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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
COMMISSION FILE NO. 333-61211
RADIO UNICA CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0776004
(State of Incorporation) (I.R.S. Employer
Identification Number)
8400 N.W. 52ND STREET, SUITE 100
MIAMI, FL 33166
(Address of principal executive offices) (Zip Code)
305-463-5000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 12, 1998, 35,663 shares of Common Stock, $.01 par
value were outstanding.
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RADIO UNICA CORP.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................. 3
Item 2. Management's Discussion and Analysis.............................................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................19
Item 2. Changes in Securities............................................................................19
Item 3. Defaults upon Senior Securities..................................................................19
Item 4. Submission of Matters to a Vote of Security Holders..............................................19
Item 5. Other Information................................................................................19
Item 6. Exhibits and Reports on Form 8-K.................................................................19
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RADIO UNICA CORP.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1998 1997
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(Unaudited)
Current assets:
Cash and cash equivalents $ 57,548,283 $ 1,126,862
Restricted cash 2,500,000 --
Accounts receivable, net 2,716,048 --
Prepaid expenses 120,597 554,000
Radio broadcasting rights 757,616 2,650,000
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Total current assets 63,642,544 4,330,862
Property and equipment, net 10,112,514 1,221,995
Broadcast licenses and other intangibles 48,525,122 --
Investments and advances to equity investee -- 1,016,590
Other assets 9,192,967 108,641
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$ 131,473,147 $ 6,678,088
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current liabilities:
Accounts payable $ 634,520 $ 354,120
Accrued expenses 3,604,372 179,549
Radio broadcasting rights obligation -- 2,385,000
Note payable to stockholders -- 365,000
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Total current liabilities 4,238,892 3,283,669
Note payable 750,000 --
Radio broadcasting rights obligation 3,400,000 --
Deferred tax liability 4,088,735 --
Senior discount notes 102,087,895 --
Commitments and contingencies
Series A redeemable cumulative preferred stock, $.01 par value, 450,000
shares authorized; 353,065 and 51,975 issued and outstanding at
September 30, 1998 and December 31, 1997, respectively 37,332,908 5,316,990
Stockholders' deficit:
Common stock $.01 par value; 100,000 shares authorized; 35,663 and
5,250 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively 357 53
Capital deficiency (1,957,038) (67,043)
Accumulated deficit (18,468,602) (1,855,581)
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Total stockholders' deficit (20,425,283) (1,922,571)
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$ 131,473,147 $ 6,678,088
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ----------- ------------ -----------
Net revenue $ 2,954,757 $ -- $ 6,418,719 $ --
Operating expenses:
Direct operating expenses 414,341 -- 1,302,715 --
Selling, general and administrative expenses 2,609,115 -- 6,956,119 --
Network expenses 2,915,555 -- 9,798,561 --
Corporate expenses 734,533 347,960 2,041,058 788,298
Depreciation and amortization 529,827 -- 901,971 --
------------ ----------- ------------ -----------
7,203,371 347,960 21,000,424 788,298
------------ ----------- ------------ -----------
Loss from operations (4,248,614) (347,960) (14,581,705) (788,298)
------------ ----------- ------------ -----------
Other income (expense):
Interest expense (2,382,812) -- (2,848,214) --
Interest income 519,713 -- 831,765 --
Equity in loss of equity investee (17,749) -- (14,867) --
------------ ----------- ------------ -----------
(1,880,848) -- (2,031,316) --
------------ ----------- ------------ -----------
Net loss (6,129,462) (347,960) (16,613,021) (788,298)
Accrued dividends on Series A redeemable
cumulative preferred stock 914,065 -- 1,917,079 --
------------ ----------- ------------ -----------
Net loss applicable to common shareholders $ (7,043,527) $ (347,960) $(18,530,100) $ (788,298)
============ =========== ============ ===========
Net loss per common share applicable to
common shareholders - basic and diluted $ (196.53) $ (70.20) $ (729.85) $ (132.11)
============ =========== ============ ===========
Weighted average common shares
outstanding - basic and diluted 35,839 4,957 25,389 5,967
============ =========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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RADIO UNICA CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SERIES A REDEEMABLE CUMMULATIVE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (Unaudited)
Series A
Redeemable
Cumulative Additional
Preferred Stock Common Stock Paid-in
------------------------ ---------------------- Capital Accumulated
Shares Amount Shares Amount (Deficiency) Deficit Total
--------- ------------ ---------- --------- ------------ ------------ ------------
Balance at December 31, 1996 -- $ -- 3,000 $ 300 $ 44,700 $ (40,000) $ 5,000
Issuance of common stock -- -- 7,000 700 454,300 -- 455,000
Conversion of Predecessor
Company common stock to
Radio Unica Corp. Series A
redeemable cumulative
preferred stock and common
stock 4,950 495,000 (9,500) (995) (494,005) -- (495,000)
Issuance of Series A
redeemable cumulative
preferred stock and common
stock 47,025 4,702,500 4,750 48 47,452 -- 47,500
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock 119,490 (119,490) (119,490)
Net loss (1,815,581) (1,815,581)
--------- ------------ -------- --------- ------------ ------------ ------------
