for shares of Series B preferred stock
or in lieu of cash interest payments) with the
proceeds of certain equity offerings at a
redemption price equal to 110.75% of the
principal amount of the exchange notes to be
redeemed, plus all accumulated and unpaid
interest, if any, to the date of redemption;
provided, however, that after any such
redemption, at least $45.0 million principal
amount of the exchange notes (whether initially
issued or issued in lieu of cash interest)
remains outstanding after the occurrence of
such redemption; and provided further that such
redemption occurs within 90 days of the closing
date of such equity offering.
CHANGE OF CONTROL............. If we experience specific kinds of changes of
control, subject to certain restrictions in our
debt instruments, we will be required to make
an offer to repurchase the exchange notes at a
price equal to 101% of their principal amount,
plus all accrued and unpaid interest, if any,
to the date of repurchase.
RANKING....................... The exchange notes, if issued, will be:
- our general unsecured obligations; and
- subordinated in right of payment to all of
our and our guarantor subsidiaries'
existing and future senior debt (including
our senior secured credit facilities and
our existing 9 5/8% notes).
As of September 30, 2003, we had approximately
$335.0 million principal amount of our existing
9 5/8% notes outstanding. As of September 30,
2003, after giving pro forma effect to this
exchange offer (which had no pro forma effect),
the offering of our Series A preferred stock
which closed on October 30, 2003, borrowings
under our senior secured credit facilities
(which we entered into on October 30, 2003) the
completion of our purchase of KXOL-FM on
October 30, 2003, the sale of our San Antonio
stations which closed on January 30, 2004, and
the sale of our San Francisco station as if
each had occurred on September 30, 2003, we
would have had approximately $428.5 million of
total debt ($438.5 million of total debt
outstanding less $10.0 million of unamortized
discount).
The terms of our existing 9 5/8% notes, the
senior secured credit facilities and the
exchange notes permit us to incur additional
indebtedness, subject to certain limitations.
GUARANTORS.................... The exchange notes, if issued, will be
unconditionally guaranteed on a subordinated
basis by certain of our current and future
11
subsidiaries. Our foreign subsidiaries created
or acquired after the date of the exchange
notes indenture, our single-purpose
subsidiaries created or acquired after the date
of the exchange notes indenture to hold one or
more of our broadcasting licenses, and our
subsidiaries that are not required to become
and are not guarantors of our existing 9 5/8%
notes will not be guarantors of these exchange
notes. If we cannot make payments on the
exchange notes when they are due, the
guarantors must make them after making prior
payment of all senior debt of the guarantors.
RESTRICTIVE COVENANTS......... We will issue the exchange notes under an
indenture among us, the guarantors and Wachovia
Bank, N.A., as trustee. The indenture, among
other things, will restrict our ability and the
ability of our subsidiaries to:
- incur additional debt;
- create liens;
- pay dividends, distributions or make other
specified restricted payments;
- allow restrictions on the ability of
certain subsidiaries to make distributions;
- sell assets and engage in asset swaps;
- enter into certain transactions with
affiliates;
- sell capital stock of our subsidiaries; and
- merge or consolidate with any other person
or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially
all of our assets.
However, all of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions.
RISK FACTORS
An investment in our Series B preferred stock involves a high degree of
risk. You should carefully consider the factors set forth in "Risk Factors," as
well as the other information set forth in this prospectus, before you decide to
exchange your shares of Series A preferred stock for shares of Series B
preferred stock.
12
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical consolidated ratio of
earnings to fixed charges for the periods indicated.
<Table>
<Caption>
THREE
MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED NINE MONTHS ENDED
- ------------------------------------------------------------- ------------ ------------ -----------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 30,
1998 1999 2000 2001 2001 2002 2002 2003
- ------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
0.73 0.39 -- -- -- 1.19 1.18 1.12
</Table>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings or loss from continuing operations before
income taxes and cumulative effect of a change in accounting principle and fixed
charges. Fixed charges are the sum of (1) interest costs, (2) amortization of
deferred financing costs and (3) one-third of operating lease rental expense
(deemed to be interest). Earnings were inadequate to cover fixed charges by
approximately $17.4 million and $11.3 million for fiscal years 2000 and 2001,
respectively. For the three months ended December 30, 2001, earnings were
inadequate to cover fixed charges by $1.9 million.
RATIO OF COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS TO EARNINGS
The following table sets forth our historical consolidated ratio of
combined fixed charges and preference dividends to earnings for the periods
indicated.
<Table>
<Caption>
THREE
MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED NINE MONTHS ENDED
- ------------------------------------------------------------- ------------ ------------ -----------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 30,
1998 1999 2000 2001 2001 2002 2002 2003
- ------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
1.36 2.54 25.86 1.56 1.29 0.84 0.84 0.89
</Table>
For the purpose of calculating the ratio of combined fixed charges and
preference dividends to earnings, fixed charges are defined as the sum of (1)
interest costs, (2) amortization of deferred financing costs and (3) one-third
of operating lease rental expense (deemed interest). Preference dividends are
defined as pre-tax dividends on preferred stock. Earnings are defined as
earnings or loss from continuing operations before income taxes and cumulative
effect of a change in accounting principle and fixed charges. Earnings were
inadequate to cover combined fixed charges and preference dividends by
approximately $20.0 million, $50.3 million, $63.2 million and $11.3 million for
fiscal years 1998, 1999, 2000 and 2001, respectively. For the three months ended
December 30, 2001, earnings were inadequate to cover combined fixed charges and
preference dividends by $1.9 million.
13
SELECTED ADJUSTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected adjusted historical consolidated financial information as of
and for the fiscal years ended September 27, 1998, September 26, 1999, September
24, 2000 and September 30, 2001, the three-month transitional period ended
December 30, 2001 and the fiscal year ended December 29, 2002, have been derived
from our historical consolidated financial statements, which have been adjusted
for the items discussed below. The summary historical financial data as of and
for the nine months ended September 29, 2002 and September 30, 2003 have been
derived from our unaudited consolidated financial statements as of and for the
nine months ended September 29, 2002 and September 30, 2003, which have been
prepared on a basis consistent with our annual consolidated financial
statements. The following historical consolidated financial information has been
adjusted to reflect the sale of radio stations KLEY-FM and KSAH-AM, serving the
San Antonio, Texas market, and the proposed sale of radio station KPTI-FM,
serving the San Francisco, California market, as discontinued operations in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". In addition, our historical financial data for fiscal years
ending September 27, 1998, September 24, 2000 and September 30, 2001 have been
adjusted to reflect the adoption of SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The adoption of SFAS No. 145 will require our extraordinary loss
recognized on the extinguishments of debt in 1998, 2000 and 2001 to be
reclassified to income or loss from continuing operations before income taxes,
discontinued operations and the cumulative effect of a change in accounting
principle in the consolidated financial statements for the year ended December
31, 2003. In the opinion of our management, the unaudited financial data
reflects all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the results for those periods. The results
of operations for the nine months ended September 30, 2003, are not necessarily
indicative of the results to be expected for the full year or any future period.
Effective November 6, 2001, we changed our fiscal year end from the last Sunday
in September of each calendar year to the last Sunday in December of each
calendar year. Effective December 30, 2002, we again changed our year end from a
broadcast calendar 52-53-week fiscal year ending on the last Sunday in December
to a calendar year ending on December 31. Financial results for December 30 and
31, 2002 are included in our financial results for the nine months ended
September 30, 2003. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
contained in our Annual Report on Form 10-K for the fiscal year ended December
29, 2002, and our Quarterly Report on Form 10-Q for the nine month period ended
September 30, 2003, which are incorporated by reference within this prospectus.
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
STATEMENT OF OPERATIONS
DATA:
Gross revenue (1)........... $ 86,399 $108,487 $ 135,301 $142,781 $ 36,106 $154,472
Less: agency commissions.... 10,588 12,980 17,540 17,314 4,337 18,784
-------- -------- --------- -------- -------- --------
Net revenue (1)............. $ 75,811 $ 95,507 $ 117,761 $125,467 $ 31,769 135,688
Station operating expenses
(1)(2).................... 38,889 42,297 53,206 76,277 19,447 77,779
Stock based programming
expense (3)............... -- -- -- -- -- --
Corporate expenses.......... 6,893 10,636 20,730 10,515 2,387 13,546
Depreciation and
amortization.............. 8,768 9,623 12,828 16,750 4,275 2,871
-------- -------- --------- -------- -------- --------
Operating income from
continuing operations..... $ 21,261 $ 32,951 $ 30,997 $ 21,925 $ 5,660 $ 41,492
Interest expense, net (4)... (20,860) (21,181) (19,538) (30,643) (8,212) (34,146)
Other income (expense),
net....................... (213) (749) (302) 497 650 (720)
Loss on extinguishment of
debt (5).................. (2,688) -- (28,585) (3,063) -- --
Gain on sale of AM
stations.................. 36,242 -- -- -- -- --
-------- -------- --------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes,
discontinued operations
and cumulative effect of
a change in accounting
principle............... $ 33,742 $ 11,021 $ (17,428) $(11,284) $ (1,902) $ 6,626
Income tax expense
(benefit)................. 14,727 4,776 (6,634) (4,307) (686) 53,094
-------- -------- --------- -------- -------- --------
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
STATEMENT OF OPERATIONS
DATA:
Gross revenue (1)........... $114,915 $115,268
Less: agency commissions.... 13,710 15,110
-------- --------
Net revenue (1)............. $101,205 $100,158
Station operating expenses
(1)(2).................... 59,089 54,741
Stock based programming
expense (3)............... -- 2,943
Corporate expenses.......... 9,559 13,751
Depreciation and
amortization.............. 2,102 2,117
-------- --------
Operating income from
continuing operations..... $ 30,455 $ 26,606
Interest expense, net (4)... (25,775) (26,256)
Other income (expense),
net....................... 200 2,866
Loss on extinguishment of
debt (5).................. -- --
Gain on sale of AM
stations.................. -- --
-------- --------
Income (loss) from
continuing operations
before income taxes,
discontinued operations
and cumulative effect of
a change in accounting
principle............... $ 4,880 $ 3,216
Income tax expense
(benefit)................. 49,242 5,287
-------- --------
</Table>
14
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
Income (loss) from
continuing operations
before discontinued
operations and cumulative
effect of a change in
accounting principle...... $ 19,015 $ 6,245 $ (10,794) $ (6,977) $ (1,216) $(46,468)
Discontinued operations, net
of income taxes (6)....... (230) (428) 188 (611) (11) 1,910
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. -- -- -- -- -- (45,288)
-------- -------- --------- -------- -------- --------
Net income (loss)........... $ 18,785 $ 5,817 $ (10,606) $ (7,588) $ (1,227) $(89,846)
======== ======== ========= ======== ======== ========
Dividends on preferred
stock..................... $(30,270) $(34,749) $ (28,372) $ -- $ -- $ --
-------- -------- --------- -------- -------- --------
Net loss applicable to
common stock.............. $(11,485) $(28,932) $ (38,978) $ (7,588) $ (1,227) $(89,846)
======== ======== ========= ======== ======== ========
Dividends per share on
common stock.............. $ 0.11 $ -- $ -- $ -- $ -- $ --
======== ======== ========= ======== ======== ========
Loss per common share:
Basic and diluted (before
discontinued operations
and cumulative effect of
a change in accounting
principle).............. $ (0.37) $ (0.85) $ (0.68) $ (0.11) $ (0.02) $ (0.72)
Basic and diluted......... $ (0.38) $ (0.86) $ (0.68) $ (0.12) $ (0.02) $ (1.39)
Weighted average common
shares outstanding (8):
Basic and diluted......... 30,333 33,585 58,163 64,096 64,658 64,670
OTHER FINANCIAL DATA:
Station operating income
(9)....................... $ 36,922 $ 53,210 $ 64,555 $ 49,190 $ 12,322 $ 57,909
Station operating income
margin (9)................ 49% 56% 55% 39% 39% 43%
Adjusted EBITDA (9)......... $ 30,029 $ 42,574 $ 43,825 $ 38,675 $ 9,935 $ 44,363
Adjusted EBITDA margin
(9)....................... 40% 45% 37% 31% 31% 33%
Capital expenditures........ $ 1,645 $ 2,100 $ 3,793 $ 5,595 $ 830 $ 3,994
Net cash provided by (used
in) operating
activities................ $ 10,923 $ 20,782 $ 28,672 $ 17,023 $ (7,377) $ 10,666
Net cash provided by (used
in) investing
activities................ $ 32,190 $(38,384) $(205,050) $(35,181) $ (837) $ 9,265
Net cash provided by (used
in) financing
activities................ $(17,758) $ (3,065) $ 218,962 $ 18,499 $ (46) $ (141)
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents... $ 37,642 $ 16,975 $ 59,559 $ 59,900 $ 51,640 $ 71,430
Total assets................ $351,034 $365,681 $ 634,691 $700,178 $687,078 $635,284
Total debt (including
current portion).......... $171,126 $172,486 $ 304,664 $327,452 $327,631 $328,310
Preferred stock $201,368 $235,918 $ -- $ -- $ -- $ --
Total stockholders'
(deficiency) equity....... $(46,193) $(75,122) $ 274,465 $309,426 $308,199 $227,425
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
Income (loss) from
continuing operations
before discontinued
operations and cumulative
effect of a change in
accounting principle...... $(44,362) $ (2,071)
Discontinued operations, net
of income taxes (6)....... 1,906 (340)
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. (45,288) --
-------- --------
Net income (loss)........... $(87,744) $ (2,411)
======== ========
Dividends on preferred
stock..................... $ -- $ --
-------- --------
Net loss applicable to
common stock.............. $(87,744) $ (2,411)
======== ========
Dividends per share on
common stock.............. $ -- $ --
======== ========
Loss per common share:
Basic and diluted (before
discontinued operations
and cumulative effect of
a change in accounting
principle).............. $ (0.69) $ (0.03)
Basic and diluted......... $ (1.36) $ (0.04)
Weighted average common
shares outstanding (8):
Basic and diluted......... 64,699 64,683
OTHER FINANCIAL DATA:
Station operating income
(9)....................... $ 42,116 $ 42,474
Station operating income
margin (9)................ 42% 42%
Adjusted EBITDA (9)......... $ 32,557 $ 29,723
Adjusted EBITDA margin
(9)....................... 32% 29%
Capital expenditures........ $ 2,890 $ 2,513
Net cash provided by (used
in) operating
activities................ $ 18,895 $ 15,432
Net cash provided by (used
in) investing
activities................ $ 10,423 $(39,513)
Net cash provided by (used
in) financing
activities................ $ (140) $ (745)
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents... $ 80,818 $ 46,604
Total assets................ $643,098 $650,120
Total debt (including
current portion).......... $328,106 $328,962
Preferred stock $ -- $ --
Total stockholders'
(deficiency) equity....... $229,478 $227,981
</Table>
15
- ---------------
(1) Included are revenue and expenses related to a two-year AOL Time Warner
barter agreement which concluded in August 2002. These results are
non-recurring and had a significant non-cash impact for the periods:
<Table>
<Caption>
IMPACT ON
------------------------------------
REVENUE EXPENSE ADJUSTED EBITDA
------- -------- ---------------
($ IN THOUSANDS)
(a) Fiscal year ended September 24, 2000................ $ 504 $ (668) $(164)
(b) Fiscal year ended September 30, 2001................. 10,409 (10,234) 175
(c) Three months ended December 30, 2001................ 2,437 (2,433) 4
(d) Fiscal year ended December 29, 2002.................. 6,351 (6,366) (15)
(e) Nine months ended September 29, 2002................ 6,351 (6,366) (15)
(f) Nine months ended September 30, 2003................ -- -- --
</Table>
(2) Station operating expenses include engineering, programming, selling and
general and administrative expenses, but exclude stock-based programming
expenses.
(3) We were required to issue additional warrants to ICFG from the date that
ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM until the
closing of the acquisition of KXOL-FM. On each of March 31, 2003, April 30,
2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and
September 30, 2003, we granted ICFG a warrant exercisable for 100,000
shares (an aggregate of 700,000 shares) of our Class A common stock at an
exercise price of $6.14, $7.67, $7.55, $8.08, $8.17, $7.74 and $8.49 per
share, respectively. The warrant issued on September 30, 2003 was the final
warrant required under the amended time brokerage agreement due to the
closing of the acquisition of KXOL-FM. We assigned each warrant a fair
market value of approximately $0.3 million, $0.4 million, $0.4 million,
$0.4 million, $0.4 million, $0.4 million and $0.5 million, respectively,
based on the Black-Scholes option pricing model in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The fair market value of
each warrant was recorded as a stock-based programming expense on the
respective date of grant.
(4) Interest expense, net includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(5) In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers" and FASB Statement No. 64, "Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements." SFAS No. 145 amends FASB No. 13,
"Accounting for Leases" and other existing authoritative pronouncements to
make various technical corrections and clarify meanings, or describes their
applicability under changed conditions. The adoption of SFAS No. 145
required our extraordinary loss recognized on the extinguishments of debt
in 1998, 2000 and 2001 to be reclassified to income or loss from continuing
operations before income taxes, discontinued operations and the cumulative
effect of a change in accounting principle.
For the fiscal year ended September 27, 1998, we recorded an extraordinary
loss of $1.6 million resulting from the repurchase of $13.2 million par
value of our 12 1/2% senior unsecured notes due 2002, at a premium of
approximately $2.2 million in excess of their carrying value and from the
write-off of the related unamortized deferred financing costs of
approximately $0.5 million, net of the related tax benefit of approximately
$1.1 million. This extraordinary loss was reclassified to a loss on
extinguishment of debt due to the adoption of SFAS No. 145.
For the fiscal year ended September 24, 2000, we recorded an extraordinary
loss of $17.2 million related to the early retirement of our 11% senior
unsecured notes due 2004 and 12 1/2% senior unsecured notes due 2002, at a
premium of approximately $23.1 million in excess of their carrying value
and from the write-off of the related unamortized deferred financing costs
of approximately $5.5 million, net of the related tax benefit of
approximately $11.4 million. This extraordinary loss was reclassified to a
loss on extinguishment of debt due to the adoption of SFAS No. 145.
For the fiscal year ended September 30, 2001, we repaid $66.2 million of
the outstanding indebtedness and accrued interest under our senior credit
facility, which we then terminated. We recorded an extraordinary loss of
approximately $1.9 million, net of the related tax benefit of approximately
$1.2 million, which relates to the write-
16
off of the related unamortized deferred financing costs. This extraordinary
loss was reclassified to a loss on extinguishment of debt due to the
adoption of SFAS No. 145.
(6) On October 2, 2003, we entered into an asset purchase agreement with 3
Point Media -- San Francisco, LLC ("Three Point Media") to sell the assets
of radio station KPTI-FM, serving the San Francisco, California market, for
a cash purchase price of $30.0 million (the "San Francisco Asset Purchase
Agreement"). Additionally, on September 18, 2003, we entered into an asset
purchase agreement with Border Media Partners, LLC to sell the assets of
radio stations KLEY-FM and KSAH-AM, serving the San Antonio, Texas market,
for a cash purchase of $24.4 million. On September 30, 2003, these
stations' assets held for sale consisted of $26.3 million of intangible
assets and $0.9 million of property and equipment. Three Point Media did
not close under the San Francisco Asset Purchase Agreement, and on February
3, 2004, we terminated the agreement. We are currently considering other
written offers to purchase the assets of our San Francisco station for a
purchase price equal to the purchase price under the San Francisco Asset
Purchase Agreement. We intend to sell the assets of our San Francisco
station; however, we cannot assure you that the sale will be completed. We
completed the sale of the assets of our San Antonio stations on January 30,
2004.
On August 23, 2002, we sold for $35.0 million KTCY-FM's assets held for
sale consisting of intangible assets and property and equipment. We
recognized a gain of approximately $1.8 million, net of closing costs and
taxes.
On December 31, 2001, the Company adopted the provisions of SFAS 144
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Under SFAS 144, discontinued businesses or
assets held for sale are removed from the results of continuing operations.
The Company determined that the proposed sale of KPTI-FM serving San
Francisco, California, as well as the sales of KLEY-FM and KSAH-AM serving
San Antonio, Texas and KTCY-FM serving Dallas, Texas met the criteria in
accordance with SFAS 144. The results of operations in the current year and
prior year periods of these stations have been classified as discontinued
operations in the selected historical consolidated statements of
operations.
(7) In July 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No.
142. We have concluded that our intangible assets, comprised primarily of
FCC licenses, qualify as indefinite-life intangible assets under SFAS No.
142.
After performing the transitional impairment evaluation of our
indefinite-life intangible assets, we determined that the carrying value of
certain indefinite-life intangible assets exceeded their respective fair
market values.
As a result of adopting SFAS No. 142 in the fiscal year ended December 29,
2002, we recorded a non-cash charge for the cumulative effect of a change
in accounting principle of $45.3 million, net of income tax benefit of
$30.2 million.
(8) On September 29, 1999, we filed a third amended and restated certificate of
incorporation which resulted in (1) the redesignation of our previously
outstanding shares of Class A common stock into shares of Class B common
stock, (2) a 50-to-1 stock split of our Class B common stock, and (3) a
reduction in the par value of our Class A common stock and Class B common
stock from $0.01 per share to $0.0001 per share. The financial information
has been restated to reflect this redesignation, stock split and change in
par value.
(9) "Station operating income," "station operating income margin," "broadcast
cash flow," "broadcast cash flow margin," "Adjusted EBITDA" and "Adjusted
EBITDA margin" are non-GAAP financial measures as defined by the Securities
and Exchange Commission's Regulation G. These non-GAAP financial measures
should not be construed as superior to GAAP financial measures. The GAAP
financial measures most directly comparable to each non-GAAP financial
measure and a reconciliation of the differences between each non-GAAP
financial measure and the comparable GAAP financial measure are included on
page 18.
The term "station operating income" (our former broadcast cash flow or
"BCF") is defined as GAAP operating income from continuing operations
excluding corporate expenses and depreciation and amortization. Station
operating income replaces our former BCF as the metric used by our
management to assess the performance of our stations. Although it is
calculated in the same manner as BCF, management believes that using the
term "station operating income" provides a more accurate description of the
performance measure.
The term "station operating income margin" consists of station operating
income divided by net revenue.
EBITDA consists of earnings before interest expense, interest income,
income taxes, depreciation and amortization of assets, gain or loss from
extinguishments of debt, discontinued operations and the cumulative effect
of a change
17
in accounting principle. We calculate our EBITDA differently. Our "EBITDA"
is EBITDA as defined above but excluding other income or expense, or,
alternatively, GAAP operating income from continuing operations before
depreciation and amortization. To distinguish our calculation of EBITDA
from other possible meanings of EBITDA, for periods ending after March 31,
2003 and going forward we changed references to "EBITDA" in our financial
reports to the term "Adjusted EBITDA." Although our "Adjusted EBITDA" and
what we formerly referred to as our "EBITDA" are calculated in the same
manner, management believes "Adjusted EBITDA" is a more accurate
description.
The term "Adjusted EBITDA margin" consists of Adjusted EBITDA divided by
net revenue.
Station operating income, station operating income margin, Adjusted EBITDA
and Adjusted EBITDA margin, as we define the terms, are not measures of
performance or liquidity calculated in accordance with GAAP and may not be
comparable to similarly titled measures employed by other companies.
Although station operating income, station operating income margin,
Adjusted EBITDA and Adjusted EBITDA margin are not measures of performance
calculated in accordance with GAAP, we believe that they are useful to an
investor in evaluating an investment in our securities because they are
measures widely used in the broadcast industry to evaluate a radio
company's operating performance and are used by management for internal
budgeting purposes and to evaluate the performance of our radio stations.
However, station operating income, station operating income margin,
Adjusted EBITDA and Adjusted EBITDA margin should not be considered in
isolation or as substitutes for operating income, net income (loss), cash
flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as measures of liquidity or
profitability. Also, because they are not calculated in the same manner by
all companies, they may not be comparable to other similarly titled
measures used by other companies.
RECONCILIATION BETWEEN ADJUSTED HISTORICAL GAAP RESULTS AND NON-GAAP PRO FORMA
RESULTS
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
Net revenue (1)............. $ 75,811 $ 95,507 $117,761 $125,467 $31,769 $135,688
Station operating expenses
(2)....................... 38,889 42,297 53,206 76,277 19,447 77,779
Stock based programming
expense (3)............... -- -- -- -- -- --
-------- -------- -------- -------- ------- --------
Station operating income
(9)....................... $ 36,922 $ 53,210 $ 64,555 $ 49,190 $12,322 $ 57,909
Corporate expenses.......... 6,893 10,636 20,730 10,515 2,387 13,546
-------- -------- -------- -------- ------- --------
Adjusted EBITDA (9)......... $ 30,029 $ 42,574 $ 43,825 $ 38,675 $ 9,935 $ 44,363
Depreciation and
amortization.............. 8,768 9,623 12,828 16,750 4,275 2,871
-------- -------- -------- -------- ------- --------
Operating income from
continuing operations..... $ 21,261 $ 32,951 $ 30,997 $ 21,925 $ 5,660 $ 41,492
Interest expense, net (4)... (20,860) (21,181) (19,538) (30,643) (8,212) (34,146)
Other income (expense),
net....................... (213) (749) (302) 497 650 (720)
Loss on extinguishment of
debt (5).................. (2,688) -- (28,585) (3,063) -- --
Gain on sale of AM
stations.................. 36,242 -- -- -- -- --
Income tax expense
(benefit)................. 14,727 4,776 (6,634) (4,307) (686) 53,094
Discontinued operations, net
of income taxes (6)....... (230) (428) 188 (611) (11) 1,910
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. -- -- -- -- -- (45,288)
-------- -------- -------- -------- ------- --------
Net income (loss)......... $ 18,785 $ 5,817 $(10,606) $ (7,588) $(1,227) $(89,846)
======== ======== ======== ======== ======= ========
Dividends on preferred
stock..................... $(30,270) $(34,749) $(28,372) $ -- $ -- $ --
-------- -------- -------- -------- ------- --------
Net loss applicable to
common stock.............. $(11,485) $(28,932) $(38,978) $ (7,588) $(1,227) $(89,846)
======== ======== ======== ======== ======= ========
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
Net revenue (1)............. $101,205 $100,158
Station operating expenses
(2)....................... 59,089 54,741
Stock based programming
expense (3)............... -- 2,943
-------- --------
Station operating income
(9)....................... $ 42,116 $ 42,474
Corporate expenses.......... 9,559 13,751
-------- --------
Adjusted EBITDA (9)......... $ 32,557 $ 28,723
Depreciation and
amortization.............. 2,102 2,117
-------- --------
Operating income from
continuing operations..... $ 30,455 $ 26,606
Interest expense, net (4)... (25,775) (26,256)
Other income (expense),
net....................... 200 2,866
Loss on extinguishment of
debt (5).................. -- --
Gain on sale of AM
stations.................. -- --
Income tax expense
(benefit)................. 49,242 5,287
Discontinued operations, net
of income taxes (6)....... 1,906 (340)
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. (45,288) --
-------- --------
Net income (loss)......... $(87,744) $ (2,411)
======== ========
Dividends on preferred
stock..................... $ -- $ --
-------- --------
Net loss applicable to
common stock.............. $(87,744) $ (2,411)
======== ========
</Table>
Notes begin on page 16.
18
RISK FACTORS
An investment in our Series B preferred stock involves a high degree of
risk. You should carefully consider the risk factors set forth below, as well as
the other information contained in this prospectus, before you decide to
exchange your shares of Series A preferred stock for shares of Series B
preferred stock. The risks described below are not the only risks we face.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially adversely affect our
business, financial condition or results of operations. Any of the following
risks could materially adversely affect our business, financial condition or
results of operations. References in the following risk factors to exchange
notes assume the exchange of the Series B preferred stock into exchange notes.
RISK RELATED TO THE SERIES B PREFERRED STOCK, THE EXCHANGE NOTES AND THIS
EXCHANGE OFFER
THERE IS NO ESTABLISHED TRADING MARKET FOR OUR SERIES B PREFERRED STOCK.
The Series B preferred stock is a new security for which there currently is
no market. We do not intend to apply for listing of the Series B preferred stock
on any securities exchange or for inclusion in any automated quotation system.
However, we expect that the Series B preferred stock will be eligible for
trading in the PORTAL(SM) market of the National Association of Securities
Dealers, Inc. Accordingly, we cannot assure you as to the development or
liquidity of any market for the Series B preferred stock. If a market for the
Series B preferred stock were to develop, it could trade at prices that may
fluctuate depending upon many factors, including our operating results, the
markets for similar securities and other factors beyond our control, including
general economic and market conditions. Historically and recently, the market
for preferred stock has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Series B preferred stock.
We cannot assure you that, if a market for the Series B preferred stock were to
develop, the market would not be subject to similar disruptions.
IF YOU DO NOT PROPERLY EXCHANGE YOUR SHARES OF SERIES A PREFERRED STOCK FOR
SHARES OF SERIES B PREFERRED STOCK, YOU WILL CONTINUE TO HOLD UNREGISTERED
SHARES OF SERIES A PREFERRED STOCK AND YOUR ABILITY TO TRANSFER THE SHARES OF
SERIES A PREFERRED STOCK WILL BE ADVERSELY AFFECTED. IN ADDITION, YOU MAY NOT BE
ABLE TO REQUIRE US TO REGISTER YOUR UNREGISTERED EXCHANGE NOTES, IF ISSUED.
We will only issue shares of Series B preferred stock in exchange for
shares of Series A preferred stock that are timely received by the exchange
agent together with all required documents, including a properly completed and
signed letter of transmittal. Therefore, you should allow sufficient time to
ensure timely delivery of the Series A preferred stock and you should carefully
follow the instructions on how to tender your shares of Series A preferred
stock. Neither we nor the exchange agent is required to tell you of any defects
or irregularities with respect to your tender of shares of Series A preferred
stock. If you do not tender your shares of Series A preferred stock properly,
then, after we consummate the exchange offer, you will continue to hold shares
of Series A preferred stock that are subject to the existing transfer
restrictions which generally provide that the shares of Series A preferred stock
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom. In
addition, if you tender your shares of Series A preferred stock for the purpose
of participating in a distribution of the shares of Series B preferred stock,
you will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Series B
preferred stock. If you are a broker-dealer that receives shares of Series B
preferred stock for your own account in exchange for shares of Series A
preferred stock that you acquired as a result of market-making activities or any
other trading activities, you will be required to deliver a prospectus in
connection with any resale of such shares of Series B preferred stock and if you
are an affiliate of ours that participates in the exchange offer, you will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable. After the exchange offer is
consummated, if you continue to hold any shares of Series A preferred stock, you
may have difficulty selling them because there may only be a small amount of
Series A preferred stock outstanding. In addition, if a large number of shares
of Series A preferred stock is not tendered or is tendered improperly, the
limited number of shares of Series B preferred stock that would
19
be issued and outstanding after we consummate the exchange offer could lower the
market price of such Series B preferred stock.
In addition, if you do not properly exchange your shares of Series A
preferred stock, you will continue to hold unregistered Series A preferred stock
that is exchangeable by us into unregistered exchange notes. You may not be able
to require us to register your unregistered exchange notes, if issued, under the
Securities Act. You will not be able to resell, offer to resell or otherwise
transfer your unregistered exchange notes, if issued, unless the resale or
transfer is registered under the Securities Act or unless you resell, offer to
resell or otherwise transfer your unregistered exchange notes under an exemption
from the registration requirements of, or in a transaction not subject to, the
Securities Act.
OUR SUBSTANTIAL AMOUNT OF DEBT COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE SERIES B PREFERRED STOCK
AND THE EXCHANGE NOTES.
Our consolidated debt is substantial and we are highly leveraged, which
could adversely affect our financial condition, prevent us from fulfilling our
obligations relating to the Series B preferred stock and exchange notes and
limit our ability to grow and compete. At September 30, 2003, we had $329.0
million of total long-term debt ($339.0 million of total long-term debt less
$10.0 million of unamortized discount). At September 30, 2003, our ratio of
total debt to last twelve months Adjusted EBITDA was 7.9 to 1.0. After giving
pro forma effect to this exchange offer (which had no pro forma effect), the
offering of our Series A preferred stock which closed on October 30, 2003,
borrowings under our senior secured credit facilities (which we entered into on
October 30, 2003), the completion of our purchase of KXOL-FM on October 30,
2003, the sale of our San Antonio stations which closed on January 30, 2004 and
the sale of our San Francisco station as if each had occurred on September 30,
2003 for balance sheet purposes and September 30, 2002 for statement of
operations purposes, as of September 30, 2003 we would have approximately $428.5
million of total debt ($438.5 million of total debt outstanding less $10.0
million of unamortized discount) and a ratio of total debt to last twelve months
Adjusted EBITDA of 10.3 to 1.0.
Our substantial level of debt could have several important consequences to
the holders of our securities, including the following:
- it may be more difficult for us to satisfy our obligations relating to
the Series B preferred stock and exchange notes (for example, we may
not be able to pay cash dividends and interest, respectively, or
repurchase the Series B preferred stock when and if we are required to
do so);
- a significant portion of our cash flow from operations will be
dedicated to servicing our debt obligations and will not be available
for operations, future business opportunities or other purposes;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate or
other purposes will be limited;
- our substantial debt could make us more vulnerable to economic
downturns and increases in interest rates, limit our ability to
withstand competitive pressures and reduce our flexibility in
responding to changing business and economic conditions; and
- our substantial debt could place us at a disadvantage compared to our
competitors who have less debt.
Our ability to satisfy all of our debt obligations depends upon our future
operating performance. Our operating performance will be affected by prevailing
economic conditions and financial, business and other factors, some of which are
beyond our control. We believe that our operating cash flow will be sufficient
to meet our operating expenses and to service our debt requirements as they
become due. However, if we are unable to pay our debts, whether upon
acceleration of our debt or in the ordinary course of business, we will be
forced to pursue alternative strategies such as selling assets, restructuring
our debt, or seeking additional equity capital. We cannot assure you that we can
successfully complete any of these strategies on satisfactory
20
terms or that the approval of the FCC could be obtained on a timely basis, or at
all, for the transfer of any of the stations' licenses in connection with a
proposed sale of assets.
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR DEBT AND TO MAKE
CASH DIVIDEND PAYMENTS UNDER THE SERIES B PREFERRED STOCK AND CASH INTEREST
PAYMENTS UNDER THE EXCHANGE NOTES. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.
For the last twelve months ended September 30, 2003, we had net interest
expense of $34.6 million. At September 30, 2003, our ratio of last twelve months
Adjusted EBITDA to last twelve months net interest expense was approximately 1.2
to 1.0. Subsequent to September 30, 2003, our net interest expense increased
when we incurred debt under the senior secured credit facilities and our net
interest expense will increase when and if we exchange the Series B preferred
stock for the exchange notes. If we acquire additional radio stations in the
future, depending on the financing used to fund these acquisitions, our interest
expense may increase as well. After giving pro forma effect to this exchange
offer (which had no pro forma effect), the offering of our Series A preferred
stock which closed on October 30, 2003, borrowings under our senior secured
credit facilities (which we entered into on October 30, 2003), the completion of
our purchase of KXOL-FM on October 30, 2003, the sale of our San Antonio
stations which closed on January 30, 2004 and the sale of our San Francisco
station as if each had occurred on September 30, 2003, on September 30, 2003 our
ratio of Adjusted EBITDA to last twelve months net interest expense on a pro
forma basis will decrease to approximately 1.0 to 1.0. In addition, we will be
required to pay dividends in cash on the Series B preferred stock after October
15, 2008.
Our ability to make payments on and to refinance our debt including the
exchange notes, pay dividends in cash on the Series B preferred stock after
October 15, 2008, repurchase our Series B preferred stock when and if we are
required to do so and to fund necessary or desired capital expenditures and any
future acquisitions, will depend on our ability to generate cash in the future.
This is subject to general economic, financial, competitive, legislative,
regulatory and other factors that may be beyond our control.
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our senior secured
credit facilities will be adequate to meet our liquidity needs for the near
future barring any unforeseen circumstances.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our senior secured credit facilities or otherwise in an amount sufficient
to enable us to pay our debt including the exchange notes, pay dividends in cash
on the Series B preferred stock after October 15, 2008, repurchase our Series B
preferred stock when and if we are required to do so or to fund our other
liquidity needs. We may need to refinance all or a portion of our debt on or
before maturity. We cannot assure you that we will be able to refinance any of
our debt, including our senior secured credit facilities, our existing 9 5/8%
notes or the exchange notes, on commercially reasonable terms or at all.
ANY ACCELERATION OF OUR DEBT OR EVENT OF DEFAULT WOULD HARM OUR BUSINESS AND
FINANCIAL CONDITION.
If there were an event of default under our or our subsidiaries'
indebtedness, including the senior secured credit facilities, our existing
9 5/8% notes and the exchange notes, the holders of the affected indebtedness
could elect to declare all of that indebtedness to be due and payable
immediately, which in turn could cause some or all of our or our subsidiaries'
other indebtedness to become due and payable. We cannot assure you that we or
our subsidiaries would have sufficient funds available, or that we or our
subsidiaries would have access to sufficient capital from other sources, to
repay the accelerated debt. Even if we or our subsidiaries could obtain
additional financing, we cannot assure you that the terms would be favorable to
us. Under the terms of our senior secured credit facilities and our existing
9 5/8% notes, if the amounts outstanding under our indebtedness were
accelerated, our lenders would have the right to foreclose on their liens on
substantially all of our and our subsidiaries' assets (with the exception of our
FCC licenses held by guarantor subsidiaries, because a grant of a security
interest therein would be prohibited by law, and certain general intangibles and
fixed assets under particular limited circumstances) and on the stock of our
subsidiaries. As a result, any
21
event of default under our material debt instruments could have a material
adverse effect on our business and financial condition.
DESPITE OUR CURRENT SIGNIFICANT LEVEL OF DEBT, WE AND OUR SUBSIDIARIES MAY STILL
BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER INTENSIFY THE RISKS
DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the terms of the Series A preferred stock,
the Series B preferred stock, our existing 9 5/8% notes and the senior secured
credit facilities restrict our ability to incur additional debt, these
restrictions are subject to a number of qualifications and exceptions and, under
certain circumstances, debt incurred in compliance with these restrictions could
be substantial. In addition, the terms of the Series B preferred stock and
Series A preferred stock permit us to exchange the Series B preferred stock and
Series A preferred stock for the exchange notes and the unregistered exchange
notes, respectively. If we or our subsidiaries incur additional debt, the
related risks described above that we and our subsidiaries face could intensify.
