-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FdyIxYBgEW5BoS9SL/ByexeINXfnarQ/BB1qUa/VUV630RZGMta1rB1Z6a6kq3CV 1lX3x/1cD4ItllotbYfUKA== /in/edgar/work/20000614/0000944209-00-001025/0000944209-00-001025.txt : 20000919 0000944209-00-001025.hdr.sgml : 20000919 ACCESSION NUMBER: 0000944209-00-001025 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTRAVISION COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001109116 STANDARD INDUSTRIAL CLASSIFICATION: [4833 ] IRS NUMBER: 954783236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-35336 FILM NUMBER: 654776 BUSINESS ADDRESS: STREET 1: 2425 OLYMPIC BLVD STREET 2: STE 6000 WEST CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3104473870 MAIL ADDRESS: STREET 1: 2425 OLYMPIC BLVD STREET 2: STE 6000 WEST CITY: SANTA MONICA STATE: CA ZIP: 90404 S-1/A 1 0001.txt FORM S-1/A AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on June 14, 2000 Registration No. 333-35336 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- Amendment No. 1 to Form S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- Entravision Communications Corporation (Exact name of registrant as specified in charter) Delaware 4833 95-4783236 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.)
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Walter F. Ulloa Entravision Communications Corporation 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 (310) 447-3870 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Kenneth D. Polin, Esq. Richard M. Jones, Esq. Zevnik Horton Guibord McGovern O'Melveny & Myers LLP Palmer & Fognani, L.L.P. 1999 Avenue of the Stars, 7th Floor 101 West Broadway, 17th Floor Los Angeles, California 90067 San Diego, California 92101 (310) 553-6700 (619) 515-9600
--------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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(c) 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. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
Proposed maximum Amount of Title of each class of securities to be registered aggregate offering price (1)(2) registration fee - ------------------------------------------------------------------------------------------------------- Class A common stock, $0.0001 par value......... $736,000,000 $194,304 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
(1) Includes shares issuable upon exercise of an over-allotment option granted to the underwriters. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. --------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the documentation filed with the Securities and Exchange Commission relating + +to these securities has been declared effective by the Securities and + +Exchange Commission. This prospectus is not an offer to sell these securities + +or our solicitation of your offer to buy these securities in any jurisdiction + +where that would not be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION--JUNE 14, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 2000 [LOGO OF ENTRAVISION COMMUNICATIONS CORPORATION] 40,000,000 Shares of Class A Common Stock - -------------------------------------------------------------------------------- Proposed Market and Symbol: . We have applied . Of the 40,000,000 for listing on shares for sale the New York in this offering, Stock Exchange we have offered under the symbol 6,250,000 shares EVC. to Univision Communications The Offering: Inc., one of our principal . We are offering stockholders, 40,000,000 shares which has of our Class A expressed an common stock. interest in acquiring shares . The underwriters of our common have an option to stock. If this purchase an offer is additional accepted, we 6,000,000 shares would sell these from us to cover shares directly over-allotments. to Univision at the initial . This is our offering price, initial public less the offering, and no underwriting public market discount. As a currently exists result, we are for our shares. offering We anticipate 33,750,000 shares that the initial for sale to the public offering public through price for our the underwriters. Class A common stock will be between $15.00 and $17.00 per share.
------------------------------------------------------------------------ Per Share Per Share (for shares sold (for shares sold by the directly to underwriters) Univision) Total ------------------------------------------------------------------------ Public offering price.......... $ $ $ Underwriting fees.............. Proceeds to Entravision........ ------------------------------------------------------------------------
This investment involves risk. See "Risk Factors." - -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has determined whether this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette Credit Suisse First Boston Merrill Lynch & Co. ----------- Salomon Smith Barney Bear, Stearns & Co. Inc. DLJdirect Inc. [INSIDE FRONT COVER] [ARTWORK] [FRONT GATEFOLD] [A MAP OF THE UNITED STATES IDENTIFYING THE LOCATION OF EACH OF OUR MEDIA PROPERTIES AND THE CALL LETTERS AND CHANNEL OF EACH OF OUR STATIONS] You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 4 Risk Factors............................................................. 12 Forward-Looking Statements............................................... 19 Use of Proceeds.......................................................... 20 Dividend Policy.......................................................... 20 Capitalization........................................................... 21 Dilution................................................................. 23 Selected Historical Financial Data....................................... 24 Selected Unaudited Pro Forma Financial Data.............................. 27 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 31 Business................................................................. 62 Management............................................................... 86 Principal Stockholders................................................... 93 Certain Relationships and Related Transactions........................... 95 Description of Capital Stock............................................. 99 Shares Eligible for Future Sale.......................................... 104 Underwriting............................................................. 106 Legal Matters............................................................ 109 Experts.................................................................. 109 Where You Can Find More Information...................................... 110 Index to Financial Statements............................................ F-1
3 PROSPECTUS SUMMARY This summary contains general discussions of our business and this offering. We encourage you to read the entire prospectus, including "Risk Factors" and the financial statements. ENTRAVISION Entravision is a leading diversified media company utilizing a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States. The description of our business presented in this prospectus includes our recent acquisition of Latin Communications Group Inc., or LCG, and our pending acquisitions of Z-Spanish Media Corporation and certain outdoor advertising assets of Infinity Broadcasting Corporation. The majority of the proceeds of this offering will finance our acquisition of Z- Spanish Media and refinance our acquisition of LCG. Television. We are the largest Univision-affiliated television group in the United States. We own and operate television stations in 18 U.S. markets. We own Univision-affiliated stations in 17 of the top 50 Hispanic markets in the United States. Through our 25-year network affiliation agreements, Univision makes available to these stations 24 hours a day of Spanish-language programming. Univision's prime time schedule is all first-run programming (i.e., no reruns) throughout the year. We combine this programming with our local news programming to brand our stations with a local identity. As a result, all but one of our Univision-affiliated stations rank first in Spanish- language television viewership in their markets. Univision has invested $120 million in Entravision and has expressed an interest in investing an additional $100 million in this offering. Univision will own an approximately 26% equity interest in us after the offering, assuming Univision accepts our offer to purchase 6,250,000 shares being sold in this offering. Radio. We operate the largest centrally programmed Spanish-language radio network in the United States, which broadcasts via satellite to our 64 owned and operated radio stations and 47 affiliates. Sixty-one of our owned and operated stations are in the top 50 Hispanic markets. Our radio operations combine national programming with local time slots available for advertising, news, traffic, weather, promotions and community events. This strategy allows us to provide quality programming with significantly lower costs of operations than we could otherwise deliver solely with independent programming. We produce seven primary formats to appeal to the diverse musical tastes of the listeners in the markets we serve. Outdoor. Our approximately 11,200 billboards are concentrated in high- density Hispanic communities in Los Angeles and New York, the two largest Hispanic markets in the United States. Because of its repetitive impact and relatively low cost, outdoor advertising attracts national, regional and local advertisers. We offer the ability to target specific demographic groups on a cost-effective basis compared to other advertising media. In addition, we provide businesses with marketing opportunities in locations near their stores or outlets. Publishing. Our publishing operations, through El Diario/La Prensa, the leading Spanish-language daily newspaper in New York, and VEA New York, a tourist publication, offer advertisers another medium targeting consumers in the second largest Hispanic market in the United States. 4 Market Opportunity and Strategy While Hispanics represent approximately 11% of the U.S. population and the Hispanic population is growing approximately six times faster than the non- Hispanic population, they are currently targeted by less than 3% of total advertising dollars. Advertisers have recently begun to direct more advertising dollars toward Hispanics and, consequently, Spanish-language advertising is currently growing at more than four times the rate of total advertising. We believe that we have benefited and will continue to benefit from these trends surrounding the attractive demographic profile of the Hispanic consumer. We seek to increase our advertising revenue through the following strategies: . using our Univision network affiliation and our radio network and station brands to maximize our market share; . investing in media research to provide advertisers with accurate measures of our audience; . continuing to build and retain strong management teams; . emphasizing and investing in our local news and radio formats and supporting community events to enhance our audience recognition, loyalty and ratings; . capitalizing on cross-promotional opportunities created by our diverse portfolio of media properties to maximize audience share and increase advertising revenue; and . continuing to seek acquisitions and investment opportunities in high- growth Hispanic markets. ---------------- Our principal executive offices are located at 2425 Olympic Boulevard, Suite 6000 West, Santa Monica, California 90404, and our telephone number is (310) 447-3870. We operate a number of websites, including www.entravision.com, www.zspanish.com, www.zmegahits.com, www.labonita.com, www.labuena.com, www.casademusica.com and www.vistamediagroup.com. The information on our websites is not a part of this prospectus. 5 The Offering Class A common stock offered......... 40,000,000 shares Common stock to be outstanding after this offering....................... 53,847,312 shares of Class A common stock 27,678,533 shares of Class B common stock 21,983,392 shares of Class C common stock ----------- 103,509,237 total shares of common stock Shares offered to Univision.......... We have offered 6,250,000 shares for sale in this offering to Univision, one of our principal stockholders. If this offer is accepted, we would sell these shares directly to Univision. As a result, we will offer 33,750,000 shares for sale to the public through the underwriters. Voting rights........................ Holders of our Class A common stock are entitled to one vote per share. Holders of our Class B common stock are entitled to ten votes per share. Holders of our Class C common stock are entitled to one vote per share, are entitled to vote as a separate class to elect two directors and have the right to vote as a separate class on material decisions involving Entravision. After this offering, our executive officers will have approximately 79% voting control of our outstanding shares of common stock. Use of proceeds...................... We intend to use the net proceeds of this offering: . to acquire Z-Spanish Media; . to repay the existing loan on LCG; . to repay the debt of Z-Spanish Media; . to pay the balance of the purchase price to acquire two radio stations from Citicasters Co.; . to repay a portion of Entravision's bank debt; and . for working capital and general corporate purposes. Proposed New York Stock Exchange symbol.............................. EVC
Unless indicated otherwise, the information in this prospectus: . reflects the completion of our reorganization in which direct and indirect ownership interests in our predecessor and Univision's subordinated note and option will be exchanged for shares of our common stock; . includes the issuance of 7,187,902 shares of Class A common stock to acquire Z-Spanish Media; . excludes shares of Class A common stock issuable upon the exercise of the underwriters' over-allotment option; . excludes 6,048,387 shares of Class A common stock reserved for issuance upon conversion of our Series A preferred stock; and . excludes 12,000,000 shares of Class A common stock reserved for issuance under our omnibus equity incentive plan. 6 Summary Historical and Unaudited Pro Forma Financial Data (In thousands, except per share data) The following tables present: . our summary historical financial data as of March 31, 2000 and for the years ended December 31, 1997, 1998 and 1999 and for the three months ended March 31, 1999 and 2000; . our summary unaudited pro forma financial data as of March 31, 2000 and for the year ended December 31, 1999 and for the three months ended March 31, 1999 and 2000, giving effect to our completed 1999 and 2000 acquisitions and our pending acquisition of Z-Spanish Media as if such transactions had been completed January 1, 1999, the conversion of TSG Capital Fund III, L.P.'s convertible subordinated note into preferred stock, the issuance of 15,437,500 shares of Class A common stock in this offering at $16.00 per share used to finance the cash portion of the purchase price of Z-Spanish Media and the exchange of Univision's subordinated note and option for common stock; and . our summary unaudited pro forma as adjusted financial data giving further effect to the sale of the 40,000,000 shares of Class A common stock less 15,437,500 shares of Class A common stock used to finance the cash portion of the purchase price of Z-Spanish Media that we are offering, assuming an initial public offering price of $16.00 per share, and the application of the net proceeds of this offering, as described in "Use of Proceeds." The summary unaudited pro forma and pro forma as adjusted financial data are not necessarily indicative of the operating results or the financial condition that would have been achieved if we had completed these transactions as of the date indicated and should not be construed as representative of future operating results or financial condition. The financial data as of and for the three months ended March 31, 1999 and 2000 were derived from our unaudited financial statements included elsewhere in this prospectus. Such unaudited financial statements were prepared by us on a basis consistent with our annual audited financial statements and, in the opinion of our management, contain all normal recurring adjustments necessary for a fair presentation of the financial position and the results of operations for the applicable periods. Operating results in the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected in the year ending December 31, 2000 or any subsequent period. The summary historical and unaudited pro forma financial data should be read in conjunction with the audited financial statements and related notes, with "Selected Unaudited Pro Forma Financial Data" and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. 7
Historical ----------------------------------------------------- Three Months Ended Year Ended December 31, March 31, ---------------------------- ----------------------- 1997 1998 1999 1999 2000 ------- -------- --------- ----------- ----------- (Unaudited) (Unaudited) Statement of Operations Data: Gross revenue: Television............. $32,701 $ 48,689 $ 63,842 $12,558 $ 18,178 Radio.................. 718 1,183 2,362 455 1,162 Outdoor and publishing............ -- -- -- -- -- ------- -------- --------- ------- -------- Total gross revenue.... 33,419 49,872 66,204 13,013 19,340 Less agency commissions.. 2,963 5,052 7,205 1,284 2,076 ------- -------- --------- ------- -------- Net revenue.............. 30,456 44,820 58,999 11,729 17,264 ------- -------- --------- ------- -------- Expenses: Direct operating....... 9,184 15,794 24,441 4,672 7,883 Selling, general and administrative (excluding non-cash stock-based compensation) ........ 5,845 8,877 11,611 2,510 3,749 Corporate.............. 3,899 3,963 5,809 1,304 1,848 Depreciation and amortization.......... 8,847 9,565 14,613 2,979 4,535 Non-cash stock-based compensation (1)...... 900 500 29,143 7,286 -- ------- -------- --------- ------- -------- Total expenses........... 28,675 38,699 85,617 18,751 18,015 ------- -------- --------- ------- -------- Operating income (loss).. 1,781 6,121 (26,618) (7,022) (751) Interest expense, net.... (5,107) (8,244) (9,591) (2,023) (3,897) Non-cash interest expense relating to Univision conversion option (2)... -- -- (2,500) -- (31,600) Income tax (expense) benefit (3)............. 7,531 (210) 121 74 6 ------- -------- --------- ------- -------- Income (loss).......... $ 4,205 $ (2,333) $ (38,588) $(8,971) $(36,242) ======= ======== ========= ======= ======== Pro forma net loss (4)... $(2,683) $ (1,801) $ (36,210) $(8,423) $(34,471) ======= ======== ========= ======= ======== Pro forma basic and diluted loss per share: Net loss (4)........... $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06) ======= ======== ========= ======= ========
8
Pro Forma ----------------------------------------------- Year Ended Three Months Ended December 31, 1999 March 31, 2000 ----------------------- ----------------------- Pro Forma Pro Forma Pro Forma As Adjusted Pro Forma As Adjusted ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Statement of Operations Data: Gross revenue: Television.................. $ 68,938 $ 68,938 $ 18,256 $ 18,256 Radio....................... 67,261 67,261 16,107 16,107 Outdoor and publishing...... 35,134 35,134 7,476 7,476 -------- -------- -------- -------- Total gross revenue......... 171,333 171,333 41,839 41,839 Less agency commissions....... 16,009 16,009 4,185 4,185 -------- -------- -------- -------- Net revenue................... 155,324 155,324 37,654 37,654 -------- -------- -------- -------- Expenses: Direct operating............ 59,938 59,938 15,866 15,866 Selling, general and administrative (excluding non-cash stock-based compensation).............. 47,702 47,702 11,107 11,107 Corporate................... 12,639 12,639 4,045 4,045 Depreciation and amortization............... 86,245 86,245 21,885 21,885 Non-cash stock-based compensation (1)........... 31,931 31,931 893 893 Gain on sale of assets...... (4,442) (4,442) -- -- -------- -------- -------- -------- Total expenses................ 234,013 234,013 53,796 53,796 -------- -------- -------- -------- Operating income (loss)....... (78,689) (78,689) (16,142) (16,142) Interest expense, net and other........................ (35,134) (5,636) (9,510) (2,135) Non-cash interest expense relating to Univision conversion option (2)........ (2,500) (2,500) (31,600) (31,600) Income tax benefit (3)........ 28,867 17,068 8,785 5,835 -------- -------- -------- -------- Loss from continuing operations................. (87,456) (69,757) (48,467) (44,042) Preferred stock dividends..... 7,650 7,650 1,913 1,913 -------- -------- -------- -------- Loss from continuing operations applicable to common stock................. $(95,106) $(77,407) $(50,380) $(45,955) ======== ======== ======== ======== Pro forma basic and diluted loss per share: Net loss from continuing operations applicable to common stock (4)........... $ (1.23) $ (0.76) $ (0.65) $ (0.45) ======== ======== ======== ========
9
Historical ----------------------------------------------------- Three Months Ended Year Ended December 31, March 31, ---------------------------- ----------------------- 1997 1998 1999 1999 2000 -------- -------- -------- ----------- ----------- (Unaudited) (Unaudited) Other Financial Data: Broadcast cash flow (5).................... $ 15,427 $ 20,149 $ 22,947 $ 4,547 $ 5,632 EBITDA (adjusted for non-cash stock-based compensation) (6)...... 11,528 16,186 17,138 3,243 3,784 Non-cash stock-based compensation (1)....... 900 500 29,143 7,286 -- Cash flows from operating activities... 6,509 7,658 6,128 899 1,028 Cash flows from investing activities... (61,908) (25,586) (59,063) (17,045) (63,826) Cash flows from financing activities... 54,763 19,339 51,631 15,570 63,954
Pro Forma ---------------------------------------- Three Months Ended Year Ended March 31, December 31, ----------------------- 1999 1999 2000 ------------ ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Other Financial Data: Broadcast cash flow (5).............. $ 47,684 $ 6,008 $ 10,681 EBITDA (adjusted for non-cash stock- based compensation) (6)............. 35,045 3,660 6,636 Non-cash stock-based compensation (1)................................. 31,931 7,983 893 Cash flows from operating activities.......................... 6,955 (399) 2,070 Cash flows from investing activities.......................... (724,675) (8,936) (621,537) Cash flows from financing activities.......................... 720,992 18,527 612,112
As of March 31, 2000 ---------------------------------- Pro Forma Historical Pro Forma As Adjusted ---------- ----------- ----------- (Unaudited) (Unaudited) Balance Sheet Data: Cash and cash equivalents................... $ 3,513 $ 6,457 $ 16,457 Total assets................................ 252,892 1,243,597 1,253,597 Long-term debt, including current portion... 234,601 433,401 90,401 Redeemable preferred stock.................. -- 90,000 90,000 Total stockholders' equity (7).............. 7,171 488,401 841,401
- -------- (1) For 1999, non-cash stock-based compensation represents management's estimate of the fair value of our employee stock award and our employee stock option grant based on the estimated price of this offering. (2) During 1999, conditions restricting the exchange of Univision's $10 million convertible subordinated note were eliminated and we recorded non- cash interest expense of $2.5 million. In March 2000, the subordinated note was amended and increased to $120 million, and the option exchange feature was increased to 40%. The estimated fair value of the $110 million amendment to the convertible subordinated note and option feature was $141.6 million based on an estimated initial public offering price. This resulted in a $31.6 million non-cash charge to interest expense in the quarter ended March 31, 2000. 10 (3) Included in the 1997 income tax expense is a $7.8 million tax benefit that resulted from the reversal of previously recorded deferred tax liabilities that were established in our 1997 acquisition of KNVO, McAllen, Texas. This entity was converted from a C-corporation to an S-corporation in 1997. As a result, deferred taxes were reduced. (4) Pro forma net loss from continuing operations applicable to common stock and pro forma basic and diluted loss applicable to common stock per share give effect to our conversion from a limited liability company to a corporation for federal and state income tax purposes and assume that we were subject to corporate income taxes at an effective combined federal and state income tax rate of 40% before the effect of non-tax deductible goodwill and non-cash stock-based compensation for each period presented. (5) Broadcast cash flow means operating income (loss) before corporate expenses, depreciation and amortization, non-cash stock-based compensation and gain on sale of assets. We have presented broadcast cash flow which we believe is comparable to the data provided by other companies in the broadcast industry, because such data is commonly used as a measure of performance for companies in our industry. However, broadcast cash flow should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (6) EBITDA means broadcast cash flow less corporate expenses (adjusted for non-cash stock-based compensation) and is commonly used in the broadcast industry to analyze and compare broadcast companies on the basis of operating performance, leverage and liquidity. EBITDA, as presented above, may not be comparable to similarly titled measures of other companies unless such measures are calculated in substantially the same fashion. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (7) The stockholders' equity data gives effect to our reorganization in which direct and indirect ownership interests in our predecessor. 11 RISK FACTORS You should carefully consider the risks described below, together with all of the other information included in this prospectus, before buying shares in this offering. Risks Related to Our Business We have a history of losses that if continued into the future could adversely affect the market price of our Class A common stock and our ability to raise capital. We had net losses of approximately $2.3 million and $38.6 million for the years ended December 31, 1998 and 1999, and $9.0 million and $36.2 million for the quarters ended March 31, 1999 and 2000. In addition, we had a pro forma net loss of $95.1 million for the year ended December 31, 1999, and a pro forma net loss of $50.4 million for the three months ended March 31, 2000, after giving effect to our 1999 and 2000 acquisitions, including our acquisition of LCG and our pending acquisition of Z-Spanish Media. We believe losses may continue while we pursue our acquisition strategy. If we cannot generate profits in the future, it could adversely affect the market price of our Class A common stock, which in turn could adversely affect our ability to raise additional equity capital or to incur additional debt. If we cannot successfully integrate our recent, pending and future acquisitions, it could decrease our revenue or increase our costs. We acquired LCG on April 20, 2000, and we have agreed to acquire Z-Spanish Media and certain outdoor advertising assets of Infinity Broadcasting Corporation. As a result of these acquisitions, our number of full-time employees grew from 544 as of December 31, 1999 to approximately 1,100 as of March 31, 2000. To integrate these and other pending and future acquisitions, we need to: . retain key management and personnel of acquired companies; . successfully merge corporate cultures and business processes; . realize sales efficiencies and cost reduction benefits; and . operate successfully in markets in which we may have little or no prior experience. In addition, after we have completed an acquisition, our management must be able to assume significantly greater responsibilities, and this in turn may cause them to divert their attention from our existing operations. If we are unable to completely integrate into our business the operations of the companies that we have recently acquired or that we may acquire in the future, our revenue could decrease or our costs could increase. The consummation of our acquisition of Z-Spanish Media requires regulatory approvals and the satisfaction of other customary closing conditions that may delay or prevent the acquisition or require us to divest some assets. The consummation of the acquisition of Z-Spanish Media requires the approval of the Federal Communications Commission, or FCC, with respect to the transfer of the broadcast licenses of Z-Spanish Media to us. This process could delay the acquisition and will require us to divest some assets. In addition, the definitive merger agreement entered into between Z-Spanish Media and us contains customary closing conditions. Should any of these conditions not be met, one or both parties 12 could terminate the agreement. If this acquisition is not completed, our business would differ materially from that described in this prospectus. In addition, if this acquisition is not completed, we will retain broad discretion over the use of the proceeds from this offering that would otherwise have been used to finance the Z-Spanish Media acquisition. You may not agree with how we spend the proceeds, and our use of the proceeds may not yield a significant return or any return at all. If we cannot raise required capital, we may have to curtail existing operations and our future growth through acquisitions. We may require significant additional capital for future acquisitions and general working capital needs. If our cash flow and existing working capital are not sufficient to fund future acquisitions and our general working capital requirements and debt service, we will have to raise additional funds by selling equity, refinancing some or all of our existing debt or selling assets or subsidiaries. None of these alternatives for raising additional funds may be available on acceptable terms to us or in amounts sufficient for us to meet our requirements. Our failure to obtain any required new financing may prevent future acquisitions and have a material adverse effect on our ability to grow through acquisitions. Our substantial level of debt could limit our ability to grow and compete. After repaying some of our outstanding indebtedness with a portion of the proceeds from this offering, and after the consummation of our pending acquisitions described elsewhere in this prospectus, we expect to have approximately $366 million of debt outstanding under our proposed new bank credit facility. We expect to obtain a portion of our required capital through debt financing that bears or is likely to bear interest at a variable rate, subjecting us to interest rate risk. A significant portion of our cash flow from operations will be dedicated to servicing our debt obligations and our ability to obtain additional financing may be limited. We may not have sufficient future cash flow to meet our debt payments, or we may not be able to refinance any of our debt at maturity. We have pledged substantially all of our assets to our lenders as collateral. Our lenders could proceed against the collateral granted to them to repay outstanding indebtedness if we are unable to meet our debt service obligations. If the amounts outstanding under our bank credit facilities are accelerated, our assets may not be sufficient to repay in full the money owed to such lenders. The terms of our current bank credit facilities restrict, and our proposed new bank credit facility will restrict, our ability to make acquisitions or investments and to obtain additional financing. Our bank credit facilities contain, and our proposed new bank credit facility will contain, covenants that restrict, among other things, our ability to: . incur additional indebtedness; . pay dividends; . make acquisitions or investments; and . merge, consolidate or sell assets. Our bank credit facilities also require, and our proposed new bank credit facility will require, us to maintain specific financial ratios. A breach of any of the covenants contained in our bank credit facilities, or our proposed new bank credit facility, could allow our lenders to declare all amounts outstanding under such facilities to be immediately due and payable. 13 Following this offering, our executive officers will have control over our business, which may discourage a merger or sale of our company. Following this offering, Walter F. Ulloa, our Chairman and Chief Executive Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and Paul A. Zevnik, our Secretary, will own all of the shares of our Class B common stock, and will have approximately 79% of the combined voting power of our outstanding shares of common stock. The holders of our Class B common stock are entitled to ten votes per share on any matter subject to a vote of the stockholders. Accordingly, Messrs. Ulloa, Wilkinson and Zevnik will have the ability to elect each of the remaining members of our board of directors, other than the two members of our board of directors to be appointed by Univision, and will have control of our policies, affairs and all other aspects of our business and future direction. Messrs. Ulloa, Wilkinson and Zevnik have agreed contractually to elect themselves, Amador S. Bustos, the President of our Radio Group, and a representative of TSG Capital Fund III, L.P. as directors of our company. This control may discourage certain types of transactions involving an actual or potential change of control of our company, such as a merger or sale of our company. Univision will have significant influence over our business and could make certain transactions more difficult or impossible to complete. Univision, as the holder of all of our Class C common stock upon consummation of this offering, will have significant influence over material decisions relating to our business, including the right to elect two of our directors, and the right to approve material decisions involving our company, including any merger, consolidation or other business combination, any dissolution of our company and any transfer of the FCC licenses for any of our Univision-affiliated television stations. Univision's ownership interest may have the effect of delaying, deterring or preventing a change in control of our company and may make some transactions more difficult or impossible to complete without its support. Our television ratings and revenue could decline significantly if our relationship with Univision or if Univision's success changes in an adverse manner. If our relationship with Univision changes in an adverse manner, or if Univision's success diminishes, it could have a material adverse effect on our ability to generate television advertising revenue on which our television business depends. The ratings of Univision's network programming might decline or Univision might not continue to provide programming, marketing, available advertising time and other support to its affiliates on the same basis as currently provided. Additionally, by aligning ourselves closely with Univision, we might forego other opportunities that could diversify our television programming and avoid dependence on any one television network. Univision's relationships with Grupo Televisa, S.A. de C.V. and Corporacion Venezolana de Television, C.A., or Venevision, are important to Univision's, and consequently our, continued success. For example, we could be adversely affected by the current dispute between Univision and Televisa. Under its program license agreements with Televisa, Univision has the first right to air Televisa's Spanish-language programming in the United States through 2017. Televisa now asserts that it can directly broadcast that same programming into the United States through a direct satellite venture in Mexico. 14 Cancellations or reductions of advertising could cause our quarterly results to fluctuate, which could adversely affect the market price of our Class A common stock. We do not obtain long-term commitments from our advertisers, and advertisers may cancel, reduce or postpone orders without penalty. Cancellations, reductions or delays in purchases of advertising could adversely affect our revenue, especially if we are unable to replace such purchases. Our expense levels are based, in part, on expected future revenue and are relatively fixed once set. Therefore, unforeseen fluctuations in advertising sales could adversely impact our operating results. These factors could cause our quarterly results to fluctuate, which could adversely effect the market price of our Class A common stock. Risks Related to the Television, Radio, Outdoor Advertising and Publishing Industries If we are unable to maintain our FCC license at any station, we may have to cease operations at that station. The success of our television and radio operations 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. Pending or future renewal applications submitted by us may not be approved, and renewals may include conditions or qualifications that could restrict our television and radio operations. In addition, third parties may challenge our renewal applications. If the FCC were to issue an order denying a license renewal application or revoking a license, we could be required to cease operating the broadcast station covered by the license. Our failure to maintain our FCC broadcast licenses could cause a default under our credit facilities and cause an acceleration of our indebtedness. Our bank credit facilities require us to maintain our FCC licenses. If the FCC were to revoke any of our material licenses, our lenders could declare all amounts outstanding under the bank credit facilities to be immediately due and payable. If our indebtedness is accelerated, we may not have sufficient funds to pay the amounts owed. Displacement of any of our low-power television stations could cause our ratings and revenue for any such station to decrease. Our low-power television stations in Washington, D.C. and San Diego are subject to displacement by digital frequencies assigned to full-power stations in those markets. If we are unable to find suitable replacements without a loss in coverage, our ratings and advertising revenue in these markets may decrease. The required conversion to digital television could impose significant costs on us which may not be balanced by consumer demand. The FCC requires us to provide a digitally transmitted signal by May 1, 2002 for all of our U.S. television stations and, generally, to stop broadcasting analog signals by 2006. Our costs to convert our television stations to digital television could be significant, and there may not be any consumer demand for digital television services. The imposition of digital television and the removal of Channels 60-69 from use for television broadcasting have reduced available channels, which may affect our continued ability to operate certain of our low-power television stations. 15 Changes in federal laws could result in increased competition for our broadcast stations that could lead to decreased market share and a corresponding decrease in advertising revenue. Recent and prospective actions by Congress, the FCC and the courts could cause us to face significant competition in the future. The changes include: . relaxation of restrictions on television and radio station ownership; . relaxation of restrictions on the participation by regional telephone operating companies in cable television and other direct-to-home audio and video technologies; . increased restrictions on the use of local marketing agreements; . the establishment of a Class A television service for low-power stations that makes such stations primary stations and gives them protection against full-service stations; . plans to license low-power FM radio stations that will be designed to serve small localized areas and niche audiences; and . permission for direct broadcast satellite television to provide the programming of traditional over-the-air stations, including local and out-of-market network stations. Because our full-power television stations rely on "must carry" rights to obtain cable carriage, new laws or regulations that eliminate or limit the scope of our cable carriage rights could have a material adverse impact on our television operations. Pursuant to the "must carry" provisions of the Cable Television Consumer Protection and Competition Act of 1992, a broadcaster may demand carriage on a specific channel on cable systems within its market. However, the future of those "must carry" rights is uncertain, especially as they relate to the carriage of digital television stations. The current FCC rules relate only to the carriage of analog television signals. It is not clear what, if any, "must carry" rights television stations will have after they make the transition to digital television. New laws or regulations that eliminate or limit the scope of our cable carriage rights could have a material adverse impact on our television operations. Our low-power television stations do not have "must carry" rights. In seven markets where we currently hold only a low-power license we may face future uncertainty with respect to the availability of cable carriage. With the exception of the San Angelo market, all of our low-power stations reach a substantial portion of the Hispanic cable households in their respective markets. If we are unable to compete effectively for advertising revenue against other stations and other media companies, some of which have greater resources than we do, we could suffer a decrease in advertising revenue. We compete with Spanish-language and general market media in each of our business segments. Some of our competitors are larger and have significantly greater resources than we do. In addition, the Telecommunications Act facilitates the entry of other broadcasting companies into the markets in which we operate stations or may operate stations in the future. If we are unable to compete successfully in the markets we serve, we may suffer a decrease in advertising revenue, which could adversely affect our business and financial condition. 16 If regulation of outdoor advertising increases, we could suffer decreased revenue from our outdoor operations. Our outdoor operations are significantly impacted by federal, state and local government regulation of the outdoor advertising business. These regulations impose restrictions on, among other things, the location, size and spacing of billboards. If we are required to remove our existing billboards, or are unable to construct new billboards or reconstruct damaged billboards, our outdoor business could be harmed. In addition, we may not receive compensation for billboards that we may be required to remove in the future. Additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements has been introduced and passed in Congress from time to time in the past. Additional regulations or changes in the current laws regulating and affecting outdoor advertising at the federal, state or local level may harm the results of our outdoor operations. Strikes, work stoppages and slowdowns by our employees could disrupt our publishing operations. Our publishing business depends to a significant degree on our ability to avoid strikes and other work stoppages by our employees. The Newspaper and Mail Deliverers' Union of New York and Vicinity and the Newspaper Guild of New York represent our publishing employees. Our collective bargaining agreement with the Newspaper and Mail Deliverers' Union of New York and Vicinity expires on March 30, 2004. Our collective bargaining agreement with the Newspaper Guild of New York expires on June 30, 2002. Future collective bargaining agreements may not be negotiated without service interruptions, and the results of these negotiations may result in decreased revenue in our publishing operations. Risks Related to this Offering Future sales by existing stockholders could depress the market price of our Class A common stock. Upon completion of this offering, we will have outstanding 53,847,312 shares of Class A common stock. Of these shares, 33,750,000 shares sold in this offering will be freely tradeable. This will leave 20,097,312 shares of Class A common stock outstanding, 11,795,774 of which will be eligible for sale in the public market after the "lock-up" period expires, or 180 days after the date of this prospectus. There will also be outstanding 27,678,533 shares of Class B common stock and 21,983,392 shares of Class C common stock, all of which will be convertible at any time at the option of the holder, and all of which will be eligible for sale in the public market after the "lock-up" period expires, or 180 days after the date of this prospectus. If our existing stockholders sell a large number of shares, the market price of our Class A common stock could decline dramatically. Moreover, the perception in the public market that these stockholders might sell shares of Class A common stock could depress the market price of our Class A common stock. Our investors will pay a price for our Class A common stock that was not determined in a competitive market. Before this offering, there has not been any market for our Class A common stock. We do not know the extent to which investor interest in our business will lead to the development of a trading market or how liquid that market might be. If you purchase shares of Class A common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was negotiated between us and our underwriters. The price of our Class A common stock that will prevail in the market after this offering may be higher or lower than the price you pay. For a description of the factors we considered in negotiating the public offering price, see "Underwriting." 17 Stockholders who desire to change control of our company may be prevented from doing so by provisions of our charter, applicable law and our credit agreement. Our charter could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our charter provisions could diminish the opportunities for a stockholder to participate in tender offers. In addition, under our charter, our board of directors may issue preferred stock that could have the effect of delaying or preventing a change in control of our company. The issuance of preferred stock could also negatively affect the voting power of holders of our common stock. The provisions of our charter may have the effect of discouraging or preventing an acquisition or sale of our business. In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. The transfer restrictions imposed on the broadcast licenses we own also restrict the ability of third parties to acquire us. Our licenses may only be transferred with prior approval by the FCC. Accordingly, the number of potential transferees of our licenses is limited, and any acquisition, merger or other business combination involving Entravision would be subject to regulatory approval. In addition, the documents governing our indebtedness contain limitations on our ability to enter into a change of control transaction. Under these documents, the occurrence of a change of control transaction, in some cases after notice and grace periods, would constitute an event of default permitting acceleration of our outstanding indebtedness. 18 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, including statements under the captions "Prospectus Summary," "Risk Factors," "Selected Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus, concerning our expectations of future revenue, expenses, the outcome of our growth and acquisition strategy and the projected growth of the U.S. Hispanic population. Forward-looking statements often include words or phrases such as "will likely result," "expect," "will continue," "anticipate," "estimate," "intend," "plan," "project," "outlook," "seek" or similar expressions. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed in the forward-looking statements. Factors which could cause actual results to differ from expectations include those in the "Risk Factors" section of this prospectus. Our results of operations may be adversely affected by one or more of these factors. We caution you not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. 19 USE OF PROCEEDS We estimate that the net proceeds to us from the sale of 40,000,000 shares of Class A common stock in this offering will be approximately $600 million, based on an assumed initial public offering price of $16.00 per share and after deducting the estimated underwriting fees and offering expenses. If the underwriters exercise their over-allotment in full, we estimate that the net proceeds will be $690 million. We intend to use the net proceeds from this offering as follows: . to acquire Z-Spanish Media.................................. $247 million . to repay the existing loan on LCG........................... 115 million . to repay the debt of Z-Spanish Media........................ 110 million . to pay the balance of the purchase of two radio stations from Citicasters............................................ 68 million . to repay part of the balance on Entravision's credit facility.................................................... 50 million . for working capital and general corporate purposes.......... 10 million ------------ $600 million ============
For a description of our acquisitions of LCG, Z-Spanish Media and two radio stations from Citicasters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." On April 19, 2000, we entered into a $115 million term loan to partially finance our acquisition of LCG. We expect to repay this debt in full with proceeds from this offering. The interest rate on this debt was 10.5% as of the date of this prospectus. This debt must be repaid in full by April 18, 2001 and can be prepaid without penalty. Z-Spanish Media has several credit facilities with borrowings outstanding of approximately $110 million as of the date of this prospectus. The interest rates on these facilities range from 8.9% to 10% and the facilities can be prepaid without penalty. The maturity dates of these facilities range from December 31, 2000 to September 30, 2006. We expect to repay $110 million of this debt with proceeds from this offering. We have a $158 million revolving line of credit with a group of lenders which expires November 10, 2006 and contains scheduled quarterly reductions in the available borrowings through such date. At March 31, 2000, the borrowings outstanding were approximately $96.9 million with an interest rate of 8.165%. We expect to repay $50 million of this debt with proceeds from this offering. Until we use the net proceeds of this offering as described above, we will invest them in short-term, interest-bearing, investment grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. Our predecessor, Entravision Communications Company, L.L.C., made cash distributions to its members to pay income taxes. We intend to retain future earnings for use in our business and do not anticipate declaring or paying any cash or stock dividends on shares of our common stock for the foreseeable future. In addition, our bank credit facilities and the terms of our outstanding preferred stock restrict our ability to pay dividends. 20 CAPITALIZATION (In thousands, except per share data) The following table shows our cash and cash equivalents and capitalization on: . an actual basis as of March 31, 2000; . a pro forma basis to reflect acquisitions we made or have agreed to make after March 31, 2000, and a $90 million investment made by TSG Capital Fund III, L.P. in 2000 in a convertible subordinated note and its conversion to Series A manditorily redeemable convertible preferred stock; and . a pro forma as adjusted basis to further reflect the sale of the 40,000,000 shares of Class A common stock we are offering at an estimated initial public offering price of $16.00 per share, after deducting the underwriting fees and estimated offering expenses and the application of the net proceeds of this offering. This table should be read together with our audited consolidated financial statements and unaudited pro forma consolidated financial statements and the related notes included elsewhere in this prospectus.
As of March 31, 2000 ------------------------------------ Pro Forma Actual Pro Forma As Adjusted ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Cash and cash equivalents.................. $ 3,513 $ 6,457 $ 16,457 ======== ========== ========== Current maturities of long-term debt ...... $ 525 $ 23,329 $ 23,329 Notes payable, less current maturities..... 114,076 410,072 67,072 Subordinated note--Univision (1)........... 120,000 -- -- Convertible subordinated note--TSG Capital Fund III, L.P. (1)........................ -- -- -- -------- ---------- ---------- Total long-term debt...................... 234,601 433,401 90,401 -------- ---------- ---------- Series A mandatorily redeemable convertible preferred stock, $0.0001 par value, 11,000,000 shares authorized; 2000 actual: no shares issued or outstanding; pro forma and pro forma as adjusted: 6,048,387 shares issued and outstanding (1)(2)...... -- 90,000 90,000 -------- ---------- ---------- Stockholders' equity Class A common stock, $0.0001 par value, 260,000,000 shares authorized; 2000 actual: 4,937,854 shares issued and outstanding; pro forma: 29,284,812 shares issued and outstanding; pro forma as adjusted: 53,847,312 shares issued and outstanding (2).......................... 1 3 5 Class B common stock, $0.0001 par value, 40,000,000 shares authorized; 2000 actual, pro forma and pro forma as adjusted: 27,678,553 shares issued and outstanding.............................. 5 5 5 Class C common stock, $0.0001 par value, 25,000,000 shares authorized; 2000 actual: no shares issued and outstanding; pro forma and pro forma as adjusted: 21,983,392 shares issued and outstanding (1).......................... -- 1 1 Additional paid-in capital................ 107,898 600,275 953,273 Deferred compensation..................... -- (11,150) (11,150) Accumulated deficit....................... (100,143) (100,143) (100,143) Stock subscription notes receivable (3)... (590) (590) (590) -------- ---------- ---------- Total stockholders' equity................ 7,171 488,401 841,401 -------- ---------- ---------- Total capitalization....................... $241,772 $1,011,802 $1,021,802 ======== ========== ==========
21 - -------- (1) The unaudited pro forma data reflect the exchange of the $120 million subordinated note and option from Univision for shares of Class C common stock in connection with our reorganization and the conversion of the $90 million subordinated note from TSG Capital Fund III, L.P. to Series A mandatorily redeemable convertible preferred stock. (2) The unaudited pro forma financial information assumes that $247 million of proceeds from this offering are used to finance our pending acquisition of Z-Spanish Media. In the event the offering has not closed by September 30, 2000, we would be required to issue $247 million of redeemable preferred stock with a dividend of LIBOR plus 7%. (3) Represents unsecured loans made to two of our officers to purchase equity. These loans are further described in "Certain Relationships and Related Transactions." 22 DILUTION Purchasers of our Class A common stock offered by this prospectus will suffer an immediate and substantial dilution in pro forma net tangible book value per share. Dilution is the amount by which the initial public offering price paid by the purchasers of the shares of Class A common stock will exceed the pro forma net tangible book value per share of our common stock after this offering. The pro forma net tangible book value per share of common stock is determined by subtracting total liabilities from the total tangible assets and dividing the difference by the pro forma number of shares of our common stock deemed to be outstanding on the date the tangible book value is determined. As of March 31, 2000, we had a deficit tangible book value of $(168) million or $(5.19) per share. Our pro forma deficit tangible book value per share at March 31, 2000 after giving effect to our pending acquisitions and the exchange of the $120 million subordinated note and option from Univision for shares of Class C common stock is a deficit of $(604) million or $(7.65) per share. Assuming the sale of 40,000,000 shares at an initial public offering price of $16 per share and deducting the underwriters' discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of March 31, 2000 would have been $(251) million or $(2.42) per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $(5.23) per share and an immediate dilution to new investors of $(18.42) per share. The following table illustrates this per share dilution:
Per Share --------- Assumed initial public offering price..................... $16.00 ------ Deficit tangible book value per share of March 31, 2000... (5.19) Pro forma effect of the transactions referenced above..... (2.46) ----- Pro forma deficit tangible book value as of March 31, 2000..................................................... (7.65) Increase attributable to new investors.................... 5.23 Pro forma deficit tangible book value after this offering................................................. (2.42) ------ Dilution per share to new investors....................... $18.42 ======
The following table summarizes, on a pro forma as adjusted basis, the number of shares of Class A common stock (and Class B and Class C common stock convertible into Class A common stock) purchased from us, the estimated value of the total consideration paid for or attributed to the Class A common stock (and Class B and Class C common stock convertible into Class A common stock) and the average price per share paid by or attributable to existing stockholders and the new investors purchasing shares in this offering at an assumed initial offering price of $16.00 per share before deducting estimated underwriters' fees and offering expenses (and assuming that the underwriters do not exercise the over-allotment option):
Shares Purchased Total Consideration Average ------------------- -------------------- Price Per Number Percent Amount Percent Share ----------- ------- ------------ ------- --------- Existing stockholders.... 63,509,237 61.4% $227,311,442 26.2% $ 3.58 ----------- ------ ------------ ------ ------ New investors ........... 40,000,000 38.6 640,000,000 73.8 $16.00 ----------- ------ ------------ ------ ------ Total.................... 103,509,237 100.0% $867,311,442 100.0% =========== ====== ============ ======
23 SELECTED HISTORICAL FINANCIAL DATA (In thousands, except per share data) Presented below are our summary historical financial data. The data as of December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999 were derived from our audited financial statements and related notes included elsewhere in this prospectus, and should be read in conjunction with this information as well as "Entravision Management's Discussion and Analysis of Financial Condition and Results of Operations." The data as of December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995 and 1996 were derived from our audited financial statements and related notes, which are not included in this prospectus. The data as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 were derived from our unaudited financial statements and related notes, which are included in this prospectus. The unaudited financial statements were prepared by us on substantially the same basis as the audited financial statements and, in the opinion of management, include all normal recurring adjustments that we consider necessary for a fair presentation of such data.
Three Months Ended Year Ended December 31, March 31, --------------------------------------------- ----------------------- 1995(1) 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- -------- ----------- ----------- (Unaudited) (Unaudited) Statement of Operations Data: Gross revenue........... $ 7,797 $13,555 $33,419 $49,872 $ 66,204 $13,013 $19,340 Less agency commissions............ 688 1,481 2,963 5,052 7,205 1,284 2,076 ------- ------- ------- ------- -------- ------- -------- Net revenue............. 7,109 12,074 30,456 44,820 58,999 11,729 17,264 ------- ------- ------- ------- -------- ------- -------- Expenses: Direct operating...... 1,846 3,819 9,184 15,794 24,441 4,672 7,883 Selling, general and administrative (excluding non-cash stock-based compensation)........ 2,295 4,667 5,845 8,877 11,611 2,510 3,749 Corporate............. -- 564 3,899 3,963 5,809 1,304 1,848 Depreciation and amortization......... 673 1,479 8,847 9,565 14,613 2,979 4,535 Non-cash stock-based compensation (2)..... -- -- 900 500 29,143 7,286 -- ------- ------- ------- ------- -------- ------- -------- Total expenses.......... 4,814 10,529 28,675 38,699 85,617 18,751 18,015 ------- ------- ------- ------- -------- ------- -------- Operating income (loss)................. 2,295 1,545 1,781 6,121 (26,618) (7,022) (751) Interest expense, net... (265) (1,035) (5,107) (8,244) (9,591) (2,023) (3,897) Non-cash interest expense relating to Univision conversion option (3)............. -- -- -- -- (2,500) -- (31,600) ------- ------- ------- ------- -------- ------- -------- Income (loss) before income taxes ........ 2,030 510 (3,326) (2,123) (38,709) (9,045) (36,248) Income tax (expense) benefit (4)............ (369) (145) 7,531 (210) 121 74 6 ------- ------- ------- ------- -------- ------- -------- Net income (loss)..... 1,661 365 4,205 (2,333) (38,588) (8,971) (36,242) ======= ======= ======= ======= ======== ======= ======== Pro forma income tax (expense) benefit (5).. (812) (204) 643 322 2,499 622 1,777 ======= ======= ======= ======= ======== ======= ======== Pro forma net income (loss) (5)............. $ 1,218 $ 306 $(2,683) $(1,801) $(36,210) $(8,423) $(34,471) ======= ======= ======= ======= ======== ======= ======== Pro forma basic and diluted earnings per share: Pro forma net income (loss) (5)........... $ 0.04 $ 0.01 $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06) Weighted average common shares outstanding.......... 33,519 32,046 32,972 32,895 32,402 32,431 32,367
24
Three Months Ended Year Ended December 31, March 31, --------------------------------------------- ----------------------- 1995(1) 1996 1997 1998 1999 1999 2000 ------- ------ ------- -------- -------- ----------- ----------- (Unaudited) (Unaudited) Other Financial Data: Broadcast cash flow (6).................... $2,968 $3,588 $15,427 $ 20,149 $ 22,947 $ 4,547 $ 5,632 EBITDA (adjusted for non-cash stock-based compensation) (7)...... 2,968 3,024 11,528 16,186 17,138 3,243 3,784 Non-cash stock-based compensation (2)....... -- -- 900 500 29,143 7,286 -- Cash flows from operating activities... 2,147 2,001 6,509 7,658 6,128 899 1,028 Cash flows from investing activities... (1,635) (3,396) (61,908) (25,586) (59,063) (17,045) (63,826) Cash flows from financing activities... (750) 3,556 54,763 19,339 51,631 15,570 63,954 Capital expenditures.... 902 935 2,366 3,094 12,825 4,642 2,693 As of December 31, As of --------------------------------------------- March 31, 1995(1) 1996 1997 1998 1999 2000 ------- ------ ------- -------- -------- ----------- (Unaudited) Balance Sheet Data: Cash and cash equivalents............ $ 726 $2,886 $ 2,250 $ 3,661 $ 2,357 $ 3,513 Total assets............ 8,630 28,767 93,017 113,724 188,819 252,892 Long-term debt, including current portion................ 5,265 17,449 74,781 99,938 167,537 234,601 Total stockholders' equity (8)............. 2,322 9,743 13,122 7,304 11,813 7,171
- ------- (1) The 1995 financial data presents the combined financial statements of our broadcast properties prior to the 1996 formation of our holding company structure. (2) For 1999, non-cash stock-based compensation represents management's estimate of the fair value of our employee stock award and our employee stock option grant based on the estimated price of this offering. (3) During 1999, conditions restricting the exchange of Univision's $10 million convertible subordinated note were eliminated and we recorded non- cash interest expense of $2.5 million. In March 2000, the subordinated note was amended and increased to $120 million, and the option exchange feature was increased to 40%. The estimated fair value of the $110 million amendment to the convertible subordinated note and option feature was $141.6 million based on an estimated initial public offering price. This resulted in a $31.6 million non-cash charge to interest expense in the quarter ended March 31, 2000. (4) Included in the 1997 income tax expense is a $7.8 million tax benefit that resulted from the reversal of previously recorded deferred tax liabilities that were established in our 1997 acquisition of KNVO, McAllen, Texas. This entity was converted from a C-corporation to an S-corporation in 1997. As a result, deferred tax liabilities were reduced. (5) Pro forma net income (loss) and pro forma basic and diluted net income (loss) per share give effect to our conversion from a limited liability company to a corporation for federal and state income tax purposes and assume that we were subject to corporate income taxes at an effective combined federal and state income tax rate of 40% before the effect of non- tax deductible goodwill, non-cash stock-based compensation and non-cash interest expense relating to the Univision conversion option for each period presented. (6) Broadcast cash flow means operating income (loss) before corporate expenses, depreciation and amortization and non-cash stock-based compensation. We have presented broadcast cash flow, which we believe is comparable to the data provided by other companies in the broadcast industry, because such data is commonly used as a measure of performance in our industry. However, broadcast cash flow should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. 25 (7) EBITDA means broadcast cash flow less corporate expenses (adjusted for non- cash stock-based compensation) and is commonly used in the broadcast industry to analyze and compare broadcast companies on the basis of operating performance, leverage and liquidity. EBITDA, as presented above, may not be comparable to similarly titled measures of other companies unless such measures are calculated in substantially the same fashion. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (8) The stockholders' equity data gives effect to our reorganization in which direct and indirect ownership interests in our predecessor will be exchanged for shares of our common stock before the closing of this offering. 26 SELECTED UNAUDITED PRO FORMA FINANCIAL DATA (In thousands) Our selected unaudited pro forma financial data as of March 31, 2000 and for the year ended December 31, 1999 and for the three months ended March 31, 1999 and 2000 presents: . our summary historical financial data; . the historical financial data of our completed and pending acquisitions; . our summary unaudited pro forma financial data, giving effect to acquisitions completed in 1999 and 2000 and our pending acquisition of Z- Spanish Media as if such transactions had been completed January 1, 1999, the effect of conversion of TSG Capital Fund III, L.P.'s $90 million convertible subordinated note into preferred stock, the issuance of 15,437,500 shares of Class A common stock in this offering assuming an initial public offering price of $16.00 per share used to finance the cash portion of the purchase price of Z-Spanish Media and the exchange of Univision's $120 million subordinated note and option for common stock; and . our unaudited pro forma as adjusted financial data, giving further effect to the sale of the 40,000,000 shares of common stock less 15,437,500 shares used to finance the cash portion of the purchase price of Z- Spanish Media that we are offering, assuming an initial public offering price of $16.00 per share and the application of the net proceeds of this offering. The summary unaudited pro forma and pro forma as adjusted financial data are not necessarily indicative of the operating results or the financial condition that would have been achieved if we had owned these businesses for all of 1999 and should not be construed as representative of future operating results or financial condition. The summary historical and unaudited pro forma financial data should be read in conjunction with the audited consolidated financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The financial data as of and for the three months ended March 31, 2000 are derived from our unaudited financial statements included elsewhere in this prospectus. Such unaudited financial statements have been prepared by us on a basis consistent with our annual audited financial statements and, in the opinion of our management, contain all normal recurring adjustments necessary for a fair presentation of the financial position and the results of operations for the applicable periods. Operating results in the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected in the year ending December 31, 2000 or any subsequent period. 27
Year Ended December 31, 1999 ------------------------------------------------ Completed Entravision and Pending Pro Forma Historical Acquisitions Pro Forma As Adjusted ----------- ------------ ----------- ----------- (Unaudited) (Unaudited) Statement of Operations Data: Gross revenue: Television................. $ 63,842 $ 5,096 $ 68,938 $ 68,938 Radio...................... 2,362 64,899 67,261 67,261 Outdoor and publishing..... -- 35,134 35,134 35,134 -------- -------- -------- -------- Total gross revenue........ 66,204 105,129 171,333 171,333 Less agency commissions...... 7,205 8,804 16,009 16,009 -------- -------- -------- -------- Net revenue.................. 58,999 96,325 155,324 155,324 Expenses: Direct operating........... 24,441 35,497 59,938 59,938 Selling, general and administrative (excluding non-cash stock- based compensation)....... 11,611 36,091 47,702 47,702 Corporate.................. 5,809 6,830 12,639 12,639 Depreciation and amortization.............. 14,613 14,681 86,245 86,245 Non-cash stock-based compensation.............. 29,143 -- 31,931 31,931 Gain on sale of assets..... -- (4,442) (4,442) (4,442) -------- -------- -------- -------- Total expenses............... 85,617 88,657 234,013 234,013 -------- -------- -------- -------- Operating income (loss)...... (26,618) 7,668 (78,689) (78,689) Interest expense, net and other....................... (9,591) (14,657) (35,134) (5,636) Non-cash interest expense relating to Univision conversion option (1)....... (2,500) -- (2,500) (2,500) Income tax benefit .......... 121 1,872 28,867 17,068 -------- -------- -------- -------- Loss from continuing operations................ (38,588) (5,117) (87,456) (69,757) Preferred stock dividends (2)....................... -- -- 7,650 7,650 -------- -------- -------- -------- Net loss from continuing operations applicable to common stock.............. $(38,588) $ (5,117) $(95,106) $(77,407) ======== ======== ======== ========
28
Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ------------------------------------------------ -------------- Completed Entravision and Pending Pro Forma Historical Acquisitions Pro Forma As Adjusted Pro Forma ----------- ------------ ----------- ----------- -------------- (Unaudited) (Unaudited) (Unaudited) Statement of Operations Data: Gross revenue: Television............ $ 18,178 $ 78 $ 18,256 $ 18,256 $ 13,664 Radio................. 1,162 14,945 16,107 16,107 12,309 Outdoor and publishing........... -- 7,476 7,476 7,476 6,857 -------- ------- -------- -------- -------- Total gross revenue... 19,340 22,499 41,839 41,839 32,830 Less agency commissions............ 2,076 2,109 4,185 4,185 2,893 -------- ------- -------- -------- -------- Net revenue............. 17,264 20,390 37,654 37,654 29,937 Expenses: Direct operating...... 7,883 7,983 15,866 15,866 12,297 Selling, general and administrative (excluding non-cash stock-based compensation)........ 3,749 7,358 11,107 11,107 11,632 Corporate............. 1,848 2,197 4,045 4,045 2,348 Depreciation and amortization......... 4,535 4,323 21,885 21,885 21,550 Non-cash stock-based compensation......... -- 196 893 893 7,983 Gain on sale of assets............... -- -- -- -- (2,223) -------- ------- -------- -------- -------- Total expenses.......... 18,015 22,057 53,796 53,796 53,587 -------- ------- -------- -------- -------- Operating income (loss)................. (751) (1,667) (16,142) (16,142) (23,650) Interest expense, net... (3,897) (4,054) (9,510) (2,135) (8,491) Non-cash interest expense relating to Univision conversion option (1)............. (31,600) -- (31,600) (31,600) -- Income tax benefit ..... 6 1,858 8,785 5,835 8,481 -------- ------- -------- -------- -------- Loss from continuing operations........... (36,242) (3,863) (48,467) (44,042) (23,660) Preferred stock dividends (2)........ -- -- 1,913 1,913 1,913 -------- ------- -------- -------- -------- Net loss from continuing operations applicable to common stock................ $(36,242) $(3,863) $(50,380) $(45,955) $(25,573) ======== ======= ======== ======== ========
Year Ended Three Months Ended December 31, 1999 March 31, ----------------- ----------------------- Pro Forma Pro Forma Pro Forma 1999 2000 ----------------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Other Financial Data: Broadcast cash flow (3)............. $ 47,684 $ 6,008 $ 10,681 EBITDA (adjusted for non-cash stock- based compensation) (4)............ 35,045 3,660 6,636 Cash flows from operating activities......................... 6,955 (399) 2,070 Cash flows from investing activities......................... (724,675) (8,936) (621,537) Cash flows from financing activities......................... 720,992 18,527 612,112
29
As of March 31, 2000 Pro Forma As Adjusted -------------- (Unaudited) Balance Sheet Data: Cash and cash equivalents....................................... $ 16,457 Total assets.................................................... 1,253,597 Long-term debt, including current portion....................... 90,401 Series A mandatorily redeemable convertible preferred stock..... 90,000 Total stockholders' equity (5).................................. 841,401
- -------- (1) During 1999, conditions restricting the exchange of Univision's $10 million convertible subordinated note were eliminated and we recorded non- cash interest expense of $2.5 million. In March 2000, the subordinated note was amended and increased to $120 million, and the option exchange feature was increased to 40%. The estimated fair value of the $110 million amendment to the convertible subordinated note and option feature was $141.6 million based on an estimated initial public offering price. This resulted in a $31.6 million non-cash charge to interest expense in the quarter ended March 31, 2000. (2) Includes dividends on the 8.5% redeemable preferred stock issuable to TSG Capital Fund III, L.P. upon conversion of its $90 million convertible subordinated note. (3) Broadcast cash flow means operating income (loss) from continuing operations before corporate expenses, depreciation and amortization, non- cash stock-based compensation and gain on sale of assets. We have presented broadcast cash flow which we believe is comparable to the data provided by other companies in the broadcast industry, because such data is commonly used as a measure of performance in our industry. However, broadcast cash flow should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (4) EBITDA means broadcast cash flow less corporate expenses (adjusted for non- cash stock-based compensation) and is commonly used in the broadcast industry to analyze and compare broadcast companies on the basis of operating performance, leverage and liquidity. EBITDA, as presented above, may not be comparable to similarly titled measures of other companies unless such measures are calculated in substantially the same fashion. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (5) The stockholders' equity data gives effect to our reorganization in which direct and indirect ownership interests in our predecessor and Univision's subordinated note and option will be exchanged for shares of our common stock before the closing of this offering. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Unless we indicate otherwise, all of the text of this prospectus describes us giving effect to all of our pending and completed acquisitions. In addition, our unaudited pro forma financial information shows how we would look as if we had owned all of the businesses, licenses and assets that we have recently acquired or agreed to acquire (other than certain outdoor advertising assets from Infinity Broadcasting Corporation, two radio stations from Citicasters Co. and two television stations in Hartford, Connecticut and Orlando, Florida) for all of 1999 and for the three months ended March 31, 1999 and March 31, 2000. Our unaudited financial statements and summary and selected historical financial data, however, show the actual performance of each group's changes, except for our reorganization described elsewhere in this prospectus. We have included Management's Discussion and Analysis of Financial Condition and Results of Operations for each of Entravision, LCG and Z-Spanish Media. The words "we" and "our" as used in each of these sections refer to Entravision, LCG or Z-Spanish Media individually and not as a combined entity. You should read these sections together with the historical audited financial statements of Entravision, LCG and Z-Spanish Media and the related notes contained elsewhere in this prospectus. The acquisitions of the following businesses are included in the financial portion of this prospectus: . We acquired all of the outstanding capital stock of LCG on April 20, 2000 for approximately $252 million. The acquisition was accounted for as a purchase business combination and the excess purchase price over tangible net assets and identifiable intangible assets was allocated to goodwill, which will be amortized over 15 years. . We agreed to acquire all of the outstanding capital stock of Z-Spanish Media on April 20, 2000 for $475 million including the assumption of approximately $110 million in debt. The consideration to be paid consists of approximately $247 million in cash and 7,187,902 shares of Class A common stock, valued at a price of $14.74 per share. The acquisition will be accounted for as a purchase business combination and the excess purchase price over tangible net assets and identifiable intangible assets will be allocated to goodwill, which will be amortized over 15 years. The closing of the acquisition is subject to conditions, including the receipt of required regulatory approvals. . We have agreed to acquire four radio stations in McAllen, Texas for a total of $55 million (including a deposit of $2 million). The acquisition will be accounted for under the purchase method of accounting. The closing of this acquisition is subject to conditions, including the receipt of required regulatory approvals. We expect to close this acquisition in the third quarter of 2000. The following acquisitions represent our purchases of broadcasting, television and outdoor advertising assets that do not represent business acquisitions and therefore historical financial information is not included in the financial portion of the prospectus: . We have agreed to acquire certain outdoor advertising assets from Infinity Broadcasting Corporation for a total of $166.6 million. The entire purchase price for this acquisition will be allocated to tangible and intangible assets and will be amortized over five to 15 years. The closing of this acquisition is subject to conditions, including the receipt of required regulatory approvals. We expect to close this acquisition in the third quarter of 2000. 31 . We have agreed to acquire substantially all of the assets related to two radio stations in the Los Angeles market from Citicasters Co. for $85 million, of which $17 million was previously placed in escrow as a deposit. We expect to close this acquisition in the third quarter of 2000. . We have agreed to acquire two television stations in Hartford, Connecticut and Orlando, Florida for a total of approximately $41 million (including deposits already paid). The entire purchase price for these two acquisitions will be allocated to intangible assets and will be amortized over 15 years. The closing of these acquisitions is subject to conditions, including the receipt of required regulatory approvals. We expect to close these acquisitions in the third quarter of 2000. We expect that the combined company will have revenue from television of 37%, from radio of 35%, from outdoor advertising of 19% and from publishing of 9%. Sources and Uses
(In millions) Sources Uses -------- ------ Offering proceeds............................................. $ 600.0 Proposed new bank credit facility............................. 600.0 Acquire Z-Spanish Media....................................... $247.0 Repay existing loan on LCG.................................... 115.0 Repay Z-Spanish Media debt.................................... 110.0 Pay balance of purchase price for two radio stations from Citicasters.................................................. 68.0 Repay Entravision bank debt................................... 157.0 Purchase: McAllen radio stations...................................... 53.0 Orlando television station.................................. 21.5 Hartford television station................................. 17.4 Infinity Broadcasting outdoor advertising assets............ 166.6 Working capital and general corporate......................... 10.0 -------- ------ $1,200.0 $965.5 ======== ====== Excess borrowing capacity..................................... $ 234.5
Liquidity and Capital Resources Overview Our primary sources of liquidity are cash provided by operations, available borrowings under our bank credit facilities and investments made by Univision and TSG Capital Fund III, L.P. in 2000. We intend to enter into a new $600 million credit facility which will be comprised of a $200 million revolver and a $400 million term loan expiring in 2008. After consummation of all of the transactions set forth in the Sources and Uses table above, we expect to have approximately $366 million of debt outstanding under our proposed new bank credit facility. The new facility has been committed to and we intend that it will be in place by the time this offering becomes effective and that it will replace all of the current credit facilities for both Entravision and Z-Spanish Media. Our obligations under this facility will be secured by all of our assets as well as a pledge of the stock of several of our subsidiaries, including our special purpose subsidiaries formed to hold our FCC licenses. The facility will contain financial covenants, including a requirement not to exceed a maximum debt to cash flow ratio and interest and fixed charge coverage ratios. The facility will require us to maintain our FCC licenses for our broadcast properties and will contain other operating covenants, including restrictions on our ability to incur additional indebtedness and pay dividends. 32 During 2000, we anticipate our capital expenditures will be approximately $23 million, including the building of two studio facilities, the transition to digital television for three stations and upgrades and maintenance on broadcasting equipment and facility improvements to radio stations in some of our markets, including Denver and Phoenix. We anticipate paying for these capital expenditures out of net cash flow from operating activities. The amount of these capital expenditures may change based on future changes in business plans, our financial conditions and general economic conditions. We currently anticipate that funds generated from operations and available borrowings under our credit facilities, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash requirements for the foreseeable future. We continuously review, and are currently reviewing, opportunities to acquire additional television and radio stations as well as billboards and other opportunities targeting the U.S. Hispanic market. We expect to finance any future acquisitions through funds generated from operations and borrowings under our proposed new credit facility and through additional debt and equity financings. Any additional financings, if needed, might not be available to us on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and our acquisition strategy. If additional funds were raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, these equity securities might have rights preferences or privileges senior to our Class A common stock. 33 ENTRAVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We operate 31 television stations (and have three additional television stations that are not yet operational) and 14 radio stations primarily in the Southwestern United States where the majority of U.S. Hispanics live, including the U.S./Mexican border markets. Our television stations consist primarily of Univision affiliates serving 17 of the top 50 U.S. Hispanic markets. Our radio stations consist of ten FM and four AM stations serving portions of the California and Texas markets. We were organized as a Delaware limited liability company in January 1996 to combine the operations of our predecessor entities. We currently conduct operations through a group of affiliated limited liability companies and S- corporations. Before the closing of this offering we will complete a reorganization in which all of the outstanding membership interests of our predecessor and Univision's subordinated note and option will be exchanged for shares of our common stock. This reorganization is described in "Certain Relationships and Related Transactions--Reorganization." We generate revenue from sales of national and local advertising time on television and radio stations. Advertising rates are, in large part, based on each station's ability to attract audiences in demographic groups targeted by advertisers. We recognize advertising revenue when the commercials are broadcast. We incur commissions from agencies on local, regional and national advertising. Our revenue reflects deductions from gross revenue for commissions to these agencies. Our primary expenses are employee compensation, including commissions paid to our sales staffs, marketing, promotion and selling costs, technical, local programming, engineering costs and general and administrative expenses. Our local programming costs consist of costs related to producing a local newscast in each of our markets. During 1999, we recorded an operating expense of $29.1 million for non-cash stock-based compensation incurred in connection with an employee stock award and option grant. We expect to continue to make stock-based awards in the future. We have historically not had material income tax expense or benefit reflected in our statement of operations as the majority of our subsidiaries have been non-taxpaying entities. Federal and state income taxes attributable to income during such periods were incurred and paid directly by the members of our predecessor. Accordingly, no discussion of income taxes is included in this section. Before the closing of this offering we will become a taxpaying organization. We have included in our historical financial statements a pro forma provision for income taxes and a pro forma net loss to show what our net income or loss would have been if we were a taxpaying entity. We anticipate that our future effective income tax rate will vary from 40% due to a portion of our purchase price for the LCG and Z-Spanish Media acquisitions being allocated to non-tax deductible goodwill. 34 Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31, 1999 The following table sets forth selected data from our operating results for the three months ended March 31, 1999 and 2000 (dollars in thousands):
Three Months Ended ------------------- March 31, March 31, 1999 2000 % Change --------- --------- -------- Statement of Operations Data: Gross revenue................................ $13,013 $ 19,340 48.6% Less agency commissions...................... 1,284 2,076 61.7 ------- -------- Net revenue.................................. 11,729 17,264 47.2 Direct operating expenses.................... 4,672 7,883 68.7 Selling, general and administrative expenses.................................... 2,510 3,749 49.4 Corporate expenses........................... 1,304 1,848 41.7 Depreciation and amortization................ 2,979 4,535 52.2 Non-cash stock-based compensation............ 7,286 -- n/a ------- -------- Operating (loss)............................. (7,022) (751) 89.3 Interest expense, net........................ (2,023) (3,897) (92.6) Non-cash interest expense relating to Univision conversion option................. -- (31,600) n/a ------- -------- Loss before income tax....................... (9,045) (36,248) (300.8) Income tax benefit........................... 74 6 (91.9) ------- -------- Net loss..................................... $(8,971) $(36,242) (304.0) ======= ======== Other Data: Broadcast cash flow.......................... $ 4,547 $ 5,632 23.9% EBITDA (adjusted for non-cash stock-based compensation)............................... 3,243 3,784 16.7