Balance at December 31, 1997 51,975 5,316,990 5,250 53 (67,043) (1,855,581) (1,922,571)
Issuance of Series A
reedemable cumulative
preferred stock and common
stock 148,500 14,850,000 15,000 150 149,850 -- 150,000
Conversion of notes payable
and promissory notes payable
to stockholders to Series A
redeemable cummulative
preferred stock and common
stock 154,700 15,469,965 15,626 156 156,106 -- 156,262
Redemption and cancellation
of Series A reedemable
cumulative preferred
stock and common stock (2,110) (221,126) (213) (2) (278,872) -- (278,874)
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock -- 1,917,079 -- -- (1,917,079) -- (1,917,079)
Net loss -- -- -- -- -- (16,613,021) (16,613,021)
--------- ------------ -------- --------- ------------ ------------ ------------
Balance at September 30, 1998 353,065 $ 37,332,908 35,663 $ 357 $ (1,957,038) $(18,468,602) $(20,425,283)
========= ============ ======== ========= ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
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OPERATING ACTIVITIES
Net loss $ (16,613,021) $ (788,298)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 901,971 --
Equity in earnings of equity investee 14,867 --
Interest on notes payable paid with the issuance of capital stock 261,227 --
Accretion of interest on senior discount notes 2,087,895
Amortization of deferred financing cost 117,014
Change in assets and liabilities:
Accounts receivable (2,619,999) --
Prepaid expenses 457,828 --
Radio broadcasting rights (1,750,000) (2,650,000)
Other assets (529,555) (30,641)
Accounts payable 263,502 50,000
Accrued expenses 1,119,700 15,982
Radio broadcasting rights obligation 1,015,000 2,385,000
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Net cash used in operating activities (15,273,571) (1,017,957)
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INVESTING ACTIVITIES
Acquisition of property and equipment (3,406,218) (360,755)
Restricted cash-escrow account (2,500,000) --
Repayment of advances to equity investee 1,000,000
Investment in WNMA-AM Miami (9,317,000) --
Investment in KIQI-AM San Francisco (6,211,521)
Investment in KBLA-AM Los Angeles (21,465,920)
Investment in KXYZ-AM Houston (6,500,000) --
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Net cash used in investing activities (48,400,659) (360,755)
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FINANCING ACTIVITIES
Proceeds from issuance of Senior discount notes, net 95,845,651
Proceeds from issuance of Series A redeemable cumulative
preferred stock and common stock 15,000,000 1,455,000
Proceeds from issuance of notes payable to stockholders 21,795,000 365,000
Repayment on notes payable to stockholders (6,795,000)
Repayment on note payable issued in connection with the acquisition
of KIQI-AM San Francisco (5,250,000)
Redemption and cancellation of preferred and
common stock (500,000)
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Net cash provided by financing activities 120,095,651 1,820,000
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Net increase in cash and cash equivalents 56,421,421 441,288
Cash and cash equivalents at beginning of period 1,126,862 5,000
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Cash and cash equivalents at end of period $ 57,548,283 $ 446,288
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Supplemental disclosures of cash flow information:
Note payable issued in connection with the acquisition of
KIQI-AM San Francisco $ 6,000,000 $ --
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Radio
Unica Corp. and subsidiaries (the "Company") for the periods indicated herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the nine
months ended September 30, 1998 and 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. The
consolidated financial statements include the accounts of the Company and all
majority owned subsidiaries over which the Company has control. All significant
intercompany accounts and transactions have been eliminated. For further
information, refer to the Company's 1997 consolidated financial statements and
notes thereto.
2. RADIO BROADCAST RIGHTS AGREEMENT
On September 28, 1998, the Company entered into a Radio Broadcasting Rights
Agreements (the "Rights Agreements") with Inter/Forever Sports, Inc. for several
large soccer events including Copa America 1999 and 2001, Copa Oro 2000 and
2002, and elimination games for the 2002 World Cup (collectively the "Soccer
Events"). The Rights Agreements grant the Company exclusive Spanish-language
radio broadcast rights in the United States for the Soccer Events.
3. ACQUISITIONS
On January 26, 1998, the Company entered into an asset purchase agreement with
One-on-One Sports License of Florida, L.L.C. and One-on-One Sports Radio of
Florida L.L.C to acquire Miami radio stations WNMA-AM and WCMQ-AM for a cash
purchase price of $9.0 million. On May 13, 1998, upon receiving the consent of
the Federal Communication Commission (the "FCC") to transfer the broadcasting
licenses, the Company completed the acquisitions. The Company operated the
stations under a Time Brokerage Agreement ("TBA") for a monthly fee of $72,500
from February 1, 1998 to May 13, 1998.
On February 20, 1998, the Company entered into a stock purchase agreement with
Oro Spanish Broadcasting, Inc. to acquire San Francisco radio station KIQI-AM
for $11.5 million. In connection with this acquisition, the Company entered into
a five-year non-compete agreement with the seller for $500,000. On April 30,
1998, upon receiving the consent of the FCC to transfer the broadcasting
license, the Company completed the acquisition of all the common stock of Oro
Spanish Broadcasting, Inc. The purchase price was comprised of a $6 million cash
payment and a $6 million promissory note payable. The promissory note payable
bears interest at 8% and is payable monthly. On July 2, 1998 the Company revised
certain terms and paid down $5.25 million against the promissory note payable.
The remaining $750,000 is due on or before October 31, 1999. The Company
operated the station under a TBA for a monthly fee of $58,000 from March 2, 1998
to April 30, 1998.