THE TERMS OF OUR DEBT AND OUR PREFERRED STOCK IMPOSE OR WILL IMPOSE RESTRICTIONS
ON US THAT MAY ADVERSELY AFFECT OUR BUSINESS AND OUR ABILITY TO FULFILL OUR
OBLIGATIONS UNDER THE SERIES B PREFERRED STOCK AND THE EXCHANGE NOTES.
The terms of the Series A preferred stock, the Series B preferred stock,
our existing 9 5/8% notes, the senior secured credit facilities and the exchange
notes contain covenants that, among other things, limit our ability to:
- incur additional debt, incur contingent obligations and issue
preferred stock;
- redeem or repurchase securities ranking junior to the Series B
preferred stock;
- create liens;
- pay dividends, distributions or make other specified restricted
payments and may also place restrictions on the ability of certain of
our subsidiaries to pay dividends or make other payments to us;
- sell assets;
- make certain capital expenditures, investments and acquisitions;
- change or add lines of business;
- enter into certain transactions with affiliates;
- enter into sale and leaseback transactions;
- sell capital stock of our subsidiaries; and
- merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of our
assets.
The terms of the senior secured credit facilities also require us to
maintain specified financial ratios and to satisfy certain financial condition
tests. These covenants could materially and adversely affect our ability to
finance our future operations or capital needs and to engage in other business
activities that may be in our best interest. All of these covenants may restrict
our ability to expand or to pursue our business strategies. Our ability to
comply with these covenants may be affected by events beyond our control, such
as prevailing economic conditions and changes in regulations, and if such events
occur we cannot be sure that we will be able to comply. A breach of any of these
covenants could result in a default under one or more of our debt instruments.
If an event of default occurs under the senior secured credit facilities or
the indenture governing our existing 9 5/8% notes, the lenders and/or the
noteholders could elect to declare all amounts of debt outstanding, together
with accrued interest, to be immediately due and payable. In addition, there are
change of control provisions in the senior secured credit facilities, the
indenture governing our existing 9 5/8% notes, the certificates of designations
governing the Series A preferred stock and the Series B preferred stock and the
22
indenture that will govern the exchange notes each of which would cause an
acceleration of the applicable indebtedness and/or require us to make an offer
to repurchase all of the applicable notes and/or Series A preferred stock and
Series B preferred stock in the event that we experience a change of control.
THE RESTRICTIONS IMPOSED BY OUR DEBT MAY PREVENT US FROM PAYING CASH DIVIDENDS
ON THE SERIES B PREFERRED STOCK, EXCHANGING THE SERIES B PREFERRED STOCK FOR
EXCHANGE NOTES OR PAYING CASH INTEREST ON THE EXCHANGE NOTES.
We are required to pay dividends in cash on the Series B preferred stock
after October 15, 2008. Under the terms of the certificate of designations
governing the Series B preferred stock, on any scheduled dividend payment date
for the Series B preferred stock we have the option of exchanging all of our
then outstanding Series B preferred stock for exchange notes. If we exchange the
Series B preferred stock for exchange notes, we will be required to pay interest
in cash on the exchange notes after October 15, 2008. However, the restrictions
imposed by our debt as described above may prevent us from paying cash dividends
on the Series B preferred stock, exchanging the Series B preferred stock for
exchange notes or paying cash interest on the exchange notes.
WE MAY NOT HAVE THE FUNDS OR THE ABILITY TO RAISE THE FUNDS NECESSARY TO
REPURCHASE OUR SERIES B PREFERRED STOCK IF HOLDERS EXERCISE THEIR REPURCHASE
RIGHT, OR TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE SERIES B
PREFERRED STOCK AND THE INDENTURE GOVERNING THE EXCHANGE NOTES.
On October 15, 2013, each holder of Series B preferred stock will have the
right to require us to redeem all or a portion of the Series B preferred stock
at a purchase price of 100% of the liquidation preference thereof, plus all
accumulated and unpaid dividends to the date of repurchase. In addition, if we
experience certain kinds of changes of control as described in the certificate
of designations creating the Series B preferred stock, subject to certain
restrictions in our debt instruments we will be required to make an offer to
purchase the Series B preferred stock for cash at a purchase price of 101% of
the liquidation preference thereof, plus accumulated dividends. The source of
funds for any such repurchases would be our available cash or cash generated
from operations or other sources, including borrowings, sales of equity or funds
provided by a new controlling person or entity. We cannot assure you that
sufficient funds will be available to us on favorable terms, or at all, to
repurchase all tendered Series B preferred stock or exchange notes pursuant to
these requirements. Our failure to offer to repurchase or to repurchase Series B
preferred stock or exchange notes tendered, as the case may be, will result in a
voting rights triggering event under the certificate of designations governing
the Series B preferred stock or a default under the indenture governing the
exchange notes, as the case may be. Such events could lead to a cross-default
under our senior secured credit facilities and under the terms of our other
debt. In addition, our senior secured credit facilities and our existing 9 5/8%
notes would either prohibit or effectively prohibit us from making any such
required repurchases. The underlying change of control event could also trigger
our obligation to offer to repurchase our existing 9 5/8% notes at 101% of their
principal amount. Prior to repurchasing the Series B preferred stock or exchange
notes on a change of control event, we must either repay outstanding debt under
our senior secured credit facilities or obtain the consent of the lenders under
those facilities and we may have to offer to purchase our existing 9 5/8% notes.
If we do not obtain the required consents or repay our outstanding debt under
our senior secured credit facilities, we would remain effectively prohibited
from offering to repurchase the Series B preferred stock or exchange notes. Even
if we are able to repay the senior secured credit facilities, if we have
insufficient funds to purchase both our existing 9 5/8% notes and the Series B
preferred stock or exchange notes, we would remain effectively prohibited from
offering to repurchase the Series B preferred stock or exchange notes.
WE MAY NOT COMPLETE THE PROPOSED SALE OF OUR SAN FRANCISCO STATION.
Although we entered into a definitive agreement for the proposed sale of
the assets of our San Francisco station on October 2, 2003, the buyer did not
close under the agreement and on February 3, 2004, we terminated the agreement.
We are currently considering other written offers to purchase the assets of our
San Francisco station for a purchase price equal to the purchase price under the
terminated asset purchase agreement. We intend to sell the assets of our San
Francisco station; however, we cannot assure you
23
that the proposed sale will be completed. If the proposed sale does not close,
we will be unable to use the anticipated proceeds from such sale to reduce our
debt and therefore we will be more highly leveraged.
OUR CREDITORS WILL HAVE PRIORITY OVER THE SERIES A PREFERRED STOCK AND THE
SERIES B PREFERRED STOCK, AND THE EXCHANGE NOTES WILL BE SUBORDINATED IN RIGHT
OF PAYMENT TO ALL OF OUR EXISTING AND FUTURE SENIOR DEBT.
Our creditors will have priority over the Series A preferred stock and the
Series B preferred stock with respect to claims on our assets. In addition,
creditors and stockholders of our subsidiaries will have priority over the
Series A preferred stock and the Series B preferred stock with respect to claims
on the assets of such subsidiaries. We have a substantial amount of debt which
increased further when we borrowed under the senior secured credit facilities.
The exchange notes will be subordinated in right of payment to all of our
existing and future senior debt, including the senior secured credit facilities
and our existing 9 5/8% senior subordinated notes due 2009. Certain of our
subsidiaries will unconditionally guarantee the exchange notes on a senior
subordinated basis, and the exchange notes will be subordinated in right of
payment to these guarantor subsidiaries' existing and future senior debt.
Indebtedness outstanding under the senior secured credit facilities is secured
by substantially all of our assets and the assets of our subsidiaries in which a
security interest could lawfully be granted. We may incur additional senior debt
from time to time subject to certain restrictions contained in the instruments
governing our senior secured credit facilities, the indenture governing our
existing 9 5/8% notes and the indenture that will govern the exchange notes. In
the event of any distribution or payment of our assets in any foreclosure,
dissolution, winding-up, liquidation, reorganization, or other bankruptcy
proceeding, holders of senior indebtedness will have a prior claim to those of
the holders of the exchange notes. Holders of the exchange notes will
participate ratably with all holders of our unsecured indebtedness that is
deemed to be of the same class as the exchange notes, and potentially with all
of our other general creditors, based upon the respective amounts owed to each
holder or creditor, in our remaining assets. If any of the foregoing events
occurs, we cannot assure you that there will be sufficient assets to pay some or
all of the amounts due on the exchange notes. As a result, holders of exchange
notes may receive less, ratably, than holders of senior indebtedness.
BECAUSE WE ARE A HOLDING COMPANY AND DEPEND ENTIRELY ON CASH FLOW FROM OUR
SUBSIDIARIES TO MEET OUR OBLIGATIONS, YOUR RIGHT TO RECEIVE PAYMENT ON THE
EXCHANGE NOTES WILL BE EFFECTIVELY SUBORDINATED TO THE OBLIGATIONS OF ALL OUR
SUBSIDIARIES THAT DO NOT GUARANTEE THE EXCHANGE NOTES.
We conduct our business through our subsidiaries and have no operations of
our own. Consequently, we will be dependent upon the cash flow of our
subsidiaries and distributions from our subsidiaries to us in order to pay the
liquidation preference of and cash dividends when due on the Series B preferred
stock and cash interest and principal when due to holders of the exchange notes.
The exchange notes will be unconditionally guaranteed on a subordinated basis by
certain of our current and future subsidiaries. Our foreign subsidiaries created
or acquired after the date of the exchange notes indenture, our single-purpose
subsidiaries created or acquired after the date of the exchange notes indenture
to hold one or more of our broadcasting licenses, and our subsidiaries that are
not required to become and are not guarantors of our existing 9 5/8% notes will
not be guarantors of the exchange notes. The exchange notes therefore will be
structurally subordinated to all existing future liabilities, including trade
payables, of our subsidiaries that do not guarantee the exchange notes, and the
claims of creditors of those subsidiaries, including trade creditors, will have
priority as to the assets and cash flows of those subsidiaries. In the event of
a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of
any of the non-guarantor subsidiaries, holders of their liabilities, including
their trade creditors, will generally be entitled to payment on their claims
from assets of those subsidiaries before any assets are made available for
distribution to us.
ACTUAL OR CONSTRUCTIVE DISTRIBUTIONS WITH RESPECT TO OUR SERIES B PREFERRED
STOCK AND EXCHANGE NOTES MAY LEAD TO UNPLANNED DEEMED DIVIDEND INCOME AND
ORIGINAL ISSUE DISCOUNT.
On or before October 15, 2008, we at our option may pay dividends in
additional shares of Series B preferred stock, which we refer to as the dividend
shares, in lieu of cash. If the redemption price of the dividend shares exceeds
their issue price by more than a de minimis (or negligible) amount, such excess
may
24
be treated for tax purposes as a constructive distribution with respect to the
dividend shares of additional stock over the term of the dividend shares using a
constant interest rate method similar to that used for accruing original issue
discount. The amount of such constructive distribution will be in addition to
the amount of actual payment of cash dividends or any actual distribution of
additional dividend shares on existing dividend shares. Because the issue price
of the dividend shares will be equal to the fair market value of the dividend
shares at the time of distribution, it is possible, depending on their fair
market value at such time, that such dividend shares will be issued with a
redemption premium large enough to be considered a dividend as described above.
In such event, holders would be required to include such premium in income as a
distribution over some period in advance of receiving the cash attributable to
such income, and this Series B preferred stock might trade separately, which
might adversely affect the liquidity of the Series B preferred stock.
We may, at our option and under certain circumstances, issue exchange notes
in exchange for the Series B preferred stock. Any such exchange will be a
taxable event to holders of the Series B preferred stock. Furthermore, the
exchange notes may in certain circumstances be treated as having been issued
with original issue discount for U.S. federal income tax purposes. In such
event, holders of exchange notes will be required to include such original issue
discount (as ordinary income) in income over the life of the exchange notes, in
advance of the receipt of cash attributable to such income.
A COURT COULD SUBORDINATE OR VOID THE SUBSIDIARY GUARANTEES OF THE EXCHANGE
NOTES IN CIRCUMSTANCES OF A FRAUDULENT TRANSFER UNDER FEDERAL OR STATE LAWS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee of the exchange notes could be
voided, or claims in respect of the guarantee could be subordinated to all other
debts of that guarantor if, among other things, the guarantor, at the time it
incurred the debt evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of the guarantee; and
- was insolvent or rendered insolvent by reason of incurring the debt
evidenced by the guarantee; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In such instances, the holders of the exchange notes would cease to have
any claim with respect to that subsidiary guarantee and would be creditors
solely of us and any remaining subsidiary guarantors. In addition, any payment
by that subsidiary guarantor pursuant to its subsidiary guarantee could be
voided and required to be returned to the subsidiary guarantor, or to a fund for
the benefit of the creditors of the subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets; or
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each subsidiary guarantor, after giving
effect to each subsidiary guarantee of the exchange notes, will not be
insolvent, will not have unreasonably small capital for the business in which it
is engaged and will not
25
have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
these determinations or that a court would agree with our conclusions in this
regard.
A COURT MAY VOID THE ISSUANCE OF THE EXCHANGE NOTES IN CIRCUMSTANCES OF A
FRAUDULENT TRANSFER UNDER FEDERAL OR STATE LAWS.
If a court determines that the issuance of the exchange notes constituted a
fraudulent transfer, the holders of the exchange notes may not receive payment
on the exchange notes.
Under federal bankruptcy and comparable provisions of state fraudulent
transfer laws, if a court were to find that, at the time the exchange notes were
issued, we:
- issued the exchange notes with the intent of hindering, delaying or
defrauding current or future creditors; or
- received less than fair consideration or reasonably equivalent value
for incurring the debt represented by the exchange notes, and either
(1) we were insolvent or were rendered insolvent by reason of the
issuance of the exchange notes; or (2) we were engaged, or about to
engage, in a business or transaction for which our assets were
unreasonably small; or (3) we intended to incur, or believed, or
should have believed, we would incur, debts beyond our ability to pay
as such debts mature;
then a court could:
- void all or a portion of our obligations to the holders of the
exchange notes;
- subordinate our obligations to the holders of the exchange notes to
our other existing and future debt, the effect of which would be to
entitle the other creditors to be paid in full before any payment
could be made on the exchange notes; or
- take other action harmful to the holders of the exchange notes,
including in certain circumstances, invalidating the exchange notes.
In any of these events, we could not assure you that the holders of the
exchange notes would ever receive payment on the exchange notes.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we would be considered
insolvent if:
- the sum of our debts, including contingent liabilities, was greater
than the fair saleable value of all of our assets; or
- the present fair saleable value of our assets was less than the amount
that would be required to pay our probable liability on our existing
debts, including contingent liabilities, as they become absolute and
mature; or
- we could not pay our debts as they become due.
On the basis of the pro forma financial information included in this
prospectus, and other factors, we believe that after giving effect to the
issuance of the exchange notes, we will not be insolvent, will not have
unreasonably small capital for the business in which we are engaged and will not
have incurred debts beyond our ability to pay those debts as they mature. We
cannot assure you as to what standard a court would apply in order to determine
whether we were insolvent as of the date the exchange notes were issued, or
that, regardless of the method of valuation, a court would not determine that we
were insolvent on that date. Nor can we assure you that a court would not
determine, regardless of whether we were insolvent on the date the exchange
notes were issued, that the issuance of the exchange notes constituted
fraudulent transfers on another ground.
26
RISKS RELATED TO OUR BUSINESS
WE HAVE EXPERIENCED NET LOSSES IN THE PAST AND TO THE EXTENT THAT WE EXPERIENCE
NET LOSSES IN THE FUTURE, THE MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY
AFFECTED WHICH IN TURN MAY ADVERSELY AFFECT OUR ABILITY TO RAISE CAPITAL.
We may not achieve profitability. Failure to achieve profitability may
adversely affect the market price of our common stock, which in turn may
adversely affect our ability to raise additional equity capital and to incur
additional debt. Our inability to obtain financing in adequate amounts and on
acceptable terms necessary to operate our business, repay our debt obligations
or finance our proposed acquisitions could negatively impact our financial
position and results of operations.
We experienced a net loss for the nine months ended September 30, 2003, in
the fiscal year ended December 29, 2002, in the three-month transitional period
ended December 30, 2001, and in the fiscal years ended September 30, 2001 and
September 24, 2000.
The incurrence of indebtedness under the senior secured credit facilities
and the exchange of the Series B preferred stock for the exchange notes will
increase our interest expense. If we acquire additional radio stations in the
future, depending on the financing used to fund these acquisitions, interest
expense may increase as well. In addition, the additional tax amortization of
radio station KXOL-FM, which we acquired on October 30, 2003, will increase our
deferred income tax expense and effective tax rate significantly.
OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY A NATIONAL OR REGIONAL
RECESSION.
Our operating results could be adversely affected by a recession and/or
further downturn in the United States economy since advertising expenditures
generally decrease as the economy slows down. In addition, our operating results
in individual geographic markets could be adversely affected by local or
regional economic downturns. Our operating results have been adversely affected
by past recessions.
LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
Our business depends upon the efforts, abilities and expertise of our
executive officers and other key employees, including Raul Alarcon, Jr., our
chairman of the board of directors, chief executive officer and president. The
loss of any of these officers and key employees could have a material adverse
effect on our business. We do not maintain key man life insurance on any of our
personnel.
OUR GROWTH DEPENDS ON SUCCESSFULLY EXECUTING OUR ACQUISITION STRATEGY.
We have pursued the acquisition of radio stations, primarily in the largest
U.S. Hispanic markets, as a growth strategy. We cannot assure you that our
acquisition strategy will be successful. Our acquisition strategy is subject to
a number of risks, including, but not limited to:
- our substantial level of debt limits our ability to acquire additional
radio stations;
- we may be required to raise additional financing and our ability to do
so is limited by the terms of our debt instruments and market
conditions;
- acquired stations may not increase our station operating income or
yield other anticipated benefits;
- required regulatory approvals may result in unanticipated delays in
completing acquisitions;
- we may have difficulty managing any rapid growth;
- we may have difficulty programming newly acquired stations to attract
listenership; and
- we may finance acquisitions with the issuance of, or through sales of,
our common stock in the public market which could adversely affect our
stock price, due to dilution, and our ability to raise funds necessary
to grow our business through additional stock offerings.
Although we intend to pursue additional strategic acquisitions, our ability
to do so is significantly restricted by the terms of the senior secured credit
facilities, the indenture governing our existing 9 5/8% notes, the certificates
of designations governing the Series A preferred stock and the Series B
preferred stock, the indenture that will
27
govern the exchange notes and our ability to raise additional funds. Our
competitors who have greater resources than we do will have an advantage over us
in pursuing and completing strategic acquisitions.
RAUL ALARCON, JR., OUR CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
OFFICER AND PRESIDENT, HAS MAJORITY VOTING CONTROL AND THIS CONTROL MAY
DISCOURAGE OR INFLUENCE CERTAIN TYPES OF TRANSACTIONS, INCLUDING AN ACTUAL OR
POTENTIAL CHANGE OF CONTROL SUCH AS A MERGER OR SALE.
Raul Alarcon, Jr., our chairman of the board of directors, chief executive
officer and president, owns shares of Class B common stock having approximately
81% of the combined voting power of our outstanding shares of common stock, as
of the date of this prospectus. Accordingly, Mr. Alarcon, Jr. has the ability to
elect all of our directors and can effectively control our policies and affairs.
This control may discourage certain types of transactions involving an actual or
potential change of control such as a merger or sale.
WE COMPETE FOR ADVERTISING REVENUE WITH OTHER RADIO GROUPS AS WELL AS TELEVISION
AND OTHER MEDIA, MANY OPERATORS OF WHICH HAVE GREATER RESOURCES THAN WE DO.
Broadcasting is a highly competitive business. Our radio stations compete
in their respective markets for audiences and advertising revenues with other
radio stations of all formats, as well as with other media, such as newspapers,
magazines, television, cable services, outdoor advertising, the Internet and
direct mail. As a result of this competition, our stations' audience ratings and
market shares may decline and any adverse change in a particular market could
have a material adverse effect on the revenue of our stations located in that
market and on the financial condition of our business as a whole.
Although we believe that each of our stations is able to compete
effectively in its respective market, we cannot assure you that any station will
be able to maintain or increase its current audience ratings and advertising
revenues. Radio stations can change formats quickly. Any other radio station
currently broadcasting could shift its format to duplicate the format of any of
our stations. If a station converts its programming to a format similar to that
of one of our stations, or if one of our competitors strengthens its operations,
the ratings and station operating income of our station in that market could be
adversely affected. In addition, other radio companies which are larger and have
more resources may also enter markets in which we operate.
WE WILL FACE INCREASED COMPETITION BECAUSE OF THE RECENT MERGER OF UNIVISION
COMMUNICATIONS INC. AND HISPANIC BROADCASTING CORP.
Because of the recent merger of Univision Communications Inc. and Hispanic
Broadcasting Corp. we will face increased competition for advertising revenue
from an entity that will have a dominant share of both the Spanish-language
television advertising market and Spanish-language radio advertising market. The
merged entity holds the nation's largest network of Spanish-language television
stations and the nation's largest network of Spanish-language radio stations.
The merged entity will also have substantially more resources than we do which
could make us face even greater competitive pressures in the markets in which we
operate.
WE MUST BE ABLE TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY, SERVICES AND
STANDARDS WHICH CHARACTERIZE OUR INDUSTRY IN ORDER TO REMAIN COMPETITIVE.
The FCC is considering ways to introduce new technologies to the radio
broadcast industry, including satellite and terrestrial delivery of digital
audio broadcasting, and the standardization of available technologies which
significantly enhance the sound quality of AM and FM broadcasts. We cannot
predict the effect new technology of this nature will have on our financial
condition and results of operations. Several new media technologies are being
developed, including the following:
- cable television operators offer a service commonly referred to as
"cable radio" which provides cable television subscribers with several
high-quality channels of music, news and other information;
- the Internet offers new, diverse and evolving forms of program
distribution;
- direct satellite broadcast television companies are supplying
subscribers with several high quality music channels;
28
- the introduction of satellite digital audio radio technology has
resulted in new satellite radio services with sound quality equivalent
to that of compact discs; and
- the introduction of in-band on-channel digital radio could provide
multi-channel, multi-format digital radio services in the same
bandwidth currently occupied by traditional AM and FM radio services.
OUR BUSINESS DEPENDS ON MAINTAINING OUR FCC LICENSES. WE CANNOT ASSURE YOU THAT
WE WILL BE ABLE TO MAINTAIN THESE LICENSES.
The domestic broadcasting industry is subject to extensive federal
regulation which, among other things, requires approval by the FCC for the
issuance, renewal, transfer and assignment of broadcasting station operating
licenses and limits the number of broadcasting properties we may acquire.
Federal regulations create significant new opportunities for broadcasting
companies but also create uncertainties as to how these regulations will be
interpreted and enforced by the courts.
Our success depends in part on acquiring and maintaining broadcast licenses
issued by the FCC, which are typically issued for a maximum term of eight years
and are subject to renewal. While we believe that the FCC will approve
applications for renewal of our existing broadcasting licenses when made, we
cannot guarantee that pending or future renewal applications submitted by us
will be approved, or that renewals will not include conditions or qualifications
that could adversely affect our operations. Although we may apply to renew our
FCC licenses, interested third parties may challenge our renewal applications.
In addition, if we or any of our significant stockholders, officers, or
directors violate the FCC's rules and regulations or the Communications Act of
1934, as amended (the Communication Act), or are convicted of a felony or
anti-trust violations, the FCC may commence a proceeding to impose sanctions
upon us. Examples of possible sanctions include the imposition of fines; the
revocation of our broadcasting licenses; or the renewal of one or more of our
broadcasting licenses for a term of fewer than eight years. If the FCC were to
issue an order denying a license renewal application or revoking a license, we
would be required to cease operating the radio station covered by the license
only after we had exhausted administrative and judicial review without success.
Such an event would materially affect the carrying value of our intangible
assets and would negatively impact our operating results.
The radio broadcasting industry is subject to extensive and changing
federal regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of broadcasting properties that any person or entity
may own (directly or by attribution) in any market and require FCC approval for
transfers of control and assignments. The filing of petitions or complaints
against us or any FCC licensee from which we acquire a station could result in
the FCC delaying the grant of, or refusing to grant or imposing conditions on
its consent to the assignment or transfer of licenses. The Communications Act
and FCC rules also impose limitations on non-U.S. ownership and voting of our
capital stock.
Moreover, governmental regulations and policies may change over time and we
cannot assure you that those changes would not have a material impact upon our
business, financial position or results of operations.
WE MAY FACE REGULATORY REVIEW FOR ADDITIONAL ACQUISITIONS IN OUR EXISTING
MARKETS AND, POTENTIALLY, NEW MARKETS.
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly concerned when the proposed buyer already owns three
or more radio stations in the market of the station it is seeking to buy.
Recently, the Justice Department has challenged a number of radio broadcasting
transactions. Some of those challenges ultimately resulted in consent decrees
requiring, among other things, divestitures of certain stations. In general, the
Justice Department has more closely scrutinized radio broadcasting acquisitions
that result in market shares in excess of 40% of local radio advertising
revenue. Similarly, the FCC reviews proposed radio broadcasting transactions
even if the proposed acquisition otherwise complies with the FCC's ownership
limitations. In particular, the FCC may invite public comment on proposed radio
transactions that the FCC believes, based on its initial analysis, may present
ownership concentration concerns in a particular local radio market.
29
USE OF PROCEEDS
We will not receive any cash proceeds or incur any additional indebtedness
as a result of the issuance of the Series B preferred stock pursuant to this
exchange offer. We are making this exchange offer to satisfy some of our
obligations under our registration rights agreement dated October 30, 2003 with
the initial purchasers of the Series A preferred stock.
CAPITALIZATION
The following table sets forth our actual capitalization as of September
30, 2003. The table also sets forth our pro forma capitalization after giving
effect to this exchange offer (which had no pro forma effect on our
capitalization), the offering of our Series A preferred stock which closed on
October 30, 2003, borrowings under our senior secured credit facilities (which
we entered into on October 30, 2003), the completion of our purchase of KXOL-FM
on October 30, 2003, the sale of our San Antonio stations which closed on
January 30, 2004 and the sale of our San Francisco station as if each had
occurred on September 30, 2003. On October 2, 2003, we entered into an asset
purchase agreement with 3 Point Media -- San Francisco, LLC ("Three Point
Media") to sell the assets of radio station KPTI-FM, serving the San Francisco,
California market, for a cash purchase price of $30.0 million. Three Point Media
did not close under the asset purchase agreement, and on February 3, 2004, we
terminated the agreement. We are currently considering other written offers to
purchase the assets of radio station KPTI-FM for a purchase price equal to the
purchase price under the Three Point Media asset purchase agreement. We intend
to sell the assets of radio station KPTI-FM; however, we cannot assure you that
the proposed sale will be completed. We are required under the senior secured
credit facilities to use a portion of the proceeds from the sales of our San
Antonio and San Francisco stations to repay a portion of the term loan B
facility. The remaining proceeds from the station sales will be used for general
corporate purposes. The following data should be read in conjunction with "Use
of Proceeds"; "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes contained in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2002, and our Quarterly Report on Form 10-Q for the nine month
period ended September 30, 2003, which are incorporated by reference within this
prospectus.
<Table>
<Caption>
PRO FORMA
---------------------------------------
FINANCING,
ACQUISITION, SALE
UNAUDITED ACTUAL FINANCING AND AND PROPOSED
AS OF ACQUISITION AS OF SALE AS OF
SEPTEMBER 30, 2003 SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
------------------ ------------------ ------------------
($ IN THOUSANDS)
Cash and cash equivalents.................. $ 46,604 $ 47,504 $ 73,004
Senior secured credit facilities........... -- 125,000 99,500
9 5/8% senior subordinated notes due 2009,
net...................................... 324,960 324,960 324,960
Other debt................................. 4,002 4,002 4,002
-------- -------- --------
Total debt including current portion....... $328,962 $453,962 $428,462
10 3/4% Series B preferred stock........... -- 75,000 75,000
Stockholders' equity....................... 227,981 224,681 249,582
-------- -------- --------
Total capitalization.................. $556,943 $753,643 $753,044
======== ======== ========
</Table>
30
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical consolidated ratio of
earnings to fixed charges for the periods indicated.
<Table>
<Caption>
THREE
MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED NINE MONTHS ENDED
- ------------------------------------------------------------- ------------ ------------ -----------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 30,
1998 1999 2000 2001 2001 2002 2002 2003
- ------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
0.73 0.39 -- -- -- 1.19 1.18 1.12
</Table>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings or loss from continuing operations before
income taxes and cumulative effect of a change in accounting principle and fixed
charges. Fixed charges are the sum of (1) interest costs, (2) amortization of
deferred financing costs and (3) one-third of operating lease rental expense
(deemed to be interest). Earnings were inadequate to cover fixed charges by
approximately $17.4 million and $11.3 million for fiscal years 2000 and 2001,
respectively. For the three months ended December 30, 2001, earnings were
inadequate to cover fixed charges by $1.9 million.
RATIO OF COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS TO EARNINGS
The following table sets forth our historical consolidated ratio of
combined fixed charges and preference dividends to earnings for the periods
indicated.
<Table>
<Caption>
THREE
MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED NINE MONTHS ENDED
- ------------------------------------------------------------- ------------ ------------ -----------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 30,
1998 1999 2000 2001 2001 2002 2002 2003
- ------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
1.36 2.54 25.86 1.56 1.29 0.84 0.84 0.89
</Table>
For the purpose of calculating the ratio of combined fixed charges and
preference dividends to earnings, fixed charges are defined as the sum of (1)
interest costs, (2) amortization of deferred financing costs and (3) one-third
of operating lease rental expense (deemed interest). Preference dividends are
defined as pre-tax dividends on preferred stock. Earnings are defined as
earnings or loss from continuing operations before income taxes and cumulative
effect of a change in accounting principle and fixed charges. Earnings were
inadequate to cover combined fixed charges and preference dividends by
approximately $20.0 million, $50.3 million, $63.2 million and $11.3 million for
fiscal years 1998, 1999, 2000 and 2001, respectively. For the three months ended
December 30, 2001, earnings were inadequate to cover combined fixed charges and
preference dividends by $1.9 million.
31
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 2003 and the unaudited pro forma condensed consolidated
statements of operations for the fiscal year ended December 29, 2002 and the
nine months ended September 30, 2003 are based on the historical consolidated
financial statements to give effect to the following transactions (and any other
adjustments described in the accompanying notes to the unaudited pro forma
condensed consolidated financial data):
- the closing of the KXOL acquisition on October 30, 2003;
- the sale of our San Antonio stations on January 30, 2004;
- the sale of our San Francisco station;
- the closing of the senior secured credit facilities on October 30, 2003;
- the closing of our offering of Series A preferred stock on October 30,
2003; and
- the closing of this exchange offer (which had no pro forma effect).
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 2003 has been derived from the historical unaudited balance sheet
as of September 30, 2003, to give pro forma effect to the transactions as if
they occurred on September 30, 2003. The unaudited pro forma condensed
consolidated statements of operations for the fiscal year ended December 29,
2002 and the nine months ended September 30, 2003 give pro forma effect to the
transactions as if they occurred at the beginning of the period presented. The
unaudited pro forma financial condensed consolidated statements of operations
exclude historical discontinued operations and cumulative effect of a change in
accounting principle, which were recorded in the historical financial
information, which are incorporated by reference within this document.
The unaudited pro forma condensed consolidated financial data are based on
preliminary estimates and assumptions set forth in the notes to such
information. Pro forma adjustments are necessary to reflect the estimated
purchase and sales price of stations, the new debt structure and to adjust
amounts related to acquired intangible assets to a preliminary estimate of their
fair values. Pro forma adjustments are also necessary to reflect the
amortization expense related to amortizable deferred financing cost, changes in
depreciation and amortization expense resulting from adjustments to property and
equipment, interest expense, elimination of non-cash programming expense for
warrants related to the KXOL acquisition, and the income tax effect related to
the pro forma adjustments.
The pro forma adjustments and allocation of the KXOL purchase price are
preliminary and are based on management's estimate of the fair value of the
assets acquired. The final purchase price allocation will be completed after
asset valuations are finalized. This final valuation will be based on the actual
intangible assets that existed as of the date of the completion of these
transactions. Any final adjustments may change the allocations of the purchase
price which could affect the fair value assigned to the assets and could result
in a change to the unaudited pro forma condensed consolidated financial data. In
addition, the impact of the timing of the completion of these transactions and
other changes in intangible assets prior to completion of these transactions
could cause material differences in the information presented.
The pro forma adjustments, as described in the notes to the unaudited pro
forma condensed financial data, are based on currently available information and
certain adjustments that we believe are reasonable. They are not necessarily
indicative of our consolidated financial position or results of operations that
would have occurred had the transactions taken place on the dates indicated, nor
are they necessarily indicative of our future consolidated financial position or
results of operations. In addition, although we intend to sell the assets of our
San Francisco station, we cannot assure you that the proposed sale will be
completed.
32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
PRO FORMA
PRO FORMA ADJUSTMENTS CONDENSED
HISTORICAL --------------------------------- CONSOLIDATED
AS OF FINANCING AS OF
SEPTEMBER 30, AND SEPTEMBER 30,
2003 ACQUISITION(A) STATION SALES(B) 2003
------------- -------------- ---------------- -------------
($ IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............. $ 46,604 $ 900 $ 25,500 $ 73,004
Net receivables....................... 26,834 -- -- 26,834
Other current assets.................. 2,272 -- -- 2,272
Assets held for sale.................. 27,192 -- (27,192) --
--------- -------- -------- ---------
Total current assets............... 102,902 900 (1,692) 102,110
Property and equipment, net............. 24,420 76 -- 24,496
Intangible assets....................... 513,001 191,824 -- 704,825
Deferred financing costs, net........... 7,980 3,900 -- 11,880
Deferred offering costs................. 432 (432) -- --
Other assets............................ 1,385 -- -- 1,385
--------- -------- -------- ---------
TOTAL ASSETS............................ $ 650,120 $196,268 $ (1,692) $ 844,696
========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..... $ 222 $ -- $ -- $ 222
Accounts payable and accrued
expenses........................... 15,786 (432) -- 15,354
Accrued interest...................... 13,553 -- -- 13,553
Deferred commitment fee............... 115 -- -- 115
--------- -------- -------- ---------
Total current liabilities.......... 29,676 (432) -- 29,244
Senior secured credit facilities........ -- 125,000 (25,500) 99,500
9 5/8% senior subordinated notes, net... 324,960 -- -- 324,960
Other long-term debt, less current
portion............................... 3,780 -- -- 3,780
Deferred income taxes................... 63,723 -- (1,093) 62,630
--------- -------- -------- ---------
Total liabilities.................. 422,139 124,568 (26,593) 520,114
10 3/4% Series B preferred stock........ -- 75,000 -- 75,000
Stockholders' equity:
Class A common stock.................. 3 -- -- 3
Class B common stock.................. 3 -- -- 3
Additional paid-in capital............ 447,561 (3,300) -- 444,261
Accumulated deficit................... (219,586) -- 24,901 (194,685)
--------- -------- -------- ---------
Total stockholders' equity......... 227,981 (3,300) 24,901 249,582
--------- -------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 650,120 $196,268 $ (1,692) $ 844,696
========= ======== ======== =========
</Table>
- ---------------
(a) Represents estimated sources of funds and uses of funds from the senior
secured credit facilities, the offering of the Series A preferred stock and
subsequent pro forma results for its exchange for the Series B preferred
stock as if they had occurred on September 30, 2003, as follows:
<Table>
<Caption>
($ IN THOUSANDS)
Senior secured credit facilities............................ $125,000
10 3/4% Series B preferred stock............................ 75,000
--------
Total sources of funds.................................... $200,000
========
</Table>
33
<Table>
<Caption>
($ IN THOUSANDS)
Intangible assets (KXOL FCC license)........................ $189,924
Intangible assets (KXOL brokerage fee)...................... 1,900
Property and equipment (KXOL equipment)..................... 76
Deferred financing fees..................................... 3,900
Additional paid in capital (cost of issuing preferred
stock).................................................... 3,300
Excess cash................................................. 900
--------
Total uses of funds....................................... $200,000
========
</Table>
(b) Represents estimated proceeds, uses of proceeds and the book gain from the
sale of our San Antonio and San Francisco radio stations as if they had
occurred on September 30, 2003, as follows:
<Table>
<Caption>
PROCEEDS AND USES OF FUNDS FROM THE SALE OF STATIONS
- ---------------------------------------------------- ($ IN THOUSANDS)
Sales price of stations..................................... $54,400
Repayment of new senior secured credit facilities........... 25,500
Brokerage fees and others................................... 500
Estimated cash income taxes to be paid...................... 2,900
-------
Net cash proceeds from the sale of stations............... $25,500
=======
ESTIMATED BOOK VALUE OF ASSETS SOLD AND BOOK GAIN REALIZED
Intangible assets (FCC licenses and goodwill)............... $26,276
Property and equipment...................................... 917
-------
Asset held for sale......................................... $27,192
=======
Accumulated deficit (book gain on sale, net of book
taxes).................................................... $24,901
=======
Deferred income taxes liability............................. $(1,093)
=======
</Table>
34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
PRO FORMA
PRO FORMA ADJUSTMENTS CONDENSED
HISTORICAL FISCAL -------------------------------- CONSOLIDATED
YEAR ENDED FINANCING AND FISCAL YEAR ENDED
DECEMBER 29, 2002 ACQUISITION STATION SALES(D) DECEMBER 29, 2002
----------------- ------------- ---------------- -----------------
($ IN THOUSANDS, EXCEPT SHARE DATA)
Gross revenue.................... $159,548 $ -- $(5,076) $154,472
Less agency commissions.......... 19,303 -- (519) 18,784
-------- -------- ------- --------
Net revenue...................... $140,245 $ -- $(4,557) $135,688
Operating expenses:
Engineering.................... 3,793 -- (242) 3,551
Programming.................... 20,714 -- (805) 19,909
Selling........................ 42,157 -- (1,476) 40,681
General and administrative..... 14,616 -- (978) 13,638
Corporate expenses............. 13,546 -- -- 13,546
Depreciation and
amortization................ 3,005 4(b) (134) 2,875
-------- -------- ------- --------
Total operating
expenses............... $ 97,831 $ 4 $(3,635) $ 94,200
-------- -------- ------- --------
Operating income from continuing
operations..................... 42,414 (4) (922) 41,488
Other (income) expenses:
Interest expense, net.......... 34,118 5,108(c) 28 39,254
Other, net..................... 720 -- -- 720
Income (loss) from continuing
operations before income taxes,
discontinued operations and
cumulative effect of a change
in accounting principle........ 7,576 (5,112) (950) 1,514
Income tax expense (benefit)..... 53,863 6,933(e) (769)(e) 60,027
-------- -------- ------- --------
Loss from continuing operations
before discontinued operations
and cumulative effect of a
change in accounting
principle...................... $(46,287) $(12,045) $ (181) $(58,513)
======== ======== ======= ========
Loss per common share from
continuing operations before
discontinued operations and
cumulative effect of a change
in accounting principle:
Basic and diluted.............. $ (0.72) $ (0.32)(f) $ -- $ (1.04)
======== ======== ======= ========
Weighted-average common shares
outstanding:
Basic and diluted.............. 64,670 64,670 64,670 64,670
======== ======== ======= ========
</Table>
35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
PRO FORMA
CONDENSED
CONSOLIDATED
HISTORICAL NINE PRO FORMA ADJUSTMENTS NINE MONTHS
MONTHS ENDED -------------------------------- ENDED
SEPTEMBER 30, FINANCING AND SEPTEMBER 30,
2003 ACQUISITION STATION SALES(D) 2003
--------------- ------------- ---------------- -------------
($ IN THOUSANDS, EXCEPT SHARE DATA)
Gross revenue.......................... $115,268 $ -- -- $115,268
Less agency commissions................ 15,110 -- -- 15,110
-------- -------- ------- --------
Net revenue............................ $100,158 $ -- -- $100,158
-------- -------- ------- --------
Operating expenses:
Engineering.......................... 2,787 -- -- 2,787
Programming.......................... 14,857 -- -- 14,857
Non-cash programming................. 2,943 (2,943)(a) -- --
Selling.............................. 26,487 -- -- 26,487
General and administrative........... 10,610 -- -- 10,610
Corporate expenses................... 13,751 -- -- 13,751
Depreciation and amortization........ 2,117 4(b) -- 2,121
-------- -------- ------- --------
Total operating expenses........ $ 73,552 $ (2,939) -- $ 70,613
-------- -------- ------- --------
Operating income....................... 26,606 2,939 -- 29,545
Other (income) expenses:
Interest expense, net................ 26,256 3,830(c) -- 30,934
Other, net........................... (2,866) -- -- (2,866)
-------- -------- ------- --------
Income (loss) from continuing
operations before income taxes and
discontinued operations.............. 3,216 (891) -- 2,325
Income tax expense..................... 5,287 3,258(e) -- 8,545
-------- -------- ------- --------
Loss from continuing operations before
discontinued operations.............. $ (2,071) $ (4,149) -- $ (6,220)
======== ======== ======= ========
Loss per common share before
discontinued operations:
Basic and diluted.................... $ (0.03) $ (0.16)(f) $ -- $ (0.19)
======== ======== ======= ========
Weighted-average common shares
outstanding:
Basic and diluted.................... 64,683 64,683 64,683 64,683
======== ======== ======= ========
</Table>
- ---------------
(a) Represents the elimination of the non-cash programming expense related to
the warrants issued pursuant to the amended KXOL asset purchase agreement.