Net Revenue. Net revenue increased to $17.3 million for the quarter ended March 31, 2000 from $11.7 million for the quarter ended March 31, 1999, an increase of $5.5 million. This increase was primarily attributable to the acquisition of six television stations and the benefit of operating and integrating our 1999 acquisitions. On a same station basis for stations we owned or operated for the entire first quarter of 1999, net revenue increased $3.7 million, or 31.3%. This increase is attributable to an increase in advertising rates and an increase in the number of commercials sold. Direct Operating Expenses. Direct operating expenses increased to $7.9 million for the quarter ended March 31, 2000 from $4.7 million for the quarter ended March 31, 1999, an increase of $3.2 million. This increase was primarily attributable to the additional operations of six television stations. On a same station basis, for stations owned or operated for the entire first quarter of 1999, direct operating expenses increased $1.6 million, or 33.7%. This increase was due to an increase of approximately $0.8 million in sales management and sales tools at our stations and $0.3 million to implement local news programming in our McAllen, Texas and Las Vegas, Nevada markets. As a percentage of net revenue, direct operating expenses increased to 45.7% for the quarter ended March 31, 2000 from 39.8% for the quarter ended March 31, 1999. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $3.7 million for the quarter ended March 31, 2000 from $2.5 million for the quarter ended March 31, 1999, an increase of $1.2 million. This increase was primarily attributable to the additional operations of six television stations. On a same station basis, for stations owned and operated for the entire first quarter of 1999, selling, general and administrative expenses increased 35 $0.5 million, or 19.3%. The increase was primarily due to increased rent costs for our new facility in Denver, Colorado and the associated moving costs. As a percentage of net revenue, selling, general and administrative expenses increased to 21.7% for the quarter ended March 31, 2000 from 21.4% for the quarter ended March 31, 1999. Corporate Expenses. Corporate expenses increased to $1.8 million for the quarter ended March 31, 2000 from $1.3 million for the quarter ended March 31, 1999, an increase of $0.5 million. This increase was primarily due to additional staffing as a result of our growth, increase in rent associated with moving into a larger facility, and additional costs associated with our acquisitions. As a percentage of net revenue, corporate expenses decreased to 10.7% for the quarter ended March 31, 2000 from 11.1% for the quarter ended March 31, 1999. We expect corporate expenses to continue to increase as we hire additional corporate personnel due to our growth and the costs associated with being a public company. Depreciation and Amortization. Depreciation and amortization increased to $4.5 million for the quarter ended March 31, 2000 from $3.0 million for the quarter ended March 31, 1999, an increase of $1.6 million. This increase was primarily attributable to the acquisition of additional television stations. On a same station basis, for stations we owned or operated for the entire first quarter of 1999, depreciation and amortization increased $0.5 million. Non-Cash Stock-Based Compensation. We have an employment agreement with an executive vice president in which the employee was awarded 922,828 shares of Class A common stock, which vested through January 2000. As December 31, 1999, the estimated fair value of this award was fully recorded. Operating Loss. As a result of the above factors, we recognized an operating loss of $0.8 million for the quarter ended March 31, 2000 compared to an operating loss of $7.0 million for the quarter ended March 31, 1999. Excluding non-cash stock-based compensation, operating income decreased by $1.0 million for the quarter ended March 31, 2000, primarily attributable to additional depreciation and amortization of $1.6 million. Interest Expense, Net. Interest expense increased to $3.9 million for the quarter ended March 31, 2000 from $2.0 million for the quarter ended March 31, 1999, an increase of $1.9 million. This increase is primarily due to borrowings to finance an additional acquisition and an increase in the subordinated note with Univision. The non-cash interest expense of $31.6 million relating to the Univision conversion option represents the estimated fair value of the option feature based on an estimated public offering price of $16.00 per share. This resulted in interest expense of $31.6 million during the quarter ended March 31, 2000. Net Loss. We recognized a net loss of $36.2 million for the quarter ended March 31, 2000 compared to a net loss of $9.0 million for the quarter ended March 31, 1999. As a percentage of net revenue, our net loss, excluding non- cash stock-based compensation and interest expense relating to the estimated intrinsic value of the option feature of our additional $110.0 million subordinated note payable to Univision, increased to 26.9% for the quarter ended March 31, 2000 from 14.4% for the quarter ended March 31, 1999. Broadcast Cash Flow. Broadcast cash flow increased to $5.6 million for the quarter ended March 31, 2000 from $4.5 million for the quarter ended March 31, 1999, an increase of $1.1 million. On a same station basis, for stations we owned or operated for the entire first quarter of 1999, broadcast cash flow increased $1.0 million. As a percentage of net revenue, broadcast cash flow decreased to 32.6% for the quarter ended March 31, 2000 from 38.8% for the quarter ended March 31, 1999. 36 EBITDA. EBITDA increased to $3.8 million for the quarter ended March 31, 2000 from $3.2 million for the quarter ended March 31, 1999, an increase of $0.5 million. As a percentage of net revenue, EBITDA decreased to 21.9% for the quarter ended March 31, 2000 from 27.6% for the quarter ended March 31, 1999. The decrease in EBITBA was primarily due to the increase in direct operating expenses offset by the increase in net revenue. Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 The following table sets forth selected data from our operating results for the years ended December 31, 1998 and 1999 (dollars in thousands):
Historical ----------------- 1998 1999 % Change ------- -------- -------- Statement of Operations Data: Gross revenue................................. $49,872 $ 66,204 32.7% Less agency commissions....................... 5,052 7,205 42.6 ------- -------- Net revenue................................... 44,820 58,999 31.6 Direct operating expenses..................... 15,794 24,441 54.7 Selling, general and administrative expenses.. 8,877 11,611 30.8 Corporate expenses............................ 3,963 5,809 46.6 Depreciation and amortization................. 9,565 14,613 52.8 Non-cash stock-based compensation............. 500 29,143 5,728.6 ------- -------- Operating income (loss)....................... 6,121 (26,618) (534.9) Interest expense, net......................... (8,244) (9,591) (16.3) Non-cash interest expense relating to Univision conversion option.................. -- (2,500) n/a ------- -------- Loss before income tax........................ (2,123) (38,709) (1,723.3) Income tax benefit (expense).................. (210) 121 157.6 ------- -------- Net loss...................................... $(2,333) $(38,588) (1,554.0) ======= ======== Other Data: Broadcast cash flow........................... $20,149 $ 22,947 13.9% EBITDA (adjusted for non-cash stock-based compensation)................................ 16,186 17,138 5.9
Net Revenue. Net revenue increased to $59.0 million in 1999 from $44.8 million in 1998, an increase of $14.2 million. This increase was primarily attributable to the acquisition of television stations in 1999 and the benefit of 12 months of our 1998 acquisitions. On a same station basis, for stations we owned or operated for all of 1998, net revenue increased $1.2 million, or 2.7%. This increase is attributable to an increase in advertising rates of approximately 20% in certain of our markets, offset by a $2.2 million decrease in network compensation from Univision. Direct Operating Expenses. Direct operating expenses increased to $24.4 million in 1999 from $15.8 million in 1998, an increase of $8.6 million. The increase was primarily attributable to the additional operations of five television stations in 1999. On a same station basis, for stations owned or operated for all of 1998, direct operating expenses increased $1.9 million, or 12.0%. This increase was due to approximately $1.4 million in technical and news costs to implement local news programming in our McAllen, Texas and Las Vegas, Nevada markets and an additional newscast at our station in San Diego, California. The addition of local newscasts to our television stations is consistent with our strategy of increasing advertising revenue and viewership by producing news programming specifically designed for each of our markets. As a percentage of net revenue, direct operating expenses increased to 41.4% in 1999 from 35.2% in 1998. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $11.6 million in 1999 from $8.9 million in 1998, an increase of $2.7 million. The increase was primarily attributable to the acquisition of television stations in 1999. On a same station 37 basis, for stations owned or operated for all of 1998, selling, general and administrative expenses decreased $1.4 million, or 15.7%. The decrease was due to the elimination of duplicative costs in integrating our 1998 acquisitions as well as volume discounts obtained due to the increase in the number of stations and employees. This decrease was partially offset by the increase in selling costs associated with increased sales, management and staff levels and increased market research costs, all of which are consistent with our strategy of investing in sales, management and market research. As a percentage of net revenue, selling, general and administrative expenses decreased to 19.7% in 1999 from 19.8% in 1998. Corporate Expenses. Corporate expenses increased to $5.8 million in 1999 from $4.0 million in 1998, an increase of $1.8 million. The increase was primarily due to additional staffing as a result of our growth and additional costs associated with our acquisitions. As a percentage of net revenue, corporate expenses increased by 1% to 9.8% in 1999. Depreciation and Amortization. Depreciation and amortization increased to $14.6 million in 1999 from $9.6 million in 1998, an increase of $5.0 million. The increase was primarily attributable to the acquisition of television stations in 1999. On a same station basis, for stations we owned or operated for all of 1998, depreciation and amortization decreased $1.0 million. This decrease was due primarily to a decrease in amortization relating to presold advertising contracts. Non-Cash Stock-Based Compensation. We have an employment agreement with an executive vice president in which the employee was awarded 922,828 shares of Class A common stock, which vested through January 2000. At December 31, 1999, the estimated fair value of this award was $27.7 million, of which $0.9 million, $0.5 million and $26.3 million were recorded as non-cash stock-based compensation for the years ended December 31, 1997, 1998 and 1999 respectively. In January 1999, we entered into an employment agreement with a senior vice president. As amended, the agreement allowed the employee to purchase 82,195 restricted shares of Class A common stock at $0.01 per share. The shares vest ratably over three years. Non-cash stock-based compensation associated with both of the awards was determined using an estimate by management and based primarily on the estimated offering price of this offering. With respect to the restricted shares, we recorded $2.8 million in non-cash stock-based compensation during 1999. Total non-cash stock-based compensation was $29.1 million for 1999. Operating Income (Loss). As a result of the above factors, we recognized an operating loss of $26.6 million in 1999 compared to operating income of $6.1 million in 1998. Excluding non-cash stock-based compensation, operating income decreased to $2.5 million in 1999 from $6.6 million in 1998, a decrease of $4.1 million. As a percentage of net revenue, operating income, excluding non-cash stock-based compensation, decreased to 4.3% in 1999 from 14.8% in 1998. Interest Expense, Net. Interest expense increased to $9.6 million in 1999 from $8.2 million in 1998, an increase of $1.3 million. The increase is due to additional borrowings to fund our acquisitions, higher interest rates due to our increased debt to cash flow ratio. Net Loss. We recognized a net loss of $38.6 million in 1999, compared to a net loss of $2.3 million in 1998. Excluding non-cash stock-based compensation and interest expense relating to the estimated intrinsic value of the option feature of our original $10.0 million subordinated note payable to Univision, our net loss increased to $6.9 million in 1999 from $1.8 million in 1998, an increase of $5.1 million. As a percentage of net revenue, our net loss, excluding non-cash stock-based compensation and non-cash interest expense relating to Univision's conversion option, increased to 11.8% in 1999 from 4.1% in 1998. 38 Broadcast Cash Flow. Broadcast cash flow increased to $22.9 million in 1999 from $20.1 million in 1998, an increase of $2.8 million. The increase was primarily attributable to the additional operations of five television stations in 1999. On a same station basis, for stations we owned or operated for all of 1998, broadcast cash flow increased $0.8 million. The increase was attributable to an increase in advertising rates of approximately 20% in some of our markets, offset by a $2.2 million decrease in network compensation from Univision and our investment in local news programming in our McAllen, Texas and Las Vegas, Nevada markets, and additional costs to implement an additional newscast at our station in San Diego, California. As a percentage of net revenue, broadcast cash flow decreased to 38.9% in 1999 from 45% in 1998. EBITDA. EBITDA increased to $17.1 million in 1999 from $16.2 million in 1998, an increase of $1.0 million. As a percentage of net revenue, EBITDA decreased to 29% in 1999 from 36.1% in 1998. Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 The following table sets forth selected data from our operating results for the years ended December 31, 1997 and 1998 (dollars in thousands):
Historical ---------------- 1997 1998 % Change ------- ------- -------- Statement of Operations Data: Gross revenue................................... $33,419 $49,872 49.2% Less agency commissions......................... 2,963 5,052 70.5 ------- ------- Net revenue..................................... 30,456 44,820 47.2 Direct operating expenses....................... 9,184 15,794 72.0 Selling, general and administrative expenses.... 5,845 8,877 51.9 Corporate expenses.............................. 3,899 3,963 1.6 Depreciation and amortization................... 8,847 9,565 8.1 Non-cash stock-based compensation............... 900 500 (44.4) ------- ------- Operating income................................ 1,781 6,121 243.7 Interest expense, net........................... (5,107) (8,244) (61.4) ------- ------- Loss before income tax.......................... (3,326) (2,123) 36.2 Income tax benefit (expense).................... 7,531 (210) (102.8) ------- ------- Net income (loss)............................... $ 4,205 $(2,333) (155.5) ======= ======= Other Data: Broadcast cash flow............................. $15,427 $20,149 30.6% EBITDA (adjusted for non-cash stock-based compensation).................................. 11,528 16,186 40.4
Net Revenue. Net revenue increased to $44.8 million in 1998 from $30.5 million in 1997, an increase of $14.4 million. The increase was primarily attributable to the benefit of a full year of our 1997 acquisitions of KINT and KNVO. These acquisitions accounted for $5.5 million of the increase in 1998. In addition, the increase was due to a rate shift from local to national advertising and an increase in the average rate charged for national advertising. The acquisition of television stations in 1998 accounted for $2.6 million of the increase. On a same station basis, for stations owned or operated for all of 1997, net revenue increased $2.0 million, or 6.7%. 39 Direct Operating Expenses. Direct operating expenses increased to $15.8 million in 1998 from $9.2 million in 1997, an increase of $6.6 million. The increase was partially attributable to a full year of operations from our 1997 acquisitions of KINT and KNVO. These acquisitions accounted for $2.2 million of the increase in 1998. The acquisition of television stations in 1998 accounted for $1.2 million of the increase. On a same station basis, for stations owned or operated for all of 1997, direct operating expenses increased $1.1 million, or 12.2%. As a percentage of net revenue, direct operating expenses increased to 35.2% in 1998 from 30.2% in 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $8.9 million in 1998 from $5.8 million in 1997, an increase of $3.0 million. The increase is partially attributable to a full year of operations from our 1997 acquisitions of KINT and KNVO. These acquisitions accounted for $0.6 million of the increase in 1998. Additional costs of sales and research tools associated with our strategy to improve our sales efforts accounted for an additional $0.5 million of this increase. The acquisition of two television stations in 1998 accounted for $1.0 million of the increase. On a same station basis, for stations owned or operated for all of 1997, selling, general and administrative expenses increased $0.7 million, or 11.4%. As a percentage of net revenue, selling, general and administrative expenses increased to 19.8% in 1998 from 19.2% in 1997. Corporate Expenses. Corporate expenses increased to $4.0 million in 1998 from $3.9 million in 1997, an increase of $0.1 million. The increase was primarily associated with our acquisitions. As a percentage of net revenue, corporate expenses decreased to 8.8% in 1998 from 12.8% in 1997. Depreciation and Amortization. Depreciation and amortization increased to $9.6 million in 1998 from $8.8 million in 1997, an increase of $0.7 million. The increase was primarily attributable to a full year of operations from our 1997 acquisitions of KINT and KNVO and a partial year of depreciation and amortization from our 1998 acquisitions. Operating Income. As a result of the above factors, our operating income was $6.1 million in 1998 compared to operating income of $1.8 million in 1997, an increase of $4.3 million. Excluding non-cash stock-based compensation, operating income increased to $6.6 million in 1998 from $2.7 million in 1997, an increase of $3.9 million. As a percentage of net revenue, operating income, excluding non-cash stock-based compensation, increased to 14.8% in 1998 from 8.8% in 1997. Interest Expense, Net. Interest expense increased to $8.2 million in 1998 from $5.1 million in 1997, an increase of $3.1 million. The increase is due to additional borrowings to fund our acquisitions. Net Income (Loss). As a result of the above factors, we had a net loss of $2.3 million in 1998 compared to net income of $4.2 million in 1997. Excluding the tax benefit of $7.8 million related to KNVO's change in tax status in 1997, the net loss decreased to $2.3 million in 1998 from $3.6 million in 1997, a decrease of $1.2 million. Broadcast Cash Flow. Broadcast cash flow increased to $20.1 million in 1998 from $15.4 million in 1997, an increase of $4.7 million. The increase was partially attributable to a full year of operations from our 1997 acquisitions of KINT and KNVO. These acquisitions accounted for $2.8 million of the increase in 1998. In addition, the increase was due to a rate shift from local to 40 national advertising and an increase in the average rate charged for national advertising of approximately 20% in some of our markets. The acquisition of television stations in 1998 accounted for $0.4 million of the increase. On a same station basis, for stations owned or operated for all of 1997, broadcast cash flow remained relatively constant. As a percentage of net revenue, broadcast cash flow decreased to 45% in 1998 from 50.7% in 1997. EBITDA. EBITDA increased to $16.2 million in 1998 from $11.5 million in 1997, an increase of $4.7 million. The increase was partially attributable to a full year of operations from our 1997 acquisitions of KINT and KNVO. These acquisitions accounted for $2.8 million of the increase in 1998. The acquisition of television stations in 1998 accounted for $0.4 million of the increase. On a same station basis, for stations owned or operated for all of 1997, EBITDA increased $4.3 million, or 37.3%. The increase was offset by additional technical, programming and local news costs. As a percentage of net revenue, EBITDA decreased to 36.1% in 1998 from 37.9% in 1997. Liquidity and Capital Resources On March 2, 2000, Univision invested $110 million in the form of a subordinated note. From these proceeds, we used approximately $33 million for our investment in a San Diego television station, $17 million to make a deposit toward our acquisition of two FM radio stations in the Los Angeles market and $60 million to reduce outstanding borrowings on our revolving bank credit facility. On April 19, 2000, we entered into a $115 million term loan to partially finance our acquisition of LCG. Amounts outstanding under this facility are due April 18, 2001 and bear interest at LIBOR plus 4%. The facility is secured by a pledge of all of the stock of LCG, a pledge of all of the stock of LCG's special purpose entity formed to hold its FCC licenses, a lien on all of LCG's assets and a secondary lien on all of our assets. This credit facility contains a covenant that requires us to maintain a minimum level of EBITDA measured on a quarterly basis. As of the date of this prospectus, borrowings outstanding under this facility were $115 million, which we expect to repay in full using proceeds from this offering. On April 20, 2000, we acquired LCG for $252 million. We financed the balance of the purchase price remaining after our previous deposit of $7 million using advances of $50 million on our revolving line of credit and $105 million on our term loan and $90 million from the issuance to TSG Capital Fund III, L.P. of a convertible subordinated note. Net cash flow from operating activities increased to approximately $1.0 million for the three months ended March 31, 2000, from approximately $0.9 million for the three months ended March 31, 1999. Net cash flow from operating activities decreased to approximately $6.1 million for 1999, from approximately $7.7 million for 1998. Net cash flow used in investing activities increased to approximately $63.8 million for the three months ended March 31, 2000, from approximately $17.0 million for the three months ended March 31, 1999. During the three months ended March 31, 2000, we acquired broadcast properties for a total of approximately $46.0 million, made a deposit of $17.0 million for an acquisition and made capital expenditures totaling approximately $2.7 million. During the three months ended March 31, 1999, we acquired broadcast properties for a total of approximately $12.4 million, made capital expenditures totaling approximately $4.6 million, which included the purchase of two parcels of land for $0.9 million, and started construction of a new facility in McAllen, Texas for 41 $2.6 million. Net cash flow used in investing activities increased to approximately $59.1 million for 1999, compared to approximately $25.6 million for 1998. During 1999, we acquired broadcast properties for a total of approximately $46.0 million (including deposits of $8.7 million for acquisitions closed in 2000) and made capital expenditures totaling approximately $13.0 million, which included the purchases of two parcels of land for $1.0 million, the building of a new facility in McAllen, Texas the upgrade of broadcasting equipment at all of our stations totaling $12.0 million. During 1998, we acquired broadcast properties for a total of approximately $23 million and made purchases of capital equipment totaling approximately $3.0 million. Net cash from financing activities increased to approximately $64.0 million for the three months ended March 31, 2000, from approximately $15.6 million for the three months ended March 31, 1999. During the three months ended March 31, 2000, we increased our subordinated debt by $110.0 million. We used the proceeds to complete the acquisition of two radio stations in El Paso, Texas and an investment in a time brokerage arrangement for a television station in Tijuana, Mexico, and put a deposit on two radio stations in Los Angeles, California. We also paid down our revolving credit facility by $46.0 million. During the three months ended March 31, 1999, we drew on our bank credit facility to acquire television stations from LCG and radio stations in El Centro, California. Net cash flow from financing activities was approximately $52.0 million for 1999. During 1999, we drew on our bank credit facility to acquire television stations from LCG and a television station in Venice (Sarasota), Florida. In 1998, we completed acquisitions totaling $15.6 million, which were financed with borrowings under our revolving credit facility. These acquisitions included KORO and KVYE. Seasonality Seasonal net broadcast revenue fluctuations are common in the broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers. Our first fiscal quarter generally produces the lowest net broadcast revenue for the year. Segments In accordance with FASB Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, we have determined that we have one reportable segment. Furthermore, we have determined that all of our broadcast properties are subject to the same regulatory environment because they target similar classes of viewers and listeners through similar distribution methods. New Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, or the Statement, which is required to be adopted in all fiscal quarters of all fiscal years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. We will be required to adopt the Statement effective January 1, 2001. The Statement will require that we recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitment through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Because of our minimal use of derivatives, we do not anticipate that the adoption of the Statement will have a significant effect on our or our acquired companies' earnings or financial position. 42 In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission. This accounting bulletin, as amended in March 2000, is effective for us beginning in the second quarter of our fiscal year beginning January 1, 2000. We do not believe that the adoption of SAB 101 will have a material impact on our or our acquired companies' financial statements. Quantitative and Qualitative Disclosures About Market Risk General Market risk represents the potential loss that may impact our financial position, results of operations or cash flows due to adverse changes in the financial markets. We are exposed to market risk from changes in the base rates on our variable rate debt. We periodically enter into derivative financial instrument transactions such as swaps or interest rate caps, in order to manage or reduce our exposure to risk from changes in interest rates. Under no circumstances do we enter into derivatives or other financial instrument transactions for speculative purposes. Our credit facilities require us to maintain an interest rate protection agreement. Interest Rates Our bank revolving line of credit bears interest at a variable rate of LIBOR (6.5% at March 31, 2000) plus 1.625%, and our term loan used to finance the LCG acquisition bears interest at LIBOR plus 4% at April 19, 2000. At March 31, 2000 we had $96.9 million of variable rate bank debt. We currently hedge a portion of our outstanding variable rate debt by using an interest rate cap. This interest rate cap effectively converts $50 million of our variable rate debt to a LIBOR fixed rate of 7% for a two-year period. Based on the current level of borrowings under our credit facilities at our interest rate cap agreements, an increase in LIBOR from the rates at March 31, 2000 to the cap rates would not materially change our interest expense. The estimated fair value of this interest rate cap agreement was not material and we expect to continue to use similar types of interest rate protection agreements in the future. 43 LCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General LCG has 17 radio stations, all but two of which are programmed with one of our three formats delivered via satellite to all of our stations. The principal source of our revenue is the sale of broadcasting time on our radio stations to local and national advertisers. Our advertisers pay rates that are primarily affected by our ability to attract audiences in the demographic groups targeted by those advertisers. Ratings are measured principally by Arbitron Radio Market Reports. Our revenue is recognized when commercials are run. Operating expenses primarily consist of programming expenses, salaries and commissions and advertising and promotion expenses. In February 1999, we sold our television broadcasting business to Entravision. As a result, related net assets at December 27, 1998 and the results of television broadcasting operations for the three years ended December 26, 1999 were classified as discontinued operations. The following discussion focuses on the continuing radio broadcasting and newspaper publishing operations. On April 20, 2000, Entravision acquired all of our outstanding capital stock for $252 million, and all of our outstanding debt was paid out of the proceeds. Three Months Ended March 31, 2000 Compared to the Three Months Ended March 28, 1999 The following table sets forth selected data from our operating results for the three months ended March 28, 1999 and March 31, 2000 (dollars in thousands):
Three Months Ended ------------------- March 28, March 31, 1999 2000 % Change --------- --------- -------- Statement of Operations Data: Gross revenue................................. $ 9,473 $12,036 27.1% Less agency commissions....................... 814 1,194 46.7 ------- ------- Net revenue................................... 8,659 10,842 25.2 Direct operating expenses..................... 3,775 4,212 11.6 Selling, general and administrative expenses.. 4,093 4,734 15.7 Corporate expenses............................ 204 429 110.3 Depreciation and amortization................. 1,243 1,229 (1.1) ------- ------- Operating income (loss)....................... (656) 238 136.3 Interest expense and other, net............... (1,644) (1,384) 15.8 ------- ------- Loss from continuing operations before income tax benefit.................................. (2,300) (1,146) 50.2 Income tax benefit............................ 690 344 (50.1) ------- ------- Loss from continuing operations............... $(1,610) $ (802) 50.2 ======= ======= Other Data: Broadcast cash flow........................... $ 791 $ 1,896 139.7% EBITDA........................................ 587 1,467 149.9%
Net Revenue. Net revenue increased to $10.8 million for the quarter ended March 31, 2000 from $8.7 million in the same period in 1999, an increase of $2.2 million. Radio advertising accounted for about $1.7 million of the increase. The increase can be primarily attributed to a strong demand for advertising, which allowed for rate increases. 44 Direct Operating Expenses. Direct operating expenses increased to $4.2 million during the quarter ended March 31, 2000 from $3.8 million in the same period in 1999, an increase of $0.4 million. The increase was primarily due to increases in radio engineering and programming costs. For newspaper publishing, direct operating costs remained relatively flat. As a percentage of net revenue, direct operating expenses decreased to 38.8% during the first quarter of 2000 from 43.6% in the same period in 1999. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $4.7 million during the quarter ended March 31, 2000 from $4.1 million during the quarter ended March 28, 1999, an increase of $0.6 million. The increase was primarily the result of increased sales commissions and general and administrative costs in the radio division. A portion of the increase is also due to the start-up of operations of two radio stations in Nevada in December 1999. As a percentage of net revenue, selling, general and administrative expenses decreased to 43.7% during the quarter ended March 31, 2000 from 47.3% during the same period in 1999. Corporate Expenses. Corporate expenses increased to $0.4 million for the quarter ended March 31, 2000 from $0.2 million during the three months ended March 28, 1999, an increase of $0.2 million. Depreciation and Amortization. Depreciation and amortization remained relatively flat at $1.2 million for each of the quarters ended March 31, 2000 and March 28, 1999. Operating Income (Loss). As a result of the above factors, operating income increased to $0.2 million during the first quarter of 2000 from an operating loss of $0.7 million in the same period in 1999, an increase of $0.9 million. Radio operations accounted for $0.7 million of the increase. Interest Expense and Other, Net. Interest expense and other, net decreased to $1.4 million during the quarter ended March 31, 2000 from $1.6 million during the quarter ended March 28, 1999, a decrease of $0.2 million. Loss from Continuing Operations. As a result of the above factors, the loss from continuing operations decreased to $0.8 million during the three month period ended March 31, 2000 from $1.6 million during the three months ended March 28, 1999, a decrease of $0.8 million. Broadcast Cash Flow. Broadcast cash flow increased to $1.9 million during the quarter ended March 31, 2000 from $0.8 million during the quarter ended March 28, 1999, an increase of $1.1 million. Radio operations accounted for $0.7 million of the increase. As a percentage of net revenue, broadcast cash flow increased to 17.5% during the quarter ended March 31, 2000 from 9.1% in the same period in 1999. EBITDA. EBITDA increased to $1.5 million during the quarter ended March 31, 2000 from $0.6 million in the three months ended March 28, 1999, an increase of $0.9 million. The radio operations accounted for $0.7 million of the increase. As a percentage of net revenue, EBITDA increased to 13.5% during the quarter ended March 31, 2000 from 6.8% during the same quarter of 1999. 45 Year Ended December 26, 1999 Compared to the Year Ended December 27, 1998 The following table sets forth selected data from our operating results for the years ended December 27, 1998 and December 26, 1999 (dollars in thousands):
Historical ---------------- 1998 1999 % Change ------- ------- -------- Statement of Operations Data: Gross revenue................................... $41,588 $48,868 17.5% Less agency commissions......................... 3,692 4,623 25.2 ------- ------- Net revenue..................................... 37,896 44,245 16.8 Direct operating expenses....................... 15,196 15,560 2.4 Selling, general and administrative expenses.... 17,677 18,910 7.0 Corporate expenses.............................. 2,901 1,795 (38.1) Depreciation and amortization................... 4,593 4,907 6.8 ------- ------- Operating income (loss)......................... (2,471) 3,073 224.4 Interest expense and other, net................. (6,449) (5,527) 14.3 ------- ------- Loss from continuing operations before income tax benefit.................................... (8,920) (2,454) 72.5 Income tax benefit.............................. 2,570 736 (71.4) ------- ------- Loss from continuing operations................. $(6,350) $(1,718) 72.9 ======= ======= Other Data: Broadcast cash flow............................. $ 5,023 $ 9,775 94.6% EBITDA.......................................... 2,122 7,980 276.1
Net Revenue. Net revenue increased to $44.2 million in 1999 from $37.9 million in 1998, an increase of $6.3 million. Radio advertising accounted for about $5.8 million of the increase. The increase can be primarily attributed to favorable ratings and a strong demand for advertising, which allowed for an increase in advertising rates and an increase in the number of commercials sold. Direct Operating Expenses. Direct operating expenses increased to $15.6 million in 1999 from $15.2 million in 1998, an increase of $0.4 million. The increase was primarily due to increases in radio engineering and programming costs. As a percentage of net revenue, direct operating expenses decreased to 35.2% in 1999 from 40.1% in 1998. For newspaper publishing, direct operating costs remained relatively flat. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $18.9 million in 1999 from $17.7 million in 1998, an increase of $1.2 million. The increase was primarily the result of increased general and administrative costs related to newspaper publishing and increased radio sales commissions. As a percentage of net revenue, selling, general and administrative expenses decreased to 42.6% in 1999 from 46.6% in 1998. Corporate Expenses. Corporate expenses decreased to $1.8 million in 1999 from $2.9 million in 1998, a decrease of $1.1 million. The decrease related primarily to a one-time 1998 charge for executive severance and increased professional fees. As a percentage of net revenue, corporate expenses decreased to 4.1% in 1999 from 7.7% in 1998. Depreciation and Amortization. Depreciation and amortization increased to $4.9 million in 1999 from $4.6 million in 1998, an increase of $0.3 million. Depreciation accounted for 77% of the increase due to the purchase of a new fully-automated publishing system. 46 Operating Income (Loss). As a result of the above factors, operating income increased to $3.1 million in 1999 from an operating loss of $2.5 million in 1998, an increase of $5.5 million. Radio operations accounted for $4.7 million of the increase. Interest Expense and Other, Net. Interest expense and other decreased to $5.5 million in 1999 from $6.4 million in 1998, a decrease of $0.9 million. The decrease in interest expense was due primarily to a decrease in outstanding debt resulting from the sale of our television business in February 1999. Loss from Continuing Operations. As a result of the above factors, the loss from continuing operations decreased to $1.7 million in 1999 from $6.4 million in 1998, an decrease of $4.7 million. Broadcast Cash Flow. Broadcast cash flow increased to $9.8 million in 1999 from $5.0 million in 1998, an increase of $4.8 million. Radio operations accounted for $4.7 million of the increase. As a percentage of net revenue, broadcast cash flow increased to 22.1% in 1999 from 13.3% in 1998. EBITDA. EBITDA increased to $8.0 million in 1999 from $2.1 million in 1998, an increase of $5.9 million. The radio operations accounted for $4.7 million of the increase. As a percentage of net revenue, EBITDA increased to 18% in 1999 from 5.6% in 1998. Year Ended December 27, 1998 Compared to the Year Ended December 28, 1997 The following table sets forth selected data from our operating results for the years ended December 28, 1997 and December 27, 1998 (dollars in thousands):
Historical ---------------- 1997 1998 % Change ------- ------- -------- Statement of Operations Data: Gross revenue................................... $40,467 $41,588 2.8% Less agency commissions......................... 3,472 3,692 6.3 ------- ------- Net revenue..................................... 36,995 37,896 2.4 Direct operating expenses....................... 15,131 15,196 0.4 Selling, general and administrative expenses.... 17,535 17,677 0.8 Corporate expenses.............................. 1,713 2,901 69.4 Depreciation and amortization................... 3,762 4,593 22.1 ------- ------- Operating loss.................................. (1,146) (2,471) (115.6) Interest expense and other, net................. (4,511) (6,449) (43.0) ------- ------- Loss from continuing operations before income tax benefit.................................... (5,657) (8,920) (57.7) Income tax benefit.............................. 2,213 2,570 16.1 ------- ------- Loss from continuing operations................. $(3,444) $(6,350) (84.4) ======= ======= Other Data: Broadcast cash flow............................. $ 4,329 $ 5,023 16.0% EBITDA.......................................... 2,616 2,122 (18.9)
Net Revenue. Net revenue increased to $37.9 million in 1998 from $37.0 million in 1997, an increase of $0.9 million. Newspaper publishing accounted for $0.8 million of the increase. Direct Operating Expenses. Direct operating expenses were relatively flat compared to 1997 with an increase of $0.1 million. 47 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $17.7 million in 1998 from $17.5 million in 1997, an increase of $0.2 million. Radio operations accounted for the majority of the increase. The increase primarily resulted from increased sales, marketing and promotion expenses. As a percentage of net revenue, selling, general and administrative expenses decreased to 46.6% in 1998 from 47.4% in 1997. Corporate Expenses. Corporate expenses increased to $2.9 million in 1998 from $1.7 million in 1997, an increase of $1.2 million. The increase was related primarily to one-time charges for executive severance and increased professional fees. As a percentage of net revenue, corporate expenses increased to 7.7% in 1998 from 4.6% in 1997. Depreciation and Amortization. Depreciation and amortization increased to $4.6 million in 1998 from $3.8 million in 1997, an increase of $0.8 million. Radio operations accounted for $0.7 million of the increase. The increase represented increased amortization associated with the 1997 acquisition of eight radio stations. Operating Loss. As a result of the above factors, the operating loss increased to $2.5 million in 1998 from $1.1 million in 1997, an increase of $1.4 million. Interest Expense and Other, Net. Interest expense increased to $6.4 million in 1998 from $4.5 million in 1997, an increase of $1.9 million. The increase was due primarily to higher interest rates in 1998 compared to 1997 and increases in outstanding debt incurred in connection with our acquisitions. Loss from Continuing Operations. As a result of the above factors, the loss from continuing operations increased to $6.4 million in 1998 from $3.4 million in 1997, an increase of $3.0 million. Broadcast Cash Flow. Broadcast cash flow increased to $5.0 million in 1998 from $4.3 million in 1997, an increase of $0.7 million. As a percentage of net revenue, broadcast cash flow increased to 13.3% in 1998 from 11.7% in 1997. EBITDA. EBITDA decreased to $2.1 million in 1998 from $2.6 million in 1997, a decrease of $0.5 million. The decline is due to the increase in corporate expense. As a percentage of net revenue, EBITDA decreased to 5.6% in 1998 from 7.1% in 1997. Segment Operations We operate in two reportable segments, radio broadcasting and newspaper publishing. The radio broadcasting segment has operations in the San Francisco- San Jose, Monterey-Salinas-Santa Cruz, Riverside-San Bernardino, Sacramento, Albuquerque-Santa Fe, Denver-Boulder and Washington D.C. The publishing segment consists of two Spanish-language publications in New York City. Each segment is managed separately. We evaluate performance based on several factors, of which the primary financial measure is segment operating profit. Total revenue of each segment represents sales to unaffiliated customers. There are no inter- segment sales. No single customer provides more than 10% of our revenue. The accounting policies of the segments are the same as those described in Note 2 to our audited financial statements. Corporate expenses include general and administrative costs that are not directly related to the reportable segments. 48 Financial information for these business segments includes (in thousands):
Historical Three Months Ended ---------------------------- -------------------- March 28, March 31, 1997 1998 1999 1999 2000 -------- -------- -------- --------- --------- Net Revenue: Radio Broadcasting........ $ 19,200 $ 19,345 $ 25,136 $ 4,536 $ 6,228 Newspaper Publishing...... 17,795 18,551 19,109 4,123 4,614 -------- -------- -------- -------- -------- $ 36,995 $ 37,896 $ 44,245 $ 8,659 $ 10,842 ======== ======== ======== ======== ======== Operating Profit (loss): Radio Broadcasting........ $ (98) $ (974) $ 3,718 $ (240) $ 456 Newspaper Publishing...... 672 1,411 1,150 (211) 212 -------- -------- -------- -------- -------- Total Reportable Segments................ 574 437 4,868 (451) 668 Corporate expenses........ (1,720) (2,908) (1,795) (205) (430) -------- -------- -------- -------- -------- $ (1,146) $ (2,471) $ 3,073 $ (656) $ 238 ======== ======== ======== ======== ======== Identifiable Assets: Radio Broadcasting........ $130,863 $131,887 $130,909 $128,847 $129,150 Newspaper Publishing...... 23,308 23,827 24,563 23,916 24,363 -------- -------- -------- -------- -------- Total Reportable Segments................ 154,171 155,714 155,472 152,763 153,513 Corporate................. 4,335 5,476 2,014 4,842 695 Discontinued operations... 4,500 4,832 -- -- -- -------- -------- -------- -------- -------- $163,006 $166,022 $157,486 $157,605 $154,208 ======== ======== ======== ======== ======== Depreciation and Amortization: Radio Broadcasting........ $ 3,023 $ 3,777 $ 3,862 $ 1,001 $ 958 Newspaper Publishing...... 739 816 1,044 242 271 -------- -------- -------- -------- -------- $ 3,762 $ 4,593 $ 4,906 $ 1,243 $ 1,229 ======== ======== ======== ======== ======== Capital Expenditures: Radio Broadcasting........ $ 672 $ 187 $ 1,061 $ 99 $ 1,040 Newspaper Publishing...... 263 868 1,230 420 116 -------- -------- -------- -------- -------- Total Reportable Segments................ 935 1,055 2,291 519 1,156 Discontinued Operations.... 75 216 -- -- -- -------- -------- -------- -------- -------- $ 1,010 $ 1,271 $ 2,291 $ 519 $ 1,156 ======== ======== ======== ======== ========
Liquidity and Capital Resources Net cash flow provided by operating activities increased to approximately $0.8 million for the three months ended March 31, 2000, from approximately zero cash flow for the three months ended March 28, 1999. For 1999, net cash flow provided by operating activities was $1.1 million compared to $0.6 million for 1998 and $2.3 million for 1997. The change from 1998 to 1999 can be attributed primarily to an increase in operating income. The change from 1997 to 1998 related primarily to a decline in operating income. Net cash flow used in investing activities increased to approximately $2.7 million for the three months ended March 31, 2000, compared to net cash flow provided by investing activities of 49 approximately $14.1 million for the three months ended March 28, 1999. During the three months ended March 31, 2000, we made a deposit of $1.6 million for an acquisition and made capital expenditures totaling approximately $1.1 million. During the three months ended March 28, 1999, we received $12.9 million from the sale of our television stations to Entravision and $1.7 million from disposals of other assets, offset by capital expenditures totaling approximately $0.5 million. Net cash flow provided by investing activities was $16.7 million during 1999 as compared to $2.5 million used in 1998 and $66.6 million used in 1997. During 1999, we sold our television stations to Entravision for approximately $12.9 million and sold other assets including a tower site in Portland, Oregon for approximately $6.6 million. We had capital expenditures of $2.3 million for 1999, including the purchase of a new fully- integrated publishing system for our newspaper business. During 1997, we acquired eight radio stations for approximately $70 million. Net cash flow used in financing activities decreased to approximately $2.5 million for the three months ended March 31, 2000, from approximately $14.2 million for the three months ended March 28, 1999. During the three months ended March 31, 2000, we drew $1.5 million on our existing debt facilities and made payments of $4.0 million on those same debt facilities. During the three months ended March 28, 1999, we used some of the proceeds from the sale of the television stations to Entravision to pay down our debt facilities by $14.2 million. Net cash flow used in financing activities was $14.1 million during 1999 compared to cash provided by financing activities of $2.0 million in 1998 and $37.7 million in 1997. The change in net cash flow provided by financing activities in 1999 relates to a net reduction in our debt using the proceeds from the sale of our television stations. The increase in net cash flow provided by financing activities in 1997 can be attributed to the borrowings associated with our acquisition of eight radio stations during 1997. 50 Z-SPANISH MEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Z-Spanish Media was formed to combine national radio programming with a local presence. Through our four formats, which are delivered via satellite to our stations and our affiliates, we provide a national quality radio sound with local time slots available for news, traffic, weather, promotions and community events. On December 31, 1999, Z-Spanish Media merged with Vista Media Group, Inc., or Vista, whereby Vista became a wholly owned subsidiary of Z-Spanish Media. Z- Spanish Media and Vista have shared a common controlling stockholder group since August 29, 1997. As such, the business combination has been accounted for as a common control business combination, and the accounts of Vista are included in the accompanying combined financial statements from August 29, 1997. The principal source of our revenue is the sale of broadcasting time on our radio stations and network and the sale of outdoor display contracts for our billboard operations. As a result, our revenue is affected primarily by the advertising rates our radio stations and network charge, and the rates charged for billboard contracts. For our radio operations, the rates are based upon a station's and the network's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron Radio Market Reports. We recognize revenue when advertising or network programming is broadcast. For our billboard operations, the rates are based on the particular display's exposure in relation to the demographic of a particular market and the location of the particular display. We recognize billboard advertising revenue over the life of the advertising contract. Our operating expenses primarily consist of salaries and commissions and advertising and promotional expenses. On April 20, 2000, we agreed to sell all of our outstanding capital stock to Entravision for $475 million. 51 Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31, 1999 The following table sets forth selected data from our operating results for the three months ended March 31, 1999 and March 31, 2000 (dollars in thousands):
Three months ended ------------------- March 31, March 31, 1999 2000 % Change --------- --------- -------- Statement of Operations Data: Gross revenue.................................... $ 7,177 $ 8,740 21.8% Less agency and broker commissions............... 425 581 36.7 ------- ------- Net revenue...................................... 6,752 8,159 20.8 Direct operating expenses........................ 2,763 3,425 24.0 Selling, general and administrative expenses..... 2,056 2,034 (1.1) Corporate expenses............................... 774 1,701 119.8 Depreciation and amortization.................... 1,415 2,843 100.9 Non-cash stock based compensation................ -- 196 n/a Gain on sale of assets, net...................... (2,223) -- n/a ------- ------- Operating income (loss).......................... 1,967 (2,040) (203.7) Interest expense, net............................ (1,196) (2,339) (95.6) ------- ------- Income (loss) before income tax and extraordinary loss............................................ 771 (4,379) (668.0) Minority interest................................ 58 2 (96.6) Income tax benefit (expense)..................... (470) 1,514 422.1 Extraordinary loss on debt extinguishment........ (1,132) -- n/a ------- ------- Net loss......................................... $ (773) $(2,863) (270.4) ======= ======= Other Data: Broadcast/billboard cash flow.................... $ 1,933 $ 2,700 39.7% EBITDA (adjusted for non-cash stock-based compensation)................................... 1,159 999 (13.8)
Net Revenue. Net revenue increased to $8.2 million for the three months ended March 31, 2000 from $6.8 million for the three months ended March 31, 1999, an increase of $1.4 million. Approximately $0.9 million of this increase was due to the inclusion of Seaboard Outdoor Advertising Co. Inc., or Seaboard, which we purchased on September 30, 1999. Additionally, the increase in net revenue was attributable to growth in our radio network, which increased 139%, and a turnaround in the Chicago market where our net revenue increased 62.4%. The increase in net revenue was partially offset by the exclusion of radio station WYPA in Chicago, Illinois, which was sold on September 20, 1999. Direct Operating Expenses. Direct operating expenses increased to $3.4 million for the three months ended March 31, 2000 from $2.8 million for the three months ended March 31, 1999, an increase of $0.6 million. The increase in direct operating expenses is mainly attributable to the inclusion of operating expenses of Seaboard. As a percentage of net revenue, direct operating expenses increased to 42.0% for the three months ended March 31, 2000 from 40.9% for the three months ended March 31, 1999. Selling, General and Administrative Expenses. Selling, general and administrative expenses remained essentially flat for the three months ended March 31, 2000 as compared to the three months ended March 31, 1999. As a percentage of net revenue, selling, general and administrative expenses decreased to 24.9% for the three months ended March 31, 2000 from 30.5% for the three months ended March 31, 1999. 52 Corporate Expenses. Corporate expenses increased to $1.7 million for the three months ended March 31, 2000 from $0.8 million for the three months ended March 31, 1999, an increase of $0.9 million. Approximately $0.5 million was the result of non-recurring corporate expenses. Additionally, the increase in corporate expenses was attributable to increases in the number of employees, transferring traffic operations to corporate and higher salary expense. As a percentage of net revenue, corporate expenses increased to 20.8% for the three months ended March 31, 2000 from 11.5% for the three months ended March 31, 1999. Depreciation and Amortization. Depreciation and amortization increased to $2.8 million for the three months ended March 31, 2000 from $1.4 million for the three months ended March 31, 1999, an increase of $1.4 million. The increase in depreciation and amortization was due to the acquisitions of radio stations and billboards during 1999. Non-Cash Stock-Based Compensation. Non-cash stock-based compensation relates to stock options granted under an employee stock option plan. The expense represents the difference between the grant price and the estimated fair value of the related stock. Net Gain on Sale of Assets. Net gain on sale of assets for the three months ended March 31, 1999 was $2.2 million, which resulted from the sale of radio station WBPS in Cambridge, Massachusetts. Operating Income. Operating income decreased to a loss of $2.0 million for the three months ended March 31, 2000 from income of $2.0 million for the three months ended March 31, 1999, a decrease of $4.0 million. The decrease was primarily the result of an increase in depreciation and amortization expense of $1.4 million and additional corporate charges for the three months ended March 31, 2000. Also, the company recorded gains on the sale of assets of $2.2 million for the three months ended March 31, 1999. Excluding gains on the sale of radio stations, operating loss for the three months ended March 31, 1999 would have been $0.2 million for the three months ended March 31, 1999 compared to an operating loss of $2.0 million for the three months ended March 31, 2000. Interest Expense, Net. Net interest expense increased to $2.3 million for the three months ended March 31, 2000 from $1.2 million for the three months ended March 31, 1999, an increase of $1.1 million. The increase was due primarily to higher borrowings to fund acquisitions in 1999 and 2000. Net Loss. As a result of the above factors, we had a net loss of $2.9 million for the three months ended March 31, 2000 compared to a net loss of $0.8 million for the three months ended March 31, 1999, an increase in net loss of $2.1 million. As a percentage of net revenue, net loss increased to 35.1% for the three months ended March 31, 2000 from 11.4% for the three months ended March 31, 1999. Excluding our 1999 extraordinary loss of $1.1 million related to early extinguishment of debt, net income for the three months ended March 31, 1999 would have been $0.4 million. As a percentage of net revenue, our net income, excluding extraordinary loss, was 5.3% for the three months ended March 31, 1999. Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to $2.7 million for the three months ended March 31, 2000 from $1.9 million for the three months ended March 31, 1999, an increase of $0.8 million. This increase was primarily attributable to revenue growth and effective management of operating expenses. Approximately $0.3 million of the increase in broadcast/billboard cash flow was attributable to the inclusion of Seaboard. As a percentage of net revenue, 53 broadcast/billboard cash flow increased to 33.1% for the three months ended March 31, 2000 from 28.6% for the three months ended March 31, 1999. EBITDA. EBITDA decreased to $1.0 million for the three months ended March 31, 2000 from $1.2 million for the three months ended March 31, 1999, a decrease of $0.2 million. As a percentage of net revenue, EBITDA decreased to 12.2% for the three months ended March 31, 2000 from 17.2% for the three months ended March 31, 1999. The decrease was primarily due to $0.5 million of non- recurring corporate expenses. Excluding these non-recurring corporate expenses, EBITDA for the three months ended March 31, 2000 was $1.5 million. As a percentage of net revenue, our EBITDA, excluding these non-recurring corporate expenses, increased to 18.3% for the three months ended March 31, 2000 from 17.2% for the three months ended March 31, 1999. Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 The following table sets forth selected data from our operating results for the years ended December 31, 1998 and 1999 (dollars in thousands):
Historical ---------------- 1998 1999 % Change ------- ------- -------- Statement of Operations Data: Gross revenue.................................... $27,598 $38,561 39.7% Less agency and broker commissions............... 1,740 2,523 45.0 ------- ------- Net revenue...................................... 25,858 36,038 39.4 Direct operating expenses........................ 10,108 14,183 40.3 Selling, general and administrative expenses..... 6,459 8,382 29.8 Corporate expenses............................... 3,669 4,773 30.1 Depreciation and amortization.................... 6,736 8,670 28.7 Gain on sale of assets, net...................... (5,685) (4,442) 21.9 ------- ------- Operating income................................. 4,571 4,472 (2.2) Interest expense, net............................ (5,324) (6,471) (21.5) ------- ------- Loss before income tax and extraordinary loss.... (753) (1,999) (165.5) Minority interest................................ (86) 182 311.6 Income tax benefit (expense)..................... (394) 102 125.9 Extraordinary loss on debt extinguishment........ -- (1,047) n/a ------- ------- Net loss......................................... $(1,233) $(2,762) (124.0) ======= ======= Other Data: Broadcast/billboard cash flow.................... $ 9,291 $13,619 46.6% EBITDA........................................... 5,622 8,846 57.3
Net Revenue. Net revenue increased to $36.0 million in 1999 from $25.9 million in 1998, an increase of $10.1 million. Approximately $6.3 million of this increase was due to the inclusion of the full year of results of the operations of Z-Spanish Radio which we acquired on May 29, 1998. The increase in net revenue also resulted from an increase of $5.4 million from radio station acquisitions. Additionally, billboard sales increased $1.8 million, a portion of which was due to the inclusion of Seaboard Outdoor Advertising Co. Inc., or Seaboard, which we purchased on September 30, 1999. The increase in net revenue was partially offset by a decrease of $3.4 million due to the sale of stations in 1999 and 1998. Direct Operating Expenses and Selling, General and Administrative Expenses. Direct operating expenses increased to $14.2 million in 1999 from $10.1 million in 1998, an increase of $4.1 million. 54 Selling, general and administrative expenses increased to $8.4 million in 1999 from $6.5 million in 1998, an increase of $1.9 million. Approximately $4.8 million of the increase in direct operating expenses and selling, general and administrative expenses was caused by the inclusion of the full year of Z- Spanish Radio's operations. Additional radio stations acquired in 1999 resulted in an increase in direct operating expenses and selling, general and administrative expenses of $2.1 million. Also, $1.7 million of the direct operating expense increase was caused by a loss on the disposal of assets from our billboard operations. These increases in direct operating expenses and selling, general and administrative expenses were partially offset by a decrease of $2.6 million due to the sale of stations in 1998 and 1999. As a percentage of net revenue, direct operating expenses increased from 39.1% in 1998 to 39.4% in 1999. As a percentage of net revenue, selling, general and administrative expenses decreased to 23.3% in 1999 from 25% in 1998. Corporate Expenses. Corporate expenses increased to $4.8 million in 1999 from $3.7 million in 1998, an increase of $1.1 million. The increase in corporate expenses resulted primarily from increases in the number of employees, higher salary expense and higher professional fees associated with potential acquisitions and related financings. As a percentage of net revenue, corporate expenses decreased to 13.2% in 1999 from 14.2% in 1998. Depreciation and Amortization. Depreciation and amortization increased to $8.7 million in 1999 from $6.7 million in 1998, an increase of $2.0 million. The increase in depreciation and amortization was due to the acquisitions of radio stations and billboards. Net Gain on Sale of Assets. Net gain on sale of assets decreased to $4.4 million in 1999 from $5.7 million in 1998, a decrease of $1.3 million. Net gain recorded in 1999 included gain on sale of radio stations WBPS in Cambridge, Massachusetts and WYPA in Chicago, Illinois of $2.2 million and $2.3 million, partially offset by a loss on sale of KZNO in Nogales, Arizona of $0.1 million. The aggregate net gain recorded in 1998 of $5.7 million resulted from the disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles, California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in Yuba City, California, KEST in San Francisco, California, KSJX in San Jose, California and KKMO in Seattle, Washington, as well as the disposition of certain assets and liabilities of PAR Holdings, Inc. As a percentage of net revenue, net gain on sale of assets decreased to 12.3% in 1999 from 22% in 1998. Operating Income. Operating income decreased to $4.5 million in 1999 from $4.6 million in 1998, a decrease of $0.1 million. The decrease was primarily the result of gains on the sale of assets of $4.4 million in 1999 as compared to $5.7 million in 1998. Excluding our 1999 and 1998 gains from sales of radio stations, operating income for 1999 would have been $30,000 and our operating loss for 1998 would have been $1.1 million. Interest Expense, Net. Net interest expense increased to $6.5 million in 1999 from $5.3 million in 1998, an increase of $1.2 million. The increase was due primarily to higher borrowings to fund acquisitions in 1999. Net Loss. As a result of the above factors, we had a net loss of $2.8 million in 1999 compared to a net loss of $1.2 million in 1998, an increase in net loss of $1.6 million. As a percentage of net revenue, net loss increased to 7.7% in 1999 from 4.8% in 1998. Excluding our 1999 extraordinary loss of $1.0 million related to early extinguishment of debt, net loss for 1999 would have been $1.8 million. As a percentage of net revenue, our net loss, excluding extraordinary loss, was 4.8% in 1999 and 4.8% in 1998. 55 Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to $13.6 million in 1999 from $9.3 million in 1998, an increase of $4.3 million. The inclusion of the full year of results of Z-Spanish Radio and the effect of station purchases accounted for an increase of $5.4 million of broadcast/billboard cash flow, which was partially offset by a loss of $1.7 million due to the disposal of some of our billboard assets. The increase in broadcast/billboard cash flow was also attributable to our billboard operations, a portion of which was due to the inclusion of Seaboard. As a percentage of net revenue, broadcast/billboard cash flow increased to 37.8% in 1999 from 35.9% in 1998. EBITDA. EBITDA increased to $8.8 million in 1999 from $5.6 million in 1998, an increase of $3.2 million. The inclusion of the full year of results of Z- Spanish Radio, three months of operations of Seaboard plus the effect of purchases of stations during the year accounted for an increase of $5.0 million, offset by a decrease of $1.7 million due to the loss on the disposal of assets from our billboard operations. As a percentage of net revenue, EBITDA increased to 24.5% in 1999 from 21.7% in 1998. Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 The following table sets forth selected data from our operating results for the years ended December 31, 1997 and 1998 (dollars in thousands):
Historical ---------------- 1997 1998 % Change ------- ------- -------- Statement of Operations Data: Gross revenue.................................... $13,339 $27,598 106.9% Less agency and broker commissions............... 297 1,740 485.9 ------- ------- Net revenue...................................... 13,042 25,858 98.3 Direct operating expenses........................ 4,391 10,108 130.2 Selling, general and administrative expenses..... 5,105 6,459 26.5 Corporate expenses............................... 2,975 3,669 23.3 Depreciation and amortization.................... 2,747 6,736 145.2 Gain on sale of assets, net...................... (2,671) (5,685) (112.8) ------- ------- Operating income................................. 495 4,571 823.4 Interest expense, net............................ (2,069) (5,324) (157.3) ------- ------- Loss before income tax and extraordinary items... (1,574) (753) 52.2 Minority interest................................ (31) (86) (177.4) Income tax benefit (expense)..................... 538 (394) (173.2) Extraordinary loss on debt extinguishment........ (568) -- 100.0 ------- ------- Net loss......................................... $(1,635) $(1,233) 24.6 ======= ======= Other Data: Broadcast/billboard cash flow.................... $ 3,546 $ 9,291 162.0% EBITDA........................................... 571 5,622 884.6
Net Revenue. Net revenue increased to $25.9 million in 1998 from $13.0 million in 1997, an increase of $12.9 million. Approximately $7.4 million of the increase was due to the inclusion of a full year of results of Vista, and approximately $9.2 million of the increase was due to the inclusion of seven months of results of Z-Spanish Radio. The increase in net revenue was partially offset by a decrease of $3.7 million due to the sale of nine radio stations in 1998 and the sale of two radio stations in 1997. 56 Direct Operating Expenses and Selling, General and Administrative Expenses. Direct operating expenses increased to $10.1 million in 1998 from $4.4 million in 1997, an increase of $5.7 million. Selling, general and administrative expenses increased to $6.5 million in 1998 from $5.1 million in 1997, an increase of $1.4 million. Approximately $4.1 million of the increase in direct operating expenses and selling, general and administrative expenses was caused by the inclusion of the full year of results of Vista, and approximately $4.8 million of the increase was due to the inclusion of seven months of results of Z-Spanish Radio. The increase in direct operating expenses and selling, general and administrative expenses was partially offset by a decrease of $1.8 million due to the sale of nine stations in 1998 and two stations in 1997. As a percentage of net revenue, direct operating expenses increased to 39.1% in 1998 from 33.7% in 1997. As a percentage of net revenue, selling, general and administrative expenses decreased to 25.0% in 1998 from 39.1% in 1997. Corporate Expenses. Corporate expenses increased to $3.7 million in 1998 from $3.0 million in 1997, an increase of $0.7 million. The increase in corporate expenses was caused by higher salary expense and professional fees associated with acquisitions and related financings. As a percentage of net revenue, corporate expenses decreased to 14.2% in 1998 from 22.8% in 1997. Depreciation and Amortization. Depreciation and amortization increased to $6.7 million in 1998 from $2.7 million in 1997, an increase of $4.0 million. The increase in depreciation and amortization was due primarily to the additional fixed and intangible assets from the acquisition of radio stations and billboards. Net Gain on Sale of Assets. Net gain on sale of assets increased to $5.7 million in 1998 from $2.7 million in 1997, an increase of $3.0 million. The aggregate net gain recorded in 1998 of $5.7 million consisted of the disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles, California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in Yuba City, California, KEST in San Francisco, California, KSJX in San Jose, California and KKMO in Seattle, Washington, as well as the disposition of certain assets and liabilities of PAR Holdings, Inc. Net gain recorded in 1997 included gain on sale of radio stations WEJM in Chicago, Illinois and WVVX in Chicago, Illinois of $1.9 million and $0.8 million, respectively. As a percentage of net revenue, net gain on sale of assets increased to 22% in 1998 from 20.5% in 1997. Operating Income. Operating income increased to $4.6 million in 1998 from $0.5 million in 1997, an increase of $4.1 million. The increase was primarily the result of gains on the sale of assets of $5.7 million in 1998, as compared to $2.7 million in 1997. The inclusion of the full year results of Vista accounted for $1.6 million of the increase, which was partially offset by higher expenses from the acquisition of radio stations. As a percentage of net revenue, operating income increased to 17.7% in 1998 from 3.8% in 1997. Excluding our 1998 and 1997 gains from sales of radio stations, operating losses for 1998 would have been $1.1 million and for 1997 would have been $2.2 million. Interest Expense. Net interest expense increased to $5.3 million in 1998 from $2.1 million in 1997, an increase of $3.2 million. The increase was due primarily to higher borrowings to fund acquisitions in 1998. Net Loss. As a result of the above factors, we had a net loss of $1.2 million in 1998 compared to a net loss of $1.6 million in 1997, a decrease in net loss of $0.4 million. As a percentage of net revenue, net loss decreased to 4.8% in 1998 from 12.5% in 1997. Excluding our 1997 extraordinary loss of $0.5 million related to early extinguishment of debt, net loss for 1997 would have been 57 $1.1 million. As a percentage of net revenue, our net loss, excluding extraordinary loss, decreased to 4.8% in 1998 from 8.2% in 1997. Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to $9.3 million in 1998 from $3.5 million in 1997, an increase of $5.8 million. The inclusion of the full year results of Vista accounted for $3.2 million of the increase. The remainder of the increase was due to the inclusion of Z- Spanish Radio operations, offset by the station sales during 1998 and 1997. As a percentage of net revenue, broadcast/billboard cash flow increased to 35.9% in 1998 from 27.2% in 1997. EBITDA. EBITDA increased to $5.6 million in 1998 from $0.6 million in 1997, an increase of $5.0 million. The inclusion of the full year results of Vista accounted for $2.9 million of the increase. The remainder of the increase was due to the inclusion of Z-Spanish Radio operations, offset by the station sales during 1998 and 1997. As a percentage of net revenue, EBITDA increased to 21.7% in 1998 from 4.4% in 1997. 58 Segment Operations Z-Spanish Media provides services through the following two reportable segments: . Radio Group--the Radio Group's portfolio consisted of 33 radio stations (20 FM and 13 AM) at March 31, 2000, including one station operated under a local marketing agreement. . Outdoor Advertising--the Outdoor Advertising Group owned and operated approximately 10,000 outdoor billboards at March 31, 2000. The factors for determining reportable segments were based on services provided. Each segment is responsible for executing a segment-specific business strategy. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on profit or loss of operations before income taxes. The following table summarizes the net revenue, operating income, total assets, depreciation and amortization and capital expenditures by segment:
Three Months Historical Ended March 31, --------------------------- ------------------ 1997 1998 1999 1999 2000 ------- -------- -------- -------- -------- Net Revenue: Radio Broadcasting.......... $ 9,812 $ 15,391 $ 23,811 $ 4,786 $ 5,331 Outdoor Advertising......... 3,230 10,467 12,227 1,966 2,828 ------- -------- -------- -------- -------- $13,042 $ 25,858 $ 36,038 $ 6,752 $ 8,159 ======= ======== ======== ======== ======== Operating Income: Radio Broadcasting.......... $ 2,448 $ 5,394 $ 8,376 $ 2,780 $ 279 Outdoor Advertising......... 1,022 2,846 869 (39) (422) ------- -------- -------- -------- -------- Total Reportable Segments.. 3,470 8,240 9,245 2,741 (143) Corporate................... (2,975) (3,669) (4,773) (774) (1,897) ------- -------- -------- -------- -------- $ 495 $ 4,571 $ 4,472 $ 1,967 $ (2,040) ======= ======== ======== ======== ======== Total Assets: Radio Broadcasting.......... $68,076 $169,664 $218,231 $186,401 $219,419 Outdoor Advertising......... 28,279 27,610 70,812 27,199 62,645 ------- -------- -------- -------- -------- $96,355 $197,274 $289,043 $213,600 $282,064 ======= ======== ======== ======== ======== Depreciation and Amortization: Radio Broadcasting.......... $ 2,130 $ 4,785 $ 5,983 $ 902 $ 1,713 Outdoor Advertising......... 617 1,951 2,687 513 1,130 ------- -------- -------- -------- -------- $ 2,747 $ 6,736 $ 8,670 $ 1,415 $ 2,843 ======= ======== ======== ======== ======== Capital Expenditures: Radio Broadcasting.......... $ -- $ 695 $ 4,926 $ 298 $ 599 Outdoor Advertising......... 855 1,346 535 82 82 ------- -------- -------- -------- -------- $ 855 $ 2,041 $ 5,461 $ 380 $ 681 ======= ======== ======== ======== ========
Segment income from operations excludes interest income, interest expense and provision for income tax. 59 Liquidity and Capital Resources Our primary source of liquidity is cash provided by broadcasting and billboard operations, and to the extent necessary, undrawn commitments available under our bank credit facilities. We have both term and revolving lines of credit totaling $143.9 million, of which $106.2 million was outstanding as of March 31, 2000. We have a $30.0 million revolving line of credit and a $43.9 million term facility with a group of lenders. The facilities expire on January 20, 2006 and are secured by substantially all of the assets and stock of Z-Spanish Media, except for radio stations KLNZ-FM, Phoenix, and KZMP-FM, Dallas. The term facility contains scheduled quarterly repayments which began March 31, 2000. The revolving facility contains scheduled quarterly reductions in availability beginning March 31, 2001. Both facilities contain financial covenants including a requirement not to exceed a maximum debt to EBITDA ratio and interest and fixed charge coverage ratios. The facilities contain other operating covenants, including limits or our capital expenditures and restrictions on our ability to incur additional indebtedness and pay dividends. The facilities require us to maintain our FCC licenses for our broadcast properties. As of March 31, 2000, the balance outstanding on the revolving credit facility was $6.0 million and the balance outstanding on the term facility was $43.9 million. The interest rate on these facilities was 9.0% at March 31, 2000. Our acquisitions of KLNZ-FM and KZMP-FM were financed by a separate $20.0 million term facility with a group of lenders. This facility expires in full on December 31, 2000, and is secured by the assets KLNZ-FM and KZMP-FM. Outstanding borrowings under this facility were $18.1 million at March 31, 2000 bearing interest at 10.0%. The facility contains covenants, including restrictions on our ability to incur additional indebtedness and pay dividends and limits on capital expenditures. The terms of the facility also require us to maintain the FCC licenses on the two stations. Vista has a separate $15.0 million revolving credit facility and a $35.0 million term facility with a single lender. Both of these facilities expire September 30, 2006 and are secured by substantially all of the assets and stock of Vista. Vista's revolving facility contains scheduled quarterly reductions in availability beginning March 31, 2001, and the term facility requires quarterly repayments of principal beginning June 30, 2001. These facilities contain financial covenants including a requirement not to exceed a maximum debt to cash flow ratio, interest and fixed charge coverage ratios, and also limit Vista's corporate overhead expenditures. The facilities also contain operating covenants, including restrictions on Vista's ability to incur additional indebtedness and pay dividends. As of March 31, 2000, the balance outstanding on the revolving facility was $3.2 million, and the balance outstanding on the term facility was $35.0 million. The interest rate on these facilities was 9.1% at March 31, 2000. Net cash flow provided by operating activities was $0.3 million for the three months ended March 31, 2000 compared to net cash flow used in operating activities of $1.3 million for the three months ended March 31, 1999. Changes in our net cash flow from operating activities are primarily a result of changes in advertising revenues and station operating expenses, which are affected by the acquisition and disposition of stations during those periods. Net cash flow used in operating activities during 1999 decreased to $0.3 million compared to $4.4 million in 1998. The decrease was primarily due to acquisitions made in 1999 along with the inclusion of a full year of operations from acquisitions made in 1998. Net cash flow used in investing activities for the three months ended March 31, 2000 decreased to $1.0 million compared to $6.0 million for the three months ended March 31, 1999. During the 60 three months ended March 31, 1999, we made radio acquisitions totaling approximately $27.7 million. We funded these acquisitions through proceeds from the issuance of common stock. The funding of these acquisitions was partially offset by proceeds of approximately $20.5 million from radio station sales during the three months ended March 31, 1999. Net cash flow used in investing activities was $79.1 million in 1999 compared to net cash flow provided by investing activities of $32.3 million in 1998. During 1999, we made radio acquisitions totaling approximately $56.7 million, and Vista made acquisitions of billboard and outdoor advertising properties totaling approximately $36.9 million. We funded these acquisitions through a combination of proceeds from the issuance of common and preferred stock. The funding of these acquisitions was partially offset by proceeds of approximately $23.7 million from radio station sales during 1999. Additionally, capital expenditures, which included broadcast equipment for our radio stations, advertising displays, building, land, leasehold improvements and computer and telecommunications equipment, totaled $0.7 million for the three months ended March 31, 2000, compared to $0.6 million for the three months ended March 31, 1999. Capital expenditures totaled $5.5 million in 1999 and $2.0 million in 1998. The capital expenditures in 1999 included approximately $3.0 million in purchases of land for transmitter sites and studio/office buildings. Net cash flow used in financing activities was $3.3 million for the three months ended March 31, 2000 compared to net cash flow provided by financing activities of $17.1 million for the three months ended March 31, 1999. During the three months ended March 31, 2000, we made a scheduled debt repayment on our term loan of $1.1 million. We also made payments on our revolving lines of credit of $1.9 million. During the three months ended March 31, 1999, we received proceeds of $25.0 million from the issuance of common stock. A portion of these proceeds was used for acquisitions of radio stations. Net cash flow from financing activities was approximately $80.2 million during 1999. During 1999, we entered into new credit facilities totaling $130.0 million, of which approximately $70.6 million was used to repay the existing debt facilities. 61 BUSINESS Overview We are a leading diversified media company utilizing a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States. We operate in 32 of the top 50 U.S. Hispanic markets. We currently own and operate television stations in 18 U.S. markets. We are the largest Univision-affiliated station group in the United States. Univision is a key source of programming for our television broadcasting business and is a valuable strategic partner of ours. We also operate 64 radio stations in 23 markets, including leading Spanish-language stations in Los Angeles, San Francisco, Phoenix and Dallas-Ft. Worth. Our outdoor operations consist of approximately 11,200 billboards concentrated in high- density Hispanic communities in Los Angeles and New York. We also own two publications, El Diario/La Prensa, the oldest major Spanish-language daily newspaper in the United States, and VEA New York, a tourist publication. The LCG Acquisition. Through our acquisition of LCG on April 20, 2000 for $252 million, we added 17 radio stations to our 14 existing radio stations and LCG's publishing operations. LCG's radio stations are located in nine radio markets, including Los Angeles and San Francisco, which are two of the top ten U.S. Hispanic markets. The Z-Spanish Media Acquisition. Through our pending acquisition of Z- Spanish Media, we will become the largest group of Spanish-language radio stations and the largest centrally programmed radio network in the United States targeting primarily Hispanic listeners. Z-Spanish Media also operates one of the largest outdoor advertising companies in the United States focusing on the Hispanic market. We have agreed to purchase Z-Spanish Media for $475 million, which includes approximately $110 million of debt. The Infinity Broadcasting Outdoor Advertising Acquisition. We have agreed to acquire certain outdoor advertising assets from Infinity Broadcasting Corporation for $166.6 million consisting of approximately 1,200 billboards located in high-density communities in New York City. This acquisition is an asset purchase and we will acquire no new employees. Other Acquisitions. We have agreed to acquire two television stations in the Hartford and Orlando markets, two radio stations in the Los Angeles market and four radio stations in the McAllen, Texas market for an aggregate of approximately $181 million. The Hispanic Market Opportunity While Hispanics represent approximately 11% of the U.S. population and the U.S. Hispanic population is growing six times faster than the non-Hispanic population, they are currently targeted by less than 3% of total advertising dollars. Advertisers have recently begun to direct more advertising dollars toward U.S. Hispanics and, consequently, Spanish-language advertising is currently growing at more than four times the rate of total advertising. We believe that we have benefited and will continue to benefit from the following industry trends and attributes in the United States: Spanish-Language Use. Approximately 68% of all Hispanics, regardless of income or educational level, speak Spanish at home. This percentage is expected to remain relatively constant through 2010. The number of Hispanics who speak Spanish in the home is expected to grow from 22.1 million in 2000 to 27.8 million in 2010. We believe that the strong Spanish-language use among Hispanics indicates that Spanish-language media will continue to be an important source of news, sports and entertainment for Hispanics and an important vehicle for our marketing and advertising. 62 Hispanic Population Growth and Concentration. Our audience consists primarily of Hispanics, one of the fastest growing segments of the U.S. population. In 2000, the Hispanic population is estimated to grow to 32.4 million in the United States (11.8% of the total population), an increase of 36.4% from 23.7 million (9.5% of the total population) in 1990. The overall Hispanic population is growing at approximately six times the rate of the non- Hispanic U.S. population and is expected to grow to 42.4 million (14.2% of the total U.S. population) by 2010. Source: Standard & Poor's DRI. [HISPANIC POPULATION CHART] Greater Hispanic Buying Power. The Hispanic population accounted for total consumer expenditures of $380 billion in 1998, an increase of 76% since 1990. Hispanics are expected to account for $443 billion in consumer expenditures in 2000, and $939 billion by 2010. We believe these factors make Hispanics an attractive target audience for many major U.S. advertisers. Source: Standard & Poor's DRI. [HISPANIC CONSUMER SPENDING CHART] 63 Increased Spanish-Language Advertising. According to published sources, $1.9 billion of total advertising expenditures in the United States were placed in Spanish-language media in 1999. Approximately 58% of that $1.9 billion was placed in Spanish-language television advertising. We believe that major advertisers have found that Spanish-language media is a more cost-effective means to target the growing Hispanic audience than English-language broadcast media. Attractive Profile of Hispanic Consumers. We believe the demographic profile of the Hispanic audience makes it attractive to advertisers. The larger size and younger age of Hispanic households (averaging 3.4 persons and 27.5 years of age as compared to the general public's average of 2.5 persons and 36.5 years of age) lead Hispanics to spend more per household on many categories of goods and services. The average U.S. Hispanic household spends 27% more per year than the average non-Hispanic U.S. household on food at home, 100% more on children's clothing, 35% more on footwear, 12% more on phone services and 23% more on laundry and household cleaning products. We expect Hispanics to continue to account for a disproportionate share of growth in spending nationwide in many important consumer categories as the Hispanic population and its disposable income continue to grow. Business Strategy We seek to increase our advertising revenue through the following strategies: Effectively Use Our Network and Media Brands. We are the largest Univision television affiliate group, the largest operator of Spanish-language radio stations and the largest centrally programmed Spanish-language radio network in the United States. Univision reaches 92% of all Hispanic households and has an approximately 86% household share of the U.S. Spanish-language network television prime-time audience. Univision makes available to our television stations 24 hours a day of Spanish-language programming including a prime time schedule of substantially all first-run programming (i.e., no reruns) throughout the year. We operate our radio networks using seven primary formats designed to appeal to different listener tastes. We format the programming of our network and radio stations to capture a substantial share of the U.S. Hispanic audience. Invest in Media Research and Sales. We believe that continued use of reliable ratings and surveys will allow us to further increase our advertising rates and narrow the gap which has historically existed between our audience share and our share of advertising revenue. We use industry ratings and surveys, including Nielsen, Arbitron, the Traffic Audit Bureau and the Audit Bureau of Circulation, to provide a more accurate measure of consumers that we reach with our operations. We believe that our focused research and sales efforts will enable us to continue to achieve significant revenue growth. Continue to Build and Retain Strong Management Teams. We believe we have one of the most experienced management teams in the industry. Walter F. Ulloa, our Chairman and Chief Executive Officer, Philip C. Wilkinson, our President and Chief Operating Officer, Jeanette Tully, our Chief Financial Officer, Amador S. Bustos, the President of our Radio Division, and Glenn Emanuel, the President of our Outdoor Division, have an average of 20 years of media experience. We intend to continue to build and retain our key management personnel and to capitalize on their knowledge and experience in the Spanish-language markets. Emphasize Local Content, Programming and Community Involvement. We believe that local content in each market we serve is an important part of building our brand identity within the community. By combining our local news and quality network programming, we believe we have a 64 significant competitive advantage. We also believe that our active community involvement, including station remote broadcasting appearances at client and customer events, concerts and tie-ins to major events, helps to build station awareness and identity as well as viewer and listener loyalty. Increase In-Market Cross Promotion. Our strategy is to cross-promote our television and radio stations, outdoor and publishing properties. In addition, we believe we will add significant value to our advertisers by providing attractive media packages to target the Hispanic consumer. Target Other Attractive Hispanic Markets and Fill-In Acquisitions. We believe our knowledge of, and experience with, the Hispanic marketplace will enable us to continue to identify acquisitions in the television, radio, outdoor and publishing markets. Since our inception, we have used our management expertise, programming and brand identity to improve our acquired media properties. Television Overview We own and operate Univision-affiliated stations in 17 of the top 50 Hispanic markets in the United States. Our television operations are the largest affiliate group of Univision stations. Univision is the leading Spanish-language broadcaster in the United States, reaching more than 92% of all Hispanic households, which represents an approximately 86% market share of the U.S. Spanish-language network television audience as of December 1999. Univision is the most watched television network (English- or Spanish-language) among Hispanic households and makes available to our Univision-affiliated stations 24 hours a day of Spanish-language programming. Univision's prime time schedule is all first-run programming (i.e., no reruns) through the year. We believe that the breadth and diversity of Univision's programming, combined with our local news and community-oriented segments, provide us with an advantage over other Spanish-language and English-language broadcasters in reaching Hispanic viewers. Our local content is designed to brand each of our stations as the best source for relevant community information that accurately reflects local interests and needs. As a result, all but one of our Univision- affiliated stations rank first in Spanish-language television viewership in their markets. Television Programming Univision Network Programming. Univision directs its programming primarily toward its young, family-oriented audience. It begins daily with Despierta America and other talk and information shows, Monday through Friday, followed by novelas. In the late afternoon and early evening, Univision offers a talk show, a news-magazine and national news, in addition to local news produced by our television stations. During prime time, Univision airs novelas, variety shows, a talk show, comedies, news magazines and lifestyle shows, as well as specials and movies. Prime time is followed by late news and a late night talk show. Overnight programming consists primarily of repeats of programming aired earlier in the day. Weekend daytime programming begins with children's programming, followed by sports, variety, teen lifestyle shows and movies. Approximately eight to ten hours of programming per weekday, including a substantial portion of weekday prime time, are currently programmed with novelas supplied primarily by Grupo Televisa and Venevision. Although novelas have been compared to daytime soap operas on ABC, NBC or CBS, the differences are significant. Novelas, originally developed as serialized books, have a beginning, middle and end, generally run five days per week and conclude four to eight months 65 after they begin. Novelas also have a much broader audience appeal than soap operas, delivering audiences that contain large numbers of men, children and teens in addition to women. Entravision Local Programming. We produce and broadcast local news in all but two of our markets. We believe that our local news brands each of our stations in the market. We shape our local news to relate to our target audiences. In seven of our television markets, our local news is ranked first among viewers 18-34 in any language. We have made substantial investments in people and equipment in order to provide our local communities with quality newscasts. Our local newscasts have won numerous awards, and we strive to be the most important community voice in each of our local markets. Network Affiliation Agreements. All but four of our television stations have entered into network affiliation agreements with Univision that provide each station with the exclusive right to broadcast the Univision network programming in its respective market. These affiliation agreements have initial terms of 25 years expiring in 2021. Under the affiliation agreements, Univision retains the right to sell approximately six minutes per hour of the advertising time available during the Univision schedule, with the remaining six minutes per hour available for sale by our stations. Our network affiliation agreement with the United Paramount Network, or UPN, gives us the right to provide UPN network programming for a ten-year period on XUPN-TV serving the Tecate/San Diego market. A related participation agreement grants UPN a 20% interest in the appreciation of XUPN-TV above $35 million. XHAS-TV broadcasts Telemundo network programming serving the Tijuana/San Diego market pursuant to a network affiliation agreement which expires on December 31, 2000. We intend to renegotiate this contract when it expires. 66 Our Television Station Portfolio The following table lists information concerning each of our television stations and its respective market:
Market Rank (by Hispanic Total Hispanic % Hispanic Market Households)(1) Households(1) Households(1) Households(1) Call Letters, Channel - -------------------------------------------------------------------------------- Harlingen-Weslaco- 9 254,460 206,720 81.2% KNVO-TV, Channel 48 Brownsville-McAllen, Texas - ------------------------------------------------------------------------------------------------------------------ San Diego, California 11 980,620 189,110 19.3% KBNT-LP, Channel 19 KTCD-LP, Channel 46 (2) KHAX-LP, Channel 49 (2) - ------------------------------------------------------------------------------------------------------------------ Albuquerque-Santa Fe, 12 568,650 189,050 33.2% KLUZ-TV, Channel 41 New Mexico K48AM, Channel 48 - ------------------------------------------------------------------------------------------------------------------ El Paso, Texas 13 276,980 177,980 64.3% KINT-TV, Channel 26 - ------------------------------------------------------------------------------------------------------------------ Denver-Boulder, Colorado 16 1,268,230 137,780 10.9% KCEC-TV, Channel 50 K43DK, Channel 43 K03EM, Channel 3 - ------------------------------------------------------------------------------------------------------------------ Washington, D.C. 18 1,999,870 103,340 5.2% WMDO-LP, Channel 30 - ------------------------------------------------------------------------------------------------------------------ Corpus Christi, Texas 19 184,900 98,970 53.5% KORO-TV, Channel 28 - ------------------------------------------------------------------------------------------------------------------ Tampa-St. Petersburg 19 1,485,980 98,970 6.7% WBSV-TV, Channel 62 (Sarasota), Florida WVEA-LP, Channel 61 - ------------------------------------------------------------------------------------------------------------------ Orlando-Daytona Beach- 24 1,101,920 79,000 7.2% WNTO-TV, Channel 26 (3) Melbourne, Florida WVEN-LP, Channel 63 - ------------------------------------------------------------------------------------------------------------------ Las Vegas, Nevada 25 521,200 72,460 13.9% KINC-TV, Channel 15 K27AF, Channel 27 K47EG, Channel 47 - ------------------------------------------------------------------------------------------------------------------ Monterey-Salinas-Santa Cruz, 26 228,630 60,820 26.6% KSMS-TV, Channel 67 California - ------------------------------------------------------------------------------------------------------------------ Hartford-New Haven, 28 915,940 53,740 5.9% WHCT-TV, Channel 18 (3) Connecticut - ------------------------------------------------------------------------------------------------------------------ Laredo, Texas 31 54,540 50,350 92.3% KLDO-TV, Channel 27 - ------------------------------------------------------------------------------------------------------------------ Colorado Springs-Pueblo, 33 290,830 45,400 15.6% KGHB-LP, Channel 27 Colorado - ------------------------------------------------------------------------------------------------------------------ Santa Barbara-Santa 34 228,350 44,590 19.5% KPMR-TV, Channel 38 (3)(4) Maria-San Luis Obispo, California - ------------------------------------------------------------------------------------------------------------------ Yuma, Arizona-El Centro, 36 86,960 43,000 49.5% KVYE-TV, Channel 7 California - ------------------------------------------------------------------------------------------------------------------ Odessa-Midland, Texas 37 138,510 41,890 30.2% KUPB-TV, Channel 18 (4) - ------------------------------------------------------------------------------------------------------------------ Lubbock, Texas 39 147,570 39,700 26.9% KBZO-LP, Channel 51 - ------------------------------------------------------------------------------------------------------------------ Palm Springs, California 42 115,070 34,260 29.8% KVER-LP, Channel 4 K05JY, Channel 5 K28ET, Channel 28 - ------------------------------------------------------------------------------------------------------------------ Amarillo, Texas 43 191,450 31,460 16.4% K22FP, Channel 48 (4) - ------------------------------------------------------------------------------------------------------------------ San Angelo, Texas 66 51,460 13,920 27.1% K31DM, Channel 31 - ------------------------------------------------------------------------------------------------------------------ Tecate, Baja California, -- -- -- -- XUPN-TV, Channel 49 (5) Mexico - ------------------------------------------------------------------------------------------------------------------ Tijuana, Mexico -- -- -- -- XHAS-TV, Channel 33 (6)
(1) Source: Nielsen Media Research year 2000 population estimates. (2) We own a 47.5% equity interest in the entity that holds the FCC license to this station, with an option to acquire an additional 47.5%. We provide substantially all of the programming and related services available on this station pursuant to a time brokerage agreement. (3) Pending acquisition. (4) Regular broadcast operations not yet commenced. (5) We hold a minority, limited voting interest (neutral investment stock) in the entity that holds the broadcast license for this station. We provide substantially all of the programming and related services available on this station under a time brokerage agreement. (6) We hold a minority, limited voting interest (neutral investment stock) in the entity that has applied for the broadcast license for this station. We will provide substantially all of the programming and related services available on this station under a time brokerage agreement. 67 Television Advertising In 1998, 47% of our television revenue consisted of national television advertising sales and 52% of our television revenue consisted of local television advertising sales. National television advertising revenue accounted for 42% of our total television advertising revenue for 1999, with 57% being local television advertising revenue. In 1999, no single advertiser accounted for a significant portion of our gross revenue. National Advertising. National advertising revenue represents commercial time sold to a national advertiser within a specific market by Univision, our national representative firm. For these sales, Univision is paid a 15% commission on the net revenue from each sale (gross revenue less agency commission). We target the largest national Spanish-language advertisers that collectively purchase the greatest share of national advertisements through Univision. The Univision representative works closely with each station's national sales manager. This has enabled us to secure major national advertisers, including Ford Motor Company, General Motors, Southwestern Bell, McDonald's, Burger King and Anheuser-Busch. Local Advertising. Local advertising revenue is generated from commercial air time and is sold directly by the station to an in-market advertiser or its agency. Television Audience Research We derive our revenue primarily from selling advertising time. The relative advertising rates charged by competing stations within a market depend primarily on four factors: . the station's ratings (households or people viewing its programs as a percentage of total television households or people in the viewing area); . audience share (households or people viewing its programs as a percentage of households or people actually watching television at a specific time); . the time of day the advertising will run; and . the demographic qualities of a program's viewers (primarily age and gender). Nielsen ratings provide advertisers with the industry-accepted measure of Hispanic audience television viewership and have been important in allowing us to demonstrate to advertisers our ability to reach the Hispanic audience. We believe that continued use of accurate, reliable ratings will allow us to further increase our advertising rates and narrow the gap which has historically existed between our audience share and our share of advertising revenue. We have made significant investments in experienced sales managers and account executives and have provided our sales professionals with research tools to continue to attract major advertisers. The various Nielsen rating services that we use are described below: Nielsen Hispanic Station Index. This service measures Hispanic household viewing at the local market level. Each sample also reflects the varying levels of language usage by Hispanics in each market in order to more accurately reflect the Hispanic household population in the relevant market. Nielsen Hispanic Station Index only measures the audience viewing of Hispanic households, that is, households where the head of the household is of Hispanic descent or origin. Although this offers improvements over previous measurement indices, we believe it still underreports the number of viewers watching Entravision programming because we have viewers who do not live in Hispanic households. 68 Nielsen Station Index. This service measures local station viewing of all households in a specific market. We buy these reports in all of our markets to measure our viewing against both English- and Spanish-language competitors. This rating service, however, is not language-stratified and generally underrepresents Spanish-speaking households. As a result, we believe that this typically underreports viewing of Spanish-language television. Despite this limitation, the Nielsen Station Index demonstrates that many of our full-power broadcast stations achieve total market ratings that are fully comparable with their English-language counterparts, with five of our full-power television stations ranking as the top station in their respective markets. Television Competition We compete for viewers and revenues with other Spanish-language and English- language television stations and networks, including the four principal English-language television networks, ABC, CBS, NBC and Fox, and in certain cities, UPN and WB. Certain of these English-language networks and others have begun producing Spanish-language programming and simulcasting certain programming in English and Spanish. Several cable broadcasters have recently commenced, or announced their intention to commence, Spanish-language services as well. Telemundo is a large competitor that broadcasts Spanish-language television programming. As of December 31, 1999, Telemundo served 64 markets in the United States and Puerto Rico, and reached approximately 85% of all Hispanic households in those areas. In some of our markets, we compete directly with a station owned by or affiliated with Telemundo. We also compete for viewers and revenues with independent television stations, other video media, suppliers of cable television programs, direct broadcast systems, newspapers, magazines, radio and other forms of entertainment and advertising. Radio Overview We currently own and operate 64 radio stations in 23 markets. Our radio stations cover in aggregate approximately 60% of the Hispanic audience and 61 of our stations are located in the top 50 Hispanic markets. We also provide programming to 47 affiliate stations in 46 markets. Our radio operations combine national programming with local time slots available for advertising, news, traffic, weather, promotions and community events. This strategy allows us to provide quality programming with significantly lower costs of operations than we could otherwise deliver solely with independent programming. Radio Programming Radio Networks. Through our radio network, we have created the single largest U.S. Hispanic radio market, currently with over 17 million potential listeners. Our networks allow listeners to call a toll-free number and communicate with family and friends across our markets. Our networks also allow clients with national product distribution to deliver a uniform advertising message to the fast growing Hispanic market around the country in an efficient manner and at a cost that is generally lower than our English-language counterparts. 69 Although our networks have a broad reach across the United States, technology allows our stations to offer the necessary local feel and to be responsive to local clients and community needs. Designated time slots are used for local advertising, news, traffic, weather, promotions and community events. The audience gets the benefit of a national radio sound along with local content. To further enhance this effect, our on-air personalities frequently travel to participate in local promotional events. For example, in selected key markets our on-air personalities appear at special shows on location for network-wide broadcast. We promote these events as "broadcasting live from" to bond the national personalities to local listeners. Furthermore, all of our stations can disconnect from the networks and operate independently in the case of a local emergency or a problem with the central satellite transmission. Our network formats are currently used by 47 affiliates located in 46 markets across the United States. Our affiliates receive our programming in exchange for two minutes per hour for network commercials. Affiliates are allowed up to 16 minutes per hour for local advertisements and content. Our affiliates receive quality programming at a significantly lower cost than they could produce themselves. We benefit by having extended national coverage without the capital expenditures necessary to buy and manage stations in those markets. The extended coverage also allows the network to charge higher rates as its delivery of the U.S. Hispanic market grows. Radio Formats. We produce programming in a variety of music formats that are simultaneously distributed via satellite with a digital CD-quality sound to our owned and affiliate stations. We offer seven primary formats which appeal to different listener preferences: . Radio Romantica is an adult-contemporary, romantic ballads/current hits format, targeting Hispanics 18-49 (primarily females). . Radio Tricolor is a personality-driven, Mexican country-style format, targeting Hispanics 18-49 (primarily males). . Super Estrella is a music-driven, pop and alternative Spanish rock format, targeting Hispanics 18-34 (males and females). . La Zeta is a top hits Spanish format with recognizable radio personalities. The music is primarily from the northern and central regions of Mexico, targeting Hispanics 18-49 (primarily males). . La Bonita is an international Spanish classic hits/nostalgia format, targeting Hispanics 25-54 (primarily females). . La Buena is a Spanish version of an English format called "young country." This music-intensive format features music primarily from central and northern Mexico, targeting Hispanics 18-34 (males and females). . Z MegaHits is an English-language rhythmic oldies format consisting of 70's and early 80's top 40 hits geared to second and third generation Hispanics, targeting Hispanics 25-54 (primarily females). 70 Our Radio Station Portfolio The following table lists information concerning each of our owned and operated radio stations and its respective market:
Market Rank (by Hispanic Market Households)(1) Station Frequency Format - ------------------------------------------------------------------------------------------------- Los Angeles, California 1 KACD-FM 103.1 MHz Super Estrella (2) KBCD-FM 103.1 MHz Super Estrella (2) KSSE-FM 97.5 MHz Super Estrella Riverside-San Bernardino, KCAL-AM 1410 kHz Radio Tricolor California KSZZ-AM 590 kHz Radio Tricolor - ------------------------------------------------------------------------------------------------- Miami-Ft. Lauderdale- 3 WLQY-AM 1320 kHz Time Brokered (3) Hollywood, Florida - ------------------------------------------------------------------------------------------------- San Francisco-San Jose, 4 KBRG-FM 100.3 MHz Radio Romantica California KLOK-AM 1170 kHz Radio Tricolor KZSF-AM 1370 kHz La Zeta - ------------------------------------------------------------------------------------------------- Chicago, Illinois 5 WRZA-FM 99.9 MHz La Zeta WZCH-FM 103.9 MHz La Zeta WNDZ-AM 750 kHz Time Brokered (3) - ------------------------------------------------------------------------------------------------- Houston-Galveston, Texas 6 KGOL-AM 1180 kHz Time Brokered (3) - ------------------------------------------------------------------------------------------------- Dallas-Ft. Worth, Texas 8 KRVA-FM (4) 106.9 MHz La Buena KRVF-FM (4) 107.1 MHz La Buena KZMP-FM 101.7 MHz La Zeta KRVA-AM 1600 kHz La Buena KZMP-AM 1540 kHz La Bonita - ------------------------------------------------------------------------------------------------- Harlingen-Weslaco- Brownsville-McAllen, 9 KFRQ-FM (5) 94.5 MHz Classic Rock Texas KKPS-FM (5) 99.5 MHz Tejano KVLY-FM (5) 107.9 MHz Adult Contemporary KVPA-FM (5) 101.1 MHz International Spanish Hits - ------------------------------------------------------------------------------------------------- Phoenix, Arizona 10 KLNZ-FM 103.5 MHz La Zeta KVVA-FM 107.1 MHz Spanish Contemporary KUET-AM (6) 710 kHz -- - ------------------------------------------------------------------------------------------------- Albuquerque-Santa Fe, New Mexico 12 KRZY-FM 105.9 MHz Radio Romantica KRZY-AM 1450 kHz Radio Tricolor - ------------------------------------------------------------------------------------------------- El Paso, Texas 13 KINT-FM 93.9 MHz La Caliente (top 40) KATH-FM 94.7 MHz Country (English) KOFX-FM 92.3 MHz Oldies (English) KSVE-AM 1150 kHz Radio Unica KBIV-AM (7) 1650 kHz -- - ------------------------------------------------------------------------------------------------- Fresno, California 14 KZFO-FM 92.1 MHz La Zeta KHOT-AM 1250 kHz La Bonita - ------------------------------------------------------------------------------------------------- Sacramento, California 15 KHZZ-FM 104.3 MHz Z MegaHits KRCX-FM 99.9 MHz Radio Tricolor KRRE-FM 101.9 MHz Radio Romantica KZSA-FM 92.1 MHz La Zeta KSQR-AM 1240 kHz La Bonita Stockton, California KMIX-FM 100.9 MHz La Buena KCVR-AM 1570 kHz La Bonita Modesto, California KTDO-FM 98.9 MHz Z MegaHits KZMS-FM 97.1 MHz La Zeta KLOC-AM (8) 920 kHz La Bonita - ------------------------------------------------------------------------------------------------- Denver-Boulder, Colorado 16 KJMN-FM 92.1 MHz Radio Romantica KMXA-AM 1090 kHz Radio Tricolor - ------------------------------------------------------------------------------------------------- Washington, D.C. 18 WACA-AM (9) 1540 kHz Time Brokered (3) - ------------------------------------------------------------------------------------------------- Tucson, Arizona 21 KZLZ-FM 105.3 MHz La Zeta - ------------------------------------------------------------------------------------------------- Las Vegas, Nevada 25 KVBC-FM 105.1 MHz Radio Romantica - ------------------------------------------------------------------------------------------------- Monterey-Salinas-Santa 26 KLOK-FM 99.5 MHz Radio Tricolor Cruz, California KHMZ-FM (4)(8) 97.9 MHz Z MegaHits KHNZ-FM (4) 106.3 MHz Z MegaHits KRAY-FM 103.5 MHz La Buena KSES-FM 107.1 MHz Super Estrella KZSL-FM 93.9 MHz La Zeta KCTY-AM (8) 980 kHz La Bonita KSES-AM 700 kHz Super Estrella KTGE-AM (8) 1570 kHz Regional Mexican - ------------------------------------------------------------------------------------------------- Brawley, California 36 KWST-FM 94.5 MHz Country (English) El Centro, California KAMP-AM 1430 kHz News/Talk Imperial, California KMXX-FM 99.3 MHz Radio Tricolor - ------------------------------------------------------------------------------------------------- Lubbock, Texas 39 KBZO-AM 1460 kHz La Zeta - ------------------------------------------------------------------------------------------------- Palm Springs, California 42 KLOB-FM 94.7 MHz Radio Tricolor - ------------------------------------------------------------------------------------------------- Reno, Nevada 51 KRNV-FM 101.7 MHz Radio Tricolor - ------------------------------------------------------------------------------------------------- Chico, California 69 KZCO-FM 97.7 MHz Z MegaHits KEWE-AM 1340 kHz Time Brokered (3)
71 (1) Source: Nielsen Media Research year 2000 population estimates. (2) Pending acquisition--intended format. (3) Operated pursuant to a local marketing agreement under which we grant to the operator the right to program the station. (4) Simulcast station. (5) Pending acquisition. (6) Under an FCC construction permit. (7) Not yet operating--expanded band for Station KSVE-AM. (8) We intend to divest this station in order to comply with FCC rules. (9) We have agreed to sell this station, the closing of which we expect will take place after the closing of this offering. Radio Advertising Substantially all of the revenue from our radio operations is derived from local, national and network advertising. Local. This form of revenue refers to advertising usually purchased by a local client or agency directly from the station's sales force. In 1999, local radio revenue comprised 64% of our total radio revenue. National. This form of revenue refers to advertising purchased by a national client targeting a specific market. Usually this business is placed by a national advertising agency or media buyer and ordered through one of the offices of our national sales representative, Caballero Spanish Media. The national accounts are handled locally by the station's general sales manager. In 1999, 26% of our total radio revenue was from national radio advertising. Network. This form of revenue refers to advertising that is placed on our entire network of stations. This business is placed as a single order and is broadcast from the network's central location. The network advertising can be placed by a local account executive that has a client in its market that wants national exposure. Network inventory can also be sold by corporate executives, by our national representative or by two other entities with whom we have network sales agreements, the Jones Radio Network and the Hispanic Broadcasting Company Radio Network. In 1999, network radio revenue accounted for 10% of our total radio revenue. Radio Marketing/Audience Research We believe that radio is an efficient means for advertisers to reach targeted demographic groups. Advertising rates charged by our radio stations are based primarily on the following factors: . the station's ability to attract listeners in a given market; . the demand for available air time; . the attractiveness of the demographic qualities of the listeners (primarily age and purchasing power); . the time of day that the advertising runs; . the program's popularity with listeners; and . the availability of alternative media in the market. 72 In the smaller and mid-sized markets, Spanish-language radio continues to be more of a concept sale. In the larger markets, Arbitron provides advertisers with the industry-accepted measure of listening audience classified by demographic segment and time of day that the listeners spend on particular radio stations. Radio advertising rates generally are highest during the morning and afternoon drive-time hours which are the peak times for radio audience listening. We believe that having multiple stations in a market is desirable to enable the broadcaster to provide alternatives and to command higher advertising rates and budget share. Historically, advertising rates for Spanish-language radio stations have been lower than those of English-language stations with similar audience levels. We believe we will be able to increase our rates as new and existing advertisers recognize the growing desirability of targeting the Hispanic population in the United States. Each station broadcasts an optimal number of advertisements each hour, depending upon its format, in order to maximize the station's revenue without jeopardizing its audience listenership. Our owned stations have up to 15 minutes per hour for commercial inventory and local content. Our network has up to four additional minutes of commercial inventory per hour. The pricing is based on a rate card and negotiations subject to the supply and demand for the inventory in each particular market and the network. Radio Competition Radio broadcasting is a highly competitive business. The financial success of each of our radio stations and markets depends in large part on our audience ratings, our ability to increase our market share of the overall radio advertising revenue and the economic health of the market. In addition, our advertising revenue depends upon the desire of advertisers to reach our audience demographic. Each of our radio stations competes for audience share and advertising revenue directly with both Spanish-language and English- language radio stations in its market, and with other media within their respective markets, such as newspapers, broadcast and cable television, magazines, billboard advertising, transit advertising and direct mail advertising. Our primary competitors in our markets in Spanish-language radio are Hispanic Broadcasting Corporation, Radio Unica Communications Corp. and Spanish Broadcasting System, Inc. Several of the companies with which we compete are large national or regional companies that have significantly greater resources and longer operating histories than we do. Factors that are material to competitive position include management experience, the station's rank in its market, signal strength and audience demographics. If a competing station within a market converts to a format similar to that of one of our stations, or if one of our competitors upgrades its stations, we could suffer a reduction in ratings and advertising revenue in that market. The audience ratings and advertising revenue of our individual stations are subject to fluctuation and any adverse change in a particular market could have a material adverse effect on our operations. The radio industry is subject to competition from new media technologies that are being developed or introduced, such as: . audio programming by cable television systems, direct broadcast satellite systems, Internet content providers and other digital audio broadcast formats; . satellite digital audio service, which could result in the introduction of new satellite radio services with sound quality comparable to that of compact disks; and . in-band on-channel digital radio, which could provide multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services. 73 Outdoor Advertising/Publishing Overview Our outdoor and publishing operations complement our television and radio businesses and will allow for cross-promotional opportunities. Because of its repetitive impact and relatively low cost, outdoor advertising attracts national, regional and local advertisers. We offer the ability to target specific demographic groups on a cost-effective basis as compared to other advertising media. In addition, we provide businesses with advertising opportunities in locations near their stores or outlets. Our outdoor portfolio adds to our television and radio reach by providing local advertisers with significant coverage of the Hispanic communities in Los Angeles and New York. Our outdoor advertising strategy is designed to complement our existing television and radio businesses by allowing us to capitalize on our Hispanic market expertise. The primary components of our strategy are to leverage the strengths of our inventory, continue to focus on ethnic communities and increase market penetration. Outdoor Advertising Markets We own approximately 11,200 billboards concentrated in high-density Hispanic communities in Los Angeles and New York, the two largest markets in the United States. According to the Outdoor Advertising Association of America, Inc., an industry trade association, outdoor advertising in the United States generated total revenue of approximately $4.8 billion in 1999, compared to $4.4 billion in 1998. We believe our outdoor advertising appeals to both large and small businesses. Los Angeles. The greater Los Angeles market has a population of approximately 15.3 million, of which approximately six million or 39% are Hispanic. As such, Los Angeles ranks as the largest Hispanic advertising market in the United States. Approximately 87% of our billboard inventory in Los Angeles is located in neighborhoods where Hispanics represent at least 30% of the local population, based on the 1990 Census Report. We believe that this coverage of the Hispanic population has increased significantly since 1990 as the Hispanic community continues to grow into communities previously populated by other demographic groups. The Los Angeles metropolitan area has miles of freeways and surface streets where the average commuter spends in excess of 75 minutes per day in the car. New York. The greater New York City area has a population of approximately 18.3 million, of which approximately 3.2 million or 17.6% are Hispanic. As such, New York ranks as the second largest Hispanic advertising market in the United States. Billboard Inventory
Inventory Type Los Angeles New York - -------------- ----------- -------- 8-sheet posters............................................ 6,000 3,500 City-Lights................................................ 250 0 30-sheet posters........................................... 0 1,075 Wall-Scapes................................................ 5 187 Bulletins.................................................. 20 164 ----- ----- Total...................................................... 6,275 4,926 ===== =====
74 Our inventory consists of the following types of billboards that are typically located on sites that we have leased or have a permanent easement: 8-sheet posters are generally 6 feet high by 12 feet wide. Due to the smaller size of this type of billboard, 8-sheet posters are often located in densely populated or fast growing areas where larger signs do not fit or are not permitted, such as parking lots and other tight areas. Accordingly, most of our 8-sheet posters are concentrated on city streets, targeting both pedestrian and vehicular traffic and are sold to advertisers for periods of four weeks. City-Lights is a product we created in 1998 to serve national advertisers with a new advertising format visible both during the day and night. The format is typically used by national fashion, entertainment and consumer products companies desiring to target consumers within proximity of local malls or retail outlets. A City-Lights structure is approximately 7 feet by 10 feet set vertically on a single pole structure. The advertisement is usually housed in an illuminated glass casing for greater visibility at night and is sold to advertisers for a period of four weeks. 30-sheet posters are generally 12 feet high by 25 feet wide and are the most common type of billboard. Lithographed or silk-screened paper sheets that are supplied by the advertiser are pre-pasted and packaged in airtight bags by the outdoor advertising company and applied, like wallpaper, to the face of the display. The 30-sheet posters are concentrated on major traffic arteries and space is usually sold to advertisers for periods of four weeks. Wall-Scapes generally consist of advertisements ranging in a variety of sizes (from 120 to 800 square feet) which are displayed on the sides of buildings in densely populated locations. Advertising formats can include either vinyl prints or painted artwork. Because of a Wall-Scape's greater impact and higher cost relative to other types of billboards, space is usually sold to advertisers for periods of six to 12 months. Bulletins are generally 14 feet high and 48 feet wide and consist of panels or a single sheet of vinyl that are hand painted at the facilities of the outdoor advertising company or computer painted in accordance with design specifications supplied by the advertiser and mounted to the face of the display. Because of painted bulletins' greater impact and higher cost relative to other types of billboards, they are usually located near major highways and are sold for periods of six to 12 months. Outdoor Advertising Revenue Advertisers usually contract for outdoor displays through advertising agencies, which are responsible for the artistic design and written content of the advertising. Advertising contracts are negotiated on the basis of monthly rates published in our "rate card." These rates are based on a particular display's exposure (or number of "impressions" delivered) in relation to the demographics of the particular market and its location within that market. The number of "impressions" delivered by a display (measured by the number of vehicles passing the site during a defined period and weighted to give effect to such factors as its proximity to other displays and the speed and viewing angle of approaching traffic) is determined by surveys that are verified by the Traffic Audit Bureau, an independent agency which is the outdoor advertising industry's equivalent of television's Nielsen ratings and radio's Arbitron ratings. In each of our markets, we employ salespeople who sell both local and national advertising. Our 1999 outdoor advertising revenue mix consisted of approximately 60% national advertisers and 40% local advertisers. We believe that our local sales force is crucial to maintaining relationships with key advertisers and agencies and identifying new advertisers. 75 Outdoor Advertising Competition We compete in each of our outdoor markets with other outdoor advertisers including Infinity Broadcasting Corporation, Clear Channel Communications, Inc., J.C. Decaux, Medallion Financial Corp., Ackerley Communications, Inc., Regency Outdoor, and PNE Media, LLC. Many of these competitors have a larger national network and may have greater total resources than we have. In addition, we also compete with a wide variety of out-of-home media, including advertising in shopping centers, airports, stadiums, movie theaters and supermarkets, as well as on taxis, trains and buses. In competing with other media, outdoor advertising relies on its relative cost efficiency and its ability to reach a segment of the population with a particular set of demographic characteristics within that market. Publishing We publish El Diario/La Prensa, which is the oldest major Spanish-language daily newspaper in the United States and the largest Spanish-language newspaper in the Northeast. El Diario/La Prensa has a daily paid circulation of approximately 50,000. El Diario/La Prensa won the award for "Outstanding Spanish-Language Daily" from the National Association of Hispanic Publications in 1994 and 1996. We also own VEA New York, a quarterly tourist publication with a current circulation of approximately 105,000. VEA New York serves visitors to New York from Latin America, Spain and other Spanish-language markets. The majority of revenues come from classified advertising and circulation sales. The top ten advertisers by dollar volume in 1999 accounted for 10% of the newspaper's total advertising revenues. Material Trademarks, Trade Names and Service Marks In the course of our business, we use various trademarks, trade names and service marks, including our logos, in our advertising and promotions. We believe the strength of our trademarks, trade names and service marks are important to our business and intend to protect and promote them as appropriate. We do not hold or depend upon any material patent, government license, franchise or concession, except our broadcast licenses granted by the FCC. Employees As of March 31, 2000, giving effect to our acquisitions of LCG and Z-Spanish Media, we had approximately 1,100 full-time employees, including 544 full-time employees in television, 354 full-time employees in radio, 46 full-time employees in outdoor and 156 full-time employees in publishing. As of March 31, 2000, 146 of our publishing employees were represented by labor unions that have entered into collective bargaining agreements with us. As of March 31, 2000, five of our outdoor employees were represented by labor unions that have entered into or are currently in negotiations for collective bargaining agreements with us. We believe our relations with our employees are good. 76 Regulation of Television and Radio Broadcasting General. The FCC regulates television and radio broadcast stations pursuant to the Communications Act. Among other things, the FCC: . determines the particular frequencies, locations and operating power of stations; . issues, renews, revokes and modifies station licenses; . regulates equipment used by stations; and . adopts and implements regulations and policies that directly or indirectly affect the ownership, changes in ownership, control, operation and employment practices of stations. A licensee's failure to observe the requirements of the Communications Act or FCC rules and policies may result in the imposition of various sanctions, including admonishment, fines, the grant of renewal terms of less than eight years, the grant of a license with conditions or, in the case of particularly egregious violations, the denial of a license renewal application, the revocation of an FCC license or the denial of FCC consent to acquire additional broadcast properties. Congress and the FCC have had under consideration or reconsideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of our television and radio stations, result in the loss of audience share and advertising revenue for our television and radio broadcast stations or affect our ability to acquire additional television and radio broadcast stations or finance such acquisitions. Such matters may include: . changes to the license authorization and renewal process; . proposals to impose spectrum use or other fees on FCC licensees; . changes to the FCC's equal employment opportunity regulations and other matters relating to involvement of minorities and women in the broadcasting industry; . proposals to change rules relating to political broadcasting including proposals to grant free air time to candidates, and other changes regarding program content; . proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages; . technical and frequency allocation matters, including creation of a new Class A television service for existing low-power television stations and a new low-power FM radio broadcast service; . the implementation of digital audio broadcasting on both satellite and terrestrial bases; . the implementation of rules governing the transmission of local television signals by direct broadcast satellite services in their local areas; . changes in broadcast multiple ownership, foreign ownership, cross- ownership and ownership attribution policies; and . proposals to alter provisions of the tax laws affecting broadcast operations and acquisitions. We cannot predict what changes, if any, might be adopted, nor can we predict what other matters might be considered in the future, nor can we judge in advance what impact, if any, the implementation of any particular proposal or change might have on our business. FCC Licenses. Television and radio stations operate pursuant to licenses that are granted by the FCC for a term of eight years, subject to renewal upon application to the FCC. During the periods 77 when renewal applications are pending, petitions to deny license renewal applications may be filed by interested parties, including members of the public. The FCC is required to hold hearings on renewal applications if it is unable to determine that renewal of a license would serve the public interest, convenience and necessity, or if a petition to deny raises a "substantial and material question of fact" as to whether the grant of the renewal applications would be inconsistent with the public interest, convenience and necessity. However, the FCC is prohibited from considering competing applications for a renewal applicant's frequency, and is required to grant the renewal application if it finds: . that the station has served the public interest, convenience and necessity; . that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC; and . that there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute a pattern of abuse. If as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet the requirements for renewal and that no mitigating factors justify the imposition of a lesser sanction, the FCC may deny a license renewal application. Historically, FCC licenses have generally been renewed. We have no reason to believe that our licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of our stations' licenses could have a material adverse effect on our business. Ownership Matters. The Communications Act requires prior approval of the FCC for the assignment of a broadcast license or the transfer of control of a corporation or other entity holding a license. In determining whether to approve an assignment of a television or radio broadcast license or a transfer of control of a broadcast licensee, the FCC considers a number of factors pertaining to the licensee including compliance with various rules limiting common ownership of media properties, the "character" of the licensee and those persons holding "attributable" interests therein, and the Communications Act's limitations on foreign ownership and compliance with the FCC rules and regulations. To obtain the FCC's prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the FCC. If the application to assign or transfer the license involves a substantial change in ownership or control of the licensee, for example, the transfer or acquisition of more than 50% of the voting stock, the application must be placed on public notice for a period of 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. If an assignment application does not involve new parties, or if a transfer of control application does not involve a "substantial change" in ownership or control, it is a pro forma application, which is not subject to the public notice and 30 day petition to deny procedure. The regular and pro forma applications are nevertheless subject to informal objections that may be filed any time until the FCC acts on the application. If the FCC grants an assignment or transfer application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. The FCC has an additional ten days to set aside such grant on its own motion. When ruling on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application. 78 Under the Communications Act, a broadcast license may not be granted to or held by persons who are not U.S. citizens, by any corporation that has more than 20% of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives or by non-U.S. corporations. Furthermore, the Communications Act provides that no FCC broadcast license may be granted to or held by any corporation directly or indirectly controlled by any other corporation of which more than 25% of its capital stock is owned of record or voted by non-U.S. citizens or entities or their representatives, or foreign governments or their representatives or by non-U.S. corporations, if the FCC finds the public interest will be served by the refusal or revocation of such license. Thus, the licenses for our stations could be revoked if more than 25% of our outstanding capital stock is issued to or for the benefit of non-U.S. citizens in excess of these limitations. Our first restated certificate of incorporation restricts the ownership and voting of our capital stock to comply with these requirements. The FCC generally applies its other broadcast ownership limits to "attributable" interests held by an individual, corporation or other association or entity. In the case of a corporation holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the stock of a licensee corporation are generally deemed attributable interests, as are positions as an officer or director of a corporate parent of a broadcast licensee. Stock interests held by insurance companies, mutual funds, bank trust departments and certain other passive investors that hold stock for investment purposes only become attributable with the ownership of 20% or more of the voting stock of the corporation holding broadcast licenses. A time brokerage agreement with another television or radio station in the same market creates an attributable interest in the brokered television or radio station as well for purposes of the FCC's local television or radio station ownership rules, if the agreement affects more than 15% of the brokered television or radio station's weekly broadcast hours. Debt instruments, non-voting stock, options and warrants for voting stock that have not yet been exercised, insulated limited partnership interests where the limited partner is not "materially involved" in the media-related activities of the partnership and minority voting stock interests in corporations where there is a single holder of more than 50% of the outstanding voting stock whose vote is sufficient to affirmatively direct the affairs of the corporation generally do not subject their holders to attribution. However, the FCC recently adopted a new rule, known as the equity-debt-plus rule, that causes certain creditors or investors to be attributable owners of a station, regardless of whether there is a single majority stockholder or other applicable exception to the FCC's attribution rules. Under this new rule, a major programming supplier (any programming supplier that provides more than 15% of the station's weekly programming hours) or a same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station's total debt plus equity. For purposes of the equity-debt-plus rule, equity includes all stock, whether voting or nonvoting, and equity held by insulated limited partners in limited partnerships. Debt includes all liabilities, whether long-term or short-term. 79 Generally, the FCC only permits an owner to have one television station per market. A single owner is permitted to have two stations with overlapping signals so long as they are assigned to different markets. Recent changes to the FCC's rules regarding ownership now permit an owner to operate two television stations assigned to the same market so long as either: . the television stations do not have overlapping broadcast signals; or . there will remain after the transaction eight independently owned, full power noncommercial or commercial operating television stations in the market and one of the two commonly-owned stations is not ranked in the top four based upon audience share. The FCC will consider waiving these ownership restrictions in certain cases involving failing or failed stations or stations which are not yet built. The FCC permits a television station owner to own one radio station in the same market as its television station. In addition, a television station owner is permitted to own additional radio stations, not to exceed the local ownership limits for the market, as follows: . in markets where 20 media voices will remain, an owner may own an additional five radio stations, or, if the owner only has one television station, an additional six radio stations; and . in markets where ten media voices will remain, an owner may own an additional three radio stations. A "media voice" includes each independently-owned and operated full-power television and radio station and each daily newspaper that has a circulation exceeding 5% of the households in the market, plus one voice for all cable television systems operating in the market. The FCC has eliminated the limitation on the number of radio stations a single individual or entity may own nationwide and increased the limits on the number of stations an entity or individual may own in a market as follows: . In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial radio stations, not more than five of which are in the same service (AM or FM). . In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same service (AM or FM). . In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same service (AM or FM). . In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50% of the radio stations in such market. The FCC staff has notified the public of its intention to review transactions that comply with these numerical ownership limits but that might involve undue concentration of market share. Because of these multiple and cross-ownership rules, if a stockholder, officer or director of Entravision holds an "attributable" interest in Entravision, such stockholder, officer or director may 80 violate the FCC's rules if such person or entity also holds or acquires an attributable interest in other television or radio stations or daily newspapers, depending on their number and location. If an attributable stockholder, officer or director of Entravision violates any of these ownership rules, we may be unable to obtain from the FCC one or more authorizations needed to conduct our broadcast business and may be unable to obtain FCC consents for certain future acquisitions. In connection with our acquisitions of LCG and Z-Spanish Media, we are required to comply with the FCC rules governing multiple ownership of radio and television stations. The addition of the Z-Spanish Media radio stations to the LCG radio stations being acquired in the Monterey-Salinas-Santa Cruz, California radio market, together with our existing ownership of a television station in that market, will result in our owning up to three more radio stations than are permitted by the FCC's radio multiple ownership rules. In order to comply with these rules, we intend to divest of up to three stations in the Monterey-Salinas-Santa Cruz market. In addition, the Z-Spanish Media radio stations, when combined with the LCG radio stations in the Modesto, California market, may result in our owning one more radio station than is permitted by the FCC's rules. In order to comply with these rules, we may be required to divest of one station in this market. The Communications Act requires broadcasters to serve the "public interest." The FCC has relaxed or eliminated many of the more formalized procedures it developed to promote the broadcast of certain types of programming responsive to the needs of a broadcast station's community of license. Nevertheless, a broadcast licensee continues to be required to present programming in response to community problems, needs and interests and to maintain certain records demonstrating its responsiveness. The FCC will consider complaints from the public about a broadcast station's programming when it evaluates the licensee's renewal application, but complaints also may be filed and considered at any time. Stations also must pay regulatory and application fees, and follow various FCC rules that regulate, among other things, political broadcasting, the broadcast of obscene or indecent programming, sponsorship identification, the broadcast of contests and lotteries and technical operation. The FCC requires that licensees must not discriminate in hiring practices, and shall develop and implement programs designed to promote equal employment opportunities and submit reports to the FCC on these matters periodically and in connection with each license renewal application. The FCC rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another radio station in the same broadcast service (that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee owns both radio broadcast stations or owns one and programs the other through a local marketing agreement, provided that the contours of the radio stations overlap in a certain manner. "Must Carry" Rules. FCC regulations implementing the Cable Television Consumer Protection and Competition Act of 1992 require each television broadcaster to elect, at three year intervals beginning October 1, 1993, to either: . require carriage of its signal by cable systems in the station's market, which is referred to as "must carry" rules; or . negotiate the terms on which such broadcast station would permit transmission of its signal by the cable systems within its market which is referred to as "retransmission consent." We have elected "must carry" with respect to each of our full-power stations. 81 Time Brokerage Agreements. We have, from time to time, entered into local marketing agreements, generally in connection with pending station acquisitions. By using local marketing agreements, we can provide programming and other services to a station proposed to be acquired before we receive all applicable FCC and other governmental approvals. FCC rules and policies generally permit time brokerage agreements if the station licensee retains ultimate responsibility for and control of the applicable station. We cannot be sure that we will be able to air all of our scheduled programming on a station with which we have local marketing agreements or that we will receive the anticipated revenue from the sale of advertising for such programming. Stations may enter into cooperative arrangements known as joint sales agreements. Under the typical joint sales agreement, a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station in the same market. It also involves the provision by the selling party of certain sales, accounting and services to the station whose advertising is being sold. Unlike a local marketing agreement, the typical joint sales agreement does not involve programming. As part of its increased scrutiny of radio and television station acquisitions, the Department of Justice has stated publicly that it believes that local marketing agreements and joint sales agreements could violate the Hart-Scott-Rodino Antitrust Improvements Act of 1976 if such agreements take effect prior to the expiration of the waiting period under such Act. Furthermore, the Department of Justice has noted that joint sales agreements may raise antitrust concerns under Section 1 of the Sherman Antitrust Act and has challenged them in certain locations. The Department of Justice also has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to television and radio station acquisitions, above which a transaction may receive additional antitrust scrutiny. Digital Television Services. The FCC has adopted rules for implementing digital television service in the United States. Implementation of digital television will improve the technical quality of television signals and provide broadcasters the flexibility to offer new services, including high-definition television and data broadcasting. The FCC has established service rules and adopted a table of allotments for digital television. Under the table, certain eligible broadcasters with a full- power television station are allocated a separate channel for digital television operation. Stations will be permitted to phase in their digital television operations over a period of years after which they will be required to surrender their license to broadcast the analog, or non-digital television signal. Our stations must be on the air with a digital signal by May 1, 2002. We must return one of our paired channels for each station to the government by 2006. Equipment and other costs associated with the transition to digital television, including the necessity of temporary dual-mode operations and the relocation of stations from one channel to another, will impose some near-term financial costs on television stations providing the services. The potential also exists for new sources of revenue to be derived from digital television. We cannot predict the overall effect the transition to digital television might have on our business. Digital Radio Services. The FCC currently is considering standards for evaluating, authorizing and implementing terrestrial digital audio broadcasting technology, including In-Band On-Channel(TM) technology for FM radio stations. Digital audio broadcasting's advantages over traditional analog broadcasting technology include improved sound quality and the ability to offer a greater variety of 82 auxiliary services. In-Band On-Channel(TM) technology would permit an FM station to transmit radio programming in both analog and digital formats, or in digital only formats, using the bandwidth that the radio station is currently licensed to use. It is unclear what regulations the FCC will adopt regarding digital audio broadcasting or In-Band On-Channel(TM) technology and what effect such regulations would have on our business or the operations of our radio stations. Radio Frequency Radiation. The FCC has adopted rules limiting human exposure to levels of radio frequency radiation. These rules require applicants for renewal of broadcast licenses or modification of existing licenses to inform the FCC whether the applicant's broadcast facility would expose people or employees to excessive radio frequency radiation. We believe that all of our stations are in compliance with the FCC's current rules regarding radio frequency radiation. Satellite Digital Audio Radio Service. The FCC has allocated spectrum to a new technology, satellite digital audio radio service, to deliver satellite- based audio programming to a national or regional audience. The nationwide reach of the satellite digital audio radio service could allow niche programming aimed at diverse communities that we are targeting. Two companies that hold licenses for authority to offer multiple channels of digital, satellite-delivered radio could compete with conventional terrestrial radio broadcasting. These potential competitors are expected to begin operations no later than 2001. Low-Power Radio Broadcast Service. On January 20, 2000, the FCC adopted rules creating a new low-power FM radio service. The rules have been published in the Federal Register and became effective on April 17, 2000. The new low- power FM service will consist of two classes of radio stations, with maximum power levels of either 10 watts or 100 watts. The 10 watt stations will reach an area with a radius of between one and two miles and the 100 watt stations will reach an area with a radius of approximately three and one-half miles. The new low-power FM stations will not be required to protect other existing FM stations on frequencies three channels away, as currently required of full- powered FM stations. The new low-power FM service will be exclusively non-commercial. Current broadcast licensees or parties with interests in cable television or newspapers will not be eligible to hold low-power FM licenses. It is difficult to predict what impact, if any, the new low-power FM service will have on technical interference with our stations' signals or competition for our stations' audiences. The new FCC rules for low-power FM services are the subject of court challenges and Congress is considering legislation which would substantially modify the rules adopted by the FCC. Other Pending FCC and Legislative Proceedings. The Satellite Home Viewer Act allows satellite carriers to deliver broadcast programming to subscribers who are unable to obtain television network programming over the air from local television stations. Congress in 1999 enacted legislation to amend the Satellite Home Viewer Improvement Act to facilitate the ability of satellite carriers to provide subscribers with programming from local television stations. These policies do not achieve "must-carry" status until January 1, 2002, when any satellite company that has chosen to provide local-into-local service must provide subscribers with all of the local broadcast television signals that are assigned to the market and where television licensees ask to be carried on the satellite system. On November 29, 1999, Congress enacted the Community Broadcasters Protection Act of 1999, which provides for a new Class A television service, consisting of certain low-power television stations. Low-power television stations that qualify for Class A status will no longer be secondary in 83 nature and will be protected against certain full-power stations. In turn, the existence of Class A stations may impact the ability of full-power stations to modify their facilities. The FCC has recently completed a rulemaking proceeding to implement these rules. As the owner of both full-power and low-power stations, we are not certain as to whether the creation of the Class A service will, on balance, be beneficial or detrimental to us. Regulation of Outdoor Advertising Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Federal law, principally the Highway Beautification Act of 1965 regulates outdoor advertising on federally aided primary and interstate highways. As a condition to federal highway assistance, the Highway Beautification Act requires states to restrict billboards on such highways to commercial and industrial areas and imposes certain additional size, spacing and other limitations. All states have passed state billboard control statutes and regulations at least as restrictive as the federal requirements, including removal of any illegal signs on such highways at the owner's expense and without compensation. We believe that the number of our billboards that may be subject to removal as illegal is immaterial. No state in which we operate has banned billboards, but some have adopted standards more restrictive than the federal requirements. Municipal and county governments generally also have sign controls as part of their zoning laws. Some local governments prohibit construction of new billboards and some allow new construction only to replace existing structures, although most allow construction of billboards subject to restrictions on zones, size, spacing and height. Federal law does not require the removal of existing lawful billboards, but does require payment of compensation if a state or political subdivision compels the removal of a lawful billboard along a federally aided primary or interstate highway. State governments have purchased and removed legal billboards for beautification in the past, using federal funding for transportation enhancement programs, and may do so in the future. Governmental authorities from time to time use the power of eminent domain to remove billboards. Thus far, we have been able to obtain satisfactory compensation for any of our billboards purchased or removed as a result of governmental action, although there is no assurance that this will continue to be the case in the future. Local governments do not generally purchase billboards for beautification, but some have attempted to force the removal of legal but nonconforming billboards (billboards which conformed with applicable zoning regulations when built but which do not conform to current zoning regulations) after a period of years under a concept called "amortization," by which the governmental body asserts that just compensation is earned by continued operation over time. Although there is some question as to the legality of amortization under federal and many state laws, amortization has been upheld in some instances. We generally have been successful in negotiating settlements with municipalities for billboards required to be removed. Restrictive regulations also limit our ability to rebuild or replace nonconforming billboards. Under the terms of a settlement agreement among U.S. tobacco companies and 46 states, tobacco companies discontinued all advertising on billboards and buses in the 46 participating states as of April 23, 1999. The remaining four states had already reached separate settlements with the tobacco industry. We removed all tobacco billboards and advertising in these states in compliance with the settlement deadlines. In addition to the above settlement agreements, state and local governments are also considering regulating the outdoor advertising of alcohol products. Alcohol related advertising represented 84 approximately 8.4% of the total revenue of our outdoor billboard business in 1999. As a matter of both company policy and industry practice (on a voluntary basis), we do not post any alcohol advertisements within a 500 square foot radius of any school, church or hospital. Legal Proceedings We currently and from time to time are involved in litigation incidental to the conduct of our business, but we are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us. Since September 8, 1999, we have been a party to a proceeding before the American Arbitration Association in Phoenix, Arizona with Hispanic Broadcasting Corporation regarding a dispute over an agreement to exchange radio stations KLNZ-FM, Glendale, Arizona, and KRTX-FM, Winnie , Texas, with one another. The agreement provides for liquidated damages of $2 million in the case of a breach. We could also be required as a result of the arbitration to exchange stations in accordance with the agreement. Since March 24, 2000, we have been defending against a lawsuit filed in the Superior Court of the District of Columbia by First Millenium Communications, Inc. to resolve certain contract disputes arising out of a terminated brokerage-type arrangement with First Millenium. The litigation primarily concerns the payment of a brokerage fee alleged to be due in connection with our acquisition of television station WBSV in Sarasota, Florida for $17 million. Nevertheless, in addition to its various contractual claims, First Millenium also has asserted claims for fraud, RICO, misappropriation, breach of fiduciary duty, defamation and intentional infliction of emotional distress. First Millenium is seeking in excess of $60 million including the right to a 10% ownership interest in WBSV and the right to exchange such interest in the reorganization described elsewhere in this prospectus. First Millenium has made similar claims relating to our pending acquisitions of television stations WHCT, Hartford, Connecticut, and WNTO, Orlando, Florida. A prior lawsuit was filed by us in the Superior Court of the District of Columbia against First Millenium seeking declaratory relief to determine the final rights of the parties pursuant to the brokerage arrangement, asserting that First Millenium made an irrevocable election under the agreement to receive $250,000 instead of a 10% ownership interest in WBSV. The court dismissed this action finding that there is no language regarding any election by the parties and further found that while we have the ability to force a sale of First Millenium's 10% interest, the time for such a forced sale has not yet occurred. We intend to vigorously defend against these claims and we do not believe that any resolution of these matters is likely to have a material adverse effect on us. Properties and Facilities Our corporate headquarters are located in Santa Monica, California. We lease approximately 9,307 square feet of space in the building housing our corporate headquarters under a lease expiring in 2006. The types of properties required to support each of our television and radio stations typically include offices, broadcasting studios and antenna towers where broadcasting transmitters and antenna equipment are located. The majority of our office, studio and tower facilities are leased pursuant to long-term leases. We also own the buildings and/or land used for office, studio and tower facilities at two of our television stations. We own substantially all of the equipment used in our television and radio broadcasting business. We believe that all of our facilities and equipment are adequate to conduct our present operations. 85 MANAGEMENT Executive Officers and Directors The following table sets forth information about our executive officers and directors upon completion of this offering. Each of our directors serves until his or her successor is elected and is qualified.
Name Age Position ---- --- -------- Walter F. Ulloa....... 51 Chairman and Chief Executive Officer Philip C. Wilkinson... 44 President, Chief Operating Officer and Director Executive Vice President, Treasurer and Chief Jeanette Tully........ 53 Financial Officer Paul A. Zevnik........ 49 Secretary and Director Amador S. Bustos (1).. 49 President of Radio Division and Director Glenn Emanuel......... 47 President of Outdoor Division Darryl B. Thompson.... 38 Director Andrew W. Hobson...... 38 Director Michael D. Wortsman... 53 Director
Walter F. Ulloa. Mr. Ulloa, the Chairman and Chief Executive Officer of Entravision since its inception in 1996, has over 24 years of experience in Spanish-language television and radio in the United States. Mr. Ulloa will be elected as a member of our board of directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From 1989 to 1996, Mr. Ulloa was involved in the development, management or ownership of the predecessor entities to Entravision. From 1976 to 1989, he worked at KMEX, Los Angeles, California, as operations manager, production manager, news director, local sales manager and an account executive. Philip C. Wilkinson. Mr. Wilkinson, the President and Chief Operating Officer of Entravision since its inception in 1996, has over 19 years of experience in Spanish-language television and radio in the United States. Mr. Wilkinson will be elected as a member of our board of directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From 1990 to 1996, Mr. Wilkinson was involved in the development, management or ownership of the predecessor entities to Entravision. From 1982 to 1990, he worked at the Univision television network and served in the positions of account executive, Los Angeles national sales manager and West Coast sales manager. Jeanette Tully. Ms. Tully, an Executive Vice President and the Chief Financial Officer and Treasurer of Entravision since September 1996, has over 22 years of experience in the media industry. Ms. Tully was the Executive Vice President and Chief Financial Officer of Alliance Broadcasting from 1994 until early 1996, when the company was sold to Infinity Broadcasting. From May 1986 until she joined Alliance Broadcasting, Ms. Tully was a Vice President of Communications Equity Associates, where she advised a variety of broadcast companies on financial matters. Paul A. Zevnik. Mr. Zevnik has been the Secretary of Entravision since its inception in 1996. Mr. Zevnik will be elected as a member of our board of directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From 1989 to 1996, Mr. Zevnik was involved in the development, management or ownership of the predecessor entities to Entravision. Mr. Zevnik is a partner in the Washington, D.C. office of the law firm of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. Amador S. Bustos. Mr. Bustos will be the President of our Radio Division upon completion of this offering and our acquisition of Z-Spanish Media. Mr. Bustos will also be elected as a member of 86 our board of directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From November 1992 until our acquisition of Z-Spanish Media, Mr. Bustos served as Chairman, Chief Executive Officer and President of Z-Spanish Media or one of its predecessors. From December 1979 until September 1992, Mr. Bustos held various positions, including general sales manager, senior account executive and community affairs coordinator, at several radio stations and a television station in the San Francisco Bay area. Glenn Emanuel. Mr. Emanuel will be the President of our Outdoor Division upon completion of this offering and our acquisition of Z-Spanish Media. Mr. Emanuel has over 20 years of experience in the outdoor advertising industry. From 1997 until our acquisition of Z-Spanish Media, Mr. Emanuel served as the President of Vista, Z-Spanish Media's outdoor advertising group. Before joining Vista, he served as general manager of Regency Outdoor Advertising's operations in Los Angeles for ten years. Darryl B. Thompson. Mr. Thompson will serve on our board of directors as a representative of TSG Capital Fund III, L.P. upon completion of this offering and our acquisition of Z-Spanish Media, and will be elected pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. Mr. Thompson has been a partner of TSG Capital Group, L.L.C. since 1993. Mr. Thompson serves on the boards of directors of several public and private companies, including LuminaAmericas, Inc., Telscape International, Inc. and Millennium Digital Media Holdings, L.L.C. Andrew W. Hobson. Mr. Hobson, who will be a member of our board of directors as a representative of Univision upon completion of this offering, has been an Executive Vice President of the Univision Network since 1993. From 1990 through 1993 he was a principal at Chartwell Partners, Univision's majority owner. Before joining Chartwell, Mr. Hobson was a Vice President in the investment banking group of Bankers Trust Corp., where he was employed from 1984 to 1990. Michael D. Wortsman. Mr. Wortsman, who will be a member of our board of directors as a representative of Univision upon completion of this offering, is the Co-President of Univision Television Group Inc. Before holding this position, Mr. Wortsman served as the Executive Vice President of corporate development for the Univision Television Group from 1993 to 1996. - -------- (1) In an application filed with the FCC on June 9, 2000, Z-Spanish Media Licensing Company, LLC requested consent to assign the licenses of three of its radio stations to Salinas Holdings Partnership, a newly-formed partnership whose purpose is to own and operate such radio stations pending FCC consent to assign the licenses for these radio stations to The Z- Spanish Trust, Charles Giddens, Trustee. Mr. Bustos is one of three equal partners of Salinas Holdings. To comply with FCC requirements, Mr. Bustos will not hold a position as an officer or director of us during any period in which Salinas Holdings is the licensee of the stations. We expect that this will be a short period of time as, also on June 9, 2000, an application was filed with the FCC requesting its consent to the assignment of licenses for these radio stations to The Z-Spanish Trust, Charles Giddens, Trustee. Board Committees The board of directors intends to establish an audit committee and a compensation committee. Univision, as the holder of our Class C common stock, will have the right to appoint one member to each of these committees, as well as any other committee established by our board of directors. The audit committee will recommend to the board of directors the selection of independent auditors, review the results and scope of audit and other services provided by our independent auditors and review and evaluate our audit and control functions. 87 The compensation committee will review and recommend to the board of directors the compensation and benefits of all of our officers and will establish and review general policies relating to compensation and benefits of our employees. Compensation Committee Interlocks and Insider Participation At the completion of this offering, the members of our compensation committee will consist of Messrs. Hobson and Thompson, neither of whom has ever been an officer or employee of Entravision. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board or compensation committee. Director Compensation We intend to establish fees for all non-employee directors within six months after the date of this prospectus, which will include grants of stock options to our directors. We also expect to reimburse our non-employee directors for reasonable expenses they may incur in attending board of directors or committee meetings. Executive Compensation The following table sets forth all compensation earned in the fiscal year ended December 31, 1999 by our Chief Executive Officer and the four other most highly compensated officers whose annual salary and bonus exceeded $100,000. Summary Compensation Table
Annual Compensation(1) ------------------------------ Other Annual All Other Name and Principal Position Year Salary Bonus(2) Compensation Compensation - --------------------------- ---- -------- -------- ------------ ------------ Walter F. Ulloa................ 1999 $360,000 $429,938 -- -- Chairman and Chief Executive Officer Philip C. Wilkinson............ 1999 360,000 429,938 -- -- President and Chief Operating Officer Jeanette Tully................. 1999 225,000 -- -- -- Chief Financial Officer Amador S. Bustos............... 1999 168,000 7,560 -- -- President of Radio Division Glenn Emanuel.................. 1999 225,000 75,000 -- -- President of Outdoor Division
- -------- (1) Excludes perquisites and other personal benefits, securities or property which aggregate the lesser of $50,000 or 10% of the total of annual salary and bonus. (2) Represents bonuses earned in 1998 and paid in 1999. Employee Benefit Plans 2000 Omnibus Equity Incentive Plan We have adopted our 2000 Omnibus Equity Incentive Plan to provide an additional means to attract, motivate, reward and retain key personnel. The plan gives the administrator the authority to grant different types of stock incentive awards and to select participants. Our employees, officers, directors and consultants may be selected to receive awards under the plan. 88 Share Limits. A maximum of 12,000,000 shares of our Class A common stock may be issued under the plan, or approximately 10% of our outstanding shares on a fully-diluted basis after giving effect to this offering. The aggregate number of shares subject to stock options and stock appreciation rights granted under the plan to any one person in a calendar year cannot exceed one million shares. Each share limit and award under the plan is subject to adjustment for certain changes in our capital structure, reorganizations and other extraordinary events. Shares subject to awards that are not paid or exercised before they expire or are terminated are available for future grants under the plan. Awards. Awards under the plan may be in the form of: . incentive stock options; . nonqualified stock options; . stock appreciation rights; . restricted stock; or . stock units. Awards may be granted individually or in combination with other awards. Certain types of stock-based performance awards under the plan will depend upon the extent to which performance goals set by the administrator are met during the performance period. Awards under the plan generally will be nontransferable, subject to exceptions such as a transfer to a family member or to a trust, as authorized by the administrator. Nonqualified stock options and other awards may be granted at prices below the fair market value of the common stock on the date of grant. Restricted stock awards can be issued for nominal or the minimum lawful consideration. Incentive stock options must have an exercise price that is at least equal to the fair market value of the common stock, or 110% of fair market value of the common stock for any owner of more than 10% of our common stock, on the date of grant. These and other awards may also be issued solely or in part for services. Administration. The plan will be administered by a committee of directors appointed by our board of directors. The administrator of the plan has broad authority to: . designate recipients of awards; . determine or modify, subject to any required consent, the terms and provisions of awards, including the price, vesting provisions, terms of exercise and expiration dates; . approve the form of award agreements; . determine specific objectives and performance criteria with respect to performance awards; . construe and interpret the plan; and . reprice, accelerate and extend the exercisability or term, and establish the events of termination or reversion of outstanding awards. 89 Change of Control. Upon a change of control event, any award may become immediately vested and/or exercisable, unless the administrator determines to the contrary. Generally speaking, a change of control event will be triggered under the plan: . in connection with certain mergers or consolidations of Entravision with or into another entity where our stockholders before the transaction own less than 50% of the surviving entity; . if a majority of our board of directors changes over a period of two years or less; or . upon a sale of all or substantially all of our assets if a change in ownership of more than 50% of our outstanding voting securities occurs. The administrator of the plan may also provide for alternative settlements of awards, the assumption or substitution of awards or other adjustments of awards in connection with a change of control or other reorganization of Entravision. Plan Amendment, Termination and Term. Our board of directors may amend, suspend or discontinue the plan at any time, but no such action will affect any outstanding award in any manner materially adverse to a participant without the consent of the participant. Plan amendments will generally not be submitted to stockholders for their approval unless such approval is required by applicable law. The plan will remain in existence as to all outstanding awards until such awards are exercised or terminated. The maximum term of options, stock appreciation rights and other rights to acquire common stock under the plan is ten years after the initial date of award, subject to provisions for further deferred payment in certain circumstances. No award can be granted ten years after adoption of the plan by our board of directors. Payment for Shares. The exercise price of options or other awards may generally be paid in cash or, subject to certain restrictions, shares of common stock. Subject to any applicable limits, we may finance or offset shares to cover any minimum withholding taxes due in connection with an award. Federal Tax Consequences. The current federal income tax consequences of awards authorized under the plan follow certain basic patterns. Generally, awards under the plan that are includable in the income of the recipient at the time of exercise, vesting or payment, such as nonqualified stock options, stock appreciation rights and restricted stock awards, are deductible by us, and awards that are not required to be included in the income of the recipient, such as incentive stock options, are not deductible by us. Generally speaking, Section 162(m) of the Internal Revenue Code provides that a public company may not deduct compensation, except for compensation that is commission or performance-based paid to its chief executive officer or to any of its four other highest compensated officers to the extent that the compensation paid to such person exceeds $1 million in a tax year. The regulations exclude from these limits compensation that is paid pursuant to a plan in effect before the time that a company is publicly held. We expect that compensation paid under the plan will not be subject to Section 162(m) in reliance on this transition rule, as long as such compensation is paid or stock options, stock appreciation rights and/or restricted stock awards are granted before the earlier of a material amendment to the plan or our annual stockholders meeting in the year 2004. In addition, we may not be able to deduct certain compensation attributable to the acceleration of payment and/or vesting of awards in connection with a change of control event should that compensation exceed certain threshold limits under Section 280G of the Internal Revenue Code. 90 Non-Exclusive Plan. The plan is not exclusive. Our board of directors (or its delegate), under Delaware law, may grant stock and performance incentives or other compensation, in stock or cash, under other plans or authority. 401(k) Plan We offer a 401(k) savings and retirement plan to all of our employees. Participants in the 401(k) plan may elect to contribute up to 15% of their annual salary but may not exceed the annual maximum contribution limits established by the Internal Revenue Service. We currently match 25% of the amounts contributed up to a maximum of $1,000 per year by each participant. The 401(k) plan is intended to qualify under the Internal Revenue Code, so that contributions by employees or by us to the plan and income earned on plan contributions are not taxable to employees until distributed to them, and contributions by us will be deductible by us when made. The trustees under the 401(k) plan, at the direction of each participant, invest such participant's assets in the 401(k) plan in selected investment options. As a result of our acquisition of LCG and our pending acquisition of Z- Spanish Media, we are (or will be) the successor-in-interest to the 401(k) plans of LCG and Z-Spanish Media. To the extent permissible, we intend to terminate all such plans, and each of the employees covered by such plans will have the opportunity to roll-over their investment accounts into our 401(k) plan. Indemnification of Directors and Executive Officers and Limitation of Liability Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit indemnification for liabilities, including reimbursement for expenses incurred, arising under the Securities Act. This indemnification may, however, be unenforceable as against public policy. As permitted by Delaware law, our first restated certificate of incorporation, which will become effective upon the closing of this offering, includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . under Section 174 of the Delaware law regarding unlawful dividends and stock purchases; or . for any transaction from which the director derived an improper personal benefit. As permitted by Delaware law, our first restated certificate of incorporation provides that: . we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law, so long as the person being indemnified acted in good faith and in a manner the person reasonably believed to be in or not opposed to our best interests, and with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful; . we are permitted to indemnify our other employees and agents to the extent that we indemnify our officers and directors, unless otherwise required by law; 91 . we are required to advance expenses to our directors and officers incurred in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to very limited exceptions; and . the rights conferred in our first restated certificate of incorporation are not exclusive. Before the closing of this offering, we intend to enter into indemnity agreements with each of our current directors and officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our first restated certificate of incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. We have obtained directors' and officers' liability insurance. 92 PRINCIPAL STOCKHOLDERS The following table summarizes information regarding the beneficial ownership of our outstanding common stock as of the date of this prospectus based on an estimated initial public offering price of $16.00 and giving effect to our reorganization described elsewhere in this prospectus for: . each person or entity known by us to beneficially own 5% or more of our outstanding common stock; . our executive officers noted in the Summary Compensation Table; . each of our directors; and . all executive officers and directors as a group.