On May 20, 1998, the Company entered into an asset purchase agreement to acquire
the assets of Los Angeles radio station KBLA-AM with Sinclair Radio of Los
Angeles, Inc. and Sinclair Radio of Los Angeles Licensee, Inc. for $21 million
in cash. On July 30, 1998, upon receiving the FCC's consent to transfer the
broadcasting licenses, the Company completed the acquisition.
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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3. ACQUISITIONS, CONTINUED
On October 27, 1997, the Company obtained 49.9% of the ownership and voting
rights of Blaya, Inc., a newly formed company. The remaining ownership interest
was held by one of the stockholders of the Company.
On December 24, 1997, Blaya, Inc. entered into an asset purchase agreement with
13 Radio Corporation ("13 Radio"), a CBS Broadcasting ("CBS") subsidiary, to
acquire Houston radio station KXYZ-AM, for a cash purchase price of $6.4 million
(the "Acquisition"). In connection with this Acquisition, the Company advanced
$1,016,590 to Blaya, Inc., which is reflected in investments and advances to
equity investee. Also on December 24, 1997, Blaya, Inc. entered into a TBA with
13 Radio effective as of January 5, 1998. The TBA made available to Blaya, Inc.
substantially all of the broadcasting time of the station, pending the
completion of the acquisition, which was subject to FCC consent. The Company
entered into a TBA with Blaya, Inc. for substantially all of the broadcasting
time of the station for a fee of $165,000 per quarter. The Company began
operating the station under its TBA on January 5, 1998. Blaya, Inc. did not have
any operations during 1997.
On March 6, 1998, the Company acquired 800 shares of Blaya, Inc.'s Class B
common stock, representing 49.9% of the voting rights and 80% of the economic
ownership rights in Blaya, Inc., in exchange for its 499 shares of common stock
in Blaya, Inc. and $640,000. On the same day, the Company loaned the majority
voting stockholder of Blaya, Inc. $160,000 in the form of a 10 year 9%
promissory note. These proceeds were used by the majority voting stockholder to
purchase 200 shares of Blaya, Inc.'s Class A common stock representing 50.1% of
the voting rights and 20% of the ownership rights in Blaya, Inc. In connection
with this equity investment, the stockholders of Blaya, Inc. entered into a
stockholders agreement that provided the Company the first right of refusal if
the majority voting stockholder decides to sell any interest in Blaya, Inc. The
Company accounts for its investment in Blaya, Inc. under the equity method of
accounting since the minority owner of Blaya, Inc. has operating control of
Blaya, Inc.
On March 10, 1998, the Company entered into a promissory note payable of $5.7
million with Blaya, Inc. The proceeds were used to complete the asset purchase
agreement with 13 Radio and to pay related closing costs. The promissory note
payable bear's interest at 9% compounded quarterly and payable annually. The
entire principal amount outstanding under the promissory note payable was
due and payable in full on the earliest to occur of (i) the termination of the
TBA, (ii) fifteen days following the date when 50% of the voting stock is
transferred to any party or substantially all the assets of Blaya, Inc. are
sold, or (iii) March 10, 2008. The promissory note payable was secured by
substantially all of the assets of Blaya, Inc.
On March 11, 1998, Blaya, Inc. completed the Acquisition of certain assets of 13
Radio for $6.4 million pursuant to the Asset Purchase Agreement dated December
24, 1997. The allocation of the purchase price is preliminary and subject to
change.
On June 9, 1998, the Company entered into a stock purchase agreement with the
majority-voting stockholder of Blaya, Inc. to purchase his remaining 50.1%
voting rights and 20% ownership interest in Blaya, Inc. (the "Remaining
Interest"). On September 11, 1998, the Company completed the acquisition of the
Remaining Interest for $160,000 and accordingly, Blaya, Inc. became a wholly
owned subsidiary of the Company. Mr. Blaya repaid the $160,000, plus interest,
he owed the Company pursuant to the 10 year 9% promissory note. In addition, the
$5.7 million promissory note was cancelled by the Company and accounted for as a
contribution to Blaya, Inc.'s capital.
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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3. ACQUISITIONS, CONTINUED
The pro forma unaudited results of operations of the Company for the nine months
ended September 30, 1998 and 1997 assuming the Oro Spanish Broadcasting, Inc.
and Blaya, Inc. acquisitions had been consummated as of January 1, 1997 and
assuming Blaya, Inc. had acquired 13 Radio as of January 1, 1997 are as follows:
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------------------------
1998 1997
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Net revenue $ 6,729,691 $ 2,933,695
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Net loss applicable to common shareholders $ (18,926,935) $ (2,006,372)
================== ==================
Net loss per common share applicable to
common shareholders - basic and diluted $ (745.48) $ (336.24)
================== ==================
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
SENIOR DISCOUNT NOTES
On July 27, 1998, the Company sold in an unregistered offering to qualified
institutional buyers and accredited institutional investors $158,088,000
aggregate principal amount at maturity of the Company's 11 3/4% Senior Discount
Notes due August 1, 2006 (the "Senior Discount Notes"). Cash interest on the
Senior Discount Notes will not accrue or be payable prior to August 1, 2002.
Thereafter, cash interest will accrue at a rate of 11 3/4% per annum on the
principal amount at maturity of the Senior Discount Notes through and including
the maturity date and will be payable semi-annually on August 1 and February 1
of each year. In connection with this transaction, the Company received net
proceeds of approximately $95 million after issuance expenses of approximately
$5 million. The net proceeds will be used to fund existing and future
acquisitions of radio stations, repay amounts borrowed under the Company's
Revolving Credit Facility and for general working capital purposes.