(b) Represents adjustments for the increase of property and equipment
depreciation associated with acquired assets in connection with the
acquisition of KXOL.
(c) Represents interest expense adjustment of $5.1 million and $3.8 million for
the fiscal year ended December 29, 2002 and the nine months ended September
30, 2003, respectively, resulting from the aggregate impact of the increase
in interest expense attributable to (i) the new senior secured credit
facilities and (ii) the related amortization of deferred financing costs.
36
(d) The results of operating income from continuing operations of the San
Antonio and San Francisco radio stations have been eliminated in the
historical fiscal year ended December 29, 2002 and for the historical nine
months ended September 30, 2003 and have been reflected as discontinued
operations in the historical unaudited financial statements as filed in our
Quarterly Report on Form 10-Q.
(e) Represents income tax effect of adjustments.
(f) The calculation of net (loss) income per common share includes the pro forma
effect of dividends on the preferred stock of $8.4 million and $6.2 million
for the fiscal year ended December 29, 2002 and the nine months ended
September 30, 2003, respectively.
37
SELECTED ADJUSTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected adjusted historical consolidated financial information as of
and for the fiscal years ended September 27, 1998, September 26, 1999, September
24, 2000 and September 30, 2001, the three-month transitional period ended
December 30, 2001 and the fiscal year ended December 29, 2002, have been derived
from our historical consolidated financial statements, which have been adjusted
for the items discussed below. The summary historical financial data as of and
for the nine months ended September 29, 2002 and September 30, 2003 have been
derived from our unaudited consolidated financial statements as of and for the
nine months ended September 29, 2002 and September 30, 2003, which have been
prepared on a basis consistent with our annual consolidated financial
statements. The following historical consolidated financial information has been
adjusted to reflect the sale of radio stations KLEY-FM and KSAH-AM, serving the
San Antonio, Texas market, and the proposed sale of radio station KPTI-FM,
serving the San Francisco, California market, as discontinued operations in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". In addition, our historical financial data for fiscal years
ending September 27, 1998, September 24, 2000 and September 30, 2001 have been
adjusted to reflect the adoption of SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The adoption of SFAS No. 145 will require our extraordinary loss
recognized on the extinguishments of debt in 1998, 2000 and 2001 to be
reclassified to income or loss from continuing operations before income taxes,
discontinued operations and the cumulative effect of a change in accounting
principle in the consolidated financial statements for the year ended December
31, 2003. In the opinion of our management, the unaudited financial data
reflects all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the results for those periods. The results
of operations for the nine months ended September 30, 2003, are not necessarily
indicative of the results to be expected for the full year or any future period.
Effective November 6, 2001, we changed our fiscal year end from the last Sunday
in September of each calendar year to the last Sunday in December of each
calendar year. Effective December 30, 2002, we again changed our year end from a
broadcast calendar 52-53-week fiscal year ending on the last Sunday in December
to a calendar year ending on December 31. Financial results for December 30 and
31, 2002 are included in our financial results for the nine months ended
September 30, 2003. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
contained in our Annual Report on Form 10-K for the fiscal year ended December
29, 2002, and our Quarterly Report on Form 10-Q for the nine month period ended
September 30, 2003, which are incorporated by reference within this prospectus.
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
STATEMENT OF OPERATIONS
DATA:
Gross revenue (1)........... $ 86,399 $108,487 $ 135,301 $142,781 $ 36,106 $154,472
Less: agency commissions.... 10,588 12,980 17,540 17,314 4,337 18,784
-------- -------- --------- -------- -------- --------
Net revenue (1)............. $ 75,811 $ 95,507 $ 117,761 $125,467 $ 31,769 135,688
Station operating expenses
(1)(2).................... 38,889 42,297 53,206 76,277 19,447 77,779
Stock based programming
expense (3)............... -- -- -- -- -- --
Corporate expenses.......... 6,893 10,636 20,730 10,515 2,387 13,546
Depreciation and
amortization.............. 8,768 9,623 12,828 16,750 4,275 2,871
-------- -------- --------- -------- -------- --------
Operating income from
continuing operations..... $ 21,261 $ 32,951 $ 30,997 $ 21,925 $ 5,660 $ 41,492
Interest expense, net (4)... (20,860) (21,181) (19,538) (30,643) (8,212) (34,146)
Other income (expense),
net....................... (213) (749) (302) 497 650 (720)
Loss on extinguishment of
debt (5).................. (2,688) -- (28,585) (3,063) -- --
Gain on sale of AM
stations.................. 36,242 -- -- -- -- --
-------- -------- --------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes,
discontinued operations
and cumulative effect of
a change in accounting
principle............... $ 33,742 $ 11,021 $ (17,428) $(11,284) $ (1,902) $ 6,626
Income tax expense
(benefit)................. 14,727 4,776 (6,634) (4,307) (686) 53,094
-------- -------- --------- -------- -------- --------
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
STATEMENT OF OPERATIONS
DATA:
Gross revenue (1)........... $114,915 $115,268
Less: agency commissions.... 13,710 15,110
-------- --------
Net revenue (1)............. $101,205 $100,158
Station operating expenses
(1)(2).................... 59,089 54,741
Stock based programming
expense (3)............... -- 2,943
Corporate expenses.......... 9,559 13,751
Depreciation and
amortization.............. 2,102 2,117
-------- --------
Operating income from
continuing operations..... $ 30,455 $ 26,606
Interest expense, net (4)... (25,775) (26,256)
Other income (expense),
net....................... 200 2,866
Loss on extinguishment of
debt (5).................. -- --
Gain on sale of AM
stations.................. -- --
-------- --------
Income (loss) from
continuing operations
before income taxes,
discontinued operations
and cumulative effect of
a change in accounting
principle............... $ 4,880 $ 3,216
Income tax expense
(benefit)................. 49,242 5,287
-------- --------
</Table>
38
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
Income (loss) from
continuing operations
before discontinued
operations and cumulative
effect of a change in
accounting principle...... $ 19,015 $ 6,245 $ (10,794) $ (6,977) $ (1,216) $(46,468)
Discontinued operations, net
of income taxes (6)....... (230) (428) 188 (611) (11) 1,910
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. -- -- -- -- -- (45,288)
-------- -------- --------- -------- -------- --------
Net income (loss)........... $ 18,785 $ 5,817 $ (10,606) $ (7,588) $ (1,227) $(89,846)
======== ======== ========= ======== ======== ========
Dividends on preferred
stock..................... $(30,270) $(34,749) $ (28,372) $ -- $ -- $ --
-------- -------- --------- -------- -------- --------
Net loss applicable to
common stock.............. $(11,485) $(28,932) $ (38,978) $ (7,588) $ (1,227) $(89,846)
======== ======== ========= ======== ======== ========
Dividends per share on
common stock.............. $ 0.11 $ -- $ -- $ -- $ -- $ --
======== ======== ========= ======== ======== ========
Loss per common share:
Basic and diluted (before
discontinued operations
and cumulative effect of
a change in accounting
principle).............. $ (0.37) $ (0.85) $ (0.68) $ (0.11) $ (0.02) $ (0.72)
Basic and diluted......... $ (0.38) $ (0.86) $ (0.68) $ (0.12) $ (0.02) $ (1.39)
Weighted average common
shares outstanding (8):
Basic and diluted......... 30,333 33,585 58,163 64,096 64,658 64,670
OTHER FINANCIAL DATA:
Station operating income
(9)....................... $ 36,922 $ 53,210 $ 64,555 $ 49,190 $ 12,322 $ 57,909
Station operating income
margin (9)................ 49% 56% 55% 39% 39% 43%
Adjusted EBITDA (9)......... $ 30,029 $ 42,574 $ 43,825 $ 38,675 $ 9,935 $ 44,363
Adjusted EBITDA margin
(9)....................... 40% 45% 37% 31% 31% 33%
Capital expenditures........ $ 1,645 $ 2,100 $ 3,793 $ 5,595 $ 830 $ 3,994
Net cash provided by (used
in) operating
activities................ $ 10,923 $ 20,782 $ 28,672 $ 17,023 $ (7,377) $ 10,666
Net cash provided by (used
in) investing
activities................ $ 32,190 $(38,384) $(205,050) $(35,181) $ (837) $ 9,265
Net cash provided by (used
in) financing
activities................ $(17,758) $ (3,065) $ 218,962 $ 18,499 $ (46) $ (141)
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents... $ 37,642 $ 16,975 $ 59,559 $ 59,900 $ 51,640 $ 71,430
Total assets................ $351,034 $365,681 $ 634,691 $700,178 $687,078 $635,284
Total debt (including
current portion).......... $171,126 $172,486 $ 304,664 $327,452 $327,631 $328,310
Preferred stock $201,368 $235,918 $ -- $ -- $ -- $ --
Total stockholders'
(deficiency) equity....... $(46,193) $(75,122) $ 274,465 $309,426 $308,199 $227,425
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
Income (loss) from
continuing operations
before discontinued
operations and cumulative
effect of a change in
accounting principle...... $(44,362) $ (2,071)
Discontinued operations, net
of income taxes (6)....... 1,906 (340)
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. (45,288) --
-------- --------
Net income (loss)........... $(87,744) $ (2,411)
======== ========
Dividends on preferred
stock..................... $ -- $ --
-------- --------
Net loss applicable to
common stock.............. $(87,744) $ (2,411)
======== ========
Dividends per share on
common stock.............. $ -- $ --
======== ========
Loss per common share:
Basic and diluted (before
discontinued operations
and cumulative effect of
a change in accounting
principle).............. $ (0.69) $ (0.03)
Basic and diluted......... $ (1.36) $ (0.04)
Weighted average common
shares outstanding (8):
Basic and diluted......... 64,699 64,683
OTHER FINANCIAL DATA:
Station operating income
(9)....................... $ 42,116 $ 42,474
Station operating income
margin (9)................ 42% 42%
Adjusted EBITDA (9)......... $ 32,557 $ 29,723
Adjusted EBITDA margin
(9)....................... 32% 29%
Capital expenditures........ $ 2,890 $ 2,513
Net cash provided by (used
in) operating
activities................ $ 18,895 $ 15,432
Net cash provided by (used
in) investing
activities................ $ 10,423 $(39,513)
Net cash provided by (used
in) financing
activities................ $ (140) $ (745)
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents... $ 80,818 $ 46,604
Total assets................ $643,098 $650,120
Total debt (including
current portion).......... $328,106 $328,962
Preferred stock $ -- $ --
Total stockholders'
(deficiency) equity....... $229,478 $227,981
</Table>
39
- ---------------
(1) Included are revenue and expenses related to a two-year AOL Time Warner
barter agreement which concluded in August 2002. These results are
non-recurring and had a significant non-cash impact for the periods:
<Table>
<Caption>
IMPACT ON
------------------------------------
REVENUE EXPENSE ADJUSTED EBITDA
------- -------- ---------------
($ IN THOUSANDS)
(a) Fiscal year ended September 24, 2000................ $ 504 $ (668) $(164)
(b) Fiscal year ended September 30, 2001................. 10,409 (10,234) 175
(c) Three months ended December 30, 2001................ 2,437 (2,433) 4
(d) Fiscal year ended December 29, 2002.................. 6,351 (6,366) (15)
(e) Nine months ended September 29, 2002................ 6,351 (6,366) (15)
(f) Nine months ended September 30, 2003................ -- -- --
</Table>
(2) Station operating expenses include engineering, programming, selling and
general and administrative expenses, but exclude stock-based programming
expenses.
(3) We were required to issue additional warrants to ICFG from the date that
ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM until the
closing of the acquisition of KXOL-FM. On each of March 31, 2003, April 30,
2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and
September 30, 2003, we granted ICFG a warrant exercisable for 100,000
shares (an aggregate of 700,000 shares) of our Class A common stock at an
exercise price of $6.14, $7.67, $7.55, $8.08, $8.17, $7.74 and $8.49 per
share, respectively. The warrant issued on September 30, 2003 was the final
warrant required under the amended time brokerage agreement due to the
closing of the acquisition of KXOL-FM. We assigned each warrant a fair
market value of approximately $0.3 million, $0.4 million, $0.4 million,
$0.4 million, $0.4 million, $0.4 million and $0.5 million, respectively,
based on the Black-Scholes option pricing model in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The fair market value of
each warrant was recorded as a stock-based programming expense on the
respective date of grant.
(4) Interest expense, net includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(5) In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers" and FASB Statement No. 64, "Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements." SFAS No. 145 amends FASB No. 13,
"Accounting for Leases" and other existing authoritative pronouncements to
make various technical corrections and clarify meanings, or describes their
applicability under changed conditions. The adoption of SFAS No. 145
required our extraordinary loss recognized on the extinguishments of debt
in 1998, 2000 and 2001 to be reclassified to income or loss from continuing
operations before income taxes, discontinued operations and the cumulative
effect of a change in accounting principle.
For the fiscal year ended September 27, 1998, we recorded an extraordinary
loss of $1.6 million resulting from the repurchase of $13.2 million par
value of our 12 1/2% senior unsecured notes due 2002, at a premium of
approximately $2.2 million in excess of their carrying value and from the
write-off of the related unamortized deferred financing costs of
approximately $0.5 million, net of the related tax benefit of approximately
$1.1 million. This extraordinary loss was reclassified to a loss on
extinguishment of debt due to the adoption of SFAS No. 145.
For the fiscal year ended September 24, 2000, we recorded an extraordinary
loss of $17.2 million related to the early retirement of our 11% senior
unsecured notes due 2004 and 12 1/2% senior unsecured notes due 2002, at a
premium of approximately $23.1 million in excess of their carrying value
and from the write-off of the related unamortized deferred financing costs
of approximately $5.5 million, net of the related tax benefit of
approximately $11.4 million. This extraordinary loss was reclassified to a
loss on extinguishment of debt due to the adoption of SFAS No. 145.
For the fiscal year ended September 30, 2001, we repaid $66.2 million of
the outstanding indebtedness and accrued interest under our senior credit
facility, which we then terminated. We recorded an extraordinary loss of
approximately $1.9 million, net of the related tax benefit of approximately
$1.2 million, which relates to the write-
40
off of the related unamortized deferred financing costs. This extraordinary
loss was reclassified to a loss on extinguishment of debt due to the
adoption of SFAS No. 145.
(6) On October 2, 2003, we entered into an asset purchase agreement with 3
Point Media -- San Francisco, LLC ("Three Point Media") to sell the assets
of radio station KPTI-FM, serving the San Francisco, California market, for
a cash purchase price of $30.0 million (the "San Francisco Asset Purchase
Agreement"). Additionally, on September 18, 2003, we entered into an asset
purchase agreement with Border Media Partners, LLC to sell the assets of
radio stations KLEY-FM and KSAH-AM, serving the San Antonio, Texas market,
for a cash purchase of $24.4 million. On September 30, 2003, these
stations' assets held for sale consisted of $26.3 million of intangible
assets and $0.9 million of property and equipment. Three Point Media did
not close under the San Francisco Asset Purchase Agreement, and on February
3, 2004, we terminated the agreement. We are currently considering other
written offers to purchase the assets of our San Francisco station for a
purchase price equal to the purchase price under the San Francisco Asset
Purchase Agreement. We intend to sell the assets of our San Francisco
station; however, we cannot assure you that the sale will be completed. We
completed the sale of the assets of our San Antonio stations on January 30,
2004.
On August 23, 2002, we sold for $35.0 million KTCY-FM's assets held for
sale consisting of intangible assets and property and equipment. We
recognized a gain of approximately $1.8 million, net of closing costs and
taxes.
On December 31, 2001, the Company adopted the provisions of SFAS 144
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Under SFAS 144, discontinued businesses or
assets held for sale are removed from the results of continuing operations.
The Company determined that the proposed sale of KPTI-FM serving San
Francisco, California, as well as the sales of KLEY-FM and KSAH-AM serving
San Antonio, Texas and KTCY-FM serving Dallas, Texas met the criteria in
accordance with SFAS 144. The results of operations in the current year and
prior year periods of these stations have been classified as discontinued
operations in the selected historical consolidated statements of
operations.
(7) In July 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No.
142. We have concluded that our intangible assets, comprised primarily of
FCC licenses, qualify as indefinite-life intangible assets under SFAS No.
142.
After performing the transitional impairment evaluation of our
indefinite-life intangible assets, we determined that the carrying value of
certain indefinite-life intangible assets exceeded their respective fair
market values.
As a result of adopting SFAS No. 142 in the fiscal year ended December 29,
2002, we recorded a non-cash charge for the cumulative effect of a change
in accounting principle of $45.3 million, net of income tax benefit of
$30.2 million.
(8) On September 29, 1999, we filed a third amended and restated certificate of
incorporation which resulted in (1) the redesignation of our previously
outstanding shares of Class A common stock into shares of Class B common
stock, (2) a 50-to-1 stock split of our Class B common stock, and (3) a
reduction in the par value of our Class A common stock and Class B common
stock from $0.01 per share to $0.0001 per share. The financial information
has been restated to reflect this redesignation, stock split and change in
par value.
(9) "Station operating income," "station operating income margin," "broadcast
cash flow," "broadcast cash flow margin," "Adjusted EBITDA" and "Adjusted
EBITDA margin" are non-GAAP financial measures as defined by the Securities
and Exchange Commission's Regulation G. These non-GAAP financial measures
should not be construed as superior to GAAP financial measures. The GAAP
financial measures most directly comparable to each non-GAAP financial
measure and a reconciliation of the differences between each non-GAAP
financial measure and the comparable GAAP financial measure are included on
page 42.
The term "station operating income" (our former broadcast cash flow or
"BCF") is defined as GAAP operating income from continuing operations
excluding corporate expenses and depreciation and amortization. Station
operating income replaces our former BCF as the metric used by our
management to assess the performance of our stations. Although it is
calculated in the same manner as BCF, management believes that using the
term "station operating income" provides a more accurate description of the
performance measure.
The term "station operating income margin" consists of station operating
income divided by net revenue.
EBITDA consists of earnings before interest expense, interest income,
income taxes, depreciation and amortization of assets, gain or loss from
extinguishments of debt, discontinued operations and the cumulative effect
of a change in accounting principle. We calculate our EBITDA differently.
Our "EBITDA" is EBITDA as defined above but excluding other income or
expense, or, alternatively, GAAP operating income from continuing
operations before
41
depreciation and amortization. To distinguish our calculation of EBITDA
from other possible meanings of EBITDA, for periods ending after March 31,
2003 and going forward we changed references to "EBITDA" in our financial
reports to the term "Adjusted EBITDA." Although our "Adjusted EBITDA" and
what we formerly referred to as our "EBITDA" are calculated in the same
manner, management believes "Adjusted EBITDA" is a more accurate
description.
The term "Adjusted EBITDA margin" consists of Adjusted EBITDA divided by
net revenue.
Station operating income, station operating income margin, Adjusted EBITDA
and Adjusted EBITDA margin, as we define the terms, are not measures of
performance or liquidity calculated in accordance with GAAP and may not be
comparable to similarly titled measures employed by other companies.
Although station operating income, station operating income margin,
Adjusted EBITDA and Adjusted EBITDA margin are not measures of performance
calculated in accordance with GAAP, we believe that they are useful to an
investor in evaluating an investment in our securities because they are
measures widely used in the broadcast industry to evaluate a radio
company's operating performance and are used by management for internal
budgeting purposes and to evaluate the performance of our radio stations.
However, station operating income, station operating income margin,
Adjusted EBITDA and Adjusted EBITDA margin should not be considered in
isolation or as substitutes for operating income, net income (loss), cash
flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as measures of liquidity or
profitability. Also, because they are not calculated in the same manner by
all companies, they may not be comparable to other similarly titled
measures used by other companies.
RECONCILIATION BETWEEN ADJUSTED HISTORICAL GAAP RESULTS AND NON-GAAP PRO FORMA
RESULTS
<Table>
<Caption>
THREE MONTHS FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------- ------------- ------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 30, DECEMBER 30, DECEMBER 29,
1998 1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- ------------- ------------
Net revenue (1)............. $ 75,811 $ 95,507 $117,761 $125,467 $31,769 $135,688
Station operating expenses
(2)....................... 38,889 42,297 53,206 76,277 19,447 77,779
Stock based programming
expense (3)............... -- -- -- -- -- --
-------- -------- -------- -------- ------- --------
Station operating income
(9)....................... $ 36,922 $ 53,210 $ 64,555 $ 49,190 $12,322 $ 57,909
Corporate expenses.......... 6,893 10,636 20,730 10,515 2,387 13,546
-------- -------- -------- -------- ------- --------
Adjusted EBITDA (9)......... $ 30,029 $ 42,574 $ 43,825 $ 38,675 $ 9,935 $ 44,363
Depreciation and
amortization.............. 8,768 9,623 12,828 16,750 4,275 2,871
-------- -------- -------- -------- ------- --------
Operating income from
continuing operations..... $ 21,261 $ 32,951 $ 30,997 $ 21,925 $ 5,660 $ 41,492
Interest expense, net (4)... (20,860) (21,181) (19,538) (30,643) (8,212) (34,146)
Other income (expense),
net....................... (213) (749) (302) 497 650 (720)
Loss on extinguishment of
debt (5).................. (2,688) -- (28,585) (3,063) -- --
Gain on sale of AM
stations.................. 36,242 -- -- -- -- --
Income tax expense
(benefit)................. 14,727 4,776 (6,634) (4,307) (686) 53,094
Discontinued operations, net
of income taxes (6)....... (230) (428) 188 (611) (11) 1,910
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. -- -- -- -- -- (45,288)
-------- -------- -------- -------- ------- --------
Net income (loss)......... $ 18,785 $ 5,817 $(10,606) $ (7,588) $(1,227) $(89,846)
======== ======== ======== ======== ======= ========
Dividends on preferred
stock..................... $(30,270) $(34,749) $(28,372) $ -- $ -- $ --
-------- -------- -------- -------- ------- --------
Net loss applicable to
common stock.............. $(11,485) $(28,932) $(38,978) $ (7,588) $(1,227) $(89,846)
======== ======== ======== ======== ======= ========
<Caption>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2003
------------- -------------
Net revenue (1)............. $101,205 $100,158
Station operating expenses
(2)....................... 59,089 54,741
Stock based programming
expense (3)............... -- 2,943
-------- --------
Station operating income
(9)....................... $ 42,116 $ 42,474
Corporate expenses.......... 9,559 13,751
-------- --------
Adjusted EBITDA (9)......... $ 32,557 $ 28,723
Depreciation and
amortization.............. 2,102 2,117
-------- --------
Operating income from
continuing operations..... $ 30,455 $ 26,606
Interest expense, net (4)... (25,775) (26,256)
Other income (expense),
net....................... 200 2,866
Loss on extinguishment of
debt (5).................. -- --
Gain on sale of AM
stations.................. -- --
Income tax expense
(benefit)................. 49,242 5,287
Discontinued operations, net
of income taxes (6)....... 1,906 (340)
Cumulative effect of a
change in accounting
principle, net of income
taxes (7)................. (45,288) --
-------- --------
Net income (loss)......... $(87,744) $ (2,411)
======== ========
Dividends on preferred
stock..................... $ -- $ --
-------- --------
Net loss applicable to
common stock.............. $(87,744) $ (2,411)
======== ========
</Table>
Notes begin on page 40.
42
DESCRIPTION OF INDEBTEDNESS
As of December 31, 2003, the aggregate amount of our outstanding
indebtedness that would have been senior to the exchange notes, had they been
issued, was $454.2 million. Please see the section in this prospectus entitled
"Description of Series B Preferred Stock and Exchange Notes" for a description
of the terms of the exchange notes.
9 5/8% SENIOR SUBORDINATED NOTES MATURING NOVEMBER 1, 2009
The following summary of our existing 9 5/8% senior subordinated notes due
2009, which we refer to as our existing 9 5/8% notes, is based upon the terms of
the indenture and related documents governing these existing 9 5/8% notes, which
we refer to as the existing indenture, and is subject to and qualified in its
entirety by reference to the terms and conditions of the existing indenture,
copies of which are available from us upon request.
The aggregate principal amount of our existing 9 5/8% notes is $335.0
million. Our existing 9 5/8% notes are our general unsecured obligations,
subordinated in right of payment to all of our existing and future senior debt
and rank pari passu in the right of payment with our other existing and future
senior subordinated indebtedness. Our existing 9 5/8% notes are unconditionally
guaranteed, on a senior subordinated basis, as to payment of principal, premium,
if any, and interest, jointly and severally, by certain of our current and
future subsidiaries. Subject to certain restrictions, the existing indenture
permits us and our guarantor subsidiaries to incur additional debt, including
additional senior debt.
Our existing 9 5/8% notes will mature on November 1, 2009. Our existing
9 5/8% notes bear interest at a rate of 9 5/8% per annum from the date of
original issuance until maturity. Interest is payable semi-annually in arrears
on May 1 and November 1 of each year, commencing November 1, 2001.
Our existing 9 5/8% notes are redeemable at our option, in whole or in
part, at any time on or after November 1, 2004 at a redemption price, together
with accrued and unpaid interest to the redemption date, equal to:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2004........................................................ 104.813%
2005........................................................ 103.208%
2006........................................................ 101.604%
2007 and thereafter......................................... 100.000%
</Table>
In the event of a "change of control" (as defined in the existing
indenture), we will be required to make an offer to purchase all or any part of
a holder's outstanding existing notes at a price equal to 101% of the principal
amount outstanding plus accrued and unpaid interest to the date of repurchase.
The existing indenture contains covenants for the benefit of the holders of
our existing 9 5/8% notes that, among other things, and subject to certain
exceptions, restrict our and our guarantor subsidiaries' ability to:
- incur additional indebtedness;
- create liens;
- pay dividends, distributions or make other specified restricted
payments;
- sell assets and engage in asset swaps;
- enter into transactions with affiliates;
- issue shares of preferred stock;
- enter into sale and leaseback transactions; and
- merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of our
assets.
OTHER LONG-TERM DEBT
We occupy a building under a capital lease agreement with our chief
executive officer and a director which expires in June 2012. Our obligations
under this capital lease are payable in monthly installments of $9,000,
including interest at
43
6.25% per year, commencing June 1992. As of December 31, 2003, the outstanding
balance of our obligations under this capital lease was $0.7 million.
During the fiscal year ended September 24, 2000, we acquired a building and
land in Puerto Rico for $5.3 million. We funded the acquisition using cash on
hand and proceeds from a bank loan of $3.7 million. The loan is payable in
monthly installments of $39,196, including interest at 9.75% per year,
commencing August 2000, with the balance due in June 2005. As of December 31,
the outstanding principal amount of the loan was $3.2 million.
DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES
On October 30, 2003, we entered into a credit agreement for $135.0 million
of senior secured credit facilities with Lehman Brothers Inc. as sole advisor,
sole lead arranger and sole book-runner, Lehman Commercial Paper Inc. as
syndication agent and as administrative agent, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Deutsche Bank Securities Inc. as co-documentation agents,
and Merrill Lynch Capital Corporation and Deutsche Bank Trust Company Americas.
Such facilities consist of a six-year $125.0 million term loan B facility
(provided, however, that in the event that our existing 9 5/8% notes have not
been redeemed or repurchased consistent with the terms of the senior secured
facilities on or prior to December 31, 2008, such term loan facility will have a
5 1/2 year term) and a five-year $10.0 million revolving credit facility.
Subject to compliance with customary conditions precedent, the revolving
loans are available at any time prior to the final maturity of the revolving
credit facility, the term loan was available in a single drawing at initial
funding, and amounts repaid in respect of revolving loans under the senior
secured credit facilities may be reborrowed prior to the final maturity of the
revolving credit facility, subject to compliance with requirements to reduce the
revolving commitment upon the incurrence of certain indebtedness, the issuance
of certain equity and the consummation of certain asset sales. Proceeds of the
term loan were used to pay a portion of the remaining $190.0 million purchase
price for KXOL and fees and expenses incurred in connection therewith and
proceeds of revolving loans will be used for working capital purposes, capital
needs and general corporate purposes.
All of our obligations under the senior secured credit facilities are
unconditionally guaranteed by each of our existing domestic subsidiaries (other
than JuJu Media, Inc.), our subsidiary Spanish Broadcasting System of Puerto
Rico, Inc., a Puerto Rico entity, and its subsidiaries, each future domestic
subsidiary, each present and future foreign subsidiary that has elected to be
taxed as a partnership or disregarded entity pursuant to section 301.7701-3 of
the United States Treasury Regulations and any other subsidiary that has
guaranteed our existing 9 5/8% notes. The senior secured credit facilities and
the related guarantees are secured (a) by a pledge of (i) 100% of the capital
stock of each guarantor, including, without limitation, those guarantors that
own FCC licenses, (ii) 65% of the voting stock and 100% of any non-voting stock
of any foreign subsidiary (other than a guarantor) that is directly owned by us
or one of our domestic subsidiaries and (b) subject to customary exceptions, by
a first priority security interest in and lien on substantially all of our and
our guarantors' personal property and certain material real property, but
excluding FCC licenses to the extent that the granting of such a security
interest in such licenses would violate applicable U.S. federal law.
The credit agreement provides that loans under the senior secured credit
facilities will, at our option, bear interest at either (i) a floating rate per
annum (the "Base Rate") equal to the higher of the prime lending rate as set
forth on the British Bankers Association Telerate page 5 (or such other
comparable page as may, in the opinion of the Administrative Agent under the
senior secured credit facilities, replace such page for the purposes of
displaying such rate) and the Federal Funds Rate plus 50 basis points or (ii)
the rate (adjusted for statutory reserve requirements for eurocurrency
liabilities) at which eurodollar deposits for one, two, three or six months (as
we may select) are offered in the interbank eurodollar market (the "Eurodollar
Rate"), in each case plus a margin. Further, the credit agreement provides that
at any time that we are in default in payment of any amount of principal due
under the senior secured credit facilities, all obligations under the senior
secured credit facilities will bear interest at 2% above the rate otherwise
applicable thereto (which in the case of overdue interest, fees and other
amounts shall be calculated by reference to the Base Rate). The interest on all
loans under the senior secured credit facilities are payable (x) in the case of
Base Rate loans, quarterly in arrears, and (y) in the case of Eurodollar Rate
loans, on the last day of the interest period applicable thereto or every three
months in the case of interest periods in excess of three months and, in each
case, at the time of repayment of any such loans and at maturity. In addition to
paying interest on any outstanding principal amount under the senior secured
credit facilities, we are required to pay a fee on the unused portion of the
revolving credit facility equal to 0.50% per
44
annum of the average unused daily balance of the revolving credit commitment,
commencing on October 30, 2003 and payable quarterly in arrears and upon
expiration, termination or cancellation of the revolving credit facility.
The principal balance of the term loan facility is repayable in quarterly
installments beginning on March 31, 2004, each such quarterly installment
through and including December 31, 2008 to be in the amount of 0.25% of the
original principal balance of the term loan facility, and that in the final year
of the term of the term loan facility, each such quarterly installment will be
in the amount of 25% of the remaining principal balance of the term loan
facility as of the end of year 5, with any remaining balance being due and
payable on the maturity of the term loan facility. We are required to make
mandatory prepayments and reductions of the senior secured facilities with the
net cash proceeds received from certain issuances of debt and equity and upon
the sale or other disposition of assets (including as a result of casualty or
condemnation), subject to certain exceptions, limitations and carve-outs. We are
required to repay a portion of borrowing under the senior secured credit
facilities with a portion of the proceeds from the sale of our San Antonio
stations and the proposed sale of our San Francisco station.
The credit agreement documentation contains certain customary
representations and warranties and contains customary covenants restricting our
ability and our subsidiaries' ability to, among others things, (i) declare
dividends or redeem or repurchase capital stock, (ii) make certain other
restricted payments, (iii) incur liens, (iv) make investments, (v) incur
additional indebtedness, (vi) amend or otherwise alter the terms of certain
indebtedness and certain other material agreements, (vii) enter into asset
sales, (viii) fundamentally change our operations and (ix) engage in
transactions with affiliates, in each case subject to carveouts and exceptions
to be negotiated. We are required to comply with financial covenants regarding
total leverage, senior leverage, interest coverage, and, beginning in 2004,
fixed charge coverage, and other specified covenants.
The credit agreement provides that events of default include, but will not
be limited to, (i) our failure to pay principal when due or failure after a
grace period to pay interest, fees or other amounts, (ii) covenant defaults,
(iii) events of bankruptcy, (iv) cross default to certain other debt, (v)
certain unsatisfied final judgments, (vi) a change of control, (vii) loss of an
FCC license which could reasonably be expected to have a material adverse
effect, and (viii) certain ERISA events. We paid the senior lenders certain
underwriting and administration fees, reimbursed certain expenses and provided
certain indemnities to the senior lenders and the agent, in each case which are
customary for credit facilities of this type.
45
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material provisions of our capital stock
as set forth in our third amended and restated certificate of incorporation.
This summary is not complete. For a more detailed description, see our third
amended and restated certificate of incorporation and by-laws, and the
applicable provisions of Delaware law.
Our third amended and restated certificate of incorporation provides for
authorized capital stock of 100,000,000 shares of Class A common stock, par
value $0.0001 per share, 50,000,000 shares of Class B common stock, par value
$0.0001 per share and 1,000,000 shares of preferred stock, par value $0.01 per
share.
SERIES A PREFERRED STOCK
Of the 1,000,000 shares of preferred stock that we are authorized to issue,
280,000 are designated as 10 3/4% Series A cumulative exchangeable redeemable
preferred stock, par value $.01 per share, and liquidation preference of $1,000
per share. On October 30, 2003, we issued 75,000 shares of Series A preferred
stock. The terms of the Series A preferred stock are substantially the same as
the terms of the Series B preferred stock except that the Series B preferred
stock:
- is registered under the Securities Act of 1933, as amended, and therefore
is freely transferable, subject to certain conditions;
- does not bear restrictive legends restricting its transfer under the
Securities Act;
- does not entitle holders to the registration rights that apply to the
Series A preferred stock; and
- does not contain provisions relating to additional dividends which become
payable in certain circumstances related to the timing of this exchange
offer.
SERIES B PREFERRED STOCK
Of the 1,000,000 shares of preferred stock that we are authorized to issue,
280,000 are designated as 10 3/4% Series B cumulative exchangeable redeemable
preferred stock, par value $.01 per share, and liquidation preference of $1,000
per share. For a description of the Series B preferred stock, please refer to
the section of this prospectus entitled "Description of Series B Preferred Stock
and Exchange Notes."
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
GENERAL. The holders of Class A common stock and Class B common stock have
identical rights except with respect to voting, conversion and transfer.