Percentage of Shares Beneficially Owned (2) -------------------------- Name and Address of Class of Number of Shares Before After Beneficial Owner (1) Shares Beneficially Owned Offering Offering - -------------------- -------- ------------------ ----------- ----------- Walter F. Ulloa......... B 11,489,365(3) 16.5% 10.5% Philip C. Wilkinson..... B 11,489,365(4) 16.5% 10.5% Paul A. Zevnik.......... A 90,321(5) * * B 4,699,803(6) 6.8% 4.3% Univision Communications Inc. (7)............... C 21,983,392 31.6% 20.1% TSG Capital Group (8)... A 9,359,894 13.5% 8.5% Jeanette Tully.......... A 247,537(9) * * Amador S. Bustos........ A 1,881,571 2.7% 1.7% Glenn Emanuel........... A 308,368 * * Darryl B. Thompson...... A 9,243,322(10) 13.3% 8.4% Andrew W. Hobson (11)... -- -- -- -- Michael D. Wortsman (12)................... -- -- -- -- All executive officers and directors as a group (nine persons)... A 11,771,119 16.9% 10.7% B 27,678,533 39.8% 25.3%
- -------- * Represents beneficial ownership of less than 1%. (1) Unless otherwise noted, the address for each person or entity named below is c/o Entravision Communications Corporation, 2425 Olympic Boulevard, Suite 6000 West, Santa Monica, California 90404. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. (2) Assumes no exercise of the underwriters' over-allotment option. (3) Includes 897,886 shares held by The Walter F. Ulloa Irrevocable Trust of 1996. (4) Includes 1,081,549 shares held by The Wilkinson Family Trust and 897,886 shares held by The 1994 Wilkinson Children's Gift Trust. (5) Represents shares held by The Zevnik Charitable Foundation. Mr. Zevnik has shared voting power in The Zevnik Charitable Foundation. (6) Includes 800,666 shares held by The Paul A. Zevnik Irrevocable Trust of 1996 and 1,736,516 shares held by The Zevnik Family L.L.C. 93 (7) The address for Univision Communications Inc. is 1999 Avenue of the Stars, Suite 3050, Los Angeles, California 90067. Univision has indicated that it may purchase 6,250,000 shares of Class A common stock directly from us in the offering. The price paid for such shares will be the price per share to the public, less the underwriting discount. At the conclusion of this offering, assuming the underwriters do not exercise the over-allotment option and 40,000,000 shares are issued, Univision will beneficially own approximately 20% of the shares outstanding after the offering if it does not purchase any shares in this offering and approximately 26% if it purchases 6,250,000 shares in this offering. (8) TSG Capital Group includes TSG Capital Fund II, L.P., TSG Capital Fund III, L.P., TSG Associates II Inc., TSG Associates III, LLC and TSG Ventures, L.P. The address for each of these entities is 177 Broad Street, 12th Floor, Stamford, Connecticut 06901. Includes 6,048,387 shares of Class A common stock reserved for issuance upon conversion of Series A preferred stock held by TSG Capital Fund III, L.P. (9) Represents shares held by The Jeanette Tully 1996 Revocable Trust. (10) Represents 9,359,894 shares held by TSG Capital Group, excluding 116,572 shares held by TSG Ventures, L.P. Mr. Thompson is a principal in each of the TSG Capital Group entities, except for TSG Ventures, L.P. Mr. Thompson may be deemed to exercise voting and investment power over such shares. Mr. Thompson disclaims beneficial ownership of such shares, except to the extent of his proportionate interest therein. (11) Mr. Hobson is an executive officer of an affiliate of Univision Communications Inc. (12) Mr. Wortsman is an executive officer of an affiliate of Univision Communications Inc. 94 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reorganization. Before the closing of this offering, we will complete a reorganization. As a result of this reorganization, the beneficial ownership of Entravision will be virtually identical to the beneficial ownership of Entravision Communications Company, L.L.C., our predecessor, immediately before the reorganization. This reorganization will occur as follows: . Walter F. Ulloa, Philip C. Wilkinson and Paul A. Zevnik and each of their trusts and other controlled entities will exchange their direct and indirect ownership interests in our predecessor for newly-issued shares of our Class B common stock; . each of the stockholders in the seven corporate member entities of our predecessor (other than Messrs. Ulloa, Wilkinson and Zevnik and their trusts and related entities) will exchange their shares in such corporate members for newly-issued shares of our Class A common stock; . each of the remaining individuals, trusts and other entities holding direct membership interests in our predecessor will exchange such interests for newly-issued shares of our Class A common stock; and . Univision will exchange its subordinated note and option in our predecessor for shares of our Class C common stock. Relationship with Univision. In December 1996, Univision invested $10 million in our predecessor in exchange for a subordinated note and an option to acquire an approximately 25% ownership interest in our predecessor. The note is due December 30, 2021 and bears interest at 7.01% per year, for which Univision has agreed to compensate us in an amount equal to the amount of annual interest due, in exchange for running Univision's programming. In April 1999, we acquired television stations KLUZ and K48AM in Albuquerque, New Mexico from Univision in exchange for $1 million in cash and a 2% increase in Univision's option to acquire an ownership interest in our predecessor. In March 2000, Univision invested an additional $110 million in our predecessor, which increased the subordinated note to an aggregate of $120 million, and increased its option to the right to acquire a 40% ownership interest in our predecessor. In connection with our reorganization, Univision will exchange its subordinated note and option for 21,983,392 shares of our Class C common stock, or an approximately 20% ownership interest in us after this offering. As long as Univision owns at least 30% of its initial Class C shares, it will have the right to vote as a separate class to elect two directors, to appoint a member to any board committee and to approve material decisions involving our company, including any merger consolidation or any other business combination, any dissolution and any transfer of the FCC licenses for any of our Univision- affiliated television stations. Also, pursuant to our Univision network affiliation agreements, Univision acts as our national advertising sales representative for our Univision- affiliated television stations. Our director-nominee, Andrew W. Hobson, is an Executive Vice President of the Univision Network and our director-nominee, Michael D. Wortsman, is the Co-President of Univision Television Group Inc. We have also offered Univision the opportunity to purchase 6,250,000 shares of our Class A common stock directly from us in this offering, representing approximately 26% of our outstanding capital stock after the offering. Voting Agreement. On the closing of this offering, we will enter into a voting agreement with Walter F. Ulloa, our Chairman and Chief Executive Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and Paul A. Zevnik, our Secretary, under which they will agree to vote all 95 of their shares of Class B common stock in favor of such director-nominees as Messrs. Ulloa and Wilkinson may nominate. Mr. Zevnik will further agree to vote his shares on all other matters in the same manner as both Mr. Ulloa and Mr. Wilkinson, unless they vote differently, in which case Mr. Zevnik will be free to vote his shares however he may choose. Messrs. Ulloa and Wilkinson will irrevocably designate themselves and Mr. Zevnik as director-nominees. In addition, Messrs. Ulloa and Wilkinson will agree to nominate as directors Amador S. Bustos, the President of our Radio Division, and a representative of TSG Capital Fund III, L.P. as long as Mr. Bustos and the TSG representative continue to have a contractual right to be elected to our board of directors. This agreement will remain in effect with respect to each of Messrs. Ulloa, Wilkinson and Zevnik as long as he owns 30% of his initial Class B shares. Registration Rights. We will enter into investor rights agreements with all of our existing stockholders and with all of the stockholders receiving Class A common stock in connection with our acquisition of Z-Spanish Media. The investor rights agreements provide these stockholders with rights to require us to register their stock with the Securities and Exchange Commission. These rights do not apply to this offering. Transactions with Walter F. Ulloa and Philip C. Wilkinson Employment agreements between our predecessor and Messrs. Ulloa and Wilkinson entitle each of them to receive an annual bonus in an amount equal to 1% of our predecessor's annual net revenue. For the period from January 1, 2000 through June 30, 2000, we will pay bonuses under these agreements of approximately $300,000 to each of Mr. Ulloa and Mr. Wilkinson. These employment agreements will be terminated before the closing of this offering. Mr. Ulloa is the sole shareholder of Las Tres Campanas Television, Inc., the FCC licensee of low-power television stations K27AF and K47EG in Las Vegas, Nevada. In 1997, Las Tres Campanas issued a note to a former shareholder in the principal amount of $262,500. We have assumed the payment obligations of Las Tres Campanas under the note in exchange for Las Tres Campanas's agreement to contribute to us all of its assets, including the licenses to stations K27AF and K47EG. As of December 31, 1999, the unpaid balance of principal and interest under the note was approximately $231,000. In 1996, Cabrillo Broadcasting Corporation, one of the member entities of our predecessor, made a loan in the principal amount of $159,000 to Mr. Wilkinson, which was used by Mr. Wilkinson to purchase equity in KSMS, Inc., another of our predecessor entities. When the roll-up of our predecessor was consummated in 1997, all of the assets and liabilities of Cabrillo were contributed to our predecessor. As payment for this obligation, Mr. Wilkinson has agreed to transfer to us his ownership interest in the FCC license for radio station KPVW, Aspen, Colorado. Transactions with Paul A. Zevnik Mr. Zevnik is a partner of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., which has regularly represented us as our legal counsel and will continue to do so. In October 1996, we made a loan to Mr. Zevnik evidenced by a promissory note in the principal amount of $360,366, which bears interest at a rate of 5.625% per year and is due and payable in full in October 2001. Mr. Zevnik used the loan to purchase 10,313 Class A units of our predecessor. As of December 31, 1999, the aggregate outstanding principal and interest amount on this loan was $425,366. 96 Transactions with TSG Entities and Darryl B. Thompson Our director-nominee, Darryl B. Thompson, is an equityholder, officer and director of TSG Capital Fund II, L.P., TSG Capital Fund III, L.P., TSG Associates II, Inc. and TSG Associates III, L.P. On April 20, 2000, TSG Capital Fund III, L.P. invested $90 million in our predecessor in the form of a convertible subordinated note, which was used to fund a portion of the purchase price to acquire LCG. Assuming an initial public offering price of $16.00 per share, the note will automatically convert upon the closing of this offering into shares of our Series A preferred stock at a conversion price of the lower of: . $16.95 per share; or . the greater of 93% of the price per share of the Class A common stock sold in this offering or $14.74 per share. Assuming an initial public offering price of $16.00 per share, the Series A preferred stock would convert into 6,048,387 shares of Class A common stock. In connection with our acquisition of Z-Spanish Media, TSG Capital Fund II, L.P., TSG Capital Fund III, L.P. and their affiliates will receive approximately $189 million in cash and 3,311,507 shares of our Class A common stock. On March 31, 1998, TSG Ventures, L.P., an affiliate of TSG Capital Fund III, L.P., issued a promissory note to KZSF Broadcasting, Inc., a wholly owned subsidiary of Z-Spanish Media, in the principal amount of approximately $1.1 million with an interest rate of 12% per year, which was paid in full in January 1999. On March 31, 1998, TSG Ventures, L.P. issued a promissory note to Z-Spanish Radio Network, Inc., a wholly owned subsidiary of Z-Spanish Media, in the principal amount of $1.8 million with an interest rate of 15% per year, which was paid in full in January 1999. In December 1999, Z-Spanish Media and Vista agreed to provide an aggregate of $2.5 million in advertising to LuminaAmericas, Inc., a provider of e- business services to corporations seeking to use the Internet to serve Hispanics in the United States and Latin America, in exchange for 1,666,666 shares of Series A preferred stock. Mr. Thompson is a director, and TSG Capital Fund III, L.P. is a stockholder, of LuminaAmericas, Inc. Transactions with Amador S. Bustos In connection with our acquisition of Z-Spanish Media, Amador S. Bustos, the President of our Radio Division, and his affiliates will receive approximately 1,881,571 shares of our Class A common stock. In October 1999, Z-Spanish Media acquired all of the outstanding capital stock of JB Broadcasting, Inc., an entity owned by Mr. Bustos and his brother John Bustos, for $3.4 million, of which $0.4 million was paid in cash and the remainder was paid in shares of Z-Spanish Media's Class B common stock. From 1996 until October 1999, Z-Spanish Media operated radio station KZMS in Modesto, California, which was owned by JB Broadcasting, under a local marketing agreement. Total fees of $0.7 million due under this agreement were included in the consideration paid to acquire JB Broadcasting. During 1998, Z-Spanish Media operated radio station KZSJ in San Jose under a local marketing agreement with KZSJ Radio LLC, an entity owned by Mr. Bustos, pursuant to which KZSJ Radio 97 LLC received a monthly fee of $10,000. The local marketing agreement was terminated by mutual agreement between the parties in December 1998, and $0.1 million was paid to KZSJ Radio LLC in the first quarter of 2000. Pursuant to a lease that expires in 2009, Z-Spanish Media rents a studio building from Mr. Bustos for $42,000 per year. Pursuant to a lease that expires in 2019, Z-Spanish Media leases a corporate office building from Mr. Bustos for $63,000 a year. Rent increases annually by 5% per year for the term of both leases. Transactions with Glenn Emanuel In connection with our acquisition of Z-Spanish Media, Glenn Emanuel, the President of our Outdoor Division, will receive approximately 308,368 shares of our Class A common stock. In August 1997, Mr. Emanuel executed a promissory note in favor of Vista in the principal amount of $198,315 with an interest rate of 9.75% per year, which is due and payable in full on August 9, 2002. Mr. Emanuel used the loan to purchase shares of Vista's common and preferred stock. The loan will be secured by the shares of Class A common stock to be received by Mr. Emanuel in connection with our acquisition of Z-Spanish Media. As of December 31, 1999, the outstanding balance of principal and interest under the loan was $243,548. Class D Membership Units in Predecessor Our predecessor granted to each of Messrs. Ulloa and Wilkinson 6,050 Class D membership units for nominal consideration, which will be exchanged for 102,850 shares of Class B common stock at the closing of this offering. The Class B common stock will be held pursuant to Restricted Stock Agreements that allow for repurchase of the shares for nominal consideration if Messrs. Ulloa and Wilkinson do not remain employed with us, with such restriction lapsing in one- third increments over three years. Such restriction also lapses upon a change in control affecting us. Our predecessor also granted to Mr. Zevnik 2,560 Class D membership units for nominal consideration, which will be exchanged for 43,520 shares of Class B common stock at the closing of this offering. The Class B common stock will be held pursuant to a Restricted Stock Agreement that allows for repurchase of the shares for nominal consideration if Mr. Zevnik does not remain as an officer or director of Entravision, with such restriction lapsing in one-third increments over three years. Such restriction also lapses on a change in control affecting us. Our predecessor also granted to Ms. Tully 400 Class D membership units for nominal consideration, which will be exchanged for 6,800 shares of Class A common stock at the closing of this offering. The Class A common stock will be held pursuant to a Restricted Stock Agreement that allows for repurchase of the shares for nominal consideration if Ms. Tully does not remain employed with us, with such restriction lapsing in one-third increments over three years. Such restriction also lapses on a change in control affecting us. 98 DESCRIPTION OF CAPITAL STOCK Set forth below is a summary of the material provisions of our capital stock as set forth in our first restated certificate of incorporation. For a more detailed description, see our first restated certificate of incorporation, a copy of which we have filed as an exhibit to the registration statement, and the applicable provisions of Delaware law. Our first restated certificate of incorporation provides for authorized capital stock of: . 325 million authorized shares of common stock, $0.0001 par value per share, which consists of 260 million shares of Class A common stock, 40 million shares of Class B common stock and 25 million of Class C common stock; and . 50 million authorized shares of preferred stock, $0.0001 par value per share, which consists of 11 million shares of Series A preferred stock to be authorized pursuant to a certificate of designations, preferences and rights and 39 million undesignated shares. As of the date of this prospectus, assuming our reorganization described elsewhere in this prospectus, there will be outstanding 13,847,312 shares of Class A common stock held of record by 87 stockholders, 27,678,533 shares of Class B common stock held of record by eight stockholders, 21,983,392 shares of Class C common stock held of record by one stockholder and 6,048,387 shares of Series A preferred stock held of record by one stockholder. All of the shares of Class A common stock being issued pursuant to this offering will be fully-paid and non-assessable. Common Stock General. The holders of our Class A common stock, Class B common stock and Class C common stock have the same rights except with respect to voting, conversion and transfer. Dividends. Subject to the right of the holders of any class of our preferred stock, holders of shares of our common stock are entitled to receive dividends that may be declared by our board of directors out of legally available funds. No dividend may be declared or paid in cash or property on any share of any class of our common stock unless simultaneously the same dividend is declared or paid on each share of that and every other class of our common stock; except with respect to the payment of stock dividends, in which case holders of a specific class of our common stock are entitled to receive only additional shares of that class. We may not reclassify, subdivide or combine shares of any class of our common stock without, at the same time, proportionally reclassifying, subdividing or combining shares of the other classes. Voting Rights. Holders of our Class A common stock and Class C common stock are entitled to one vote per share on all matters to be voted on by stockholders, while holders of our Class B common stock are entitled to ten votes per share. 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 our 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 class of our preferred stock. Univision, as the holder of all of our Class C common stock upon completion of this offering, is entitled to vote as a separate class to elect two of our directors, and will have the right to vote as a class on certain material decisions involving Entravision, including any merger, consolidation or other business combination, any dissolution of Entravision and any transfer of the FCC licenses for any of our Univision-affiliated 99 stations. These special voting rights will terminate upon Univision selling below 30% of its initial ownership level of our Class C common stock. Messrs. Ulloa, Wilkinson and Zevnik, as the holders of all of the Class B common stock upon completion of this offering, will enter into a voting agreement in which each of such individuals will agree, in any election of our directors, to vote the shares of our Class B common stock held by such individual in favor of the director-nominees designated by Messrs. Ulloa and Wilkinson. Under the voting agreement, Messrs. Ulloa, Wilkinson and Zevnik will contractually agree to elect themselves, Amador S. Bustos and a representative of TSG Capital Fund III, L.P. as directors of Entravision. Liquidation Rights. The holders of each class of our common stock will share equally on a per share basis upon liquidation or dissolution of all of our assets available for distribution to common stockholders. Conversion. Shares of our Class B common stock will be convertible into shares of our Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically: . upon the transfer to a person or entity which is not a permitted transferee; . upon the death of such holder; . when such holder is no longer actively involved in the business of Entravision; or . if such holder owns less than 30% of his, her or its initial ownership level. In general, permitted transferees will include Messrs. Ulloa, Wilkinson and Zevnik, and any of their respective spouses, legal descendants, adopted children, minor children supported by such holder and controlled entities. In addition, each share of our Class B common stock shall automatically convert into Class A common stock on a share-for-share basis upon the death of the second of Mr. Ulloa and Mr. Wilkinson or when the second of Mr. Ulloa and Mr. Wilkinson ceases to be actively involved in the business of Entravision. Shares of our Class C common stock will be convertible into shares of our Class A common stock on a share-for-share basis at the option of the holder at any time or automatically upon the transfer to a person or entity which is not a permitted transferree or if such holder owns less than 30% of its initial ownership level. Other Rights. The holders of our common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to these shares. Preferred Stock Series A Mandatorily Redeemable Convertible Preferred Stock Dividends. The holders of the Series A preferred stock shall have dividends declared at the rate of 8.5% per annum compounded annually. Such dividends accrue and are only payable upon liquidation of Entravision or redemption of the Series A preferred stock, payable in cash. Accrued but unpaid dividends are waived and forgiven upon conversion of the Series A preferred stock into Class A common stock. Liquidation Preference. The Series A preferred stock is senior to the rights of each class of our common stock upon liquidation or distribution of our assets in dissolution. 100 Voting Rights. The affirmative vote of a majority of the holders of the Series A preferred stock is required to: . issue any equity security that is senior to the Series A preferred stock; . amend our first restated certificate of incorporation or first amended and restated bylaws in a manner that adversely affects the rights of the Series A preferred stock; or . enter into or engage in any transaction with an affiliate of Entravision or its stockholders not at arms length. Redemption. The Series A preferred stock is subject to redemption at par value plus accrued dividends at the option of the holder of the Series A preferred stock for a period of 90 days beginning five years after its issuance and must be redeemed in full ten years after its issuance. The Series A preferred stock which does not elect to convert into our common stock is also fully redeemable at par value plus accrued dividends upon a change in control of Entravision. We have the right to redeem the Series A preferred stock at our option at any time one year after its issuance, provided that the trading price of our Class A common stock equals or exceeds 130% of the initial public offering price of our Class A common stock for 15 consecutive trading days immediately before such redemption. Conversion. The Series A preferred stock is convertible into our Class A common stock on a share-for-share basis at the option of the holder at any time. Blank-Check Preferred Stock Our board of directors is empowered, without approval of the stockholders, to cause additional 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 that our board of directors may determine with respect to additional series of preferred stock include the following: . the number of shares of each series; . the designation of each series; . the rate of any dividends; . whether any dividends shall be cumulative or non-cumulative; . any voting rights; . rights and terms of any conversion or exchange; . the terms of any redemption, or any sinking fund with respect to any redemption of each series; . the amount payable in the event of any voluntary liquidation, dissolution or winding up of the affairs of Entravision; and . any other relative rights, privileges and limitations of each series. 101 The issuance of additional shares of preferred stock, or the issuance of rights to purchase additional 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, the issuance of additional shares 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 additional shares of 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. Alien Ownership Our first restated certificate of incorporation restricts the ownership of our capital stock in accordance with the Communications Act and the rules of the FCC that prohibit direct ownership of more than 20% 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 first restated certificate of incorporation also prohibits any transfer of our capital stock which would cause us to violate this prohibition. In addition, our first restated certificate of incorporation authorizes our board of directors to adopt other provisions that it deems necessary to enforce these prohibitions. Delaware Anti-Takeover Law and Charter Provisions Provisions of our first restated certificate of incorporation are intended to enhance continuity and stability in our board of directors and in our policies, but might have the effect of delaying or preventing a change in control of Entravision and may make the removal of incumbent management more difficult even if the transactions could be beneficial to the interests of stockholders. A summary description of these provisions follows: Change in Control. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of a corporation's voting stock. The provisions of Section 203, together with the ability of our board of directors to issue preferred stock without further stockholder action, could delay or frustrate the removal of incumbent directors or a change in control of Entravision. The provisions also could discourage, impede or prevent a merger, tender offer or proxy contest, even if this event would be favorable to the interests 102 of stockholders. Our stockholders, by adopting an amendment to our first restated certificate of incorporation or our first amended and restated bylaws, may elect not to be governed by Section 203 effective 12 months after adoption. Neither our first restated certificate of incorporation nor our first amended and restated bylaws currently exclude us from the restrictions imposed by Section 203. Limitation of Director Liability. Section 102(b)(7) of the Delaware General Corporation Law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. Although Section 102(b) does not change directors' duty of care, it enables corporations to limit available relief to equitable remedies such as injunction or rescission. Our first restated certificate of incorporation limits the liability of directors to Entravision or its stockholders to the fullest extent permitted by Section 102(b). Specifically, our directors will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derived an improper personal benefit. Indemnification. To the maximum extent permitted by law, our first restated certificate of incorporation provides for mandatory indemnification of directors and officers and discretionary indemnification of our employees and agents against all expense, liability and loss to which they may become subject or which they may incur as a result of being or having been our director, officer, employee or agent, as the case may be. Registration Rights All of our stockholders before the closing of this offering and all of the stockholders receiving our Class A common stock in connection with the acquisition of Z-Spanish Media are entitled to certain rights with respect to registration of their shares under the Securities Act, which do not apply to this offering. Transfer Agent and Registrar The transfer agent and registrar for our common stock is ChaseMellon Shareholder Services, L.L.C. Listing We have applied for listing of our Class A common stock on the New York Stock Exchange under the trading symbol "EVC." 103 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. As described below, no shares currently outstanding will be available for sale immediately after this offering because of contractual restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions lapse or are released could adversely affect the prevailing market price and impair our ability to raise equity capital in the future. Upon completion of the offering, we will have 53,847,312 outstanding shares of Class A common stock, 27,678,533 outstanding shares of Class B common stock and 21,983,392 outstanding shares of Class C common stock. Of the shares of Class A common stock, 33,750,000 shares sold in this offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. In general, affiliates include officers, directors or 10% stockholders. The remaining 20,097,312 shares of Class A common stock and all of the shares of Class B and Class C common stock outstanding will be "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of our common stock. Each of our officers, directors and existing stockholders (including, with respect to Univision, the 6,250,000 shares of Class A common stock that may be issued to Univision in this offering) has entered into a "lock-up" agreement with Donaldson, Lufkin & Jenrette Securities Corporation in connection with this offering generally providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. The "lock-up" restrictions will expire on the date which is 180 days after the date of this prospectus. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144 and 701, shares subject to "lock-up" agreements will not be salable until such agreements expire or are waived by Donaldson, Lufkin & Jenrette Securities Corporation. Taking into account the "lock-up" agreements, and assuming Donaldson, Lufkin & Jenrette Securities Corporation does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times: . beginning on the date of this prospectus, only the shares of Class A common stock sold in the offering will be immediately available for sale in the public market; and . beginning 180 days after the date of this prospectus, an additional 61,457,699 shares of common stock will be freely tradeable pursuant to Rule 144(k), and an additional shares will be eligible for sale subject to volume limitations, as explained below, pursuant to Rules 144 and 701, including, in both cases, shares of Class A common stock issuable upon conversion of Class B common stock or Class C common stock. 104 In general, under Rule 144 as currently in effect, after the expiration of the "lock-up" agreements with Donaldson, Lufkin & Jenrette Securities Corporation, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of shares of common stock then outstanding which will equal approximately 1,035,000 shares immediately after the offering; or . the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144 but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. In addition, we intend to file a registration statement on Form S-8 under the Securities Act within 180 days following the date of this prospectus to register shares to be issued pursuant to our omnibus equity incentive plan. As a result, any options or rights exercised under our omnibus equity incentive plan or any other benefit plan after the effectiveness of the registration statement will also be freely tradable in the public market. However, such shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resaleable under Rule 701. All of our stockholders before the closing of this offering and all of the stockholders receiving our Class A common stock in connection with the acquisition of Z-Spanish Media are entitled to certain rights with respect to registration of their shares under the Securities Act, which do not apply to this offering. 105 UNDERWRITING Subject to terms and conditions of an underwriting agreement dated as of , 2000, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc. and DLJdirect Inc., have severally agreed to purchase from us the respective number of shares of Class A common stock shown opposite their names below.
Number of Underwriters: Shares Donaldson, Lufkin & Jenrette Securities Corporation................... Credit Suisse First Boston Corporation................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated ................... Salomon Smith Barney Inc.............................................. Bear, Stearns & Co. Inc............................................... DLJdirect Inc......................................................... Total............................................................... ====
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of Class A common stock included in this offering are subject to approval of legal matters by their counsel and to customary conditions, including the effectiveness of the registration statement, the continuing correctness of our representations, the listing of the Class A common stock on the New York Stock Exchange and no occurrence of an event that would have a material adverse effect on us. The underwriters are obligated to purchase and accept delivery of all the shares of Class A common stock, other than those covered by the over-allotment option described below and 6,250,000 shares of Class A common stock that may be issued directly to Univision by us, if they purchase any of the shares of Class A common stock. The underwriters initially propose to offer some of the shares of Class A common stock directly to the public at the initial public offering price on the cover page of this prospectus and some of the shares of Class A common stock to dealers, including the underwriters, at the initial public offering price less a concession not in excess of $ per share. The underwriters may allow, and these dealers may re-allow, a concession not in excess of $ per share to other dealers. After the initial offering of the Class A common stock to the public, the representatives of the underwriters may change the public offering price and these concessions. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. If Univision purchases any shares in this offering, it will purchase them directly from us at a purchase price equal to the per share price to the public, less the underwriting discount. The underwriters would not participate in the sale of any shares to Univision. The following table shows the underwriting fees to be paid to the underwriters by us in this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of Class A common stock.
No Exercise Full Exercise Entravision: Per share........................................ $ $ Total............................................ $ $
We estimate expenses related to this offering will be $ . 106 We have granted to the underwriters an option, exercisable within 30 days after the date of the underwriting agreement, to purchase up to 6,000,000 additional shares of Class A common stock at the initial public offering price less underwriting fees. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with the offering. To the extent that the underwriters exercise this option, each underwriter will become obligated, subject to conditions, to purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment. We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of any of those liabilities. Our executive officers and directors and all of our stockholders (including, with respect to Univision, the 6,250,000 shares of Class A common stock that may be issued to Univision in this offering) before the closing of the offering have agreed, for a period of 180 days from the date of this prospectus, they will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, do either of the following: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for common stock; or . enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Class A common stock. Either of the foregoing transfer restrictions will apply regardless of whether a covered transaction is to be settled by the delivery of Class A common stock or such other securities, in cash or otherwise. In addition, during this 180 day period and subject to specified exceptions, we have agreed not to file any registration statement with respect to, and each of our executive officers and directors and all of our stockholders have agreed not to exercise any right with respect to, the registration of any shares of Class A common stock or any securities convertible into or exercisable for Class A common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. At our request, the underwriters have reserved for sale up to 2,000,000 shares of Class A common stock offered by this prospectus for sale at the initial public offering price to our employees, officers and directors and other persons designated by us. The number of shares of Class A common stock available for sale to the general public in this offering will be reduced to the extent these persons purchase or confirm for purchase, orally or in writing, these reserved shares. Any reserved shares not purchased or confirmed for purchase will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We have applied for listing of our Class A common stock on the New York Stock Exchange under the symbol "EVC." Other than in the United States, no action has been taken by the underwriters or us that would permit a public offering of the shares of Class A common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of Class A common stock offered through this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements associated with the offer and sale of any of the shares 107 of Class A common stock offered through this prospectus be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. You should inform yourself and observe any restrictions relating to the offering of the Class A common stock and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of Class A common stock included in this offering in any jurisdiction where that would not be permitted or legal. DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, is facilitating the distribution of the shares sold in this offering over the Internet. An electronic prospectus will be available on the web site maintained by DLJdirect Inc. Other than the prospectus in electronic format, the information on this web site relating to the offering is not part of this prospectus and has not been approved or endorsed by us or the underwriters, and should not be relied on by prospective investors. Stabilization In connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may over-allot the offering, creating a syndicate short position. The underwriters may bid for and purchase shares of Class A common stock in the open market to cover a syndicate short position or to stabilize the price of the Class A common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if Donaldson, Lufkin & Jenrette Securities Corporation repurchases previously distributed Class A common stock in syndicate covering transactions, in stabilization transactions or otherwise or if Donaldson, Lufkin & Jenrette Securities Corporation receives a report that indicates that the clients of such syndicate members have purchased the Class A common stock and immediately resold the shares for a profit. These activities may stabilize or maintain the market price of the Class A common stock above independent market levels. The underwriters are not required to engage in these activities, may end any of these activities at any time, and in any event will discontinue these activities no later than 30 days after the closing of this offering. Pricing of the Class A Common Stock Prior to this offering, there has been no established trading market for our Class A common stock. The initial public offering price of our Class A common stock will be determined by negotiation among the representatives of the underwriters and us. The factors to be considered in determining the initial public offering price include: . the history of and the prospects for the industry in which we compete; . our past and present operations; . our historical results of operations; . our prospects for future earnings; . the recent market prices of securities of generally comparable companies; and . the general condition of the securities markets at the time of this offering. 108 LEGAL MATTERS The validity of the Class A common stock being offered by this prospectus will be passed upon for us by Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., San Diego, California. Paul A. Zevnik, a partner of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., will be a member of our board of directors upon completion of this offering and will own 4,699,803 shares of our Class B common stock upon completion of this offering. In addition, upon completion of this offering, certain partners of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. will own an aggregate of 19,550 shares of our Class A common stock. Other legal matters will be passed upon for the underwriters by O'Melveny & Myers LLP, Los Angeles, California. EXPERTS The financial statements of Entravision Communications Corporation as of December 31, 1998 and 1999, and for each of the years ended December 31, 1997, 1998, 1999, DeSoto-Channel 62 Associates, Ltd. for the period from January 1, 1999 through September 24, 1999, and the financial statements of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (stations owned by Sunburst Media, L.P.) as of and for the year ended December 31, 1999 included in this prospectus and registration statement have been audited by McGladrey & Pullen, LLP, independent accountants, to the extent and for the periods indicated in their reports included elsewhere herein, and are included in reliance upon such reports and upon the authority of such firm as experts in accounting and auditing. The financial statements of Latin Communications Group Inc. as of December 27, 1998 and December 26, 1999, and for each of the three years in the period ended December 26, 1999, included in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The combined financial statements of Z-Spanish Media Corporation and its predecessor as of December 31, 1998 and 1999, and for each of the years ended December 31, 1997, 1998 and 1999 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 109 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 (including exhibits, schedules and amendments thereto) under the Securities Act with respect to the shares of our Class A common stock to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement. Certain parts of the registration statement are omitted as allowed by the rules and regulations of the Securities and Exchange Commission. We refer you to the registration statement and the exhibits to such registration statement for further information with respect to us and the shares of our Class A common stock to be sold in this offering. You may read and copy all or any portion of the registration statement or any other information we file at the public reference room at the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at the regional offices of the Securities and Exchange Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our filings with the Securities and Exchange Commission, including the registration statement, are also available to you on the Securities and Exchange Commission's website (http://www.sec.gov). As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act, and, in accordance with those requirements, we will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. We intend to furnish our stockholders with annual reports containing audited financial statements and with quarterly reports for the first three quarters of each year containing unaudited interim financial information. 110 INDEX TO FINANCIAL STATEMENTS
Page ---- ENTRAVISION COMMUNICATIONS CORPORATION (PRO FORMA) Unaudited Pro Forma Financial Information, Basis of Presentation......... F-2 Unaudited Pro Forma Condensed Consolidated Statement of Operations....... F-5 Unaudited Pro Forma Condensed Consolidated Balance Sheet................. F-7 Notes to Unaudited Pro Forma Financial Statements........................ F-8 ENTRAVISION COMMUNICATIONS CORPORATION (HISTORICAL) INDEPENDENT AUDITOR'S REPORT............................................... F-11 FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................. F-12 Consolidated Statements of Operations.................................... F-13 Consolidated Statements of Stockholders' Equity.......................... F-14 Consolidated Statements of Cash Flows.................................... F-15 Notes to Consolidated Financial Statements............................... F-16 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES REPORT OF INDEPENDENT AUDITORS............................................. F-37 FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................. F-38 Consolidated Statements of Operations.................................... F-39 Consolidated Statements of Stockholders' Equity.......................... F-40 Consolidated Statements of Cash Flows.................................... F-41 Notes to Consolidated Financial Statements............................... F-42 Z-SPANISH MEDIA CORPORATION INDEPENDENT AUDITOR'S REPORT............................................... F-54 FINANCIAL STATEMENTS Combined Balance Sheets.................................................. F-55 Combined Statements of Operations........................................ F-56 Combined Statements of Stockholders' Equity.............................. F-57 Combined Statements of Cash Flows........................................ F-58 Notes to Combined Financial Statements................................... F-59 DESOTO-CHANNEL 62 ASSOCIATES, LTD. INDEPENDENT AUDITOR'S REPORT............................................... F-78 FINANCIAL STATEMENTS Statement of Operations and Partners' Deficit............................ F-79 Statement of Cash Flows.................................................. F-80 Notes to Financial Statements............................................ F-81 KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) RADIO STATIONS (STATIONS OWNED BY SUNBURST MEDIA, L.P.) INDEPENDENT AUDITOR'S REPORT............................................... F-85 FINANCIAL STATEMENTS Statements of Assets to be Acquired...................................... F-86 Statements of Revenues and Direct Operating Expenses..................... F-87 Notes to the Financial Statements........................................ F-88
F-1 UNAUDITED PRO FORMA FINANCIAL INFORMATION BASIS OF PRESENTATION The following unaudited pro forma financial information is based on our historical financial statements and those of LCG, Z-Spanish Media and other acquired or to be acquired companies and has been prepared to illustrate the effects of the acquisitions described below and the related financing transactions. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1999 and the three months ended March 31, 1999 and March 31, 2000 gives effect to acquisitions completed between January 1, 1999 and the date of this prospectus, including our acquisition of LCG, and our pending acquisition of Z-Spanish Media, as if such transactions had been completed January 1, 1999. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2000 has been prepared as if our acquisitions that occurred after March 31, 2000 had occurred as of March 31, 2000. These acquisitions will be accounted for using the purchase method of accounting. The total purchase costs of these acquisitions will be allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values. The allocation of the aggregate purchase price reflected in the unaudited pro forma financial information is preliminary, however, management does not expect the final allocation to differ materially from its estimate. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated dates. The unaudited pro forma financial information should be read in conjunction with our audited consolidated financial statements and notes thereto and those of LCG, Z-Spanish Media and Desoto-Channel 62 Associates, Ltd. and radio stations KVPA(FM), KVLY(FM), KFRQ(FM) and KKPS(FM) included elsewhere in this prospectus. Recently Completed and Pending Acquisitions Recently Completed Acquisitions 1999 Acquisitions El Centro/Brawley/Imperial, California Acquisition. On January 6, 1999, we acquired certain assets of Brawley Broadcasting Company and KAMP Radio, Inc., which include the radio stations KAMP (AM) El Centro, California; KWST (FM) Brawley, California; KMXX (FM) Imperial, California for approximately $2.5 million. This was financed with an advance under our existing bank line of credit. Orlando/Tampa, Florida and Washington, D.C. Acquisition. On February 4, 1999, we purchased all of the assets of Latin Communications Group Television, Inc. relating to television stations WVEN-LP, in Orlando, Florida and WVEA-LP in Tampa, Florida. In addition, we purchased all of the outstanding capital stock of Los Cerezos Television Company, which operates television station WMDO-LP in Washington, D.C. The aggregate purchase price was approximately $14.3 million including the assumption of certain liabilities totaling $1.1 million. This was financed with an advance under our existing bank line of credit. F-2 Albuquerque, New Mexico Acquisition. On April 1, 1999, we acquired certain assets of Univision affiliate television stations KLUZ and K48AM from Univision for a purchase price of approximately $14.9 million. We provided a 2% increase in Univision's option under its note agreement and $1 million cash. Venice (Sarasota), Florida Acquisition. On September 20, 1999, we acquired certain assets of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and Omni Investments, Inc. for a purchase price of $17.0 million. These companies collectively own the assets and licenses to operate television station WBSV in Venice, Florida. This was financed with an advance under our existing bank line of credit. Lubbock/San Angelo/Amarillo, Texas Acquisition. On December 20, 1999, we acquired certain assets of Paisano Communications, which includes low-power television stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas; K48FR, Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas for $2.3 million. This was financed with an advance under our existing bank line of credit. 2000 Acquisitions El Paso, Texas Acquisition. On January 14, 2000, we acquired substantially all of assets relating to the operations of radio stations KATH (FM) and KOFX (FM) from Magic Media, Inc. for approximately $14 million. This was financed with an advance under our existing bank line of credit. Tijuana, Mexico Acquisition. In March 2000, Televisora Alco S.A. de C.V. (ALCO), the Mexican entity in which we own a 40% limited voting interest (neutral investment stock) pursuant to a special authorization obtained from the Mexican Foreign Investment General Bureau, executed a stock purchase agreement to acquire the outstanding capital stock of a Mexican corporation which holds the necessary authorizations from the Mexican government to own and operate television station XHAS, Channel 33, Tijuana, Baja California, Mexico. This transaction is subject to the approval of the Mexican Secretaria de Comunicaciones y Transportes. Additionally, we acquired a 47.5% interest in Vista Television, Inc., and Channel 57, Inc. for approximately $35.2 million. Additionally, we will enter into a time brokerage agreement in connection with this acquisition. This was financed with proceeds from the $110.0 million Univision investment. California, Colorado, New Mexico and Washington D.C. Acquisition. On April 20, 2000, we acquired all of the outstanding capital stock of LCG for approximately $252 million. LCG operates 17 radio stations in California, Colorado, New Mexico and Washington D.C. and also owns two Spanish-language publications. This acquisition was financed using our bank credit facilities and TSG Capital Fund III, L.P.'s investment of $90 million. Pending Acquisitions California, Texas, Illinois, Arizona, New York and Florida Acquisition. On April 20, 2000, we agreed to acquire all of the outstanding capital stock of Z- Spanish Media for a purchase price of approximately $475 million including the assumption of approximately $110 million of debt. Z-Spanish Media owns 33 radio stations and an outdoor billboard business. These pro forma financial statements also give effect to Z-Spanish Media's September 30, 1999 acquisition of Seaboard Outdoor Advertising, as if Z-Spanish Media had owned these operations for all of 1999. The acquisition of Z-Spanish Media will be financed with the issuance of 7,187,902 shares of Class A common stock valued at $108 million and $247 million cash from offering proceeds. If this offering is not completed, the agreement provides for the issuance of $247 million of redeemable preferred stock with a dividend at LIBOR plus 7%. F-3 Harlingen-Weslaco-Brownsville-McAllen Acquisition In May 2000, we agreed to acquire substantially all of the assets relating to the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) from Sunburst Media, L.P. for approximately $55 million. This will be financed through our proposed new bank credit facility. Other Pending Transactions The following transactions represent our purchases of broadcasting and outdoor advertising assets. For purposes of these pro forma financial statements, these transactions do not represent business acquisitions and therefore historical financial information is not meaningful. As a result, these transactions are not included in our pro forma financial information. Hartford, Connecticut Acquisition. In February 2000, we agreed to acquire the FCC license of television station WHCT in Hartford, Connecticut for $18 million. Santa Monica/Newport Beach, California Acquisition. In March 2000, we agreed to acquire from Citicasters Co., a subsidiary of Clear Channel Communications, Inc., the FCC licenses relating to the operations of radio stations KACD (FM) Santa Monica, California and KBCD (FM) Newport Beach, California for $85 million of which $17 million was placed into escrow as a deposit. Orlando/Daytona Beach/Melbourne, Florida Acquisition. On April 14, 2000, we agreed to acquire certain assets of television station WNTO-TV for $23 million. Outdoor Advertising Acquisition. We have agreed to acquire certain outdoor advertising assets from Infinity Broadcasting Corporation for $166.6 million, consisting of approximately 1,200 billboards in high-density communities in New York City. This acquisition is an asset purchase, and we will acquire no new employees. This will be financed with an advance under our proposed new bank credit facility. F-4 ENTRAVISION COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 1999 (In thousands, except per share data)
Other Historical Completed Pro Forma Historical Historical Z-Spanish and Pending Adjust- Offering Pro Forma Entravision LCG Media Acquisitions ments Pro Forma Adjustments As Adjusted ----------- ---------- ---------- ------------ ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gross revenue: Television............ $ 63,842 $ -- $ -- $ 5,096 $ -- $ 68,938 $ -- $ 68,938 Radio................. 2,362 29,759 26,334 8,806 -- 67,261 -- 67,261 Outdoor and publishing........... -- 19,109 12,227 3,798 -- 35,134 -- 35,134 -------- ------- ------- ------- -------- -------- -------- -------- Total gross revenue.... 66,204 48,868 38,561 17,700 -- 171,333 -- 171,333 Less agency commissions........... 7,205 4,623 2,523 1,658 -- 16,009 -- 16,009 -------- ------- ------- ------- -------- -------- -------- -------- Net revenue............ 58,999 44,245 36,038 16,042 -- 155,324 -- 155,324 -------- ------- ------- ------- -------- -------- -------- -------- Expenses: Direct operating...... 24,441 15,560 14,183 5,754 -- 59,938 -- 59,938 Selling, general and administrative (excluding non-cash stock-based compensation)........ 11,611 18,910 8,382 8,799 -- 47,702 -- 47,702 Corporate............. 5,809 1,795 4,773 262 -- 12,639 -- 12,639 Depreciation and amortization......... 14,613 4,907 8,670 1,104 56,951 (1) 86,245 -- 86,245 Non-cash stock-based compensation......... 29,143 -- -- -- 2,788 (8) 31,931 -- 31,931 Gain on sale of assets............... -- -- (4,442) -- -- (4,442) -- (4,442) -------- ------- ------- ------- -------- -------- -------- -------- Total expenses......... 85,617 41,172 31,566 15,919 59,739 234,013 -- 234,013 -------- ------- ------- ------- -------- -------- -------- -------- Operating income (loss)................ (26,618) 3,073 4,472 123 (59,739) (78,689) -- (78,689) Interest expense, net and other............. (9,591) (5,527) (6,471) (2,659) (26,601)(2) (335)(3) 16,050 (4) (35,134) 29,498 (14) (5,636) Non-cash interest expense related to Univision conversion option................ (2,500) -- -- -- -- (2,500) -- (2,500) Income tax benefit (expense)............. 121 736 284 852 24,375 (5) 2,499 (6) 28,867 (11,799)(15) 17,068 -------- ------- ------- ------- -------- -------- -------- -------- Loss from continuing operations............ (38,588) (1,718) (1,715) (1,684) (43,751) (87,456) (17,699) (69,757) Preferred stock dividends............. -- -- -- -- 7,650 (7) 7,650 -- 7,650 -------- ------- ------- ------- -------- -------- -------- -------- Loss from continuing operations applicable to common stock....... $(38,588) $(1,718) $(1,715) $(1,684) $(51,401) $(95,106) $(17,699) $(77,407) ======== ======= ======= ======= ======== ======== ======== ======== Basic and diluted earnings per share: Net loss from continuing operations applicable to common stock................ $(1.23) $(0.76) ======== ======== Weighted average common shares outstanding.......... 77,011 101,574 ======== ========
F-5 ENTRAVISION COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data)
Three Months Ended March 31, 2000 ---------------------------------------------------------------------------------------------------- Other Historical Completed Pro Forma Historical Historical Z-Spanish and Pending Adjust- Offering Pro Forma Entravision LCG Media Acquisitions ments Pro Forma Adjustments As Adjusted ----------- ---------- ---------- ------------ ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gross revenue: Television...... $ 18,178 $ -- $ -- $ 78 $ -- $ 18,256 $ -- $ 18,256 Radio........... 1,162 7,427 5,873 1,645 -- 16,107 -- 16,107 Outdoor and publishing..... -- 4,609 2,867 -- -- 7,476 -- 7,476 -------- ------- ------- ------ -------- -------- ------ -------- Total gross revenue......... 19,340 12,036 8,740 1,723 -- 41,839 -- 41,839 Less agency commissions..... 2,076 1,194 581 334 -- 4,185 -- 4,185 -------- ------- ------- ------ -------- -------- ------ -------- Net revenue...... 17,264 10,842 8,159 1,389 -- 37,654 -- 37,654 -------- ------- ------- ------ -------- -------- ------ -------- Expenses: Direct operating...... 7,883 4,212 3,425 346 -- 15,866 -- 15,866 Selling, general and administrative.. 3,749 4,734 2,034 590 -- 11,107 -- 11,107 Corporate (excluding non- cash stock- based compensation).. 1,848 429 1,701 67 -- 4,045 -- 4,045 Depreciation and amortization... 4,535 1,229 2,843 251 13,027 (1) 21,885 -- 21,885 Non-cash stock- based compensation... -- -- 196 -- 697 (8) 893 -- 893 Gain on sale of assets......... -- -- -- -- -- -- -- -- -------- ------- ------- ------ -------- -------- ------ -------- Total expenses... 18,015 10,604 10,199 1,254 13,724 53,796 -- 53,796 -------- ------- ------- ------ -------- -------- ------ -------- Operating income (loss).......... (751) 238 (2,040) 135 (13,724) (16,142) -- (16,142) Interest expense, net and other... (3,897) (1,384) (2,337) (333) (5,489)(2) (83)(3) 4,013 (4) (9,510) 7,375 (14) (2,135) Non-cash interest expense related to Univision conversion option.......... (31,600) -- -- -- -- (31,600) -- (31,600) Income tax benefit (expense)....... 6 344 1,514 -- 5,144 (5) 1,777 (6) 8,785 (2,950)(15) 5,835 -------- ------- ------- ------ -------- -------- ------ -------- Loss from continuing operations...... (36,242) (802) (2,863) (198) (8,362) (48,467) 4,425 (44,042) Preferred stock dividends....... -- -- -- -- 1,913 (7) 1,913 -- 1,913 -------- ------- ------- ------ -------- -------- ------ -------- Loss from continuing operations applicable to common stock.... $(36,242) $ (802) $(2,863) $ (198) $(10,275) $(50,380) $4,425 $(45,955) ======== ======= ======= ====== ======== ======== ====== ======== Basic and diluted earnings per share: Net loss from continuing operations applicable to common stock... $ (0.65) $ (0.45) ======== ======== Weighted average common shares outstanding.... 76,976 101,538 ======== ======== Three Months Ended March 31, 1999 ----------- Pro Forma ----------- (Unaudited) Gross revenue: Television...... $ 13,664 Radio........... 12,309 Outdoor and publishing..... 6,857 ----------- Total gross revenue......... 32,830 Less agency commissions..... 2,893 ----------- Net revenue...... 29,937 ----------- Expenses: Direct operating...... 12,297 Selling, general and administrative.. 11,632 Corporate (excluding non- cash stock- based compensation).. 2,348 Depreciation and amortization... 21,550 Non-cash stock- based compensation... 7,983 Gain on sale of assets......... (2,223) ----------- Total expenses... 53,587 ----------- Operating income (loss).......... (23,650) Interest expense, net and other... (8,491) Non-cash interest expense related to Univision conversion option.......... Income tax benefit (expense)....... 8,481 ----------- Loss from continuing operations...... (23,660) Preferred stock dividends....... 1,913 ----------- Loss from continuing operations applicable to common stock.... $(25,573) =========== Basic and diluted earnings per share: Net loss from continuing operations applicable to common stock... $ (0.33) =========== Weighted average common shares outstanding.... 77,504 ===========
F-6 ENTRAVISION COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET As of March 31, 2000 (In thousands)
Other Historical Completed Historical Historical Z-Spanish and Pending Pro Forma Offering Pro Forma As Entravision LCG Media Acquisitions Adjustments Pro Forma Adjustments Adjusted ----------- ---------- ---------- ------------ ----------- ----------- ----------- ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Current assets: Cash and cash equivalents....... $ 3,513 $ 2,236 $ 441 $ 267 $ -- $ 6,457 $ 10,000 (16) $ 16,457 Receivables....... 12,229 7,711 15,270 907 -- 36,117 -- 36,117 Prepaid expenses and taxes......... 1,310 2,163 1,390 19 -- 4,882 -- 4,882 -------- -------- -------- ------ --------- ---------- --------- ---------- Total current assets.......... 17,052 12,110 17,101 1,193 -- 47,456 10,000 57,456 Property and equipment.......... 28,736 7,759 34,240 1,244 -- 71,979 -- 71,979 Intangible assets.. 173,870 129,923 223,831 6,403 553,093 (9) 1,087,120 -- 1,087,120 Other assets....... 33,234 4,416 6,892 -- (7,500)(13) 37,042 -- 37,042 -------- -------- -------- ------ --------- ---------- --------- ---------- Total assets.... $252,892 $154,208 $282,064 $8,840 $ 545,593 $1,243,597 $ 10,000 $1,253,597 ======== ======== ======== ====== ========= ========== ========= ========== Current liabilities: Accounts payable, accrued liabilities and other............. $ 9,130 $ 5,933 $ 12,078 $ 372 $ -- $ 27,513 $ -- $ 27,513 Long-term debt, current portion... 525 25 22,779 -- -- 23,329 -- 23,329 -------- -------- -------- ------ --------- ---------- --------- ---------- Total current liabilities..... 9,655 5,958 34,857 372 -- 50,842 -- 50,842 Long-term debt..... 114,076 39,780 86,021 -- 260,195 (10) (90,000)(11) 410,072 (343,000)(16) 67,072 Subordinated notes.............. 120,000 -- -- -- 90,000 (11) (210,000)(11) -- -- -- Deferred taxes and other.............. 1,990 20,304 26,988 -- 155,000 (10) 204,282 -- 204,282 -------- -------- -------- ------ --------- ---------- --------- ---------- Total liabilities..... 245,721 66,042 147,866 372 205,195 665,196 (343,000) 322,196 -------- -------- -------- ------ --------- ---------- --------- ---------- Series A mandatorily redeemable convertible preferred stock.... -- -- -- -- 90,000 (12) 90,000 -- 90,000 Common stock put options............ -- -- 54,182 -- (54,182)(13) -- -- -- -------- -------- -------- ------ --------- ---------- --------- ---------- -- -- 54,182 -- 35,818 90,000 -- 90,000 -------- -------- -------- ------ --------- ---------- --------- ---------- Stockholders' equity: Class A common stock............. 1 92 251 -- 2 (10) (343)(13) 3 2 (16) 5 Class B common stock............. 5 -- -- -- -- 5 -- 5 Class C common stock............. -- -- -- -- 1 (12) 1 -- 1 Additional paid- in capital........ 107,898 94,485 100,271 -- (177,376)(13) 119,999 (12) 354,998 (10) 600,275 352,998 (16) 953,273 Deferred compensation and other............. -- -- (5,637) -- (5,513)(13) (11,150) -- (11,150) Accumulated deficit........... (100,143) (6,411) (14,869) 8,468 12,812 (13) (100,143) -- (100,143) Stock subscriptions notes receivable........ (590) -- -- -- -- (590) -- (590) -------- -------- -------- ------ --------- ---------- --------- ---------- Total stockholders' equity.......... 7,171 88,166 80,016 8,468 304,580 488,401 353,000 841,401 -------- -------- -------- ------ --------- ---------- --------- ---------- Total liabilities and stockholders' equity.......... $252,892 $154,208 $282,064 $8,840 $ 545,593 $1,243,597 $ 10,000 $1,253,597 ======== ======== ======== ====== ========= ========== ========= ==========
F-7 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (1) These adjustments reflect additional depreciation and amortization expense resulting from the allocation of our purchase price of the assets acquired, including increases in property and equipment and identifiable intangible assets, to their estimated fair market values and the goodwill associated with the acquisitions.
Year Ended December 31, 1999 ----------------------------------------------- Amortization Depreciation Less Pro Forma Expense Expense Historical Adjustment ------------ ------------ ---------- ---------- LCG......................... $22,430 $1,108 $ (4,907) $18,631 Z-Spanish Media............. 34,924 4,891 (8,670) 31,145 Other....................... 8,279 -- (1,104) 7,175 ------- ------ -------- ------- $65,633 $5,999 $(14,681) $56,951 ======= ====== ======== ======= Three Months Ended March 31, 2000 ----------------------------------------------- Amortization Depreciation Less Pro Forma Expense Expense Historical Adjustment ------------ ------------ ---------- ---------- LCG......................... $ 5,608 $ 277 $ (1,229) $ 4,656 Z-Spanish Media............. 8,731 1,223 (2,843) 7,111 Other....................... 1,511 -- (251) 1,260 ------- ------ -------- ------- $15,850 $1,500 $ (4,323) $13,027 ======= ====== ======== =======
Goodwill and other specifically identified intangibles are amortized over 15 years and fixed assets over 7 years. (2) These adjustments conform historical interest expense to pro forma interest expense associated with our borrowings under our existing credit facility prior to our adjustments for our subordinated notes and LCG credit facility which were used to finance the completed and pending acquisitions. The pro forma interest expense adjustment is as follows:
Year Ended December 31, 1999 ------------------------------------------- Debt After Interest Less Pro Forma Acquisitions Expense Historical Adjustment ------------ -------- ---------- ---------- LCG............................. $245,000 $21,070 $ (5,527) $15,543 Z-Spanish Media................. 108,800 9,357 (6,471) 2,886 Other........................... 104,000 10,831 (2,659) 8,172 ------- -------- ------- $41,258 $(14,657) $26,601 ======= ======== ======= Three Months Ended March 31, 2000 ------------------------------------------- Debt After Interest Less Pro Forma Acquisitions Expense Historical Adjustment ------------ -------- ---------- ---------- LCG............................. $245,000 $5,268 $ (1,384) $3,884 Z-Spanish Media................. 108,800 2,339 (2,337) 2 Other........................... 90,000 1,936 (333) 1,603 ------- -------- ------- $9,543 $ (4,054) $5,489 ======= ======== =======
The assumed interest rate under our existing revolving credit facility was 8.6%, which represents our current rate. F-8 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued) (3) These adjustments represent the reduction or increase in interest expense on the borrowings under our existing credit facility due to the reduced rate associated with our 8.5% $90 million convertible subordinated note from TSG Capital Fund III, L.P., Univision's 7% $110 million subordinated note and option and the increase in interest rate to 10.5% associated with our $115 million term loan for our acquisition of LCG.
Year Ended December 31, 1999 Interest Expense ------------ TSG Capital Fund III, L.P...................................... $ 90 Univision...................................................... 1,760 Term loan for acquisition of LCG............................... (2,185) ------ $ (335) ====== Three Months Ended March 31, 2000 Interest Expense ------------ TSG Capital Fund III, L.P...................................... $ 23 Univision...................................................... 440 Term loan for acquisition of LCG............................... (546) ------ $ (83) ======
(4) These adjustments represent the interest savings on the exchange of Univision's 7% subordinated note and option of $120 million to Class C common stock and the conversion of TSG Capital Fund III, L.P.'s 8.5% convertible subordinated note of $90 million to preferred stock. (5) To provide for the tax effect of pro forma adjustments using an estimated effective rate of 40%. Our acquisitions of LCG and Z-Spanish Media and our acquisitions of stations KORO and KNVO will include non-tax deductible goodwill which is estimated to be $6.9 million for the year ended December 31, 1999 and $1.7 million for the three months ended March 31, 2000. (6) These adjustments represent the provision for income taxes on pro forma net loss of historical Entravision to give effect to our conversion from a limited liability company to a C-corporation. An effective combined tax rate of 40% was used after giving effect to non-tax deductible goodwill of $0.8 million and non-cash stock-based compensation of $31.9 million for the year ended December 31, 1999 and non-tax deductible goodwill of $0.2 million for the three months ended March 31, 2000. (7) These adjustments represent the non-cash 8.5% dividend on TSG Capital Fund III, L.P.'s mandatorily redeemable convertible preferred stock.
Three Months Year Ended Ended December 31, March 31, 1999 2000 ------------ ------------ Series A mandatorily redeemable convertible preferred stock............................... $7,650 $1,913 ====== ======
(8) These adjustments represent the amortization of $11.1 million of deferred compensation related to the exchange of Z-Spanish Media stock options for Entravision stock options. F-9 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS (9) These adjustments represent the allocation of purchase price of our 2000 acquisitions to the estimated fair market value of the assets acquired and liabilities assumed, and the recording of goodwill and FCC license intangibles associated with the acquisitions.
FCC Licenses and Other Less Total Intangibles Goodwill Historical Intangibles ------------ -------- ---------- ----------- LCG............................ $302,452 $34,000 $(129,923) $206,529 Z-Spanish Media................ 470,863 53,000 (223,831) 300,032 Other.......................... 52,935 -- (6,403) 46,532 -------- ------- --------- -------- $826,250 $87,000 $(360,157) $553,093 ======== ======= ========= ========
(10) These adjustments represent the issuance of our common stock in this offering necessary to finance the Z-Spanish Media acquisition and common stock to selling stockholders of Z-Spanish Media and borrowings under credit facilities to finance other acquisitions and to record related deferred tax liabilities.