The Senior Discount Notes are general senior unsecured obligations of the
Company and rank PARI PASSU in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the Company and senior in right of
payment to any subordinated indebtedness of the Company. The Senior Discount
Notes are, unconditionally guaranteed, on a senior unsecured basis, as to
payment of principal, premium if any, and interest, jointly and severally by the
Guarantors which consist of the Company's Domestic Restricted Subsidiaries, as
defined. The Senior Discount Notes are redeemable at any time and from time to
time at the option of the Company, in whole or in part on or after August 1,
2002, plus accrued and unpaid interest thereon to the date of redemption. In
addition, on or prior to August 1, 2001, the Company may redeem, at its option,
up to 35% of the aggregate principal amount at maturity of the Senior Discount
Notes with the net proceeds of one or more Equity Offerings, as defined, at
111.75% of the Accreted Value thereof, as defined, as long as Notes representing
at least $65.0 million of the aggregate initial Accreted Value of the Senior
Discount Notes originally issued remains outstanding after each such redemption
and that such redemption occurs within 90 days of the closing of any such Equity
Offering.
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
SENIOR DISCOUNT NOTES, CONTINUED
Upon a Change of Control, as defined, the Company will be required to offer to
repurchase the Senior Discount Notes at a purchase price equal to (i) 101% of
the Accreted Value thereof, if the purchase date is on or prior to August 1,
2002, or (ii) 101% of the principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date, if such date is after
August 1, 2002.
The Senior Discount Notes restrict, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, create liens on assets, enter into
transactions with affiliates, make investments, loans or advances, consolidate
or merge with or into any other person or convey, transfer or lease all or
substantially all of its assets or change the business conducted by the Company.
SENIOR SECURED REVOLVING CREDIT FACILITY
On July 8, 1998, the Company entered into a credit agreement for a senior
secured revolving credit facility (the "Revolving Credit Facility") providing
for up to $20.0 million of availability with Canadian Imperial Bank of Commerce
("CIBC"). The Revolving Credit Facility will mature on the earlier of 91 days
before the first cash interest is due on the Notes or June 30, 2002. Amounts
outstanding under the Revolving Credit Facility bear interest at a rate of
either (i) the higher of CIBC's prime rate plus 1.25% or (ii) LIBOR plus 2.50%.
The obligations under the Revolving Credit Facility are guaranteed by the
Company and secured by substantially all the assets of the Company. The Company
will pay certain fees in connection with the Revolving Credit Facility,
including a commitment fee of 0.50% per annum on the aggregate unused portion of
the Revolving Credit Facility. At September 30, 1998 there were no amounts
outstanding under the Revolving Credit Facility.
The Revolving Credit Facility contains certain financial and operational
covenants and customary events of default, including, among others, payment
defaults and default in the performance of other covenants, breach of
representations or warranties, cross-default to other indebtedness, certain
bankruptcy or ERISA defaults, the entry of certain judgments against the Company
or any subsidiary, and any security interest or guarantee that ceases to be in
effect. The Revolving Credit Facility also provides that an event of default
will occur upon the occurrence of a "change of control", as defined. As of
September 30, 1998 the Company was in compliance with these covenants.
5. PROMISSORY NOTES PAYABLE
In April, May and June 1998, the Company entered into four promissory notes
payable to Warburg Pincus Ventures L.P. ("WPV") in the aggregate amount of
approximately $21.8 million. Such notes bear interest at 10% per annum and are
due on demand. On June 30, 1998, the Company converted $15 million of the
promissory notes payable to preferred stock. The Company paid the remaining
$6.795 million on July 15, 1998.
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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6. PREFERRED AND COMMON STOCK
On January 5, 1998, WPV purchased 148,500 shares of preferred stock and 15,000
shares of common stock in exchange for $15,000,000 On April 17, 1998 the Company
converted $365,000 in notes payable to stockholders plus accrued interest of
$22,323 into 3,835 shares of Series A redeemable cumulative preferred stock and
387 shares of common stock valued at $383,450 and $3,873, respectively.
On June 30, 1998, the Company converted $15 million in promissory notes payable
to WPV plus $238,904 in accrued interest into 150,865 shares of Series A
redeemable cumulative preferred stock and 15,239 shares of common stock valued
at $15,086,515 and $152,389, respectively.
On August 28, 1998 the Company, pursuant to a separation agreement between the
Company and its former President and Chief Operating Officer, redeemed and
cancelled 2,110 shares of Series A redeemable cumulative preferred stock and 213
shares of common stock in exchange for $500,000.
7. COMMITMENTS
TIME BROKERAGE AGREEMENT FOR KDFT-AM DALLAS
On April 27, 1998, the Company entered into a TBA with The Freedom Network,
Inc. to operate the Dallas radio station KDFT-AM through May 18, 2000 for a
monthly fee of $44,786 and $56,546 through May 18, 1999 and 2000, respectively.
An advance payment of $146,903 was made to The Freedom Network, Inc. in
connection with the execution of the TBA.