VOTING RIGHTS. Holders of our Class A common stock are entitled to one
vote per share on all matters to be voted on by stockholders, while holders of
Class B common stock are entitled to ten votes per share. Holders of Class A
common stock and Class B common stock are not entitled to cumulate their votes
in the election of directors. Generally, all matters to be voted on by
stockholders must be approved by a majority of the votes entitled to be cast by
all holders of Class A common stock and Class B common stock present in person
or represented by proxy, voting together as a single class, subject to any
voting rights granted to holders of any preferred stock. Except as otherwise
provided by law or in our third amended and restated certificate of
incorporation, and subject to any voting rights granted to holders of any
outstanding preferred stock, amendments to our third amended and restated
certificate of incorporation must be approved by a majority of the votes
entitled to be cast by all holders of Class A common stock and Class B common
stock present in person or represented by proxy, voting together as a single
class. However, amendments to our third amended and restated certificate of
incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock so as to affect them adversely also must be
approved by a majority of the votes entitled to be cast by the holders of the
Class A common stock, voting as a separate class. Any amendment to our third
amended and restated certificate of incorporation to increase the authorized
shares of any class requires the approval of a majority of the votes entitled to
be cast by all holders of Class A common stock and Class B common stock present
in person or represented by proxy, voting together as a single class, subject to
the rights of any series of preferred stock created as described below.
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DIVIDENDS. Holders of our Class A common stock and Class B common stock
will share equally on a per share basis in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends consisting of shares of Class A common stock and Class B common
stock may be paid only as follows: (1) shares of Class A common stock may be
paid only to holders of Class A common stock, and shares of Class B common stock
may be paid only to holders of Class B common stock; and (2) the number of
shares so paid will be equal on a per share basis with respect to each
outstanding share of Class A common stock and Class B common stock.
We may not reclassify, subdivide or combine shares of either class of
common stock without at the same time proportionally reclassifying, subdividing
or combining shares of the other class.
OTHER PROVISIONS. The holders of each class of common stock will share
equally on a per share basis, upon our liquidation or dissolution, in the assets
available for distribution to common stockholders. The holders of common stock
have no preemptive or other subscription rights, and there are no redemption or
sinking fund provisions with respect to our common stock.
MERGER OR CONSOLIDATION. In the event of a merger or consolidation, the
holders of Class A common stock and Class B common stock will be entitled to
receive the same per share consideration, if any, except that if the
consideration includes voting securities (or the right to acquire voting
securities or securities exchangeable for, or convertible into, voting
securities), we may (but are not required to) provide for the holders of Class B
common stock to receive consideration entitling them to ten times the number of
votes per share as the consideration being received by holders of the Class A
common stock.
CONVERSION OF CLASS B COMMON STOCK. Our Class B common stock will be
convertible into Class A common stock on a share-for-share basis at the option
of the holder at any time, or automatically upon transfer to a person or entity
which is not a permitted transferee. In general, permitted transferees will
include us, Messrs. Alarcon, Sr., Alarcon, Jr. and Jose Grimalt, one of our
former directors, and any of their family members, estates, heirs, guardians,
trusts, accounts and controlled entities.
BLANK-CHECK PREFERRED STOCK
Our board of directors is empowered, without approval of the stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, and the board of directors may fix the number of shares of each series
and the designation, powers, privileges, preferences and rights and the
qualifications, limitations and restrictions of the shares of each series.
The specific matters relating to preferred stock that our board of
directors may determine include the following:
- the designation of each series;
- the number of shares of each series;
- the rate of any dividends;
- whether any dividends shall be cumulative or non-cumulative;
- the terms of any redemption;
- the amount payable in the event of any voluntary liquidation,
dissolution or winding up of the affairs of our company;
- the rights and terms of any conversion or exchange;
- restrictions on the issuance of shares of the same series or any other
series; and
- any voting rights.
The issuance of shares of preferred stock, or the issuance of rights to
purchase shares of preferred stock, could be used to discourage an unsolicited
acquisition proposal. For example, a business combination could be impeded by
issuing a series of preferred stock containing class voting rights that would
enable the holder or holders of this series to block the transaction.
Alternatively, a business combination could be facilitated by issuing a series
of preferred stock having sufficient voting rights to provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
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the issuance of preferred stock could adversely affect the voting power and
other rights of the holders of our common stock. Although our board of directors
is required to make any determination to issue any preferred stock based on its
judgment as to the best interests of our stockholders, it could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over prevailing
market prices of the stock. Our board of directors does not at present intend to
seek stockholder approval prior to any issuance of currently authorized stock,
unless otherwise required by law or applicable stock exchange requirements.
LIMITATION ON LIABILITY OF DIRECTORS
Our third amended and restated certificate of incorporation provides, as
authorized by Section 102(b)(7) of the Delaware General Corporation Law (DGCL),
that our directors will not be personally liable to us or our stockholders for
any monetary damages for breach of fiduciary duty as a director. This limitation
does not apply to actions by a director that do not meet the standards of
conduct which make it permissible under the Delaware General Corporation Law for
us to indemnify such director.
The inclusion of this provision in our third amended and restated
certificate of incorporation may have the effect of reducing the likelihood of
derivative litigation against our directors, and may discourage or deter
stockholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though those actions, if successful, might otherwise
have benefited our company and our stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time a stockholder became an interested
stockholder unless, as described below, certain conditions are satisfied. Thus,
it may make acquisition of control of our company more difficult. The
prohibitions in Section 203 of the DGCL do not apply if the following occur:
- prior to the time the stockholder became an interested stockholder,
our board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder;
- upon the closing of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of our voting stock outstanding at the time the
transaction commenced; and
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination was approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3%
of the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203 of the DGCL, a "business combination" includes the
following:
- any merger or consolidation of our company with the interested
stockholder;
- any sale, lease, exchange or other disposition, except proportionately
as a stockholder of our company, to or with the interested
stockholder, of our assets having an aggregate market value equal to
10% or more of either the aggregate market value of all our assets or
the aggregate market value of all our outstanding stock;
- transactions resulting in the issuance or transfer by us of our stock
to the interested stockholder;
- transactions involving us which have the effect of increasing the
proportionate share of our stock of any class or series which is owned
by the interested stockholder; and
- transactions in which the interested stockholder received financial
benefits provided by us.
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Under Section 203 of the DGCL, an "interested stockholder" generally is one
of the following:
- any person that owns 15% or more of our outstanding voting stock;
- any person that is an affiliate or associate of our company and was
the owner of 15% or more of our outstanding voting stock at any time
within the three-year period prior to the date on which the
determination is being made as to whether that person is an interested
stockholder; and
- the affiliates or associates of that person.
LISTING
Our shares of Class A common stock are traded on The Nasdaq Stock Market
under the symbol "SBSA."
TRANSFER AGENT
Our transfer agent and registrar for our common stock is Wachovia Bank,
N.A.
ALIEN OWNERSHIP
Our third amended and restated certificate of incorporation restricts the
ownership and voting of our capital stock, including our Class A common stock
and Class B common stock, in accordance with the Communications Act and the
rules of the FCC, to prohibit direct ownership of more than 25% of our
outstanding capital stock (or beneficial ownership of more than 25% of our
capital stock through others) by or for the account of aliens, foreign
governments, or non-U.S. corporations or corporations otherwise subject to
control by those persons or entities. Our third amended and restated certificate
of incorporation also prohibits any transfer of our capital stock which would
cause us to violate this prohibition. In addition, our third amended and
restated certificate of incorporation authorizes our board of directors to adopt
other provisions that it deems necessary to enforce these prohibitions.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Simultaneously with the issuance and sale of our Series A preferred stock
on October 30, 2003, we entered into a registration rights agreement with Lehman
Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche
Bank Securities Inc., the initial purchasers of the Series A preferred stock.
Under the registration rights agreement, we agreed, among other things to:
- file an exchange offer registration statement with the SEC with respect
to a registered offer to exchange shares of Series B preferred stock for
shares of Series A preferred stock on or before 90 days after the closing
of the Series A preferred stock offering;
- use our commercially reasonable efforts to cause the exchange offer
registration statement to be declared effective by the SEC on or prior to
180 days after the closing of the Series A preferred stock offering; and
- use our commercially reasonable efforts to complete the exchange offer on
or before 210 days after the closing of the Series A preferred stock
offering.
We are conducting the exchange offer to satisfy our obligations under the
registration rights agreement.
Under the registration rights agreement, under certain circumstances we are
obligated to file a shelf registration statement to cover resales of the Series
A preferred stock by holders who satisfy certain conditions relating to the
provision of information in connection with the shelf registration statement. We
are required to file a shelf registration statement if:
- we are not required to file the exchange offer registration statement;
- we are not permitted to complete the exchange offer because the exchange
offer is not permitted by applicable law or SEC policy;
- we do not complete the exchange offer within 210 days of the closing of
the Series A preferred stock offering; or
- any holder of Series A preferred stock notifies us before the 20th day
after completion of the exchange offer that:
-- it is prohibited by applicable law or SEC policy from participating
in the exchange offer;
-- it may not resell the Series B preferred stock acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is
not appropriate or available for such resales; or
- it is a broker-dealer and owns shares of Series A preferred stock
acquired directly from us or our affiliate.
If we are obligated to file the shelf registration statement, we must as
promptly as practicable (but in no event more than 90 days after the filing
obligation arises) file the shelf registration statement and use our
commercially reasonable efforts to cause the shelf registration statement to be
declared effective on or before 180 days after the filing obligation arises.
If we fail to meet certain specified deadlines or fail to fulfill certain
specified obligations under the registration rights agreement, we will be
obligated to pay additional dividends to the holders of Series A preferred
stock. A copy of the registration rights agreement is incorporated by reference
as an exhibit to the registration statement of which this prospectus forms a
part.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange shares of registered Series B preferred stock
for the outstanding shares of our unregistered Series A preferred stock.
The Series B preferred stock that we propose to issue in this exchange
offer will be substantially similar to our Series A preferred stock except that,
unlike the Series A preferred stock, the Series B preferred stock:
- is registered under the Securities Act of 1933, as amended, and therefore
is freely transferable, subject to certain conditions;
- does not bear restrictive legends restricting its transfer under the
Securities Act;
50
- does not entitle holders to the registration rights that apply to the
Series A preferred stock; and
- does not contain provisions relating to additional dividends which become
payable in certain circumstances related to the timing of this exchange
offer.
You should read the description of the Series B preferred stock in the
section in this prospectus entitled "Description of Series B Preferred Stock and
Exchange Notes."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on
, 2004, unless we extend it. The expiration date of this exchange
offer will be at least 20 business days after the commencement of the exchange
offer in accordance with Rule 14e-1(a) under the Exchange Act.
We expressly reserve the right to delay acceptance of any shares of Series
A preferred stock, extend or terminate this exchange offer and not accept any
shares of Series A preferred stock that we have not previously accepted if any
of the conditions described below under "-- Conditions to the Exchange Offer"
have not been satisfied or waived by us. We will notify the exchange agent of
any extension by written notice or oral notice promptly confirmed in writing. We
will also notify the holders of our Series A preferred stock by mailing an
announcement or by a press release or other public announcement communicated
before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date unless applicable laws require us to do
otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our
Series A preferred stock of the change including providing public announcement
or giving oral or written notice to these holders. A material change in the
terms of this exchange offer could include a change in the timing of the
exchange offer, a change in the exchange agent and other similar changes in the
terms of this exchange offer. If we make any material change to this exchange
offer, we will disclose this change by means of a post-effective amendment to
the registration statement which includes this prospectus and will distribute an
amended or supplemented prospectus to each registered holder of our Series A
preferred stock. In addition, we will extend this exchange offer for an
additional five to ten business days as required by the Exchange Act, depending
on the significance of the amendment, if the exchange offer would otherwise
expire during that period. We will promptly notify the exchange agent by written
notice or oral notice promptly confirmed in writing, of any delay in acceptance,
extension, termination or amendment of this exchange offer.
PROCEDURES FOR TENDERING SHARES OF SERIES A PREFERRED STOCK
Your tender of shares of Series A preferred stock through one of the
procedures set forth below will constitute an agreement between you and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal accompanying this prospectus.
Proper Execution and Delivery of Letters of Transmittal
To tender your shares of Series A preferred stock in this exchange offer,
you must use one of the three alternative procedures described below:
(1) Regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile together with the stock certificates
representing the Series A preferred stock being tendered and any other
required documents to the exchange agent on or before 5:00 p.m., New
York City time, on the expiration date.
(2) Book-entry delivery procedure: Send a timely confirmation of a
book-entry transfer of your shares of Series A preferred stock, if this
procedure is available, into the exchange agent's account at The
Depository Trust Company (DTC) in accordance with the procedures for
book-entry transfer described under "-- Book-Entry Delivery Procedure"
below, on or before 5:00 p.m., New York City time, on the expiration
date.
51
(3) Guaranteed delivery procedure: If time will not permit you to complete
your tender by using the procedures described in (1) or (2) above
before the expiration date, comply with the guaranteed delivery
procedures described under "-- Guaranteed Delivery Procedure" below.
THE METHOD OF DELIVERY OF THE SHARES OF SERIES A PREFERRED STOCK, THE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND-DELIVERY SERVICE. IF YOU CHOOSE DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES,
YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND
ANY LETTERS OF TRANSMITTAL OR SHARES OF SERIES A PREFERRED STOCK TO US. YOU MUST
DELIVER ALL DOCUMENTS TO THE EXCHANGE AGENT AT ITS ADDRESS PROVIDED BELOW. YOU
MAY ALSO REQUEST YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR NOMINEE
TO TENDER YOUR SHARES OF SERIES A PREFERRED STOCK ON YOUR BEHALF.
Only a registered holder of our Series A preferred stock may tender shares
of Series A preferred stock in this exchange offer. A holder is any person in
whose name shares of Series A preferred stock are registered on our books or any
other person who has obtained a properly completed bond power from the
registered holder.
If you are the beneficial owner of shares of Series A preferred stock that
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and you wish to tender your shares of Series A preferred stock,
you must contact that registered holder promptly and instruct that registered
holder to tender shares of your Series A preferred stock on your behalf. If you
wish to tender your shares of Series A preferred stock on your own behalf, you
must, before completing and executing the letter of transmittal and delivering
your shares of Series A preferred stock, either make appropriate arrangements to
register the ownership of these securities in your name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed:
(1) by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
(2) by a commercial bank or trust company having an office or correspondent
in the United States, or
(3) by an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Exchange Act, unless the shares of Series A preferred stock
are tendered:
(a) by a registered holder or by a participant in DTC whose name appears
on a security position listing as the owner, who has not completed
the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal and only if the
shares of Series B preferred stock are being issued directly to this
registered holder or deposited into this participant's account at
DTC, or
(b) for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent
in the United States or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Exchange Act.
If the letter of transmittal or any bond powers are signed:
(1) by the recordholder(s) of the shares of Series A preferred stock
tendered: the signature must correspond with the name(s) written on the
face of the Series A preferred stock certificate without alteration,
enlargement or any change whatsoever.
(2) by a participant in DTC: the signature must correspond with the name as
it appears on the security position listing as the holder of the Series
A preferred stock.
(3) by a person other than the registered holder of any shares of Series A
preferred stock: these shares of Series A preferred stock must be
endorsed or accompanied by bond powers and a proxy that authorize this
person to
52
tender the shares of Series A preferred stock on behalf of the
registered holder, in form satisfactory to us as determined in our sole
discretion, in each case, as the name of the registered holder or
holders appears on the Series A preferred stock certificate.
(4) by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity: these persons should so indicate when signing.
Unless waived by us, evidence satisfactory to us of their authority to
so act must also be submitted with the letter of transmittal.
Book-Entry Delivery Procedure
Any financial institution that is a participant in DTC's systems may make
book-entry deliveries of shares of Series A preferred stock by causing DTC to
transfer these shares of Series A preferred stock into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. To effectively
tender the shares of Series A preferred stock through DTC, the financial
institution that is a participant in DTC will electronically transmit its
acceptance through the Automatic Tender Offer Program. DTC will then edit and
verify the acceptance and send an agent's message to the exchange agent for its
acceptance. An agent's message is a message transmitted by DTC to the exchange
agent stating that DTC has received an express acknowledgment from the
participant in DTC tendering the shares of Series A preferred stock that this
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce this agreement against this participant.
The exchange agent will make a request to establish an account for the Series A
preferred stock at DTC for purposes of the exchange offer within two business
days after the date of this prospectus.
A delivery of shares of Series A preferred stock through a book-entry
transfer into the exchange agent's account at DTC will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "-- Exchange Agent" on or before the expiration date
unless the guaranteed delivery procedures described below are complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery Procedure
If you are a registered holder of Series A preferred stock and desire to
tender your shares of Series A preferred stock, and (1) these shares of Series A
preferred stock are not immediately available, (2) time will not permit your
shares of Series A preferred stock or other required documents to reach the
exchange agent before the expiration date or (3) the procedures for book-entry
transfer cannot be completed on a timely basis and an agent's message delivered,
you may still tender in this exchange offer if:
(1) you tender through a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in
the United States, or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Exchange Act,
(2) on or before the expiration date, the exchange agent receives a
properly completed and duly executed letter of transmittal or facsimile
of the letter of transmittal, and a notice of guaranteed delivery,
substantially in the form provided by us, with your name and address as
holder of the Series A preferred stock and the amount of securities
tendered, stating that the tender is being made by that letter and
notice and guaranteeing that within five business days after the
expiration date the certificates for all the Series A preferred stock
tendered, in proper form for transfer, or a book-entry confirmation
with an agent's message, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent, and
(3) the certificates for all your tendered shares of Series A preferred
stock in proper form for transfer or a book-entry confirmation as the
case may be, and all other documents required by the letter of
transmittal are received by the exchange agent within five business
days after the expiration date.
53
ACCEPTANCE OF THE SHARES OF SERIES A PREFERRED STOCK FOR EXCHANGE; DELIVERY OF
SERIES B PREFERRED STOCK
Your tender of shares of Series A preferred stock will constitute an
agreement between you and us governed by the terms and conditions provided in
this prospectus and in the accompanying letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your shares of Series A
preferred stock tendered, or a timely confirmation of a book-entry transfer of
these securities into the exchange agent's account at DTC with an agent's
message, or a notice of guaranteed delivery from an eligible institution is
received by the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all of the shares of Series
A preferred stock not properly tendered or any shares of Series A preferred
stock which, if accepted, would, in our opinion or our counsel's opinion, be
unlawful. We also reserve the absolute right to waive any conditions of this
exchange offer or irregularities or defects in tender as to particular
securities. Our interpretation of the terms and conditions of this exchange
offer, including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of shares of Series A preferred stock must be cured
within such time as we shall determine. We, the exchange agent or any other
person will be under no duty to give notification of defects or irregularities
with respect to tenders of shares of Series A preferred stock. We and the
exchange agent or any other person will incur no liability for any failure to
give notification of these defects or irregularities. Tenders of shares of
Series A preferred stock will not be deemed to have been made until such
irregularities have been cured or waived. The exchange agent will return without
cost to their holders any shares of Series A preferred stock that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all shares of Series A preferred stock properly
tendered and will issue the shares of Series B preferred stock promptly
thereafter. Please refer to the section of this prospectus entitled
"-- Conditions to the Exchange Offer" below. For purposes of this exchange
offer, Series A preferred stock will be deemed to have been accepted as validly
tendered for exchange when, as and if we give oral or written notice of
acceptance to the exchange agent.
We will issue the shares of Series B preferred stock in exchange for the
shares of Series A preferred stock tendered pursuant to a notice of guaranteed
delivery by an eligible institution only against delivery to the exchange agent
of the letter of transmittal, the tendered shares of Series A preferred stock
and any other required documents, or the receipt by the exchange agent of a
timely confirmation of a book-entry transfer of shares of Series A preferred
stock into the exchange agent's account at DTC with an agent's message, in each
case, in form satisfactory to us and the exchange agent.
If any tendered shares of Series A preferred stock are not accepted for any
reason provided by the terms and conditions of this exchange offer or if the
shares of Series A preferred stock are submitted for a greater number of shares
than the holder desires to exchange, the unaccepted or non-exchanged shares of
Series A preferred stock will be returned without expense to the tendering
holder, or, in the case of the shares of Series A preferred stock tendered by
book-entry transfer procedures described above, will be credited to an account
maintained with the book-entry transfer facility, as promptly as practicable
after withdrawal, rejection of tender or the expiration or termination of the
exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the securities tendered.
This proxy will be considered coupled with an interest in the tendered
securities. This appointment will be effective only when, and to the extent that
we accept your shares of Series A preferred stock in this exchange offer. All
prior proxies on these securities will then be revoked and you will not be
entitled to give any subsequent proxy. Any proxy that you may give subsequently
will not be deemed effective. Our designees will be empowered to exercise all
voting and other rights of the holders as they may deem proper at any meeting of
holders of Series A preferred stock or otherwise. The shares of Series A
preferred stock will be validly tendered only if we are able to exercise full
voting rights on the securities, including voting at any meeting of the Series A
preferred stock holders, and full rights to consent to any action taken by the
Series A preferred stock holders.
54
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of shares of Series A preferred stock at any time before 5:00 p.m., New York
City time, on the expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided in the letter of
transmittal and before acceptance of your tendered shares of Series A preferred
stock for exchange by us.
Any notice of withdrawal must:
(1) specify the name of the person having tendered the shares of Series A
preferred stock to be withdrawn,
(2) identify the Series A preferred stock to be withdrawn, including, if
applicable, the stock certificate number or numbers, and the number and
aggregate liquidation preference of shares,
(3) be signed by the person having tendered the Series A preferred stock to
be withdrawn in the same manner as the original signature on the letter
of transmittal by which these securities were tendered, including any
required signature guarantees, or be accompanied by documents of
transfer sufficient to permit the transfer agent for the Series A
preferred stock to register the transfer of these securities into the
name of the person having made the original tender and withdrawing the
tender,
(4) specify the name in which any of these shares of Series A preferred
stock are to be registered, if this name is different from that of the
person having tendered the shares of Series A preferred stock to be
withdrawn,
(5) contain a statement that the holder is withdrawing its election to have
such shares of Series A preferred stock exchanged, and
(6) if applicable because the shares of Series A preferred stock have been
tendered though the book-entry procedure, specify the name and number
of the participant's account at DTC to be credited, if different than
that of the person having tendered the shares of Series A preferred
stock to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties. Shares of Series A preferred stock
that are withdrawn will be deemed not to have been validly tendered for exchange
in this exchange offer and no shares of Series B preferred stock will be issued
with respect to those shares unless the shares of Series A preferred stock so
withdrawn are retendered.
The exchange agent will return without cost to their holders all shares of
Series A preferred stock that have been tendered for exchange and are not
exchanged for any reason, as promptly as practicable after withdrawal, rejection
of tender or expiration or termination of this exchange offer.
You may retender properly withdrawn shares of Series A preferred stock in
this exchange offer by following one of the procedures described under
"-- Procedures for Tendering Shares of Series A Preferred Stock" above at any
time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) the exchange offer does not violate applicable law or any applicable
interpretation of the staff of the SEC,
(2) no action or proceeding shall have been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer, and no material adverse
development shall have occurred in any existing action or proceeding
with respect to us; and
(3) all governmental approvals shall have been obtained, which approvals we
deem necessary for the consummation of the exchange offer.
These conditions are for our sole benefit. We may assert any one of these
conditions regardless of the circumstances giving rise to it and may also waive
any one of them, in whole or in part, at any time and from time to time, if we
55
determine in our reasonable discretion that it has not been satisfied, subject
to applicable law. We will not be deemed to have waived our rights to assert or
waive these conditions if we fail at any time to exercise any of them. Each of
these rights will be deemed an ongoing right which we may assert at any time and
from time to time.
If we determine that we may terminate this exchange offer because any of
these conditions is not satisfied, we may:
(1) refuse to accept and return to their holders any shares of Series A
preferred stock that have been tendered,
(2) extend the exchange offer and retain all shares of Series A preferred
stock tendered before the expiration date, subject to the rights of the
holders of these securities to withdraw their tenders, or
(3) waive any condition that has not been satisfied and accept all properly
tendered shares of Series A preferred stock that have not been
withdrawn or otherwise amend the terms of this exchange offer in any
respect as provided under the section in this prospectus entitled
"-- Expiration Date; Extensions; Amendments; Termination."
ACCOUNTING TREATMENT
We will record the shares of Series B preferred stock at the same carrying
value as the shares of Series A preferred stock as reflected in our accounting
records on the date of the exchange. Accordingly, we will not recognize any gain
or loss for accounting purposes.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER TO TENDERING OWNERS.
The exchange of shares of Series A preferred stock for shares of Series B
preferred stock will not be a taxable event to the holders of Series A preferred
stock who participate in the exchange offer. Accordingly, a tendering owner will
not recognize any gain or loss for federal income tax purposes on the receipt of
shares of Series B preferred stock, will have the same tax basis in the shares
of Series B preferred stock received as in the shares of Series A preferred
stock exchanged, and will have a holding period in the Series B preferred stock
that includes the holding period in the Series A preferred stock exchanged.
EXCHANGE AGENT
We have appointed Wachovia Bank, N.A. as exchange agent for this exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent as follows:
Wachovia Bank, N.A.
NC1153
1525 West W.T. Harris Boulevard, 3C3
Charlotte, NC 28288-1153
Telephone No.: (704) 427-0292
Telecopier No.: (704) 590-7599
Attention: Anthony G. Adams
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and transfer agent and
accounting, legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer. We will also pay brokerage houses and other custodians, nominees
and fiduciaries their reasonable out-of-pocket expenses for forwarding copies of
the prospectus, letters of transmittal and related documents to the beneficial
owners of the Series A preferred stock and for handling or forwarding tenders
for exchange for their customers.
56
We will pay all transfer taxes, if any, applicable to the exchange of the
Series A preferred stock in accordance with this exchange offer. However,
tendering holders will pay the amount of any transfer taxes, whether imposed on
the registered holder or any other persons, if:
(1) certificates representing shares of Series B preferred stock or shares
of Series A preferred stock for amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in
the name of, any person other than the registered holder of the
securities tendered,
(2) tendered shares of Series A preferred stock are registered in the name
of any person other than the person signing the letter of transmittal,
or
(3) a transfer tax is payable for any reason other than the exchange of the
shares of Series A preferred stock in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly for the amount of these transfer taxes.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER MAY HAVE ADVERSE CONSEQUENCES
The shares of Series A preferred stock were not registered under the
Securities Act or under the securities laws of any state and you may not resell
them, offer them for resale or otherwise transfer them unless they are
subsequently registered or resold under an exemption from the registration
requirements of the Securities Act and applicable state securities laws. If you
do not exchange your shares of Series A preferred stock for shares of Series B
preferred stock in accordance with this exchange offer you will not be able to
resell, offer to resell or otherwise transfer the shares of Series A preferred
stock unless they are registered under the Securities Act or unless you resell
them, offer to resell or otherwise transfer them under an exemption from the
registration requirements of, or in a transaction not subject to, the Securities
Act. In addition, you will not necessarily be able to obligate us to register
the shares of Series A preferred stock under the Securities Act.
To the extent that the shares of Series A preferred stock are tendered and
accepted for exchange pursuant to the exchange offer, the trading market for the
shares of Series A preferred stock that remain outstanding may be significantly
more limited, which might adversely affect the liquidity of the shares of Series
A preferred stock not tendered for exchange. The extent of the market and the
availability of price quotations for the Series A preferred stock would depend
upon a number of factors, including the number of holders of the shares of
Series A preferred stock remaining at such time and the interest in maintaining
a market in such Series A preferred stock on the part of securities firms. An
issue of securities with a smaller outstanding market value available for
trading, or float, may command a lower price than would a comparable issue of
securities with a greater float. Therefore, the market price for the shares of
Series A preferred stock that are not exchanged in the exchange offer may be
affected adversely to the extent that the number of the shares of Series A
preferred stock exchanged pursuant to the exchange offer reduces the float. The
reduced float also may tend to make the trading price of the shares of Series A
preferred stock that are not exchanged more volatile.
57
DESCRIPTION OF SERIES B PREFERRED STOCK
AND EXCHANGE NOTES
You can find the definitions of certain terms used in this description of
the Series B preferred stock and the exchange notes under the heading "Certain
Definitions." In this description, the terms "Company," "the Company," "SBS,"
"we," "us," and "our" refer only to Spanish Broadcasting System, Inc. and not to
any of its subsidiaries.
SERIES B PREFERRED STOCK
The following is a summary of some of the terms of the Series B preferred
stock we are offering through this prospectus. The terms of the Series B
preferred stock are contained in the certificate of designations creating the
Series B preferred stock. The following description of the material terms and
provisions of the Series B preferred stock is only a summary that is qualified
in its entirety by reference to our certificate of incorporation and the
certificate of designations, each of which is incorporated by reference in this
prospectus. The certificate of incorporation and certificate of designations,
and not this description, defines your rights as holders of Series B preferred
stock.
GENERAL
Our certificate of incorporation authorizes our board of directors to issue
up to 1.0 million shares of our preferred stock, par value $.01 per share. We
currently have 75,000 shares of Series A preferred stock outstanding. Subject to
the limitations prescribed by our certificate of incorporation, our board of
directors is authorized to establish the number of shares constituting each
series of preferred stock and to determine the designations, powers, preferences
and rights of the shares of each of those series and the qualifications,
limitations and restrictions of each of those series, all without any further
vote or action by our stockholders. The Series B preferred stock is a series of
preferred stock.
Our board of directors adopted resolutions creating a maximum of 280,000
shares of Series B preferred stock and filed a certificate of designations with
the Secretary of State of the State of Delaware as required by Delaware law.
Shares of Series B preferred stock will be issued in this exchange offer and the
remainder will be reserved for issuance as dividends in the event we elect to
pay dividends on the Series B preferred stock by issuing additional shares of
Series B preferred stock. Subject to certain conditions, at our option we may
exchange the Series B preferred stock for exchange notes on any dividend payment
date. The Series B preferred stock, when issued will be fully paid and
nonassessable, and the holders will not have any subscription or preemptive
rights.
RANKING
The Series B preferred stock will rank, with respect to dividend
distributions and distributions upon our liquidation, winding-up or dissolution:
- senior to our common stock and to each other class of capital stock or
series of preferred stock created after the Series B preferred stock by
our board of directors, the terms of which do not expressly provide that
it ranks on parity with the Series B preferred stock as to dividend
distributions and distributions upon our liquidation, winding-up or
dissolution (collectively referred to with our common stock as "Junior
Securities"); and
- subject to certain conditions, on a parity with the Series A preferred
stock or any other class of capital stock or series of preferred stock
created after the Series B preferred stock by our board of directors, the
terms of which expressly provide that such class or series will rank on a
parity with the Series B preferred stock as to dividend distributions and
distributions upon our liquidation, winding-up or dissolution
(collectively referred to as "Parity Securities").
Our creditors will have priority over the Series B preferred stock with respect
to claims or assets. In addition, creditors and stockholders of our subsidiaries
will have priority over the Series B preferred stock with respect to claims on
the assets of such subsidiaries. The Series B preferred stock will be subject to
the issuance of new classes of Junior Securities and Parity Securities; provided
that we may not issue any new class of Parity Securities (or amend the
provisions of any existing class of capital stock to make such class of capital
stock Parity Securities) without the approval of the holders of at least a
majority of the shares of Series B preferred stock then outstanding, voting or
consenting, as the case may be, together as one class; provided, however, that
without the approval of the holders of the Series B preferred stock (i) we may
issue additional shares of Series B preferred stock to pay dividends on the
Series B preferred
58
stock in accordance with its terms on the issuance date, and (ii) we may issue
and have outstanding shares of Parity Securities issued from time to time in
exchange for, or the proceeds of which are used to redeem or repurchase, any or
all of the shares of Series B preferred stock or other Parity Securities.
DIVIDENDS
Holders of the Series B preferred stock will be entitled to receive, when,
as and if declared by our board of directors, out of funds legally available
therefor, dividends on the Series B preferred stock at a rate per year equal to
10 3/4% of the liquidation preference per share of Series B preferred stock. All
dividends will be cumulative, whether or not earned or declared, on a daily
basis from the date of issuance and will be payable quarterly in arrears on
October 15, January 15, April 15 and July 15 of each year. On or before October
15, 2008, at our option, on any dividend payment date we may pay dividends
either in cash or by the issuance of additional shares of Series B preferred
stock (including fractional shares or, at our option cash in lieu of fractional
shares) having an aggregate liquidation preference equal to the amount of such
dividends. On or after October 15, 2008, dividends may be paid only in cash. Our
senior secured credit facilities and our existing 9 5/8% notes restrict our
ability to pay cash dividends and will prohibit such payments in certain
instances and other future agreements may provide the same. See "Description of
Indebtedness."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
in full or declared and, if payable in cash, a sum in cash sufficient for such
payment set apart for such payment on the Series B preferred stock. If full
dividends are not so paid, the Series B preferred stock will share dividends pro
rata with the Parity Securities. No dividends may be paid or set apart for such
payment on Junior Securities (except dividends on Junior Securities in
additional shares of Junior Securities) and no Junior Securities or Parity
Securities may be repurchased, redeemed or otherwise retired nor may funds be
set apart for payment with respect thereto, if full cumulative dividends have
not been paid on the Series B preferred stock.
Unpaid dividends accumulating on the Series B preferred stock for any past
dividend period and dividends in connection with any optional redemption may be
declared and paid at any time, without reference to any regular dividend payment
date, to holders of record on such date, not more than 45 days prior to the
payment thereof, as may be fixed by our board of directors.
OPTIONAL REDEMPTION
We may redeem the Series B preferred stock (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after October 15, 2008, in whole or from time to
time in part, at our option, at the following redemption prices (expressed as a
percentage of liquidation preference) plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date) if redeemed during the 12-month period
beginning October 15 of each of the years set forth below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2008........................................................ 105.375%
2009........................................................ 103.583%
2010........................................................ 101.792%
2011 and thereafter......................................... 100.000%
</Table>
In addition, before October 15, 2006, at our option we may redeem up to 40%
of the aggregate liquidation preference of the Series B preferred stock (whether
initially issued or issued in lieu of cash dividends), in whole or from time to
time in part, at our option, at a redemption price equal to 110.75% of the
aggregate liquidation preference thereof, plus, without duplication, an amount
in cash equal to all accumulated and unpaid dividends thereon to the date of
redemption (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption date),
with the proceeds of one or more Equity Offerings (as defined below); provided
that at least 60% of the aggregate liquidation preference of the Series B
preferred stock (whether initially issued or issued in lieu of cash dividends)
remains outstanding immediately after the occurrence of such redemption; and
provided further that such redemption shall occur within 90 days of the date of
the closing of such Equity Offering.
59
As used in the preceding paragraph, "Equity Offering" means (i) any public
or private sale of our common stock pursuant to which we receive net proceeds of
at least $15.0 million, other than issuances of our common stock pursuant to
employee benefit plans or as compensation to employees or (ii) the issuance of
shares of our Class A common stock upon exercise of the warrants granted to
International Church of the FourSquare Gospel pursuant to which we receive net
proceeds of at least $5.0 million.
No optional redemption may be authorized or made (i) unless prior to or
contemporaneously with the redemption full unpaid cumulative dividends shall
have been paid or a sum set apart for such payment on the Series B preferred
stock or (ii) at less than 101% of the liquidation preference of the Series B
preferred stock at any time when we are making an offer to purchase shares of
Series B preferred stock under a Change of Control Offer (as defined) in
accordance with the provisions of "-- Change of Control."
In the event of partial redemptions of Series B preferred stock, the shares
to be redeemed will be determined pro rata or by lot, as determined by us,
except that we may redeem such shares held by any holders of fewer than 100
shares (or shares held by holders who would hold less than 100 shares as a
result of such redemption), without regard to any pro rata redemption
requirement.
The terms of our senior secured credit facilities and our existing 9 5/8%
notes restrict, directly or indirectly, our ability to redeem the Series B
preferred stock, and future agreements to which we or our subsidiaries are
parties may provide the same. See "Description of Indebtedness."
PROCEDURE FOR OPTIONAL REDEMPTION
On and after a redemption date, unless we default in the payment of the
applicable redemption price, dividends will cease to accumulate on shares of
Series B preferred stock called for redemption and all rights of holders of such
shares will terminate except for the right to receive the redemption price,
without interest. If a notice of redemption shall have been given as provided in
the succeeding sentence and the funds necessary for redemption (including an
amount in respect of all dividends that will accumulate to the redemption date)
shall have been segregated and irrevocably set apart by us, in trust for the
benefit of the holders of the shares called for redemption, then dividends shall
cease to accumulate on the redemption date on the shares to be redeemed and, at
the close of business on the day when such funds are segregated and set apart,
the holders of the shares to be redeemed shall cease to be our stockholders and
shall be entitled only to receive the redemption price for such shares. We will
send a written notice of redemption by first class mail to each holder of record
of shares of Series B preferred stock not less than 30 days nor more than 60
days prior to the date fixed for such redemption. Shares of Series B preferred
stock issued and reacquired will, upon compliance with the applicable
requirements of Delaware law, have the status of authorized but unissued shares
of our preferred stock undesignated as to series and may with any and all other
authorized but unissued shares of our preferred stock be designated or
redesignated and issued or reissued, as the case may be, as part of any series
of our preferred stock, except that any issuance or reissuance of shares of
Series B preferred stock must be in compliance with the certificate of
designations.
REPURCHASE AT THE OPTION OF HOLDER
On October 15, 2013, each holder of Series B preferred stock will have the
right to require us to redeem all or a portion of the shares of Series B
preferred stock at a purchase price of 100% of the liquidation preference
thereof, plus all accumulated and unpaid dividends to the date of repurchase, in
accordance with the procedures set forth in the certificate of designations.
The terms of our senior secured credit facilities and/or existing 9 5/8%
notes restrict, directly or indirectly, our ability to repurchase the Series B
preferred stock, and future agreements to which we or our subsidiaries are
parties may provide the same. See "Description of Indebtedness."
In addition, if we experience specific kinds of changes of control, we will
be required to repurchase the Series B preferred stock as described below under
"-- Change of Control."