Borrowings Under Common Credit Stock Deferred Facilities Issued Taxes ---------- -------- -------- LCG............................................ $205,195 $ -- $ 82,000 Z-Spanish Media................................ -- 355,000 73,000 Other.......................................... 55,000 -- -- -------- -------- -------- $260,195 $355,000 $155,000 ======== ======== ========
(11) This adjustment represents TSG Capital Fund III, L.P.'s $90 million investment in the Company which is presented as a reduction of our existing bank debt. (12) These adjustments represent the exchange of Univision's 7% subordinated note and option of $120 million to Class C common stock and the conversion of TSG Capital Fund III, L.P.'s 8.5% convertible subordinated note of $90 million into shares of Series A mandatorily redeemable convertible preferred stock. (13) This adjustment represents the elimination of our deposit related to our acquisition of LCG, common stock put options and deferred compensation related to our Z-Spanish Media acquisition, historical stockholders' equity of our acquisitions pending at March 31, 2000 and the estimated fair value related to compensation related to the exchange of Z-Spanish Media stock options for Entravision stock options, as these acquisitions were accounted for as purchase business combinations. UNAUDITED PRO FORMA OFFERING ADJUSTMENTS (14) This adjustment represents the interest savings from using the estimated net proceeds we receive from this offering for the repayment of $343,000 of the pro forma borrowings. (15) This adjustment represents the tax effect of offering adjustments using an estimated statutory tax rate of 40%. (16) This adjustment represents our issuance of 40,000,000 shares of our Class A common stock at a public offering price of $16 per share, net of $40,000 in estimated offering expenses less $247 million in proceeds allocated for our acquisition of Z-Spanish Media. F-10 The accompanying consolidated financial statements of Entravision Communications Corporation and its subsidiaries have been prepared to give effect to an exchange transaction of the Company from a limited liability company (LLC) to a corporation and contemporaneously with the closing of the public offering contemplated by this prospectus the conversion of all LLC membership units to Class A, B and C common stock as described in Note 1. On the effective date of the registration statement covering the shares of Class A common stock to be sold in the public offering, we will issue the following report: INDEPENDENT AUDITOR'S REPORT To the Board of Directors Entravision Communications Corporation Santa Monica, California We have audited the accompanying consolidated balance sheets of Entravision Communications Corporation and its subsidiaries as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Entravision Communications Corporation and its subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. As described in Note 1, the accompanying consolidated financial statements of Entravision Communications Corporation and its subsidiaries have been prepared to give effect to the exchange transaction as discussed in Note 1, before the closing of the public offering contemplated by this prospectus. /s/ McGladrey & Pullen, LLP Pasadena, California March 18, 2000, except Note 12, as to which the date is June 13, 2000 F-11 ENTRAVISION COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1999 and March 31, 2000 (Unaudited) (In thousands, except share and per share data)
December 31, March 31, ------------------ ----------- 1998 1999 2000 -------- -------- ----------- (Unaudited) ASSETS Current assets Cash and cash equivalents..................... $ 3,661 $ 2,357 $ 3,513 Receivables: Trade, net of allowance for doubtful accounts of 1998 $790; 1999 $979; 2000 $941.......... 9,143 12,392 11,956 Related parties.............................. 284 273 273 Prepaid expenses and taxes.................... 268 355 1,310 -------- -------- -------- Total current assets........................ 13,356 15,377 17,052 Property and equipment, net.................... 16,788 27,230 28,736 Intangible assets, net......................... 77,891 136,189 173,870 Other assets, including deposits on acquisitions of 1998 $5,533; 1999 $8,742; 2000 $24,733.................................. 5,689 10,023 33,234 -------- -------- -------- $113,724 $188,819 $252,892 ======== ======== ======== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of notes and advances payable, related parties..................... $ 201 $ 231 $ 231 Current maturities of long-term debt.......... 943 1,389 294 Accounts payable and accrued expenses (including related parties of 1998 $71; 1999 $280; 2000 $230)............................. 6,199 7,479 9,130 -------- -------- -------- Total current liabilities................... 7,343 9,099 9,655 -------- -------- -------- Long-term debt Subordinated note payable to Univision........ 10,000 10,000 120,000 Notes payable, less current maturities........ 88,794 155,917 114,076 -------- -------- -------- 98,794 165,917 234,076 Deferred taxes................................. 283 1,990 1,990 -------- -------- -------- Total liabilities........................... 106,420 177,006 245,721 -------- -------- -------- Commitments and Contingencies Series A mandatorily redeemable convertible preferred stock, $0.0001 par value, 11,000,000 shares authorized; no shares issued or outstanding in 1998 or 1999................... -- -- -- Stockholders' equity Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 1998 5,002,114, 1999 and 2000 4,937,854.................................... 1 1 1 Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 1998, 1999 and 2000 27,429,313................................... 5 5 5 Class C common stock, $0.0001 par value, 25,000,000 shares authorized; no shares issued or outstanding........................ -- -- -- Additional paid-in capital.................... 30,711 76,292 107,898 Accumulated deficit........................... (22,852) (63,901) (100,143) -------- -------- -------- 7,865 12,397 7,761 Less: stock subscription notes receivable..... (561) (584) (590) -------- -------- -------- 7,304 11,813 7,171 -------- -------- -------- $113,724 $188,819 $252,892 ======== ======== ========
See Notes to Consolidated Financial Statements. F-12 ENTRAVISION COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited) (In thousands, except share and per share data)
Three Months Ended Year Ended December 31, March 31, ------------------------------------- ------------------------ 1997 1998 1999 1999 2000 ----------- ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) Gross revenue (including network compensation from Univision of $2,947, $4,922, $2,748, $740 and $1,046)....... $ 33,419 $ 49,872 $ 66,204 $13,013 $19,340 Less agency commissions............ 2,963 5,052 7,205 1,284 2,076 ----------- ----------- ----------- ----------- ----------- Net revenue........... 30,456 44,820 58,999 11,729 17,264 ----------- ----------- ----------- ----------- ----------- Expenses: Direct operating (including Univision national representation fees of $1,220, $2,379, $3,149, $594, and $922)................ 9,184 15,794 24,441 4,672 7,883 Selling, general and administrative (excluding non-cash stock-based compensation of $900, $500, $29,143, $7,286 and $0).............. 5,845 8,877 11,611 2,510 3,749 Corporate expenses (including related parties of $321, $453, $522, $81, and $69)................. 3,899 3,963 5,809 1,304 1,848 Non-cash stock-based compensation......... 900 500 29,143 7,286 -- Depreciation and amortization......... 8,847 9,565 14,613 2,979 4,535 ----------- ----------- ----------- ----------- ----------- 28,675 38,699 85,617 18,751 18,015 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............. 1,781 6,121 (26,618) (7,022) (751) Interest expense (including amounts to Univision of $701, $701, $701, $175 and $816)................ (5,222) (8,386) (9,690) (2,043) (4,106) Non-cash interest expense relating to Univision conversion option............... -- -- (2,500) -- (31,600) Interest income....... 115 142 99 20 209 ----------- ----------- ----------- ----------- ----------- Loss before income taxes.............. (3,326) (2,123) (38,709) (9,045) (36,248) Income tax (expense) benefit................ (254) (210) 121 74 6 Effect of change in tax status................. 7,785 -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss)... $ 4,205 $ (2,333) $ (38,588) $(8,971) $(36,242) =========== =========== =========== =========== =========== Pro forma provision for income taxes benefit... 643 322 2,499 622 1,777 ----------- ----------- ----------- ----------- ----------- Pro forma net loss...... $ (2,683) $ (1,801) $ (36,210) $ (8,423) $ (34,471) =========== =========== =========== =========== =========== Pro forma per-share data: Net loss per share: Basic and diluted.... $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06) =========== =========== =========== =========== =========== Weighted average common shares outstanding: Basic and diluted.... 32,972,425 32,894,802 32,402,378 32,431,427 32,367,167 =========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. F-13 ENTRAVISION COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31, 2000 (Unaudited) (In thousands, except share and per share data)
Stock Number of Common Shares Common Stock Additional Subscription Preferred ----------------------------- ----------------------- Paid-in Accumulated Notes Stock Class A Class B Class C Class A Class B Class C Capital (Deficit) Receivable Total --------- --------- ---------- ------- ------- ------- ------- ---------- ----------- ------------ -------- Balance, December 31, 1996............ $ -- 2,924,127 15,335,080 -- $ 1 $ 3 $ -- $ 14,312 $ (4,054) $(519) $ 9,743 Issuance of Class A common stock in connection with employee stock award........... -- 922,828 -- -- -- -- -- 900 -- -- 900 Issuance of Class A and Class B common stock upon merger with entity under common control.. -- 1,465,023 9,856,637 -- -- 2 -- 117 -- -- 119 Issuance of Class A common stock upon conversion of stockholder note payable......... -- 234,889 -- -- -- -- -- 240 -- -- 240 Interest earned on subscription receivables..... -- -- -- -- -- -- -- 21 -- (21) -- Repurchase and retirement of Class A common stock........... -- (193,613) -- -- -- -- -- -- (587) -- (587) Net income...... -- -- -- -- -- -- -- -- 4,205 -- 4,205 Dividends ($0.02 per share) paid to members for income taxes.... -- -- -- -- -- -- -- -- (1,498) -- (1,498) ----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- -------- Balance, December 31, 1997............ -- 5,353,254 25,191,717 -- 1 5 -- 15,590 (1,934) (540) 13,122 Issuance of Class A and Class B common stock upon merger with entity under common control.. -- 268,391 2,237,596 -- -- -- -- 14,600 (14,600) -- -- Interest earned on subscription receivables..... -- -- -- -- -- -- -- 21 -- (21) -- Repurchase and retirement of Class A common stock........... -- (619,531) -- -- -- -- -- -- (1,000) -- (1,000) Compensation expense attributable to employee stock award........... -- -- -- -- -- -- -- 500 -- -- 500 Net loss........ -- -- -- -- -- -- -- -- (2,333) -- (2,333) Dividends ($0.04 per share) paid to members for income taxes.... -- -- -- -- -- -- -- -- (2,985) -- (2,985) ----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- -------- Balance, December 31, 1998............ -- 5,002,114 27,429,313 -- 1 5 -- 30,711 (22,852) (561) 7,304 Increase in conversion option on subordinated note agreement relating to acquisition of business........ -- -- -- -- -- -- -- 13,915 -- -- 13,915 Intrinsic value of subordinated note conversion option.......... -- -- -- -- -- -- -- 2,500 -- -- 2,500 Interest earned on subscription receivables..... -- -- -- -- -- -- -- 23 -- (23) -- Repurchase and retirement of Class A common stock........... -- (64,260) -- -- -- -- -- -- (61) -- (61) Compensation expense attributable to employee stock award and stock options......... -- -- -- -- -- -- -- 29,143 -- -- 29,143 Net loss........ -- -- -- -- -- -- -- -- (38,588) -- (38,588) Dividends ($0.04 per share) paid to members for income taxes.... -- -- -- -- -- -- -- -- (2,400) -- (2,400) ----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- -------- Balance, December 31, 1999............ -- 4,937,854 27,429,313 -- 1 5 -- 76,292 (63,901) (584) 11,813 Interest earned on subscription receivables (Unaudited)..... -- -- -- -- -- -- -- 6 -- (6) -- Intrinsic value of subordinated note conversion option (Unaudited)..... -- -- -- -- -- -- -- 31,600 -- -- 31,600 Net loss (Unaudited)..... -- -- -- -- -- -- -- -- (36,242) -- (36,242) ----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- -------- Balance March 31, 2000 (Unaudited)..... $ -- 4,937,854 27,429,313 -- $ 1 $ 5 $ -- $107,898 $(100,143) $(590) $ 7,171 ===== ========= ========== ===== ===== ===== ===== ======== ========= ===== ========
See Notes to Consolidated Financial Statements. F-14 ENTRAVISION COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited) (In thousands)
Three Months Ended Year Ended December 31, March 31, ---------------------------- ----------------------- 1997 1998 1999 1999 2000 -------- -------- -------- ----------- ----------- (Unaudited) (Unaudited) Cash Flows from Operating Activities Net income (loss)....... $ 4,205 $ (2,333) $(38,588) $(8,971) $(36,242) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........... 8,847 9,565 14,354 2,912 4,466 Deferred tax expense (benefit).............. 149 (83) 406 -- -- Effect of change in tax status................. (7,785) -- -- -- -- Amortization of debt issue costs............ 373 1,295 258 65 69 Intrinsic value of subordinated note exchange option........ -- -- 2,500 -- 31,600 Non-cash stock-based compensation........... 900 500 29,143 7,286 -- Loss on disposal of property and equipment.............. 35 15 100 -- 3 Changes in assets and liabilities, net of effect of business combinations: (Increase) in accounts receivable............ (3,525) (2,446) (3,249) 1,043 436 (Increase) in prepaid expenses and other assets................ (64) (119) (87) 9 (955) Increase in accounts payable, accrued expenses and other.... 3,374 1,264 1,291 (1,445) 1,651 -------- -------- -------- ------- -------- Net cash provided by operating activities........... 6,509 7,658 6,128 899 1,028 -------- -------- -------- ------- -------- Cash Flows from Investing Activities Proceeds from sale of equipment.............. 7 19 116 -- 25 Purchases of property and equipment.......... (2,366) (3,094) (12,825) (4,642) (2,693) Cash deposits and purchase price on acquisitions........... (59,549) (22,511) (46,354) (12,403) (61,158) -------- -------- -------- ------- -------- Net cash (used in) investing activities........... (61,908) (25,586) (59,063) (17,045) (63,826) -------- -------- -------- ------- -------- Cash Flows from Financing Activities Proceeds from issuance of common stock........ 119 -- -- -- -- Principal payments on notes payable.......... (1,227) (288) (352) (83) (61,706) Proceeds from borrowings on notes payable....... 58,079 24,407 54,913 15,914 125,660 Dividends paid to members for income taxes.................. (1,498) (2,985) (2,400) (261) -- Purchase and retirement of common stock........ (587) (500) (530) -- -- Payments of deferred debt costs............. (123) (1,295) -- -- -- -------- -------- -------- ------- -------- Net cash provided by financing activities........... 54,763 19,339 51,631 15,570 63,954 -------- -------- -------- ------- -------- Net increase (decrease) in cash and cash equivalents.......... (636) 1,411 (1,304) (576) 1,156 Cash and Cash Equivalents Beginning............... 2,886 2,250 3,661 3,661 2,357 -------- -------- -------- ------- -------- Ending.................. $ 2,250 $ 3,661 $ 2,357 $ 3,085 $ 3,513 ======== ======== ======== ======= ======== Supplemental Disclosures of Cash Flow Information Cash payments for: Interest................ $ 3,672 $ 6,744 $ 10,542 $ 1,125 $ 2,772 ======== ======== ======== ======= ======== Income taxes (refunds), 1997 $88; 1998 $274; 1999 $308.............. $ (36) $ 51 $ 96 $ 39 $ 225 ======== ======== ======== ======= ======== Supplemental Disclosures of Non-cash Investing and Financing Activities Conversion of note payable for Class A common stock........... $ 240 $ -- $ -- $ -- $ -- ======== ======== ======== ======= ======== Issuance of note payable in connection with redemption of common stock.................. $ -- $ 500 $ 30 $ -- $ -- ======== ======== ======== ======= ======== Assets Acquired and Debt Issued in Business Combinations Current assets.......... $ 636 $ 99 $ 86 $ 86 $ 7,751 Broadcast equipment and furniture and fixtures............... 12,001 1,343 4,477 1,636 626 Intangible assets....... 55,991 16,733 67,533 16,145 40,636 Current liabilities..... -- (164) -- -- -- Deferred taxes.......... (7,974) -- (2,112) (2,112) -- Notes payable........... (84) (350) (12,000) -- -- Increase in subordinated debt exchange option........ -- -- (13,915) -- -- Estimated fair value allocated to option agreement.............. -- -- -- -- (3,015) Less cash deposits from prior year............. (1,521) (500) (5,533) (1,700) (1,500) -------- -------- -------- ------- -------- Net cash paid......... $ 59,049 $ 17,161 $ 38,536 $14,055 $ 44,498 ======== ======== ======== ======= ========
See Notes to Consolidated Financial Statements. F-15 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of business Entravision Communications Corporation (the Company or ECC), a Delaware corporation, primarily owns and operates Spanish-language television stations serving predominantly the Southwestern United States. Each of the Spanish- language stations is a Univision Communications Inc. (Univision) affiliate. Univision is the leading Spanish-language television broadcaster in the United States and makes available to its affiliates 24-hour Spanish-language programming. Additionally, the Company owns and operates an English-language United Paramount Network (UPN) affiliate television station in San Diego. The Company also operates a television station in Las Vegas under a local marketing agreement. The Company also owns and operates Spanish-language radio stations in the Southwest United States. The television and radio stations are collectively referred to as the "broadcast properties." The revenue associated with the radio stations was $2.4 million, or approximately 4%, for the year ended December 31, 1999. See Note 11 for a discussion of acquisitions of additional broadcast properties subsequent to December 31, 1999. Pursuant to Univision network affiliation agreements, Univision acts as the Company's exclusive sales representative for the sale of all national advertising aired on Univision television stations. National sales represent time sold on behalf of the Company's stations by sales representatives employed by Univision. Proceeds of national sales are remitted to the Company by Univision, net of an agency commission and a network representative fee. The affiliation agreements expire at various dates through December 2021. Reorganization On February 11, 2000, ECC was formed. The First Restated Certificate of Incorporation authorizes both preferred and common stock. The common stock has three classes identified as A, B and C which have similar rights and privileges except the Class B common stock provides ten votes per share as compared to one vote per share for all other classes of common stock. Additionally, Univision, as the holder of all Class C common stock, is entitled to vote as a separate class to elect two directors, and will have the right to vote as a separate class on certain material transactions. Class B and C common stock is convertible at the holder's option into one fully paid and nonassessable share of Class A common stock and is required to be converted into one share of Class A common stock upon certain events as defined in the First Restated Certificate of Incorporation. The Series A mandatorily redeemable convertible preferred stock has limited voting rights, and accrues an 8.5% dividend. The purpose of the formation of ECC is to effect an exchange transaction whereby direct and indirect ownership interests in Entravision Communications Company, L.L.C. (ECC LLC) will be exchanged for Class A or Class B common stock of ECC. The Class B common stock will be issued to Walter F. Ulloa, Philip C. Wilkinson and Paul A. Zevnik (and their controlled entities). In addition, the stockholders of Cabrillo Broadcasting Corporation (KBNT), Golden Hills Broadcasting Corporation (KCEC), Las Tres Palmas Corporation (KVER), Tierra Alta Broadcasting, Inc. (KINC), F-16 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) KSMS-TV, Inc. (KSMS), Valley Channel 48, Inc. (KNVO) and Telecorpus, Inc. (KORO) (collectively, the Affiliates) will exchange their common shares of the respective corporations for Class A common shares in ECC. Additionally, Univision will exchange its subordinated note for Class C common stock. The number of common shares of ECC to be issued to the members of ECC LLC and the stockholders of the Affiliates will be determined in such a manner that the ownership interest in ECC will equal the direct and indirect ownership interest in ECC LLC immediately prior to the exchange. This exchange transaction will become effective immediately prior to the effective date of the Initial Public Offering of ECC expected to be consummated during 2000. ECC LLC and Affiliates are considered to be under common control and as such, the exchange will be accounted for in a manner similar to a pooling of interests. Accordingly, these consolidated financial statements, including share data and the stock option exercise price, have been presented as if ECC LLC was incorporated and the exchange transaction took place in the earliest period presented. Formation of Entravision Communications Company, L.L.C. Entravision Communications Company, L.L.C., a Delaware limited liability company, was formed on January 11, 1996. ECC LLC was established to own and operate broadcast properties. ECC LLC assumed the operations of television stations KVER, KINC, KBNT, KCEC and KSMS on November 1, 1996 under local marketing agreements (LMAs) whereby the operating revenue and expenses of these companies accrued to the benefit of ECC LLC. Each of these companies received membership interests in ECC LLC in exchange for the LMAs and asset contribution agreements. These LMAs were in effect through May 31, 1997, at which time, upon Federal Communications Commission (FCC) approval, each of these companies and KNVO transferred their operations and all of their operating assets and liabilities except for acquisition debt to ECC LLC in accordance with the asset contribution agreements. The operating assets, liabilities and operations of KORO were transferred to ECC LLC in exchange for membership interests in ECC LLC on April 21, 1998. KBNT, KCEC, KVER and KINC operated under common control prior to the formation of ECC LLC. Accordingly, effective upon the execution of the local marketing agreements and asset contribution agreements, the assets and liabilities of these companies were recorded at their fair value to the extent of the ownership interest of each respective company owned by minority stockholders and at historical cost for the ownership interest under common control. KSMS, KNVO and KORO were each acquired subsequent to January 1996 through newly formed thinly capitalized acquisition companies owned directly by the member corporation's stockholders in proportion to their direct and indirect membership interest in ECC LLC prior to each acquisition. Each of these acquisitions was with unrelated parties at fair value. Subsequent to the signing of the original ECC LLC Formation Agreement in January 1996, each of the members of ECC LLC and all of the individual stockholders of the corporations have been considered members of a control group. Accordingly, effective upon the execution of the LMAs and asset contribution agreements, the assets and liabilities of these companies were recorded at their historical cost which approximated fair value at the time. F-17 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The actual exchange of ECC common stock for the common stock of KSMS, KNVO and KORO will result in a distribution of shares to the individual stockholders and has been presented in the statement of stockholders' equity as a stock dividend, stock split, and stock dividend, respectively. In determining weighted average common shares outstanding for earnings per share purposes, the stock dividends and stock split have been accounted for as if they had occurred as of the beginning of the earliest period presented. Significant accounting policies Basis of consolidation The consolidated financial statements include the accounts of ECC and its subsidiaries, substantially all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation. Unaudited Interim Financial Information The interim financial information of the Company for the three months ended March 31, 1999 and 2000 is unaudited. The unaudited interim financial information has been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows as of and for the three months ended March 31, 1999 and 2000. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company's operations are affected by numerous factors including changes in audience acceptance (i.e., ratings), priorities of advertisers, new laws and governmental regulations and policies, and technological advances. The Company cannot predict if any of these factors might have a significant impact on the television and radio industries in the future, nor can it predict what impact, if any, the occurrence of these or other events might have on the Company's operations. Significant estimates and assumptions made by management are used for, but not limited to, the allowance for doubtful accounts, the carrying value of long-lived and intangible assets and the fair value of the Company's common stock used to determine interest and compensation expense. Cash and cash equivalents For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Interest rate cap agreements Interest rate cap agreements are principally used by the Company in the management of interest rate exposure. The differential to be paid or received is accrued as interest rates change and is recorded in the statement of operations. F-18 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property and equipment Property and equipment are recorded at cost. Depreciation and amortization are provided using accelerated and straight-line methods over the following estimated useful lives:
Years ----------------- Buildings and land improvements............................ 39 Transmission, studio and broadcast equipment............... 5-10 Office and computer equipment.............................. 5-7 Transportation equipment................................... 5 Leasehold improvements..................................... Lesser of the life of the lease or economic life of the asset
Intangible assets Intangible assets consisting of the following items are amortized on a straight-line method over the following estimated useful lives:
Years ----- FCC licenses........................................................... 15 Univision affiliation agreements....................................... 15 Goodwill............................................................... 15 Time brokerage agreements.............................................. 15 Noncompete agreements.................................................. 2-5 Construction rights and permits........................................ 15 Other.................................................................. 1-10
Deferred debt costs related to the Company's credit facility are amortized on a method that approximates the interest method over the respective life of the credit facility. Impairment of long-lived assets The Company reviews its long-lived assets and intangibles related to those assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets and identified goodwill with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets and identified goodwill. Goodwill not identified with impaired assets is evaluated to determine whether events or circumstances warrant a write-down or revised estimates of useful lives. The Company determines impairment by comparing the carrying value of goodwill with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. Impairment losses are measured by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the goodwill. F-19 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) To date, management has determined that no impairment of long-lived assets and goodwill exists. Concentrations of credit risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company from time to time may have bank deposits in excess of the FDIC insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that their trade receivable credit risk exposure is limited. Credit losses for bad debts are provided for in the financial statements through a charge to the allowance, and aggregated $0.7 million, $0.6 million and $0.8 million for the years ended December 31, 1997, 1998 and 1999, respectively. A valuation allowance is provided for known and anticipated credit losses. Disclosures about fair value of financial instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents The carrying amount approximates fair value because of the short maturity of those instruments. Long-term debt The carrying amount approximates the fair value of the Company's long-term debt based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements. Income taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Prior to the reorganization of the Company, as discussed above, the organization included various taxpaying and non-taxpaying entities as discussed below. Each of the entities files separate federal and state tax returns. F-20 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred taxes have not been provided for the difference between the book and tax basis of intangible assets, broadcast equipment, and furniture and fixtures for the non-taxpaying entities. As a result of the reorganization, the Company will record a deferred tax liability with a corresponding charge to tax expense of approximately $7.5 million. At December 31, 1999, the difference between book and tax bases of assets is approximately $18.7 million. Entravision Communications Company, L.L.C., Entravision Holdings, LLC, Entravision, L.L.C.,Entravision-El Paso, L.L.C. and Entravision Communications of Midland, LLC are limited liability companies and, as such, are taxed as partnerships. Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Tierra Alta Broadcasting, Inc., KSMS-TV, Inc., Valley Channel 48, Inc. and Telecorpus, Inc. have elected to be taxed under sections of federal and state income tax law which provide that, in lieu of corporation income taxes, the stockholders separately account for their pro rata share of the companies' items of income, deductions, losses and credits, and the companies will pay state taxes at a reduced rate. Los Cerezos Television Company is taxed as a C-corporation. Prior to January 23, 1997 Valley Channel 48, Inc. was taxed as a C- corporation and prior to January 1, 1996, Golden Hills Broadcasting Corporation was a C-corporation. As a result of the Tax Reform Act of 1986, these companies and Telecorpus, Inc. are subject to a tax on any unrecognized "built-in gains" realized during the ten-year period after their respective conversion to S- corporation status. The built-in gains tax is a corporate tax computed by applying the corporate tax rate to any appreciation related to assets owned at the date of conversion to S status. Upon the 1997 filing of the election by Valley Channel 48, Inc. to be taxed as an S-corporation, the previously recorded net deferred tax liability was reduced to an amount that represents taxes that might be payable due to the built-in gains tax. As a result, approximately $7.8 million was recorded as a tax benefit representing the reversal of previously recorded deferred taxes. Each of these companies has provided a deferred tax liability for built-in gains that represent the estimated liability for built-in gains tax. Pro forma income tax adjustments and pro forma earnings per share The pro forma income tax information included in these financial statements is to show what the significant effects might have been on the historical statements of operations had the Company and its affiliates not been treated as flow-through entities not subject to income taxes. The pro forma information reflects a provision for income taxes at the assumed effective rate in the years ended December 31, 1997, 1998 and 1999. The pro forma net income (loss) per share is based on the weighted average number of shares of common stock outstanding during the period. Advertising costs Advertising costs are expensed as incurred. Advertising expense totaled approximately $0.2 million, $0.6 million and $0.9 million for the years ended December 31, 1997, 1998 and 1999, respectively. F-21 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue recognition Revenue related to the sale of advertising is recognized at the time of broadcast. Network compensation is recognized ratably over the period of the agreement. Segment information In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, management has determined that the Company has one reportable segment. Furthermore, management has determined that all of its broadcast properties are subject to the same regulatory environment with their respective programs directed toward similar classes of viewers and listeners through similar distribution methods. Local marketing and time brokerage agreements The Company operates certain stations under local marketing agreements and time brokerage agreements whereby the Company sells and retains all advertising revenue. The broadcast station licensee retains responsibility for ultimate control of the station in accordance with all FCC rules and regulations. The Company pays a fixed fee to the station owner, as well as all expenses of the station, and performs other functions. The financial results of the local marketing and time brokerage agreements operated stations are included in the Company's statement of operations from the date of commencement of the respective LMAs, and were not significant in any of the years presented. Trade transactions The Company exchanges broadcast time for certain merchandise and services. Trade revenue and the related receivables are recorded when spots air at the fair value of the goods or services received or time aired, whichever is more readily determinable. Trade expense and the related liability are recorded when the goods or services are used or received. Trade revenue and costs were approximately $0.4 million, $0.9 million and $1.3 million for the years ended December 31, 1997, 1998 and 1999, respectively. Stock-based compensation The Company accounts for stock-based employee compensation under the requirements of Accounting Principles Board (APB) Opinion No. 25, which does not require compensation to be recorded if the consideration to be received is at least equal to fair value of the shares to be received at the measurement date. Nonemployee stock-based transactions are accounted for under the requirements of SFAS No. 123, Accounting for Stock-Based Compensation, which requires compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable. Earnings per share Basic earnings per share (EPS) is computed as net income (loss) divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common stock issuable through stock options and convertible securities. F-22 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998 and 1999, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on EPS. If stock options and convertible debt securities had not been excluded, 11,500,768, 11,473,693 and 12,211,234 shares respectively of additional common shares would have been included in the denominator. Comprehensive income As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 established the requirements for the reporting and presentation of comprehensive income and its components. For the years ended December 31, 1997, 1998 and 1999, and for the three months ended March 31, 1999 and 2000 the Company had no components of comprehensive income and, therefore, net income is equal to comprehensive income. New pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in all fiscal quarters of all fiscal years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company will adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitment through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on the Company's earnings or financial position. NOTE 2. BUSINESS COMBINATIONS During the years ended December 31, 1997, 1998 and 1999, the Company acquired the following companies, all of which were accounted for as purchase business combinations with the operations of the businesses included subsequent to their respective acquisition dates. The allocation of the respective purchase prices are generally based upon management's estimates of the discounted future cash flows to be generated from the broadcast properties for intangible assets and replacement cost for tangible assets, and as it relates to the 1999 acquisitions reflects management's preliminary allocation of purchase price. 1997 acquisitions Valley Channel 48, Inc. (KNVO) On January 23, 1997, the Company acquired all of the issued and outstanding common stock of Valley Channel 48, Inc. for approximately $24.6 million in cash plus the assumption of certain liabilities. Valley Channel 48, Inc. operates a Univision affiliate in the McAllen, Harlingen/Brownsville, Texas market. F-23 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The excess purchase price over tangible net assets acquired of $28.8 million was allocated to specifically identifiable intangibles consisting of $1.1 million to presold commercial advertising contracts, $1.7 million to the FCC license, $13.9 million to the Univision affiliation agreement, $0.3 million to a noncompete agreement. The remaining excess purchase price of $11.8 million was recorded as goodwill. KINT-TV On June 4, 1997, the Company purchased substantially all of the assets relating to television station KINT-TV which operates the El Paso, Texas Univision affiliate and all of the stock of 26 de Mexico S.A. de C.V. (a Mexican corporation) for approximately $25.2 million. The excess of the purchase price over the tangible net assets of $19.0 million was allocated to specifically identifiable intangibles consisting of $14.6 million to the Univision affiliation agreement, $3.0 million to the FCC license, $1.1 million to presold commercial advertising contracts, $0.2 million to the stock of the Mexican corporation and $0.1 million to other identifiable intangibles. KINT-FM and KSVE-AM On September 24, 1997, the Company acquired substantially all of the assets of KINT-FM and KSVE-AM, both Spanish-programmed radio stations operating in El Paso, Texas, for $4.0 million. From June 4, 1997 through September 24, 1997, ECC operated these stations under a local marketing agreement. The excess purchase price over the tangible assets acquired of $3.4 million was allocated to specifically identified intangibles consisting of $2.9 million to the FCC license, $0.2 million to presold commercial advertising contracts and $0.2 million to other identifiable intangibles. The remaining excess purchase price of $0.1 million was recorded as goodwill. KLDO On August 14, 1997, the Company acquired substantially all of the assets of Panorama Broadcasting Co., which owned and operated the Laredo, Texas, Univision affiliate, for $6.3 million. The excess purchase price over tangible assets of $4.5 million was allocated to specifically identified intangibles consisting of $3.5 million to the Univision affiliation agreement, $0.3 million to the FCC license and $0.2 million to presold commercial advertising contracts. The remaining excess purchase price of $0.5 million was recorded as goodwill. 1998 acquisitions Entravision Communications of Midland, LLC On January 22, 1998, the Company entered into an agreement with an unrelated third party and formed Entravision Communications of Midland, LLC (Midland). The purpose of this new entity is to construct a new UHF television station in Midland, Texas. The Company acquired an 80% interest in Midland for $0.3 million and advanced Midland $2.6 million to obtain the rights to a construction permit under an auction and settlement agreement pursuant to an FCC application. As of December 31, 1999, construction of the station had not commenced. F-24 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The agreement also contains options whereby, commencing one year from the date that the station begins program test operations, ECC may acquire the remaining interest in Midland for a predetermined exercise price, as defined in the agreement. La Paz Wireless Corporation (KVYE) On March 15, 1998, the Company acquired substantially all of the assets of La Paz Wireless Corporation, which owned television station KVYE in El Centro, California. The purchase price was $0.7 million, consisting of $0.1 million in cash, seller financing of $0.4 million and the assumption of certain liabilities in the amount of $0.2 million. Prior to the acquisition, the Company operated this station as a Univision affiliate under a local marketing agreement. The purchase price of $0.7 million was allocated to specifically identifiable intangibles consisting of $0.5 million to the FCC license and $0.2 million to goodwill. Telecorpus, Inc. (KORO) On April 21, 1998, the Company, acquired all of the outstanding capital stock of Telecorpus, Inc. for approximately $14.6 million. Telecorpus, Inc. operates a Univision affiliate in Corpus Christi, Texas. The excess purchase price over tangible net assets acquired of $13.2 million was allocated to specifically identifiable intangibles consisting of $0.4 million to presold advertising contracts, $1.9 million to the FCC license, $4.5 million to the Univision affiliation agreement, $5.8 million to noncompete agreements. The remaining purchase price of $0.6 million was recorded as goodwill. 1999 acquisitions Brawley Broadcasting Company and KAMP Radio, Inc. On January 6, 1999, the Company acquired substantially all of the assets of Brawley Broadcasting Company and KAMP Radio, Inc., which include the radio stations KAMP (AM) El Centro, California; KWST (FM) Brawley, California; and KMXX (FM) Imperial, California. The purchase price was $2.5 million of which $0.4 million was previously deposited in escrow with the remainder being paid in cash at closing. The excess purchase price over tangible net assets acquired of $2.0 million was allocated to specifically identifiable intangibles consisting of $1.4 million to the FCC license, and $0.2 million to other identifiable intangibles. The remaining excess purchase price of $0.4 million was recorded as goodwill. Latin Communications Group Television, Inc. On February 4, 1999 the Company purchased all of the assets of Latin Communications Group Television, Inc. relating to television station WVEN- LP, in Orlando, Florida and WVEA-LP in Tampa Florida. Additionally, the Company, through a newly formed acquisition corporation, Los Cerezos Acquisition Co. with no other activities other than to complete this purchase, purchased all of the outstanding capital stock of Los Cerezos Television Company. Los Cerezos Television Company F-25 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) operates television station WMDO-LP in Washington, D.C. The aggregate purchase price paid in connection with these acquisitions was approximately $15.3 million including the assumption of certain liabilities totaling $2.1 million. The excess purchase price over tangible net assets acquired of $14.2 million was allocated to specifically identifiable intangible assets consisting of $0.9 million to presold commercial advertising contracts, $2.2 million to FCC licenses, $7.4 million to Univision affiliation agreements, and $0.2 million to noncompete agreements. The remaining excess purchase price of $3.5 million was recorded as goodwill. The Company previously operated these stations under a local marketing agreement beginning in November 1998. KLUZ-TV On April 1, 1999, the Company acquired substantially all of the assets of Univision affiliate television stations KLUZ and K48AM in Albuquerque, New Mexico from Univision. The purchase price was $14.9 million of which $1.0 million was cash. As part of the acquisition consideration, the Company provided Univision a 2% increase in its conversion exchange option under the subordinated note agreement (see Note 5). The incremental exchange option has been assigned a value of $13.9 million and has been recorded as additional paid-in capital as a result of this acquisition. The excess purchase price over tangible net assets acquired of $13.5 million was allocated to specifically identifiable intangibles consisting of $7.3 million to the FCC license, $0.6 million to presold commercial advertising contracts, and $5.6 million to the Univision affiliation agreement. Televisora ALCO, S.A. de C.V. (XUPN) On June 9, 1999, pursuant to a special authorization obtained from the Mexican Foreign Investment General Bureau, the Company acquired a 40% limited voting interest (neutral investment stock) in Televisora Alco S.A. de C.V. (ALCO), a Mexican corporation which operates XUPN-TV in Tecate, Baja California, Mexico. The purchase price for the 40% interest was $0.5 million in cash. The Company is accounting for this investment under the equity method of accounting. This station began broadcasting in November 1999 which resulted in insignificant revenue and expenses. ALCO's assets and liabilities were not significant at December 31, 1999. On June 9, 1999, the Company also acquired all of the outstanding voting capital stock, and a majority of the limited voting capital stock, of Comercializadora Frontera Norte S.A. de C.V. (CFN), a Mexican corporation, which has a time brokerage agreement with Alco, providing it with substantial broadcast and advertising rights. The aggregate consideration paid for this acquisition and related transactions was approximately $19.5 million, of which $7.5 million was in cash with the remaining $12 million payable over twelve years. The entire purchase price was allocated to the intangible asset time brokerage agreements. On August 10, 1999, CFN assigned all of its rights and obligations under the time brokerage agreement to ECC. As a result, all of the operations of this broadcast property are accounted for as a division of the Company. The time brokerage agreement provides for a ten-year term with successive 30-year renewals. F-26 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DeSoto Broadcasting (WBSV) On September 20, 1999, the Company acquired substantially all of assets of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and Omni Investments, Inc. These companies collectively owned the assets and licenses to operate WBSV in Venice (Sarasota), Florida. The purchase price was $17.0 million of which $0.9 million was previously deposited in escrow with the reminder paid in cash at closing. The excess purchase price over tangible net assets acquired of $15.8 million was allocated to the FCC license. Paisano Communications (KBZO) On December 20, 1999, the Company acquired substantially all of the assets of Paisano Communications which includes low power television stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas: K48FR, Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas. The purchase price, was $2.3 million in cash. The excess purchase price over tangible net assets acquired of $2.1 million was allocated to specifically identifiable intangible assets consisting of $0.3 million to the FCC license, $1.3 million to Univision affiliation agreement and $0.3 million to noncompete agreements. The remaining excess purchase price of $0.2 million was recorded as goodwill. See Note 11 for acquisitions subsequent to year end. Pro Forma results (unaudited) The following pro forma results of continuing operations assume the 1998 and 1999 acquisitions discussed above occurred on January 1, 1998. The unaudited pro forma results have been prepared using the historical financial statements of the Company and each acquired entity. The unaudited pro forma results give effect to certain adjustments including amortization of goodwill, depreciation of property and equipment, interest expense and the related tax effects.
December 31, ----------------------- 1998 1999 (Unaudited) (Unaudited) (In millions of dollars except per share) ----------- ----------- Net revenue.......................................... $ 61.2 $ 63.3 Net (loss)........................................... (4.4) (37.0) Basic and diluted net (loss) per share............... $(0.07) $(0.57)
The above pro forma financial information does not purport to be indicative of the results of operations had the 1998 and 1999 acquisitions actually taken place on January 1, 1998, nor is it intended to be a projection of future results or trends. F-27 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 3. PROPERTY AND EQUIPMENT Property and equipment at December 31 consists of:
1998 1999 (In millions of dollars) ----- ----- Buildings....................................................... $ 3.6 $ 5.3 Construction in progress........................................ 0.2 -- Land improvements............................................... 0.3 0.3 Leasehold improvements.......................................... 0.7 1.6 Transmission studio and other broadcast equipment............... 15.9 25.4 Office and computer equipment................................... 1.8 3.1 Transportation equipment........................................ 0.9 1.0 ----- ----- 23.4 36.7 Less accumulated depreciation and amortization.................. 7.6 11.6 ----- ----- 15.8 25.1 Land............................................................ 1.0 2.1 ----- ----- $16.8 $27.2 ===== =====
NOTE 4. INTANGIBLE ASSETS At December 31, intangible assets consist of:
March 31, 1998 1999 2000 (In millions of dollars) ----- ------ ----------- (Unaudited) FCC licenses........................................ $17.0 $ 44.0 $ 54.7 Univision affiliation agreements.................... 38.1 52.5 52.5 Goodwill............................................ 22.4 27.1 29.3 Noncompete agreements............................... 6.3 6.8 7.3 Construction rights and permits..................... 3.7 4.0 4.0 Time brokerage agreement............................ -- 19.5 46.8 Deferred debt costs................................. 1.3 1.3 1.3 Other............................................... 1.2 3.3 3.5 ----- ------ ------ 90.0 158.5 199.4 Less accumulated amortization....................... 12.1 22.3 25.5 ----- ------ ------ $77.9 $136.2 $173.9 ===== ====== ======
NOTE 5. LONG-TERM DEBT, NOTES PAYABLE AND SUBSEQUENT EVENT Notes payable at December 31 are summarized as follows:
March 31, 1998 1999 2000 (In millions of dollars) ----- ------ ----------- (Unaudited) Subordinated note with interest at 7.01%........... $10.0 $ 10.0 $120.0 Credit facility with bank.......................... 88.0 142.9 96.9 Time brokerage contract payable, due in annual installments of $1,000, bearing interest at LIBOR (6.5% at December 31, 1999) through June 2011..... -- 12.0 12.0 Other.............................................. 1.7 2.4 5.5 ----- ------ ------ 99.7 167.3 234.4 Less current maturities............................ 0.9 1.4 0.3 ----- ------ ------ $98.8 $165.9 $234.1 ===== ====== ======
F-28 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Subordinated note On December 30, 1996, the Company issued a $10.0 million subordinated note to Univision. This note is subordinated to all senior debt. The note is due December 30, 2021 and bears interest at 7.01% per annum, for which Univision has agreed to provide the Company with network compensation equal to the amount of annual interest due. Under a separate option agreement, Univision may exchange the note into Class C common stock, representing a 27.9% interest in the Company, at the holder's option at any time prior to maturity. During 1999 certain conditions restricting the exchange of the note were eliminated and, as such, the Company recorded interest expense of $2.5 million based on the estimated intrinsic value of the option feature at the date the note was entered into. The note contains certain restrictions including the restriction on dividends, acquisition of assets over a certain limit, the incurrence of debt over certain leverage ratios, the merger or consolidation of the Company with a third party or a sale of the Company's assets, the transfer or sale of any FCC license for our Univision affiliate television stations, the issuance of additional common stock and changes to the capital structure of the Company without the consent of Univision. On March 2, 2000 the Note was amended and increased to $120 million, and the option exchange feature was increased from 27.9% to 40%, resulting in additional interest expense of $31.6 million during the quarter ended March 31, 2000 (unaudited) based on the estimated intrinsic value of the option feature. The intrinsic value of the option feature was determined using an estimate by management based primarily on the estimated IPO price as the fair market value. Credit facility with bank The Company has a revolving credit facility with a bank in the amount of $158.0 million, of which $142.9 million was outstanding at December 31, 1999. On January 14, 2000, the Company entered into an amendment to increase the credit facility to $158 million. Additionally, the Company has a letter of credit outstanding at December 31, 1999 in the amount of $0.4 million. The credit facility bears interest at LIBOR (6.5% at December 31, 1999) plus 1.625% and expires on November 10, 2006. The facility is collateralized by substantially all the Company's assets, as well as a nonrecourse guarantee of certain stockholders and a pledge of ECC LLC membership units and corporate ownership interest. The credit facility contains quarterly scheduled reductions in the amount that is available under the revolving loan commitment commencing December 31, 2000 through November 10, 2006. These quarterly reductions range from $1.5 million to $10.5 million. In addition, the Company pays loan commitment fees of from 0.275% to 0.5% (per annum). The credit facility also contains a mandatory prepayment clause in the event the Company should liquidate any assets in excess of $5.0 million if the proceeds are not utilized to acquire assets of the same type and use within one year, receive insurance or condemnation proceeds which are not fully utilized toward the replacement of such assets, or have excess cash flows (as defined in the credit facility) in any fiscal year subsequent to December 31, 1999. However, no prepayment due to excess cash flow is required provided that the Company's maximum total debt ratio is less than 4.5 to 1. The credit facility contains certain financial covenants relating to maximum total debt ratio, total interest coverage ratio, a fixed charge coverage ratio and a ceiling on annual capital expenditures. The covenants become increasingly restrictive in the later years of the facility. The credit facility also F-29 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) contains restrictions on the incurrence of additional debt, the payment of dividends, acquisitions over a certain limit and management fees or bonuses to certain executives. The credit facility also states that the Company may not make any equity offering without giving the bank 30 days written notice. The Company has entered into interest rate cap agreements to reduce the impact of changes in interest rates on its revolving credit facility. At December 31, 1999, the Company had outstanding an interest rate cap agreement with a bank, having a total notional principal amount of $50.0 million. The agreement effectively changes the Company's interest rate exposure on $50.0 million of its revolving credit facility to a fixed 7%. The interest rate cap agreements mature July 16, 2000. The Company is exposed to credit loss in the event of nonperformance by the counterparty to the interest rate cap agreement. However, the Company does not anticipate nonperformance by the counterparty. Aggregate maturities of long-term debt and notes payable as of December 31, 1999 are as follows:
Years Ending December 31, Amount ------------------------- ------ (In millions of dollars) 2000................................................................. $ 1.4 2001................................................................. 9.2 2002................................................................. 16.2 2003................................................................. 22.2 2004................................................................. 28.2 Thereafter........................................................... 90.1 ------ $167.3 ======
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31 consist of:
1998 1999 (In millions of dollars) ---- ---- Accounts payable.................................................. $1.4 $2.4 Accrued payroll and payroll taxes................................. 1.0 1.1 Accrued interest.................................................. 0.9 0.1 Income taxes payable.............................................. 0.3 0.3 Executive employment agreement bonus.............................. 0.9 1.1 Professional fees................................................. 0.4 0.5 Syndication fees.................................................. -- 0.9 Other............................................................. 1.3 1.1 ---- ---- $6.2 $7.5 ==== ====
NOTE 7. INCOME TAXES The provision for income taxes for the years ended December 31 is as follows:
1997 1998 1999 (In millions of dollars) ---- ---- ----- Current: Federal.................................................. $ -- $0.1 $ 0.2 State.................................................... 0.1 0.2 0.1 Deferred................................................... 0.2 (0.1) (0.4) ---- ---- ----- $0.3 $0.2 $(0.1) ==== ==== =====
F-30 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The income tax provision differs from the amount of income tax determined by applying the federal statutory income tax rate because substantially all of the Company's operations are generated by non-taxpaying entities. The components of the deferred tax assets and liabilities at December 31 consist of the following:
1998 1999 (In millions of dollars) ----- ----- Deferred tax assets: Intangible assets........................................... $ 0.2 $ -- ----- ----- Deferred tax liabilities: Change in accounting method................................. (0.1) -- Intangible assets........................................... -- (1.8) Property and equipment...................................... (0.4) (0.2) ----- ----- (0.5) (2.0) ----- ----- Net long-term deferred tax liability.......................... $(0.3) $(2.0) ===== =====
NOTE 8. COMMITMENTS The Company has agreements with Nielsen Media Research (Nielsen), expiring at various dates through December 2004, to provide television audience measurement services. Pursuant to these agreements, the Company is obligated to pay Nielsen a total of $7.9 million in increasing annual amounts. The annual commitments range from $1.4 million to $1.9 million. Operating leases The Company leases facilities and broadcast equipment under various operating lease agreements with various terms and conditions, which expire at various dates through May 2009. The approximate future minimum lease payments under these operating leases at December 31, 1999 are as follows:
Years Ending December 31, Amount ------------------------- ------ (In millions of dollars) 2000................................................................. $2.4 2001................................................................. 1.8 2002................................................................. 1.5 2003................................................................. 1.2 2004................................................................. 0.9 Thereafter........................................................... 2.1 ---- $9.9 ====
Total rent expense under operating leases, including rent under month-to- month arrangements, was approximately $1.0 million, $1.2 million and $2.0 million for the years ended December 31, 1997, 1998 and 1999, respectively. F-31 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employment agreements ECC LLC has entered into employment agreements (the Agreements) with two executive officers and stockholders through October 2003. The Agreements provide that a minimum annual base salary and a bonus of 1% of ECC LLC's annual net revenue be paid to each of the executives, effective for years beginning after January 1, 1997. ECC LLC accrued approximately $0.6 million, $0.9 million and $1.1 million of bonuses payable to these executives for the years ended December 31, 1997, 1998 and 1999, respectively. Additionally, the Agreements provide for a continuation of each executive's annual base salary and annual bonus through the end of the employment period if the executive is terminated due to a permanent disability or without cause, as defined in the Agreements. Management intends to modify these Agreements subsequent to year end. ECC LLC also has an employment agreement with its executive vice president which provides for an annual base salary and bonus. Additionally, in 1997 the employee was awarded 922,828 shares of Class A common stock in the Company, which vested through January 2000. At December 31, 1999, the estimated fair value associated with this award of Class A common stock was $27.7 million. The Company has recorded $0.9 million, $0.5 million and $26.3 million of compensation expense for the years ended December 31, 1997, 1998 and 1999, respectively and $7.3 million for the three months ended March 31, 1999. This award originally provided for a repurchase option which has been eliminated. As such, the award was considered variable. Compensation expense for 1999 was determined using an estimate by management based primarily on the estimated IPO price as the fair market value. In January 1999, the Company entered into an employment agreement with its senior vice president which expires on January 4, 2002 and provides for an annual base salary and bonus to be paid to the employee. As part of this agreement, ECC LLC originally granted an option to the employee to purchase Class D membership units. As amended in April 2000, ECC LLC sold the employee 82,195 restricted shares of Class A common stock at $0.01 per share. The Company may repurchase the restricted shares at $0.01 per share. The number of shares subject to the Company's repurchase option is eliminated proportionately over three years from the original grant date. The intrinsic value of the original option at the grant date was determined by management using the estimated IPO price as the fair value of the underlying shares. In accordance with APB No. 25, the Company recorded $2.8 million in compensation expense during 1999 attributable to the original option grant which is reflected as non-cash stock-based compensation in the statement of operations. This amount approximates the total intrinsic value of the amended employee restricted stock purchase. Accordingly, no amounts have been recorded for non- cash stock-based compensation for this grant during the quarter ended March 31, 2000 (unaudited). SFAS No. 123 requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option-pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options with vesting F-32 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) restrictions which significantly differ from the Company's stock option award. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated value. The Company's fair value calculation was made using the Black-Scholes option-pricing model with the following assumptions: expected life of three years following complete vesting; stock volatility of 50%; risk-free interest rate of 6.17% and no dividends during the expected life. If the computed fair value of the award had been amortized to expense over the vesting period of the award, proforma net loss of the Company would have been approximately $0.1 million higher in 1999. NOTE 9. RELATED-PARTY TRANSACTIONS Related-party transactions not discussed elsewhere consist of the following: The Company has unsecured advances of $0.2 million payable to related parties, which bear interest, and are due on demand at December 31, 1998 and 1999. The Company has unsecured stock subscriptions due from officer/stockholders of the Company amounting to $0.6 million at December 31, 1998 and 1999. The advances are due on demand and have been recorded as a reduction of equity. In addition, the Company has unsecured advance receivables from related parties amounting to $0.3 million at December 31, 1998 and 1999. The Company utilizes the services of a law firm, a partner of which is a stockholder and director. Total legal fees incurred with this law firm aggregated approximately $0.3 million, $0.5 million and $0.5 million for the years ended December 31, 1997, 1998 and 1999, respectively. NOTE 10. 401(K) SAVINGS PLAN During 1999 the Company established a defined contribution 401(k) savings plan covering substantially all its employees. The Company currently matches 25% of the amounts up to a maximum of $1,000 per year by each participant. Employer matching contributions for the year ended December 31, 1999 aggregated approximately $0.1 million. NOTE 11. LITIGATION The Company is a defendant to a lawsuit filed in the Superior Court of the District of Columbia by First Millenium Communications, Inc. to resolve certain contract disputes arising out of a terminated brokerage-type arrangement with First Millenium. The litigation primarily concerns the payment of a brokerage fee alleged to be due in connection with the acquisition of television station WBSV in Sarasota, Florida for $17 million. In addition to its various contractual claims, First Millenium also has asserted claims for fraud, RICO, misappropriation, breach of fiduciary duty, defamation and intentional infliction of emotional distress. First Millenium is seeking in excess of $60 million including the right to a 10% ownership interest in WBSV and the right to exchange such interest in the reorganization described in Note 1. First Millenium has made similar claims relating to other pending acquisitions. F-33 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) No accrual has been recorded in the accompanying financial statements beyond the amount management believes is the contractual obligation since the ultimate liability in excess of the amount recorded, if any, cannot be reasonably estimated. Management intends to vigorously defend against these claims and does not believe that any resolution of this litigation is likely to have a material adverse effect on the Company's financial position, results of operations or cash flows. NOTE 12. SUBSEQUENT EVENTS Subordinated note On March 2, 2000, the Company received $110 million from Univision pursuant to the existing subordinated note and option agreement (see Note 5). The note was also amended increasing the option exchange feature from 27.90% to 40% based on ownership prior to the additional issuance of common shares anticipated in the IPO, and other contemplated equity transactions. Acquisitions The following business and/or assets were or will be acquired after December 31, 1999: Magic Media, Inc. On July 19 1999, the Company entered into an asset purchase agreement with Magic Media, Inc. to acquire substantially all of the assets relating to the operations of radio stations KATH (FM) and KOFX (FM) in El Paso, Texas for approximately $14 million. At December 31, 1999 the Company had on deposit $0.5 million in an escrow relating to this acquisition. The acquisition closed on January 14, 2000 and was accounted for as a purchase business combination. The purchase price has been allocated as follows: $0.6 million to fixed assets, $10.7 million to the FCC license, $2.2 million to goodwill and $0.5 million to a non-competition agreement. WHCT-TV In February 2000, the Company entered into an agreement to acquire the FCC license of television station WHCT in Hartford Connecticut, for $18 million. Management intends to close on this transaction upon receiving FCC and bankruptcy court approval, which it anticipates receiving in the third quarter of 2000. Citicasters Co. In March 2000, the Company entered into an asset purchase agreement with Citicasters Co., a subsidiary of Clear Channel Communications, Inc., to acquire the FCC licenses relating to the operations of radio stations KACD (FM) Santa Monica, California and KBCD (FM) Newport Beach, California for approximately $85 million. On March 3, 2000 the Company deposited $17 million in escrow relating to this acquisition. Management intends to close this transaction upon receiving FCC approval, which it anticipates receiving in the third quarter of 2000. F-34 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) XHAS-TV In March 2000, the Company's 40% equity method investee, ALCO, executed a stock purchase agreement to acquire the outstanding capital stock of a Mexican corporation which holds the necessary authorizations from the Mexican government to own and operate television station XHAS, Channel 33, Tijuana, Mexico. In March 2000, the Company entered into agreements to acquire a 47.5% interest in each of Vista Television, Inc., and Channel 57, Inc. The Company has an option, which must be exercised at the expiration of the five year term, to acquire an additional 47.5% interest in each of these companies for $3.5 million. Additionally, ECC entered into time brokerage agreements in connection with these acquisitions. The aggregate consideration to be paid in connection with these transactions is approximately $35.0 million of which $1.0 million was deposited into escrow at December 31, 1999. These transactions closed on March 16, 2000. The purchase price has been preliminarily allocated as follows: $1.0 million to fixed assets, $27.5 million to intangibles and $6.7 million to other assets. Latin Communications Group Inc. (LCG) On April 20, 2000, the Company acquired all of the outstanding capital stock of LCG for approximately $252 million. LCG operates radio stations in California, Colorado, New Mexico, and Washington D.C. and also owns and operates two Spanish-language publications. In connection with this acquisition, the Company amended certain financial covenants related to its credit facility to provide for this acquisition and the issuance of a $90 million convertible subordinated note. Additionally, the Company entered into a $115 million term loan with its bank group, the proceeds from which will be used to finance this acquisition. All amounts outstanding under this term loan are due April 18, 2001 and bear interest at LIBOR plus 4%. This term loan is secured by a pledge of the Company's stock and lien on all of LCG's assets and a secondary pledge on all of the Company's assets. Z-Spanish Media On April 20, 2000, the Company agreed to acquire all of the outstanding capital stock of Z-Spanish Media. Z-Spanish Media owns 33 radio stations and an outdoor billboard business. The purchase price is approximately $475 million, including approximately $110 million of debt. The purchase price will be paid 70% in cash and the remaining 30% in newly-issued Class A common stock of the Company after the reorganization as discussed in Note 1. In connection with this acquisition, the Company will be issuing approximately 1.1 million options of its Class A common stock in exchange for Z-Spanish Media's previously outstanding stock options. In connection with these stock options, the Company will record as additional purchase price approximately $7 million for the excess of the estimated fair value over the intrinsic value of the options. In addition, the Company will recognize approximately $11 million as non-cash stock-based compensation over the remaining three year vesting period. Management intends to close on this transaction concurrently with the IPO. F-35 ENTRAVISION COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM), and KVLY(FM) On May 22, 2000 the Company agreed to acquire certain assets relating to the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) from Sunburst Media, L.P., for approximately $55 million. Management intends to close on this transaction upon receiving FCC approval, which it anticipates receiving in the third quarter of 2000. Infinity Broadcasting Corporation On June 13, 2000 the Company agreed to acquire certain outdoor advertising assets from Infinity Broadcasting Corporation for a total of $166.6 million. The closing of this acquisition is subject to conditions, including the receipt of required approvals. The Company will finance the acquisition with proceeds from its credit facility. 2000 Omnibus Equity Incentive Plan The Company adopted a 2000 Omnibus Equity Incentive Plan that allows for the award of up to 12,000,000 shares of Class A common stock. Awards under the plan may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock or stock units. No awards have been granted. Stock Grants In June 2000, ECC LLC granted stock awards to employees, directors and consultants totaling 478,720 Class A shares of common stock. As a result of these grants, the Company will record a non-cash stock-based compensation charge of $7.7 million that will be recognized over the three year vesting period beginning in the second quarter of 2000. F-36 REPORT OF INDEPENDENT AUDITORS Board of Directors Latin Communications Group Inc. We have audited the accompanying consolidated balance sheets of Latin Communications Group Inc. and Subsidiaries as of December 26, 1999 and December 27, 1998, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 26, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Latin Communications Group Inc. and Subsidiaries at December 26, 1999 and December 27, 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 26, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California March 30, 2000 F-37 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 27, December 26, March 31, 1998 1999 2000 ------------ ------------ ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents............... $ 3,010 $ 6,695 $ 2,236 Accounts receivable, less allowance for doubtful accounts of $1,965 in 1998, $1,518 in 1999 and $1,496 in 2000...... 5,956 8,184 7,711 Prepaid expenses and other.............. 794 344 498 Deferred income taxes................... 1,278 1,288 1,665 -------- -------- -------- Total current assets..................... 11,038 16,511 12,110 Net assets of discontinued operations.... 4,831 -- -- Land held for sale....................... 4,000 -- -- Deferred finance costs, less accumulated amortization of $1,316 in 1998, $751 in 1999 and $84 in 2000.................... 2,097 1,265 1,181 Property and equipment, at cost, less accumulated depreciation of $2,337 in 1998, $3,618 in 1999 and $3,889 in 2000.................................... 6,487 7,259 7,759 Broadcast licenses and other intangible assets, less accumulated amortization of $8,054 in 1998, $11,583 in 1999 and $12,456 in 2000......................... 137,349 131,162 129,923 Other assets (including notes receivable of $366 in 1999 and $342 in 2000 from a related party).......................... 220 1,289 3,235 -------- -------- -------- Total assets............................. $166,022 $157,486 $154,208 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses... $ 5,136 $ 5,366 $ 5,706 Accrued interest........................ 1,175 715 227 Current portion of long-term debt....... 4,318 69 25 -------- -------- -------- Total current liabilities................ 10,629 6,150 5,958 Long-term liabilities: Debt.................................... 50,541 42,037 39,780 Deferred income taxes................... 17,471 18,889 18,890 Other................................... 1,492 1,442 1,414 -------- -------- -------- Total liabilities........................ 80,133 68,518 66,042 Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value; 15,000,000 shares authorized; 9,235,468 shares issued and outstanding.......... 92 92 92 Additional paid-in capital.............. 94,485 94,485 94,485 Accumulated deficit..................... (8,688) (5,609) (6,411) -------- -------- -------- Total stockholders' equity............... 85,889 88,968 88,166 -------- -------- -------- Total liabilities and stockholders' equity.................................. $166,022 $157,486 $154,208 ======== ======== ========
See notes to consolidated financial statements. F-38 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
Years Ended Three Months Ended -------------------------------------- ------------------------ December 28, December 27, December 26, March 28, March 31, 1997 1998 1999 1999 2000 ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) Gross revenue: Advertising............ $ 33,710 $ 34,469 $ 41,814 $ 7,863 $ 10,414 Less agency commissions........... 3,472 3,692 4,623 814 1,194 ---------- ---------- ---------- ---------- ---------- 30,238 30,777 37,191 7,049 9,220 Circulation............ 5,759 5,741 5,875 1,392 1,398 Other.................. 998 1,378 1,179 218 224 ---------- ---------- ---------- ---------- ---------- Net revenue............ 36,995 37,896 44,245 8,659 10,842 ---------- ---------- ---------- ---------- ---------- Expenses: Direct operating....... 15,131 15,196 15,560 3,775 4,212 Selling, general and administrative........ 17,535 17,677 18,910 4,093 4,734 Corporate.............. 1,713 2,901 1,795 204 429 Depreciation and amortization.......... 3,762 4,593 4,907 1,243 1,229 ---------- ---------- ---------- ---------- ---------- 38,141 40,367 41,172 9,315 10,604 ---------- ---------- ---------- ---------- ---------- Operating income (loss) (1,146) (2,471) 3,073 (656) 238 Interest expense (including amounts associated with related parties of $1,200 in 1997, $1,800 in 1998, $1,900 in 1999 and $286 in each of the three month periods ended March 28, 1999 and March 31, 2000)................. (4,176) (6,211) (4,895) (1,407) (1,009) Interest income........ -- 138 115 16 28 Other finance costs and related amortization (including amounts associated with related parties of $250 in 1999 and $63 in 2000).............. (335) (376) (626) (98) (146) Gain (loss) on sale of assets................ -- -- (121) (155) (257) ---------- ---------- ---------- ---------- ---------- Loss from continuing operations before income taxes........... (5,657) (8,920) (2,454) (2,300) (1,146) Income tax benefits..... 2,213 2,570 736 690 344 ---------- ---------- ---------- ---------- ---------- Loss from continuing operations............. (3,444) (6,350) (1,718) (1,610) (802) Income from discontinued operations, net of income taxes of $595 in 1997, $974 in 1998, $271 in 1999 and $271 in the three months ended March 28, 1999... 1,161 1,312 418 418 -- Gain on sale of discontinued operations, net of income taxes of $3,123 in 1999................ -- -- 5,006 5,006 -- ---------- ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item..... (2,283) (5,038) 3,706 3,814 (802) Extraordinary loss from early extinguishment of debt, net of income tax benefits of $153 in 1997 and $415 in 1999.. (222) -- (627) -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)....... $ (2,505) $ (5,038) $ 3,079 $ 3,814 $ (802) ========== ========== ========== ========== ========== Net income (loss) per share: Basic and diluted: Loss from continuing operations............ $ (0.39) $ (0.69) $ (0.19) $ (0.18) $ (0.09) Discontinued operations............ 0.13 0.14 0.59 0.59 -- Extraordinary loss..... (0.03) -- (0.07) -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)...... $ (0.29) $ (0.55) $ 0.33 $ 0.41 $ (0.09) ========== ========== ========== ========== ========== Weighted average common shares outstanding: Basic and diluted...... 8,761,301 9,165,468 9,235,468 9,235,468 9,235,468 ========== ========== ========== ========== ==========
See notes to consolidated financial statements. F-39 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data)
Additional Common Paid-in Accumulated Total Shares Stock Capital Deficit Stockholders' Equity --------- ------ ---------- ----------- -------------------- Balance at December 29, 1996................... 7,740,468 $78 $77,084 $(1,145) $76,017 Shares issued to purchase a business... 700,000 7 8,743 -- 8,750 Shares issued with senior subordinated debt.................. 525,000 5 5,210 -- 5,215 Net loss............... -- -- -- (2,505) (2,505) --------- --- ------- ------- ------- Balance at December 28, 1997................... 8,965,468 90 91,037 (3,650) 87,477 Shares issued with senior subordinated debt.................. 120,000 1 1,199 -- 1,200 Shares issued in connection with purchase of radio station assets........ 150,000 1 2,249 -- 2,250 Net loss............... -- -- -- (5,038) (5,038) --------- --- ------- ------- ------- Balance at December 27, 1998................... 9,235,468 92 94,485 (8,688) 85,889 Net income............. -- -- -- 3,079 3,079 --------- --- ------- ------- ------- Balance at December 26, 1999................... 9,235,468 92 94,485 (5,609) 88,968 Net loss (unaudited)... -- -- -- (802) (802) --------- --- ------- ------- ------- Balance at March 31, 2000 (unaudited)....... 9,235,468 $92 $94,485 $(6,411) $88,166 ========= === ======= ======= =======
See notes to consolidated financial statements. F-40 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended Three Months Ended -------------------------------------- ----------------------- December 28, December 27, December 26, March 28, March 31, 1997 1998 1999 1999 2000 ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) Operating activities Net income (loss)....... $ (2,505) $(5,038) $ 3,079 $ 3,814 $ (802) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......... 4,435 5,343 5,279 1,341 1,312 Provision for doubtful accounts.............. 994 827 558 105 135 Provision for deferred taxes................. (1,847) (1,741) 1,732 2,606 (376) Gain on sale of discontinued operations............ -- -- (8,128) (8,128) -- Extraordinary loss on early debt extinguishments....... 375 -- 1,042 -- -- Loss on sale of assets................ -- -- 121 155 257 Amortization of debt discount.............. 477 733 749 187 206 Changes in assets and liabilities, net of amounts acquired and net of disposals: (Increase) decrease in accounts receivable.. (1,095) 434 (2,786) 325 338 (Increase) decrease in prepaid expenses and other................ (921) 130 461 (844) (154) (Decrease) increase in accounts payable and accrued expenses..... 2,372 (147) (554) 485 (176) (Decrease) increase in other assets and liabilities.......... 46 57 (446) (85) 22 -------- ------- -------- ------- ------- Net cash provided by operating activities... 2,331 598 1,107 (39) 762 -------- ------- -------- ------- ------- Investing activities Capital expenditures.... (1,010) (1,272) (2,291) (519) (1,156) Proceeds from sale of discontinued operations............. -- -- 12,949 12,949 -- Proceeds from disposal of assets.............. -- -- 6,608 1,665 16 Payments for businesses acquired, net of cash received of, $404 in 1997 and for purchase of intangibles in 1998................... (70,015) (1,218) -- -- -- Investments in companies to be acquired......... 4,470 -- (603) -- (1,574) -------- ------- -------- ------- ------- Net cash provided by (used in) investing activities............. (66,555) (2,490) 16,663 14,095 (2,714) -------- ------- -------- ------- ------- Financing activities Proceeds from debt...... 58,285 2,800 26,200 -- 1,500 Payments on debt........ (23,078) (1,634) (39,703) (14,160) (4,007) Debt issuance costs..... (2,728) (344) (582) -- -- Net proceeds from sale of common stock........ 5,215 1,200 -- -- -- -------- ------- -------- ------- ------- Net cash (used in) provided by financing activities............. 37,694 2,022 (14,085) (14,160) (2,507) -------- ------- -------- ------- ------- Net increase in cash and cash equivalents....... (26,530) 130 3,685 (104) (4,459) Cash and cash equivalents at beginning of year...... 29,410 2,880 3,010 3,010 6,695 -------- ------- -------- ------- ------- Cash and cash equivalents at end of year................... $ 2,880 $ 3,010 $ 6,695 $ 2,906 $ 2,236 ======== ======= ======== ======= =======
See notes to consolidated financial statements. F-41 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Latin Communications Group Inc. (the "Company") is a Spanish language media company that provides advertisers with radio broadcasting and newspaper publishing for the Hispanic community. The Company operates 17 radio stations in California, Colorado, New Mexico and Washington, D.C. Operations also include a Spanish language newspaper in New York City. In February 1999, the Company disposed of its Spanish language television operations (see Note 8). On December 21, 1999, the Company entered into a plan of merger agreement with Entravision Communications Company, L.L.C. ("ECC"), a Delaware limited liability company engaged in the ownership and operation of television and radio stations. The merger closed on April 20, 2000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the Company and its wholly- owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Interim Financial Information The interim financial information as of March 31, 2000 and for the three months ended March 28, 1999 and March 31, 2000 is unaudited, but in the opinion of management, has been prepared on the same basis as the annual financial statements and includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of its consolidated financial position at such dates and its consolidated results of operations and cash flows for those periods. Operating results for the three months ended March 31, 2000 are not necessarily indicative of results that may be expected for any future periods. Fiscal Year The Company closes its year on the last Sunday in December. Effective in 2000, the Company adopted a calendar year reporting period. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair Value of Financial Instruments The Company's financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, are carried at cost which approximates fair value due to the short maturity of these instruments. Senior and subordinated debt bear interest at what is estimated to be current market rates of interest. Accordingly, book values approximate fair value for these instruments. F-42 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Original Issue Discount and Debt Issuance Costs Original issue discounts on debt are recorded as discounts against the face value of the debt issued and are amortized on the effective interest method over the life of the related debt. Debt issuance costs are recorded as finance costs and are amortized over the life of the related debt. Property and Equipment Property and equipment are reported at cost. Depreciation of property and equipment is calculated on the straight-line basis over the estimated useful lives of the assets. Broadcast Licenses and Other Intangible Assets Intangible assets, which include broadcast licenses, goodwill, network affiliation agreements and other intangibles arising from the Company's acquisitions, are carried at cost, less accumulated amortization. These assets are amortized on a straight-line basis, generally over 40 years. In accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long Lived Assets and Changes in Long Lived Assets to be Disposed Of, the carrying value of intangible assets is reviewed when events or changes in circumstances suggest that the recoverability of an asset may be impaired. If this review indicates these intangible assets will not be recoverable, as determined based on the undiscounted cash flows over the remaining life, the carrying value of these assets will be reduced to their respective fair values. The cash flow estimates that will be used will contain management's best estimates, using appropriate and customary projections at the time. No intangible assets were considered impaired at December 26, 1999. Revenue Recognition Advertising, publishing and other revenue is recognized as services are provided. Uncollectible amounts are charged to expense in the period that determination becomes reasonably estimable. Trade and Barter Agreements Trade and barter agreements are recorded as revenue at the fair value of the goods or services to be received when advertising space or time is provided. Barter expenses are recorded when merchandise or services are received. Barter revenue and costs were approximately $1.5 million in 1999, $1.5 million in 1998 and $1.6 million in 1997. Advertising Costs These costs are expensed as incurred and amounted to $0.4 million in 1999, $0.6 million in 1998 and $0.2 million in 1997. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-43 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentration of Credit Risk The Company provides advertising space and airtime to national, regional and local advertisers within the geographic areas in which the Company operates. In addition, the Company provides newspapers to wholesalers for distribution to retail outlets, as well as directly to vendors. Credit is extended based on an evaluation of the customer's financial condition and generally advance payment or collateral is not required of creditworthy customers. Credit losses are provided for in the financial statements and have been within management's expectations. Risks and Uncertainties The Company is party to two collective bargaining agreements in connection with its newspaper operations. The Company is due to renegotiate a labor agreement with one of the unions whose agreement expired on March 30, 2000. The Company intends to continue negotiations to reach a new labor agreement. Accounting for Stock-Based Compensation The Company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and has adopted the "disclosure only" alternative described in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). The Company accounts for stock appreciation rights in accordance with Financial Accounting Standards Board Interpretations No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans ("FIN 28"). Earnings Per Share Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive securities outstanding (none for all years presented). Antidilutive securities relating to stock options totaled 83,178 in 1999 and 73,045 in 1998 and 1997. Reclassifications Certain prior years' balances have been reclassified to conform to the current year's presentation. New Accounting Pronouncements In December of 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. This SAB, as amended in March 2000, is effective for us beginning in the second quarter of our fiscal year beginning December 27, 1999. The adoption of SAB 101 will not have a material impact on our financial statements. F-44 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. DETAIL OF BALANCE SHEET ACCOUNTS AND SUPPLEMENTARY CASH FLOW INFORMATION Property and equipment consists of the following:
Estimated Useful Life in December 27, December 26, Years 1998 1999 (in millions of dollars) ---------- ------------ ------------ Land....................................... $0.2 $0.2 Building................................... 25 0.1 0.1 Broadcast equipment........................ 5 5.4 4.8 Machinery and equipment.................... 3-5 1.9 3.1 Leasehold improvements..................... Lease-term 1.2 1.1 Construction in progress................... -- 1.6 ---- ---- 8.8 10.9 Less accumulated depreciation.............. 2.3 3.6 ---- ---- $6.5 $7.3 ==== ====
Broadcast licenses and other intangible assets consist of the following:
December 27, December 26, 1998 1999 (in millions of dollars) ------------ ------------ Broadcasting licenses and other intangible assets.... $104.4 $101.7 Goodwill............................................. 41.0 41.0 ------ ------ 145.4 142.7 Less accumulated amortization........................ 8.1 11.5 ------ ------ $137.3 $131.2 ====== ======
In 1997, the Company acquired 100% of the stock of Embarcadero Media Inc. (EMI), the owners and operators of eight radio stations. The acquisition was accounted for under the purchase method. The total purchase price was allocated to the fair market value of the net assets acquired. Included in those assets were broadcast licenses and other intangibles totaling $83.5 million, which are generally being amortized over forty years. Below is a summary of the allocation of the purchase price relating to this acquisition, along with a summary of intangible assets purchased in 1998.