TIME BROKERAGE AGREEMENT AND OPTION TO PURCHASE OF WYPA-AM CHICAGO
On June 9, 1998, the Company entered into a TBA with Achievement Radio Holdings,
Inc. for substantially all of the broadcast time on the Chicago radio station
WYPA-AM for a monthly fee of $118,000 through June 8, 1999. The term of the TBA
may be extended at the Company's option through June 9, 2000 (Renewal Term). In
addition to the TBA, the Company has an option to purchase the assets of
WYPA-AM, which is exercisable from June 9, 1998 through June 9, 1999 and will be
exercisable for the Renewal Term if the TBA is extended.
8. SUMMARIZED FINANCIAL INFORMATION
The senior discount notes issued by the Company are guaranteed by all of the
Company's Domestic Restricted Subsidiaries on a full, unconditional, joint and
several basis. The financial statements of the subsidiary guarantors are omitted
as management has determined that separate financial statements and other
disclosures concerning the subsidiaries are not material to investors.
AS OF OR FOR THE
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1998 1997
------------- --------------
Total assets $ 61,200,150 $ --
Total liabilities (including due to parent of $14,921,169) 27,398,796 --
Net revenues 6,418,719 --
Operating expenses 17,117,624 --
Net loss (12,730,221) --
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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9. SUBSEQUENT EVENTS
On October 27, 1998, the Company entered into an asset purchase agreement (the
"Agreement") with Children's Broadcasting Corporation to acquire certain assets
of New York City area radio stations WBAH-AM and WJDM-AM, Dallas/Ft. Worth radio
station KAHZ-AM and Phoenix radio station KIDR-AM (collectively the "Stations")
for a purchase price of $29.25 million. Pursuant to the Agreement, the Company
has established escrow accounts totaling $10 million. The transaction is
expected to be finalized and the transfers of the broadcast licenses are
expected to be completed once the FCC's consents to transfer the broadcast
licenses are received. Until such time, the Company will operate the Stations
under a TBA for a monthly fee of $200,000. An advanced payment of $2.5 million
was made to Children's Broadcasting Corporation with the execution of the TBA.
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RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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This report contains "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements include, among others, statements concerning the Company's outlook
for 1998 and beyond, the Company's expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. The forward-looking statements in this
report are subject to risks and uncertainties that could cause actual results to
differ materially from those expressed in or implied by the statements.
OVERVIEW
Radio Unica Corp., incorporated on September 12, 1996 (inception), was organized
for the purpose of producing, broadcasting and distributing Spanish-language
radio programming in the United States. The Company's strategy is to develop its
radio network as a national advertising platform that is attractive to national
advertisers. The network is comprised of owned and operated stations; stations
operated under TBA's and affiliated stations. From inception through the year
ended December 31, 1997, the Company had no revenue and had not commenced
operations. The Company launched its network on January 5, 1998 with 30
affiliated stations and three stations operated under TBAs. The Company expects
to incur operating losses for the foreseeable future as the Company develops its
network and stations and establishes its base of advertising revenues.
The Company generates revenue from sales of network advertising time and sales
of advertising time on the Company-owned stations and stations operated under
TBAs (collectively "O&Os"). Advertising rates are, in large part, based upon the
network's and each station's ability to attract audiences in demographic groups
targeted by advertisers. All revenues are stated net of any agency commissions.
The Company's operating expenses consist of network programming expenses,
marketing and selling costs, including commissions paid to the Company's sales
staff, technical and engineering costs, and general and administrative expenses.
As is true of other radio operators, the Company's performance is customarily
measured by its earnings before net interest, taxes, depreciation and
amortization ("EBITDA"). EBITDA is defined as net income (loss) plus (i)
provision for income taxes (ii) interest expense, net and (iii) depreciation and
amortization. EBITDA is presented not as an alternative measure of operating
results or cash flows from operations (as determined in accordance with
generally accepted accounting principles ("GAAP")), but because it is widely
accepted supplemental financial measure of a company's ability to service debt.
The Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies since all companies do not calculate this
non-GAAP measure in the same fashion. The Company's EBITDA calculation is not
intended to represent cash used in operating activities, since it does not
include interest and taxes and changes in operating assets and liabilities, nor
is it intended to represent the net increase or decrease in cash, since it does
not include cash provided by (used in) investing activities and financing
activities.
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14
RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
NET REVENUE. Net revenue for the three-month period ended September 30, 1998 was
approximately $3.0 million relating to sales of network advertising and sales of
advertising on the Company's O&Os. The Company was not operating its network or
stations during the period ended September 30, 1997 and as a result had no
revenues.
OPERATING EXPENSES. Operating expenses for the three month period ended
September 30, 1998 were approximately $7.2 million as compared to approximately
$348,000 for the three months ended September 30, 1997. Operating expenses
during the three months ended September 30, 1998 related to the ongoing
operations of the business. Operating expenses during the three month period
ended September 30, 1997 consisted of corporate costs incurred during the
development stage.
Direct operating expenses of approximately $414,000 related to engineering and
programming costs for the Company's O&Os.
Selling, general and administrative expenses of approximately $2.6 million
related to the operations of the Company's O&Os.
Network expenses of approximately $2.9 million related to the operations of the
Company's network including engineering, programming, sales and administration.
Corporate expenses for the three months ended September 30, 1998 of
approximately $735,000 related to the costs of executive management, legal and
professional fees and other costs, an increase of approximately $387,000 over
the comparable period in the prior year. Corporate expenses for the three month
period ended September 30, 1997 included primarily cost of executive management,
legal and professional fees, promotional costs and travel expenses incurred
during the development stage.