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EXCHANGE
We may at our option exchange all, but not less than all, of the then
outstanding shares of Series B preferred stock into exchange notes on any
dividend payment date prior to October 15, 2013; provided, that on the date of
such exchange:
- there are no contractual impediments to such exchange;
- such exchange would comply with the DGCL;
- immediately after giving effect to such exchange, no Default or Event of
Default (each as defined in the exchange notes indenture) would exist
under the exchange notes indenture, no default or event of default would
exist under the senior secured credit facilities or the indenture for the
existing 9 5/8% notes, and no default or event of default under any other
material instrument governing Indebtedness outstanding at the time would
be caused thereby;
- the exchange notes indenture has been qualified under the Trust Indenture
Act, if such qualification is required at the time of exchange; and
- we shall have delivered a written opinion of legal counsel to the
transfer agent and the trustee under the exchange notes indenture, dated
the date of the exchange, to the effect that all conditions to be
satisfied prior to such exchange have been satisfied. We intend to comply
with the provisions of Rule 13e-4 promulgated pursuant to the Exchange
Act in connection with the exchange, to the extent applicable.
The senior secured credit facilities and the exchange notes indenture
prohibit or restrict the exchange of the Series B preferred stock, and any
future agreements relating to indebtedness to which we or any of our
subsidiaries become a party may contain similar limitations and may restrict our
ability to exchange the Series B preferred stock in the future. See "Description
of Indebtedness."
The holders of outstanding shares of Series B preferred stock will be
entitled to receive, subject to the second succeeding sentence, $1.00 principal
amount of exchange notes for each $1.00 liquidation preference of Series B
preferred stock held by them. The exchange notes will be issued in registered
form, without coupons. Exchange notes issued in exchange for Series B preferred
stock will be issued in principal amounts of $1,000 and integral multiples
thereof to the extent possible, and will also be issued in principal amounts
less than $1,000 so that each holder of Series B preferred stock will receive
certificates representing the entire amount of exchange notes to which such
holder's shares of Series B preferred stock entitle such holder, provided that
we may pay cash in lieu of issuing an exchange note in a principal amount less
than $1,000. We will send a written notice of exchange by mail to each holder of
record of shares of Series B preferred stock not less than 30 nor more than 60
days before the date fixed for such exchange. On and after the exchange date,
dividends will cease to accumulate on the outstanding shares of Series B
preferred stock and all rights of the holders of Series B preferred stock
(except the right to receive the exchange notes, an amount in cash equal to the
accumulated and unpaid dividends to the exchange date and, if we so elect, cash
in lieu of any exchange note which is in an amount that is not an integral
multiple of $1,000) will terminate. The Person entitled to receive the exchange
notes issuable upon such exchange will be treated for all purposes as the
registered holder of such exchange notes. See "-- Exchange Notes."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our business, holders of the Series B preferred stock will initially be entitled
to be paid out of our assets available for distribution, the liquidation
preference per share plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend, for
the period from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Securities, including, without limitation, our common stock. If upon any
voluntary or involuntary liquidation, dissolution or winding-up of our business,
the amounts payable with respect to the Series B preferred stock and all other
Parity Securities are not paid in full, the holders of the Series B preferred
stock and the Parity Securities will share equally and ratably in any
distribution of our assets in proportion to the full liquidation preference and
accumulated but unpaid dividends to which each is entitled. After payment of the
full amount of the liquidation preferences and accumulated and unpaid dividends
to which they are entitled, the holders of shares of Series B preferred
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stock will not be entitled to any further participation in any distribution of
our assets. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of our property or assets nor our consolidation or merger with
one or more entities shall be deemed to be a liquidation, dissolution or
winding-up of our business.
The certificate of designations for the Series B preferred stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Series B preferred stock, although such liquidation preference
will be substantially in excess of the par value of such shares of Series B
preferred stock. In addition, we are not aware of any provision of Delaware law
or any controlling decision of the courts of the State of Delaware (our state of
incorporation) that requires a restriction upon our surplus solely because the
liquidation preference of the Series B preferred stock will exceed its par
value. Consequently, we do not expect there to be any restriction upon our
surplus solely because the liquidation preference of the Series B preferred
stock will exceed the par value or any remedies available to holders of the
Series B preferred stock before or after the payment of any dividend, other than
in connection with our liquidation, solely by reason of the fact that such
dividend would reduce our surplus to an amount less than the difference between
the liquidation preference of the Series B preferred stock and its par value.
VOTING RIGHTS
Holders of the Series B preferred stock will have no voting rights with
respect to general corporate matters except as provided by Delaware law or as
set forth in the certificate of designations. The certificate of designations
provides that (a) if (i) dividends on the Series B preferred stock are in
arrears and unpaid (and, in the case of dividends payable after October 15,
2008, are not paid in cash) for four consecutive quarterly periods, (ii) we fail
to discharge any redemption or repurchase obligation with respect to the Series
B preferred stock (whether or not we are permitted to do so by the terms of the
senior secured credit facilities, the existing 9 5/8% notes or any other
obligation we have), (iii) we fail to make an offer to purchase all of the
outstanding shares of Series B preferred stock following a Change of Control
(whether or not we are permitted to do so by the terms of the senior secured
credit facilities, the existing 9 5/8% notes or any other obligation we have) or
fail to purchase shares of Series B preferred stock from holders who elect to
have such shares repurchased pursuant to the Change of Control Offer, (iv) a
breach or violation of any of the provisions described under the caption
"-- Certain Covenants" occurs and the breach or violation continues for a period
of 60 days or more after we receive notice thereof specifying the default from
holders of 25% of the Series B preferred stock then outstanding, or (v) a
default under any mortgage, exchange notes indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Significant Subsidiaries (or
the payment of which is guaranteed by us or any of our Significant Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the certificate of designations, which default (A) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (B) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more at
any time, then in each case under (a) above, the number of directors
constituting our board of directors will be adjusted to permit the holders of
the majority of the then outstanding shares of Series A preferred stock and
Series B preferred stock, voting together as one class, to elect two directors
and (b) the approval of holders of a majority of the outstanding shares of
Series A preferred stock and Series B preferred stock, voting together as one
class, will be required for any merger, consolidation or sale of all or
substantially all of our assets except as permitted pursuant to the covenant
below under "-- Certain Covenants -- Merger, Consolidation or Sale of Assets."
Each such event described in clause (a) above is referred to herein as a "Voting
Rights Triggering Event." Voting rights arising as a result of a Voting Rights
Triggering Event will continue until such time as all dividends in arrears on
the Series B preferred stock are paid in full (and after October 15, 2008, paid
in cash) and any failure, breach or default referred to in clause (a) is
remedied or waived by the holders of at least a majority of the shares of Series
B preferred stock then outstanding, at which time the term of any directors
previously elected as described in this paragraph shall terminate.
In addition, the certificate of designations provides that except as stated
above under "-- Ranking," we will not authorize any class of Parity Securities
without the affirmative vote or consent of holders of at least a majority of the
shares of Series A preferred stock and Series B preferred stock then outstanding
which are entitled to vote thereon,
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voting or consenting, as the case may be, together as one class. The certificate
of designations will also provide that we may not amend the certificate of
designations so as to adversely affect the specified rights, preferences,
privileges or voting rights of the holders of shares of Series B preferred
stock, or authorize the issuance of any additional shares of Series B preferred
stock (other than shares of Series B preferred stock issued as a dividend on
shares of Series B preferred stock), without the affirmative vote or consent of
the holders of at least a majority of the then outstanding shares of Series B
preferred stock which are entitled to vote thereon, voting or consenting, as the
case may be, as one class. The certificate of designations will also provide
that, except as set forth above, (a) the creation, authorization or issuance of
any shares of Junior Securities or Parity Securities or (b) the decrease in the
amount of authorized capital stock of any class, including any Series B
preferred stock or (c) the increase in the amount of authorized capital stock of
any class of Junior Securities shall not require the consent of the holders of
Series B preferred stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of holders of shares of Series B
preferred stock.
Under Delaware law, holders of Series B preferred stock are entitled to
vote as a class upon a proposed amendment to our certificate of incorporation,
whether or not entitled to vote thereon by the certificate of incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences, or special rights of the
shares of such class so as to affect them adversely.
CHANGE OF CONTROL
If a Change of Control occurs, we will make an offer to each holder of the
Series B preferred stock to repurchase all or any part of such holder's Series B
preferred stock pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount in cash equal to a prorated dividend
for the period from the dividend payment date immediately prior to the
repurchase date), if any, to the date of repurchase (subject to the right of
Series B preferred stock holders of record on the relevant record date to
receive dividends due on the relevant dividend payment date); provided, however,
that notwithstanding the occurrence of a Change of Control, we shall not be
obligated to purchase the Series B preferred stock pursuant to this covenant in
the event that it has exercised its right to redeem all of the Series B
preferred stock as described under "-- Optional Redemption."
In the event that at the time of such Change of Control, the terms of any
Credit Facility or any other then outstanding Senior Debt restricts or prohibits
the repurchase of Series B preferred stock pursuant to this covenant, then prior
to the mailing of the notice to Series B preferred stock holders provided for in
the immediately following paragraph but in any event within 30 days following
any Change of Control (unless we have exercised our right to redeem all the
Series B preferred stock as described under "-- Optional Redemption"), we shall
use commercially reasonable efforts to (i) repay in full all Obligations under
such Credit Agreements or such Senior Debt or offer to repay in full all
Obligations under such Credit Agreements and such Senior Debt and repay the
Obligations of each lender who has accepted such offer or (ii) obtain the
requisite consent under the agreements or instruments governing such Credit
Facility and such Senior Debt to permit the repurchase of the Series B preferred
stock as provided for in the immediately following paragraph.
We shall, within 30 days following any Change of Control (or at our option,
prior to such Change of Control but after the public announcement thereof), mail
a notice to each Series B preferred stock holder stating:
- that a Change of Control has occurred or will occur and that such Series
B preferred stock holder has (or upon such occurrence will have) the
right to require us to purchase such holder's Series B preferred stock at
a purchase price in cash equal to 101% of the aggregate liquidation
preference thereof, plus an amount in cash equal to all accumulated and
unpaid dividends per share (including an amount in cash equal to a
prorated dividend for the period from the dividend payment date
immediately prior to the repurchase date to the repurchase date), if any,
to the date of redemption (subject to the right of Series B preferred
stock holders of record on a record date to receive dividends on the
relevant dividend payment date);
- describing the transaction or transactions that constitute such Change of
Control;
- the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed);
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- the instructions determined by us that a Series B preferred stock holder
must follow in order to have its Series B preferred stock repurchased;
and
- that, if such offer is made prior to such Change of Control, payment is
conditioned on the occurrence of such Change of Control.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Series B preferred stock pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this paragraph by virtue thereof.
Senior Debt may directly or indirectly prohibit us from purchasing any
shares of Series B preferred stock following a Change of Control and provide
that certain change of control events with respect to us would constitute a
default thereunder. Any future credit agreements or other agreements to which we
become a party may contain similar restrictions. Moreover, the exercise by the
Series B preferred stock holders of their right to require us to repurchase the
Series B preferred stock could cause a default under such Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on us. Finally, our ability to pay cash to the Series B preferred
stock holders upon a repurchase may be limited by our then existing financial
resources. We cannot assure you that sufficient funds will be available when
necessary to make any required repurchases.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
certificate of designations applicable to a Change of Control Offer made by us
and purchases all shares of Series B preferred stock validly tendered and not
withdrawn under such Change of Control Offer.
CERTAIN COVENANTS
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of any Junior Securities (other than dividends or
distributions payable in Junior Securities (other than Disqualified
Stock));
(2) purchase, redeem or otherwise acquire or retire for value, Junior
Securities;
(3) make any Restricted Investment, all such payments and other
actions set forth in clauses (1) through (3) being collectively referred to
as "Restricted Payments";
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof;
(2) all dividends on the Series B preferred stock that have accrued
and become payable on or after October 15, 2008 have been declared and paid
in cash;
(3) we would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt to
Cash Flow Ratio test set forth in the first paragraph of the covenant
described below under caption "-- Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(4) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries after
the date of issuance of the Series A preferred stock, excluding Restricted
Payments permitted by clauses (2), (3) and (4) of the next paragraph, is
less than the sum, without duplication, of:
(a) an amount equal to our Consolidated Cash Flow for the period
(taken as one accounting period) from June 8, 2001 to the end of our
most recently ended full fiscal quarter for which financial statements
have been
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filed with the SEC (the "Basket Period") less the product of 1.4 times
our Consolidated Interest Expense for the Basket Period; plus
(b) 100% of the aggregate net cash proceeds received by us as a
contribution to our common equity capital or from the issue or sale
since June 8, 2001 of our Equity Interests (other than Disqualified
Stock) or from the issue or sale of our Disqualified Stock or debt
securities that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to one of our Subsidiaries and other than Disqualified
Stock or convertible debt securities that have been converted into
Disqualified Stock); plus
(c) to the extent that any Restricted Investment that was made
after the date of the certificate of designations is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (i) the cash
return of capital with respect to such Restricted Investment, less the
cost of disposition, if any, and (ii) the initial amount of such
Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after its date of
declaration, if at the date of declaration such payment would have been
permitted under the certificate of designations;
(2) the redemption, repurchase, retirement or other acquisition of any
of our Junior Securities in exchange for, or out of the net cash proceeds
of the substantially concurrent sale, other than to our Subsidiary, of
other of our Junior Securities or Parity Securities, other than any
Disqualified Stock; provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (4)(b) of the preceding
paragraph; and provided further that no Voting Rights Triggering Event
shall have occurred and be continuing immediately after such transaction;
(3) the payment of any dividend by our Restricted Subsidiary to the
holders of our Equity Interests on a pro rata basis;
(4) the repurchase, redemption or other acquisition or retirement for
value of any of our Equity Interests or any of our Restricted Subsidiaries
held by any member of our -- or any of our Restricted
Subsidiaries' -- management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $5.0 million (excluding for purposes of calculating such amounts
during any period, loans incurred to finance the purchase of such Equity
Interests that are repaid contemporaneously) in any twelve-month period and
no Voting Rights Triggering Event shall have occurred and be continuing
immediately after such transaction;
(5) repurchases of stock deemed to have occurred by virtue of the
exercise of stock options; and
(6) other Restricted Payments in an aggregate amount not to exceed
$5.0 million in any twelve-month period so long as no Voting Rights
Triggering Event shall have occurred and be continuing.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Voting Rights
Triggering Event. For purposes of making such determination, the aggregate fair
market value of all outstanding Investments by us and our Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be a Restricted
Payment at the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt, and we will
not issue any shares of Disqualified Stock and will not permit any of our
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that, if no Voting Rights Triggering Event has occurred and is
continuing, we may incur Indebtedness, including Acquired Debt,
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or issue shares of Disqualified Stock and our Restricted Subsidiaries may issue
shares of preferred stock if, our Debt to Cash Flow Ratio at such time after
giving pro forma effect to such incurrence or issuance as of such date and to
the use of the proceeds therefrom as if the same had occurred at the beginning
of our most recently ended four full fiscal quarter period for which internal
financial statements are available, would have been no greater than 7.0 to 1.0.
So long as no Voting Rights Triggering Event shall have occurred and be
continuing or would be caused thereby, the preceding paragraph will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(1) the incurrence by us, and the guarantee thereof by any Restricted
Subsidiary, of Indebtedness and letters of credit under one or more Credit
Facilities; provided that the aggregate principal amount at any time
outstanding does not exceed $175.0 million, with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and the Restricted Subsidiaries thereunder, less the
aggregate amount of all mandatory repayments of the principal of any term
Indebtedness under a Credit Facility that have been made since the date of
the certificate of designations (other than from the proceeds of any other
Credit Facility);
(2) the incurrence by us and our Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by us or our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Indebtedness, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in our business or such
Restricted Subsidiary, in an aggregate amount not to exceed $5.0 million at
any time outstanding;
(4) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness or the issuance by us of Disqualified
Stock in exchange for, or the net proceeds of which are used to refund,
refinance or replace Indebtedness or Disqualified Stock, other than
intercompany Indebtedness, that was permitted by the certificate of
designations to be incurred by the first paragraph of this covenant, or by
clauses (2), (3), (4), (6), (7), (8), (9), (10), (11) or (12) of this
paragraph;
(5) the incurrence of Indebtedness between or among us and any of our
Restricted Subsidiaries; provided that: (a) if we are the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full of all Obligations with respect to the exchange notes; and
(b) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than by us or our
Restricted Subsidiary, and any sale or other transfer of any such
Indebtedness to a Person that is not either us or a Restricted Subsidiary,
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by us or such Restricted Subsidiary, as the case may be;
(6) the incurrence by us or any of our Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the certificate of designations to be
outstanding;
(7) the guarantee by us or any Restricted Subsidiary of Indebtedness
that was permitted to be incurred by another provision of this covenant;
(8) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock;
(9) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness consisting of performance, bid or advance payment bonds,
surety bonds, custom bonds, utility bonds and similar obligations arising
in the ordinary course of business;
(10) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred
or assumed in connection with our disposition of any business, asset or
Subsidiary, provided that the maximum assumable Indebtedness shall at no
time exceed the gross proceeds actually received by us and our Restricted
Subsidiaries in connection with our disposition of any business, asset or
Subsidiary;
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(11) the issuance of Series B preferred stock issued as payment in
kind dividends on the Series B preferred stock outstanding on the date of
the certificate of designations or issued subsequent to the date thereof as
dividends permitted pursuant to this clause (11), to the extent such
dividends are made pursuant to the terms of the certificate of designations
for such Series B preferred stock as in effect on the date thereof, on any
preferred stock issued in exchange for the Series B preferred stock, or any
dividends on such preferred stock to the extend such dividends are made
pursuant to the terms of the certificate of designations of such preferred
stock; and
(12) the incurrence by us or any of our Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, including all Permitted Refinancing Indebtedness incurred
pursuant to clause (4) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (12), not to exceed $10.0
million.
For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (12) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will, in our sole
discretion, classify and reclassify such item of Indebtedness in whole or in
part in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to such clauses or
pursuant to the first paragraph hereof.
Merger, Consolidation or Sale of Assets
Without the approval of holders of a majority of the outstanding shares of
Series A preferred stock and Series B preferred stock, voting as a single class,
we may not consolidate or merge with or into another Person, whether or not we
are the surviving corporation, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our properties or assets in one
or more related transactions, to another Person, and we may not permit any of
our Restricted Subsidiaries to enter into any transaction or series of
transactions if such transaction or transactions in the aggregate would result
in a sale, assignment, transfer, lease, conveyance or substantially all of our
properties or assets to another Person unless:
(1) either
(a) we are the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or
merger, if other than us, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (called the
"Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of
Columbia;
(2) the Series B preferred stock shall be converted into or exchanged
for and shall become shares of the Surviving Entity, having in respect of
such successor, transferee or resulting corporation substantially the same
powers, preferences and relative participating, optional or other special
rights, and the qualifications, limitations or restrictions thereon that
the Series B preferred stock had immediately prior to such transaction;
(3) immediately after such transaction no Voting Rights Triggering
Event, and no event that after the giving of notice or lapse of time or
both would become a Voting Rights Triggering Event, shall have occurred and
be continuing; and
(4) we or the Surviving Entity will, at the time of such transaction
or series of transactions and after giving pro forma effect thereto as if
such transaction or series of transactions had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Notwithstanding the restrictions described in the foregoing clause (4), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to us, and any Wholly Owned Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
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Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to us or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or such Restricted Subsidiary
with an unrelated Person;
(2) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.5
million, a majority of the disinterested members of the Board of Directors
(i) has determined that such Affiliate Transactions or series of Affiliate
Transactions complies with clause (1) above and (ii) has approved such
Affiliate Transaction or series of Affiliate Transactions; and
(3) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $10.0
million, an opinion as to the fairness to us of such Affiliate Transaction
from a financial point of view has been issued to us by an accounting,
appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any transaction approved by our Board of Directors, with an
officer or director of SBS or of any of our Subsidiaries in his or her
capacity as an officer or director entered into in the ordinary course of
business;
(2) transactions between or among us and/or our Restricted
Subsidiaries;
(3) payment of reasonable directors fees to the Board of Directors of
SBS and of our Restricted Subsidiaries;
(4) fees and compensation paid to, and indemnity provided on behalf
of, officers, directors or employees of SBS or any of our Restricted
Subsidiaries, as determined in good faith by the Board of Directors of SBS
or of any such Restricted Subsidiary, to the extent the same are reasonable
and customary;
(5) any Restricted Payment that is permitted by the provisions of the
certificate of designations described above under the caption
"-- Restricted Payments"; and
(6) agreements in effect on the date of the issuance of the Series B
preferred stock and any modification thereto or any transaction
contemplated thereby (including pursuant to any modification thereto) in
any replacement agreement therefor so long as such modification or
replacement is not more disadvantageous to the holders of the Series B
preferred stock in any material respect than the original agreement as in
effect on the date of the certificate of designations.
Reports
Whether or not required by the SEC, so long as any shares of Series B
preferred stock are outstanding, we will make available, upon request, to the
holders of shares of Series B preferred stock, within the time periods specified
in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K,
including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes our financial condition and
results of operations and our consolidated Subsidiaries and, with respect
to the annual information only, a report thereon by our certified
independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K.
In addition, whether or not required by the SEC, we will file a copy of all
such information and reports referred to in clauses (1) and (2) above with the
SEC for public availability within the time periods specified in the SEC's rules
and
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regulations, unless the SEC will not accept such a filing, and make such
information available to securities analysts and prospective investors upon
request.
Transfer Agent and Registrar
Wachovia Bank, N.A. will be the transfer agent (the "Transfer Agent") and
registrar for the Series B preferred stock.
EXCHANGE NOTES
If we exchange the Series B preferred stock for exchange notes, the
exchange notes will be issued under an exchange notes indenture among us, the
Guarantors and Wachovia Bank, N.A., as trustee. The terms of the exchange notes
include those stated in the exchange notes indenture and those made part of the
exchange notes indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of certain material terms and
provisions of the exchange notes indenture. It does not restate the exchange
notes indenture in its entirety. We urge you to read the exchange notes
indenture because it, and not this description, will define your rights as
holders of exchange notes, if issued. The registered holder of an exchange note
will be treated as the owner of it for all purposes. Only registered holders
will have rights under the exchange notes indenture.
The senior secured credit facilities and our existing 9 5/8% notes restrict
our ability to issue the exchange notes.
GENERAL
The exchange notes, if and when issued, will be:
- our general unsecured obligations and will be limited in aggregate
principal amount to the liquidation preference of the Series B
preferred stock, plus, without duplication, accumulated and unpaid
dividends, on the date on which it is exchanged for exchange notes
(plus any additional exchange notes issued in lieu of cash interest as
described herein);
- subordinated in right of payment to all of our existing and future
Senior Debt (including the new senior secured credit facilities and
our existing 9 5/8% senior subordinated notes due 2009); and
- unconditionally guaranteed by the Guarantors on a subordinated basis.
The exchange notes indenture provides that we may issue debt securities
from time to time, in one or more series, each in an aggregate principal amount
authorized by us prior to issuance. The exchange notes indenture permits us to
incur additional debt, including additional senior debt, subject to certain
restrictions. See "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
PRINCIPAL, MATURITY AND INTEREST
We will issue notes in denominations of $1,000 and integral multiples of
$1,000 (other than as described in "Description of Series B Preferred Stock and
Exchange Notes" or with respect to additional exchange notes issued in lieu of
cash as described herein). The notes will mature on October 15, 2013.
Interest on the notes will accrue at the rate of 10 3/4% per annum and will
be payable semi-annually in cash (or, on or prior to October 15, 2008, in
additional exchange notes at our option) in arrears on October 15 and April 15
of each year, commencing with the first such date after the date of exchange of
the Series B preferred stock.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
If a holder of an exchange note has given wire transfer instructions to us,
we will make all principal, premium and interest payments (to the extent paid in
cash) on those exchange notes in accordance with those instructions. All other
payments on these notes (to the extent paid in cash) will be made at the office
or agency of the Paying Agent and Registrar within the City and State of New
York unless we elect to make interest payments by check mailed to the holders at
their address set forth in the register of holders.
SUBORDINATION
The payment of principal, premium and interest on the exchange notes will
be subordinated to the prior payment in full in cash or Cash Equivalents of all
our Senior Debt.
If any payment or distribution to our creditors occurs:
(1) in a liquidation or dissolution of SBS;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to us or our property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of our assets or liabilities,
the holders of our Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of such Senior Debt,
including interest after the commencement of any such proceeding at the rate and
on the terms specified in the applicable Senior Debt whether or not the claim
for such interest is allowed or enforceable in any such proceeding, before the
holders of exchange notes will be entitled to receive any payment or
distribution with respect to the exchange notes. However, holders of exchange
notes may receive Permitted Junior Securities and payments made from the trust
described under "-- Legal Defeasance and Covenant Defeasance."
Any payment or distribution to which the holders of exchange notes would
otherwise be entitled in any such proceeding shall be made directly to the
holder of Senior Debt until all Obligations in respect of the Senior Debt
(including all such interest) are paid in full in cash or Cash Equivalents. We
also may not make any payment in respect of the exchange notes except in
Permitted Junior Securities or from the trust described under the caption
"-- Legal Defeasance and Covenant Defeasance," if:
(1) a payment default on any Credit Facility occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of that Designated Senior Debt
to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from us or the holders of such
Designated Senior Debt.
Payments on the exchange notes may and must be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived or has ceased to exist or such Designated Senior
Debt has been discharged or repaid in full; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received or has ceased to
exist or such Designated Senior Debt has been discharged or repaid in full,
unless the maturity of any Designated Senior Debt has been accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default has
been cured or waived. We must promptly notify holders of Senior Debt if payment
of the exchange notes is accelerated because of an Event of Default.
Only one Payment Blockage Notice may be given in a 360-day period,
regardless of the number of defaults on the Designated Senior Debt during that
period. However, if a Payment Blockage Notice is given by a holder of Designated
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Senior Debt other than a Credit Facility during the 360-day period, a
representative of a Credit Facility may give another Payment Blockage Notice
during the 360-day period. In no event, however, may the total number of days
during which any period of payment blockage is in effect exceed 179 days during
any 360 consecutive day period.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of exchange notes may recover less than
our creditors who are holders of Senior Debt. Your right to receive payments on
these exchange notes is junior to our existing indebtedness and possibly all of
our future borrowings.
SUBSIDIARY GUARANTEES
Each of our current and future domestic Restricted Subsidiaries (the
"Guarantors"), except for the Non-Guarantor Subsidiaries, will jointly and
severally guarantee our obligations under the exchange notes (the "Subsidiary
Guarantees"). Each Subsidiary Guarantee will be subordinated in right of payment
to all existing and future Senior Debt of such Guarantor on the same terms as
the exchange notes are subordinated to our Senior Debt. The exchange notes
indenture will permit the Guarantors to incur additional indebtedness, including
additional Senior Debt, subject to certain restrictions. See "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
A Guarantor may not consolidate with or merge with or into, whether or not
such Guarantor is the surviving Person, another corporation, Person or entity
unless:
(1) the Person formed by or surviving any such consolidation or
merger, if other than such Guarantor, assumes all the obligations of such
Guarantor pursuant to a supplemental exchange notes indenture reasonably
satisfactory to the Trustee under the notes and the exchange notes
indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(3) we would be permitted by virtue of our pro forma Debt to Cash Flow
Ratio, immediately after giving effect to such transaction, to incur at
least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow
Ratio test set forth in the covenant described below under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any Asset Sale or other disposition of all or
substantially all of the assets of that Guarantor, including by way of
merger or consolidation or otherwise, if we comply with the applicable
provisions of the exchange notes indenture; or
(2) in connection with any sale of the capital stock of a Guarantor,
if we comply with the applicable provisions of the exchange notes
indenture.
OPTIONAL REDEMPTION
We may redeem the exchange notes at any time on or after October 15, 2008,
in whole or from time to time in part, at our option, at the following
redemption prices (expressed as a percentage of principal amount) if redeemed
during the 12-month period beginning October 15 of each of the years set forth
below, plus, in each case accrued interest thereon to the date of redemption:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2008........................................................ 105.375%
2009........................................................ 103.583%
2010........................................................ 101.792%
2011 and thereafter......................................... 100.000%
</Table>
In addition, before October 15, 2006, at our option we may redeem up to 40%
of the aggregate principal amount of the exchange notes (whether issued in
exchange for Series B preferred stock or issued in lieu of cash interest
payments) in whole or from time to time in part, at our option at a redemption
price equal to 110.75% of the aggregate principal amount of the exchange notes
to be redeemed, plus an amount in cash equal to all accumulated and unpaid
interest thereon to the date of redemption, with the proceeds of one or more
Equity Offerings (as defined below); provided that at
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least $45.0 million principal amount of the exchange notes (whether issued in
exchange for Series B preferred stock or issued in lieu of cash interest
payments) remains outstanding immediately after the occurrence of such
redemption; and provided further that such redemption shall occur within 90 days
of the date of the closing of such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means (i) any public
or private sale of our common stock pursuant to which we receive net proceeds of
at least $15.0 million other than issuances of our common stock pursuant to
employee benefit plans or as compensation to employees or (ii) the issuance of
shares of our Class A common stock upon exercise of the warrants granted to
International Church of the FourSquare Gospel pursuant to which we receive net
proceeds of at least $5.0 million.
No optional redemption may be authorized or made at less than 101% of the
principal amount of exchange notes at any time when we are making an offer to
purchase exchange notes under a Change of Control Offer (as defined) in
accordance with the provisions of "-- Change of Control."
If less than all of the exchange notes are to be redeemed at any time, the
Trustee will select exchange notes for redemption in compliance with the
requirements of the principal national securities exchange, if any, on which the
exchange notes are listed. If the exchange notes are not so listed, the Trustee
will make the selection of exchange notes for redemption on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate. No
exchange notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 days but not more
than 60 days before the redemption date to each holder of exchange notes to be
redeemed at its registered address. Notice of redemption may not be conditional.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to such exchange note shall state the portion of the
principal amount thereof to be redeemed. A new exchange note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original exchange note. Exchange notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on the exchange notes or portions of
them called for redemption.
The terms of our senior secured credit facilities and our existing 9 5/8%
notes restrict, directly or indirectly, our ability to redeem the exchange
notes, and future agreements to which we or our subsidiaries are parties may
provide the same. See "Description of Indebtedness."
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, we will make an offer (a "Change of Control
Offer") to each holder of exchange notes to repurchase all or any part, equal to
$1,000 or an integral multiple thereof, of such holder's exchange notes. In the
Change of Control Offer, we will offer payment in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of purchase (the "Change of Control Payment"). Within ten days
following a Change of Control, we will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase exchange notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the exchange notes indenture and described in such
notice. We will comply with the requirements of Section 14(e) under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
exchange notes as a result of a Change of Control.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all exchange notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all exchange notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the exchange notes
so accepted together with an Officers' Certificate stating the aggregate
principal amount of exchange notes or portions thereof being purchased by
us.
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The Paying Agent will promptly mail to each holder of exchange notes so
tendered the Change of Control Payment for such exchange notes, and the Trustee
will promptly authenticate and mail, or cause to be transferred by book entry,
to each holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; provided that each such new
exchange note will be in a principal amount of $1,000 or an integral multiple
thereof.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable whether or not any other
provisions of the exchange notes indenture are applicable. Except as described
above with respect to a Change of Control, the exchange notes indenture does not
contain provisions that permit the holders of the exchange notes to require us
to repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Debt may directly or indirectly prohibit us from purchasing any
exchange notes following a Change of Control and provide that certain change of
control events with respect to us would constitute a default thereunder. Any
other future credit agreements or other agreements to which we become a party
may contain similar restrictions. If a Change of Control occurs at a time when
we are prohibited from purchasing exchange notes, we could seek the consent of
our lenders to the purchase of exchange notes or could attempt to refinance the
borrowings that contain such prohibition. If we do not obtain such a consent or
repay such borrowings, we will remain prohibited from purchasing exchange notes.
Our failure to purchase tendered exchange notes following a Change of Control
would constitute an Event of Default under the exchange notes indenture which,
in turn, is expected to constitute a default under the Senior Debt. In such
circumstances, the subordination provisions in the exchange notes indenture
would restrict payments to the holders of exchange notes. Finally, our ability
to pay cash to the holders of exchange notes upon a repurchase may be limited by
our then existing financial resources. We cannot assure you that sufficient
funds will be available when necessary to make any required repurchases.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
exchange notes indenture applicable to a Change of Control Offer made by us and
purchases all exchange notes validly tendered and not withdrawn under such
Change of Control Offer.
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors of SBS
or such Subsidiary) of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration therefor received by us or such
Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed cash:
(a) any liabilities, as shown on our or such Restricted
Subsidiary's most recent balance sheet, of us or such Restricted
Subsidiary, other than contingent liabilities and liabilities that are
by their terms subordinated to the exchange notes or any guarantee
thereof, that are assumed by the transferee of any such assets pursuant
to a customary novation agreement that releases us or such Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by us or
such Restricted Subsidiary from such transferee that are converted by us
or such Restricted Subsidiary into cash, to the extent of the cash
received, within 90 days following the closing of such Asset Sale.
However, we and our Restricted Subsidiaries will be permitted to consummate
an Asset Sale without complying with the preceding paragraph if:
(1) we or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or other property sold, issued or otherwise
disposed of; and
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(2) at least 75% of the consideration for such Asset Sale constitutes
a controlling interest in a Permitted Business, long-term assets used or
useful in a Permitted Business and/or cash or Cash Equivalents; provided
that any cash or Cash Equivalents received by us or any of our Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Proceeds subject to the
provisions of the next paragraph.
Within 365 days of the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option:
(1) to repay or redeem Senior Debt;
(2) to acquire a controlling interest in another Permitted Business;
and
(3) to make a capital expenditure or to acquire long-term assets that
are used or useful in a Permitted Business.
Notwithstanding the foregoing, we shall have an additional 60 days to complete a
redemption or repurchase of our existing 9 5/8% senior subordinated notes due
2009 with the Net Proceeds from an Asset Sale provided that we commence an offer
to redeem or repurchase such existing 9 5/8% notes within 365 days of the
receipt of any Net Proceeds from an Asset Sale.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the exchange notes indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, we will be required
to make an offer to all holders of exchange notes and all holders of other pari
passu Indebtedness containing provisions similar to those set forth in the
exchange notes indenture with respect to offers to purchase or redeem such other
pari passu Indebtedness with the proceeds of sales of assets (an "Asset Sale
Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase and will be paid in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, we may use such Excess Proceeds for any
purpose not otherwise prohibited by the exchange notes indenture. If the
aggregate principal amount of exchange notes and such other pari passu
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the exchange notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of an Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our or any of our Restricted Subsidiary's Equity
Interests, including, without limitation, any payment in connection with
any merger or consolidation involving us or any Restricted Subsidiary, or
to any direct or indirect holders of our Equity Interests in their capacity
as such, other than dividends or distributions payable in our Equity
Interests, other than Disqualified Stock, to us or any of our Wholly Owned
Restricted Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving us, any Equity Interests of SBS or any of our
Restricted Subsidiaries or any of our direct or indirect parents, other
than any such Equity Interests owned by us or any of our Restricted
Subsidiaries;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Restricted Subsidiary that is subordinated to the exchange
notes or any guarantee of the exchange notes, except a payment of interest
or principal at Stated Maturity; or
(4) make any Restricted Investment, all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments";
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unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) we would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt to
Cash Flow Ratio test set forth in the first paragraph of the covenant
described below under caption "-- Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries after
the issue date of the exchange notes, excluding Restricted Payments
permitted by clauses (2), (3) and (4) of the next paragraph, is less than
the sum, without duplication, of:
(a) an amount equal to our Consolidated Cash Flow for the period
(taken as one accounting period) from June 8, 2001 to the end of our
most recently ended full fiscal quarter for which financial statements
have been filed with the SEC (the "Basket Period") less the product of
1.4 times our Consolidated Interest Expense for the Basket Period; plus
(b) 100% of the aggregate net cash proceeds received by us as a
contribution to our common equity capital or from the issue or sale
since June 8, 2001 of our Equity Interests (other than Disqualified
Stock) or from the issue or sale of our Disqualified Stock or, debt
securities that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to one of our Subsidiaries and other than Disqualified
Stock or convertible debt securities that have been converted into
Disqualified Stock); plus
(c) to the extent that any Restricted Investment that was made
after the issue date of the exchange notes is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (i) the cash return of
capital with respect to such Restricted Investment, less the cost of
disposition, if any, and (ii) the initial amount of such Restricted
Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after its date of
declaration, if at the date of declaration such payment would have complied
with the provisions of the exchange notes indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of SBS or subordinated Indebtedness of
SBS or any Guarantor in exchange for, or out of the net cash proceeds of
the substantially concurrent sale, other than to our Subsidiary, of other
of our Equity Interests, other than any Disqualified Stock; provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (3)(b) of the preceding paragraph; and provided
further that no Default or Event of Default shall have occurred and be
continuing immediately after such transaction;
(3) the defeasance, redemption, repurchase or other acquisition of any
of our Indebtedness or any Restricted Subsidiary that is subordinated to
the exchange notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; provided that no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction;
(4) the payment of any dividend by our Restricted Subsidiary to the
holders of our Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of SBS or of any of our Restricted
Subsidiaries held by any member of our -- or any of our Restricted
Subsidiaries' -- management or Board of Directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $5.0 million (excluding for purposes of calculating such amounts
during any period, loans incurred to finance the purchase of such Equity
Interests that are repaid
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contemporaneously) in any twelve-month period and no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction;
(6) repurchases of stock deemed to have occurred by virtue of the
exercise of stock options; and
(7) other Restricted Payments in an aggregate amount not to exceed
$5.0 million in any twelve-month period so long as no default or Event of
Default shall have occurred and be continuing.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by us or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. The Board of Directors shall
determine in good faith the fair market value of any non-cash Restricted
Payment. The Board of Directors' resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, we shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which any
calculations required by the covenant "Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, the aggregate fair market value of all
outstanding Investments by us and our Restricted Subsidiaries in the Subsidiary
so designated will be deemed to be a Restricted Payment at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. Such designation will only be permitted if
such Restricted Payment would be permitted at such time and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the exchange notes indenture. Any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of SBS as of such
date, and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock," we shall be in default of such covenant. Our
Board of Directors may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary. However, such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of SBS of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if:
(1) such Indebtedness is permitted under the covenant described under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred
at the beginning of the four-quarter reference period; and
(2) no Default or Event of Default would be in existence immediately
following such designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt, and we will
not issue any shares of Disqualified Stock and will not permit any of our
Restricted Subsidiaries to issue any shares of preferred stock; provided, that,
if no Default or Event of Default has occurred and is continuing, we may incur
Indebtedness, including Acquired Debt, or issue shares of Disqualified Stock and
the Guarantors may issue shares of preferred stock if, our Debt to Cash Flow
Ratio at such time after giving pro forma effect to such incurrence or issuance
as of such date and to the use of the proceeds therefrom as if the same had
occurred at the beginning of our most recently ended four full fiscal quarter
periods for which internal financial statements are available, would have been
no greater than 7.0 to 1.0.