Years Ended ------------------------- December 28, December 27, 1997 1998 ------------ ------------ Purchase of businesses, net of cash acquired: Working capital, other than cash and current portion of long-term debt.................................. $ (0.7) $ -- Land held for sale.................................. (4.0) -- Property and equipment.............................. (3.2) -- Broadcast licenses and other intangible assets...... (83.5) (5.4) Deferred income taxes............................... 13.1 -- Stock and notes payable issued for assets........... 8.3 4.2 ------ ----- Net cash used to acquire businesses................. $(70.0) $(1.2) ====== =====
F-45 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. DEBT Debt consists of the following:
December 27, December 26, March 31, 1998 1999 2000 (in millions of dollars) ------------ ------------ ----------- (Unaudited) Senior bank debt under a term loan agreement that was extinguished in October 1999............................ $36.5 $ -- $ -- Senior bank debt under a revolving line of credit totaling $35 million, maturing in October 2002 and bearing interest at 8.34% at December 26, 1999.............. -- 25.0 22.5 Senior subordinated debt maturing in February 2005 and bearing interest at 5%...................................... 16.2 17.0 17.2 Other.................................... 2.1 0.1 0.1 ----- ----- ----- Total debt............................... 54.8 42.1 39.8 Less current portion of long-term debt... 4.3 0.1 -- ----- ----- ----- Long-term debt........................... $50.5 $42.0 $39.8 ===== ===== =====
On October 22, 1999, the Company entered into a $35 million revolving bank credit facility (the "Facility") for the purpose of refinancing its senior bank debt. The Facility is secured by a first priority lien on the capital stock of the Company's subsidiaries and bears interest at rates of either the London Interbank Offered Rate (LIBOR) plus a margin ranging from 1.75% to 3.00%, or the Prime Rate plus a margin ranging from 0.25% to 1.50% per annum depending on the Company's total leverage ratio, as defined. The Facility contains affirmative and negative covenants relating to the business and operations of the Company. These include various financial and performance covenants with respect to indebtedness, investments, liens, sale of assets, mergers, consolidation and dividend payments, as well as leverage, cash flow and interest coverage ratios. In connection with the refinancing, the Company also repaid the note payable plus accrued interest, paid current amounts due for interest on the senior subordinated debt and began accruing interest at stated rates. In October 1999, debt issuance costs totaling $1.0 million were recognized as an extraordinary loss due to the early extinguishment of the term loan. The previously outstanding senior bank debt under a term loan agreement was secured and incurred interest at rates of either LIBOR plus a margin ranging from 1.5% to 3.75%, or the Prime Rate plus a margin ranging from 0.50% to 4.75% per annum depending on the Company's total leverage ratio. The rate on the senior bank debt at December 27, 1998 was Prime plus 4.75% or approximately 12.5%. As a result of senior bank debt covenant violations beginning on July 15, 1998, the Company was restricted from paying interest and principal on any other outstanding debt. The Company also began accruing penalty interest on its senior bank loans and subordinated debt. Senior subordinated debt consists of borrowings from certain stockholders and officers of the Company (see Note 10). It is comprised of two issuances, Tier I and Tier II (collectively, the "senior subordinated debt"). Tier 1, was issued in February 1997, in the amount of $17.5 million. Tier II, in the amount of $4.0 million, was issued in February 1998. Unamortized original issue discount on the senior subordinated debt was approximately $4.5 million at December 26, 1999 and $5.3 million at December 27, 1998. F-46 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 26, 1999, scheduled maturities of long-term debt were as follows:
(in millions of dollars) Year ending: 2002............................................................. $25.0 2005............................................................. 17.0 ----- $42.0 =====
Simultaneous with the closing of the merger transaction with ECC in April, 2000, the amounts outstanding under the Facility and the senior subordinated debt were repaid (see Note 1). For the years ended December 26, 1999, December 27, 1998 and December 28, 1997, interest paid was approximately $5.4 million, $5.5 million and $2.9 million, respectively. 5. STOCK OPTION AND EQUITY APPRECIATION INCENTIVE PLANS The Company has adopted two stock option plans, which provide for the issuance of options for the purchase of up to 835,000 shares of the Company's common stock as incentive to key officers and employees. The term of the options granted under the plans is generally ten years. Vesting generally occurs on a prorated basis over a three year period. Generally, all options become immediately exercisable in full should any of the following events occur: termination of the optionee's employment by the optionee for good reason, termination of the optionee's employment by the Company without cause, death or permanent disability or the consummation of a sale of all or substantially all of the assets of the Company. No compensation cost has been recognized in connection with stock option grants because options are issued with an exercise price equal to fair value on the date of grant. Upon consummation of the merger with ECC in April, 2000, $3.4 million was paid to the option holders in exchange for termination of all options. Under SFAS No. 123, had grants been measured based on the fair market value at the grant date for awards in 1999, 1998 and 1997, the Company's pro forma net income in 1999 would have decreased by approximately $0.1 million, to $2.8 million, and the pro forma loss in 1998 and 1997 would have increased by $0.1 million and $0.2 million, to $5.1 million and $2.7 million, respectively. These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted or forfeited in future years. The fair value of these options was estimated at the date of grant using the Black-Scholes minimum value method. The minimum value method calculates the excess of the fair value of the stock at the date of grant over the present value of both the exercise price and the expected dividend payments, each discounted at the risk free interest rate, over the life of the options. The following assumptions were used in the calculation:
1997 1998 1999 ------- ------- --------- Expected dividend yield......................... 0% 0% 0% Risk free interest rate......................... 6.31% 6.31% 7.00% Expected life of options........................ 5 years 5 years 4-5 years
F-47 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The weighted average fair value of options granted during 1999, 1998 and 1997 was $1.71, $1.41 and $1.58, respectively. Stock option activity is summarized as follows:
Available Stock Weighted for Options Average Grant Outstanding Exercise Price --------- ----------- -------------- Outstanding at December 29, 1996........ 605,000 230,000 $10.75 Granted................................ (300,000) 300,000 15.42 Forfeited.............................. 10,000 (10,000) 10.00 -------- -------- ------ Outstanding at December 28, 1997........ 315,000 520,000 13.46 Granted................................ -- -- -- Forfeited.............................. 133,332 (133,332) 16.25 -------- -------- ------ Outstanding at December 27, 1998........ 448,332 386,668 12.49 Granted................................ (133,332) 133,332 13.19 Forfeited.............................. 48,332 (48,332) 13.15 -------- -------- ------ Outstanding at December 26, 1999 and March 31, 2000 (unaudited)............. 363,332 471,668 $12.62 ======== ======== ======
Options for 347,446, 281,667 and 108,000 shares were exercisable at December 26, 1999, December 27, 1998 and December 28, 1997, respectively. Following is a summary of the weighted-average exercise price and weighted- average remaining contractual life for options outstanding at December 26, 1999:
Weighted- Weighted- # of Average Average Options Contractual Exercise Price Outstanding Life Remaining -------------- ----------- -------------- $10.00--$15.00 438,334 4.6 years $15.01--$20.00 33,334 1 year
In January 1998, the Company approved an Equity Appreciation Incentive Plan (the "EAI Plan") for its key employees. Under the EAI Plan, key employees have the opportunity to receive stock appreciation rights, which provide for cash payments upon vesting amounting to the difference between the Company's common stock value per share at the vesting date and $15.00 per share. Vesting is automatically triggered by an initial public offering, merger of the Company, sale of the Company or four years of continuous service by the employee. In conjunction with the approval of the EAI Plan, the Company has 130,000 outstanding stock appreciation rights as of December 26, 1999 and March 31, 2000. In 1999, the Company recorded approximately $0.3 million of compensation expense associated with this plan. Upon consummation of the merger with ECC in April, 2000, a payment of $0.6 million was made to the holders of stock appreciation rights. 6. INCOME TAXES The Company accounts for income taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the liability method, deferred income taxes consist of the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. F-48 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Federal, state and local income taxes (benefits) consist of the following:
Years Ended -------------------------------------------------- December 28, December 27, December 26, 1997 1998 1999 ---------------- ---------------- ---------------- Current Deferred Current Deferred Current Deferred (in millions of dollars) ------- -------- ------- -------- ------- -------- Federal (benefit).......... $0.1 $(1.4) $-- $(1.8) $0.2 $ 1.7 State and local (benefit).. 0.1 (0.6) 0.1 0.1 0.6 (0.3) ---- ----- ---- ----- ---- ----- Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4 ==== ===== ==== ===== ==== ===== Provisions for: Continuing operations...... $0.2 $(2.4) $0.1 $(2.7) $0.3 $(1.0) Discontinued operations.... -- 0.5 -- 1.0 0.1 0.2 Gain on sale of discontinued operations... -- -- -- -- 0.4 2.6 Extraordinary loss from early debt payment........ -- (0.1) -- -- -- (0.4) ---- ----- ---- ----- ---- ----- Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4 ==== ===== ==== ===== ==== =====
The differences between income tax expense for continuing operations shown in the statements of operations and the amounts determined by applying the federal statutory rate of 34% in each year are as follows:
1997 1998 1999 ----- ----- ----- Federal statutory income tax (benefit)............. (34.0)% (34.0)% (34.0)% State and local income taxes, net of federal benefit........................................... (8.6) 0.9 (6.0) Nondeductible goodwill............................. 4.2 2.6 8.9 Others, net........................................ (0.8) 1.7 1.1 ----- ----- ----- Total.............................................. (39.2)% (28.8)% (30.0)% ===== ===== =====
The deferred tax asset and liability at the fiscal year end consist of the following components:
1998 1999 (in millions of dollars) ------ ------ Deferred tax assets: Accounts receivable....................................... $ 1.0 $ 0.9 Accrued compensation...................................... 1.1 1.3 Net operating loss carry forwards......................... 5.0 1.9 Other..................................................... -- 0.2 ------ ------ Gross deferred tax asset.................................... 7.1 4.3 Deferred tax liability: Depreciation and amortization............................. (23.3) (21.9) ------ ------ Net deferred tax liability.................................. $(16.2) $(17.6) ====== ======
Tax loss carryforwards totaling $5.4 million will expire by 2010 if not utilized. F-49 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of deferred taxes included in the consolidated balance sheet are as follows:
1998 1999 ------ ------ Current asset............................................... $ 1.3 $ 1.3 Noncurrent liability........................................ (17.5) (18.9) ------ ------ Net deferred tax liability.................................. $(16.2) $(17.6) ====== ======
For the years ended December 26, 1999, December 27, 1998 and December 28, 1997, income taxes paid were approximately $0.3 million, $0.2 million and $0.3 million, respectively. 7. EXCHANGE OF BROADCASTING ASSETS On May 27, 1998, the Company, exchanged radio broadcasting licenses, radio broadcasting equipment and facilities in Portland and San Jose along with a $2.0 million short term note payable and 150,000 shares of common stock valued at $2.25 million for similar productive assets in Sacramento and San Francisco. Acquired assets were not self-sustaining. Integrated sets of support activities were not transferred in the exchange, nor were programming formats, or broadcast personalities. Acquired assets were redeployed and integrated into broadcasting and support activities originating from the San Jose area headquarters. The exchange was accounted for as a non-monetary exchange of similar productive assets. Acquired assets were recorded at the value of the assets surrendered, plus the value of the note payable and the common stock. 8. DISCONTINUED OPERATIONS In February 1999, the Company sold to ECC substantially all of its assets relating to television stations WVEA, in Tampa, Florida, and WVEN, Orlando, Florida. It also sold to ECC all of its capital stock in Los Cerezos Television Company which operated television station WMDO in Washington, D.C. The net proceeds in connection with these transactions was approximately $12.9 million. 9. BENEFIT PLANS The Company sponsors two qualified 401(k) defined contribution plans, one for the radio division and one for the print division. For all eligible employees, the Company matches employee contributions within certain limits, and for the print division plan, the Company also contributes a fixed minimum annual contribution. Plan participants may make pretax contributions from their salaries up to the maximum allowed by the Internal Revenue Code. The Company's expense for both defined contribution plans for the years ended December 26, 1999 and December 27, 1998 was approximately $0.1 million. The Company is obligated, through its agreement with the union that represents employees who deliver El Diario/La Prensa, the Company's Spanish language daily newspaper, to contribute amounts to the defined benefit pension, welfare and 401(k) plans administered by the Publishers' Association of New York City. The pension and welfare plans provide pension benefits and medical insurance. The Company contributes approximately 9% and 11% of gross compensation for each eligible employee per year to the pension plan and welfare plan, respectively. The Company F-50 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) contributes $23 per shift per eligible employee to the union's 401(k) plan. For the years ended December 26, 1999, December 27, 1998 and December 28, 1997, the Company's expense for these multi-employer plans was approximately $0.3 million, $0.2 million and $0.2 million, respectively. The Company is obligated under a union contract to make severance payments to its union employees under certain circumstances. Non-union print division severance pay is calculated in a similar manner. The Company does not fund these commitments. The balance sheet accrual for severance is based on the net present values of the projected vested benefit obligation and, accordingly, provides for both vested and non-vested employees. The balance at December 26, 1999 and December 27, 1998 was approximately $1.4 million and $1.5 million, respectively, and is included in other liabilities. The Company's severance expense for the three years in the period ended December 26, 1999 was approximately $0.2 million in each year. 10. RELATED PARTY TRANSACTIONS During 1999, the Company paid other finance costs in the amount of $0.3 million to one of its stockholders and paid an additional $0.1 million in January 2000. Interest expense on senior subordinated debt held by certain stockholders and officers of the Company amounted to $1.9 million in 1999, $1.8 million in 1998 and $1.2 million in 1997, see note 4 for a description of the terms of this indebtedness. During 1999, the Company assisted an officer with relocation costs by advancing cash in exchange for two notes receivable of $0.2 million each. One note specifies that no repayment is required if related employment continues for four years. Both notes specify that no repayment is required if the company is acquired and were forgiven upon closing of the merger with ECC in April, 2000. (See Note 1.) At December 26, 1999, the balance due on these notes totaled $0.4 million. 11. COMMITMENTS AND CONTINGENCIES The Company has entered into various leases for office space and broadcast towers. Future minimum lease payments required at December 26, 1999 are:
(in millions of dollars) 2000............................................................. $ 1.8 2001............................................................. 1.6 2002............................................................. 1.4 2003............................................................. 1.2 2004............................................................. 1.0 Thereafter....................................................... 3.9 ----- $10.9 =====
Rental expense relating to these leases totaled $1.9 million, $2.0 million and $1.6 million for the years ended December 26, 1999, December 27, 1998 and December 28, 1997, respectively. During 1999, the Company purchased an option to acquire the land and buildings housing its corporate operations for an option price of $0.1 million. On January 12, 2000, the Company signed a letter of intent to exercise the option for $5.3 million. F-51 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In September of 1999, the Company entered a ten-year lease commitment for facilities currently under construction in Campbell, California. The Company's corporate headquarters will be relocated to the new facility upon its completion. Minimum monthly rentals are subject to annual consumer price index adjustments beginning in year three of the lease. The lease contains two five- year renewal options. On November 21, 1999, the Company entered into agreements to acquire the assets and licenses to operate two radio stations in Las Vegas and Reno, Nevada for aggregate purchase consideration of $17.5 million. The acquisition closed on April 20, 2000, simultaneous with the merger of the Company with ECC. As of March 31, 2000, the Company had deposited $2.0 million in escrow in connection with these acquisitions. In February 2000, the Company signed a letter of intent to sell its AM radio station in Washington, D.C. for proceeds of $2.5 million. The sale is expected to be completed by the third quarter of 2000 and the Company expects to record a gain in connection with the sale of approximately $1.5 million. The Company and its subsidiaries are parties to various legal proceedings and claims incident to the normal conduct of its business. The Company believes that it is unlikely that the outcome of all pending litigation in the aggregate will have a material adverse effect on its consolidated financial condition or results of operations. 12. SEGMENT INFORMATION The Company operates in two reportable segments, radio broadcasting and newspaper publishing. The radio broadcasting segment has operations in the San Francisco/San Jose bay area of California, the Salinas/ Monterey area of California, Riverside, California, Sacramento, California, Albuquerque, New Mexico, Denver, Colorado and Washington, DC. The newspaper publishing segment consists of two Spanish-language publications in New York City. Each segment is managed separately. Management evaluates performance based on several factors, of which the primary financial measure is segment operating profit. Total revenue of each segment represents sales to unaffiliated customers. There are no inter-segment sales. No single customer provides more than 10% of the Company's revenue. The accounting policies of the segments are the same as those described in Note 2. Corporate includes general and administrative costs that are not directly related to the reportable segments. F-52 LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial information for these business segments includes:
Years Ended Three Months Ended -------------------------------------- ----------------------- December 28, December 27, December 26, March 28, March 31, 1997 1998 1999 1999 2000 (in millions of dollars) ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) Revenue: Radio Broadcasting..... $ 19.2 $ 19.3 $ 25.1 $ 4.6 $ 6.2 Newspaper Publishing... 17.8 18.6 19.1 4.1 4.6 ------ ------ ------ ------ ------ $ 37.0 $ 37.9 $ 44.2 $ 8.7 $ 10.8 ====== ====== ====== ====== ====== Operating Profit (loss): Radio Broadcasting..... $ (0.1) $ (1.0) $ 3.7 $ (0.3) $ 0.4 Newspaper Publishing... 0.7 1.4 1.2 (0.2) 0.2 ------ ------ ------ ------ ------ Total Reportable Segments............. 0.6 0.4 4.9 (0.5) 0.6 Corporate.............. (1.7) (2.9) (1.8) (0.2) (0.4) ------ ------ ------ ------ ------ $ (1.1) $ (2.5) $ 3.1 $ (0.7) $ 0.2 ====== ====== ====== ====== ====== Identifiable Assets: Radio Broadcasting..... $130.9 $131.9 $131.0 $128.9 $129.1 Newspaper Publishing... 23.3 23.8 24.5 23.9 24.4 ------ ------ ------ ------ ------ Total Reportable Segments............. 154.2 155.7 155.5 152.8 153.5 Corporate.............. 4.3 5.5 2.0 4.8 0.7 Discontinued operations............ 4.5 4.8 -- -- -- ------ ------ ------ ------ ------ $163.0 $166.0 $157.5 $157.6 $154.2 ====== ====== ====== ====== ====== Depreciation and Amortization: Radio Broadcasting..... $ 3.0 $ 3.8 $ 3.9 $ 1.0 $ 0.9 Newspaper Publishing... 0.7 0.8 1.0 0.2 0.3 ------ ------ ------ ------ ------ $ 3.7 $ 4.6 $ 4.9 $ 1.2 $ 1.2 ====== ====== ====== ====== ====== Capital Expenditures: Radio Broadcasting..... $ 0.7 $ 0.2 $ 1.1 $ 0.1 $ 1.1 Newspaper Publishing... 0.2 0.9 1.2 0.4 0.1 ------ ------ ------ ------ ------ Total Reportable Segments............. 0.9 1.1 2.3 0.5 1.2 Discontinued Operations............. 0.1 0.2 -- -- -- ------ ------ ------ ------ ------ $ 1.0 $ 1.3 $ 2.3 $ 0.5 $ 1.2 ====== ====== ====== ====== ======
F-53 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Z-Spanish Media Corporation: We have audited the accompanying combined balance sheets of Z-Spanish Media Corporation and its Predecessor as of December 31, 1998 and 1999, and the related combined statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999. The combined financial statements include the accounts of Z-Spanish Media Corporation and three related companies, Achievement Radio Holdings, Inc., PAR Communications, Inc. and PAR Holdings, Inc., which collectively represent the Predecessor to Z-Spanish Media Corporation. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Z-Spanish Media Corporation and its Predecessor as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Sacramento, California March 24, 2000 F-54 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR COMBINED BALANCE SHEETS December 31, 1998, 1999 and March 31, 2000 (Unaudited) (In thousands, except share and per share data)
March 31, 1998 1999 2000 -------- -------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents................... $ 3,602 $ 4,493 $ 441 Accounts receivable, net of allowance for doubtful accounts of $869, $1,233 and $1,295 at December 31, 1998, 1999 and March 31, 2000, respectively............... 5,717 8,471 7,617 Notes receivable............................ -- 7,500 7,653 Other current assets........................ 752 1,983 1,390 -------- -------- -------- Total current assets...................... 10,071 22,447 17,101 Property and equipment, net.................. 27,049 34,267 34,240 Investments.................................. -- 2,501 2,501 Intangible assets, net....................... 155,243 225,408 223,831 Other assets................................. 4,911 4,420 4,391 -------- -------- -------- Total assets................................. $197,274 $289,043 $282,064 ======== ======== ======== LIABILITIES, REDEEMABLE PREFERRED STOCK, COMMON STOCK PUT OPTIONS AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................ $ 1,090 $ 810 $ 618 Current portion of long-term debt........... 4,056 22,779 22,779 Accrued expenses............................ 3,854 4,636 4,049 Accrued interest............................ 1,163 1,160 889 Other liabilities........................... 2,732 5,020 5,949 Income taxes payable........................ 521 628 573 -------- -------- -------- Total current liabilities................. 13,416 35,033 34,857 Long-term debt............................... 62,251 89,066 86,021 Other long-term liabilities.................. 1,003 1,101 1,101 Deferred income taxes........................ 26,563 27,442 25,878 Minority interest............................ 225 11 9 Commitments and contingencies (note 9) Redeemable preferred stock................... 3,870 -- -- Common stock put options..................... 24,984 37,591 54,182 Stockholders' equity: Preferred stock--$0.01 par value, 105,000 shares authorized and 10,079 shares issued and outstanding at December 31, 1998 ($11,837 liquidation value at December 31, 1998) and 10,000 shares authorized and no shares issued and outstanding at December 31, 1999................................... 10,523 -- -- Common stock--$0.01 par value; 62,000,000 shares authorized; 15,435,157, 25,090,000 and 25,090,000 issued and outstanding at December 31, 1998, 1999 and March 31, 2000, respectively......................... 154 251 251 Additional paid-in capital.................. 59,813 115,751 100,271 Loans to stockholders....................... (570) (1,010) (1,019) Deferred stock compensation................. -- (4,187) (4,618) Accumulated deficit......................... (4,958) (12,006) (14,869) -------- -------- -------- Total stockholders' equity................ 64,962 98,799 80,016 -------- -------- -------- Total liabilities, redeemable preferred stock, common stock put options and stockholders' equity........................ $197,274 $289,043 $282,064 ======== ======== ========
See notes to combined financial statements. F-55 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR COMBINED STATEMENTS OF OPERATIONS Years Ended December 31, 1997, 1998 and 1999 and the Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited) (In thousands)
Years Ended Three Months Ended December 31, March 31, ------------------------- ----------------------- 1997 1998 1999 1999 2000 ------- ------- ------- ----------- ----------- (Unaudited) (Unaudited) Revenue: Revenue................... $13,339 $27,598 $38,561 $ 7,177 $ 8,740 Less agency and broker commissions.............. 297 1,740 2,523 425 581 ------- ------- ------- ------- ------- Net revenue............. 13,042 25,858 36,038 6,752 8,159 ------- ------- ------- ------- ------- Operating expenses: Direct operating expenses................. 4,391 10,108 14,183 2,763 3,425 Selling, general and administrative........... 5,105 6,459 8,382 2,056 2,034 Depreciation and amortization............. 2,747 6,736 8,670 1,415 2,843 Corporate expenses........ 2,975 3,669 4,773 774 1,897 ------- ------- ------- ------- ------- Total operating expenses............... 15,218 26,972 36,008 7,008 10,199 ------- ------- ------- ------- ------- Gain on sale of assets, net........................ 2,671 5,685 4,442 2,223 -- ------- ------- ------- ------- ------- Operating income............ 495 4,571 4,472 1,967 (2,040) Interest expense............ (2,425) (5,664) (7,485) (1,305) (2,641) Interest and other income... 356 340 1,014 109 302 ------- ------- ------- ------- ------- Income (loss) before minority interest, income taxes and extraordinary item....................... (1,574) (753) (1,999) 771 (4,379) Minority interest in (loss) income of subsidiaries..... (31) (86) 182 58 2 Income taxes benefit (provision)................ 538 (394) 102 (470) 1,514 ------- ------- ------- ------- ------- Loss before extraordinary loss....................... (1,067) (1,233) (1,715) 359 (2,863) Extraordinary loss on debt extinguishment (Net of income tax benefit of $378 in 1997 and $699 in 1999)...................... (568) -- (1,047) (1,132) -- ------- ------- ------- ------- ------- Net loss................ $(1,635) $(1,233) $(2,762) $ (773) $(2,863) ======= ======= ======= ======= =======
See notes to combined financial statements. F-56 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31, 2000 (Unaudited) (In thousands except share data)
Preferred Stock Common Stock ----------------- ----------------------------- Additional Deferred Paid-in Loans to Stock Accumulated Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total ------- -------- ---------- ------ ---------- ------------ ------------ ----------- -------- Balance at January 1, 1997................... -- -- 5,876,490 $ 59 $ 25,441 -- -- $ (1,824) $ 23,676 Issuance of common stock.................. -- -- 4,723,814 47 20,453 -- -- -- 20,500 Issuance of stock-- Vista acquisition...... 10,079 $ 10,523 1,714,105 17 191 $ (504) -- -- 10,227 Net loss............... -- -- -- -- -- -- -- (1,635) (1,635) ------- -------- ---------- ---- -------- ------- ------- -------- -------- Balance at December 31, 1997................... 10,079 10,523 12,314,409 123 46,085 (504) -- (3,459) 52,768 Formation of Z-Spanish Media Corporation and acquisition of subsidiaries........... -- -- 3,720,874 37 16,773 -- -- -- 16,810 Redeemable preferred stock dividends........ -- -- -- -- -- -- -- (266) (266) Purchase of common stock.................. -- -- (600,126) (6) (3,045) -- -- -- (3,051) Increase in loans to stockholders........... -- -- -- -- -- (66) -- -- (66) Net loss............... -- -- -- -- -- -- -- (1,233) (1,233) ------- -------- ---------- ---- -------- ------- ------- -------- -------- Balance at December 31, 1998................... 10,079 10,523 15,435,157 154 59,813 (570) -- (4,958) 64,962 Purchase of common stock.................. -- -- (228,550) (2) (1,141) -- -- -- (1,143) Issuance of common stock.................. -- -- 5,212,120 52 29,448 -- -- -- 29,500 Stockholder common stock purchase......... -- -- 103,618 1 517 (518) -- -- -- Issuance of stock--JB Broadcasting acquisition............ -- -- 681,264 7 3,350 -- -- -- 3,357 Issuance of preferred stock.................. 11,400 11,456 -- -- -- -- -- -- 11,456 Deferred stock compensation........... -- -- -- -- 4,333 -- (4,333) -- -- Amortization of deferred stock compensation........... -- -- -- -- -- -- 146 -- 146 Acquisition of minority interests in subsidiaries and exchange of preferred for common stock....... (21,479) (21,979) 3,886,391 39 32,038 -- -- (4,462) 5,636 Redeemable preferred stock dividend settlement............. -- -- -- -- -- -- -- 176 176 Increase in fair value of common stock put options................ -- -- -- -- (12,607) -- -- -- (12,607) Decrease in loans to stockholders........... -- -- -- -- -- 78 -- -- 78 Net loss............... -- -- -- -- -- -- -- (2,762) (2,762) ------- -------- ---------- ---- -------- ------- ------- -------- -------- Balance at December 31, 1999................... -- -- 25,090,000 251 115,751 (1,010) (4,187) (12,006) 98,799 Deferred stock compensation (Unaudited)............ -- -- -- -- 628 -- (628) -- -- Amortization of deferred stock compensation (Unaudited)............ -- -- -- -- -- -- 679 -- 679 Increase in fair value of common stock put options (Unaudited).... -- -- -- -- (16,590) -- -- -- (16,590) Interest on loans to stockholders (Unaudited)............ -- -- -- -- -- (9) -- -- (9) Conversion of bonus to options (Unaudited).... -- -- -- -- 482 -- (482) -- -- Net loss (Unaudited)... -- -- -- -- -- -- -- (2,863) (2,863) ------- -------- ---------- ---- -------- ------- ------- -------- -------- Balance at March 31, 2000 (Unaudited)....... -- $ -- 25,090,000 $251 $100,271 $(1,019) $(4,618) $(14,869) $ 80,016 ======= ======== ========== ==== ======== ======= ======= ======== ========
See notes to combined financial statements. F-57 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR COMBINED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited) (In thousands)
Years Ended Three Months Ended December 31, March 31, ----------------------------- ----------------------- 1997 1998 1999 1999 2000 -------- -------- --------- ----------- ----------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss.............. $ (1,635) $ (1,233) $ (2,762) $ (773) $(2,863) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......... 2,747 6,736 8,670 1,415 2,843 Deferred income taxes................ (1,223) (11,946) 879 (142) (1,564) Minority interest..... 31 86 (182) (58) (2) Loss on debt extinguishment....... 568 -- 1,047 1,132 -- Gain on sale of assets............... (2,671) (5,685) (4,442) (2,223) -- Loss on write-off of advertising displays............. -- -- 1,664 -- -- Amortization of deferred stock compensation......... -- -- -- -- 196 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable.. (455) 567 (2,754) 767 854 Other current assets.............. (531) 1,144 (1,539) (206) 588 Receivable from affiliate and other............... (12,929) 4,637 -- -- (153) Other assets......... (6) 180 (29) (156) 73 Accounts payable and accrued liabilities......... 741 (1,109) (717) (1,078) (621) Other liabilities.... (1,077) 2,227 (115) 63 929 -------- -------- --------- ------- ------- Net cash (used in) from operating activities......... (16,440) (4,396) (280) (1,259) 280 -------- -------- --------- ------- ------- Cash flows from investing activities: Proceeds from sale of assets............... 19,396 43,600 23,710 20,500 -- Escrow deposits on pending acquisitions......... -- (4,335) 520 2,488 34 Purchase of property and equipment and intangible assets.... (40,042) (7,003) (103,305) (28,974) (1,031) -------- -------- --------- ------- ------- Net cash (used in) from investing activities......... (20,646) 32,262 (79,075) (5,986) (997) -------- -------- --------- ------- ------- Cash flows from financing activities: Repayment of notes payable.............. (2,354) -- -- -- -- Issuance of notes payable.............. 482 -- 7,100 3,100 (1,919) Proceeds from long- term debt............ 26,983 -- 109,100 45,250 -- Repayment of long-term debt................. (15,000) (19,018) (70,662) (50,248) (1,126) Debt issuance costs... (857) -- (1,313) (960) (281) Issuance of common and preferred stock...... 30,727 24,984 40,956 25,000 -- Repurchase of common stock................ -- (3,051) (1,143) (1,143) -- Redemption of redeemable preferred stock................ -- -- (3,870) (3,870) -- Purchase of Z-Spanish Radio Network net of cash acquired........ -- (30,683) -- -- -- Loans to stockholders......... -- (66) 78 (12) (9) Minority interest in subsidiary........... -- 56 -- -- -- -------- -------- --------- ------- ------- Net cash from (used in) financing activities......... 39,981 (27,778) 80,246 17,117 (3,335) -------- -------- --------- ------- ------- Net increase (decrease) in cash and cash equivalents........... 2,895 88 891 9,872 (4,052) Cash and cash equivalents, beginning of year............... 619 3,514 3,602 3,602 4,493 -------- -------- --------- ------- ------- Cash and cash equivalents, end of year.................. $ 3,514 $ 3,602 $ 4,493 $13,474 $ 441 ======== ======== ========= ======= ======= Supplemental disclosure of cash flow information: Interest paid......... $ 2,128 $ 6,221 $ 7,480 -- -- Income taxes paid..... 806 268 298 -- -- Non-cash investing and financing activities: Radio station property and equipment financed through seller notes payable.............. $ 120 -- -- -- -- FCC license and other intangibles acquired financed through seller notes payable.............. 6,150 -- -- -- -- Write off of programming library and offsetting liability............ 575 -- -- -- -- Write off of network costs................ 116 -- -- -- -- Reduction of debt obligation........... 165 -- -- -- -- Outdoor advertising assets and liabilities assumed through seller notes payable.............. 2,176 -- -- -- -- Acquisition of net assets of Z-Spanish Radio, net of cash acquired through issuance of common stock................ -- $ 16,810 -- -- -- Acquisition of radio station assets acquired through the cancellation of debt from seller, and issuance of debt..... -- 13,292 -- -- -- Accrued dividends on redeemable preferred stock................ -- 266 -- -- -- Reversal of dividends declared............. -- -- $ 176 $ 176 -- Sale of radio station assets for a note receivable........... -- -- 7,500 -- -- Purchase of land through seller notes payable.............. -- -- 2,250 -- -- Barter transaction.... -- -- 2,501 -- -- Reversal of accrued dividends on redeemable preferred stock................ -- -- 176 -- -- Acquisition of radio station assets through issuance of common stock, cancellation of debt from seller and cancellation of LMA payable.............. -- -- 3,357 -- -- Increase in value of common stock put option............... -- -- -- -- $16,591 Deferred stock compensation......... -- -- 4,333 -- 628 Conversion of accrued bonus to stock option............... -- -- -- -- 482
See notes to combined financial statements. F-58 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS For the years ended December 31, 1997, 1998 and 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 1. DESCRIPTION OF BUSINESS Basis of Presentation The accompanying combined financial statements reflect the combined accounts of Z-Spanish Media Corporation ("Z-Media") and its predecessor of Z-Media, referred to as PAR, which was comprised of three companies under common control, Achievement Radio Holdings, Inc. ("ARH"), PAR Communications, Inc. ("PARCOM") and PAR Holdings, Inc. ("Holdings"). Z-Media was incorporated on January 23, 1998 as a holding company and subsequently obtained sole ownership of Z-Spanish Radio Network, Inc. ("Z- Spanish") and ARH, pursuant to certain agreements entered into in May 1998. On December 31, 1999, Z-Media acquired all the outstanding capital stock of Vista Media Group, Inc. ("Vista"), whereby Vista became a wholly owned subsidiary of Z-Media. Z-Media and Vista have shared a common controlling stockholder group since August 29, 1997. As such, the business combination has been accounted for as a common control business combination, and the accounts of Vista are included in the accompanying combined financial statements from August 29, 1997. The Z-Spanish, ARH and Vista business combinations and related financial accounting treatment are described in Note 3--Business Acquisitions and Dispositions. Z-Media, Vista and PAR are collectively referred to as the Company except where otherwise noted. Operations Z-Media and ARH own and operate radio stations and distribute programming to affiliates throughout the United States. Vista is engaged in operating outdoor advertising displays and owns 10,060 billboards concentrated in the Los Angeles and New York metropolitan areas. Vista formed Vista Joliet LLC ("Joliet"), a 80% owned subsidiary of Vista, in the state of Delaware on June 12, 1998 to manage operations in the Chicago area. As of December 31, 1999, the Company owned and operated 32 radio stations including one station under a Local Marketing Agreement ("LMA"). Under an LMA, the Company pays a fee to operate another company's radio station. The results of operations of LMA stations are accounted for in the same manner that the Company accounts for the operations of its owned and operated stations. The Company's radio broadcasting operations cover five major geographic areas: the West Coast (California), Midwest (Chicago), lower Midwest (Dallas), Southeast (Miami) and Southwest (Phoenix). Owned and operated stations are located in San Jose, Sacramento, Salinas/Monterey, Fresno, Stockton, Modesto, and Chico, California; Houston and Dallas/Ft Worth, Texas; Chicago, Illinois; Phoenix, Tucson, and Nogales, Arizona; and Miami, Florida. F-59 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) As part of its radio broadcasting operations, the Company produces, controls and distributes its own radio programs. Programming is distributed to owned and operated stations via satellite transmission. The Company also transmits via satellite its programming to 42 other stations ("affiliate stations") throughout the U.S. and charges these stations network fees under affiliation agreements. Revenue of the Company's broadcasting operations is principally generated from the sale of advertising associated with its programming to national accounts, local and regional retail advertisers. The Company's radio stations are licensed by the Federal Communications Commission ("FCC"). Outdoor advertising revenue consists mainly of fees earned by selling billboard space to advertisers. Unaudited Interim Financial Information -- The unaudited interim financial information for the three months ended March 31, 1999 and 2000 has been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited information includes all adjustments consisting only of normal recurring accruals necessary for a fair presentation of this interim information. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for any other interim period or any other future fiscal year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Combination The accompanying combined financial statements include the accounts of companies controlled by a common stockholder group ("Controlling Stockholders"). All intercompany balances and transactions have been eliminated in the combined financial statements. Cash and Cash Equivalents The Company considers cash investments with maturities of three months or less at the time of purchase to be cash equivalents. Property and Equipment, Net The Company's property and equipment is recorded at cost less accumulated depreciation. The Company depreciates property and equipment using the straight-line method over their estimated useful lives. The Company amortizes leasehold improvements using the straight-line method over the lesser of the life of the lease or the estimated useful life of the leased asset. Estimated useful lives are as follows: Buildings and improvements......................................... 30 years Advertising displays............................................... 15 years Station transmitter, towers and antennas........................... 7 years Furniture, fittings and fixtures................................... 5 years Motor vehicles..................................................... 5 years Computer hardware and software..................................... 3-5 years
F-60 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) Investments Investments are comprised of equity securities. These securities are classified as available-for-sale and carried at historical value as market prices are unavailable. There were no unrealized gains or losses on these investments recorded for the year ended December 31, 1999. Intangible Assets, Net Intangible assets consist primarily of FCC licenses, goodwill, deferred charges and non-compete agreements recorded at cost. Goodwill represents the excess of the purchase price over the fair value of the net assets at the date of acquisition. Amortization of intangible assets and other assets is provided in amounts sufficient to allocate the asset cost to operations over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows: FCC licenses..................................................... 40 years Goodwill......................................................... 15-40 years Deferred charges................................................. 7 years Non-competition agreements....................................... 3-5 years
Revenue Recognition Revenue from the sale of radio advertising time and from network operations is recognized when the advertisement or network programming is broadcast. Outdoor advertising revenue is recognized over the life of advertising contracts and is recorded net of discounts. Barter The Company trades commercial airtime and outdoor advertising space for goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods and services received. Barter revenue is recorded and the liability relieved when commercials are broadcast or outdoor advertising space is utilized. Barter expense is recorded and the asset relieved when goods or services are received or used. Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. Advertising production costs are expensed at the first use of the related advertising and costs of communicating an advertisement are expensed as the communication occurs. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-61 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) Credit Risk In the opinion of management, credit risk with respect to trade receivables is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs credit evaluations on new customers and believes adequate allowances for any uncollectible trade receivables are maintained. During the years ended December 31, 1997, 1998 and 1999 and for the period ended March 31, 2000, no customer accounted for more than 10% of net revenue. Stock-Based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees ("APB 25"). During the year ended 1999, and for the period ended March 31, 2000, the Company recognized $0.1 and $0.7 million of compensation expense related to stock options. Income Taxes The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement basis of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable earnings. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income during the period that includes the enactment date. Comprehensive Income Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income, became effective in 1998. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. During 1997, 1998, 1999, and for the period ended March 31, 2000, the Company had no items of other comprehensive income. Accordingly, comprehensive income equals net income. Impairment of Long-Lived Assets The Company accounts for the impairment of long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. As required by the statement, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. F-62 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) The Company periodically evaluates the propriety of the carrying amount of property and equipment, investments, intangible assets and other assets as well as the depreciation or amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation involves an assessment of the recoverability of the asset by determining whether the depreciation or amortization of the asset balance can be recovered through undiscounted future operating cash flows over its remaining useful life. The assessment of the recoverability of the intangible assets will be impacted if estimated future operating cash flows are not achieved. Derivative Financial Instruments The Company does not use derivative financial instruments for trading purposes. They are used to manage interest rate risks related to interest on the Company's outstanding debt. As interest rates change, the differential to be paid or received under interest rate swap agreements is recognized as an adjustment to interest expense. The Company had interest rate swap agreements with banks as of December 31, 1998, 1999, and for the period ended March 31, 2000 (see Note 7--Long-Term Debt). Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, receivables, accounts payable and certain other accrued liabilities. The carrying amounts of these items approximate their fair values because of their short duration to maturity. The fair value of the interest rate swap contracts is estimated by obtaining quotations from the counterparties. The fair value is an estimate of the amounts that the Company would (receive) pay at the reporting date if the contracts were transferred to other parties or cancelled by the counterparties. Recently Issued Accounting Standards SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in June 1998. The Standard defines derivatives, requires that all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. The requirements of SFAS No. 133 will be effective for the Company in the first quarter of the fiscal year ending December 31, 2001. The Company is currently evaluating the impact SFAS No. 133 will have on its financial statements. Presentation of Common Shares and Per Share Amounts On February 12, 1999, the Company authorized a 10,000-to-1 reverse stock split for all its classes of common stock. On December 23, 1999, the Company effected a 20,000-for-1 split of its common stock. 3. BUSINESS ACQUISITIONS AND DISPOSITIONS The Company has accounted for acquisitions using the purchase method of accounting, except where disclosed otherwise, recording assets acquired and liabilities assumed at their fair values at the F-63 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) acquisition date. The excess of purchase prices over the fair values of net tangible and intangible assets acquired has been recorded as goodwill. The results of operations of acquired businesses are included in the combined statements of operations from the date of each respective acquisition. 1997 Radio Station Transactions On February 7, 1997, PAR acquired all of the outstanding stock of KAMT, Inc. which operated radio station KKMO in Seattle, Washington, for $0.9 million. PAR paid cash of $0.3 million, issued a note payable to the seller of $0.6 million, and assumed a $0.3 million capital lease obligation. The note was paid off in December 1997. On May 29, 1997, PAR acquired the assets of KTNO in Dallas, Texas, for $2.4 million. The Company paid $0.5 million in cash and issued two notes payable for $0.1 million and $1.8 million. The two notes were paid off in December 1997. On August 7, 1997, PAR sold the assets of radio station WVVX in Chicago, Illinois, resulting in a gain of $0.8 million. The $9.5 million proceeds of this sale, plus $1.2 million of cash, were used to purchase the assets of two other stations in separate transactions; WEJM, in Chicago, Illinois, for $7.5 million and KKSJ, in San Jose, California, for $3.2 million. In December 1997, PAR sold the assets of radio station WEJM in Chicago, Illinois for $9.9 million. PAR's gain on the sale of WEJM was $1.9 million. A summary of the gains from sales transactions recorded in 1997 is as follows (in millions): Gain on sale of WEJM.................................................... $1.9 Gain on sale of WVVX.................................................... 0.8 ---- Total................................................................... $2.7 ====
The allocation of purchase price to net assets of radio stations acquired in 1997 was as follows (in millions):
KKMO KTNO WEJM KKSJ Total ---- ---- ---- ---- ----- Land, property and equipment..................... $0.2 $0.1 $1.2 $0.3 $ 1.8 Goodwill and FCC licenses........................ 1.0 2.3 6.3 2.9 12.5 Liabilities...................................... (0.3) -- -- -- (0.3) ---- ---- ---- ---- ----- Total............................................ $0.9 $2.4 $7.5 $3.2 $14.0 ==== ==== ==== ==== =====
1998--PAR Dispositions and Reorganization Pursuant to an agreement dated May 22, 1998, PAR sold the assets of radio stations WNJR in New Jersey, KYPA in Los Angeles, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in Yuba City, KEST in San Francisco and KSJX in San Jose, California for $41.0 million consisting of $10.0 millon in cash and a note receivable of $31.0 million. In addition, pursuant to an agreement dated April 7, 1998, PAR sold the assets of radio station KKMO and other assets and F-64 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) liabilities remaining in Holdings, including the $31.0 million note receivable and its investment in Douglas Broadcasting, Inc. ("DBI") through the sale of the stock of Holdings for $34.5 million in cash. The aggregate net gain on these dispositions was $5.7 million. Subsequent to the PAR dispositions referred to above, and as a result of the reorganization of certain operations within PAR earlier in 1998, the remaining assets and liabilities and operations of PAR resided solely in ARH. 1998--Z-Spanish and ARH Business Combinations Z-Media's ownership of Z-Spanish and ARH resulted from certain simultaneous transactions between the former stockholders and warrant holders of Z-Spanish and stockholders of ARH pursuant to the agreements dated May 29, 1998, the Warrant Purchase and Contribution agreements. Under the Warrant Purchase agreement, ARH acquired warrants ("Z-Spanish Warrants") to purchase Z-Spanish common stock directly from Z-Spanish stockholders, for cash consideration of $33.6 million. The Z-Spanish Warrants represented the majority of all such warrants outstanding, except for a small number of warrants held by a lender to Z-Spanish ("Lender"). Under the Contribution agreement, Z-Spanish and ARH stockholders and the Lender contributed the operations of Z-Spanish and ARH to Z-Media. The parties contributed their respective interests in ARH common stock, Z-Spanish warrants and Z-Spanish common stock to Z-Media in exchange for common stock of Z-Media. For financial accounting purposes, these transactions resulted in a change of control in Z-Spanish. As a result, the acquisition of Z-Spanish was recorded using the purchase method of accounting. The accompanying combined financial statements include the operations of Z-Spanish for the period from May 29, 1998 through December 31, 1999 and reflect the new basis of accounting for Z-Spanish assets and liabilities based on their estimated fair values as of May 29, 1998. The cost of acquiring Z-Spanish based on the purchase price was allocated to estimated fair values of the assets and liabilities of Z-Spanish as follows (in millions): Cash................................................................. $ 2.9 Other current assets................................................. 4.6 Property and equipment............................................... 1.6 Intangibles and other................................................ 133.0 Current liabilities.................................................. (3.3) Long-term debt....................................................... (51.0) Deferred income taxes................................................ (29.9) Redeemable Preferred Stock........................................... (3.9) ------ Total costs.......................................................... $ 54.0 ======
There was no change in control in ARH for financial accounting purposes as a result of the transaction discussed above. Accordingly, Z-Media recorded ARH on an "as pooled" basis because the contribution of ARH to Z-Media was a business contribution between companies under common control (a "common control business combination"). F-65 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 1998 Radio Station Transactions On June 9, 1998, ARH acquired radio station WYPA-AM in Chicago, Illinois by purchasing all of the outstanding stock of PAR of Illinois, Inc. (owner of WYPA) from a stockholder by canceling $8.3 million of debt the affiliate had borrowed from ARH to finance the original acquisition of WYPA-AM. On July 31, 1998, Z-Media sold assets of Z-Spanish station KZWC-FM in Walnut Creek, California for $4.5 million in cash. There was no significant gain or loss on the sale since the assets sold had been recorded at fair value by Z- Media on May 28, 1998. On December 22, 1998, Z-Media acquired all of the assets of radio station KHZZ-FM (formerly KQBR-FM) in Sacramento, California for $5.5 million, consisting of $0.5 million in cash and notes payable totaling $5.0 million. On December 31, 1998, Z-Media acquired the assets of two radio stations, KZSL-FM and KTGE-AM, in Salinas, California for $1.6 million in cash. The allocation of purchase price to net assets of radio stations acquired in 1998 was as follows (in millions):
KTGE-AM WYPA-AM KHZZ-FM KZSL-FM Total ------- ------- ------- ----- Land, property and equipment.................. $0.3 $0.2 $0.1 $ 0.6 Goodwill and FCC licenses..................... 8.0 5.3 1.5 14.8 ---- ---- ---- ----- Total......................................... $8.3 $5.5 $1.6 $15.4 ==== ==== ==== =====
1999 Radio Station Transactions with Third Parties On January 8, 1999, the Company sold the assets of stations KZSF-FM and KZSF-FM1 for $16.5 million in cash. There was no significant gain or loss on the sale since the assets sold had been recorded at fair value by Z-Media. On January 25, 1999, the Company purchased the assets of radio station WLQY- AM in Miami, Florida for $5.7 million in cash. On January 29, 1999, the Company sold the assets of station WBPS-AM, licensed in Dedham, Massachusetts, for $4.0 million in cash. The gain on sale of the related assets was $2.2 million. On February 26, 1999, the Company purchased the assets of station KLNZ-FM in Phoenix, Arizona for $22.0 million in cash. On May 18, 1999, the Company purchased the assets of station KZMP-FM in Dallas, Texas for $26.5 million in cash. On May 24, 1999, the Company purchased the assets of three radio stations, KCTY-AM, KRAY-FM and KLXM-FM, in Salinas, California for $4.5 million in cash. F-66 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) On August 27, 1999, the Company sold the assets of station KZNO-AM, licensed in Nogales, Arizona, for $0.2 million in cash. The loss on sale of the related assets was recognized of $0.1 million. On September 23, 1999, the Company sold the assets of station WYPA-AM, licensed in Chicago, Illinois, for $10.5 million with $3.0 million in cash and $7.5 million in notes receivable due on September 23, 2000. The gain on sale of the related assets was $2.3 million. A summary of the gains (loss) from sales transactions recorded in 1999 is as follows (in millions): Gain on sale of WBPS-AM............................................... $ 2.2 Loss on sale of KZNO-AM............................................... (0.1) Gain on sale of WYPA-AM............................................... 2.3 ----- Total................................................................. $ 4.4 =====
The allocation of purchase price to net assets of the radio stations acquired in 1999 was as follows (in millions):
KCTY-AM KRAY-FM and WLQY-AM KLNZ-FM KZMP-FM KLXM-FM Total ------- ------- ------- ------- ----- Land, property and equipment......... $0.7 $ 0.9 $ 0.5 $0.3 $ 2.4 Goodwill and FCC licenses............ 5.0 21.1 26.0 4.2 56.3 ---- ----- ----- ---- ----- Total................................ $5.7 $22.0 $26.5 $4.5 $58.7 ==== ===== ===== ==== =====
1999 Radio Station Acquisition from Related Parties On October 18, 1999, Z-Media acquired JB Broadcasting, Inc. ("JB"), previously owned by two officers of the Company, for $3.4 million through the issuance of 681,264 shares of Z-Media's Class B Common Stock pursuant to its rights under an Option Agreement. The acquisition was accounted for using the purchase method and the purchase price was allocated primarily to FCC licenses and goodwill. As part of the transaction, the Company's note receivable and accrued interest totaling $0.3 million was offset against the Company's note payable for LMA fees and accrued interest totaling $0.7 million. The Company had operated KZMS during 1998 and 1999 for a fee of $12,000 a month, under an LMA. JB was owned by two officers of the Company. The Company also had $0.2 million in notes receivable with an interest rate of 12% compounded annually from JB at December 31, 1998. 1999 Acquisitions of Outdoor Advertising Businesses On September 30, 1999, Vista acquired all of the outstanding capital stock of Seaboard Outdoor Advertising Co., Inc. ("Seaboard"), for $33.4 million. The acquisition of Seaboard was recorded using the purchase method of accounting. The accompanying combined financial statements include F-67 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) the operations of Seaboard for the period from October 1, 1999 through December 31, 1999 and reflect the new basis of accounting for Seaboard assets and liabilities based on their estimated fair values as of September 30, 1999. The purchase price was allocated to estimated fair values of the assets and liabilities of Seaboard as follows (in millions): Cash................................................................. $ 0.5 Other current assets................................................. 1.3 Property and equipment............................................... 4.1 Intangibles and other................................................ 30.2 Current liabilities.................................................. (0.8) Deferred income taxes................................................ (1.9) ----- Total costs.......................................................... $33.4 =====
On December 21, 1999, Vista acquired 18 billboards of Heywood Outdoor Advertising, Inc. for $2.0 million cash and 180 signs having a net book value of $0.3 million. Of the purchase price, $1.6 million was allocated to goodwill and $0.7 million was allocated to the assets acquired. 1999--Merger of Vista into Z-Media On December 31, 1999, Vista was combined with Z-Media pursuant to a statutory merger agreement whereby Vista stockholders exchanged their common shares of Vista for common shares of Z-Media. The merger of Vista into Z-Media has been accounted for as a pooling of interests with Vista's net assets carried over at historical cost to the extent Vista was previously under common ownership with Z-Media. The portion of Vista's net assets acquired by Z-Media that were previously owned by minority stockholders has been accounted for as a purchase and recorded at fair value. Furthermore, the accompanying combined financial statements include the accounts of Vista on the basis described above, from the date such common control existed, August 29, 1997. Pursuant to the merger agreement, Vista preferred stockholders, who were also the previous holders of Vista common stock, exchanged their preferred stockholdings for additional Z-Media common stock. The difference between the fair value of Z-Media common stock received by the preferred stockholders and the historical cost carrying amount of the preferred stock was approximately $4.5 million and was recorded as an increase in the Company's accumulated deficit as of December 31, 1999. 4. NOTES RECEIVABLE The Company received two promissory notes as partial settlement of its sale of the assets of one of its radio stations, WYPA-AM, during 1999 (see Note 3). The notes in the amount of $7.0 million and $0.5 million are secured and mature on September 20, 2000, with an interest rate of 9% paid quarterly. F-68 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 1998, 1999 and for the three months ended March 31, 2000 (in millions):
March 31, 1998 1999 2000 ----- ----- ----------- (unaudited) Land.............................................. $ 0.2 $ 0.3 $ 0.2 Buildings and improvements........................ 0.6 1.1 1.2 Furniture, fittings and fixtures.................. 0.9 0.4 0.4 Station, transmitters and antennas................ 1.4 0.9 1.1 Advertising displays.............................. 24.5 27.6 27.8 Machinery and equipment........................... 2.3 5.3 5.5 Motor vehicles.................................... 0.1 0.2 0.2 Computer hardware and software.................... 0.2 0.4 0.5 Construction-in-progress.......................... 0.3 3.8 3.9 ----- ----- ----- Total........................................... 30.5 40.0 40.8 Less accumulated depreciation and amortization.... (3.5) (5.7) (6.6) ----- ----- ----- Property and equipment, net....................... $27.0 $34.3 $34.2 ===== ===== =====
6. INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 1998, 1999 and for the three months ended March 31, 2000 (in millions):
March 31, 1998 1999 2000 ------ ------ ----------- (unaudited) FCC licenses..................................... $125.7 $158.5 $158.7 Goodwill......................................... 31.2 69.2 69.1 Deferred charges................................. 2.8 4.0 4.2 Non-competition agreements....................... 0.4 0.4 0.4 Other............................................ 1.0 2.6 2.6 ------ ------ ------ Total.......................................... 161.1 234.7 235.0 Less accumulated amortization.................... (5.9) (9.3) (11.2) ------ ------ ------ Intangible assets, net........................... $155.2 $225.4 $223.8 ====== ====== ======
F-69 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 7. LONG-TERM DEBT Borrowing arrangements consist of the following at December 31, 1998, 1999, and for the three months ended March 31, 2000 (in millions):
March 31, 1998 1999 2000 ----- ------ ----------- (unaudited) 1999 Credit Agreement Revolving credit facility of $30.0 million, interest payable quarterly at LIBOR plus Applicable Margin, as defined (8.965% at December 31, 1999), available through January 20, 2006........................................ -- $ 7.1 $ 6.0 Term facility of $43.9 million, interest payable quarterly at LIBOR plus Applicable Margin, as defined (8.965% at December 31, 1999), quarterly principal repayments beginning March 31, 2000 at $1.1 million, increasing to $1.7 million on March 31, 2002 and $2.8 million on March 31, 2004 until maturity on January 20, 2006......... -- 45.0 43.9 1997 Credit Agreement Revolving credit facility of $15.0 million, with quarterly reductions of availability beginning March 31, 2001, as defined, through maturity on September 30, 2006, interest payable quarterly at LIBOR plus Applicable Margin, as defined (9.063% at December 31, 1999), secured by substantially all of the Company's assets....... $ 1.2 4.0 3.2 Term facility of $35.0 million, interest payable quarterly at LIBOR plus Applicable Margin, as defined (9.063% at December 31, 1999), principal repayment in quarterly installments of $0.8 million beginning June 30, 2001 increasing to $1.1 million on March 31, 2002, $1.3 million on March 31, 2003, $1.5 million on March 31, 2004, $1.8 million on March 31, 2005 and $3.2 million on March 31, 2006 until maturity on September 30, 2006, secured by substantially all of the Company's assets................................ 14.3 35.0 35.0 Other Borrowings Credit line of $20.0 million, interest payable quarterly at LIBOR plus Applicable Margin, as defined (10% at December 31, 1999), principal due December 31, 2000........................... -- 18.1 18.1 Note payable, interest payable monthly at 9%, monthly installments of principal and interest of $0.03 million beginning December 1, 2004 and ending November 1, 2014, secured by a deed of trust........................................... -- 2.3 2.3 Senior notes at 8.34%, repaid in 1999............ 29.9 -- -- Subordinated notes for $10.9 million, due to a former stockholder of the Company, $2.9 million due to a stockholder of the Company and $6.0 million, at rates ranging from 12% to 13%, repaid in 1999.................................. 19.8 -- -- Other............................................ 1.1 0.4 0.3 ----- ------ ------ Total............................................ 66.3 111.9 108.8 Less current portion............................. (4.0) (22.8) (22.8) ----- ------ ------ Long-term debt................................... $62.3 $ 89.1 $ 86.0 ===== ====== ======
F-70 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) The 1999 and 1997 credit agreements require the maintenance of specific financial covenants, including leverage, fixed charge and interest expense coverage ratios and certain limitations on indebtedness levels and overhead expenses. The $20.0 million credit line also includes restrictive covenants, which, among other things, require that the Company not incur additional debt. The 1999 credit agreement requires under certain circumstances that the Company enter into interest rate protection agreements to fix the Company's floating rate debt on no less than 50% of the principal amount of total term debt outstanding. At December 31, 1999, the Company had outstanding two interest rate swap agreements with commercial banks, having a total notional principal amount of $24.1 million. These outstanding swap agreements mature August 7, 2000 and September 18, 2000, and require the Company to pay fixed rates of 6.63% and 5.33%, respectively, while the counterparty pays floating rate based on the three-month LIBOR. During the years ended December 31, 1997, 1998 and 1999, the Company recognized additional interest expense under its interest rate swap agreements of $0.1 million, $0.1 million, and $0.1 million, respectively. The aggregate fair value of the interest rate swap agreements at December 31, 1999 was $18,000. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. As required by the 1997 credit agreement, at December 31, 1997 and 1998, the Company had outstanding one interest rate swap agreement with a commercial bank, having a total notional principal amount of $10.0 million. The outstanding swap agreement matured on August 31, 1999, and required the Company to pay a fixed rate of 6.08%, while the counterparty paid a floating rate based on adjusted LIBOR. During the years ended December 31, 1997, 1998 and 1999, the Company recognized additional interest expense under the interest rate swap agreement of $7,000, $41,000, and $67,000, respectively. Future minimum principal payments on long-term debt based on the credit agreements and notes in place as of December 31, 1999 were as follows (in millions): 2000.................................................................. $ 22.8 2001.................................................................. 7.0 2002.................................................................. 11.0 2003.................................................................. 12.0 2004.................................................................. 17.4 Thereafter............................................................ 41.7 ------ Total................................................................. $111.9 ======
Company management believes that the fair value of its principal short and long term borrowings are equal to the book value since the terms were recently negotiated with the lenders. F-71 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 8. INCOME TAXES The Company's combined income tax (benefit) provision or the years ended December 31, 1998, 1999, and for the three months ended March 31, 2000, included the following (in millions):
March 31, 1997 1998 1999 2000 ----- ----- ----- ----------- (unaudited) Current taxes: Federal...................................... $ 0.1 $ 4.6 $ 0.1 $ -- State........................................ 0.2 1.3 0.1 0.1 ----- ----- ----- ----- Total..................................... 0.3 5.9 0.2 0.1 ----- ----- ----- ----- Deferred income taxes: Federal...................................... (1.0) (4.5) (0.9) (1.3) State........................................ (0.2) (1.0) (0.1) ( .3) ----- ----- ----- ----- Total..................................... (1.2) (5.5) (1.0) (1.6) ----- ----- ----- ----- Total income taxes........................... (0.9) 0.4 (0.8) (1.5) Less income taxes related to extraordinary items....................................... 0.4 -- 0.7 -- ----- ----- ----- ----- Total........................................ $(0.5) $ 0.4 $(0.1) $(1.5) ===== ===== ===== =====
Deferred income tax assets (liabilities) resulting from tax effects of temporary differences at December 31, 1998, 1999 and for the three months ended March 31, 2000, are as follows (in millions):
March 31, 1998 1999 2000 ------ ------ ----------- (unaudited) Deferred income tax assets: Net operating loss and tax credit carryforwards.... $ 5.5 $ 7.5 $ 8.9 Allowance for doubtful accounts.................... 0.8 0.5 0.6 Other.............................................. 2.4 2.2 2.6 ------ ------ ------ Total........................................... 8.7 10.2 12.1 ------ ------ ------ Deferred income tax liabilities: Property, equipment and intangible assets.......... (35.3) (37.6) (37.8) Other.............................................. -- -- (0.2) ------ ------ ------ Total........................................... (35.3) (37.6) (38.0) ------ ------ ------ Net deferred income tax liability.................. $(26.6) $(27.4) $(25.9) ====== ====== ======
F-72 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
March 31, 1997 1998 1999 2000 ----- ----- ----- ----------- (unaudited) Federal tax at statutory rate.......... (35.0)% (35.0)% (35.0)% (35.0)% State income taxes, net of federal benefit............................... (4.2) (3.2) (3.5) (6.0) Non-deductible goodwill amortization... 1.3 25.5 10.6 5.9 Non-deductible meals and entertainment......................... 1.0 2.4 1.5 -- Other accruals......................... -- 57.3 -- 4.0 Other.................................. 1.0 -- 3.9 0.1 ----- ----- ----- ----- Total.................................. (35.9)% 47.0 % (22.5)% (31.0)% ===== ===== ===== =====
Z-Media and its subsidiaries file their federal and state tax returns on a consolidated basis. As of December 31, 1999, the Company has federal net operating loss carryforward of $18.3 million which will begin to expire in 2009. The Company's state net operating loss carryforward is $11.2 million at December 31, 1999 and will begin to expire in 2001. A portion of the Company's net operating loss carryforward may be subject to annual limitations due to ownership changes of the Company. In addition, the Company has federal and state tax credits of $0.1 million and $23,000, respectively. 9. COMMITMENTS AND CONTINGENCIES The Company leases various facilities and equipment under noncancelable operating leases expiring through 2031. Certain operating leases are renewable at the end of the contract term. Future minimum rental commitments for operating leases with noncancelable terms in excess of one year are as follows (in millions): Year ending December 31: 2000................................................................. $ 1.6 2001................................................................. 1.3 2002................................................................. 1.1 2003................................................................. 0.9 2004................................................................. 0.8 Thereafter........................................................... 5.0 ----- Total................................................................. $10.7 =====
Rent expense charged to operations in 1997, 1998, 1999 and for the three months ended March 31, 2000 was $1.2 million, $1.9 million, $1.6 million and $0.4 million, respectively. The Company is subject to routine claims and litigation incidental to its business operations. It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. The management of the Company believes that the ultimate resolutions of these matters will not have a material adverse effect on the Company's financial statements. F-73 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) 10. REDEEMABLE PREFERRED STOCK In March 1998, Z-Spanish acquired radio stations KMIX and KCVR located in Stockton, California for $4.0 million by issuing 1,000 shares of Series A 9% redeemable non-voting preferred stock with a fair value of $3.9 million and a note payable with a face amount of $0.1 million. The terms of the stock required that the Company redeem the stock by February 2001. The stock and note were redeemed and paid by the Company at face amounts plus accrued dividends and interest on January 20, 1999. 11. STOCKHOLDERS' EQUITY Common Stock As of December 31, 1999 and March 31, 2000, the Company had authorized the issuance of 62,000,000 shares of Common Stock, consisting of 31,000,000 shares of Class A Common Stock ("Class A Common"), 20,000,000 shares of Class B Common Stock ("Class B Common") 5,000,000 shares of Class C Common Stock ("Class C Common") and 6,000,000 shares of Class D Common Stock ("Class D Common"). As of December 31, 1999, and March 31, 2000 the Company had issued and outstanding 25,090,000 shares of Common Stock, consisting of 1,068 shares of Class A Common, 19,488,436 shares of Class B Common and 5,600,496 shares of Class D Common. In accordance with the Company's Amended and Restated Certificate of Incorporation in the State of Delaware, each of the classes of Common Stock have a par value of $0.01 and have identical rights and privileges, except as discussed below. Voting Rights--Class A Common stockholders are entitled to vote on matters submitted to a vote of the stockholders, with each share of Class A Common entitled to one vote, Class D Common has 4.45 votes for every 100,000 shares. Class B and C Common stockholders have no voting rights. Conversion Rights--The shares of Class B Common and Class C Common are convertible into Class A Common on a one for one basis at any time at the option of the stockholder. The shares of Class A Common and Class D Common are also convertible into either Class B Common or Class C Common on a one for one basis at any time at the option of the stockholder. Each share of Class C Common will convert automatically on a one for one basis into Class A Common upon the sale, gift or other transfer to a person or entity other than the Class C Common stockholder. Dividends may be declared and paid at the discretion of the Company's Board of Directors in cash, property, securities or rights or otherwise. If dividends are declared, Common Stock stockholders of record will be entitled to participate ratably, on a share for share basis as if all shares were of a single class in determining the amount of the dividend payable to each stockholder, except that any dividends payable in shares of Common Stock shall be paid with the same class of Common stock as are held by the Class A, B, C and D Common stockholders. F-74 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) Put Options--At December 31, 1998, 1999 and March 31, 2000, the Company had 4,545,454 shares of Class C Common put options outstanding, which were issued on October 9, 1998 for $25 million. The options are exercisable by notice to the Company at a purchase price equal to the fair market value of the Company. These options are recorded at fair value as of December 31, 1998, 1999, and March 31, 2000. The options may be exercised at any time after February 9, 2005 and prior to the consummation of a public offering. Preferred Stock The Company has authorized the issuance of 10,000 shares of $0.01 par value per share Preferred Stock that may be issued in one or more series subject to the provisions of the Company's Amended and Restated Certificate of Incorporation. At December 31, 1999 and March 31, 2000, no shares of Preferred Stock had been issued. Stock Option Plan At December 31, 1999, the Company has reserved an aggregate of 3,292,828 shares of Class B Common stock for issuance, at the discretion of the Board of Directors, to officers, employees, directors and consultants pursuant to its 1999 Stock Incentive Plan (the "Plan"). The option price is determined by the Board of Directors. Options granted under the Plan generally vest ratably over four years, and expire ten years from the date of grant. Stock option activity under the plan is summarized as follows:
Weighted Weighted Average Average Exercise Options Exercise Options Price Exercisable Price --------- -------- ----------- -------- Outstanding, January 1, 1999....... -- -- -- -- Granted (weighted average fair value of $6.21)................... 1,696,806 $5.78 -- -- --------- Outstanding, December 31, 1999..... 1,696,806 $5.78 -- $5.78 =========
Additional information regarding options outstanding as of December 31, 1999 is as follows:
Options Outstanding Options Vested ------------------------------------- -------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Price Outstanding (Years) Price Vested Price -------------- ----------- ----------- -------- -------- -------- $5.00 to $10.00 1,696,806 9.9 $5.78 -- --
Deferred Stock Compensation The Company recorded deferred compensation of $4.3 million for the year ended December 31, 1999 and $0.6 million for the three months ended March 31, 2000, to reflect the difference between the grant price and the estimated fair value of the related stock. This amount is being amortized over the vesting period of the individual options, generally four years. Compensation expense was $0.1 million for the year ended December 31, 1999 and $0.2 million for the three months ended March 31, 2000. F-75 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) Additional Stock Plan Information--Since the Company continues to account for its stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure of pro forma net income (loss) had the Company adopted the fair value method. The Company's calculations were made using the minimum value pricing model which requires subjective assumptions, including expected time to exercise, which affects the calculated values. The following weighted average assumptions were used for 1999: expected life, four years; no volatility; risk free interest rate of 6.5%; and no dividends during the expected term. The Company's calculations are based on a single option award valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1999 awards had been amortized to expense over the vesting period of the awards, the Company's pro forma net loss would have been approximately $2.7 million in 1999. 12. EMPLOYEE BENEFIT PLANS Z-Media initiated an employee 401(k) plan on September 1, 1999. Employees can contribute 2% to 15% of their annual compensation, subject to IRC/ERISA limitations. Eligibility requirements include three months of service and a minimum of 1,000 hours of service per year, and the employee must be at least 21 years old. Matching is 50% of the amount of the compensation with a maximum match of 3% of compensation with employer contributions vesting over a six-year period. Z-Media's contributions to the plan totaled $47,000 for the year ended December 31, 1999 and $0 for the three months ended March 31, 2000. Vista has an employee 401(k) plan. Employees can contribute 2% to 15% of their annual compensation, subject to IRC/ERISA limitations. Eligibility requirements include one year of service and a minimum of 1,000 hours of service per year, and the employee must be at least 21 years old. Matching is discretionary with employer contributions vesting over a six-year period. Vista's contributions to the plan totaled $39,000 for the year ended December 31, 1998. There were no employer contributions in the years ended December 31, 1997, 1999 and for the three months ended March 31, 2000. 13. SEGMENT DATA The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in 1999. SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products, geographic information and major customers. Operating segment information for 1997 and 1998 is also presented in accordance with SFAS No. 131. Management has determined that there are two reportable segments consisting of radio broadcasting and outdoor advertising. Such determination was based on the level at which executive management reviews the results of operations in order to make decisions regarding performance assessment and resource allocation. Information about each of the operating segments follows: Radio Group--The Company's Radio Group portfolio consisted of 32 radio stations (19 FM and 13 AM) at December 31, 1999, including one station operated under LMA. F-76 Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1997, 1998, 1999 and for the three months ended March 31, 1999 and 2000 (Information for the three months ended March 31, 1999 and 2000 is unaudited) Outdoor Advertising--The Company's Outdoor Advertising Group owned and operated 10,060 outdoor advertising billboards and display faces in four states at December 31, 1999, and for the period ended March 31, 2000. Separate financial data for each of the Company's business segments is provided below. The Company evaluates the performance of its segments based on the following (in millions):
March 31, 1997 1998 1999 2000 ----- ------ ------ ----------- (unaudited) Radio broadcasting: Net revenue................................... $ 9.8 $ 15.4 $ 23.8 $ 5.3 Operating expenses............................ 7.9 10.9 13.9 5.1 Depreciation and amortization................. 2.1 4.8 6.0 1.7 Operating (loss) income....................... (0.3) 2.2 4.1 (1.5) Total assets.................................. 68.1 169.7 218.2 219.0 Outdoor advertising: Net revenue................................... $ 3.2 $ 10.5 $ 12.2 $ 2.8 Operating expenses............................ 1.6 5.7 8.7 2.2 Depreciation and amortization................. 0.6 1.9 2.7 1.1 Operating income.............................. 0.8 2.4 0.4 (0.5) Total assets.................................. 28.3 27.6 70.8 63.0
14. OTHER RELATED PARTY TRANSACTIONS During 1998 the Company operated station KZSJ-AM under an LMA with an officer of the Company, and paid the officer $10,000 per month. The Company also had an option to purchase KZSJ-AM from the officer pursuant to a purchase option. The LMA and Option agreements were terminated on December 31, 1998 by mutual consent of the parties. As of December 31, 1999, there was a payable due to an officer of $0.1 million related to the LMA. The Company's long-term debt at December 31, 1998 included $10.9 million of notes payable to a former stockholder of the Company and $2.9 million to a stockholder of the Company. At December 31, 1999, the Company had a payable to a stockholder for $0.2 million. Under leases that expire in 2019 and 2009, the Company rents its corporate office building and a studio building from an officer of the Company for $63,000 and $42,000 per year, respectively. Annual rents increase annually by 5% per year for the term of both leases. 15. SUBSEQUENT EVENTS On February 14, 2000, the Company purchased the assets of a radio station in Soledad, California for $0.3 million in cash. On February 24, 2000, the Company entered into a letter of intent with Entravision Communications Corporation ("ECC") whereby ECC will acquire directly or thorough a merger of all of the outstanding stock of the Company. ****** F-77 INDEPENDENT AUDITOR'S REPORT To the Partners DeSoto -- Channel 62 Associates, Ltd. (a Florida limited partnership) Sarasota, Florida We have audited the accompanying statements of operations, partners' (deficit) and cash flows of DeSoto-- Channel 62 Associates, Ltd. (a Florida limited partnership) for the period from January 1, 1999 to September 20, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of DeSoto -- Channel 62 Associates, Ltd. for the period from January 1, 1999 to September 20, 1999 in conformity with generally accepted accounting principles. As explained in Note 6 to the financial statements, on September 20, 1999, the Company sold substantially all assets of the Company to Entravision Communications Company, L.L.C. No adjustments as a result of this transaction are reflected in these financial statements. /s/ McGladrey & Pullen, LLP Pasadena, California February 25, 2000 F-78 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT Period From January 1, 1999 through September 20, 1999 (In thousands) Gross revenue......................................................... $ 879 Less agency commissions............................................... (79) ------- Net revenue.......................................................... 800 ------- Expenses: Direct operating..................................................... 405 Selling, general and administrative (including related-party management fee of $130)............................................. 934 Professional fees.................................................... 410 Depreciation and amortization........................................ 366 ------- 2,115 ------- Operating (loss).................................................... (1,315) ------- Interest (income)..................................................... (230) Interest expense (including amounts to related parties of $106)....... 1,366 ------- Net (loss).......................................................... $(2,451) =======
PARTNERS' DEFICIT Period From January 1, 1999 through September 20, 1999 (In thousands)
General Limited Partner Partners Total ------- -------- ------- Balance, December 31, 1998......................... $(1,505) $(5,101) $(6,606) Net (loss)........................................ $(1,348) (1,103) (2,451) ------- ------- ------- Balance, September 20, 1999........................ $(2,853) $(6,204) $(9,057) ======= ======= =======
See Notes to Financial Statements. F-79 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS Period From January 1, 1999 through September 20, 1999 (In thousands) Cash Flows from Operating Activities Net (loss)........................................................... $(2,451) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization....................................... 366 Changes in assets and liabilities: Decrease in accounts receivable.................................... (221) (Increase) in prepaid expenses and other assets.................... (134) Increase in accounts payable, accrued expenses and other liabilities....................................................... 1,123 ------- Net cash (used in) operating activities............................ (1,317) ------- Cash Flows from Financing Activities Net proceeds from borrowings on notes payable........................ 303 Due to affiliates.................................................... 932 ------- Net cash provided by financing activities........................... 1,235 ------- Net (decrease) in cash and cash equivalents......................... (82) Cash and Cash Equivalents Beginning............................................................ 93 ------- Ending............................................................... $ 11 ======= Supplemental Disclosures for Cash Flow Information Cash payments for interest........................................... $ 125 =======
See Notes to Financial Statements. F-80 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business DeSoto -- Channel 62 Associates, Ltd. (the Company), a Florida limited partnership, was formed in 1989. The Company was formed to purchase the construction permit for and operate Channel 62, a commercial five million-watt television station located in Venice (Sarasota), Florida. Funding for the Company's acquisition and development of Channel 62 was obtained from DeSoto Broadcasting, Inc. (DBI), the Company's general partner, and a $4.0 million offering of limited partnership interests. The partnership is set to dissolve December 31, 2025. Significant accounting policies Personal assets and liabilities and partners' salaries In accordance with the generally accepted method of presenting partnership financial statements, the financial statements do not include the personal assets and liabilities of the partners, including their rights to refunds on its net (loss). In addition, the expenses shown in the income statements do not include any salaries to the partners. Allocation of partnership income and loss The partnership agreement requires operating cash flow available for distribution to first be applied to the payment of any loans by the general partner to the partnership. The remainder, if any, is then allocated and distributed 55% to the general partner and 45% to the limited partners. Allocation to the limited partners is based upon the number of units held relative to the total units held by all limited partners. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company's operations are affected by numerous factors including changes in audience acceptance (i.e., ratings), priorities of advertisers, new laws and governmental regulations and policies, and technological advances. The Company cannot predict if any of these factors might have a significant impact on the television and radio industries in the future, nor can it predict what impact, if any, the occurrence of these or other events might have on the Company's operations. Cash and cash equivalents For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Revenue recognition Revenue related to the sale of advertising is recognized at the time of broadcast. F-81 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS--(Continued) Trade transactions The Company enters into agreements in which advertising time is traded for various products or services. Trade transactions are reported at the normal advertising rates in effect. Revenue or expense and a corresponding asset or liability are reported when advertisements are aired or when goods and services are received. Trade revenue and costs were not significant for the period from January 1 through September 20, 1999. Depreciation and amortization of property and equipment Property and equipment is stated at cost. Depreciation is computed principally by the straight-line method over the estimated lives of the assets which range from 5 to 31 years. Improvements to leased property are amortized over the lesser of the term of the lease or the estimated life of the improvements. Intangible assets Intangible assets are amortized on a straight-line basis as follows:
Years ----- Licenses, permits and associated costs................................. 40 Other intangible assets................................................ 1-5
Deferred debt costs related to the credit facility are amortized on a straight-line basis over the respective life of the credit facility. Television Programming The Company has various contracts granting the Company the right to broadcast television programs over a period of time for a specified fee. Each contract is recorded as an asset and liability at an amount equal to the gross contractual commitment. The capitalized costs of each contract are amortized on a straight-line basis, based on the estimated number of future showings over the length of the agreement for agreements with unlimited showings. The capitalized costs of rights to program materials are recorded at the lower of unamortized cost or estimated realized value. Rent expense The Company leases its office and studio space, the tower and various equipment under various operating lease agreements with various terms and conditions. Total rent expense was approximately $0.2 million for the period ended September 20, 1999. Income taxes The Company is a partnership, and accordingly, is not a tax paying entity. Instead, the partners are responsible for any tax liability or benefit, based on their respective percentages of the Company's taxable income or loss. F-82 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS--(Continued) Impairment of long-lived assets The Company reviews its long-lived assets and intangibles related to those assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets and identified goodwill with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets. To date, management has determined that no impairment of its long-lived assets exists. Segment information In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, management has determined that the Company has one reportable segment. Comprehensive income SFAS No. 130, Reporting Comprehensive Income, established the requirements for the reporting and presentation of comprehensive income and its components. For the period ended September 20, 1999, the Company had no components of comprehensive income and, therefore, net income is equal to comprehensive income. Advertising Advertising costs, which are principally included in sales expenses, are expensed as incurred. NOTE 2. LONG-TERM DEBT The Company has a 12% credit agreement (Agreement) with a financial institution which provides for a maximum extension of credit of $5.0 million. At September 20, 1999 the outstanding balance was $4.3 million. The Agreement expires September 30, 2000 and is collateralized by all of the Company's and DBI's assets and is guaranteed by DBI and Omni Investments International, Inc. (OMNI) (the parent company of DBI). The Agreement provides for monthly interest only payments of 12% and provides for additional deferred interest at the option of the Lender equal to either (a) 10% or (b) an amount equal to 15% of the combined net equity value of the Company and DBI as defined by the Agreement, which option may be exercised upon certain events including sale of the borrowers. Subsequent to September 20, 1999, the Lender exercised the net equity proceeds option in connection with the sale of assets as described in Note 5 to these financial statements. The Company also has an advance from DBI in the amount of approximately $0.6 million and bears interest at the rate of approximately 5% as of September 20, 1999. There is no stated maturity on this advance. Approximately $23,000 of interest expense has been included in the accompanying statement of operations in connection with this debt. F-83 DESOTO -- CHANNEL 62 ASSOCIATES, LTD. (A FLORIDA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 3. RELATED-PARTY TRANSACTIONS The Company recorded advertising revenue and incurred advertising, promotion and certain administration expenses with vendors who are also subsidiaries of Omni. For the period ended September 20, 1999, such income and expenses totaled approximately $7,000. DBI manages and administers the business and affairs of the Company. Compensation to DBI as an annual management fee is $0.2 million plus 5% of operating cash flows calculated monthly after deductions for interest and depreciation. The management fee for the period ended September 20, 1999 totaled $0.1 million. As of and during the period ended September 20, 1999, the Company had amounts due to certain organizations related through common ownership. Interest paid on these borrowings for the period from January 1, 1999 through September 20, 1999 was approximately $0.1 million. NOTE 4. EMPLOYEE BENEFIT PLAN The Company has a defined contribution plan for all employees. Under the terms of the plan, employees must be 21 years of age with one year of eligible service to participate. The Company may make matching contributions equal to a discretionary percentage, to be determined by the Company, of the participant's salary reductions. There have been no matching contributions made by the Company. The plan is currently in the process of being terminated in connection with the sale of assets as described in Note 5. NOTE 5. SALE LEASEBACK TRANSACTION During 1998, the Company entered into a sale-leaseback transaction with an unrelated entity. The gain from this transaction was approximately $0.9 million, recorded as deferred income and is being amortized over the subsequent lease term of three years. Income of $0.2 million has been included in the accompanying statement of operations during the period ended September 30, 1999. NOTE 6. SUBSEQUENT EVENT AND SALES OF ASSETS On September 20, 1999, the Company and DBI sold substantially all assets of the Company and the FCC license held by DBI to Entravision Communications Company, L.L.C. for $17.0 million in cash. Entravision did not assume any liabilities with the exception of certain prorated expenses, leases material to operations of the Company and liabilities associated with certain program rights. The accompanying financial statements have been prepared without giving effect to the transaction except for the payment or accrual of certain costs totaling approximately $0.4 million. F-84 INDEPENDENT AUDITOR'S REPORT To the Partners of Sunburst Media, L.P. Dallas, Texas We have audited the accompanying special purpose statement of assets to be acquired of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (collectively, the Stations), which are owned by Sunburst Media, L.P. (the Seller), as of December 31, 1999, and the related special purpose statement of revenue and direct operating expenses for the year then ended. These financial statements are the responsibility of the Stations' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1 to the financial statements, these special purpose financial statements are prepared to reflect the assets to be acquired by Entravision Communications Corporation in its proposed acquisition of the Stations, as well as the Stations' revenue and direct operating expenses. The special purpose financial statements are not intended to be a complete presentation of Sunburst Media, L.P.'s assets and liabilities or results of its operations, and accordingly, these special purpose financial statements are not intended to be a presentation in accordance with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets to be acquired of the Stations as of December 31, 1999, and the results of their revenue and direct operating expenses for the year then ended on the basis of accounting described in Note 1. /s/ McGladrey & Pullen, LLP Pasadena, California June 9, 2000 F-85 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) STATEMENTS OF ASSETS TO BE ACQUIRED December 31, 1999 and March 31, 2000 (Unaudited) (In thousands)
December 31, March 31, Assets To Be Acquired 1999 2000 - --------------------- ------------ ----------- (Unaudited) Property and equipment, net............................ $1,271 $1,244 Intangible assets, net................................. 6,847 6,661 ------ ------ $8,118 $7,905 ====== ======
See Notes to Financial Statements. F-86 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) STATEMENTS OF REVENUE AND DIRECT OPERATING EXPENSES Year Ended December 31, 1999 and Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited) (In thousands)
Three Months Ended Year Ended ----------------------- December 31, March 31, March 31, 1999 1999 2000 ------------ ----------- ----------- (Unaudited) (Unaudited) Gross revenue............................. $6,512 $1,276 $1,707 Less agency commissions................... 691 132 197 ------ ------ ------ Net revenue........................... 5,821 1,144 1,510 ------ ------ ------ Direct Operating Expenses: Operating............................... 1,144 255 317 Selling, general and administrative..... 2,685 756 751 Depreciation and amortization........... 835 182 238 ------ ------ ------ 4,664 1,193 1,306 ------ ------ ------ Excess of revenue over (under) direct operating expenses .................. $1,157 $ (49) $ 204 ====== ====== ======
See Notes to Financial Statements. F-87 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (collectively, the Stations) are owned by Sunburst Media, L.P. (Sunburst), a Delaware limited partnership. The Stations operate Spanish-language adult contemporary and rock format radio stations serving the Rio Grande Valley, Texas metropolitan area. These Stations are not separate legal entities and are part of the operations of Sunburst. On May 22, 2000, Entravision Communications Corporation (Entravision) entered into an agreement with Sunburst to purchase property and equipment, FCC licenses and other intangibles related to the operations of the Stations. The aggregate consideration to be paid in connection with this proposed transaction is $55 million. Under the terms of the agreement Entravision will not acquire cash and cash equivalents, accounts receivable or deposits nor will they assume any liabilities. Entravision will assume the operating leases discussed in Note 4. The transaction is expected to close in the third quarter of 2000 upon receiving FCC approval. Significant accounting policies Basis of presentation The accompanying statements of assets to be acquired as of December 31, 1999 and revenue and direct operating expenses for the year then ended have been prepared for the purpose of complying with rules and regulations of the Securities and Exchange Commission. These financial statements may not be indicative of the future financial condition or results of operations of these Stations due to the anticipated changes in the business subsequent to the proposed acquisition and the omission of various non-direct operating expenses. Statement of cash flows information is not presented because primarily all financing and investing activities are performed by Sunburst and not the Stations. The statements of assets to be acquired include the historical amounts of the net tangible and intangible assets of the Stations to be acquired by Entravision in its proposed acquisition of the Stations, presented in accordance with generally accepted accounting principles applicable to the Stations. Entravision plans to assume the operations of the Stations upon the FCC approval of the sale. The estimated fair value of the net assets to be assigned in the allocation of the purchase price by Entravision may differ significantly from the reported values. The statements of revenue and direct operating expenses include only revenue and operating expenses directly related to the Stations. Sunburst provides certain senior management, financing and treasury functions to the Stations. However, all costs for managing the daily operations of the Stations are reflected in direct operating expenses. Entravision anticipates its existing corporate staff will provide these senior management financing and treasury functions. The non-direct expenses for functions performed by Sunburst, consisting of management fees and interest expense, have historically been allocated to the Stations from Sunburst and have been excluded from the accompanying financial statements. F-88 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) NOTES TO FINANCIAL STATEMENTS--(Continued) Unaudited Interim Financial Information The interim financial information presented herein as of and for the three months ended March 31, 1999 and 2000 reflect all adjustments which are, in the opinion of management, necessary for a fair presentation for the periods presented. Such adjustments are of a normal recurring nature. The financial information is not intended to be a complete presentation in accordance with generally accepted accounting principles. The March 31, 2000 interim financial statements are not necessarily indicative of the results in the entire fiscal year ending December 31, 2000, or any subsequent period. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Stations' operations are affected by numerous factors including changes in audience acceptance (i.e., ratings), priorities of advertisers, new laws and governmental regulations and policies, and technological advances. The Stations cannot predict if any of these factors might have a significant impact on the radio industry in the future, nor can it predict what impact, if any, the occurrence of these or other events might have on the Stations' operations. Significant estimates and assumptions made by management are used for, but are not limited to, the carrying value of long-lived and intangible assets. Property and equipment Property and equipment are recorded at cost. Depreciation is provided using straight-line methods over the following estimated useful lives:
Years ----- Building............................................................... 30 Transmission, studio and broadcast equipment........................... 5-15 Office and computer equipment.......................................... 5-7 Transportation equipment............................................... 5
Intangible assets Intangible assets consisting of the following items are amortized on a straight-line method over the following estimated useful lives:
Years ----- FCC licenses........................................................... 15 Goodwill............................................................... 15 Noncompete agreements.................................................. 1-6
Revenue recognition Revenue related to the sale of advertising is recognized at the time of broadcast. F-89 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) NOTES TO FINANCIAL STATEMENTS--(Continued) Trade transactions The Stations exchange broadcast time for certain merchandise and services. Trade revenue and the related receivables are recorded when spots air at the fair value of the goods or services received or time aired, whichever is more readily determinable. Trade expense and the related liability are recorded when the goods or services are used or received. Barter revenue and costs were approximately $0.1 million for the year ended December 31, 1999. Income Taxes As a limited partnership, Sunburst does not pay income taxes at a company level, accordingly there is no provision for income taxes to be allocated or recorded. Advertising costs Advertising costs are expensed as incurred. Advertising expense totaled approximately $0.1 million for the year ended December 31, 1999. NOTE 2. PROPERTY AND EQUIPMENT The composition of property and equipment at December 31, 1999 is as follows:
Amount ------ Land................................................................. $ 34 Building............................................................. 502 Transmission, studio and other broadcast equipment................... 939 Office and computer equipment........................................ 113 Transportation equipment............................................. 30 ------ 1,618 Less accumulated depreciation........................................ 347 ------ $1,271 ======
F-90 RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) (STATIONS OWNED BY SUNBURST MEDIA, L.P.) NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 3. INTANGIBLE ASSETS At December 31, 1999, intangible assets consist of:
Amount ------ FCC licenses......................................................... $7,913 Noncompete agreements................................................ 738 Goodwill............................................................. 50 ------ 8,701 Less accumulated amortization........................................ 1,854 ------ $6,847 ======
NOTE 4. OPERATING LEASE COMMITMENTS The Stations lease facilities and broadcast equipment under various operating lease agreements with various terms and conditions, which expire at various dates through July 2004. The approximate future minimum lease payments under these operating leases at December 31, 1999 are as follows:
Years Ending December 31, Amount ------------------------- ------ 2000.................................................................. $ 38 2001.................................................................. 34 2002.................................................................. 28 2003.................................................................. 22 2004.................................................................. 9 ---- $131 ====
Total rent expense under operating leases, including rent under month-to- month arrangements, was approximately $0.1 million for the year ended December 31, 1999. NOTE 5. ACQUISITION On September 9, 1999, Sunburst acquired certain assets of Coast Broadcasting, which includes the radio station KVPA(FM) in Port Isabel, Texas, for $0.8 million. The acquisition was accounted for as a purchase business combination. The excess purchase price over the tangible net assets to be acquired of $0.7 million was allocated to specifically identifiable intangibles consisting of $0.5 million to the FCC license and $0.2 million to noncompete agreements. F-91 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO OF ENTRAVISION COMMUNICATIONS CORPORATION] Class A Common Stock --------------------- PROSPECTUS --------------------- , 2000 Donaldson, Lufkin & Jenrette Credit Suisse First Boston Merrill Lynch & Co. ---------------- Salomon Smith Barney Bear, Stearns & Co. Inc. DLJdirect Inc. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You should not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of Entravision have not changed since the date hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Until , 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these shares of common stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be paid by us in connection with the sale and distribution of the securities being registered. All of the amounts shown are estimated except the registration fee of the Securities and Exchange Commission, the NASD filing fee and the New York Stock Exchange listing fee. Securities and Exchange Commission registration fee.............. $ 194,304 NASD filing fee.................................................. 30,500 New York Stock Exchange listing fee.............................. 84,600 Legal fees and expenses.......................................... 1,475,000 Accounting fees and expenses..................................... 1,398,000 Printing expenses................................................ 400,000 Blue sky fees and expenses....................................... 7,500 Transfer agent and registrar fees and expenses................... 3,500 Miscellaneous.................................................... 250,000 ---------- Total............................................................ $3,843,404 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law, as the same exists or may hereafter be amended, provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorney's fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. II-1 Section 145 of the Delaware General Corporation Law further authorizes a corporation to purchase and maintain insurance on behalf of any person who 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 or enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him or her under Section 145. Our first restated certificate of incorporation provides that, to the fullest extent permitted by Delaware law, as it may be amended from time to time, none of our directors will be personally liable to us or our stockholders for monetary damages resulting from a breach of fiduciary duty as a director, except for (i) liability resulting from a breach of the director's duty of loyalty to us or our stockholders, (ii) acts or omissions which are not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payment of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law or (iv) a transaction from which the director derived an improper personal benefit. Our first restated certificate of incorporation also provides mandatory indemnification for the benefit of our directors and officers and discretionary indemnification for the benefit of our employees and agents, in each instance to the fullest extent permitted by Delaware law, as it may be amended from time to time. In addition, we will enter into individual indemnification agreements with each of our directors and officers providing additional indemnification benefits. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors or officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. We will also provide directors' and officers' liability insurance coverage for our directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since our incorporation on February 11, 2000, we have issued unregistered securities as follows: On February 12, 2000, we issued 1,000 shares of our common stock to Entravision Communications Company, L.L.C. for an aggregate purchase price of $1,000, such shares to be held until and cancelled concurrently with the reorganization described in the following paragraph. These shares were issued in order for Entravision to be properly capitalized at all times from its inception until the consummation of such reorganization. These shares were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. On April 19, 2000, we entered into an Exchange Agreement with our predecessor, certain exchanging members and stockholders and Univision in which direct and indirect ownership interests in our predecessor and Univision's subordinated note and option will be exchanged for newly-issued shares of our common stock as part of our recapitalization from a limited liability company to a C-corporation. This reorganization will be consummated immediately prior to this offering. These shares will be issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. On April 20, 2000, we entered into an Acquisition Agreement and Plan of Merger with our predecessor, ZSPN Acquisition Corporation, Z-Spanish Media and certain of its stockholders pursuant to which we agreed to acquire all of the outstanding capital stock of Z-Spanish Media for $475 million, including the assumption of approximately $110 million in debt. The consideration to be paid to the stockholders of Z-Spanish Media consists of approximately $247 million in cash and 7,187,902 shares of our Class A common stock. These shares will be issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits The following exhibits are attached hereto and incorporated herein by reference.