LOSS FROM OPERATIONS. Loss from operations for the three month period ended
September 30, 1998 was approximately $4.2 million as compared to approximately
$348,000 for the comparable period of the prior year. The increase in the loss
is a result of the increased costs associated with the commencement of
operations of the Company's network and O&Os.
EBITDA. EBITDA was approximately $(3.7) million for the three months ended
September 30, 1998 and approximately $(348,000) for the three months ended
September 30, 1997. The decrease in EBITDA is a result of the increased costs
associated with the operations of the Company's network and O&Os.
OTHER INCOME (EXPENSE). Other income (expense) for the three-month period ended
September 30, 1998 included interest income of approximately $520,000, interest
expense of approximately $2.4 million and equity loss of approximately $18,000.
Interest income primarily relates to interest earned on the remaining proceeds
from the Senior Discount Notes and amounts held in escrow related to pending
station acquisitions. Interest expense relates primarily to the interest on the
Senior Discount Notes. The Company had no other income or expense during the
three month period ended September 30, 1997.
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15
RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
NET LOSS. The Company had a net loss of approximately $6.1 million in the three
month period ended September 30, 1998 as compared to an approximate $348,000 net
loss for the comparable period of the prior year. The increase in the net loss
is a result of the increased costs associated with the operations of the
Company's network and O&Os as well as the increase in interest expense resulting
from the Senior Discount Notes.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
NET REVENUE. Net revenue for the nine months ended September 30, 1998 was
approximately $6.4 million relating to sales of network advertising and sales of
advertising on the Company's O&Os. The Company was not operating its network or
stations during the nine month period ended September 30, 1997 and as a result
had no revenues.
OPERATING EXPENSES. Operating expenses for the nine months ended September 30,
1998 were approximately $21.0 million as compared to approximately $788,000 for
the nine months ended September 30, 1997.
Direct operating expenses of approximately $1.3 million related to engineering
and programming costs for the Company's O&Os.
Selling, general and administrative expenses of approximately $7.0 million
related to the operations of the Company's O&Os.
Network expenses of approximately $9.8 million related to the operations of the
Company's network including engineering, programming, sales and administration.
Corporate expenses for the nine months ended September 30, 1998 of approximately
$2.0 million related to the costs of executive management, legal and
professional fees and other costs, an increase of approximately $1.2 million
over the comparable period in the prior year. Corporate expenses for the nine
months ended September 30, 1997 included primarily legal and professional fees,
promotional costs and travel expenses incurred during the development stage.
EBITDA. EBITDA was approximately $(13.7) million for the nine months ended
September 30, 1998 as compared to approximately $(788,000) for the nine months
ended September 30, 1997. The decrease in EBITDA is a result of the increased
costs associated with the operations of the Company's network and O&Os.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1998 included interest income of approximately $832,000, interest
expense of approximately $2.8 million and equity loss of approximately $15,000.
Interest income primarily relates to interest earned on the remaining proceeds
from the Senior Discount Notes and on amounts held in escrow related to pending
station acquisitions. Interest expense relates primarily to the interest on the
Senior Discount Notes. The Company had no other income or expense during the
nine months ended September 30, 1997.
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16
RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION, (CONTINUED)
- --------------------------------------------------------------------------------
NET LOSS. The Company incurred a net loss of approximately $16.6 million for the
nine months ended September 30, 1998 as compared to approximately $788,000 for
the nine months ended September 30, 1997. The increase in the net loss is a
result of the increased costs associated with the operations of the Company's
network and O&Os as well as the increase in interest expense resulting from the
Senior Discount Notes.
LIQUIDITY AND CAPITAL RESOURCES
Due to the development nature of the Company, the Company has had negative cash
flows since inception. Working capital and financing for the Company's
acquisitions to date have been provided primarily by the issuance of Promissory
Notes, Company Common Stock and Company Preferred Stock to the Company's
principal shareholder and the issuance of the Senior Discount Notes.
The Company's primary sources of liquidity will be the Revolving Credit Facility
and the net proceeds from the Senior Discount Notes. The Revolving Credit
Facility is a senior secured revolver with $20.0 million of available borrowings
subject to certain conditions.
Net cash used in operating activities was approximately $15.3 million for the
nine months ended September 30, 1998 as compared to approximately $1.0 million
for the nine months ended September 30, 1997. The increase in cash used in
operating activities during the nine-month period ended September 30, 1998 is
due to the increased costs associated with the operations of the Company's
network and O&Os.
Net cash used in investing activities for the nine months ended September 30,
1998 was approximately $48.4 million as compared to approximately $361,000 for
the nine months ended September 30, 1997. The increase in cash used in investing
activities during the nine-month period ended September 30, 1998 is due to the
acquisitions of radio stations, funding of escrow accounts related to
acquisitions, and acquisitions of property and equipment for the Company's O&Os.
Capital expenditures primarily related to the purchase of broadcast equipment
for the network and O&Os, leasehold improvements, computer equipment and
telecommunications equipment. For the nine months ended September 30, 1998
capital expenditures were approximately $3.4 million as compared to
approximately $361,000 for the nine months ended September 30, 1997. The Company
expects to spend in the aggregate approximately $2.5 million over the next two
years for planned equipment purchases and for upgrades of existing stations.