So long as no Default shall have occurred and be continuing or would be
caused thereby, the preceding paragraph will not apply to the incurrence of any
of the following (collectively, "Permitted Debt"):
(1) the incurrence by us, and the guarantee thereof by any Restricted
Subsidiary, of Indebtedness and letters of credit under one or more Credit
Facilities; provided that the aggregate principal amount at any time
outstanding does
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not exceed $175.0 million, with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of us and the
Restricted Subsidiaries thereunder, less the aggregate amount of all
mandatory repayments of the principal of any term Indebtedness under a
Credit Facility that have been made since the issue date of the exchange
notes (other than from the proceeds of any other Credit Facility) and less
the aggregate amount of all commitment reductions of any revolving
Indebtedness under a Credit Facility pursuant to clause (1) of the third
paragraph of the covenant described above under the caption "-- Repurchase
at the Option of Holders -- Asset Sales";
(2) the incurrence by us and the guarantee thereof by the Guarantors
of Indebtedness represented by the exchange notes and the Subsidiary
Guarantees;
(3) the incurrence by us and our Restricted Subsidiaries of the
Existing Indebtedness;
(4) the incurrence by us or our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Indebtedness, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of SBS or
such Restricted Subsidiary, in an aggregate amount not to exceed $5.0
million at any time outstanding;
(5) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness, other than
intercompany Indebtedness, that was permitted by the exchange notes
indenture to be incurred by the first paragraph of this covenant, or by
clauses (2), (3), (4), (5), (7), (8), (9), (10), (11), (12) or (13) of this
paragraph;
(6) the incurrence of Indebtedness between or among us and any of our
Restricted Subsidiaries; provided that: (a) if we are the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full of all Obligations with respect to the exchange notes; and
(b) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than us or a Restricted
Subsidiary, and any sale or other transfer of any such Indebtedness to a
Person that is not either us or a Restricted Subsidiary, shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by us or
such Restricted Subsidiary, as the case may be;
(7) the incurrence by us or any of our Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this exchange notes indenture to be outstanding;
(8) the guarantee by us or any of the Guarantors (or, in the case of a
Credit Facility, any Restricted Subsidiary) of Indebtedness that was
permitted to be incurred by another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock;
(10) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness consisting of performance, bid or advance payment bonds,
surety bonds, custom bonds, utility bonds and similar obligations arising
in the ordinary course of business;
(11) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred
or assumed in connection with the disposition of any business, asset or
Subsidiary of SBS, provided that the maximum assumable Indebtedness shall
at no time exceed the gross proceeds actually received by us and our
Restricted Subsidiaries in connection with the disposition of any business,
asset or Subsidiary of SBS;
(12) the incurrence by us of Indebtedness in respect of exchange notes
issued as payment in kind interest on exchange notes, to the extent such
interest payments are made pursuant to the terms of the exchange notes
indenture; and
(13) the incurrence by us or any of our Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, including all Permitted Refinancing Indebtedness incurred
pursuant to
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clause (5) above to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (13), not to exceed $10.0 million.
For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (13) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will, in our sole
discretion, classify and reclassify such item of Indebtedness in whole or in
part in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to such clauses or
pursuant to the first paragraph hereof.
Asset Swap
The exchange notes indenture provides that we will not, and will not permit
any of our Restricted Subsidiaries to, in one or a series of related
transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at
the time of entering into the agreement to swap assets and immediately after
giving effect to the proposed Asset Swap, no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof; (ii) we
would, after giving pro forma effect to the proposed Asset Swap, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt to Cash Flow Ratio in the covenant "Incurrence of Indebtedness and Issuance
of Preferred Stock"; (iii) the respective fair market values of the assets being
purchased and sold by us or any of our Restricted Subsidiaries (as determined in
good faith by our management or, if such Asset Swap includes consideration in
excess of $1.0 million by our Board of Directors, as evidenced by a Board
Resolution) are substantially the same at the time of entering into the
agreement to swap assets; and (iv) at the time of the consummation of the
proposed Asset Swap, the percentage of any decline in the fair market value
(determined as aforesaid) of the asset or assets being acquired by us and our
Restricted Subsidiaries shall not be significantly greater than the percentage
of any decline in the fair market value (determined as aforesaid) of the assets
being disposed of by us or our Restricted Subsidiaries, calculated from the time
the agreement to swap assets was entered into.
Limitation on Other Subordinated Debt
The exchange notes indenture provides that:
(1) we will not directly or indirectly incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the exchange notes; and
(2) no Guarantor will incur any Indebtedness that is subordinate or
junior in right of payment to its Guarantor Senior Debt and senior in any
respect in right of payment to such Guarantor's Subsidiary Guarantee.
Liens
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Sale and Leaseback Transactions
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that we and the
Guarantors may enter into a sale and leaseback transaction if:
(1) we or such Guarantor could have
(a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction pursuant to the
Debt to Cash Flow Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(b) incurred a Lien to secure such Attributable Debt pursuant to
the covenant described above under the caption "-- Liens";
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(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined by the Board of
Directors in good faith) of the property that is the subject of such sale
and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in
compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
Dividend and Other Payment Restrictions Affecting Subsidiaries
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to us or any of our Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to us or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) existing Indebtedness as in effect on the issue date of the
exchange notes;
(2) the Senior Credit Facilities and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, and any other agreement governing or relating to
Senior Debt, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
and other agreements are, taken as a whole, no more restrictive with
respect to such dividend and other payment restrictions than those
contained in the Senior Credit Facilities;
(3) the exchange notes indenture, the exchange notes and the
Subsidiary Guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at the
time of such acquisition, except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the exchange
notes indenture to be incurred;
(6) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business and consistent with past
practices;
(7) purchase money obligations (including Capital Lease Obligations)
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (3) above on the property so
acquired;
(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "-- Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
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(12) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition.
Merger, Consolidation or Sale of Assets
We may not consolidate or merge with or into another Person, whether or not
we are the surviving corporation, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our properties or assets in one
or more related transactions, to another corporation or Person; unless:
(1) either
(a) we are the surviving corporation or
(b) the Person formed by or surviving any such consolidation or
merger, if other than us, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger, if other than us, or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all our obligations under the exchange notes and the exchange notes
indenture pursuant to a supplemental exchange notes indenture in a form
reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of our merger with or into one of our Wholly
Owned Restricted Subsidiaries, we or the Person formed by or surviving any
such consolidation or merger, if other than us, or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made would, both immediately prior to and immediately after giving pro
forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set
forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of our
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to us or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or such Restricted Subsidiary
with an unrelated Person; and
(2) we deliver to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.5 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that a majority of the disinterested
members of the Board of Directors approved such Affiliate Transaction;
and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to us of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any transaction approved by our Board of Directors, with our
officer or director or an officer or director of any of our Subsidiaries in
his or her capacity as an officer or director entered into in the ordinary
course of business;
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(2) transactions between or among us and/or our Restricted
Subsidiaries;
(3) payment of reasonable directors fees to the Board of Directors of
SBS and of our Restricted Subsidiaries;
(4) fees and compensation paid to, and indemnity provided on behalf
of, our officers, directors or employees or the officers, directors or
employees of any of our Restricted Subsidiaries, as determined in good
faith by our Board of Directors or the Board of Directors of any such
Restricted Subsidiary, to the extent the same are reasonable and customary;
(5) any Restricted Payment that is permitted by the provisions of the
exchange notes indenture described above under the caption "-- Restricted
Payments"; and
(6) agreements in effect on the issue date of the exchange notes and
any modification thereto or any transaction contemplated thereby (including
pursuant to any modification thereto) in any replacement agreement therefor
so long as such modification or replacement is not more disadvantageous to
the holders of the exchange notes in any material respect than the original
agreement as in effect on the issue date of the exchange notes.
Additional Subsidiary Guarantees
If we or any of our Restricted Subsidiaries acquires or creates another
domestic Restricted Subsidiary after the date of the exchange notes indenture,
other than the Non-Guarantor Subsidiaries, or if any domestic Unrestricted
Subsidiary becomes our Restricted Subsidiary, then such Subsidiary will execute
a Subsidiary Guarantee of the exchange notes and deliver an opinion of counsel,
in accordance with the terms of the exchange notes indenture.
Payments for Consent
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to any holder of any
exchange notes as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the exchange notes indenture or the exchange notes
unless such consideration is offered to be paid to all holders of the exchange
notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the SEC, so long as any exchange notes are
outstanding, we will furnish to the trustee for the benefit of the holders of
exchange notes, within the time periods specified in the SEC's rules and
regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K,
including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and
results of operations of SBS and our consolidated Subsidiaries and, with
respect to the annual information only, a report thereon by our certified
independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K.
In addition, whether or not required by the SEC, we will file a copy of all
such information and reports referred to in clauses (1) and (2) above with the
SEC for public availability within the time periods specified in the SEC's rules
and regulations, unless the SEC will not accept such a filing, and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(1) default for 30 days in the payment when due of interest on the
exchange notes, whether or not prohibited by the subordination provisions
of the exchange notes indenture;
(2) default in payment when due of the principal of or premium, if
any, on the exchange notes, whether or not prohibited by the subordination
provisions of the exchange notes indenture;
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(3) failure by us or any Restricted Subsidiary to comply with the
provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets";
(4) failure by us or any Restricted Subsidiary for 30 days after
written notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding exchange notes to comply with the provisions
described under the captions "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Certain Covenants -- Restricted Payments" or
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(5) failure by us or any Restricted Subsidiary for 60 days after
written notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding exchange notes to comply with any of its
other agreements in the exchange notes indenture or the exchange notes;
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Significant
Subsidiaries, or the payment of which is guaranteed by us or any of our
Significant Subsidiaries, whether such Indebtedness or guarantee now exists
or is created after the date of the exchange notes indenture, if that
default:
(a) is caused by a failure to pay (a "Payment Default") principal
of or premium, if any, or interest on such Indebtedness when due (after
giving effect to any applicable grace period provided in such
Indebtedness on the date of such default); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity; and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(7) failure by us or any of our Significant Subsidiaries to pay final
judgments aggregating in excess of $5.0 million (net of amounts covered by
insurance), which judgments are not paid, discharged or stayed for a period
of 60 days;
(8) except as permitted by the exchange notes indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and
(9) certain events of bankruptcy or insolvency with respect to us or
any of our Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of SBS that, taken
together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding exchange
notes may declare all the exchange notes to be due and payable immediately.
However, if an Event of Default arises from certain events of bankruptcy or
insolvency, with respect to us, any of our Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries of
SBS that, taken together, would constitute a Significant Subsidiary, all
outstanding exchange notes automatically will become due and payable
immediately. Holders of the exchange notes may not enforce the exchange notes
indenture or the exchange notes except as provided in the exchange notes
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding exchange notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
exchange notes notice of any continuing Default or Event of Default, except a
Default or Event of Default relating to the payment of principal or interest, if
it determines that withholding notice is in their interest. If an Event of
Default occurs by reason of any willful action or inaction taken or not taken by
or on behalf of SBS with the intention of avoiding payment of the premium that
we would have had to pay if we then had elected to redeem the exchange notes
pursuant to the optional redemption provisions of the exchange notes indenture,
an equivalent premium will also become immediately due and payable to the extent
permitted by law upon the acceleration of the exchange notes.
The holders of a majority in aggregate principal amount of the exchange
notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the exchange notes waive any existing Default or Event of Default and its
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consequences under the exchange notes indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
exchange notes. We are required to deliver to the Trustee annually a statement
regarding compliance with the exchange notes indenture. Upon becoming aware of
any Default or Event of Default, we are required to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of SBS or any Guarantor, as
such, will have any liability for any obligations of SBS or any Guarantor under
the exchange notes, the Subsidiary Guarantees, the exchange notes indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of exchange notes by accepting an exchange note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the exchange notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding exchange notes and to have each
Guarantor's obligation discharged with respect to its Subsidiary Guarantee
("Legal Defeasance"), except for:
(1) the rights of holders of outstanding exchange notes to receive
payments in respect of the principal of and premium and interest, if any,
on the exchange notes when such payments are due from the trust referred to
below;
(2) our obligations with respect to the exchange notes concerning
issuing temporary exchange notes, registration of exchange notes,
mutilated, destroyed, lost or stolen exchange notes and the maintenance of
an office or agency for payment;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the exchange notes indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of each Guarantor released with respect to
certain covenants that are described in the exchange notes indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the exchange notes.
If Covenant Defeasance occurs, certain events, not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events, described under
the caption "Events of Default and Remedies" will no longer constitute an Event
of Default with respect to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the exchange notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of and
premium, and interest, if any, on, the outstanding exchange notes on the
stated maturity or on the applicable redemption date, as the case may be,
and we must specify whether the exchange notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that:
(a) we have received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the exchange notes indenture, there has been
a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm
that, the holders of the outstanding exchange notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
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(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the outstanding exchange notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit, or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the exchange notes indenture, to which
we or any of our Subsidiaries are a party or by which we or any of our
Subsidiaries are bound;
(6) we shall have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) we shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by us with the intent of preferring
the holders of exchange notes over our other creditors with the intent of
defeating, hindering, delaying or defrauding our creditors or others; and
(8) we shall have delivered to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the exchange
notes indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and we may
require a holder to pay any taxes and fees required by law or permitted by the
exchange notes indenture. We are not required to transfer or exchange any
exchange note selected for redemption. Also, we are not required to transfer or
exchange any exchange note for a period of 15 days before a selection of
exchange notes to be redeemed. The registered holder of an exchange note will be
treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
The exchange notes indenture, the exchange notes and the Subsidiary
Guarantees may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the exchange notes then outstanding,
including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, exchange notes. Any existing default
or compliance with any provision of the exchange notes indenture, the exchange
notes or the Subsidiary Guarantees may be waived with the consent of the holders
of a majority in principal amount of the then outstanding exchange notes,
including consents obtained in connection with a tender offer or exchange offer
for exchange notes.
However, without the consent of each holder affected, an amendment or
waiver may not, with respect to any exchange notes held by a non-consenting
holder:
(1) reduce the principal amount of exchange notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
exchange note or alter the provisions with respect to the redemption of the
exchange notes, other than provisions relating to the covenants described
above under the caption "-- Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on
any exchange note;
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(4) waive a Default or Event of Default in the payment of principal of
or premium or interest, if any, on the exchange notes except a rescission
of acceleration of the exchange notes by the holders of at least a majority
in aggregate principal amount of the exchange notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any exchange note payable in money other than that stated in
the exchange notes;
(6) make any change in the provisions of the exchange notes indenture
relating to waivers of past Defaults or the rights of holders of exchange
notes to receive payments of principal of or premium or interest, if any,
on the exchange notes;
(7) waive a redemption payment with respect to any exchange note,
other than a payment required by one of the covenants described above under
the caption "-- Repurchase at the Option of Holders";
(8) release any Guarantor from its Subsidiary Guarantee; or
(9) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 of the exchange
notes indenture relating to subordination will require the consent of the
holders of at least 75% in aggregate principal amount of the exchange notes then
outstanding if such amendment would adversely affect the rights of holders of
exchange notes.
Notwithstanding the preceding, without the consent of any holder of
exchange notes, we, a Guarantor, with respect to a Subsidiary Guarantee or the
exchange notes indenture to which it is a party, and the Trustee may amend or
supplement the exchange notes indenture, the exchange notes or any Subsidiary
Guarantee:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated exchange notes in addition to or in
place of certificated exchange notes;
(3) to provide for the assumption of our or any Guarantor's
obligations to holders of exchange notes in the case of a merger or
consolidation or sale of substantially all of our assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of exchange notes or that does not adversely affect
the legal rights under the exchange notes indenture of any such holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the exchange notes indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
If the Trustee becomes our creditor, the exchange notes indenture limits
its right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The exchange notes indenture provides that if an
Event of Default occurs and continues, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the exchange notes
indenture at the request of any holder of exchange notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the certificate of
designations and the exchange notes indenture. Reference is made to the
certificate of designations and the exchange notes indenture for a full
disclosure of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Acquisition Indebtedness" means Indebtedness incurred by SBS or by a
Restricted Subsidiary the proceeds of which are used for the acquisition of a
Permitted Business and related facilities and assets or for the construction of
a facility pursuant to a construction permit issued by the FCC.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that (a) beneficial ownership of at least 10% of the Voting
Stock of a Person shall be deemed to be control and (b) for purposes of the
"Transactions with Affiliates" covenant, for so long as Pablo Raul Alarcon, Sr.,
Raul Alarcon, Jr. or Jose Grimalt are directors, officers or shareholders of
SBS, they, their respective spouses, lineal descendants and any Person
controlled by any of them shall be Affiliates of SBS and its Subsidiaries.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights -- including, without limitation, by way of a sale and
leaseback -- excluding sales of services and goods in the ordinary course
of business consistent with past practices; (and for purposes of the
exchange notes indenture described above, provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets
of SBS and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the exchange notes indenture described under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and
(2) the issue or sale by SBS or any of its Subsidiaries of Equity
Interests of any of SBS' Subsidiaries, in the case of either clause (1) or
(2), whether in a single transaction or a series of related transactions
that have a fair market value in excess of $5.0 million, or for net
proceeds in excess of $5.0 million. Notwithstanding the preceding, the
following items will not be deemed to be an Asset Sale:
(a) a transfer of assets by SBS to a Guarantor (or a Wholly Owned
Restricted Subsidiary, in the case of the certificate of designations)
or by a Guarantor (or a Wholly Owned Restricted Subsidiary, in the case
of the certificate of designations) to SBS or to another Guarantor (or a
Wholly Owned Restricted Subsidiary, in the case of the certificate of
designations);
(b) an issuance of Equity Interests by a Guarantor (or a Wholly
Owned Restricted Subsidiary, in the case of the certificate of
designations) to SBS or to another Guarantor (or a Wholly Owned
Restricted Subsidiary, in the case of the certificate of designations);
(c) the sale, lease or other disposition of equipment or other
assets in the ordinary course of business;
(d) the sale and leaseback of any assets within 90 days of the
acquisition of such assets;
(e) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Certain Covenants -- Restricted
Payments" or by section 11(a) of the certificate of designations;
(f) a transfer of any FCC license to a Non-Guarantor Subsidiary
described in clause (i) of the definition thereof;
(g) an Asset Swap; and
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(h) the sale or other disposition of our radio stations KLEY-FM and
KSAH-AM serving the San Antonio, Texas market, and radio station KPTI-FM
serving the San Francisco, California market.
"Asset Swap" means the execution of a definitive agreement, subject only to
regulatory approval and other customary closing conditions, that SBS in good
faith believes will be satisfied, for a substantially concurrent purchase and
sale, or exchange, of assets used or useful in a Permitted Business between SBS
or any of its Restricted Subsidiaries and another person or group of affiliated
persons; provided that any amendment to or waiver of any closing conditions
which individually or in the aggregate is material to the Asset Swap shall be
deemed to be a new Asset Swap.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction, including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discounted rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bank Indebtedness" means (i) Indebtedness of SBS incurred in accordance
with the exchange notes indenture or the certificate of designations, as the
case may be, owing to one or more commercial banking institutions that are
members of the Federal Reserve System and (ii) any guarantee by a Guarantor of
any Indebtedness of SBS of the type set forth in clause (i) of this definition.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means the Board of Directors of SBS or any authorized
committee of the Board of Directors.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B"
or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
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(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poors' Corporation and in each case
maturing within 270 days after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, or by
way of merger or consolidation, in one or a series of related transactions,
of all or substantially all of the assets of SBS and its Subsidiaries taken
as a whole to any "person" -- as such term is used in Section 13(d)(3) of
the Exchange Act -- other than the Principal or a Related Party of the
Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of SBS;
(3) the consummation of any transaction, including, without
limitation, any merger or consolidation, the result of which is that any
"person," as defined above, other than the Principal and his Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more than
35% of the Voting Stock of SBS;
(4) the Principal ceases to be the Beneficial Owner, directly or
indirectly, of a majority of the voting power of Voting Stock of SBS
(measured by voting power rather than number of shares) as a result of any
direct or indirect transfer of securities by the Principal; or
(5) the first day on which a majority of the members of the Board of
Directors of SBS are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized, including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations, to
the extent that any such expense was deducted in computing such
Consolidated Net Income; plus
(4) depreciation expense for such period, to the extent the same was
deducted in computing such Consolidated Net Income; plus
(5) all amortization expense and other non-cash expenses -- excluding
any such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period -- for such period, to the
extent the same was deducted in computing such Consolidated Net Income;
minus
(6) non-cash items increasing such Consolidated Net Income for such
period.
Consolidated Cash Flow shall be calculated on a pro forma basis after giving
effect to any acquisition as if such acquisition (including any Consolidated
Cash Flow associated with such acquisition) occurred on the first day of the
most recently ended four-quarter period, giving pro forma effect to any
non-recurring expenses, non-recurring costs and cost reductions within the first
year after such acquisition which SBS anticipates if SBS delivers to the Trustee
or the transfer agent, as the case may be, an officer's certificate executed by
its chief financial or accounting officer certifying to and describing and
quantifying with reasonable specificity such non-recurring expenses,
non-recurring costs and cost reductions.
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"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of:
(1) the total amount of Indebtedness and Attributable Debt of such
Person and its Restricted Subsidiaries; plus
(2) the total amount of Indebtedness and Attributable Debt of any
other Person, to the extent that such Indebtedness or Attributable Debt has
been guaranteed by the referent Person or by one or more of its Restricted
Subsidiaries or is secured by a Lien on assets of the referent Person or
any of its Restricted Subsidiaries; plus
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such Person,
in each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financing, and net payments (if
any) pursuant to Hedging Obligations); and
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(3) any interest expense on Indebtedness or Attributable Debt of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(1) Except as provided in (5) below, the positive Net Income of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting will be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or
a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval, that has not been obtained, or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) the Net Income of any Unrestricted Subsidiary will be excluded,
whether or not distributed to SBS or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of SBS who: (1) was a member of such Board of
Directors on the date of the certificate of designations or the issue date of
the exchange notes, as the case may be; or (2) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
"Credit Facility" or "Credit Facilities" means one or more debt facilities,
including, without limitation, the Senior Credit Facilities or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing, including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables, or letters of credit, in each case, as
now in effect or at any time hereafter entered into and as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time. For purposes of the exchange notes indenture, Indebtedness under
Credit Facilities
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outstanding on the date on which exchange notes are first issued and
authenticated under the exchange notes indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt. For purposes of the certificate of designations,
Indebtedness under Credit Facilities outstanding on the date on which the Series
B preferred stock is first issued pursuant to the certificate of designations
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (i) of the definition of Permitted Debt.
"Debt to Cash Flow Ratio" means, with respect to any Person as of any date
of determination (the "Calculation Date"), the ratio of the Consolidated
Indebtedness of such Person as of such date, to the Consolidated Cash Flow of
such Person for the four most recent full fiscal quarters ending immediately
prior to such date for which internal financial statements are available. Such
determination is made on a pro forma basis after giving effect to all
acquisitions and dispositions of assets made by such Person and its Restricted
Subsidiaries from the beginning of such four-quarter period through and
including such date of determination, including any related financing
transactions, as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period.
For purposes of making the computation referred to above:
(1) acquisitions that have been made by such Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date will be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period will be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income; and
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of by SBS or any of its Restricted Subsidiaries prior
to the Calculation Date, will be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means any Indebtedness outstanding under the
Senior Credit Facilities until the Senior Credit Facilities have been paid in
full and discharged and thereafter means any Credit Facility or any other Senior
Debt in excess of $25.0 million designated as such by SBS.
"Disqualified Stock" means any Capital Stock (other than the Series A
preferred stock or Series B preferred stock, in the case of the certificate of
designations) that, by its terms, or by the terms of any security into which it
is convertible or for which it is exchangeable at the option of the holder
thereof, or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after October 15, 2013. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require SBS to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale will
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Issuer may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments"
(or complies with section 11(b) of the certificate of designations, in the case
of the certificate of designations).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Existing Indebtedness" means Indebtedness in existence on the date of the
certificate of designations or the issue date of the exchange notes, as the case
may be, other than Indebtedness under Credit Facilities, until such Indebtedness
is repaid.
"FCC License" means licenses, permits and authorizations issued by the FCC
for the operation of stations.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
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pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets (other than pledges of Equity Interests in Unrestricted Subsidiaries to
secure Non-Recourse Debt) or through letters of credit and reimbursement
agreements in respect thereof, of all or any part of any Indebtedness.
"Guarantor" means any Restricted Subsidiary other than a Non-Guarantor
Subsidiary of SBS that shall be required under the exchange notes indenture to
execute a Subsidiary Guarantee.
"Hedging Obligations" means the obligations of any Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof;
(3) banker's acceptances;
(4) representing Capital Lease Obligations; or
(5) the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent
any of the foregoing indebtedness, other than letters of credit and Hedging
Obligations, would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP. In addition, "Indebtedness"
includes (i) all indebtedness of others secured by a Lien on any asset of
such Person, whether or not such indebtedness is assumed by such Person,
and (ii) to the extent not otherwise included, the guarantee by such Person
of any indebtedness of the sort described in clauses (1) through (5) above
of any other Person. Notwithstanding the foregoing, the term "Indebtedness"
shall not include Non-Recourse Debt or indebtedness that constitutes
"Indebtedness" merely by virtue of a pledge of Equity Interests of an
Unrestricted Subsidiary. Furthermore, for the avoidance of doubt,
"Indebtedness" shall not include any Capital Stock or any liabilities or
obligations in respect of Capital Stock.
The amount of any Indebtedness outstanding as of any date will be:
(A) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount,
(B) the principal amount of the Indebtedness secured, together with
any interest thereon that is more than 30 days past due, in the case of any
Indebtedness of the type described in clause (1) above,
(C) the principal amount of the Indebtedness guaranteed, together with
any interest thereon that is more than 30 days past due, in the case of any
Indebtedness of the type described in clause (2) above,
(D) the amount of the net settlement payment payable on termination,
in the case of any Indebtedness constituting a Hedging Obligation (assuming
for this purpose that the Hedging Obligation was terminated on the date as
of which the calculation of the amount of Indebtedness is being made), and
(E) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
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GAAP. If SBS or any Subsidiary of SBS sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of SBS such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary of
SBS, SBS shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
third paragraph of the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." "Investments" does not include the
defeasance, redemption or repurchase of Indebtedness that is cancelled and not
acquired or held as an investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code, or equivalent statutes of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain, but not loss, together with any related provision for
taxes on such gain, but not loss, realized in connection with:
(a) any Asset Sale, including, without limitation, dispositions
pursuant to sale and leaseback transactions; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by SBS or any of
its Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of the direct costs relating to
such Asset Sale or disposition, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for indemnities, reimbursements or adjustments in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Guarantor Subsidiaries" means (i) those single-purpose Restricted
Subsidiaries of SBS created or acquired after the date the Series A preferred
stock was first issued or the date of the exchange notes indenture, as the case
may be, which own one or more FCC Licenses and related rights and no other
material assets, (ii) Subsidiaries of SBS created or acquired after the date the
Series A preferred stock was first issued or the date of the exchange notes
indenture that are not incorporated under the laws of the United States of
America or a state of the United States of America, and (iii) the subsidiaries
of SBS that are not required to become and are not guarantors of SBS' existing
9 5/8% senior subordinated notes due 2009.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither SBS nor any of its Restricted Subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness,
(b) is directly or indirectly liable, as a guarantor or otherwise,
or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit, upon notice, lapse of time or both, any holder of
any other Indebtedness, other than the exchange notes being offered hereby,
of SBS or any of its Restricted Subsidiaries to
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declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of SBS or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, prepayment or make-whole
premium, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness or any
guarantee thereof.
"Permitted Business" means the media business and any business reasonably
similar, complementary, ancillary or related thereto, including, the operation
of latin music Web sites and internet portals.
"Permitted Investments" means:
(1) any Investment in SBS or in a Restricted Subsidiary;
(2) any Investment in Cash Equivalents;
(3) any Investment by SBS or any Restricted Subsidiary of SBS in a
Person engaged in a Permitted Business, if:
(a) as a result of, or concurrently with, such Investment such
Person becomes a Restricted Subsidiary; or
(b) as a result of, or concurrently with, such Investment such
Person is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into,
SBS or a Restricted Subsidiary; or
(c) SBS or a Restricted Subsidiary has entered into a binding
agreement to acquire such Person or all or substantially all of the
assets of such Person, which agreement is in effect on the date of such
Investment, and such Person becomes a Restricted Subsidiary or such
transaction is consummated, in each case within 180 days of the date of
such Investment;
(4) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any obligations or shares of Capital Stock received in connection
with or as a result of a bankruptcy, workout or reorganization of the
issuer of such obligations or shares of Capital Stock;
(6) any Investment received involuntarily;
(7) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of SBS;
(8) other Investments in Persons engaged in Permitted Businesses,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all other
Investments made pursuant to this clause (8) that are at the time
outstanding, not to exceed $7.5 million;
(9) Investments by SBS or any of its Restricted Subsidiaries in any
other Person pursuant to the terms of a "local marketing agreement" or
similar arrangement relating to a radio station owned or licensed by such
Person;
(10) Hedging Obligations;
(11) the incurrence by SBS or any of its Restricted Subsidiaries of
performance, bid or advance payment bonds, surety bonds, custom bonds,
utility bonds and similar obligations arising in the ordinary course of
business;
(12) endorsements of instruments for collection or deposit in the
ordinary course of business;
(13) loans and advances to employees and officers not to exceed $2.5
million outstanding in the aggregate at any time;
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(14) loans to employees, directors and officers in connection with the
purchase by such Persons of Equity Interests of SBS;
(15) investments in account debtors received in connection with the
bankruptcy or reorganization, or in settlement of delinquent obligations,
of customers; and
(16) investments in existence on the issue date of the exchange notes.
"Permitted Junior Securities" means Equity Interests in SBS or debt
securities of SBS or the relevant Guarantor that are subordinated to all Senior
Debt, and any debt securities issued in exchange for Senior Debt, or Guarantor
Senior Debt, and any debt securities issued in exchange for Guarantor Senior
Debt, as applicable, to substantially the same extent as, or to a greater extent
than, the exchange notes are subordinated to Senior Debt or the Subsidiary
Guarantees are subordinated to Guarantor Senior Debt, as applicable, pursuant to
the exchange notes indenture.
"Permitted Liens" means:
(1) Liens securing Senior Debt that was permitted by the terms of the
exchange notes indenture to be incurred;
(2) Liens in favor of SBS or any of its Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with SBS or any Restricted Subsidiary of SBS,
provided that such Liens were not incurred in contemplation of such merger
or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with SBS;
(4) Liens on property existing at the time of acquisition thereof by
SBS or any Restricted Subsidiary of SBS, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens existing on the date of the exchange notes indenture;
(7) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(8) Liens incurred in the ordinary course of business of SBS or any
Restricted Subsidiary of SBS with respect to obligations that do not exceed
$2.5 million at any one time outstanding;
(9) Liens securing industrial revenue bonds;
(10) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the exchange notes indenture, provided that (a) any such
Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and
other direct costs of, and other direct expenses paid or charged in
connection with, such purchase or construction) of such Property, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed
100% of such costs, and (c) such Lien does not extend to or cover any
Property other than such item of Property and any improvements on such item
or proceeds thereon;
(11) Liens securing Obligations in respect of the Senior Credit
Facilities;
(12) Liens securing Bank Indebtedness;
(13) Liens securing Acquisition Indebtedness, provided that such Liens
do not extend to or cover any Property other than the Property acquired
with the proceeds of such Acquisition Indebtedness and any improvements
thereto;
(14) Liens securing Permitted Refinancing Indebtedness;
(15) Liens securing Ratio Indebtedness;
(16) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted to be incurred by the section entitled "Incurrence
of Indebtedness and Issuance of Preferred Stock," covering only the assets
acquired with such Indebtedness;
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(17) zoning restrictions, easements, licenses, covenants and other
similar restrictions and encumbrances affecting the use of real property
not interfering in any material respect with the ordinary conduct of
business of SBS and its Restricted Subsidiaries;
(18) judgment liens not giving rise to an Event of Default;
(19) Liens, rights to setoff and credit balances with respect to
deposit accounts and other Cash Equivalents;
(20) deposits with the owner or lessor of premises leased and operated
in the ordinary course of business;
(21) nonconsensual liens that do not individually or in the aggregate
detract materially from the value of transferability of the assets of SBS
or any of its Restricted Subsidiaries, or impair materially the use of any
such assets in the operation of the respective businesses of SBS and its
Restricted Subsidiaries;
(22) Liens of the trustee under the exchange notes indenture; and
(23) Liens securing Hedging Obligations.
"Permitted Refinancing Indebtedness" means any Indebtedness of SBS or any
of its Restricted Subsidiaries or any Disqualified Stock of SBS issued in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of SBS or any of its Restricted
Subsidiaries; provided that:
(1) the principal amount, or accreted value or liquidation preference,
if applicable, of such Permitted Refinancing Indebtedness does not exceed
the principal amount of, or accreted value, if applicable, plus accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded, plus the amount of reasonable expenses and premiums
incurred in connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is pari passu with the exchange notes, such Permitted
Refinancing Indebtedness is pari passu with or subordinated in right of
payment to the exchange notes or is Disqualified Stock;
(4) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the exchange
notes, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the exchange notes on terms at least as favorable to the holders
of exchange notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded or is Disqualified Stock; and
(5) such Indebtedness is incurred either by SBS or by the Restricted
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, or such Disqualified
Stock is issued by SBS, as applicable.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof
or any other entity.
"Principal" means Raul Alarcon, Jr.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
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"Ratio Indebtedness" means (i) Indebtedness of SBS incurred in compliance
with the first paragraph of the section entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" which is not Permitted Refinancing Indebtedness and
(ii) any guarantee by a Restricted Subsidiary of SBS of any Indebtedness of SBS
of the type set forth in clause (i) of this definition.
"Related Party" with respect to the Principal means:
(1) any spouse or immediate family member of the Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a 50% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facilities" means the senior secured credit facilities
contemplated to be entered into by SBS, Lehman Brothers Inc., Lehman Commercial
Paper Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., Merrill Lynch Capital Corporation and Deutsche Bank Trust
Company Americas as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all
Hedging Obligations with respect thereto;
(2) all Indebtedness of SBS that is senior to the exchange notes
(including SBS's existing 9 5/8% senior subordinated notes due 2009);
(3) any other Indebtedness of SBS or any Guarantor permitted to be
incurred under the terms of the exchange notes indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
exchange notes or the Subsidiary Guarantees; and
(4) all Obligations of SBS or any Guarantor with respect to the
foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include:
(a) any liability for federal, state, local or other taxes owed or
owing by SBS;
(b) any Indebtedness of SBS or any Guarantor to any of its
Subsidiaries or other Affiliates;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the
certificate of designations or the exchange notes indenture, as the case
may be; provided that Indebtedness under Credit Facilities will not
cease to be Senior Debt if incurred based upon a written certificate
from a purported officer of SBS to the effect that such Indebtedness was
permitted by the certificate of designations or the exchange notes
indenture, as the case may be, to be incurred.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled, without regard to the occurrence of
any
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contingency, to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person, or a combination thereof.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with SBS or any Restricted Subsidiary unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to SBS or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of SBS;
(3) is a Person with respect to which neither SBS nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests; or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of SBS or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of SBS or any of its Restricted Subsidiaries
and has at least one executive officer that is not a director or executive
officer of SBS or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years, calculated to the nearest one-twelfth,
that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, will at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to persons who acquire shares of Series B
preferred stock pursuant to the exchange offer, holders of Series B preferred
stock and holders of exchange notes that may be issued in redemption of the
Series B preferred stock. The federal income tax considerations set forth below
are based upon currently existing provisions of the Internal Revenue Code of
1986, as amended, or the Code, applicable Treasury Regulations, judicial
authority, and current administrative rulings and pronouncements of the Internal
Revenue Service (IRS). We cannot assure you that the IRS will not take a
contrary view, and no ruling from the IRS has been, or will be, sought on the
issues discussed herein. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences discussed below.
The summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular holders, and
does not address foreign, state, local or other tax consequences. Unless
otherwise specifically noted, this summary applies only to a person who is an
initial beneficial owner of the Series B preferred stock, and does not address
the federal income tax consequences to (a) special classes of taxpayers (such as
S corporations, mutual funds, insurance companies, financial institutions, small
business investment companies, foreign companies, nonresident alien individuals,
regulated investment companies, real estate investment trusts, dealers in
securities or currencies, broker-dealers and tax-exempt organizations) who are
subject to special treatment under the federal income tax laws, (b) holders that
hold the Series B preferred stock as part of a position in a "straddle", or as
part of a "hedging", "conversion", or other integrated investment transaction
for federal income tax purposes, (c) holders that do not hold the Series B
preferred stock, and the exchange notes that may be issued in redemption of the
Series B preferred stock, as capital assets within the meaning of section 1221
of the Code or (d) holders whose functional currency is not the U.S. dollar.
Furthermore, estate and gift tax consequences are not discussed herein. We do
not intend to treat the Series B preferred stock as part of an investment unit
for United States federal income tax purposes.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE HOLDER OF THE
SERIES B PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING AND
DISPOSITION OF THE SERIES B PREFERRED STOCK OR THE EXCHANGE NOTES.