Exhibit Exhibit Description Number ------------------- ------- 1.1(3) Form of Underwriting Agreement. 2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among Univision Television Group, Inc., KLUZ License Partnership, G.P. and Entravision Communications Company, L.L.C. 2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among Entravision Communications Company, L.L.C., LCG Acquisition Corporation, Latin Communications Group Inc. and certain of its representatives. 2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between Citicasters Co. and the registrant. 2.4(2) Acquisition Agreement and Plan of Merger dated April 20, 2000 by and among the registrant, Entravision Communications Company, L.L.C., ZSPN Acquisition Corporation, Z-Spanish Media Corporation and certain of its stockholders. 2.5(2) Exchange Agreement dated April 19, 2000 by and among the registrant, Entravision Communications Company, L.L.C., certain exchanging members and stockholders and Univision Communications Inc. 3.1(1) Certificate of Incorporation of the registrant as currently in effect. 3.2(1) Form of First Restated Certificate of Incorporation of registrant as in effect immediately prior to the closing of the offering. 3.3(1) Form of First Amended and Restated Bylaws of the registrant as in effect immediately prior to the closing of the offering. 4.1(3) Form of specimen Class A common stock certificate of the registrant. 5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. 10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant. 10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik and the registrant. 10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April 18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent.
II-3
Exhibit Exhibit Description Number ------------------- ------- 10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998 by certain pledgors in favor of Union Bank of California, N.A., as agent. 10.9(2) Term Loan Agreement dated April 20, 2000 by and among LCG Acquisition Corporation, the lender parties thereto and Union Bank of California, N.A. 10.10(2) Security Agreement dated April 20, 2000 by and between LCG Acquisition Corporation and Union Bank of California, N.A. 10.11(2) Pledge Agreement dated April 20, 2000 by Walter F. Ulloa and Philip C. Wilkinson in favor of Union Bank of California, N.A. 10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between Univision Communications Inc. and Entravision Communications Company, L.L.C. 10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated March 2, 2000 in the principal amount of $120 million from Entravision Communications Company, L.L.C. in favor of Univision Communications Inc. 10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement dated as of December 30, 1996 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated as of March 31, 1999 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated March 2, 2000 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996 in the principal amount of $360,366.38 from Paul A. Zevnik in favor of Entravision Communications L.L.C. 10.18(2) Form of Indemnification Agreement for officers and directors of the registrant. 10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April 20, 2000 by and among Entravision Communications Company, L.L.C., the registrant and certain investors. 10.20(2) Subordinated Convertible Promissory Note dated April 20, 2000 in the principal amount of $90 million from Entravision Communications Company, L.L.C. in favor of TSG Capital Fund III, L.P. 10.21(2) Investor Rights Agreement dated April 19, 2000 by and among Entravision Communications Company, L.L.C., the registrant and TSG Capital Fund III, L.P. 10.22(2) Form of Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the registrant. 10.23(2) Form of Investor Rights Agreement by and among the registrant and certain of its stockholders. 10.24(1) Form of Network Affiliation Agreement by and between Univision Television Network and Entravision Communications Company, L.L.C. 10.25(2) Office Lease dated August 19, 1999 by and between Water Garden Company, L.L.C. and Entravision Communications Company, L.L.C. 10.26(3) Asset Purchase Agreement dated June 13, 2000 by and between the registrant and Infinity Broadcasting Corporation. 21.1(3) Schedule of subsidiaries of the registrant. 23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. (included in Exhibit 5.1). 23.2(2) Consent of McGladrey & Pullen, LLP. 23.3(2) Consent of Ernst & Young LLP. 23.4(2) Consent of Deloitte & Touche LLP. 24.1(1) Power of Attorney.
- -------- (1) Previously filed. (2) Filed herewith. (3) To be filed by amendment. (b) Financial Statement Schedules--None. II-4 ITEM 17. UNDERTAKINGS. The registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, 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 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 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, on June 14, 2000. ENTRAVISION COMMUNICATIONS CORPORATION By: /s/ Walter F. Ulloa ______________________________________ Walter F. Ulloa, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement has been signed by the following persons in the capacities indicated and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Walter F. Ulloa Chairman and Chief Executive June 14, 2000 ____________________________________ Officer (principal Walter F. Ulloa executive officer) * President, Chief Operating June 14, 2000 ____________________________________ Officer and Director Philip C. Wilkinson /s/ Jeanette Tully Executive Vice President, June 14, 2000 ____________________________________ Treasurer and Chief Jeanette Tully Financial Officer (principal financial officer and principal accounting officer) * Secretary and Director June 14, 2000 ____________________________________ Paul A. Zevnik * President of Radio Division June 14, 2000 ____________________________________ and Director Amador S. Bustos * Director June 14, 2000 ____________________________________ Darryl B. Thompson * Director June 14, 2000 ____________________________________ Andrew W. Hobson * Director June 14, 2000 ____________________________________ Michael D. Wortsman
*By: /s/ Jeanette Tully ___________________________ Jeanette Tully, Attorney-in- fact II-6 EXHIBIT INDEX
Exhibit Number Exhibit Description ------- ------------------- 1.1(3) Form of Underwriting Agreement. 2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among Univision Television Group, Inc., KLUZ License Partnership, G.P. and Entravision Communications Company, L.L.C. 2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among Entravision Communications Company, L.L.C., LCG Acquisition Corporation, Latin Communications Group Inc. and certain of its representatives. 2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between Citicasters Co. and the registrant. 2.4(2) Acquisition Agreement and Plan of Merger dated April 19, 2000 by and among the registrant, Entravision Communications Company, L.L.C., ZSPN Acquisition Corporation, Z-Spanish Media Corporation and certain of its stockholders. 2.5(2) Exchange Agreement dated April 19, 2000 by and among the registrant, Entravision Communications Company, L.L.C., certain exchanging members and stockholders and Univision Communications Inc. 3.1(1) Certificate of Incorporation of the registrant as currently in effect. 3.2(1) Form of First Restated Certificate of Incorporation of registrant as in effect immediately prior to the closing of the offering. 3.3(1) Form of First Amended and Restated Bylaws of the registrant as in effect immediately prior to the closing of the offering. 4.1(3) Form of specimen Class A common stock certificate of the registrant. 5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. 10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant. 10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik and the registrant. 10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April 18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent. 10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc., Entravision Communications Company, L.L.C., the lender parties thereto and Union Bank of California, N.A., as agent.
Exhibit Exhibit Description Number ------------------- ------- 10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998 by certain pledgors in favor of Union Bank of California, N.A., as agent. 10.9(2) Term Loan Agreement dated April 20, 2000 by and among LCG Acquisition Corporation, the lender parties thereto and Union Bank of California, N.A. 10.10(2) Security Agreement dated April 20, 2000 by and between LCG Acquisition Corporation and Union Bank of California, N.A. 10.11(2) Pledge Agreement dated April 20, 2000 by Walter F. Ulloa and Philip C. Wilkinson in favor of Union Bank of California, N.A. 10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between Univision Communications Inc. and Entravision Communications Company, L.L.C. 10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated March 2, 2000 in the principal amount of $120 million from Entravision Communications Company, L.L.C. in favor of Univision Communications Inc. 10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement dated as of December 30, 1996 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated as of March 31, 1999 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated March 2, 2000 by and among Univision Communications Inc., Entravision Communications Company, L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson. 10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996 in the principal amount of $360,366.38 from Paul A. Zevnik in favor of Entravision Communications L.L.C. 10.18(2) Form of Indemnification Agreement for officers and directors of the registrant. 10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April 20, 2000 by and among Entravision Communications Company, L.L.C., the registrant and certain investors. 10.20(2) Subordinated Convertible Promissory Note dated April 20, 2000 in the principal amount of $90 million from Entravision Communications Company, L.L.C. in favor of TSG Capital Fund III, L.P. 10.21(2) Investor Rights Agreement dated April 19, 2000 by and among Entravision Communications Company, L.L.C., the registrant and TSG Capital Fund III, L.P. 10.22(2) Form of Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the registrant. 10.23(2) Form of Investor Rights Agreement by and among the registrant and certain of its stockholders. 10.24(1) Form of Network Affiliation Agreement by and between Univision Television Network and Entravision Communications Company, L.L.C. 10.25(2) Office Lease dated August 19, 1999 by and between Water Garden Company, L.L.C. and Entravision Communications Company, L.L.C. 10.26(3) Asset Purchase Agreement dated June 13, 2000 by and between the registrant and Infinity Broadcasting Corporation. 21.1(3) Schedule of subsidiaries of the registrant. 23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. (included in Exhibit 5.1). 23.2(2) Consent of McGladrey & Pullen, LLP. 23.3(2) Consent of Ernst & Young LLP. 23.4(2) Consent of Deloitte & Touche LLP. 24.1(1) Power of Attorney.
- -------- (1) Previously filed. (2) Filed herewith. (3) To be filed by amendment. (b) Financial Statement Schedules--None. EX-2.4 2 0002.txt ACQUISITION AGREEMENT AND PLAN OF MERGER EXHIBIT 2.4 ================================================================================ ACQUISITION AGREEMENT AND PLAN OF MERGER by and among Entravision Communications Corporation, Entravision Communications Company, L.L.C., ZSPN Acquisition Corporation, Z-Spanish Media Corporation and its Stockholders dated April 20, 2000 ================================================================================ ACQUISITION AGREEMENT AND PLAN OF MERGER ---------------------------------------- This Acquisition Agreement and Plan of Merger (the "Agreement") is entered as of April 20, 2000 (the "Execution Date") by and among Entravision Communications Corporation, a Delaware corporation (the "Corporation") and Entravision Communications Company, L.L.C., a Delaware limited liability company (the "Company") (with the Corporation and the Company collectively referred to herein at times as "Entravision"), and ZSPN Acquisition Corporation, a Delaware corporation ("Acquisition Co."), on the one hand, and Z-Spanish Media Corporation, a Delaware corporation ("ZSPN"), and the individuals and entities set forth on the signature pages hereto, who are stockholders of ZSPN owning approximately seventy-nine percent (79%) of the issued and outstanding shares of common stock of ZSPN as of the Execution Date (the "Major Stockholders"), on the other hand, with respect to the following facts: WHEREAS, the Company is a Delaware limited liability company principally engaged in the ownership and operation of television and radio stations (the "Entravision Media Properties"). WHEREAS, the Corporation is a Delaware corporation which has been formed to consummate the IPO (as defined below) and will become successor-in-interest to the Company in connection with the Roll-Up (as defined below). WHEREAS, Acquisition Co. is a Delaware corporation formed by Entravision for the purpose of effecting the Merger (as defined below) contemplated by this Agreement, with authorized capital stock consisting of 1,000 shares of Common Stock, $0.001 par value per share, of which 1,000 shares are duly and validly issued and outstanding, and all of which shares are held by Entravision as of the date hereof. WHEREAS, ZSPN is a duly incorporated Delaware corporation that owns and operates the radio stations (the "Radio Stations"), the outdoor advertising properties (the "Outdoor Business") and the Internet sites (the "Internet Sites") listed on Schedule "A" attached hereto and incorporated herein by this ------------ reference, with authorized capital stock consisting of 62,010,000 shares of Common Stock, $0.01 par value per share, of which 29,635,454 shares are duly authorized, issued and outstanding, and all of which are held by the Stockholders as of the date hereof. WHEREAS, the Executive Committee of the Company and the respective Boards of Directors of the Corporation, Acquisition Co. and ZSPN and a majority of the stockholders of ZSPN have approved the merger of Acquisition Co. with and into ZSPN pursuant to applicable Delaware law and the terms and conditions of this Agreement (the "Merger"). WHEREAS, the Merger and the Roll-Up is intended to qualify under Section 351(a) of the IRC (as such term is defined below). WHEREAS, the parties hereto desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions with respect thereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each signatory hereto, the parties hereto covenant and agree as follows: ARTICLE 1. DEFINITIONS For purposes of this Agreement, the following terms shall have the following meanings: 1.1 "Applicable Entravision Contract" means any Contract (as defined below) under which Entravision or the Entravision Subsidiaries (as defined below) has any material rights or have become subject to any material obligation or liability or by which Entravision, the Entravision Subsidiaries or any of the material assets owned or used by them are bound. 1.2 "Applicable ZSPN Contract" means any Contract (as defined below) under which ZSPN or the ZSPN Subsidiaries (as defined below) has any material rights or have become subject to any material obligation or liability or by which ZSPN, the ZSPN Subsidiaries or any of the material assets owned or used by them are bound. 1.3 "Approved ZSPN Acquisition" means any acquisitions of a radio station or television station by ZSPN after the Execution Date and before the Closing which receives the prior written approval of Entravision, which approval shall not be unreasonably withheld. 1.4 "Bank of Montreal Credit Facilities" shall mean all amounts due pursuant to revolving credit facilities or term facilities of ZSPN, Vista Media Group, Inc. or any other ZSPN Subsidiary with the Bank of Montreal as the lender or agent. 1.5 "Best Efforts" means the efforts that a prudent Person (as defined below) desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible. 1.6 "Breach" means a breach of a representation, warranty, covenant, obligation or other provision of this Agreement or any instrument delivered pursuant to this Agreement and will be deemed to have occurred if there is or has been any material inaccuracy in or material breach of, or any material failure to perform or comply with, such representation, warranty, covenant, obligation or other provision. 1.7 "Cash Consideration" shall have the meaning set forth in Section 2.7 of this Agreement. 1.8 "Certificate" shall have the meaning set forth in Section 3.2 of this Agreement. -2- 1.9 "Certificate of Merger" means the Certificate of Merger to be filed with the Delaware Secretary of State to perfect the Merger, substantially in the form attached hereto as Exhibit "A" and incorporated herein by this reference. ----------- 1.10 "City National Bank/Union Bank Credit Facilities" shall mean all amounts due pursuant to revolving credit facilities or term facilities of ZSPN or the ZSPN Subsidiaries with respect to which City National Bank and/or Union Bank of California are the lenders or agents. 1.11 "Closing" shall have the meaning set forth in Section 3.1 of this Agreement. 1.12 "Closing Date" means the date and time as of which the Closing (as defined below) actually takes place. 1.13 "Confidential Information" means information of substantial value regarding the Radio Stations, the Outdoor Business, the Internet Sites and the Entravision Media Properties, which is not generally known and which gives Entravision and ZSPN or their respective Subsidiaries an advantage over competitors who do not know it, including, without limitation, computer programs, names and expertise of employees and consultants, know-how, trade secrets, formulae, processes, ideas, inventions and other sales, business, financial, customer product developments, plans, lists, forecasts, strategies and information of Entravision and ZSPN and their respective Subsidiaries, but shall not include information which is (i) generally or readily obtainable by the public or the trade, or (ii) publicly known or becomes known, through no fault or activity of the Stockholders or the other parties hereto. 1.14 "Confidentiality Agreement" shall have the meaning set forth in Section 7.1 of this Agreement. 1.15 "Consent" means any approval, consent, ratification, waiver or other authorization (including the FCC Consent (as defined below), the expiration or termination of the applicable waiting period required under the HSR Act (as defined below) and any other necessary Governmental Authorization (as defined below). 1.16 "Contemplated Transactions" means (i) the Merger, (ii) the execution, delivery and performance of the Noncompetition Agreements (as defined below) (iii) the execution, delivery and performance of the Investor Rights Agreement, (iv) the filing of the Certificate (if required), and (v) the performance by the parties hereto of their respective covenants and obligations under this Agreement. 1.17 "Contract" means any material agreement, contract, obligation, promise or undertaking (whether written or oral and whether express or implied) that is legally binding, but excluding the Real Property Leases and Outdoor Leases. 1.18 "Delaware Code" means the Delaware General Corporation Law, as amended. -3- 1.19 "Dissenting Shares" shall have the meaning set forth in Section 2.10 of this Agreement. 1.20 "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA (as defined below) of either ZSPN or Entravision or their respective Subsidiaries and any other material plan, policy, program, practice or arrangement providing compensation or other benefits to any current or former officer or employee of either ZSPN or Entravision or any of their respective Subsidiaries or any beneficiary or dependent thereof that is or was maintained by either ZSPN or Entravision or any of their respective Subsidiaries. 1.21 "Encumbrances" means any and all material encumbrances, charges, claims, penalties, community property interests, conditions, equitable interests, liens, options, pledges, security interests or rights of first refusal, other than Permitted Encumbrances (as defined below). 1.22 "Entravision Equity Value" means Eight Hundred Ten Million Dollars ($810,000,000.00). 1.23 "Entravision Financial Statements" means (i) the audited balance sheets of Entravision as of December 31, 1999, and the related statements of income and cash flows for the period then ended (including notes thereto), included in the Registration Statement as audited by McGladrey & Pullen, L.L.P. certified public accountants. 1.24 "Entravision Fully-Diluted Shares" means the fully-diluted shares of Common Stock of Entravision Communications Corporation outstanding immediately prior to the closing of the Merger and immediately after issuance of shares of Class A, Class B and Class C Common Stock of the Corporation in the Roll-Up (including upon exchange of the subordinated note currently held by Univision Communications Inc.), but excluding any shares issued in exchange for the 80,168 Class D units issued prior to the Execution Date by the Company to employees, directors or consultants of the Company. 1.25 "Entravision Material Adverse Effect" means one or more events, occurrences, facts, conditions, changes or effects which cumulatively have a material adverse effect on the assets, liabilities or properties of Entravision and the Entravision Subsidiaries collectively, excluding matters affecting the broadcasting or print industries generally and excluding general economic conditions. 1.26 "Entravision Media Properties" shall have the meaning set forth in the recitals to this Agreement. 1.27 "Entravision Share Consideration" means the Entravision Equity Value divided by the number of Entravision Fully-Diluted Shares. 1.28 "Entravision Subsidiary" means any direct or indirect subsidiary of Entravision. -4- 1.29 "Entravision Subsidiary Shares" shall have the meaning set forth in Section 5.5(b) of this Agreement. 1.30 "Environmental Clean-Up Amount" shall have the meaning set forth in Section 7.14 of this Agreement. 1.31 "Environmental Law(s)" means all federal, state and local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directives, requests, licenses, authorizations, permits and agreements issued or signed by any federal, state or local government authority, relating to environmental, health or safety matters, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Water Act of 1977, the Clean Air Act, the Resource Conservation and Recovery Act of 1976, the Federal Insecticide, Fungicide and Rodenticide Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Occupational Safety and Health Act of 1970 and the Safe Drinking Water Act, and state and local counterparts to such acts. 1.32 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and the rules and regulations issued pursuant to that act or any successor law. 1.33 "Exchange Agreement" shall mean that certain Exchange Agreement of even date herewith by and among the Company, its members and Univision Communications Inc. attached hereto as Exhibit "B" attached hereto and ----------- incorporated herein by this reference. 1.34 "Exchange Ratio" shall have the meaning set forth in Section 2.8(b) of this Agreement. 1.35 "Existing Employment Agreements" shall mean all existing employments agreement or arrangements by and between ZSPN or any of the ZSPN Subsidiaries and Amador S. Bustos, John Bustos and Glenn Emanuel through and including the Closing. 1.36 "FCC" means the Federal Communications Commission, or any successor agency. 1.37 "FCC Consent" means the written consent to the assignment of FCC licenses held by ZSPN (or any of the ZSPN Subsidiaries, as the case may be) from ZSPN (or any of the ZSPN Subsidiaries, as the case may be) to Holdings. 1.38 "Final Order" means an order, action or decision of the FCC that has not been reversed, stayed, enjoined, annulled or suspended and as to which (i) no timely request for stay, appeal, petition for reconsideration, application for review or reconsideration by the FCC on its own motion is pending and (ii) the time for filing any such request, appeal, petition or application or for reconsideration by the FCC on its own motion, has expired. -5- 1.39 "GAAP" means generally accepted accounting principles, applied on a consistent basis. 1.40 "Governmental Authorization" means any material approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of the FCC, any Governmental Body or pursuant to any Legal Requirement, each as defined below. 1.41 "Governmental Body" means (i) any nation or state, (ii) any federal, state or foreign government, (iii) any federal, state or foreign governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or entity and any court or other tribunal), (iv) any federal, state or foreign body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or (v) the FCC. 1.42 "Hazardous Substance(s)" means (i) any substance, the presence of which requires investigation or remediation under any Environmental Law or under common law, (ii) any dangerous, toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous substance which is regulated by any Environmental Law, (iii) any substance, the presence of which causes or threatens to cause a nuisance upon property presently and/or previously owned, leased or otherwise used by the Sellers (or poses or threatens to pose a hazard to the health or safety of persons on or about the property or adjacent properties) and (iv) radon, ureaformaldehyde, polychlorinated biphenyls, asbestos or asbestos-containing materials, petroleum and petroleum products. 1.43 "Holdings" shall mean Entravision Holdings, L.L.C., a California limited liability company and wholly-owned subsidiary of Entravision and its managing members or any successors thereto. 1.44 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.45 "Indebtedness" means all amounts due pursuant the City National Bank/Union Bank Credit Facilities and the Bank of Montreal Credit Facilities, with respect to ZSPN, and the secured credit facilities with Union Bank of California, with respect to Entravision. 1.46 "Interim Closing" shall have the meaning set forth in Section 3.2 of this Agreement. 1.47 "Interim Closing Deadline" shall have the meaning set forth in Section 3.2 of this Agreement. 1.48 "Internet Sites" shall have the meaning set forth in the recitals to this Agreement. -6- 1.49 "Investor Rights Agreement" means the Investor Rights Agreement, substantially in the form attached hereto as Exhibit "C" and incorporated herein ----------- by this reference. 1.50 "IPO" means the underwritten initial public offering of Class A Common Stock by Entravision Communications Corporation. 1.51 "IRC" means the Internal Revenue Code of 1986, as amended, or any successor law, and the rules and regulations issued by the IRS (as defined below) pursuant to the IRC or any successor law. 1.52 "IRS" means the United States Internal Revenue Service, or any successor agency, and, to the extent relevant, the United States Department of the Treasury. 1.53 "Knowledge" means with respect to a party, the actual knowledge of such party and its Subsidiaries after reasonable inquiry of such party and its Subsidiaries, directors and officers who could reasonably be expected to have knowledge of such matters. 1.54 "Legal Requirement" means any material FCC, federal, state or foreign order, law, ordinance, regulation or statute. 1.55 "Liabilities" means, as to any Person, all material liabilities, debts and obligations to pay money, direct, indirect, absolute, contingent or otherwise, of such Person, whether accrued, vested or otherwise, whether in Contract, tort, strict liability or otherwise and whether or not actually reflected, or required by the federal income tax method of accounting to be reflected, in such Person's balance sheets or other books and records. 1.56 "Major Stockholder" shall mean each of Z-Spanish Media Holdings, LLC, TSG Associates II, Inc., TSG Associates III, LLC, TSG Capital Fund III, L.P., TSG Ventures, L.P., TSG Capital Fund II, L.P., Amador S. Bustos, Salvador H. Campos, John S. Bustos, Glenn Emanuel, Arthur Rockwell and Bustos Asset Management, LLC. 1.57 "Material Consent" shall have the meaning set forth in Section 4.2 of this Agreement. 1.58 "Material Environmental Compliance" shall have the meaning set forth in Section 7.14 of this Agreement. 1.59 "Merger" shall be as defined in the recitals to this Agreement. 1.60 "Noncompetition Agreement(s)" means the Noncompetition Agreement to be executed by each of Amador S. Bustos, John Bustos and Glenn Emanuel, substantially in the form attached hereto as Exhibit "D" and incorporated herein ----------- by this reference. -7- 1.61 "Option Roll-Over Amount" means the aggregate amount of shares of Class A Common Stock of Entravision subject to options substituted for ZSPN Options pursuant to Section 9.3 below, multiplied by the Entravision Share Consideration less an amount equal to the aggregate amount payable to Entravision upon exercise of all such substituted options. 1.62 "Order" means any material award, decision, injunction, judgment, order, ruling, subpoena or verdict entered, issued, made or rendered by any court, administrative agency or other Governmental Body or by any arbitrator. 1.63 "Ordinary Course of Business" means an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if (i) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person, (ii) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) and (iii) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors of such Person (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. 1.64 "Organizational Documents" means (i) the articles or certificate of incorporation and the bylaws of a corporation, (ii) the partnership agreement and any statement of partnership of a general partnership, (iii) the limited partnership agreement and the certificate of limited partnership of a limited partnership, (iv) the articles of organization or certificate of formation and the operating agreement of a limited liability company, (v) any charter or similar document adopted or filed in connection with the creation, formation or organization of a Person or (vi) any amendment to any of the foregoing. 1.65 "Outdoor Business" shall have the meaning set forth in the recitals to this Agreement. 1.66 "Outdoor Leases" shall mean all leases for bulletins, billboards and other outdoor advertising space and facilities. 1.67 "Per Share Cash Merger Consideration" shall have the meaning set forth in Section 2.8(b) of this Agreement. 1.68 "Permitted Encumbrances" means Encumbrances (i) set forth on either party's Schedules, (ii) liens for Taxes, assessments and other governmental charges not yet due and payable or being contested in good faith by appropriate proceedings and (iii) Encumbrances created by FCC licenses or other Governmental Authorizations. 1.69 "Person" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or Governmental Body. -8- 1.70 "Proceeding" means any material action, litigation, arbitration, formal mediation, bankruptcy, or suit (whether civil, criminal or administrative) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator. 1.71 "Radio Stations" shall have the meaning set forth in the recitals to this Agreement. 1.72 "Real Property" means all of the land, buildings, plants, facilities, installations, fixtures and other structures and improvements owned by either party, which in any case is material to the operations of such party. 1.73 "Real Property Leases" shall mean, collectively, any material written real property leases other than Outdoor Leases to which either Entravision or ZSPN or any of their respective Subsidiaries is a party. 1.74 "Registration Statement" shall mean the Corporation's most recent draft registration statement on Form S-1 prepared prior to the date of this Agreement in connection with the IPO which has been made available to the Stockholders and their counsel. 1.75 "Related Person" means an "affiliate" (as such term is defined in the rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of a Person. 1.76 "Release" means the Release substantially in the form attached hereto as Exhibit "E" and incorporated herein by this reference. ----------- 1.77 "Representative" means with respect to a particular Person, any director, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors. 1.78 "Restricted Business" shall have the meaning set forth in Section 9.2 of this Agreement. 1.79 "Roll-Up" means the closing of the transactions in accordance with the Exchange Agreement. 1.80 "Schedules" means the schedules attached hereto and incorporated herein by this reference relating to the representations and warranties of the parties hereto. 1.81 "Securities Act" means the Securities Act of 1933, as amended, or any successor law, and the rules and regulations issued pursuant to that act or any successor law. -9- 1.82 "Shares" means all of the issued and outstanding Common Stock of ZSPN. 1.83 "Stock Consideration Value" shall have the meaning set forth in Section 2.7 of this Agreement. 1.84 "Stockholders" shall mean all of the stockholders of ZSPN. 1.85 "Stockholders Agreement" shall mean that certain Third Amended and Restated Stockholders Agreement dated as of December 31, 1999 by and between ZSPN and certain of its stockholders, as amended. 1.86 "Stockholder Notice" shall have the meaning set forth in Section 2.10 of this Agreement. 1.87 "Subsidiary(ies)" means any corporation, limited liability company or other entity with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the Common Stock or other equity ownership interest or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors, managing members or managers. 1.88 "Subsidiary Shares" shall have the meaning set forth in Section 4.6(b) of this Agreement. 1.89 "Surviving Corporation" means ZSPN as the surviving corporation following the Merger. 1.90 "Tax(es)" means taxes of any kind, accrued or accruing, including any and all federal, state or local taxes, charges, fees, levies or other assessments of any nature whatsoever (including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs, duties, fees, assessments or charges of any kind whatsoever) together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) upon the entity to which reference is being made or any affiliate thereof or upon any consolidated, combined or unitary group of which any such entity is or was a member, and any and all protest expenses (of any nature whatsoever) incurred in connection therewith. 1.91 "Tax Return" means any return (including any information return), report, statement, schedule, notice, form or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. -10- 1.92 "Termination Payments" shall mean, subject to the agreement of even date herewith among Entravision and ZSPN (the "Termination Payment Agreement") all accrued bonuses, termination payments, severance payments, "stay" bonuses and similar amounts payable to any director, employee or consultant of ZSPN or the ZSPN Subsidiaries and attributable to periods prior to the Closing or as a result of the consummation of the Contemplated Transactions (including, without limitation, approximately Four Hundred Ninety Five Thousand Dollars ($495,000) of bonuses accrued as of May, 1998). Certain mechanics of payment hereunder are subject to the Termination Payment Agreement. 1.93 "Threatened" means a claim, Proceeding, dispute or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing or any notice has been given in writing. 1.94 "TSG" shall mean TSG Associates II, Inc., TSG Associates III, LLC, TSG Capital Fund III, L.P., TSG Ventures, L.P., TSG Capital Fund II, L.P. and all successors thereto. 1.95 "TSG Loan" shall mean amounts advanced by Z-Spanish Media Holdings L.L.C. to ZSPN in the aggregate amount of Nine Hundred Forty-Six Thousand Forty- Five Dollars ($946,045) and any interest payable thereon prior to the Closing. 1.96 "Units" shall have the meaning set forth in Section 5.4(b) of this Agreement. 1.97 "Univision" shall mean Univision Communications Inc. 1.98 "ZSPN Equity Consideration" shall have the meaning set forth in Section 2.7 of this Agreement. 1.99 "ZSPN Financial Statements" means (i) the audited balance sheets of ZSPN as of December 31, 1999, and the related statements of income and cash flows for the period then ended as compiled by Deloitte & Touche LLP, certified public accountants, and the unaudited balance sheets of ZSPN as of February 29, 2000, and the related statements of income and cash flows for the period then ended (including notes thereto). 1.100 "ZSPN Material Adverse Effect" means one or more events, occurrences, facts, conditions, changes or effects which cumulatively have a material adverse effect on the assets, liabilities or properties of ZSPN and the ZSPN Subsidiaries collectively, excluding matters affecting the broadcasting or outdoor advertising industries generally and excluding general economic conditions. 1.101 "ZSPN Options" means all options to acquire shares in ZSPN outstanding pursuant to the terms of the ZSPN 1999 Stock Incentive Plan as of the Closing. 1.102 "ZSPN Outstanding Shares" means the fully-diluted shares of Common Stock of ZSPN outstanding immediately prior to the closing of the Merger, excluding the ZSPN Options. -11- 1.103 "ZSPN Representatives" shall have the meaning set forth in Section 2.9(b) of this Agreement. 1.104 "ZSPN Share Consideration" means ZSPN Equity Consideration divided by the number of ZSPN Outstanding Shares. 1.105 "ZSPN Subsidiary" means any direct or indirect Subsidiary of ZSPN. ARTICLE 2. MERGER 2.1 Merger. Subject to the terms and conditions hereof, the Merger ------ shall be consummated in accordance with the Delaware Code. Effective as of Closing, subject to the terms and conditions of this Agreement and in accordance with the applicable laws of the State of Delaware, Acquisition Co. shall be merged with and into ZSPN, which shall be the Surviving Corporation. 2.2 Execution of Certificate of Merger. At the Closing, ZSPN shall ---------------------------------- execute the Certificate of Merger, and counsel for Entravision shall cause the Certificate of Merger to be delivered to the Delaware Secretary of State for filing. The time of acceptance by the Secretary of State of Delaware of such filing shall be referred to herein as the "Effective Time." 2.3 Effect of the Merger. The Merger shall have the effects set forth -------------------- in Section 259 of the Delaware Code. 2.4 Certificate of Incorporation; Bylaws. As of the Effective Time, the ------------------------------------ Certificate of Incorporation of ZSPN, as amended by the Certificate of Merger, shall be the Certificate of Incorporation of the Surviving Corporation and the Bylaws of Acquisition Co. shall be the Bylaws of the Surviving Corporation. 2.5 Directors. The directors of Acquisition Co. as of the Effective Time --------- shall be the directors of the Surviving Corporation and the existing directors of ZSPN shall resign effective as of the Effective Time. 2.6 Officers. The officers of the Surviving Corporation as of the -------- Effective Time shall be the officers of Acquisition Co., and the existing officers of ZSPN shall resign effective as of the Effective Time. 2.7 Acquisition Consideration. The aggregate consideration to be paid ------------------------- in the Merger for the Shares shall be an amount equal to Three Hundred Sixty-Six Million Three Hundred Twenty-Nine Thousand Eight Hundred Eighty-Three Dollars ($366,329,883.00) less the sum of -12- (i) the Option Roll-Over Amount, (ii) the Termination Payments (the "ZSPN Equity Consideration") and (iii) the TSG Loan. The ZSPN Equity Consideration shall be paid as follows: (i) seventy percent (70%) of the ZSPN Equity Consideration in cash (the "Cash Consideration Value"), plus (ii) thirty percent (30%) of the ZSPN Equity Consideration in newly issued Entravision Class A Common Stock (the "Stock Consideration Value"). Notwithstanding the foregoing, the Cash Consideration Value shall be reduced on a dollar-for-dollar basis for all amounts of ZSPN Indebtedness in excess of One Hundred Eight Million Six Hundred Seventy Thousand One Hundred Seventeen Dollars ($108,670,117.00) incurred by ZSPN after receipt of Entravision's written consent pursuant to Section 7.2 below and not repaid prior to the Closing. The number of newly issued shares of Class A Common Stock issued as the Stock Consideration Value shall be the Stock Consideration Value divided by the Entravision Share Consideration. 2.8 Conversion of Shares. At the Effective Time, by virtue of the Merger -------------------- and without any action on the part of any party: (a) Each share of Common Stock, $0.001 par value per share, of Acquisition Co. issued and outstanding immediately prior to the Closing Date shall remain outstanding and shall represent one share of Common Stock, $0.001 par value per share, of the Surviving Corporation, so that from and after the Closing Date, Entravision shall be the holder of all of the issued and outstanding shares of the Common Stock of the Surviving Corporation. (b) Each of the Shares issued and outstanding immediately prior to the Effective Time (other than the Dissenting Shares) will be cancelled and extinguished and be converted automatically into the right to receive (i) cash in an amount equal to the Cash Consideration Value divided by the number of ZSPN Outstanding Shares (the "Per Share Cash Merger Consideration") and (ii) an amount equal to (A) the Stock Consideration Value divided by the Entravision Share Consideration, divided by (B) the number of ZSPN Outstanding Shares (the "Exchange Ratio") of fully paid and non-assessable shares of Entravision Class A Common Stock, upon surrender of the certificate representing such Shares of ZSPN Common Stock in the manner provided for in Section 2.9 below, provided, however, that Entravision acknowledges and agrees that the Stockholders will receive the Cash Consideration Value and the Stock Consideration Value in different proportions as mutually agreed upon by all such Stockholders. All illustration of the above calculation is attached hereto as Annex I. ------- (c) The Exchange Ratio shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Entravision Class A Common Stock), recapitalization or other like change without the receipt of consideration with respect to Entravision Class A Common Stock occurring after the date hereof and prior to the Closing Date. (d) No certificate representing fractional shares of Entravision Class A Common Stock shall be issued upon the surrender for exchange of the Shares, and such fractional share interests will not entitle the owner thereof to vote or have any rights of a -13- stockholder of Entravision. Notwithstanding any of the provisions of this Agreement, each holder of shares of ZSPN Common Stock exchanged pursuant to the Merger who would have otherwise been entitled to receive a fraction of a share of Entravision Class A Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional share of Entravision Class A Common Stock multiplied by the Entravision Share Consideration. (e) As soon as practicable, ZSPN shall deliver to Entravision a certificate setting forth the allocation of the Cash Consideration Value and the Stock Consideration Value among the Stockholders. Prior to the Closing, Entravision shall deliver to ZSPN a certificate setting forth the Entravision Fully-Diluted Shares. (f) On or before the Closing, Entravision and ZSPN shall mutually prepare and agree upon a schedule calculating the exact amount of the ZSPN Equity Consideration, Cash Consideration Value, Stock Consideration Value, Entravision Share Consideration and the Option Roll-Over Amount. In the event that Entravision and ZSPN do not agree with each of the exact amounts specified above, Entravision and ZSPN shall submit such dispute and all working papers prepared in connection with their respective calculations to Arthur Andersen LLP, in Los Angeles, California, and the determination of such accounting firm will be set forth in writing by Arthur Andersen LLP, as soon as practicable and will be conclusive and binding upon the parties. (g) As of the Effective Time, all then outstanding options to purchase ZSPN Common Stock issued under the ZSPN 1999 Stock Incentive Plan, as amended, not exercised as of the Effective Time will be substituted for options under the Entravision Communications Corporation 2000 Omnibus Equity Incentive Plan in accordance with Section 9.3 below. 2.9 Exchange Procedures. ------------------- (a) Subject to the allocation of Cash Consideration Value and Stock Consideration Value among the Stockholders in accordance with the certificate referred to in the first sentence of Section 2.8(e), Each holder of a Certificate (as defined in Section 2.9(b) below) which immediately prior to the Effective Time represented Shares will be entitled to receive (subject to any adjustment required by Section 2.8(b)), upon surrender to the ZSPN Representatives (as defined in Section 2.9(b) below) of such Certificate for cancellation, and in accordance with the terms of this Agreement, (i) cash in an amount equal to the product of the number of Shares previously represented by such Certificate multiplied by the Per Share Cash Merger Consideration and (ii) Class A Common Stock of Entravision in an amount equal to the product of the number of Shares previously represented by such certificate multiplied by the Exchange Ratio. All payments to holders of Certificates shall be subject to any required withholding of taxes. No interest shall accrue or be paid on the cash payable upon the surrender of Certificates. Neither the ZSPN Representatives nor any party hereto shall be liable to a holder of Shares for any cash or interest thereon delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws. -14- (b) The ZSPN Representatives shall be Amador S. Bustos and Darryl B. Thompson (the "ZSPN Representatives"). At the Closing (or, if later, at the time of delivery of the applicable stock certificate(s)) Entravision will, as directed by the ZSPN Representatives, pay by wire transfer of immediately available funds (in the case of the Cash Consideration Value) or deliver (in the case of the Stock Consideration Value) for exchange in accordance with this Section 2.9, the Cash Consideration Value and the Stock Consideration Value in the form of shares of Entravision Class A Common Stock upon delivery to Entravision of the stock certificate(s) (a "Certificate(s)") pursuant to Section 3.4(a) below, which immediately prior to the Effective Time represented the number of Shares held by such Stockholder. Notwithstanding the foregoing, all parties acknowledge and agree that Entravision will withhold from the Cash Consideration Value otherwise payable pursuant to this Section 2.9(b), an amount equal to the principal and all accrued interest due pursuant to the loans from ZSPN or a ZSPN Subsidiary to each of John Vuko and Peter Davidson, with the amount so withheld to be applied to the payment in full of such loans pursuant to Section 3.4(f). 2.10 Termination Payments. At the Closing Entravision will, as directed -------------------- by the ZSPN Representatives, fund by wire transfer of immediately available funds all of the Termination Payments to be paid to ZSPN employees entitled thereto by the ZSPN Representatives on behalf of ZSPN and its Subsidiaries. 2.11 TSG Loan. At the Closing or thereafter Entravision will, as directed -------- by the ZSPN Representatives, fund by wire transfer or immediately available funds the amount of the TSG Loan to be repaid to TSG by the ZSPN Representatives on behalf of ZSPN. 2.12 Appraisal Rights. Subject to compliance with the terms of the ---------------- Stockholders Agreement, including, without limitation, Section 3.5 providing TSG the right to compel sale of the Shares in certain instances, and notwithstanding any provision of this Agreement to the contrary, any Shares that are held immediately prior to the Closing Date by a holder who has neither voted in favor of the Merger nor consented thereto in writing and who has demanded and perfected the right, if any, for appraisal of such Shares within twenty (20) days after the date of mailing of notice to such holder of the effective date of the Merger (the "Stockholder Notice") in accordance with the provisions of Section 262 of the Delaware Code and has not withdrawn or lost such right to such appraisal ("Dissenting Shares") shall not be converted into or represent a right to receive an allocable portion of the ZSPN Merger Consideration represented thereby, but the holder of such Shares shall only be entitled to such appraisal rights as are granted by the Delaware Code. If a holder of Shares who demands appraisal of such Shares under the Delaware Code shall thereafter effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal with respect to such Shares, then, as of the occurrence of such event, such Shares shall be deemed to have been converted into and represent only the right to receive such Shares' allocable portion of the ZSPN Merger Consideration, without interest, upon the surrender of the Certificate or Certificates representing such Shares and upon delivery of a duly executed Letter of Transmittal. In accordance with the provisions of Sections 228(d) and 262(d)(2) of the Delaware Code, not later than the third (3rd) business day following the Closing Date, the -15- Surviving Corporation shall mail the Stockholder Notice to all holders of Certificates which were not previously surrendered to the ZSPN Representatives. 2.13 Closing of Transfer Books. From and after the Effective Time, the ------------------------- stock transfer books of ZSPN shall be closed and no transfer of ZSPN Common Stock shall thereafter be made. 2.14 FCC Licenses, Permits and Authorizations. The parties hereto ---------------------------------------- acknowledge and agree that, in connection with the FCC Consent, Entravision shall assign all of its right, title and interest in and to all FCC licenses, permits and authorizations (and the call letters with respect thereto) held by ZSPN and the ZSPN Subsidiaries to Holdings, and that the FCC Consent will reflect Holdings as the assignee of the FCC licenses held by ZSPN and the ZSPN Subsidiaries. ARTICLE 3. CLOSING OBLIGATIONS 3.1 Closing. The closing of the Merger provided for in this Agreement ------- (the "Closing") will take place at the offices of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. in Los Angeles, California at 10:00 a.m. (Pacific Time) on the day on which each of the following has occurred (or is occurring concurrently): (i) the IPO has closed, (ii) the Roll-Up has closed, (iii) the FCC Consent becomes a Final Order and (iv) the applicable waiting period under the HSR Act has expired or been terminated, or such date as Entravision and ZSPN may mutually agree, or at such other time and place as Entravision and ZSPN may mutually agree, and Entravision, Acquisition Co. and ZSPN agree to cooperate and use their Best Efforts to close the Contemplated Transactions as soon as practicable after the FCC Consent becomes a Final Order; provided, however, that Entravision and ZSPN, by mutual agreement, may waive the condition to Closing that the FCC Consent be a Final Order and, in such case, the Closing shall occur at such time and place as the parties may mutually agree after grant of FCC Consent and upon the occurrence of all other required conditions to closing. Subject to the provisions of Article 11 below, failure to consummate the Merger on the date and time and at the place determined pursuant to this section will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 3.2 Interim Closing. If the Closing has not taken place by the Interim --------------- Closing Deadline (as defined below) due to any reason other than failure to satisfy the conditions set forth in Section 10.1 below, ZSPN may elect, in its discretion, to waive the IPO as a condition to Closing and to require Entravision to proceed, within fifteen (15) days of written notice delivered by hand to Entravision by ZSPN, with the Closing of the Contemplated Transactions and the closing of the Roll-Up (the "Interim Closing") on the terms set forth herein and the Exchange Agreement with the following modifications to the Contemplated Transactions: (i) Ninety Million Dollars ($90,000,000.00) of the Cash Consideration Value will be paid in cash with the remaining portion of the Cash Consideration Value payable by issuance of PIK Preferred Stock in Entravision, which will be issued by Entravision in accordance with the terms of the Certificate of Designation of Preferences and Rights (the "Certificate"), substantially in the form -16- attached hereto as Exhibit "F" and incorporated herein by this reference, and ----------- (ii) following the Interim Closing, Entravision, Acquisition Co. and ZSPN shall continue to use Best Efforts to complete the IPO at the earliest practicable time, at which time the PIK Preferred Stock of Entravision issued to the Stockholders will be fully redeemed in accordance with the Certificate. In the event of an Interim Closing, all references in this Agreement to the Closing (except as expressly provided herein) shall apply to the Closing. The Interim Closing Deadline shall mean September 30, 2000 or, if the lead underwriter in the IPO advises ZSPN in writing on one (1) or more occasions that the marketing of the IPO has commenced or is expected to commence in the near future and that consummation of the Roll-Up would interfere in a material fashion or jeopardize the consummation of the IPO, such later date or dates (but not later than December 15, 2000) as may be specified by the lead underwriter from time to time in order to avoid such interference. 3.3 Financial Undertaking. Upon thirty (30) days prior written notice --------------------- from ZSPN on or after July 1, 2000, Entravision shall provide a third party financial undertaking to ZSPN from a source reasonably acceptable to ZSPN in form and substance reasonably acceptable to ZSPN in good faith (other than fees and equity consideration payable or issuable, with respect to which ZSPN shall have no approval right), guaranteeing or otherwise committing to payment of the Ninety Million Dollars ($90,000,000.00) cash portion of the Per Share Cash Merger Consideration payable to the Stockholders in cash at the Interim Closing. If Entravision shall fail to secure such financial undertaking on or before the later of August 31, 2000 or thirty (30) days after receipt of the appropriate written notice from ZSPN described in this Section 3.3, the Corporation shall issue the warrant contemplated by the warrant agreement attached hereto as Exhibit "G", incorporated herein by this reference to the ZSPN Representatives - ----------- for the benefit of the Stockholders on the date on which the Closing or Interim Closing is required to occur hereunder. 3.4 Closing Obligations of ZSPN and the Major Stockholders. At the ------------------------------------------------------ Closing, ZSPN and the Major Stockholders will deliver or cause to be delivered to Entravision: (a) the original Certificates representing the Shares owned by the Stockholders, duly endorsed in blank (or accompanied by duly executed stock powers); (b) the Noncompetition Agreements, executed by Amador S. Bustos, John Bustos and Glenn Emanuel; (c) the Investor Rights Agreement, executed by each of the Stockholders; (d) the Release, executed by each of the Major Stockholders and ZSPN and the ZSPN Subsidiaries; (e) a resignation letter of each of the officers and directors of ZSPN and each of the ZSPN Subsidiaries dated effective as of the Closing Date; -17- (f) any and all required third-party Consents listed on Schedule 4.2 ------------ and marked thereon as "Material Consents;" (g) the Certificate of Merger, executed by ZSPN; (h) the closing certificate required by Section 10.1(c) below; (i) a certificate of the Secretary of ZSPN attesting to (i) the incumbency of the officers executing the Agreement and the other agreements and certificates delivered by ZSPN at the Closing and (ii) the authenticity of the Organizational Documents of ZSPN; (j) minutes of the Stockholders and written resolutions or minutes of the Board of Directors of ZSPN authorizing the execution, delivery and performance of this Agreement, certified by the Secretary of ZSPN; (k) a certificate of good standing for ZSPN issued by the Delaware Secretary of State not more than ten (10) days prior to the Closing Date; (l) the written legal opinions of Proskauer Rose LLP, corporate counsel for ZSPN and the Stockholders, and Shaw Pittman, FCC counsel for ZSPN and the Stockholders, substantially in the forms attached hereto as Exhibits "H- ----------- 1" and "H-2" and incorporated herein by this reference; - ------------ (m) the original Promissory Notes executed by John Vuko and Peter Davidson in favor of ZSPN or a ZSPN Subsidiary marked cancelled and a certificate or agreement executed by John Vuko and Peter Davidson acknowledging and agreeing that all principal and interest accrued under such notes may be deducted from the ZSPN Merger Consideration allocable to each of John Vuko and Peter Davidson; (n) documentation executed by Glenn Emanuel and in form and substance acceptable to Entravision and its counsel evidencing the continuation of the stock purchase indebtedness of Glenn Emanuel in favor of the Surviving Corporation and substituting Class A Common Stock of the Corporation to be received by Glenn Emanuel and Arthur Rockwell in the Merger for the Shares pledged to ZSPN prior to the Merger; and (o) such other documents as may be reasonably requested by counsel for Entravision as necessary to consummate the Contemplated Transactions. 3.5 Closing Obligations of Entravision and Acquisition Co. At the ------------------------------------------------------ Closing, Entravision and Acquisition Co. will deliver or cause to be delivered to ZSPN and the Stockholders: (a) the ZSPN Equity Consideration; -18- (b) the Noncompetition Agreements, executed by Entravision; (c) the Investor Rights Agreement, executed by Entravision; (d) the closing certificate required by Section 8.3(c) below; (e) a certificate of the Secretary of each of Entravision and Acquisition Co. attesting to (i) the incumbency of the officers executing the Agreement and the other agreements and certificates delivered by Entravision and Acquisition Co. at the Closing and (ii) the authenticity of the Organizational Documents of each of Entravision and Acquisition Co.; (f) written resolutions or minutes of the Board of Directors of Entravision and written resolutions or minutes of the sole stockholder and Board of Directors of Acquisition Co. authorizing the execution, delivery and performance of this Agreement and evidencing the election of Amador S. Bustos as the Corporation's President of the Radio Division and Glenn Emanuel as the Corporation's President of the Outdoor Division, each certified by the Secretary of Entravision and Acquisition Co., as the case may be; (g) a certificate of good standing for each of Entravision and Acquisition Co. issued by the Delaware Secretary of State not more than ten (10) days prior to the Closing Date; (h) the written legal opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., counsel for Entravision and Acquisition Co., and Thompson, Hine & Flory, FCC counsel for Entravision, substantially in the form attached hereto as Exhibits "I-1" and "I-2" and incorporated herein by this ------------------------ reference; (i) any Consents required for the Closing, including, consents of the Entravision Board of Directors, stockholders and lenders; (j) documentation executed by the Corporation in form and substance acceptable to Glenn Emanuel and counsel for ZSPN evidencing the continuation of the stock purchase indebtedness of Glenn Emanuel in favor of the Surviving Corporation and substituting Class A Common of the Corporation to be received by Glenn Emanuel in the Merger for Shares pledged to ZSPN prior to the Merger; and (k) such other documents as may be reasonably requested by counsel for ZSPN as necessary to consummate the Contemplated Transactions, including any necessary lien releases by ZSPN's banks. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF ZSPN ZSPN hereby represents and warrants to Entravision and Acquisition Co. as follows: -19- 4.1 Organization and Good Standing. ZSPN is a corporation duly organized, ------------------------------ validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority to own, lease and operate its assets and properties and to carry on its businesses existing as of the date hereof. Each ZSPN Subsidiary set forth on Schedule 4.1 is a corporation (or limited ------------ liability company) duly organized, validly existing and in good standing under the laws of the state of its incorporation (or formation) as set forth on Schedule 4.1, and has full corporate power and authority to own, lease and - ------------ operate its assets and properties and to carry on its businesses existing as of the date hereof. 4.2 Authority; No Conflict; Consents. -------------------------------- (a) This Agreement constitutes the legal, valid and binding obligation of ZSPN and the Stockholders, enforceable against ZSPN and the Stockholders in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and is subject to general principles of equity. ZSPN and the Stockholders have the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform their respective obligations thereunder. (b) Neither the execution and delivery of this Agreement by ZSPN or the Stockholders nor the consummation or performance of any of the Contemplated Transactions by ZSPN or the Stockholders will violate, Breach or conflict with: (i) any provision of the Organizational Documents of ZSPN or the ZSPN Subsidiaries; (ii) any resolution adopted by the stockholders or the Board of Directors of ZSPN or the ZSPN Subsidiaries; (iii) any Legal Requirement or Order to which ZSPN or the ZSPN Subsidiaries may be subject; or (iv) any Contract to which ZSPN or the ZSPN Subsidiaries is a party or by which ZSPN or the ZSPN Subsidiaries may be bound. (c) Except for the filing of the FCC Consent, the filing of the Certificate of Merger with the Delaware Secretary of State, the filing required by the HSR Act and obtaining any necessary third party consents set forth on Schedule 4.2, neither ZSPN, the ZSPN Subsidiaries nor the Stockholders will be - ------------ required to give any notice to or obtain any third-party Consents from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions, including, without limitation, the sale of the Shares to Acquisition Co., the transfer of the ownership and operation of the Radio Stations, the Outdoor Business and the Internet Sites to Entravision via the Merger, and assignment of all Applicable ZSPN Contracts to the Surviving Corporation. Schedule 4.2 identifies any ------------ Consent which is material to the operation of the Radio Stations, the Outdoor Business or the Internet Sites as a "Material Consent." 4.3 Broker's or Finder's Fees. Neither ZSPN, the ZSPN Subsidiaries, the ------------------------- Stockholders nor their agents have incurred any Liabilities for broker's or finder's fees or agents commissions or other similar payment in connection with this Agreement. -20- 4.4 Qualifications To Do Business. ZSPN and the ZSPN Subsidiaries are ----------------------------- qualified to do business and are in good standing in each jurisdiction (listed on Schedule 4.4 to this Agreement) where the character or location of property ------------ owned and leased, the employment of personnel or the nature of the business and activities conducted by ZSPN and the ZSPN Subsidiaries require such qualification, licensing or domestication, except in such jurisdictions where the failure to be so qualified, licensed or domesticated and to be in good standing, individually or in the aggregate, would not have a ZSPN Material Adverse Effect. Except as set forth on Schedule 4.4, ZSPN and the ZSPN ------------ Subsidiaries do not file franchise, income or other tax returns in any jurisdiction based upon the ownership or use of property therein or the derivation of income therefrom. 4.5 Capitalization. -------------- (a) The authorized capital stock of ZSPN consists of 62,010,000 shares of capital stock consisting of (i) 31,000,000 of Class A Common Stock, par value $0.01 per share, 1,068 of which are duly authorized, issued and outstanding, (ii) 20,000,000 shares of Class B Common Stock, par value $0.01 per share, 19,488,436 of which are duly authorized, issued and outstanding, (iii) 5,000,000 shares of Class C Common Stock, par value of $0.01 per share, 4,545,454 of which are duly authorized, issued and outstanding, (iv) 6,000,000 shares of Class D Common Stock, par value $0.01 per share, 5,600,496 of which are duly authorized, issued and outstanding and (v) 10,000 shares of Preferred Stock, par value $0.01 per share, none of which are issued and outstanding. The Stockholders are and will be on the Closing Date the record and beneficial owners and holders of all of the Shares, which will be at Closing free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any Certificate representing the Shares. All of the Shares have been duly authorized and validly issued and are fully paid and nonassessable. None of the Shares were issued in violation of the Securities Act or any other Legal Requirement. (b) Except as set forth in deliveries by ZSPN to Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. prior to the Execution Date, (i) there are no other options, warrants, stock appreciation rights, subscriptions, convertible debentures or other rights, commitments or any other similar agreements for the purchase of any securities of ZSPN, (ii) there are no Contracts relating to the issuance, sale, registration or transfer of any equity securities or other securities of ZSPN and (iii) there are no voting trust agreements or other Contracts, agreements or arrangements restricting voting rights or transferability with respect to ZSPN. Schedule 4.5 sets forth the ------------ exercise price of each stock option for which stock options of the Corporation will be substituted pursuant to Section 9.3 below. 4.6 ZSPN Subsidiaries. ----------------- (a) Schedule 4.6 sets forth a list of all the ZSPN Subsidiaries. ------------ Except as set forth on Schedule 4.6, ZSPN owns, either directly or indirectly ------------ through one or more of the ZSPN Subsidiaries, all of the capital stock or membership interests of each of the ZSPN Subsidiaries free and clear of any Encumbrances. -21- (b) The authorized capital stock and number of outstanding shares or membership interests of each of the ZSPN Subsidiaries is set forth on Schedule -------- 4.6 (the "Subsidiary Shares"). ZSPN is and will be on the Closing Date the - --- record and beneficial owner and holder of all of the Subsidiary Shares, which will be at Closing free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any stock certificate representing the Subsidiary Shares. All of the Subsidiary Shares have been duly authorized and validly issued and are fully paid and nonassessable. None of the Subsidiary Shares were issued in violation of the Securities Act or any other Legal Requirement. (c) Except as set forth on Schedule 4.6, (i) there are no options, ------------ warrants, stock appreciation rights, subscriptions, convertible debentures, registration rights agreements, or other rights, commitments or any other similar agreements for the purchase of any securities of any of the ZSPN Subsidiaries, (ii) there are no Contracts relating to the issuance, sale or transfer of any equity securities or other securities of any of the ZSPN Subsidiaries and (iii) there are no voting trust agreements or other Contracts, agreements or arrangements restricting voting rights or transferability with respect to any of the ZSPN Subsidiaries. 4.7 ZSPN Financial Statements. ZSPN has delivered to Entravision true, ------------------------- complete and correct copies of the ZSPN Financial Statements. ZSPN has delivered to Entravision and Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. true and correct copies of the ZSPN Financial Statements fairly present in all material respects the consolidated financial condition of ZSPN and the ZSPN Subsidiaries and the assets and liabilities of ZSPN and the ZSPN Subsidiaries as of the respective dates thereof and the results of operations, changes in stockholders' equity and cash flows for the periods therein specified, and have been prepared from the books and records of ZSPN and the ZSPN Subsidiaries in accordance with GAAP. The ZSPN Financial Statements reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements, and except that the unaudited ZSPN Financial Statements were prepared on an interim basis, are subject to normal year-end adjustments and do not contain all of the footnote disclosures required by GAAP. 4.8 Books and Records. The books of account, minute books, stock record ----------------- books and other records of ZSPN and the ZSPN Subsidiaries, true, complete and correct copies of which have been made available to Entravision, are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of ZSPN and the ZSPN Subsidiaries contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders and Board of Directors of ZSPN and the ZSPN Subsidiaries, and no such meetings have been held for which minutes have not been prepared and are not contained in such minute books. Within five (5) business days of the Closing, all of those original books and records will be delivered to Entravision. -22- 4.9 Ownership, Condition and Sufficiency of Assets. Except as set forth ---------------------------------------------- on Schedule 4.9, ZSPN or the ZSPN Subsidiaries, as the case may be, own all of ------------ their material assets free and clear of all Encumbrances. The material assets of ZSPN and the ZSPN Subsidiaries are structurally sound, are in reasonably good operating condition and repair and are reasonably adequate for the uses to which they are being put, and none of such assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The assets of ZSPN and the ZSPN Subsidiaries are sufficient for the continued conduct of businesses of the Radio Stations, the Outdoor Business and the Internet Sites after the Closing in substantially the same manner as conducted prior to the Closing. 4.10 No Undisclosed Liabilities. Except as set forth on Schedule 4.10, -------------------------- ------------- ZSPN and the ZSPN Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due to become due, which individually or in the aggregate could reasonably be expected to have a ZSPN Material Adverse Effect, other than (i) liabilities reflected in the ZSPN Financial Statements, (ii) liabilities specifically described in this Agreement or in the ZSPN Schedules or (iii) normal or recurring liabilities incurred since the date of the ZSPN Financial Statements in the Ordinary Course of Business. 4.11 Taxes. Except as set forth on Schedule 4.11: ----- ------------- (a) Each of ZSPN and the ZSPN Subsidiaries have accurately prepared and timely filed (or will so file) all material Tax Returns required to be filed at or before the Effective Time relating to any and all Taxes concerning or attributable to ZSPN or any of the ZSPN Subsidiaries or to their operations, and such Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law. ZSPN has delivered to Entravision true, complete and correct copies of all such Tax Returns filed by ZSPN and the ZSPN Subsidiaries in the past three (3) years. (b) There is no Tax sharing agreement that will require any payment by ZSPN or any of the ZSPN subsidiaries after the date of this Agreement. (c) Each of ZSPN and the ZSPN Subsidiaries as of the Effective Time: (i) will have paid all Taxes it is required to pay prior to the Effective Time and (ii) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld, except in each case for Taxes contested in good faith by appropriate proceedings for which adequate reserves have been taken and except where the failure (if any) to pay or withhold such Taxes could not reasonably be expected to have a ZSPN Material Adverse Effect. (d) There is no Tax deficiency outstanding, proposed or assessed against ZSPN or any of the ZSPN Subsidiaries that is not reflected as a liability on the ZSPN Closing Balance Sheet nor has ZSPN or any of the ZSPN Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. -23- (e) Neither ZSPN nor any of the ZSPN Subsidiaries has any material liability for unpaid federal, state, local or foreign Taxes that has not been accrued for or reserved on the ZSPN Financial Statements, whether asserted or unasserted, contingent or otherwise. 