Net cash provided by financing activities for the nine months ended September
30, 1998 was approximately $120.1 million as compared to approximately $1.8
million for the nine months ended September 30, 1997. The increase in cash
provided by financing activities during the nine months ended September 30, 1998
primarily relates to the issuance of the Senior Discount Notes as well as
additional capital which was raised through the issuance of preferred and common
stock. In addition, the Company entered into promissory notes payable with WPV
of approximately $21.8 million. The funds were mainly used to acquire radio
stations, fund escrow accounts related to acquisitions, and acquire property and
equipment.
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17
RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Company believes that its current cash position, the proceeds from the
issuance of the Senior Discount Notes and the borrowing availability under the
Revolving Credit Facility will provide adequate resources to fund the Company's
operating expenses, working capital requirements, capital expenditures and
acquisitions until the implementation of its business strategy provides the
Company with sufficient operating cash flow. Upon the implementation of its
business strategy, the Company believes that cash from operating activities
should be sufficient to permit the Company to meet its required cash interest
obligations (which will consist of interest expense on the Senior Discount Notes
commencing August 1, 2002 of approximately $19.0 million annually), capital
expenditures for existing owned and operated stations, and operating
obligations.
In the event that the Company is unable to generate the cash flow that is
sufficient to service its obligations, the Company may be forced to adopt one or
more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations or selling equity. There can be no
assurance that such business strategy will be successfully implemented.
Furthermore there can be no assurance that any such actions could be effected on
satisfactory terms of the Senior Discount Notes or the Revolving Credit
Facility. The failure to generate sufficient cash flow or to achieve such
alternatives could significantly adversely affect the market value of the Senior
Discount Notes and the Company's ability to pay the principal of and interest on
the Senior Discount Notes.
The known impact on future operating results related to the Senior Discount
Notes will be annual interest expense through August 1, 2006 as follows:
YEAR ENDED DECEMBER 31,
(IN MILLIONS)
1998 $ 5.0
1999 12.7
2000 14.2
2001 16.0
2002 17.9
2003 18.6
2004 18.6
2005 18.6
2006 10.8
Expected interest payments under the terms of the Senior Discount Notes are as
follows:
YEAR ENDED DECEMBER 31,
(IN MILLIONS)
2002 $ 9.3
2003 18.6
2004 18.6
2005 18.6
2006 9.3
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18
RADIO UNICA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve the issue. The Year 2000 issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer programs that have
time/date sensitive software and hardware may recognize a date using "00" as the
year and 1900 rather than the year 2000. This could result in a major system
failure or miscalculation. The Company presently believes that based on the
results of recent investigations, the Company's primary information and
communication systems are believed to be compliant with Year 2000 requirements.
The Company's cost of compliance has been minimal and any future costs are not
anticipated to be material to financial condition and results of operations.
The Year 2000 issue creates risk for the Company from unforeseen problems in its
own computer systems and from third parties on which the Company relies.
Accordingly, the Company is requesting assurances from all software vendors from
which it has purchased or from which it may purchase software that the software
sold to the Company correctly processes all date information at all times. In
addition, the Company is querying its customers and suppliers as to their
progress in identifying and addressing problems that their computer systems will
face in correctly processing date information as the Year 2000 approaches and is
reached. However, there are no assurances that the Company will identify all
date handling problems in its business systems or that the Company will be able
to successfully remedy Year 2000 compliance issue that are discovered. To the
extent that the Company is unable to resolve its Year 2000 issues prior to
January 1, 2000 operating results could be adversely affected. In addition, the
Company could be adversely affected if other entities (e.g., vendors or
customers) not affiliated with the Company do not appropriately address their
own Year 2000 compliance issues in advance of their occurrence.
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19
RADIO UNICA CORP.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party to.
ITEM 2. CHANGES IN SECURITIES
o On January 5, 1998, the Company issued 148,500 shares of preferred stock
and 15,000 shares of common stock to Warburg, Pincus Ventures L.P. for
$15,000,000.
o On April 17, 1998, the Company converted $365,000 in notes payable to
stockholders plus accrued interest of $22,323 into 3,835 shares of Series A
redeemable cumulative preferred stock and 387 shares of common stock valued
at $383,450 and $3,873, respectively.
o On June 30, 1998, the Company converted $15 million in promissory notes
payable to Warburg, Pincus Ventures, L.P., plus $238,904 in accrued
interest into 150,865 shares of Series A redeemable cumulative preferred
stock and 15,239 shares of common stock valued at $15,086,515 and $152,389,
respectively.
o On August 28, 1998 the Company, pursuant to a separation agreement between
the Company and its former President and Chief Operating Officer, redeemed
and cancelled 2,110 shares of Series A redeemable cumulative preferred
stock and 213 shares of common stock in exchange for $500,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of the
Company during the period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits
(b) On August 14, 1998 the Company filed a current report on Form 8-K
reporting the acquisition through its subsidiary Radio Unica of Los
Angeles, Inc. of substantially all the assets of radio station KBLA-AM,
Los Angeles from Sinclair Radio of Los Angeles.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Radio Unica Corp.
By: /s/ Steven E. Dawson
------------------------------
Steven E. Dawson
Chief Financial Officer
Date: November 12, 1998
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INDEX TO EXHIBITS
a) Exhibits required by Item 601 of Regulation S-K.