For purposes of this discussion, a U.S. person means any of the following:
- an individual who is a citizen or resident of the United States;
- a corporation, partnership or limited liability company created or
organized under the laws of the United States or any state or political
subdivision thereof;
- an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust that (i) is subject to the primary supervision of a U.S. court
and which has one or more U.S. fiduciaries who have the authority to
control all substantial decisions of the trust, or (ii) has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
As used herein, the term "U.S. Holder" means a beneficial owner of the
Series B preferred stock or exchange notes that is a U.S. person and the term
"Non-U.S. Holder" means a beneficial owner of the Series B preferred stock or
exchange notes that is not a U.S. person.
If a partnership (or limited liability company that is treated as a
partnership) holds the Series B preferred stock or exchange notes, the tax
treatment of a partner generally will depend upon the status of the partner and
upon the activities of the partnership. If you are a partner of a partnership
holding the Series B preferred stock or exchange notes, we suggest that you
consult your tax advisor.
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TAX CONSEQUENCES TO U.S. HOLDERS
THE EXCHANGE
The exchange of shares of Series A preferred stock for shares of Series B
preferred stock will not be a taxable event to the holders of Series A preferred
stock who participate in the exchange offer. Accordingly, a tendering owner will
not recognize any gain or loss as a result of the exchange for U.S. federal
income tax purposes. The tax basis of the shares of Series B preferred stock
received by any such U.S. Holder will equal the tax basis of the shares of
Series A preferred stock exchanged therefor, and the holding period of the
shares of Series B preferred stock will include the holding period of the shares
of Series A preferred stock exchanged therefor.
SERIES B PREFERRED STOCK
DIVIDENDS ON THE SERIES B PREFERRED STOCK
Dividends paid on the Series B preferred stock (including dividends paid
through the issuance of additional shares of Series B preferred stock) will be
taxable as ordinary income to the extent of our current or accumulated earnings
and profits (as determined for federal income tax purposes). To the extent that
the amount of distributions paid on the Series B preferred stock exceeds our
current or accumulated earnings and profits, the distributions will be treated
as a return of capital, thus reducing the holder's adjusted tax basis in such
Series B preferred stock and increasing the amount of gain (or reducing the
amount of loss) that may be realized by such holder upon a sale or exchange of
the Series B preferred stock. The amount of any distribution which exceeds the
holder's adjusted basis in the Series B preferred stock will be taxed as capital
gain, and generally will be long-term capital gain if the holder's holding
period for such Series B preferred stock exceeds one year. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution paid
out of our allocable earnings and profits unless the context indicates
otherwise.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "2003 Act"),
which became effective on May 28, 2003, reduced the maximum U.S. federal income
tax rate applicable to individuals who receive dividends distributed with
respect to the Series B preferred stock to a maximum 15% tax rate, subject to
certain holding periods requirements similar to those contained in section
246(c) discussed below. The reduced rate of tax applies to the taxable years
between 2003 and 2008. Individual U.S. Holders should consult their own advisors
as to their eligibility for the reduced rate of tax in relation to dividends on
the Series B preferred stock.
DIVIDENDS RECEIVED DEDUCTION. Dividends paid to a corporate holder who
owns less than 20% of SBS (by vote or value) will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to the
limitations contained in sections 246 and 246A of the Code. In general, the
dividends-received deduction is available only if the stock in respect of which
the dividend is paid is held for at least 46 days during the 90 day period that
begins 45 days before the stock becomes ex-dividend with respect to the dividend
(91 days during the 180 day period that begins 90 days before the stock becomes
ex-dividend with respect to a dividend in the case of a dividend attributable to
a period or periods aggregating more than 366 days). Under section 246(c) of the
Code, a taxpayer's holding period for these purposes is reduced by periods
during which the taxpayer's risk of loss with respect to the stock is considered
diminished by reason of the existence of options, contracts to sell and similar
transactions. Therefore, the right of each holder of Series A preferred stock to
require us to redeem all or a portion of the holder's Series B preferred stock
on October 15, 2013 will result in such date not being counted towards such
taxpayer's holding period for purposes of the dividends-received deduction
rules. The dividends-received deduction will also not be available if the
taxpayer is under an obligation to make related payments with respect to
positions in substantially similar or related property. The dividends-received
deduction is limited to specified percentages of a corporate holder's taxable
income and may be reduced or eliminated if the corporate holder has indebtedness
"directly attributable" to its investment in the stock. Prospective corporate
purchasers of the Series B preferred stock should consult their own tax advisors
to determine whether these limitations might apply to them.
For purposes of computing its alternative minimum tax, dividends eligible
for the 70% dividends-received deduction are included in a corporate holder's
"adjusted current earnings." If such adjusted current earnings exceed the
corporate holder's alternative minimum taxable income (determined without regard
to the adjustments for adjusted current earnings or the alternative tax net
operating loss deduction), 75% of the excess is added to the holder's
alternative minimum taxable income.
EXTRAORDINARY DIVIDENDS. Under section 1059 of the Code, if a corporate
holder receives an "extraordinary dividend" with respect to the Series B
preferred stock which it has not held for more than two years on the dividend
announcement date, the basis of the Series B preferred stock will be reduced
(but not below zero) by the non-taxed
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portion of the dividend. The reduction in basis is treated as occurring at the
beginning of the ex-dividend date of the extraordinary dividend to which the
reduction relates. If, because of the limitation on reducing basis below zero,
any amount of the non-taxed portion of an extraordinary dividend has not been
applied to reduce basis, such amount will be treated as gain from the sale or
exchange of the Series B preferred stock in the year in which the extraordinary
dividend is received. Generally, the non-taxed portion of an extraordinary
dividend is the amount excluded from income under section 243 of the Code
(relating to the dividends-received deduction). An extraordinary dividend on the
Series B preferred stock generally would include any dividend that (i) equals or
exceeds 5% of the holder's adjusted tax basis in the Series B preferred stock,
treating all dividends having ex-dividend dates within an 85 day period as one
dividend or (ii) exceeds 20% of the Holder's adjusted tax basis in the Series B
preferred stock, treating all dividends having ex-dividend dates within a 365
day period as one dividend. In determining whether a dividend paid on the Series
B preferred stock is an extraordinary dividend, a holder may elect to use the
fair market value of such stock rather than its adjusted tax basis for purposes
of determining the applicable percentage limitation if the holder is able to
establish to the satisfaction of the IRS the fair market value of the Series B
preferred stock as of the day before the ex-dividend date. An extraordinary
dividend would also include any amount treated as a dividend in the case of a
redemption of the Series B preferred stock that is either (i) non-pro rata as to
all holders of our stock, or (ii) part of a partial liquidation, or (iii) which
would not have been treated as a dividend if options had not been taken into
account, all without regard to the period the holder held the stock. Corporate
holders should see the section of this prospectus entitled "Redemption and
Exchange of the Series B Preferred Stock" for a discussion of when a redemption
of the Series B preferred stock will constitute an extraordinary dividend.
Certain "qualified preferred dividends," however, are not considered
extraordinary dividends. A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in arrears
as to dividends when acquired, provided, however, that the actual rate of return
(as determined under section 1059(e)(3) of the Code) on such stock does not
exceed 15%. If a qualified preferred dividend announced within two years of the
date of acquisition of the preferred stock exceeds the 5% (or 20%) threshold for
extraordinary dividend status described above, (i) section 1059(a) will not
apply (and no reduction in basis will be required) if the holder holds the stock
for more than five years and (ii) if the holder disposes of the stock before it
has been held for more than five years, the aggregate reduction in basis under
section 1059(a) will not exceed the excess of the qualified preferred dividends
paid on such stock during the period held by the holder over the qualified
preferred dividends that would have been paid during such period on the basis of
the stated rate of return, as determined under section 1059(e)(3) of the Code.
The length of time that a holder is deemed to have held stock for purposes of
section 1059 of the Code is determined under principles similar to those
contained in section 246(c) of the Code discussed above.
PREFERRED STOCK DISCOUNT
Although the Series B preferred stock has no maturity date, on October 15,
2013, each holder of Series B preferred stock has the right to require us to
redeem all or any portion of the holder's Series B preferred stock at a purchase
price of 100% of the liquidation preference thereof (plus accumulated and unpaid
dividends). In addition, before October 15, 2006 (subject to certain
restrictions), a portion of the Series B preferred stock is redeemable at our
option with the proceeds of certain equity offerings at 110.75% of the
liquidation preference thereof (plus accumulated and unpaid dividends), and on
or after October 15, 2008, all or some of the Series B preferred stock is
redeemable by us at specified redemption prices. Pursuant to section 305(c) of
the Code, holders of Series B preferred stock generally may be required to treat
a portion of the difference between the Series B preferred stock's issue price
and its redemption price as constructive distributions of property includible in
income on a periodic basis. For purposes of determining whether such
constructive distribution treatment applies, each of the possible redemptions is
tested separately. Constructive distribution treatment is required if any of
these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to redemption at the
option of its holders is treated as being distributed to the holders of such
preferred stock on an economic accrual basis. Preferred stock generally is
considered to have a redemption premium for this purpose if the price at which
it must be redeemed exceeds its issue price by more than a de minimis amount.
For this purpose, such excess will be treated as zero if it is less than
one-fourth of 1% of the redemption price multiplied by the number of complete
years from the date of issuance of the stock until the stock must be redeemed at
the option of its holders. Such excess, also sometimes referred to herein as the
Series B preferred stock discount, is taxable as a
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constructive distribution to the holder (treated as a dividend to the extent of
our current and accumulated earnings and profits and otherwise subject to the
treatment described above for distributions) over the term described above using
a constant interest rate method similar to that employed for accruing original
issue discount pursuant to the Code. We expect that the issue price of the
Series B preferred stock will be equal to 100% of its liquidation preference,
and therefore that the existence of an option by the holders to require
redemption at such amount should not result in any Series B preferred stock
discount.
Series B preferred stock discount will arise due to the optional redemption
features only if, based on all of the facts and circumstances as of the date the
Series B preferred stock is issued, redemption pursuant to either or both of the
optional redemptions is more likely than not to occur. Even if redemption were
more likely than not to occur, however, constructive distribution treatment
would not result if the redemption premium were solely in the nature of a
penalty for premature redemption. For this purpose, a penalty for premature
redemption is a premium paid as a result of changes in economic or market
conditions over which neither the issuer nor the holder has legal or practical
control, such as changes in prevailing dividend rates. The Treasury Regulations
provide a safe harbor pursuant to which constructive distribution treatment will
not result from an issuer call right if (i) the issuer and the holder are
unrelated, (ii) there are no arrangements that effectively require the issuer to
redeem the stock and (iii) exercise of the option to redeem would not reduce the
yield of the stock. Although the issue is not free from doubt, we believe that
the Series B preferred stock should not be considered to have been issued with
Series B preferred stock discount by reason of the optional redemption features.
Any additional shares of Series B preferred stock distributed by us in lieu
of cash dividend payments on the Series B preferred stock, also sometimes
referred to herein as dividend shares, received by holders of the Series B
preferred stock may bear Series B preferred stock discount depending upon the
issue price of such shares (i.e., the fair market value of the dividend shares
on the date of their issuance). A holder's initial tax basis in dividend shares
will equal the fair market value of such dividend shares on their date of
distribution. Depending on the fair market value of the Series B preferred stock
on the date of issuance, holders may be required to include additional Series B
preferred stock discount in income based on the difference between (x) the fair
market value of such shares on the date of their issuance and (y) the amount
payable on redemption of such shares, unless the difference is de minimis, as
described above. If shares of Series B preferred stock (including dividend
shares) bear Series B preferred stock discount, such shares generally will have
different tax characteristics from other shares of Series B preferred stock
(including other dividend shares) and might trade separately, which might
adversely affect the liquidity of such shares.
REDEMPTION AND EXCHANGE OF THE SERIES B PREFERRED STOCK
A redemption of shares of the Series B preferred stock for cash or for
exchange notes will be a taxable event. A redemption of shares of the Series B
preferred stock for cash or for exchange notes may be treated as a dividend to
the extent of our current or accumulated earnings and profits, unless the
redemption (i) results in a "complete termination" of the holder's stock
interest in us under section 302(b) (3) of the Code, (ii) results in a
"substantially disproportionate" redemption of stock with respect to the holder
under section 302(b)(2) of the Code or (iii) is "not essentially equivalent to a
dividend" with respect to the holder under section 302(b)(l) of the Code. In
determining whether the redemption is treated as a dividend, the holder must
take into account not only stock he or she actually owns, but also stock
constructively owned within the meaning of section 318 of the Code. A
distribution to a holder will be "not essentially equivalent to a dividend" if
it results in a "meaningful reduction" in the holder's stock interest in us. For
these purposes, a redemption of Series B preferred stock from a holder whose
actual and constructive ownership of our common stock is de minimis should
satisfy the "not essentially equivalent to a dividend" test of section
302(b)(l).
If the redemption of the Series B preferred stock for cash or for exchange
notes is not treated as a distribution taxable as a dividend, the redemption
would result in capital gain or loss equal to the difference between the amount
of cash (or the issue price of the exchange notes (as described under the
section of this prospectus entitled "Issue Price of Exchange Notes")) received
and the holder's adjusted tax basis in the Series B preferred stock redeemed.
This gain or loss would be long-term capital gain or loss. You should also read
the discussion under the section of this prospectus entitled "Disposition of the
Series B Preferred Stock" regarding certain rules applicable to such gain or
loss.
If a redemption of the Series B preferred stock is treated as a
distribution rather than a sale or exchange, the amount of the distribution will
be measured by the amount of cash (or the issue price of the exchange notes)
received by a holder. As described above, the distribution will be taxable as a
dividend to the extent of our earnings and profits. The
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amount of the distribution in excess of our earnings and profits will reduce the
holder's basis in the redeemed Series B preferred stock, and, to the extent the
amount of the distribution exceeds such basis, will result in capital gain. If a
holder is left with basis in the redeemed Series B preferred stock, such basis
will be transferred to any remaining stock holdings in us.
Under section 1059 of the Code, as discussed above, the term extraordinary
dividend includes any non-liquidating redemption of stock that is treated as a
dividend that is (i) non-pro rata as to all holders of our stock, or (ii) part
of a liquidating distribution, or (iii) which would not be treated as a dividend
if options had not been taken into account, all irrespective of the holding
period. Consequently, to the extent an exchange of the Series B preferred stock
constitutes a dividend, it may constitute an extraordinary dividend to a
corporate holder.
DISPOSITION OF THE SERIES B PREFERRED STOCK
Unless a nonrecognition provision applies, the sale or other disposition of
Series B preferred stock will be a taxable event for U.S. federal income tax
purposes. In such event, in general, a holder of Series B preferred stock will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of property received and (ii) the holder's tax basis
in the Series B preferred stock. A holder's tax basis in the Series B preferred
stock will equal the initial tax basis of such stock. A corporate holder's tax
basis may be adjusted by virtue of an extraordinary dividend, as discussed
above. Any such gain or loss will generally be capital gain or loss. The
deduction for capital losses is subject to certain limitations.
The 2003 Act, which became effective on May 28, 2003, reduced the maximum
U.S. federal income tax rate applicable to gains from the sale of capital assets
held for more than 12 months to 15%. The reduced rate of tax applies to the
taxable years between 2003 and 2008. Moreover, in accordance with the 2003 Act,
any loss on the sale or exchange of the Series B preferred stock will be treated
as long-term capital loss to the extent of any dividend that has been
distributed with respect to such stock that (i) is an extraordinary dividend,
and (ii) constitutes "qualified dividend income" under the 2003 Act. Prospective
investors should consult their tax advisor regarding the treatment of capital
gains and losses generally and under the 2003 Act in particular.
EXCHANGE NOTES
ISSUE PRICE OF EXCHANGE NOTES
The issue price of an exchange notes would be equal to (i) its fair market
value as of the exchange date if the exchange notes are traded on an established
securities market on or at any time during a specified period or (ii) the fair
market value at the exchange date of the exchangeable Series B preferred stock
if such exchangeable Series B preferred stock is traded on an established
securities market during a specified period but the exchange notes are not. If
neither the exchangeable Series B preferred stock nor the exchange notes are so
traded, the issue price of the exchange notes would be determined under section
1274 of the Code, in which case the issue price would be the stated principal
amount of the exchange notes provided that the yield on the exchange notes is
equal to or greater than the "applicable federal rate" in effect at the time the
exchange notes are issued. If the yield on the exchange notes is less than such
applicable federal rate, its issue price under section 1274 of the Code would be
equal to the present value as of the issue date of all payments to be made on
the exchange notes, discounted at the applicable federal rate. We cannot
determine at the present time whether the Series B preferred stock or the
exchange notes will be, at the relevant time, traded on an established
securities market within the meaning of the Treasury Regulations or whether the
yield on the exchange notes will equal or exceed the applicable federal rate.
INTEREST ON THE EXCHANGE NOTES
Except as set forth below, interest on the exchange notes will be taxable
to a holder as ordinary interest income at the time such amounts are accrued or
received, in accordance with the holder's method of accounting for U.S. federal
income tax purposes.
ORIGINAL ISSUE DISCOUNT. The exchange notes may be issued with original
issue discount (OID) equal to the excess of their "stated redemption price at
maturity" over their "issue price" if such excess is greater than a de minimis
amount. Holders of exchange notes will be subject to special tax accounting
rules, as described in greater detail below. Holders of exchange notes should be
aware that they generally must include OID in gross income for U.S. federal
income tax purposes on an annual basis under a constant yield accrual method. As
a result, such holders will include
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OID in income in advance of the receipt of cash attributable to that income.
However, holders of exchange notes generally will not be required to include
separately in income cash payments received on such exchange notes, even if
denominated as interest, to the extent such payments do not constitute qualified
stated interest (as defined below). We will report to holders of any OID
exchange notes on a timely basis the reportable amount of OID and interest
income based on our understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the sum
of its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest." For this purpose, "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate during the entire term of the debt instrument that
appropriately takes into account the length of the intervals between payments).
If the exchange notes are issued at a time when we have the right to make
interest payments with additional exchange notes in lieu of cash, none of the
stated interest on such exchange notes will be treated as qualified stated
interest. The "issue price" of the exchange notes will be determined as
described under the section of this prospectus entitled "Issue Price of Exchange
Notes."
The amount of OID includible in income by the initial holder of an exchange
note is the sum of the "daily portions" of OID with respect to the exchange
notes for each day during the taxable year or portion of the taxable year in
which such holder held such exchange notes (accrued OID). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period" for an
exchange notes may be of any length and may vary in length over the term of the
exchange notes, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs on the first day or the
final day of an accrual period. The amount of OID allocable to any accrual
period is an amount equal to the excess, if any, of (a) the product of the
exchange notes' adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period)
over (b) the sum of any qualified stated interest allocable to the accrual
period. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than a payment of qualified stated interest)
and the adjusted issue price at the beginning of the final accrual period.
Special rules will apply for calculating OID for an initial short accrual
period. The "adjusted issue price" of the exchange notes at the beginning of any
accrual period is equal to its issue price increased by the accrued OID for each
prior accrual period (determined without regard to the amortization of any bond
premium, as described below) and reduced by any payments made on such exchange
notes (other than qualified stated interest) on or before the first day of the
accrual period. Under these rules, a United States holder will have to include
in income increasingly greater amounts of OID in successive accrual periods.
ADDITIONAL EXCHANGE NOTES ISSUED IN LIEU OF CASH INTEREST
An additional exchange note (a "secondary exchange note") issued in payment
of interest with respect to an initially issued exchange note (an "initial
exchange note") will not be considered a payment on the initial exchange note
and will be aggregated with the initial exchange note for purposes of computing
and accruing OID on the initial exchange note. As between the initial exchange
note and the secondary exchange note, the adjusted issue price of the initial
exchange note would be allocated between the initial exchange note and the
secondary exchange note in proportion to their respective principal amounts.
That is, upon the issuance of a secondary exchange note with respect to an
initial exchange note, the initial exchange note and the secondary exchange note
derived from the initial exchange note would be treated as initially having the
same adjusted issue price and inherent amount of OID per dollar of principal
amount. The initial exchange note and the secondary exchange note derived
therefrom would be treated as having the same yield to maturity. Similar
treatment would be applied when additional exchange notes are issued on
secondary exchange notes.
ELECTION
A holder of exchange notes, subject to certain limitations, may elect to
include all interest on the exchange notes in gross income under the constant
yield method. For this purpose, interest includes stated and unstated interest,
acquisition discount, and OID and de minimis OID, as adjusted by any amortizable
bond premium.
AMORTIZABLE BOND PREMIUM
If the Series B preferred stock is exchanged for exchange notes at a time
when the "issue price" of the exchange notes exceeds the amount payable at
maturity of the exchange notes, such excess will constitute amortizable bond
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premium that the holder may elect to amortize under the constant yield method
over the term of the exchange notes. A holder who elects to amortize bond
premium must reduce the tax basis in the exchange notes by the amount of the
aggregate amortization allowable for amortizable bond premium. Amortizable bond
premium will be treated under the Code as an offset to interest income on the
related debt instrument for federal income tax purposes.
DISPOSITION OF THE EXCHANGE NOTES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by SBS) or other disposition of the exchange
notes, will be a taxable event for U.S. federal income tax purposes. In such
event, in general, a holder of exchange notes will recognize gain or loss equal
to the difference between (i) the amount of cash plus the fair market value of
property received (except to the extent attributable to accrued interest on the
exchange notes which will be treated as such if not previously included in
income) and (ii) the holder's tax basis in the exchange notes (as increased by
any OID previously included in income by the holder and decreased by any
amortizable bond premium, if any, deducted over the term of the exchange notes).
Any such gain or loss generally will be long-term capital gain or loss. At the
time of sale, exchange, disposition, retirement or redemption, a holder of
exchange notes must also include in income any previously accrued but
unrecognized OID.
As discussed above, the 2003 Act reduced the maximum U.S. federal income
tax rate applicable to gains realized during the taxable years between 2003 and
2008 from the sale of capital assets held for more than 12 months to 15%.
Prospective investors should consult their tax advisor regarding the treatment
of capital gains and losses generally and under the 2003 Act in particular.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The exchange notes will be treated as "applicable high yield discount
obligations" (AHYDO), under section 163(i) of the Code if they have a term of
more than five years, have a yield to maturity that equals or exceeds five
percentage points over the "applicable federal rate" for the month in which the
exchange notes are issued and have "significant" OID. A debt instrument is
treated as having "significant" OID if the aggregate amount that would be
includible in gross income with respect to such debt instrument for periods
before the close of any accrual period ending five years or more after the date
of issue exceeds the sum of (i) the aggregate amount of interest to be paid in
cash under the debt instrument before the close of such accrual period and (ii)
the product of the initial issue price of such debt instrument and its yield to
maturity. For purposes of determining whether an exchange notes is an AHYDO,
holders are bound by the issuer's determination of the appropriate accrual
period. Under sections 163(e) and 163(i) of the Code, a C corporation that is an
issuer of a debt obligation subject to the AHYDO rules may not deduct any
portion of OID until such portion is actually paid.
In addition, if the exchange notes are AHYDOs and the yield to maturity of
the exchange notes exceeds the sum of the applicable federal rate plus six
percentage points, a portion of the OID under the exchange notes, equal to the
product of the total OID under the exchange notes times the ratio of (a) the
excess of the yield to maturity over the sum of the applicable federal rate plus
six percentage points to (b) the yield to maturity, will not be deductible by
the issuer and will be treated for some purposes as dividends to the holders of
the exchange notes (to the extent that such amounts would have been treated as
dividends to the holders of the exchange notes if they had been distributions
with respect to the issuer's stock). Amounts treated as dividends will be
nondeductible by the issuer, and may qualify for the dividends-received
deduction for corporate holders.
Because the amount of OID, if any, attributable to the exchange notes will
be determined at such time that the exchange notes are issued and the applicable
federal rate at such time is not predictable, it is impossible to determine at
the present time whether the exchange notes will be treated as AHYDOs.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate holder of the Series B preferred stock or the exchange notes may be
subject to backup withholding (currently at the rate of 28%) with respect to
"reportable payments," which include interest and dividends paid on or the
proceeds of a sale, exchange or redemption of Series B preferred stock or the
exchange notes, as the case may be. The payor will be required to deduct and
withhold the prescribed amounts if (i) the payee fails to furnish a Taxpayer
Identification Number (TIN) to the payor in the manner required, (ii) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, (iii) there
has been a "notified payee underreporting" described in section 3406(c) of the
Code or (iv) there has been a failure of the
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payee to certify under penalty of perjury that the payee is not subject to
withholding under section 3406(a)(l)(C) of the Code. As a result, if any one of
the events listed above occurs, the payor will be required to withhold an amount
equal to the then applicable rate of backup withholding from any dividend or
interest payment made with respect to the Series B preferred stock or the
exchange notes or any payment or proceeds of a redemption of the Series B
preferred stock or the exchange notes to a noncorporate holder. Amounts paid as
backup withholding do not constitute an additional tax and will be credited
against the holder's federal income tax liability, so long as the required
information is provided to the IRS.
Pursuant to information reporting requirements under Chapter 61 of the Code
the payor generally will also report to the holders of the Series B preferred
stock and the exchange notes and to the IRS the amount of any "reportable
payments" for each calendar year and the amount of tax withheld, if any, with
respect to payment on those securities.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion is limited to the material U.S. federal income tax
consequences relevant to non-U.S. Holders.
THE EXCHANGE
The exchange of shares of Series A preferred stock for shares of Series B
preferred stock will not be a taxable event to the holders of Series A preferred
stock who participate in the exchange offer. Accordingly, a tendering owner will
not recognize any gain or loss as a result of the exchange for U.S. federal
income tax purposes. The tax basis of the shares of Series B preferred stock
received by any such non-U.S. Holder will equal the tax basis of the shares of
Series A preferred stock exchanged therefor, and the holding period of the
shares of Series B preferred stock will include the holding period of the shares
of Series A preferred stock exchanged therefor.
U.S. FEDERAL WITHHOLDING TAX ON DIVIDENDS AND INTEREST
DIVIDENDS ON THE SERIES B PREFERRED STOCK. Except as described below,
dividends paid on the Series B preferred stock held by a non-U.S. Holder will be
subject to U.S. federal withholding tax at a rate of 30% or lower treaty rate,
if applicable. A non-U.S. Holder generally will be required to satisfy certain
IRS certification requirements in order to claim a reduction of withholding
under a tax treaty by filing IRS Form W-8BEN upon which the non-U.S. Holder
certifies, under penalty of perjury, its status as a non-U.S. person and its
entitlement to the lower treaty rate with respect to such payments.
If dividends paid to a non-U.S. holder are effectively connected with the
conduct of a U.S. trade or business by the non-U.S. Holder and, if required by a
tax treaty, the dividends are attributable to a permanent establishment
maintained in the United States, we and other payors generally are not required
to withhold tax from the dividends, provided that the non-U.S. Holder furnishes
to us a valid IRS Form W-8ECI certifying, under penalty of perjury, that the
holder is a non-U.S person, and the dividends are effectively connected with the
holder's conduct of a U.S. trade or business and are includible in the holder's
gross income. Effectively connected dividends will be subject to U.S. federal
income tax on net income that applies to U.S. persons generally (and, with
respect to corporate holders under certain circumstances, the branch profits
tax).
PAYMENTS OF INTEREST ON THE EXCHANGE NOTES. Generally, payments of
interest on the exchange notes to a non-U.S. Holder will be considered
"portfolio interest" and will not be subject to U.S. federal income or
withholding tax where such interest is not effectively connected with the
conduct of a trade or business within the United States by such non-U.S. Holder
if:
- such non-U.S. Holder does not actually or by attribution own 10% or
more of the total combined voting power of all classes of our stock
entitled to vote;
- the non-U.S. Holder is not a bank receiving interest pursuant to a
loan agreement entered into in the ordinary course of its trade or
business;
- such non-U.S. Holder is not a controlled foreign corporation for U.S.
federal income tax purposes that is related to us, actually or by
attribution, through stock ownership; and
- the certification requirements, as described below, are satisfied.
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To satisfy the certification requirements referred to above, either (i) the
beneficial owner of a note must certify, under penalty of perjury, to us or our
paying agent, as the case may be, that such owner is a non-U.S. person and must
provide such owner's name and address, and TIN, if any, or (ii) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business, referred to as a
"Financial Institution," and holds the note on behalf of the beneficial owner
thereof must certify, under penalty of perjury, to us or our paying agent, as
the case may be, that such certificate has been received from the beneficial
owner and must furnish the payor with a copy thereof. Such requirement will be
fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN, under
penalty of perjury, that it is a non-U.S. Holder and provides its name and
address or any Financial Institution holding the note on behalf of the
beneficial owner files a statement with the withholding agent to the effect that
it has received such a statement from the beneficial owner (and furnishes the
withholding agent with a copy thereof). Special certification rules apply for
notes held by foreign partnerships and other intermediaries.
If interest on the note is effectively connected with the conduct of a
trade or business in the United States by a non-U.S. Holder (and, if certain tax
treaties apply, is attributable to a "U.S. permanent establishment" maintained
by the non-U.S. Holder in the United States), the non-U.S. Holder, although
exempt from U.S. federal withholding tax (provided that the certification
requirements discussed in the next sentence are met), will generally be subject
to U.S. federal income tax on such interest on a net income basis in the same
manner as if it were a U.S. Holder. In order to claim an exemption from
withholding tax, such a non-U.S. Holder will be required to provide us with a
properly executed IRS Form W-8ECI certifying, under penalty of perjury, that the
holder is a non-U.S. person and the interest is effectively connected with the
holder's conduct of a U.S. trade or business and is includable in the holder's
gross income. In addition, if such non-U.S. Holder so engaged is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
Interest and OID on notes not effectively connected with a U.S. trade or
business and not excluded from U.S. federal withholding tax under the "portfolio
interest" exception described above generally will be subject to withholding at
a 30% rate, except where a non-U.S. Holder can claim the benefits of an
applicable tax treaty to reduce or eliminate such withholding tax and
demonstrates such eligibility to us and the IRS.
SALE OR EXCHANGE OF THE SERIES B PREFERRED STOCK AND EXCHANGE NOTES
A non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on gain realized on the sale or other taxable disposition
(including a redemption) of a note or common stock received upon conversion
thereof unless:
- the holder is an individual who was present in the United States for
183 days or more during the taxable year of the disposition and
certain other conditions are met; in this case the non-U.S. Holder
will be subject to a 30% tax on gain derived from the disposition; or
- the gain is effectively connected with the conduct of a U.S. trade or
business by the non-U.S. Holder (and, if required by a tax treaty, the
gain is attributable to a permanent establishment maintained in the
United States); in this case, the non-U.S. Holder will generally be
taxed on its net gain derived from the disposition at the regular
graduated rates and in the manner applicable to U.S. persons and, if
the non-U.S. Holder is a foreign corporation, the "branch profits tax"
described above may also apply.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We must report annually to the IRS and to each non-U.S. Holder the amount
of interest or dividends paid to that holder and the tax withheld from those
payments of interest or dividends. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by any applicable tax treaty.
Copies of the information returns reporting those payments of interest or
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. Holder is a resident under the provisions of
an applicable income tax treaty or agreement.
A non-U.S. Holder will generally not be subject to additional information
reporting or to backup withholding with respect to payments of dividends on the
Series B preferred stock or interest on the exchange notes or to information
reporting or backup withholding with respect to payments of proceeds from the
sale or other disposition of the Series B
106
preferred stock or exchange notes to or through a U.S. office of any broker, as
long as the holder has furnished to the payor or broker:
- a valid IRS Form W-8BEN certifying, under penalties of perjury, its
status as a non-U.S. person;
- other documentation upon which it may rely to treat the payments as
made to a non-U.S. person in accordance with Treasury regulations; or
- otherwise establishes an exemption.
However, the payment of proceeds from a sale or disposition of the Series B
preferred stock or exchange notes will be subject to information reporting, but
not backup withholding, if it is to or through a foreign office of a broker that
is a "U.S. related broker" unless the documentation requirements described above
are met or the holder otherwise establishes an exemption. A broker is a "U.S.
related broker" if the broker is:
- a U.S. person;
- a controlled foreign corporation for U.S. federal income tax purposes;
- a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a U.S. trade or business for a specified
three-year period; or
- a foreign partnership, if at any time during its tax year one or more
of its partners are U.S. persons, as defined in Treasury regulations,
who in the aggregate hold more than 50% of the income or capital
interest in the partnership, or such foreign partnership is engaged in
the conduct of a U.S. trade or business.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. Holder will be allowed as
a credit against such holder's U.S. federal income tax liability, if any, or
will otherwise be refundable, provided that the requisite procedures are
followed and the proper information is filed with the IRS on a timely basis.
Non-U.S. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable.
The preceding discussion of certain U.S. federal income tax consequences is
for general information only and is not tax advice. Accordingly, you should
consult your own tax advisor as to particular tax consequences to you of
purchasing, holding and disposing of the Series B preferred stock or exchange
notes, including the applicability and effect of any state, local or foreign tax
laws, and of any proposed changes in applicable laws.
107
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder (other than a person that is our affiliate within the meaning of
Rule 405 under the Securities Act or a "broker" or "dealer" registered under the
Exchange Act) who exchanges Series A preferred stock for Series B preferred
stock in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person,
including SBS or an affiliate of SBS, to participate, in the distribution of the
Series B preferred stock, will be allowed to resell the Series B preferred stock
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Series B preferred stock a prospectus that
satisfies the requirements of Section 10 thereof. However, if any holder
acquires Series B preferred stock in the exchange offer for the purpose of
distributing or participating in a distribution of the Series B preferred stock,
such holder cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in Exxon Capital Holdings Corporation or similar
no-action letters or any similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
We will not receive any proceeds from any sale of the Series B preferred
stock. The Series B preferred stock received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such Series
B preferred stock. Any broker-dealer that resells the Series B preferred stock
that was received by it for its own account pursuant to the exchange offer and
any broker or dealer that participates in a distribution of such Series B
preferred stock may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of Series B preferred stock and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Each broker-dealer that receives Series B preferred stock for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B preferred stock, or if
issued, exchange notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
Series B preferred stock, or if issued, exchange notes received in exchange for
Series A preferred stock where such Series A preferred stock was acquired as a
result of market-making activities or other trading activities. We have agreed
that, starting on the expiration date of this exchange offer and ending on the
close of business one year after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until such date all dealers
effecting transactions in the Series B preferred stock, or if issued, exchange
notes may be required to deliver a prospectus.
We have not entered into any arrangement or understanding with any person
to distribute the Series B preferred stock to be received in the exchange offer,
and to the best of our information and belief, each person participating in the
exchange offer is acquiring the Series B preferred stock in its ordinary course
of business and has no arrangement or understanding with any person to
participate in the distribution of the Series B preferred stock to be received
in the exchange offer.
108
LEGAL MATTERS
Certain legal matters with respect to the shares of Series B preferred
stock offered pursuant to this prospectus will be passed upon for us by Kaye
Scholer LLP, New York, New York.
Jason L. Shrinsky, one of our directors, is a partner of Kaye Scholer LLP,
which firm has regularly represented us as our legal counsel. Additionally, Mr.
Shrinsky received options to purchase 50,000 shares of our Class A common stock
pursuant to our 1999 Stock Option Plan for Nonemployee Directors. Mr. Shrinsky
holds his options for the benefit of his law firm, Kaye Scholer LLP. In
addition, Mr. Shrinsky shares ownership of, and voting and investment power for,
15,000 shares of Class A common stock with his spouse.
EXPERTS
Our consolidated financial statements and schedule as of December 30, 2001
and December 29, 2002, and for the fiscal years ended September 24, 2000 and
September 30, 2001, the three-month transitional period ended December 30, 2001
and the fiscal year ended December 29, 2002 have been incorporated by reference
herein in reliance upon the report of KPMG LLP, independent accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. Their audit report includes an explanatory
paragraph, as discussed in Note 15 to the consolidated financial statements,
that effective December 31, 2001, we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
109
(SBS LOGO)
SPANISH BROADCASTING SYSTEM, INC.
OFFER TO EXCHANGE
SHARES OF OUR REGISTERED 10 3/4% SERIES B
CUMULATIVE EXCHANGEABLE REDEEMABLE
PREFERRED STOCK FOR ANY AND ALL SHARES OF
OUR UNREGISTERED 10 3/4% SERIES A
CUMULATIVE EXCHANGEABLE REDEEMABLE
PREFERRED STOCK
---------------------------
PROSPECTUS
, 2004
---------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 2004, ALL DEALERS THAT
EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, ANY INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
THESE SECURITIES IN ANY CIRCUMSTANCES IN WHICH THIS OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF SPANISH BROADCASTING SYSTEM, INC. SINCE THE
DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (DGCL) provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or complete action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Our third amended and restated certificate of incorporation has a provision
which limits the liability of our directors and officers to us to the maximum
extent permitted by Delaware law. The third amended and restated certificate of
incorporation specifies that our directors and officers will not be personally
liable for monetary damages for breach of fiduciary duty as a director or
officer, as applicable. This limitation does not apply to actions by a director
or officer that do not meet the standards of conduct which make it permissible
under the DGCL for SBS to indemnify such director or officer.
Our amended and restated bylaws provide for indemnification of directors
and officers (and others) in the manner, under the circumstances and to the
fullest extent permitted by the DGCL. This generally authorizes indemnification
as to all expenses incurred or imposed as a result of actions, suits or
proceedings if the indemnified parties acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of SBS. Each
of our directors has entered into an indemnification agreement with us that
provides for indemnification to the fullest extent provided by law. We believe
that these provisions are necessary or useful to attract and retain qualified
persons as directors and officers.
We have obtained insurance for the benefit of our directors and officers
that provides for coverage of up to $35.0 million.
Additionally, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of SBS pursuant to the foregoing provisions, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of SBS in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<Table>
3.1 -- Third Amended and Restated Certificate of Incorporation of
the Company, dated September 29, 1999 (incorporated by
reference to the Company's 1999 Registration Statement on
Form S-1 (Commission File No. 333-85499) (the "1999
Registration Statement")) (Exhibit A to this exhibit is
incorporated by reference to the Company's Current Report on
Form 8-K, dated March 25, 1996 (the "1996 Current Report").