3.1 Bylaws of Blaya, Inc. (a) (i)
3.2 Certificate of Incorporation of Blaya, Inc. (a) (ii)
3.3 Bylaws of Radio Unica of Houston License Corp. (a) (iii)
3.4 Certificate of Incorporation of Radio Unica of Houston License Corp.
(a) (iv)
4.1 Purchase Agreement, dated July 22, 1998, among the Company, each of the
Company's subsidiaries set forth therein, CIBC Oppenheimer Corp. and
Bear, Stearns & Co. Inc. (a) (v)
4.2 Indenture dated as of July 27, 1998 between the Company and Wilmington
Trust Company, as Trustee. (a) (vi)
4.3 Registration Rights Agreement, dated as of July 22, 1998, between the
Company and CIBC Oppenheimer Corp. and Bear, Stearns & Co. Inc. (a)
(vii)
10.1 Credit Agreement, dated as of July 8, 1998 among the Company, Holdings,
the several banks and other financial institutions from time to time
parties thereto and Canadian Imperial Bank of Commerce, in its
individual capacity and as Agent ("CIBC"). (a) (viii)
10.2 Form of Guarantee under the Credit Agreement, each dated as of July 8,
1998, by each of the following subsidiaries of the Company: Radio Unica
of San Francisco, Inc., Oro Spanish Broadcasting, Inc., Radio Unica of
San Francisco License Corp., Radio Unica of Miami, Inc., Radio Unica of
Miami License Corp., Radio Unica of Los Angeles, Inc., Radio Unica of
Los Angeles License Corp., Radio Unica of San Antonio, Inc., Radio
Unica Network, Inc. and Radio Unica Sales Corp. in favor of CIBC
(included as Exhibit E to Exhibit 10.1). (a) (ix)
10.3 Form of Pledge Agreement, each dated as of July 8, 1998, between CIBC
and each of Radio Unica of San Francisco, Inc., Radio Unica of Miami,
Radio Unica of Los Angeles, Inc., Oro Spanish Broadcasting, Inc.,
Holdings and the Company (included as Exhibits A, C and F to Exhibit
10.1). (a) (x)
10.4 Form of Security Agreement, each dated as of July 8, 1998, between CIBC
and each of the following subsidiaries of the Company: Radio Unica of
San Francisco, Inc., Oro Spanish Broadcasting, Inc., Radio Unica of San
Francisco License Corp., Radio Unica of Miami, Inc., Radio Unica of
Miami License Corp., Radio Unica of Los Ageles, Inc., Radio Unica of
Los Angeles License Corp., Radio Unica of San Antonio, Inc., Radio
Unica Network, Inc., and Radio Unica Sales Corp Holdings and the
Company (included as Exhibits B, D and G to Exhibit 10.1). (a) (xi)
10.5 Contribution Agreement, dated as of July 8, 1998, among certain of the
Company's subsidiaries, Holdings and CIBC. (a) (xii)
10.6 Intellectual Property Security Agreement, dated as of July 8, 1998,
between the Company and CIBC. (a) (xiii)
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10.7 First Supplemental Indenture, dated as of September 11, 1998, among the
Company, Blaya, Inc., Radio Unica of Houston License Corp. and
Wilmington Trust Company. (a) (xiv)
10.8 Guarantee under the Supplemental Indenture, dated as of September 11,
1998, of Blaya, Inc. and Radio Unica of Houston License Corp. (a) (xv)
10.9 Subsidiary Pledge Agreement, dated as of September 11, 1998, between
CIBC and Blaya, Inc. (a) (xvi)
10.10 Subsidiary Security Agreement, dated as of September 11, 1998, between
CIBC and Blaya, Inc. (a) (xvii)
10.11 Subsidiary Security Agreement, dated as of September 11, 1998, between
CIBC and Radio Unica of Houston License Corp. (a) (xviii)
10.12 Subsidiary Guarantee under the Credit Agreement, dated as of September
11, 1998, of Blaya, Inc. (a) (xix)
10.13 Subsidiary Guarantee under the Credit Agreement, dated as of September
11, 1998, of Radio Unica of Houston License Corp. (a) (xx)
10.14* Agreement, dated as of September 28, 1998, between the Company and
Inter/Forever Sports, Inc. (a) (xxi)
10.15* Agreement, dated as of September 28, 1998, between the Company and
Inter/Forever Sports, Inc. (a) (xxii)
27.1 FINANCIAL DATA SCHEDULE.
(a) Incorporated by reference from Form S-4/A filed October 20, 1998, where
it appears as (i) Exhibit 3.23 (ii) Exhibit 3.24 (iii) Exhibit 3.25
(iv) Exhibit 3.26 (v) Exhibit 4.1 (vi) Exhibit 4.2 (vii) Exhibit 4.5
(viii) Exhibit 10.1 (ix) Exhibit 10.2 (x) Exhibit 10.3 (xi) Exhibit
10.4 (xii) Exhibit 10.5 (xiii) Exhibit 10.6 (xiv) Exhibit 10.32 (xv)
Exhibit 10.33 (xvi) Exhibit 10.34 (xvii) Exhibit 10.35 (xviii) Exhibits
10.36 (xix) Exhibit 10.37 (xx) Exhibit 10.38 (xxi) Exhibit 10.39 (xxii)
Exhibit 10.40, respectively.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the
Securities and Exchange Commission.
22