3.2 -- Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Company, dated September
29, 1999 (incorporated by reference to the Company's 1999
Registration Statement).
3.3 -- Amended and Restated By-Laws of the Company (incorporated by
reference to the Company's 1999 Registration Statement).
3.4 -- Certificate of Elimination of 14 1/4% Senior Exchangeable
Preferred Stock, Series A of the Company, dated October 28,
2003 (incorporated by reference to Exhibit 3.3 of the
Company's Quarterly Report on Form 10-Q, dated November 14,
2003 (the "11/14/03 Quarterly Report")).
4.1 -- Article V of the Third Amended and Restated Certificate of
Incorporation of the Company, dated September 29, 1999
(incorporated by reference to the Company's 1999
Registration Statement) (see Exhibit 3.1).
4.2 -- Certificate of Designations dated October 29, 2003 Setting
Forth the Voting Power, Preferences and Relative,
Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions of the 10 3/4%
Series A Cumulative Exchangeable Redeemable Preferred Stock
of Spanish Broadcasting System, Inc. (incorporated by
reference to Exhibit 4.1 of the Company's 11/14/03 Quarterly
Report).
4.3 -- Certificate of Designations dated October 29, 2003 Setting
Forth the Voting Power, Preferences and Relative,
Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions of the 10 3/4%
Series B Cumulative Exchangeable Redeemable Preferred Stock
of Spanish Broadcasting System, Inc. (incorporated by
reference to Exhibit 4.2 of the Company's 11/14/03 Quarterly
Report).
4.4 -- 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 Company's 1994
Registration Statement on Form S-4, the "1994 Registration
Statement").
4.5 -- First Supplemental Indenture dated as of March 25, 1996 to
the 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 1996
Current Report).
4.6 -- Second Supplemental Indenture dated as of March 1, 1997 to
the 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 1996
Current Report).
4.7 -- Supplemental Indenture dated as of October 21, 1999 to the
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
Company's 1999 Registration Statement).
4.8 -- Indenture with respect to 9 5/8% Senior Subordinated Notes
due 2009 with The Bank of New York as Trustee, dated
November 2, 1999 (incorporated by reference to the Current
Report on Form 8-K dated November 2, 1999 (the "1999 Current
Report")).
4.9 -- Form of stock certificate for the Class A common stock of
the Company (incorporated by reference to the Company's 1999
Registration Statement).
4.10 -- Indenture with respect to 9 5/8% Senior Subordinated Notes
due 2009 with the Bank of New York as Trustee, dated June 8,
2001 (incorporated by reference to the Company's
Registration Statement on Form S-3, filed on June 25, 2001
(the "2001 Form S-3").
*5.1 -- Opinion of Kaye Scholer LLP.
*8.1 -- Opinion of Kaye Scholer LLP regarding tax matters.
</Table>
II-2
<Table>
10.1 -- 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 1996 Current
Report).
10.2 -- 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 1996 Current
Report).
10.3 -- Common Stock Registration Rights and Stockholders Agreement
dated as of June 29, 1994 among the Company and certain
Management Stockholders named therein (incorporated by
reference to the 1994 Registration Statement).
10.4 -- Amended and Restated Employment Agreement dated as of
October 25, 1999, by and between the Company and Raul
Alarcon, Jr. (incorporated by reference to the Company's
1999 Registration Statement).
10.5 -- Employment Agreement dated February 5, 1997 between Carey
Davis and the Company (incorporated by reference to the
Company's 1999 Registration Statement).
10.6 -- Employment Agreement dated as of October 25, 1999, by and
between the Company and Joseph A. Garcia (incorporated by
reference to the Company's 1999 Registration Statement).
10.7 -- Employment Agreement dated as of October 25, 1999, by and
between the Company and Luis Diaz-Albertini (incorporated by
reference to the Company's 1999 Registration Statement).
10.8 -- Employment Agreement, dated April 1, 1999, between Spanish
Broadcasting System of Greater Miami, Inc. and Jesus Salas
(incorporated by reference to the Company's 1999
Registration Statement).
10.9 -- Letter Agreement dated January 13, 1997 between the Company
and Caballero Spanish Media, LLC (incorporated by reference
to the 1996 Current Report).
10.10 -- Ground Lease dated December 18, 1995 between Louis Viola
Company and SBS-NJ (incorporated by reference to the 1996
Current Report).
10.11 -- 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).
10.12 -- 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).
10.13 -- 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).
10.14 -- 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).
10.15 -- 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).
10.16 -- Agreement of Lease dated as of March 1, 1996. No.
WT-174-A119 1067 between The Port Authority of New Jersey
and SBS of Greater New York, Inc. as assignee of Park Radio
(incorporated by reference to the 1996 Current Report).
10.17 -- Asset Purchase Agreement dated as of July 2, 1997, 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)).
10.18 -- Amendment No. 1 dated as of September 29, 1997 to the Asset
Purchase Agreement dated as of July 2, 1997, 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 Company's Registration Statement on Form
S-1, dated January 21, 1999 (Commission File No.
333-29449)).
</Table>
II-3
<Table>
10.19 -- Extension of lease of a Condominium Unit (Metropolitan Tower
Condominium) between Raul Alarcon, Jr. ("Landlord") and
Spanish Broadcasting System, Inc. ("Tenant") (incorporated
by reference to the Company's 1998 Annual Report on Form
10-K).
10.20 -- Indemnification Agreement with Raul Alarcon, Jr. dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.21 -- Indemnification Agreement with Roman Martinez IV dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.22 -- Indemnification Agreement with Jason L. Shrinsky dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.23 -- Spanish Broadcasting System 1999 Stock Option Plan
(incorporated by reference to the Company's 1999
Registration Statement).
10.24 -- Spanish Broadcasting System 1999 Company Stock Option Plan
for Nonemployee Directors (incorporated by reference to the
Company's 1999 Registration Statement).
10.25 -- Form of Lock-Up Letter Agreement (incorporated by reference
in the Company's 1999 Registration Statement).
10.26 --.. Option Grant not under the Stock Option Plans with Arnold
Sheiffer, dated October 27, 1999 (incorporated by reference
to the 1999 Current Report).
10.27 -- Stock Purchase Agreement, dated as of May 8, 2000, by and
between New World Broadcasters Corp., a Texas corporation,
910 Broadcasting Corp., a Texas corporation, and Spanish
Broadcasting System, Inc., a Delaware corporation
(incorporated by reference to Exhibit 10.2 of the Company's
Amended Quarterly Report).
10.28 -- Time Brokerage Agreement, dated May 8, 2000, by and among,
New World Broadcasters Corp., a Texas corporation, 910
Broadcasting Corp., a Texas corporation, and Spanish
Broadcasting System of San Antonio, Inc., a Delaware
corporation and Spanish Broadcasting System, Inc., a
Delaware corporation (incorporated by reference to Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q, dated
August 9, 2000 (the "Company's 2000 Quarterly Report")).
10.29 -- Credit Agreement, dated as of July 6, 2000, among Spanish
Broadcasting System, Inc., a Delaware corporation, the
several banks and other financial institutions or entities
from time to time party to the Credit Agreement and Lehman
Commercial Paper Inc., as administrative agent (incorporated
by reference to Exhibit 10.44 of the Company's Annual Report
on Form 10-K for fiscal year 2000 (the "2000 Form 10-K").
10.30 -- Guarantee and Collateral Agreement made by Spanish
Broadcasting System, Inc. and certain of its subsidiaries in
favor of Lehman Commercial Paper, Inc. as Administrative
Agent, dated as of July 6, 2000 (incorporated by reference
to Exhibit 10.45 of the Company's 2000 Form 10-K).
10.31 -- Employment Agreement dated August 31, 2000, between William
Tanner and the Company (incorporated by reference to Exhibit
10.47 of the Company's 2000 Form 10-K).
10.32 -- Deed of Constitution of Mortgage, Cadena Estereotempo, Inc.,
as Mortgagor, and Banco Bilbao Vizcaya Puerto Rico, as
Mortgagee (incorporated by reference to Exhibit 10.49 of the
Company's 2000 Form 10-K).
10.33 -- Lease Agreement by and between the Company and Irradio
Holdings, Ltd. made as of December 14, 2000 (incorporated by
reference to Exhibit 10.50 of the Company's 2000 Form 10-K).
10.34 -- First Addendum to Lease between the Company and Irradio
Holdings, Ltd. as of December 14, 2000 (incorporated by
reference to Exhibit 10.51 of the Company's 2000 Form 10-K).
10.35 -- Asset Purchase Agreement dated as of November 2, 2000 by and
between International Church of the Foursquare Gospel and
the Company (incorporated by reference to Exhibit 10.1 of
the Company's 2000 Form 10-K).
</Table>
II-4
<Table>
10.36 -- Addendum to Asset Purchase Agreement, dated March 13, 2001,
by and between International Church of the FourSquare Gospel
and the Company (incorporated by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-Q filed on May
9, 2001 ("5/9/01 Quarterly Report")).
10.37 -- Time Brokerage Agreement, dated March 13, 2001, by and
between International Church of the FourSquare Gospel and
the Company (incorporated by reference to Exhibit 10.3 of
the Company's 5/9/01 Quarterly Report).
10.38 -- 93.5 Time Brokerage Agreement, dated March 13, 2001, by and
between Spanish Broadcasting System Southwest, Inc. and
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.4 of the Company's 5/9/01
Quarterly Report).
10.39 -- Radio Network Affiliation Agreement, dated April 5, 2001,
between Clear Channel Broadcasting, Inc. and SBS of San
Francisco, Inc. (incorporated by reference to Exhibit 10.5
of the Company's 5/9/01 Quarterly Report).
10.40 -- First Amendment to Credit Agreement, dated as of March 5,
2001, by and among the Company, the lenders party to the
Credit Agreement dated as of July 6, 2000 and Lehman
Commercial Paper, Inc. (incorporated by reference to Exhibit
10.1 of the Company's 5/9/01 Quarterly Report).
10.41 -- Purchase Agreement dated May 24, 2001 between the Company
and Lehman Brothers Inc. with respect to 9 5/8% Senior
Subordinated Notes due 2009 (incorporated by reference to
the Company's 2001 Form S-3).
10.42 -- Registration Rights Agreement dated June 8, 2001 between the
Company and Lehman Brothers Inc. with respect to 9 5/8%
Senior Subordinated Notes due 2009 (incorporated be
reference to the Company's 2001 Form S-3).
10.43 -- Indemnification Agreement with Castor Fernandez dated as of
August 9, 2001 (incorporated by reference to Exhibit 10.47
to the Company's Annual Report on Form 10-K filed December
31, 2001).
10.44 -- Form of Indemnification Agreement with Carl Parmer dated as
of August 9, 2001 (incorporated by reference to Exhibit
10.48 to the Company's Annual Report on Form 10-K filed
December 31, 2001).
10.45 -- Stock Option Agreement dated as of January 15, 2001 between
the Company and Joseph A. Garcia (incorporated by reference
to Exhibit 10.49 to the Company's Annual Report on Form 10-K
filed December 31, 2001).
10.46 -- Stock Option Agreement dated as of October 29, 2001 between
Spanish Broadcasting System, Inc. and Castor Fernandez
(incorporated by reference to Exhibit 10.50 to the Company's
Annual Report on Form 10-K filed December 31, 2001).
10.47 -- Form of Stock Option Agreement dated as of October 29, 2001
between Spanish Broadcasting System, Inc. and Carl Parmer
(incorporated by reference to Exhibit 10.51 to the Company's
Annual Report on Form 10-K filed December 31, 2001).
10.48 -- Amendment dated as of February 8, 2002 to Asset Purchase
Agreement dated as of November 2, 2000 by and between
International Church of the FourSquare Gospel and Spanish
Broadcasting System, Inc., as amended by an Addendum dated
March 13, 2001 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
10.49 -- Amendment No. 1 dated as of February 8, 2002 to Time
Brokerage Agreement dated as of March 13, 2001 by and
between International Church of the FourSquare Gospel, as
Licensee and Spanish Broadcasting System, Inc., as Time
Broker (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
10.50 -- Amendment No. 1 dated as of February 8, 2002 to the 93.5
Time Brokerage Agreement dated as of March 13, 2001 by and
between Spanish Broadcasting System SouthWest, Inc., as
Licensee and International Church of the FourSquare Gospel,
as Time Broker (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
</Table>
II-5
<Table>
10.51 -- Warrant dated February 8, 2002 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed May 2, 2002).
10.52 -- Stock Option Agreement dated as of January 16, 2002 between
the Company and Joseph A. Garcia (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed May 2, 2002).
10.53 -- Asset Purchase Agreement dated June 4, 2002 by and among the
Company, KTCY Licensing, Inc. and Entravision - Texas
Limited Partnership (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q filed
August 14, 2002).
10.54 -- Time Brokerage Agreement dated as of June 4, 2002 between
KTCY Licensing, Inc. as Licensee and Entravision
Communications Corporation as Programmer (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q filed August 14, 2002).
10.55 -- Company's 1999 Stock Option Plan as amended on May 6, 2002
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q filed August 14, 2002).
10.56 -- Company's 1999 Stock Option Plan for Non-Employee Directors
as amended on May 6, 2002 (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
filed August 14, 2002).
10.57 -- Stock Option Agreement dated as of August 30, 2002 between
the Company and William B. Tanner (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed November 13, 2002).
10.58 -- Stock Option Agreement dated as of October 29, 2002 between
the Company and Raul Alarcon, Jr. (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q filed November 13, 2002).
10.59 -- Asset Purchase Agreement dated as of December 31, 2002 by
and among Spanish Broadcasting System of Illinois, Inc., Big
City Radio, Inc. and Big City Radio-CHI, L.L.C.
(incorporated by reference to Exhibit 10.59 to the Company's
Annual Report on Form 10-K filed March 31, 2003 (the "2003
Form 10-K")).
10.60 -- Time Brokerage Agreement dated as of December 31, 2002
between Big City Radio-CHI, L.L.C. as Licensee and Spanish
Broadcasting System of Illinois, Inc. as Programmer
(incorporated by reference to Exhibit 10.60 to the Company's
2003 Form 10-K).
10.61 -- Guaranty Agreement dated as of December 31, 2002 by the
Company in favor of Big City Radio, Inc. and Big City
Radio-CHI, L.L.C. (incorporated by reference to Exhibit
10.61 to the Company's 2003 Form 10-K).
10.62 -- Warrant dated March 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q, dated May 15, 2003 (the "5/15/03
Quarterly Report")).
10.63 -- Warrant dated April 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.5 of the Company's 5/15/03
Quarterly Report).
10.64 -- Warrant dated May 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q, dated August 13, 2003 (the "8/13/03
Quarterly Report")).
10.65 -- Warrant dated June 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.2 of the Company's 8/13/03
Quarterly Report).
10.66 -- Warrant dated July 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.3 of the Company's 8/13/03
Quarterly Report).
10.67 -- Asset Purchase Agreement dated as of September 18, 2003
between Spanish Broadcasting System, Inc. and Border Media
Partners, LLC (incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K, dated September
25, 2003).
</Table>
II-6
<Table>
10.68 -- Asset Purchase Agreement dated as of October 2, 2003 between
Spanish Broadcasting System, Inc., Spanish Broadcasting
System-San Francisco, Inc., KPTI Licensing, Inc. and 3 Point
Media-San Francisco, LLC (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K,
dated October 9, 2003).
10.69 -- Warrant dated August 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 of the Company's 11/14/03
Quarterly Report).
10.70 -- Warrant dated September 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.2 of the Company's 11/14/03
Quarterly Report).
10.72 -- Credit Agreement between the Company and Merrill Lynch,
Pierce Fenner & Smith Incorporated, Deutsche Bank Securities
Inc. and Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.3 of the Company's
11/14/03 Quarterly Report).
10.73 -- Guarantee and Collateral Agreement between the Company and
certain of its subsidiaries in favor of Lehman Commercial
Paper Inc. dated October 30, 2003 (incorporated by reference
to Exhibit 10.4 of the Company's 11/14/03 Quarterly Report).
10.74 -- Assignment of Leases and Rents by the Company in favor of
Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.5 of the Company's
11/14/03 Quarterly Report).
10.75 -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing by the Company in favor of
Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.6 of the Company's
11/14/03 Quarterly Report).
10.76 -- Transmission Facilities Lease between the Company and
International Church of the FourSquare Gospel, dated October
30, 2003 (incorporated by reference to Exhibit 10.7 of the
Company's 11/14/03 Quarterly Report).
10.77 -- Purchase Agreement dated October 30, 2003 between the
Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, Deutsche Bank Securities Inc. and Lehman
Brothers Inc. with respect to 10 3/4% Series A Cumulative
Exchangeable Redeemable Preferred Stock (incorporated by
reference to Exhibit 10.8 of the Company's 11/14/03
Quarterly Report).
10.78 -- Registration Rights Agreement dated October 30, 2003 between
the Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, Deutsche Bank Securities Inc. and Lehman
Brothers Inc. with respect to 10 3/4% Series A Cumulative
Exchangeable Redeemable Preferred Stock (incorporated by
reference to Exhibit 10.9 of the Company's 11/14/03
Quarterly Report).
**12.1 -- Statement regarding the computation of ratio of earnings to
fixed charges and ratio of combined fixed charges and
preference dividends to earnings.
**21.1 -- List of Subsidiaries of the Company.
*23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Kaye Scholer LLP, included in Exhibit 5.1.
***24.1 -- Power of Attorney.
**25.1 -- Form T-1 Statement regarding eligibility of Wachovia Bank,
N.A., as Trustee.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* Filed herewith.
** Previously filed as an exhibit to the Registrant's registration statement on
Form S-4 (File No. 333-112256) filed with the Commission on January 27,
2004.
*** Previously included on the signature page to the Registrant's registration
statement on Form S-4 (File No. 333-112256) filed with the Commission on
January 27, 2004.
II-7
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(a)(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Miami, State of Florida,
on February 12, 2004.
SPANISH BROADCASTING SYSTEM, INC.
By: /s/ RAUL ALARCON, JR.
------------------------------------
Name: Raul Alarcon, Jr.
Title: Chairman of the Board of
Directors, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RAUL ALARCON, JR. Chairman of the Board of February 12, 2004
- -------------------------------------- Directors, Chief Executive
Raul Alarcon, Jr. Officer and President (principal
executive officer)
/s/ JOSEPH A. GARCIA Executive Vice President, Chief February 12, 2004
- -------------------------------------- Financial Officer and Secretary
Joseph A. Garcia (principal financial and
accounting officer)
/s/ PABLO RAUL ALARCON, SR.* Director February 12, 2004
- --------------------------------------
Pablo Raul Alarcon, Sr.
/s/ JACK LANGER* Director February 12, 2004
- --------------------------------------
Jack Langer
/s/ DAN MASON* Director February 12, 2004
- --------------------------------------
Dan Mason
/s/ CARL PARMER* Director February 12, 2004
- --------------------------------------
Carl Parmer
/s/ JASON L. SHRINSKY* Director February 12, 2004
- --------------------------------------
Jason L. Shrinsky
*By: /s/ JOSEPH A. GARCIA
------------------------------
Joseph A. Garcia
ATTORNEY-IN-FACT
</Table>
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
additional registrants has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Miami, State of Florida, on February 12, 2004.
EACH OF THE ADDITIONAL REGISTRANTS
LISTED ON THE TABLE OF ADDITIONAL
REGISTRANTS
By: /s/ RAUL ALARCON, JR.
------------------------------------
Name: Raul Alarcon, Jr.
Title: Chairman of the Board of
Directors, Chief
Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board of Directors, February 12, 2004
/s/ RAUL ALARCON, JR. Chief Executive Officer, President
- --------------------------------------- (principal executive officer) and a
Raul Alarcon, Jr. director
Executive Vice President, Chief February 12, 2004
/s/ JOSEPH A. GARCIA Financial Officer, Secretary (principal
- --------------------------------------- financial and accounting officer) and a
Joseph A. Garcia director
</Table>
II-10
EXHIBIT INDEX
<Table>
3.1 -- Third Amended and Restated Certificate of Incorporation of
the Company, dated September 29, 1999 (incorporated by
reference to the Company's 1999 Registration Statement on
Form S-1 (Commission File No. 333-85499) (the "1999
Registration Statement")) (Exhibit A to this exhibit is
incorporated by reference to the Company's Current Report on
Form 8-K, dated March 25, 1996 (the "1996 Current Report").
3.2 -- Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Company, dated September
29, 1999 (incorporated by reference to the Company's 1999
Registration Statement).
3.3 -- Amended and Restated By-Laws of the Company (incorporated by
reference to the Company's 1999 Registration Statement).
3.4 -- Certificate of Elimination of 14 1/4% Senior Exchangeable
Preferred Stock, Series A of the Company, dated October 28,
2003 (incorporated by reference to Exhibit 3.3 of the
Company's Quarterly Report on Form 10-Q, dated November 14,
2003 (the "11/14/03 Quarterly Report")).
4.1 -- Article V of the Third Amended and Restated Certificate of
Incorporation of the Company, dated September 29, 1999
(incorporated by reference to the Company's 1999
Registration Statement) (see Exhibit 3.1).
4.2 -- Certificate of Designations dated October 29, 2003 Setting
Forth the Voting Power, Preferences and Relative,
Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions of the 10 3/4%
Series A Cumulative Exchangeable Redeemable Preferred Stock
of Spanish Broadcasting System, Inc. (incorporated by
reference to Exhibit 4.1 of the Company's 11/14/03 Quarterly
Report).
4.3 -- Certificate of Designations dated October 29, 2003 Setting
Forth the Voting Power, Preferences and Relative,
Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions of the 10 3/4%
Series B Cumulative Exchangeable Redeemable Preferred Stock
of Spanish Broadcasting System, Inc. (incorporated by
reference to Exhibit 4.2 of the Company's 11/14/03 Quarterly
Report).
4.4 -- 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 Company's 1994
Registration Statement on Form S-4, the "1994 Registration
Statement").
4.5 -- First Supplemental Indenture dated as of March 25, 1996 to
the 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 1996
Current Report).
4.6 -- Second Supplemental Indenture dated as of March 1, 1997 to
the 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 1996
Current Report).
4.7 -- Supplemental Indenture dated as of October 21, 1999 to the
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
Company's 1999 Registration Statement).
4.8 -- Indenture with respect to 9 5/8% Senior Subordinated Notes
due 2009 with The Bank of New York as Trustee, dated
November 2, 1999 (incorporated by reference to the Current
Report on Form 8-K dated November 2, 1999 (the "1999 Current
Report")).
4.9 -- Form of stock certificate for the Class A common stock of
the Company (incorporated by reference to the Company's 1999
Registration Statement).
4.10 -- Indenture with respect to 9 5/8% Senior Subordinated Notes
due 2009 with the Bank of New York as Trustee, dated June 8,
2001 (incorporated by reference to the Company's
Registration Statement on Form S-3, filed on June 25, 2001
(the "2001 Form S-3").
*5.1 -- Opinion of Kaye Scholer LLP.
*8.1 -- Opinion of Kaye Scholer LLP regarding tax matters.
</Table>
<Table>
10.1 -- 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 1996 Current
Report).
10.2 -- 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 1996 Current
Report).
10.3 -- Common Stock Registration Rights and Stockholders Agreement
dated as of June 29, 1994 among the Company and certain
Management Stockholders named therein (incorporated by
reference to the 1994 Registration Statement).
10.4 -- Amended and Restated Employment Agreement dated as of
October 25, 1999, by and between the Company and Raul
Alarcon, Jr. (incorporated by reference to the Company's
1999 Registration Statement).
10.5 -- Employment Agreement dated February 5, 1997 between Carey
Davis and the Company (incorporated by reference to the
Company's 1999 Registration Statement).
10.6 -- Employment Agreement dated as of October 25, 1999, by and
between the Company and Joseph A. Garcia (incorporated by
reference to the Company's 1999 Registration Statement).
10.7 -- Employment Agreement dated as of October 25, 1999, by and
between the Company and Luis Diaz-Albertini (incorporated by
reference to the Company's 1999 Registration Statement).
10.8 -- Employment Agreement, dated April 1, 1999, between Spanish
Broadcasting System of Greater Miami, Inc. and Jesus Salas
(incorporated by reference to the Company's 1999
Registration Statement).
10.9 -- Letter Agreement dated January 13, 1997 between the Company
and Caballero Spanish Media, LLC (incorporated by reference
to the 1996 Current Report).
10.10 -- Ground Lease dated December 18, 1995 between Louis Viola
Company and SBS-NJ (incorporated by reference to the 1996
Current Report).
10.11 -- 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).
10.12 -- 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).
10.13 -- 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).
10.14 -- 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).
10.15 -- 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).
10.16 -- Agreement of Lease dated as of March 1, 1996. No.
WT-174-A119 1067 between The Port Authority of New Jersey
and SBS of Greater New York, Inc. as assignee of Park Radio
(incorporated by reference to the 1996 Current Report).
10.17 -- Asset Purchase Agreement dated as of July 2, 1997, 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)).
10.18 -- Amendment No. 1 dated as of September 29, 1997 to the Asset
Purchase Agreement dated as of July 2, 1997, 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 Company's Registration Statement on Form
S-1, dated January 21, 1999 (Commission File No.
333-29449)).
</Table>
<Table>
10.19 -- Extension of lease of a Condominium Unit (Metropolitan Tower
Condominium) between Raul Alarcon, Jr. ("Landlord") and
Spanish Broadcasting System, Inc. ("Tenant") (incorporated
by reference to the Company's 1998 Annual Report on Form
10-K).
10.20 -- Indemnification Agreement with Raul Alarcon, Jr. dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.21 -- Indemnification Agreement with Roman Martinez IV dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.22 -- Indemnification Agreement with Jason L. Shrinsky dated as of
November 2, 1999 (incorporated by reference to the 1999
Current Report).
10.23 -- Spanish Broadcasting System 1999 Stock Option Plan
(incorporated by reference to the Company's 1999
Registration Statement).
10.24 -- Spanish Broadcasting System 1999 Company Stock Option Plan
for Nonemployee Directors (incorporated by reference to the
Company's 1999 Registration Statement).
10.25 -- Form of Lock-Up Letter Agreement (incorporated by reference
in the Company's 1999 Registration Statement).
10.26 --.. Option Grant not under the Stock Option Plans with Arnold
Sheiffer, dated October 27, 1999 (incorporated by reference
to the 1999 Current Report).
10.27 -- Stock Purchase Agreement, dated as of May 8, 2000, by and
between New World Broadcasters Corp., a Texas corporation,
910 Broadcasting Corp., a Texas corporation, and Spanish
Broadcasting System, Inc., a Delaware corporation
(incorporated by reference to Exhibit 10.2 of the Company's
Amended Quarterly Report).
10.28 -- Time Brokerage Agreement, dated May 8, 2000, by and among,
New World Broadcasters Corp., a Texas corporation, 910
Broadcasting Corp., a Texas corporation, and Spanish
Broadcasting System of San Antonio, Inc., a Delaware
corporation and Spanish Broadcasting System, Inc., a
Delaware corporation (incorporated by reference to Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q, dated
August 9, 2000 (the "Company's 2000 Quarterly Report")).
10.29 -- Credit Agreement, dated as of July 6, 2000, among Spanish
Broadcasting System, Inc., a Delaware corporation, the
several banks and other financial institutions or entities
from time to time party to the Credit Agreement and Lehman
Commercial Paper Inc., as administrative agent (incorporated
by reference to Exhibit 10.44 of the Company's Annual Report
on Form 10-K for fiscal year 2000 (the "2000 Form 10-K").
10.30 -- Guarantee and Collateral Agreement made by Spanish
Broadcasting System, Inc. and certain of its subsidiaries in
favor of Lehman Commercial Paper, Inc. as Administrative
Agent, dated as of July 6, 2000 (incorporated by reference
to Exhibit 10.45 of the Company's 2000 Form 10-K).
10.31 -- Employment Agreement dated August 31, 2000, between William
Tanner and the Company (incorporated by reference to Exhibit
10.47 of the Company's 2000 Form 10-K).
10.32 -- Deed of Constitution of Mortgage, Cadena Estereotempo, Inc.,
as Mortgagor, and Banco Bilbao Vizcaya Puerto Rico, as
Mortgagee (incorporated by reference to Exhibit 10.49 of the
Company's 2000 Form 10-K).
10.33 -- Lease Agreement by and between the Company and Irradio
Holdings, Ltd. made as of December 14, 2000 (incorporated by
reference to Exhibit 10.50 of the Company's 2000 Form 10-K).
10.34 -- First Addendum to Lease between the Company and Irradio
Holdings, Ltd. as of December 14, 2000 (incorporated by
reference to Exhibit 10.51 of the Company's 2000 Form 10-K).
10.35 -- Asset Purchase Agreement dated as of November 2, 2000 by and
between International Church of the FourSquare Gospel and
the Company (incorporated by reference to Exhibit 10.1 of
the Company's 2000 Form 10-K).
10.36 -- Addendum to Asset Purchase Agreement, dated March 13, 2001,
by and between International Church of the FourSquare Gospel
and the Company (incorporated by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-Q filed on May
9, 2001 ("5/9/01 Quarterly Report")).
</Table>
<Table>
10.37 -- Time Brokerage Agreement, dated March 13, 2001, by and
between International Church of the FourSquare Gospel and
the Company (incorporated by reference to Exhibit 10.3 of
the Company's 5/9/01 Quarterly Report).
10.38 -- 93.5 Time Brokerage Agreement, dated March 13, 2001, by and
between Spanish Broadcasting System Southwest, Inc. and
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.4 of the Company's 5/9/01
Quarterly Report).
10.39 -- Radio Network Affiliation Agreement, dated April 5, 2001,
between Clear Channel Broadcasting, Inc. and SBS of San
Francisco, Inc. (incorporated by reference to Exhibit 10.5
of the Company's 5/9/01 Quarterly Report).
10.40 -- First Amendment to Credit Agreement, dated as of March 5,
2001, by and among the Company, the lenders party to the
Credit Agreement dated as of July 6, 2000 and Lehman
Commercial Paper, Inc. (incorporated by reference to Exhibit
10.1 of the Company's 5/9/01 Quarterly Report).
10.41 -- Purchase Agreement dated May 24, 2001 between the Company
and Lehman Brothers Inc. with respect to 9 5/8% Senior
Subordinated Notes due 2009 (incorporated by reference to
the Company's 2001 Form S-3).
10.42 -- Registration Rights Agreement dated June 8, 2001 between the
Company and Lehman Brothers Inc. with respect to 9 5/8%
Senior Subordinated Notes due 2009 (incorporated be
reference to the Company's 2001 Form S-3).
10.43 -- Indemnification Agreement with Castor Fernandez dated as of
August 9, 2001 (incorporated by reference to Exhibit 10.47
to the Company's Annual Report on Form 10-K filed December
31, 2001).
10.44 -- Form of Indemnification Agreement with Carl Parmer dated as
of August 9, 2001 (incorporated by reference to Exhibit
10.48 to the Company's Annual Report on Form 10-K filed
December 31, 2001).
10.45 -- Stock Option Agreement dated as of January 15, 2001 between
the Company and Joseph A. Garcia (incorporated by reference
to Exhibit 10.49 to the Company's Annual Report on Form 10-K
filed December 31, 2001).
10.46 -- Stock Option Agreement dated as of October 29, 2001 between
Spanish Broadcasting System, Inc. and Castor Fernandez
(incorporated by reference to Exhibit 10.50 to the Company's
Annual Report on Form 10-K filed December 31, 2001).
10.47 -- Form of Stock Option Agreement dated as of October 29, 2001
between Spanish Broadcasting System, Inc. and Carl Parmer
(incorporated by reference to Exhibit 10.51 to the Company's
Annual Report on Form 10-K filed December 31, 2001).
10.48 -- Amendment dated as of February 8, 2002 to Asset Purchase
Agreement dated as of November 2, 2000 by and between
International Church of the FourSquare Gospel and Spanish
Broadcasting System, Inc., as amended by an Addendum dated
March 13, 2001 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
10.49 -- Amendment No. 1 dated as of February 8, 2002 to Time
Brokerage Agreement dated as of March 13, 2001 by and
between International Church of the FourSquare Gospel, as
Licensee and Spanish Broadcasting System, Inc., as Time
Broker (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
10.50 -- Amendment No. 1 dated as of February 8, 2002 to the 93.5
Time Brokerage Agreement dated as of March 13, 2001 by and
between Spanish Broadcasting System SouthWest, Inc., as
Licensee and International Church of the FourSquare Gospel,
as Time Broker (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Transition Report on Form 10-Q filed
February 13, 2002).
10.51 -- Warrant dated February 8, 2002 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed May 2, 2002).
10.52 -- Stock Option Agreement dated as of January 16, 2002 between
the Company and Joseph A. Garcia (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed May 2, 2002).
</Table>
<Table>
10.53 -- Asset Purchase Agreement dated June 4, 2002 by and among the
Company, KTCY Licensing, Inc. and Entravision - Texas
Limited Partnership (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q filed
August 14, 2002).
10.54 -- Time Brokerage Agreement dated as of June 4, 2002 between
KTCY Licensing, Inc. as Licensee and Entravision
Communications Corporation as Programmer (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q filed August 14, 2002).
10.55 -- Company's 1999 Stock Option Plan as amended on May 6, 2002
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q filed August 14, 2002).
10.56 -- Company's 1999 Stock Option Plan for Non-Employee Directors
as amended on May 6, 2002 (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
filed August 14, 2002).
10.57 -- Stock Option Agreement dated as of August 30, 2002 between
the Company and William B. Tanner (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed November 13, 2002).
10.58 -- Stock Option Agreement dated as of October 29, 2002 between
the Company and Raul Alarcon, Jr. (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q filed November 13, 2002).
10.59 -- Asset Purchase Agreement dated as of December 31, 2002 by
and among Spanish Broadcasting System of Illinois, Inc., Big
City Radio, Inc. and Big City Radio-CHI, L.L.C.
(incorporated by reference to Exhibit 10.59 to the Company's
Annual Report on Form 10-K filed March 31, 2003 (the "2003
Form 10-K")).
10.60 -- Time Brokerage Agreement dated as of December 31, 2002
between Big City Radio-CHI, L.L.C. as Licensee and Spanish
Broadcasting System of Illinois, Inc. as Programmer
(incorporated by reference to Exhibit 10.60 to the Company's
2003 Form 10-K).
10.61 -- Guaranty Agreement dated as of December 31, 2002 by the
Company in favor of Big City Radio, Inc. and Big City
Radio-CHI, L.L.C. (incorporated by reference to Exhibit
10.61 to the Company's 2003 Form 10-K).
10.62 -- Warrant dated March 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q, dated May 15, 2003 (the "5/15/03
Quarterly Report")).
10.63 -- Warrant dated April 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.5 of the Company's 5/15/03
Quarterly Report).
10.64 -- Warrant dated May 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q, dated August 13, 2003 (the "8/13/03
Quarterly Report")).
10.65 -- Warrant dated June 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.2 of the Company's 8/13/03
Quarterly Report).
10.66 -- Warrant dated July 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.3 of the Company's 8/13/03
Quarterly Report).
10.67 -- Asset Purchase Agreement dated as of September 18, 2003
between Spanish Broadcasting System, Inc. and Border Media
Partners, LLC (incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K, dated September
25, 2003).
10.68 -- Asset Purchase Agreement dated as of October 2, 2003 between
Spanish Broadcasting System, Inc., Spanish Broadcasting
System-San Francisco, Inc., KPTI Licensing, Inc. and 3 Point
Media-San Francisco, LLC (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K,
dated October 9, 2003).
10.69 -- Warrant dated August 31, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.1 of the Company's 11/14/03
Quarterly Report).
</Table>
<Table>
10.70 -- Warrant dated September 30, 2003 by the Company in favor of
International Church of the FourSquare Gospel (incorporated
by reference to Exhibit 10.2 of the Company's 11/14/03
Quarterly Report).
10.72 -- Credit Agreement between the Company and Merrill Lynch,
Pierce Fenner & Smith Incorporated, Deutsche Bank Securities
Inc. and Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.3 of the Company's
11/14/03 Quarterly Report).
10.73 -- Guarantee and Collateral Agreement between the Company and
certain of its subsidiaries in favor of Lehman Commercial
Paper Inc. dated October 30, 2003 (incorporated by reference
to Exhibit 10.4 of the Company's 11/14/03 Quarterly Report).
10.74 -- Assignment of Leases and Rents by the Company in favor of
Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.5 of the Company's
11/14/03 Quarterly Report).
10.75 -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing by the Company in favor of
Lehman Commercial Paper Inc. dated October 30, 2003
(incorporated by reference to Exhibit 10.6 of the Company's
11/14/03 Quarterly Report).
10.76 -- Transmission Facilities Lease between the Company and
International Church of the FourSquare Gospel, dated October
30, 2003 (incorporated by reference to Exhibit 10.7 of the
Company's 11/14/03 Quarterly Report).
10.77 -- Purchase Agreement dated October 30, 2003 between the
Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, Deutsche Bank Securities Inc. and Lehman
Brothers Inc. with respect to 10 3/4% Series A Cumulative
Exchangeable Redeemable Preferred Stock (incorporated by
reference to Exhibit 10.8 of the Company's 11/14/03
Quarterly Report).
10.78 -- Registration Rights Agreement dated October 30, 2003 between
the Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, Deutsche Bank Securities Inc. and Lehman
Brothers Inc. with respect to 10 3/4% Series A Cumulative
Exchangeable Redeemable Preferred Stock (incorporated by
reference to Exhibit 10.9 of the Company's 11/14/03
Quarterly Report).
</Table>
<Table>
**12.1 -- Statement regarding the computation of ratio of earnings to
fixed charges and ratio of combined fixed charges and
preference dividends to earnings.
**21.1 -- List of Subsidiaries of the Company.
*23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Kaye Scholer LLP, included in Exhibit 5.1.
***24.1 -- Power of Attorney.
**25.1 -- Form T-1 Statement regarding eligibility of Wachovia Bank,
N.A., as Trustee.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* Filed herewith.
** Previously filed as an exhibit to the Registrant's registration statement on
Form S-4 (File No. 333-112256) filed with the Commission on January 27,
2004.
*** Previously included on the signature page to the Registrant's registration
statement on Form S-4 (File No. 333-112256) filed with the Commission on
January 27, 2004.