4.12 Employee Benefit Plans. ---------------------- (a) ZSPN has made available to Entravision all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar employee benefit plans, and all unexpired severance agreements, written or otherwise, for the benefit of, or relating to, any current or former employee of ZSPN or any of the ZSPN Subsidiaries or any trade or business (whether or not incorporated) which is a member or which is under common control with ZSPN within the meaning of Section 414 of the IRC (together, the "ZSPN Employee Plans"). ZSPN does not maintain and has never maintained or contributed to any employee benefit plan subject to Title IV of ERISA (including a multiemployer plan as defined in Section 3(37) of ERISA). (b) With respect to each ZSPN Employee Plan, ZSPN has made available to Entravision, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the IRS with respect to a ZSPN Employee Plan subject to such filing requirement, (ii) such ZSPN Employee Plan, (iii) each trust agreement and group annuity contract, if any, relating to such ZSPN Employee Plan, and (iv) the most recent determination letter issued with respect to any plan which is intended to be qualified under Section 401(a) of the IRC. (c) With respect to the ZSPN Employee Plans, individually and in the aggregate, no event has occurred, and to the Knowledge of ZSPN there exists no condition or set of circumstances, in connection with which ZSPN or any of the ZSPN Subsidiaries could be subject to any material liability under ERISA, the IRC or any other applicable Legal Requirement. (d) With respect to the ZSPN Employee Plans, individually and in the aggregate, there are no material funded benefit obligations for which contributions have not been made or properly accrued and there are no material unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP, on the ZSPN Financial Statements. (e) Except as set forth in Schedule 4.12 or in deliveries made by ------------- ZSPN to Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. prior to the Execution Date, and except as provided for in this Agreement, (A) neither ZSPN nor any of the ZSPN Subsidiaries is a party to any oral or written (i) union or collective bargaining agreement, (ii) agreement with any officer or other key employee of ZSPN or any of the ZSPN Subsidiaries, the benefits of which -24- are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving ZSPN of the nature contemplated by this Agreement, (iii) agreement with any officer of ZSPN or any of the ZSPN Subsidiaries providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of One Hundred Thousand Dollars ($100,000.00) per annum or (iv) agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; and (B) as of the Effective Time, there will not be any contract, agreement, plan or arrangement covering any employee or former employee of ZSPN or any of the ZSPN Subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the Section 280G of the IRC or the limitations in Section 162(b) through (l) of the IRC. 4.13 Compliance with Legal Requirements. (i) ZSPN and the ZSPN ---------------------------------- Subsidiaries are in compliance in all material respects with each Legal Requirement that is or was applicable to them; (ii) to the Knowledge of ZSPN, no event has occurred or circumstance exists that (with or without notice or lapse of time) constitutes or results in a material violation by ZSPN of, or a material failure on the part of ZSPN or the ZSPN Subsidiaries to comply with, any Legal Requirement or gives rise to any obligation on the part of ZSPN or the ZSPN Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature; and (iii) neither ZSPN nor any of the ZSPN Subsidiaries has received any written notice or other written communication from any Governmental Body or any other Person regarding any actual or alleged material violation of, or material failure to comply with, any Legal Requirement, any actual, alleged, possible or potential material obligation on the part of ZSPN or any of the ZSPN Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature. 4.14 Governmental Authorizations. Schedule 4.14 contains a complete and --------------------------- ------------- accurate list of each Governmental Authorization that is held by ZSPN or the ZSPN Subsidiaries. Each Governmental Authorization listed or required to be listed on Schedule 4.14 is valid and in full force and effect in all material ------------- respects. Except as set forth on Schedule 4.14 ZSPN and each of the ZSPN ------------- Subsidiaries is and at all times since May 28, 1998 has been in compliance in all material respects with all of the terms and requirements of each Governmental Authorization identified or required to be identified on Schedule -------- 4.14, and, to the Knowledge of ZSPN or the Stockholders, no event has occurred - ---- or circumstance exists that is reasonably likely to (with or without notice or lapse of time) constitute or result in a material violation of or a material failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed on Schedule 4.14 or result in the revocation, ------------- withdrawal, suspension, cancellation, termination of or any adverse modification to, any Governmental Authorization listed or required to be listed on Schedule -------- 4.14. The Governmental Authorizations listed on Schedule 4.14 collectively - ---- ------------- constitute all of the Governmental Authorizations necessary to permit ZSPN and the -25- ZSPN Subsidiaries to lawfully conduct and operate the Radio Stations, the Outdoor Business and the Internet Sites in the manner currently conducted. 4.15 Legal Proceedings. Except as set forth on Schedule 4.15, there is no ----------------- ------------- action, suit or proceeding, claim, arbitration or, to the Knowledge of ZSPN, investigation against ZSPN or any of the ZSPN Subsidiaries pending or, to the Knowledge of ZSPN, threatened, or as to which ZSPN or any of the ZSPN Subsidiaries has received any written notice of assertion, which, if decided adversely to ZSPN or such Subsidiary, could reasonably be expected to have a ZSPN Material Adverse Effect or a material adverse effect on the ability of ZSPN to consummate the transactions contemplated by this Agreement. 4.16 Orders. There is no Order to which ZSPN or the ZSPN Subsidiaries are ------ subject. Except as set forth on Schedule 4.16: (i) ZSPN and the ZSPN ------------- Subsidiaries are in material compliance with all of the terms and requirements of each Order to which any of them has been subject; (ii) to the Knowledge of ZSPN, no event has occurred or circumstance exists that would be reasonably likely to constitute or result in (with or without notice or lapse of time) a material violation of or material failure to comply with any term or requirement of any Order to which ZSPN or the ZSPN Subsidiaries are subject; and (iii) neither ZSPN nor any of the ZSPN Subsidiaries has received, at any time any written notice or written communication from any Governmental Body or any other Person regarding any actual or alleged material violation of, or material failure to comply with, any term or requirement of any Order to which any of them is or has been subject which has not been cured, waived or otherwise resolved in all material respects. 4.17 Absence of Certain Changes and Events. Except as contemplated by ------------------------------------- this Agreement and as set forth on Schedule 4.17 or delivered to Zevnik Horton ------------- Guibord McGovern Palmer & Fognani, L.L.P. prior to the Execution Date (which schedule may set forth in addition to past matters, matters which occur between the date hereof and Closing), since December 31, 1999, ZSPN and the ZSPN Subsidiaries have conducted the businesses of the Radio Stations, the Outdoor Business and the Internet Sites only in the Ordinary Course of Business and there has not been any: (a) material transaction by ZSPN except in the Ordinary Course of Business and consistent with past practices; (b) amendments or changes to the Certificate of Incorporation or Bylaws of ZSPN; (c) capital expenditure or commitment by ZSPN or any of the ZSPN Subsidiaries, either individually or in the aggregate, exceeding One Hundred Thousand Dollars ($100,000.00); (d) destruction of, material damage to or loss of any material assets or business of ZSPN or any of the ZSPN Subsidiaries (whether or not covered by insurance); -26- (e) institution of a suit or other administrative proceeding claiming wrongful discharge or other unlawful labor practice or Breach of collective bargaining agreement by ZSPN or any ZSPN subsidiary; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by ZSPN or any of the ZSPN Subsidiaries; (g) revaluation by ZSPN or any of the ZSPN Subsidiaries of any of their respective assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of ZSPN, or any direct or indirect redemption, purchase or other acquisition by ZSPN of any of its capital stock other than pursuant to any stock or agreement with an employee; (i) increase in the salary or other compensation payable or to become payable to any of the officers, directors, employees or consultants of ZSPN or any of the ZSPN Subsidiaries whose annual compensation in any individual case exceeds One Hundred Thousand Dollars ($100,000) per annum, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as, in any such case, (i) otherwise contemplated by this Agreement or (ii) consistent with the prior practice of ZSPN or such ZSPN subsidiary; (j) sale, lease, license or other material disposition of any of the assets or properties of ZSPN or the ZSPN Subsidiaries, except in the Ordinary Course of Business as conducted on that date and consistent with past practices; (k) amendment or termination of any Contract or material Real Property Lease or Outdoor Lease to which ZSPN or any of the ZSPN Subsidiaries is a party or by which they are bound; (l) loan by ZSPN to any person or entity, incurring by ZSPN of any indebtedness, guaranteeing by ZSPN of any indebtedness, issuance or sale of any debt securities of ZSPN or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the Ordinary Course of Business and except pursuant to currently outstanding credit facilities and refinancings and extensions thereof; (m) waiver or release of any material right or claim of ZSPN or the ZSPN Subsidiaries, including any compromise of any account receivable of ZSPN or any of the ZSPN Subsidiaries, except in the Ordinary Course of Business and consistent with past practices; (n) commencement or notice of commencement of any lawsuit or proceeding against or investigation of ZSPN or the ZSPN Subsidiaries involving an amount in controversy of over Fifty Thousand Dollars ($50,000); -27- (o) notice of any claim of ownership by a third party of the ZSPN Intellectual Property Assets (as defined in Section 4.24 below) or of infringement by ZSPN of any third party's Intellectual Property Assets; (p) issuance or sale by ZSPN or any of the ZSPN Subsidiaries of any of their respective shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities other than pursuant to currently outstanding ZSPN Options; or (q) agreement by ZSPN or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (p). 4.18 Applicable Contracts; No Defaults. --------------------------------- (a) Schedule 4.18 contains a complete and accurate list, and ZSPN ------------- has delivered to Entravision, true, complete and correct copies of each Applicable ZSPN Contract. Each Applicable ZSPN Contract identified or required to be identified on Schedule 4.18 is in full force and effect and is valid and ------------- enforceable in accordance with its terms. (b) Except as set forth on Schedule 4.18 or delivered to Zevnik ------------- Horton Guibord McGovern Palmer & Fognani, L.L.P. prior to the Execution Date: (i) ZSPN or the ZSPN Subsidiaries, as the case may be, are, and at all times since May 28, 1998 have been, in material compliance with the applicable terms and requirements of each Applicable ZSPN Contract; (ii) to the Knowledge of ZSPN or the Stockholders, no event has occurred or circumstance exists that (with or without notice or lapse of time) would be reasonably likely to contravene, conflict with or result in a violation or Breach of, or give ZSPN or the ZSPN Subsidiaries, as the case may be, or other Person the right to declare a default or exercise any materially adverse remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Applicable ZSPN Contract; and (iii) ZSPN and the ZSPN Subsidiaries, as the case may be, have not given to or received from any other Person any written notice or other written communication regarding any actual, alleged, possible or potential violation or Breach of, or default under, any Applicable ZSPN Contract, which has not been cured, waived or otherwise resolved in all material respects. 4.19 Insurance. --------- (a) ZSPN has delivered to Entravision true, complete and correct copies of all policies of insurance relating to ZSPN and the ZSPN Subsidiaries to which ZSPN or the ZSPN Subsidiaries are a party or under which they are or have been covered at any time since May 28, 1998. (b) Except as set forth on Schedule 4.19, all such policies of ------------- insurance: (i) are -28- valid, outstanding and enforceable; (ii) are issued by an insurer that is financially sound and reputable; (iii) taken together, provide adequate insurance coverage for the operations of the Radio Stations, the Outdoor Business and the Internet Sites for all risks normally insured against by a Person carrying on the same businesses as the Radio Stations, the Outdoor Business and the Internet Sites; (iv) are sufficient for compliance with all Legal Requirements and Contracts to which ZSPN and the ZSPN Subsidiaries are a party or by which they are bound; (v) if the Closing occurs during the policy term, will continue in full force and effect following the consummation of the Contemplated Transactions; (vi) do not provide for any retrospective premium adjustment or other experienced-based liability on the part of ZSPN or the ZSPN Subsidiaries; (vii) ZSPN and the ZSPN Subsidiaries have not received any refusal of coverage or any notice that a defense will be afforded with reservation of rights or any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder; and (viii) ZSPN and the ZSPN Subsidiaries have paid all premiums due, and has otherwise performed all of their respective obligations, under each such policy. Schedule 4.19 sets forth, by year, for the current policy year and ------------- each of the two (2) preceding policy years, a summary of the loss experience under each such insurance policy. 4.20 Real Property Matters. --------------------- (a) Schedule 4.20 contains a complete and accurate list of all Real ------------- Property and Real Property Leases owned by ZSPN and the ZSPN Subsidiaries. ZSPN has delivered or made available to Entravision true, complete and copies of the deeds and other instruments (as recorded) by which either ZSPN or the ZSPN Subsidiaries, as the case may be, acquired such real property interests, and true, complete and copies of all title insurance policies, opinions, abstracts and surveys in the possession of ZSPN relating to such properties or interests. ZSPN or the ZSPN Subsidiaries, as the case may be, own and have good and marketable title to all of the Real Property. All buildings, plants and structures owned by ZSPN or the ZSPN Subsidiaries, as the case may be, lie wholly within the boundaries of the Real Property owned by ZSPN or the ZSPN Subsidiaries, as the case may be, and do not encroach in any material respect upon the property of, or otherwise conflict with the property rights of, any other Person. The Real Property includes all land (other than leased land) used for the conduct of the business and operations of ZSPN and the ZSPN Subsidiaries. (b) ZSPN has delivered to Entravision true, complete and correct copies of the Real Property Leases and true, complete and correct copies of all reports of any engineers, environmental consultants or other consultants in its possession relating to any of the Real Property. Each of the Real Property Leases is valid and enforceable in accordance with its terms, ZSPN and the ZSPN Subsidiaries have not received any notice of any, and there exists no event of default or event which constitutes or would constitute (with notice or lapse of time or both) a default in any material respect under any Real Property Lease and all lessors under the Real Property Leases have consented (where such consent is necessary) to the consummation of the Contemplated Transactions without requiring modification in the rights or obligations thereunder -29- (except where the failure to obtain such consent would not constitute a ZSPN Material Adverse Effect). The Outdoor Leases of ZSPN and the ZSPN subsidiaries are sufficient to permit the continued operation of the Outdoor Business by such Persons substantially as the Outdoor Business is currently conducted. To the Knowledge of ZSPN or the Stockholders, none of the Real Property is subject to any material Encumbrance, easement, right-of-way, building or use restriction, exception, variance, reservation or limitation as would reasonable be expected to in any material respect interfere with or impair the present and continued use thereof in the usual and normal conduct of the business and operations of ZSPN and the ZSPN Subsidiaries. All mortgages, notes or other security interests with respect to such Real Property are shown on the balance sheets set forth in the Financial Statements, and no default, or event that, with notice or lapse of time or both, would constitute an event of default, exists. 4.21 Compliance with Environmental Laws. Except as set forth on Schedule ---------------------------------- -------- 4.21: (i) all of the operations ZSPN and the ZSPN Subsidiaries are and have been - ---- in material compliance with all Environmental Laws as currently in effect, (ii) neither ZSPN, the ZSPN Subsidiaries nor any of their predecessors used, released or disposed of any Hazardous Substance in any manner that could reasonably be expected to result in material liability, (iii) none of the material property owned, leased or operated by ZSPN or the ZSPN Subsidiaries is contaminated by any Hazardous Substance, (iv) none of the material property owned, leased or operated by ZSPN or the ZSPN Subsidiaries is affected by any condition that could reasonably be expected to result in material liability under any Environmental Law as currently in effect and (v) there is and has been no condition, activity or event respecting ZSPN or the ZSPN Subsidiaries that could reasonably be expected to subject Entravision or the Surviving Corporation to any material liability under any Environmental Law as currently in effect. 4.22 Employees. To the Knowledge of ZSPN, ZSPN and the ZSPN Subsidiaries --------- are in compliance in all material respects with applicable Legal Requirements respecting employment, employment practices, terms and conditions of employment and wages and hours, nondiscrimination, immigration, collective bargaining, benefits, occupational safety and health and planned closings, in each case, with respect to its employees. Neither ZSPN nor any of the ZSPN Subsidiaries is liable for payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for its employees (other than routine payments to be made in the Ordinary Course of Business). To the Knowledge of ZSPN, no employee of ZSPN or any of the ZSPN Subsidiaries is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement or any restrictive covenant to a former employer relating to the right of such employee to be employed by ZSPN or the ZSPN Subsidiaries, because of the nature of the business conducted or presently proposed to be conducted by ZSPN or the ZSPN Subsidiaries or the use of any trade secrets or proprietary information of others. None of the officers or executive employees of ZSPN or any of the ZSPN Subsidiaries named on Schedule -------- 4.22 has given notice to ZSPN or the ZSPN Subsidiaries that such employee - ---- intends to terminate his or her employment with ZSPN or the ZSPN Subsidiaries. -30- 4.23 Labor Relations; Compliance. Except as set forth on Schedule 4.23, --------------------------- ------------- since May 28, 1998, neither ZSPN nor any of the ZSPN Subsidiaries has been party to any collective bargaining or other labor Contract. With respect to ZSPN and the ZSPN Subsidiaries, since May 28, 1998, except as set forth on Schedule 4.23, ------------- there has not been, there is not presently pending or existing, and to the Knowledge of ZSPN or the Stockholders, there is not Threatened, (i) any strike, slowdown, picketing, work stoppage or employee grievance process involving any union or group of employees, (ii) any Proceeding relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission or any comparable Governmental Body, organizational activity or other labor or employment dispute against or affecting the Radio Stations, the Outdoor Business or the Internet Sites or (iii) any application for certification of a collective bargaining agent. 4.24 Intellectual Property. --------------------- (a) The term "ZSPN Intellectual Property Assets" includes the following proprietary items of ZSPN and the ZSPN Subsidiaries: (i) the name and FCC call letters of each broadcast property, all fictional business names, trading names, domain names or URLs, registered and unregistered trademarks, service marks and applications; (ii) all patents, patent applications and inventions and discoveries that may be patentable; (iii) all copyrights in both published works and unpublished works; (iv) all rights in mask works; and (v) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings and blue prints owned, used or licensed by ZSPN or the ZSPN Subsidiaries as licensee or licensor, all as listed on Schedule 4.24 other than Intellectual Property ------------- defined in subsection (v). (b) Schedule 4.24 contains a complete and accurate list and summary ------------- description, including any royalties paid or received by ZSPN or the ZSPN Subsidiaries under all Contracts relating to the ZSPN Intellectual Property Assets to which ZSPN or the ZSPN Subsidiaries are a party or by which ZSPN or the ZSPN Subsidiaries are bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs under which ZSPN or an ZSPN Subsidiary is the licensee. There are no outstanding and, to the Knowledge of ZSPN, no Threatened disputes or disagreements with respect to any such agreement. The ZSPN Intellectual Property Assets are all those necessary for the operation of the businesses of the Radio Stations, the Outdoor Business and the Internet Sites, as they are currently conducted. ZSPN and the ZSPN Subsidiaries are the owners of all right, title and interest in and to each of the ZSPN Intellectual Property Assets, free and clear of all Encumbrances, and have the right to use without payment to a third-party all of the ZSPN Intellectual Property Assets. 4.25 Relationships With Related Persons. Except as set forth in Schedule ---------------------------------- -------- 4.25, no Related Person of ZSPN, the ZSPN Subsidiaries or the Stockholders has - ---- had any interest in any -31- property (whether real, personal or mixed and whether tangible or intangible), used in or pertaining to the businesses of the Radio Stations, the Outdoor Business or the Internet Sites. No Related Person of ZSPN, the ZSPN Subsidiaries or the Stockholders has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Radio Stations, the Outdoor Business or the Internet Sites other than business dealings or transactions conducted in the Ordinary Course of Business with the Radio Stations, the Outdoor Business or the Internet Sites at substantially prevailing market prices and on substantially prevailing market terms or (ii) engaged in competition with the businesses of the Radio Stations, the Outdoor Business or the Internet Sites (a "ZSPN Competing Business") in any market presently served by the Radio Stations, the Outdoor Business and the Internet Sites except for less than five percent (5%) of the outstanding capital stock of any ZSPN Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Except as set forth on Schedule 4.25, no ------------- Related Person of ZSPN, the ZSPN Subsidiaries or the Stockholders is a party to any Contract with, or has any claim or right against, the Radio Stations, the Outdoor Business or the Internet Sites. All information regarding all outstanding loans from the Company to any Related Person and all accrued but unpaid compensation, bonuses or similar amounts owed by the Company to any Related Person has been delivered to Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. prior to the Execution Date. 4.26 Bank and Brokerage Accounts. ZSPN has provided Entravision a list of --------------------------- (i) the names and addresses of all banks and brokerage firms in which ZSPN and the ZSPN Subsidiaries have accounts or safe deposit boxes, lock boxes, vaults and the account numbers relating thereto, (ii) the name of each Person authorized to draw on any such account or have access to any such boxes or vaults and (iii) the names of all Persons, if any, holding Tax or other powers of attorney from ZSPN or the ZSPN Subsidiaries and a summary of the terms thereof. 4.27 FCC Qualification. ZSPN and the ZSPN Subsidiaries are (i) qualified ----------------- under the rules and regulations of the FCC to enter into this Agreement and consummate the transactions contemplated herein and (ii) no waivers or exemptions by ZSPN or the ZSPN Subsidiaries of such FCC rules or regulations are required for the FCC to grant the FCC Consent. 4.28 Other Consents. Prior to execution and delivery of this Agreement, -------------- ZSPN has delivered consents of its Board of Directors, lenders and stockholders to Entravision necessary to approve the Contemplated Transactions. 4.29 Disclosure. None of the representations or warranties made by ZSPN ---------- (as modified by the Schedules), nor any statement made in any schedule or certificate furnished by ZSPN pursuant to this Agreement, or furnished in connection with the documents mailed or delivered to the Stockholders in connection with soliciting their consent to this Agreement and the Merger (to the extent such documents were prepared by or include information provided by ZSPN), contains or will contain at the Effective Time, any material untrue statement or omits, or will omit at the Effective Time to state any material fact necessary in order to make the statements contained therein not materially misleading. -32- ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF ENTRAVISION AND ACQUISITION CO. Except as set forth in the Registration Statement, Entravision and Acquisition Co., jointly and severally, hereby represent and warrant to ZSPN and the Stockholders as follows (it being expressly understood that in no event will the representations of Entravision and Acquisition Co. extend to or include the business assets, properties, liabilities, operations or prospects of Latin Communications Group Inc. existing as of the Execution Date or as of the Closing): 5.1 Organization and Good Standing. Each of Entravision and Holdings is a ------------------------------ limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Acquisition Co. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 5.2 Authority; No Conflict; Consents. -------------------------------- (a) This Agreement constitutes the legal, valid and binding obligation of Entravision and Acquisition Co., enforceable against Entravision and Acquisition Co. in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and is subject to general principles of equity. Entravision and Acquisition Co. have the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform their respective obligations thereunder. (b) Neither the execution and delivery of this Agreement by Entravision or Acquisition Co. nor the consummation or performance of any of the Contemplated Transactions by Entravision or Acquisition Co. will give any Person the right to prevent, delay or otherwise interfere with any of the Contemplated Transactions or the Roll-Up pursuant to: (i) any provision of the respective Organizational Documents of Entravision and Acquisition Co.; (ii) any resolution adopted by the members, stockholders or the Board of Directors of Entravision or Acquisition Co., as the case may be; (iii) any Legal Requirement or Order to which Entravision or Acquisition Co. may be subject; or (iv) any Contract to which Entravision or Acquisition Co. is a party or by which Entravision or Acquisition Co. may be bound. (c) Except for the FCC Consent, the filings required by the HSR Act, and the consent of Union Bank of California, Entravision and Acquisition Co. are not and will not be required to give any notice to or obtain any third-party Consents from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions or the Roll-Up. -33- 5.3 Broker's or Finder's Fees. Neither Entravision, Acquisition Co. nor ------------------------- their agents have incurred any Liabilities for broker's or finder's fees or agents commissions or other similar payment in connection with this Agreement. 5.4 Capitalization. -------------- (a) The authorized capital stock of Entravision Communications Corporation consists of (i) 305,000,000 shares of Class A Common Stock, $0.0001 par value per share, none of which are issued and outstanding, (ii) 60,000,000 shares of Class B Common Stock, $0.0001 par value per share, none of which are issued and outstanding, (iii) 50,000,000 shares of Class C Common Stock, $0.0001 par value per share, none of which are issued and outstanding and (iv) 50,000,000 shares of Preferred Stock $0.0001 par value per share, none of which are issued and outstanding. (b) Schedule 5.4(b) sets for a pro forma fully-diluted capitalization --------------- of the Corporation as of the Closing (but without giving effect to the IPO) subject only to adjustment of the Exchange Number (as defined in the Exchange Agreement). The "Entravision Fully-Diluted Shares" as defined in this Agreement shall be as of the Closing as set forth on Schedule 5.4(b). (c) The outstanding units of membership interest in Entravision Communications Company, L.L.C. (the "Units") consist of an aggregate of 2,019,879 Units, 1,555,037 of which are designated Class A Units, none of which are designated Class B Units, 286,206 of which are designated Class C Units, 168,323 of which are designated Class D Units, 10,313 of which are designated Class E Units and 10,313 of which are designated Class F Units. (d) Except as set forth on Schedule 5.4(d), (i) there are no other --------------- options, warrants, stock appreciation rights, subscriptions, convertible debentures or other rights, commitments or any other similar agreements for the purchase of any securities of Entravision, (ii) there are no Contracts relating to the issuance, sale, registration or transfer of any equity securities or other securities of Entravision and (iii) there are no voting trust agreements or other Contracts, agreements or arrangements restricting voting rights or transferability with respect to Entravision. (e) The shares of Class A Common Stock of the Corporation issuable as the ZSPN Equity Consideration and the shares of Series B Preferred Stock issuable pursuant to the Certificate, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully-paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investor Rights Agreement and applicable federal and state securities laws and will not have been issued in violation of any preemptive rights. 5.5 Entravision Subsidiaries. ------------------------ -34- (a) Schedule 5.5 sets forth a list of all of the Entravision ------------ Subsidiaries. Except as set forth on Schedule 5.5, Entravision owns, either ------------ directly or indirectly through one or more of the Entravision Subsidiaries, all of the capital stock or membership interests of each of the Entravision Subsidiaries free and clear of any Encumbrances. (b) The authorized capital stock and number of outstanding shares or membership interests of each of the Entravision Subsidiaries is set forth on Schedule 5.5 (the "Entravision Subsidiary Shares"). Entravision is and will be - ------------ on the Closing Date the record and beneficial owner and holder of all of the Entravision Subsidiary Shares, which will be at Closing free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any stock certificate representing the Entravision Subsidiary Shares. All of the Entravision Subsidiary Shares have been duly authorized and validly issued and are fully paid and nonassessable. None of the Entravision Subsidiary Shares were issued in violation of the Securities Act or any other Legal Requirement. (c) Except as set forth on Schedule 5.5, (i) there are no options, ------------ warrants, stock appreciation rights, subscriptions, convertible debentures, registration rights agreements, or other rights, commitments or any other similar agreements for the purchase of any securities of any of the Entravision Subsidiaries, (ii) there are no Contracts relating to the issuance, sale or transfer of any equity securities or other securities of any of the Entravision Subsidiaries and (iii) there are no voting trust agreements or other Contracts, agreements or arrangements restricting voting rights or transferability with respect to any of the Entravision Subsidiaries. 5.6 Entravision Financial Statements. Entravision has delivered to ZSPN -------------------------------- true, complete and correct copies of the Entravision Financial Statements. Except as set forth on Schedule 5.6, the Entravision Financial Statements fairly ------------ present in all material respects the consolidated financial condition of Entravision and the Entravision Subsidiaries and the assets and liabilities of Entravision and the Entravision Subsidiaries as of the respective dates thereof and the results of operations, changes in stockholders' equity and cash flows for the periods therein specified, and have been prepared from the books and records of Entravision and the Entravision Subsidiaries in accordance with GAAP. The Entravision Financial Statements reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements, and except that the unaudited Entravision Financial Statements were prepared on an interim basis, are subject to normal year-end adjustments and do not contain all of the footnote disclosures required by GAAP. 5.7 No Undisclosed Liabilities. Except as set forth on Schedule 5.7, -------------------------- ------------ Entravision and the Entravision Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due to become due, which individually or in the aggregate could reasonably be expected to have an Entravision Material Adverse Effect, other than (i) liabilities reflected in the Entravision Financial Statements, (ii) liabilities specifically described in this Agreement or in the Entravision Schedules or (iii) normal or recurring liabilities incurred since the date of the Entravision Financial Statements in the Ordinary Course of Business. -35- 5.8 Taxes. ----- (a) Each of Entravision and the Entravision Subsidiaries have accurately prepared and timely filed (or will so file) all material Tax Returns required to be filed at or before the Effective Time relating to any and all Taxes concerning or attributable to Entravision or any of the Entravision Subsidiaries or to their operations, and such Tax Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law. Entravision has made available to ZSPN true, complete and correct copies of all such Tax Returns filed by Entravision and the Entravision Subsidiaries in the past three (3) years. (b) There is no Tax sharing agreement that will require any payment by Entravision or any of the Entravision Subsidiaries after the date of this Agreement. (c) Each of Entravision and the Entravision Subsidiaries as of the Effective Time: (i) will have paid all Taxes it is required to pay prior to the Effective Time and (ii) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld, except in each case for Taxes contested in good faith by appropriate proceedings for which adequate reserves have been taken and except where the failure (if any) to pay or withhold such Taxes could not reasonably be expected to have an Entravision Material Adverse Effect. (d) There is no Tax deficiency outstanding, proposed or assessed against Entravision or any of the Entravision Subsidiaries that is not reflected as a liability on the most recently prepared balance sheet of Entravision nor has Entravision or any of the Entravision Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (e) Neither Entravision nor any of the Entravision Subsidiaries has any material liability for unpaid federal, state, local or foreign Taxes that has not been accrued for or reserved on the Entravision Financial Statements, whether asserted or unasserted, contingent or otherwise. 5.9 Employee Benefit Plans. ---------------------- (a) Entravision has made available to ZSPN all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar employee benefit plans, and all unexpired severance agreements, written or otherwise, for the benefit of, or relating to, any current or former employee of Entravision or any of the Entravision Subsidiaries or any trade or business (whether or not incorporated) which is a member or which is under common control with Entravision within the meaning of Section 414 of the IRC (together, the -36- "Entravision Employee Plans"). Entravision does not maintain and has never maintained or contributed to any employee benefit plan subject to Title IV of ERISA (including a multiemployer plan as defined in Section 3(37) of ERISA). (b) With respect to each Entravision Employee Plan, Entravision has made available to ZSPN, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the IRS with respect to an Entravision Employee Plan subject to such filing requirement, (ii) such Entravision Employee Plan, (iii) each trust agreement and group annuity contract, if any, relating to such Entravision Employee Plan, and (iv) the most recent determination letter issued with respect to any plan which is intended to be qualified under Section 401(a) of the IRC. (c) With respect to the Entravision Employee Plans, individually and in the aggregate, no event has occurred, and to the Knowledge of Entravision there exists no condition or set of circumstances, in connection with which Entravision or any of the Entravision Subsidiaries could be subject to any material liability under ERISA, the IRC or any other applicable law. (d) With respect to the Entravision Employee Plans, individually and in the aggregate, there are no material funded benefit obligations for which contributions have not been made or properly accrued and there are no material unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP, on the Entravision Financial Statements. (e) Except as set forth in Schedule 5.9, and except as provided for ------------ in this Agreement, neither Entravision nor any of the Entravision Subsidiaries is a party to any oral or written (i) union or collective bargaining agreement, (ii) agreement with any officer or other key employee of Entravision or any of the Entravision Subsidiaries, the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Entravision of the nature contemplated by this Agreement, (iii) agreement with any officer of Entravision or any of the Entravision Subsidiaries providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of One Hundred Thousand Dollar ($100,000.00) per annum, or (iv) agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. 5.10 Compliance with Legal Requirements. Except as set forth on Schedule ---------------------------------- -------- 5.10: (i) Entravision and the Entravision Subsidiaries are in compliance in all - ---- material respects with each Legal Requirement that is or was applicable to them; (ii) to the Knowledge of Entravision, no event has occurred or circumstance exists that (with or without notice or lapse of time) constitutes or results in a material violation by Entravision of, or a material failure on the part of -37- Entravision or the Entravision Subsidiaries to comply with, any Legal Requirement or gives rise to any obligation on the part of Entravision or the Entravision Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature; and (iii) neither Entravision nor any of the Entravision Subsidiaries has received any written notice or other written communication from any Governmental Body or any other Person regarding any actual or alleged material violation of, or material failure to comply with, any Legal Requirement, any actual, alleged, possible or potential material obligation on the part of Entravision or any of the Entravision Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature. 5.11 Legal Proceedings. There is no action, suit or proceeding, claim, ----------------- arbitration or, to the Knowledge of Entravision, investigation against Entravision or any of the Entravision Subsidiaries pending or, to the Knowledge of Entravision, threatened, or as to which Entravision or any of the Entravision Subsidiaries has received any written notice of assertion, which, if decided adversely to Entravision or such Subsidiary, could reasonably be expected to have an Entravision Material Adverse Effect or a material adverse effect on the ability of Entravision to consummate the transactions contemplated by this Agreement. 5.12 Applicable Contracts; No Defaults. --------------------------------- (a) Entravision has made available to ZSPN, true, complete and correct copies of each Applicable Entravision Contract. Each Applicable Entravision Contract is in full force and effect and is valid and enforceable in accordance with its terms. (b) Except as set forth on Schedule 5.12: (i) Entravision or the ------------- Entravision Subsidiaries, as the case may be, are, and at all times during the last two (2) years have been, in material compliance with the applicable terms and requirements of each Applicable Entravision Contract; (ii) to the Knowledge of Entravision, no event has occurred or circumstance exists that (with or without notice or lapse of time) would be reasonably likely to contravene, conflict with or result in a violation or Breach of, or give Entravision or the Entravision Subsidiaries, as the case may be, or other Person the right to declare a default or exercise any materially adverse remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Applicable Entravision Contract; and (iii) Entravision and the Entravision Subsidiaries, as the case may be, have not given to or received from any other Person any written notice or other written communication regarding any actual, alleged, possible or potential violation or Breach of, or default under, any Applicable Entravision Contract, which has not been cured, waived or otherwise resolved in all material respects. 5.13 Compliance with Environmental Laws. Except as set forth on Schedule ---------------------------------- -------- 5.13, (i) all of the operations Entravision and the Entravision Subsidiaries are - ---- and have been in material compliance with all Environmental Laws as currently in effect, (ii) neither Entravision, the Entravision Subsidiaries nor any of their predecessors used, released or disposed of any Hazardous Substance in any manner that could reasonably be expected to result in material -38- liability, (iii) none of the material property owned, leased or operated by Entravision or the Entravision Subsidiaries is contaminated by any Hazardous Substance, (iv) none of the material property owned, leased or operated by Entravision or the Entravision Subsidiaries is affected by any condition that could reasonably be expected to result in material liability under any Environmental Law as currently in effect and (v) there is and has been no condition, activity or event respecting Entravision or the Entravision Subsidiaries that could reasonably be expected to subject ZSPN or the Surviving Corporation to any material liability under any Environmental Law as currently in effect. 5.14 Intellectual Property. --------------------- (a) The term "Entravision Intellectual Property Assets" includes the following proprietary items of Entravision and the Entravision Subsidiaries: (i) the name and FCC call letters listed on Schedule 5.14, all fictional business ------------- names, trading names, domain names or URLs, registered and unregistered trademarks, service marks and applications; (ii) all patents, patent applications and inventions and discoveries that may be patentable; (iii) all copyrights in both published works and unpublished works; (iv) all rights in mask works; (v) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings and blue prints owned, used or licensed by Entravision or the Entravision Subsidiaries as licensee or licensor. (b) There are no outstanding and, to the Knowledge of Entravision, no Threatened disputes or disagreements with respect to any Applicable Entravision Contract related to the Entravision Intellectual Property Assets. The Entravision Intellectual Property Assets are all those necessary for the operation of the businesses of the Entravision Media Properties as they are currently conducted. Entravision and the Entravision Subsidiaries are the owners of all right, title and interest in and to each of the Entravision Intellectual Property Assets, free and clear of all Encumbrances, and have the right to use without payment to a third-party all of the Entravision Intellectual Property Assets. 5.15 Relationships With Related Persons. Except as set forth in Schedule ---------------------------------- -------- 5.15, no Related Person of Entravision or the Entravision Subsidiaries has had - ---- any interest in any property (whether real, personal or mixed and whether tangible or intangible), used in or pertaining to the businesses of the Entravision Media Properties. No Related Person of Entravision or the Entravision Subsidiaries has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Entravision Media Properties other than business dealings or transactions conducted in the Ordinary Course of Business with the Entravision Media Properties at substantially prevailing market prices and on substantially prevailing market terms or (ii) engaged in competition with the businesses of the Entravision Media Properties (a "Competing Business") in any market presently served by the Entravision Media Properties except for less than five percent (5%) of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Except as -39- set forth on Schedule 5.15, no Related Person of Entravision or the Entravision ------------- Subsidiaries is a party to any Contract with, or has any claim or right against, the Entravision Media Properties. 5.16 FCC Qualification. Except as required to comply with the FCC's ----------------- multiple ownership rules, Entravision and Holdings are (i) qualified under the rules and regulations of the FCC to enter into this Agreement and consummate the transactions contemplated herein and (ii) no waivers or exemptions of such FCC rules or regulations are required for the FCC to grant the FCC Consent. 5.17 Other Consents. Prior to execution and delivery of this Agreement, -------------- Entravision has delivered consents of Entravision's and Acquisition Co.'s Boards of Directors, stockholders, Executive Committee and Univision necessary to approve the Contemplated Transactions. 5.18 Latin Communications Group. That certain Agreement and Plan of -------------------------- Merger dated December 21, 1999 by and among the Company, LCG Acquisition Corporation, Latin Communications Group Inc. and certain of its representatives is in full force and effect and has not been amended or any provision waived as of the Execution Date (other than an amendment to extend the closing of the acquisition of certain Nevada radio stations), and the Company has not received written notice of a breach of representation or warranty or misrepresentation by Latin Communications Group Inc. under such agreement. 5.19 Disclosure. None of the representations or warranties made by ---------- Entravision (as modified by the Schedules), nor any statement made in the Registration Statement or any schedule or certificate furnished by Entravision pursuant to this Agreement, contains or will contain at the Effective Time, any material untrue statement or omits, or will omit at the Effective Time to state any material fact necessary in order to make the statements contained therein not materially misleading. ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE MAJOR STOCKHOLDERS Each Major Stockholder hereby severally represents and warrants to Entravision and Acquisition Co. as follows (such representations and warranties do not lessen or obviate the representations and warranties of ZSPN set forth in Article 4 above): 6.1 Requisite Power and Authority. Such Major Stockholder has all ----------------------------- necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its obligations thereunder. All action on such Major Stockholder's part required for the lawful execution and delivery of this Agreement has been or will be effectively taken prior to the Closing. Upon execution and delivery, this Agreement will be the valid and binding obligation of such Major Stockholder, enforceable in accordance with its terms (except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally or by general principles of equity). -40- 6.2 Investment Representations. Such Major Stockholder understands that -------------------------- the shares Entravision Class A Common Stock have not been registered under the Securities Act. Such Major Stockholder also understands that the shares of Entravision Class A Common Stock are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon such Major Stockholder's representations and warranties contained in this Agreement. Such Major Stockholder hereby represents and warrants as follows: (a) Except for the Major Stockholders who are listed (and whose stock ownership is shown) on Schedule 6.2, such Major Stockholder is an "accredited ------------ investor" as defined in Rule 501(a) of the Securities Act. (b) He, she or it is capable of evaluating the merits and risks of his, her or its investment in Entravision and has the capacity to protect his, her or its own interests. Such Major Stockholder must bear the economic risk of this investment indefinitely unless the shares of Entravision Class A Common Stock are registered pursuant to the Securities Act, or an exemption from registration is available. Such Major Stockholder understands that Entravision has no present intention of registering the shares of Entravision Class A Common Stock except as expressly specified in the Investor Rights Agreement. Such Major Stockholder also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Major Stockholder to transfer all or any portion of the shares of Entravision Class A Common Stock under the circumstances, in the amounts or at the times such Major Stockholder might propose. (c) Such Major Stockholder is acquiring the shares of Entravision Class A Common Stock for such Major Stockholder's own account for investment only, and not with a view towards their distribution in violation of the Securities Act. (d) Such Major Stockholder is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. (e) Such Major Stockholder has received and fully reviewed a copy of the Registration Statement. (f) Such Major Stockholder has been provided an opportunity to discuss Entravision's business, management and financial affairs with directors, officers and management of Entravision and has had the opportunity to review Entravision's operations and facilities. Such Major Stockholder has also been provided the opportunity to ask questions of and receive answers from Entravision and its management regarding the terms and conditions of this investment. (g) Such Major Stockholder acknowledges and agrees that the shares of -41- Entravision Class A Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Such Major Stockholder has been advised or is aware of the provisions of Rule 144 and 145 promulgated under the Securities Act as in effect from time to time, which will subject the shares of Entravision Class A Common Stock acquired by such Major Stockholder to certain restrictions. (h) Such Major Stockholder resides in the state or province identified in the address of such Major Stockholder set forth on the signature page to this Agreement. 6.3 No Dispositions. Each Major Stockholder does not currently have, and --------------- at the Closing will not have, any plan, agreement, commitment, intention or arrangement, whether written or oral, to dispose of any of the shares of the Common Stock to be received by such Major Stockholder. For purposes of this representation, a "disposition" shall include any direct or indirect offer, offer to sell, sale, contract of sale or grant of any option to purchase, gift, transfer, pledge or other disposition, including any disposition of the economic or other risks of ownership through hedging transactions or derivatives and any other transaction that would constitute a "constructive sale" within the meaning of Section 1259 of the Code, including, without limitation, a short-sale, forward sale, equity swap or other derivative contract with respect to the Common Stock or substantially identical property, or other transaction having substantially the same effect as the foregoing. 6.4 Transfer Restrictions. Such Major Stockholder acknowledges and agrees --------------------- that the shares of Entravision Class A Common Stock are subject to restrictions on transfer set forth in this Section 6.3. Such Major Stockholder agrees not to make any disposition of all or any portion of the shares of Entravision Class A Common Stock unless and until (i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, (ii) transfers are in compliance with Rule 144 or 145, or (iii) the transferee (except for transfers in compliance with Rule 144 and 145) has agreed in writing to be bound by the terms of this Section 6.3, such Major Stockholder shall have notified Entravision of the proposed disposition and shall have furnished Entravision with a reasonably detailed statement of the circumstances surrounding the proposed disposition and if reasonably requested by Entravision, such Major Stockholder shall have furnished Entravision with an opinion of counsel, reasonably satisfactory to Entravision, that such disposition will not require registration of such shares under the Securities Act. Notwithstanding the provisions of clauses (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by such Major Stockholder to a Related Person, a shareholder, a member or a partner of such Major Stockholder or a family member of such Major Stockholder or trust for the benefit of such Major Stockholder; provided, however, that in each case the transferee will be subject to the terms of this Section 6.3 to the same extent as if he, she or it were an original Major Stockholder hereunder. Notwithstanding the foregoing, such Major Stockholder shall have registration rights for the shares of Entravision Class A Common Stock as set forth in the Investor Rights Agreement. At such time as a registration -42- statement for the shares of Entravision Class A Common Stock has been declared effective in accordance with the terms and conditions of the Investor Rights Agreement, the provisions of this Section 6.3 above shall cease to apply to the shares of Entravision Class A Common Stock. Any Major Stockholder who is an officer or director of Entravision after the Closing shall, in any event, comply with Entravision's published insider trading policies. ARTICLE 7. COVENANTS OF ZSPN AND THE MAJOR STOCKHOLDERS PRIOR TO CLOSING DATE 7.1 Access and Investigation. Between the date of this Agreement and the ------------------------ Closing Date, ZSPN will, and will cause its Representatives to, (i) afford Entravision and its Representatives reasonable access during normal business hours to the personnel, properties (including subsurface testing), Contracts, books and records and other documents and data of ZSPN, (ii) furnish Entravision and its Representatives with true, complete and correct copies of all such Contracts, books and records and other existing documents and data as they may reasonably request and (iii) furnish Entravision and its Representatives with such additional financial, operating and other data and information as they may reasonably request. ZSPN agrees that prior to consummation of the Contemplated Transactions, to the extent available, Entravision will be furnished with such accounting information and reports to the extent Entravision deems necessary to enable Entravision to satisfy the disclosure or exemption requirements of any lender providing financing, or state or federal securities regulators. Nothing in this Section 7.1 shall require ZSPN to compile accounting information or prepare reports that it would not otherwise compile or prepare. All such information is delivered subject to that certain Confidentiality Agreement dated December 17, 1999 (the "Confidentiality Agreement") by and between Entravision and ZSPN. 7.2 Operation of Business. Without the written consent of Entravision --------------------- (not to be unreasonably withheld), (i) ZSPN will not and will cause each of the ZSPN Subsidiaries not to engage in any material practice, take any material action or enter into any material transaction outside the Ordinary Course of Business; and (ii) ZSPN will not increase its Indebtedness over One Hundred Eight Million Six Hundred Seventy Thousand One Hundred Seventeen Dollars ($108,670,117.00). 7.3 Preservation of Business. Except for items set forth on Schedule 7.3, ------------------------ ------------ except for transactions involving the disposition of ZSPN assets which may be approved in writing by Entravision between the date of this Agreement and the Closing, ZSPN will, and will cause the ZSPN Subsidiaries to, use commercially reasonable efforts to keep their business and properties substantially intact, including its present operations, physical facilities, working conditions and relationships with lessors, licensors, licensees, suppliers, listeners, customers and employees, in each instance where the failure to comply with this Section 7.3 is to ZSPN's Knowledge reasonably likely to result in, and in fact results in a ZSPN Material Adverse Effect. -43- 7.4 Negative Covenant. Except as otherwise expressly permitted by this ----------------- Agreement, between the date of this Agreement and the Closing Date, ZSPN will not, without the prior written consent of Entravision, which shall not be unreasonably withheld, take any affirmative action, or fail to take any reasonable action within their control, that is to ZSPN's Knowledge to be reasonably likely to result in, and in fact results in any of the changes or events listed in Section 4.17 above. Upon provision of Entravision's written consent pursuant to this Section 7.4 and modification of the ZSPN Schedules pursuant to Section 7.5 below, Entravision will be deemed to have waived any misrepresentation directly related to the action consented to. 7.5 Notification. Between the date of this Agreement and the Closing ------------ Date, ZSPN and each Major Stockholder will promptly notify Entravision in writing if it becomes aware of any fact or condition that causes or constitutes a material Breach of any of its representations and warranties made by such party in this Agreement, or if it becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute such a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition disclosed to Entravision by ZSPN as set forth above, or any fact or condition that is discovered by Entravision independently prior to the Closing Date, require any change in the ZSPN Schedules if the ZSPN Schedules were dated the date of the occurrence or discovery of any such fact or condition between the date of this Agreement and the Closing Date, ZSPN will promptly deliver to Entravision a supplement to the Schedules specifying such change; provided, however, that no disclosure by ZSPN or the Major Stockholders of any fact or condition pursuant to this Section 7.5 shall be deemed to amend or supplement the Schedules or to prevent or cure any misrepresentation or Breach of any representation or warranty if such fact or condition would have, or would reasonably be expected to have a ZSPN Material Adverse Effect as reflected in the representations and warranties of ZSPN in Article 4 above or of the Major Stockholders in Article 6 above. 7.6 No Negotiation. Until the Closing Date, or such time, if any, as this -------------- Agreement is terminated (or ZSPN has the right to terminate this Agreement) pursuant to Article 11 below, ZSPN and its Major Stockholders will not, and will use all reasonable best efforts to cause each of their Representatives not to, directly or indirectly solicit, initiate or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Entravision, Acquisition Co. or their Related Persons) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of ZSPN, or any merger, consolidation, business combination, sale of ownership interests or similar transaction involving ZSPN, any of the ZSPN Subsidiaries or the Shares. 7.7 Best Efforts. Between the date of this Agreement and the Closing ------------ Date, ZSPN will use its Best Efforts to cause the conditions in Section 10.1 below to be satisfied. Between the date of this Agreement and the Closing Date, the Major Stockholders will use their Best Efforts to cause the conditions in Section 10.1 below relevant to the Major Stockholders to be satisfied. -44- 7.8 Application for FCC Consent. As soon as practicable after the --------------------------- Execution Date, ZSPN agrees, jointly with Entravision and Holdings to file an application as is required to obtain the FCC Consent. ZSPN will diligently take, or cooperate in the taking of, all steps that are necessary, proper or desirable to expedite the preparation of such application to obtain FCC Consent. ZSPN will promptly provide Entravision with a true, complete and correct copy of any pleading or other document served on it relating to such application. If the FCC Consent imposes any condition on ZSPN or the Major Stockholders, ZSPN or the Major Stockholders, as the case may be, shall use their Best Efforts to comply with such condition prior to the Closing. If reconsideration or judicial review is sought with respect to the FCC Consent, and such reconsideration or review relates to ZSPN, the Major Stockholders or the operations of the Radio Stations, ZSPN and the Major Stockholders shall vigorously oppose such reconsideration or judicial review at their own expense. Entravision shall pay for or reimburse ZSPN for all FCC filing fees. 7.9 Filing Under HSR Act. As soon as practicable after the Execution -------------------- Date, ZSPN agrees to make a separate filing of the Notification and Report Form pursuant to the HSR Act with respect to the Contemplated Transactions as promptly as practicable and supply any additional information or documentary material that may be required under the HSR Act and to take all other actions as reasonably necessary to cause the expiration or termination of the applicable waiting period under the HSR Act as soon as possible. ZSPN will use its Best Efforts to cooperate in all respects with Entravision in conjunction with any such filing submission or other inquiry and to promptly notify Entravision of any communication received from or given to the Antitrust Department of the Department of Justice or the Federal Trade Commission and to permit the other party to review such communication. All HSR filing fees and expenses shall be borne fifty percent (50%) by Entravision and fifty percent (50%) by ZSPN. 7.10 Required Approvals. As soon as practicable after the Execution Date, ------------------ ZSPN will make all other filings required by Legal Requirements to be made by ZSPN or any of the ZSPN Subsidiaries in order to consummate the Contemplated Transactions or the Roll-Up. Between the date of this Agreement and the Closing Date, ZSPN will cooperate with Entravision and Acquisition Co. with respect to all filings that Entravision or Acquisition Co. elect to make or are required by Legal Requirements to make in connection with the Contemplated Transactions. 7.11 Third-Party Consents. ZSPN shall obtain, or cause to be obtained -------------------- prior to the Closing Date, any and all required third-party Consents listed on Schedule 4.2 as "Material Consents." Entravision acknowledges that Schedule 4.2 - ------------ ------------ is incomplete as of the Execution Date and shall be amended pursuant to the procedure set forth in Section 7.5 above to include all Material Consents within thirty (30) days of the Execution Date. 7.12 Notice of Certain Developments. Between the date of this Agreement ------------------------------ and the Closing Date, ZSPN shall give prompt written notice to Entravision (i) if any of the assets of the -45- Radio Stations, the Outdoor Business or the Internet Sites shall have suffered damage on account of fire, explosion or other cause of any nature which is sufficient to prevent operation of the Radio Stations, the Outdoor Business or the Internet Sites for twenty-four (24) continuous hours or more and (ii) if the regular broadcast transmission of the Radio Stations in the normal and usual manner in which they heretofore have been operating is interrupted for a period of five (5) continuous hours or more. 7.13 No Inconsistent Action. Between the date of this Agreement and the ---------------------- Closing Date, ZSPN will not take any action which is materially inconsistent with their obligations under this Agreement, or that would reasonably be expected to materially hinder or delay the consummation of the Contemplated Transactions, the IPO or the Roll-Up. ZSPN will not take any action that would disqualify or impair ZSPN as the assignor of the Radio Stations or as owners and operators of the Radio Stations. 7.14 Environmental Audit/Engineering/Soils Investigation. At its sole --------------------------------------------------- option, within forty-five (45) days of the execution of this Agreement, Entravision may commission a Phase I (or Phase II, if necessary) environmental audit and an engineering and soils and geotechnical investigation of any of the Real Property owned or leased by ZSPN, to be conducted by a company selected by Entravision (and reasonably acceptable to ZSPN and to be conducted under protocols reasonably approved by ZSPN) and at Entravision's sole expense. If such environmental audit discloses the presence of any Hazardous Substances in violation of the Environmental Laws on any such Real Property which would have a ZSPN Material Adverse Effect, ZSPN shall at its own expense use Best Efforts to promptly comply with the applicable Environmental Laws to bring such property into such compliance as would prevent a ZSPN Material Adverse Effect ("Material Environmental Compliance"). If such property is not brought into Material Environmental Compliance by the Closing Date, the Closing will nonetheless occur (notwithstanding any possible Breach of Section 4.21 or other Breach of warranty or misrepresentation hereunder relating to such Hazardous Substances) and (i) the Cash Consideration Value will be reduced by an amount (the "Environmental Clean-Up Amount") which represents a reasonable estimate of the reasonable out- of-pocket costs and expenses of bringing such property into Material Environmental Compliance plus a contingency reserve of fifteen percent (15%) of such estimated costs and expenses, (ii) the Environmental Clean-Up Amount will be deposited into escrow under arrangements satisfactory to the ZSPN Representatives and Entravision, (iii) Entravision will continue to use Best Efforts (but at an out-of-pocket cost limited to the Environmental Clean-Up Amount) to promptly achieve Material Environmental Compliance under a plan and utilizing such contractor(s) as may be reasonably agreed upon by Entravision and the ZSPN Representatives, and (iv) the balance of the Environmental Clean-Up Amount, if any, remaining upon the achieving of Material Environmental Compliance shall be promptly distributed to the Major Stockholders as directed by the ZSPN Representatives in writing. Any dispute under this Section 7.14 shall be resolved by Arthur Andersen LLP, which determination shall be conclusive and binding on all parties, and the fees and expenses of whom shall be borne equally by Entravision and ZSPN before the Closing and paid out of the Environmental Clean-Up Amount after the Closing. -46- 7.15 Post-Closing Covenants. After the Closing, ZSPN and the Major ---------------------- Stockholders will execute any further documents consistent with this Agreement, provide any further reasonably available information and take any other actions not imposing significant financial or operational obligations in excess of the other obligations imposed by this Agreement, upon the request of Entravision based upon its reasonable determination that those actions are required to enable Entravision or the Surviving Corporation to effectuate this Agreement. 7.16 Affiliate Agreements. Schedule 7.16 sets forth those persons who, in -------------------- ------------- ZSPN's reasonable judgment, are or may be "affiliates" of ZSPN within the meaning of Rule 145 (each such person an "Affiliate") promulgated under the Securities Act. ZSPN shall provide Entravision such information and documents as Entravision shall reasonably request for purposes of reviewing such lists. Each Major Stockholder who is an Affiliate shall deliver to Entravision prior to the Closing, an executed Affiliate Agreement, substantially in the form attached hereto as Exhibit "J" and incorporated herein by this reference. Entravision ----------- shall be entitled to place appropriate legends on the certificates evidencing any Entravision Class A Common Stock to be received by such Affiliates pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for Entravision Class A Common Stock, consistent with the terms of such Affiliate Agreements. 7.17 Termination of the Stockholders Agreement. The Stockholders ----------------------------------------- Agreement shall be terminated concurrently with the Closing and thereafter shall be of no further force or effect. ARTICLE 8. COVENANTS OF ENTRAVISION AND ACQUISITION CO. PRIOR TO CLOSING DATE 8.1 Access and Investigation. Between the date of this Agreement and the ------------------------ Closing Date, Entravision will, and will cause its Representatives to, (i) afford ZSPN and its Representatives reasonable access during normal business hours to the personnel, properties (including subsurface testing), Contracts, books and records and other documents and data of Entravision, (ii) furnish ZSPN and its Representatives with true, complete and correct copies of all such Contracts, books and records and other existing documents and data as they may reasonably request and (iii) furnish ZSPN and its Representatives with such additional financial, operating and other data and information as they may reasonably request. Entravision agrees that prior to consummation of the Contemplated Transactions, to the extent available, ZSPN will be furnished with such accounting information and reports to the extent ZSPN deems necessary to enable ZSPN to satisfy the disclosure or exemption requirements of any lender providing financing, or state or federal securities regulators. Nothing in this Section 8.1 shall require Entravision to compile accounting information or prepare reports that it would not otherwise compile or prepare. All such information is delivered subject to the Confidentiality Agreement. 8.2 Notification. Between the date of this Agreement and the Closing ------------ Date, Entravision will promptly notify ZSPN in writing if Entravision become aware of any fact or -47- condition that causes or constitutes a Breach of any of the representations and warranties of Entravision or Acquisition Co. in this Agreement, or if Entravision becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. If any such fact or condition is disclosed to ZSPN by Entravision as set forth above, or any fact or condition that is discovered by ZSPN independently prior to the Closing Date, require any change in the Entravision Schedules if the Entravision Schedules were dated the date of the occurrence or discovery of any such fact or condition between the date of this Agreement and the Closing Date, Entravision will promptly deliver to ZSPN a supplement to the Schedules specifying such change; provided, however, that no disclosure by Entravision of any fact or condition pursuant to this Section 8.2 shall be deemed to amend or supplement the Schedules or prevent or cure any misrepresentation or Breach of any representation or warranty if such fact or condition would have, or would reasonably be expected to have, an Entravision Material Effect as reflected in the representations and warranties of Entravision in Article 5 above. 8.3 Preservation of Business. Entravision will and will cause the ------------------------ Entravision Subsidiaries to use commercially reasonable efforts to keep their business and properties substantially intact, in each instance where the failure to comply with this Section 8.3 is known to Entravision to be reasonably likely to result in, and in fact results in an Entravision Material Adverse Effect. 8.4 Indebtedness of Entravision. Without the consent of ZSPN (not to be --------------------------- unreasonably withheld) Entravision will not increase its Indebtedness after the Execution Date, except in connection with the acquisitions of television or radio properties by Entravision. 8.5 Best Efforts. Between the date of this Agreement and the Closing ------------ Date, Entravision and Acquisition Co. will use their Best Efforts to cause the conditions in Section 10.2 below to be satisfied. Notwithstanding anything to the contrary contained herein and without limiting the foregoing, it shall be Entravision's responsibility to arrange to assume, continue, replace, refinance or repay the City National Bank/Union Bank Credit Facilities and the Bank of Montreal Credit Facilities. 8.6 Application for FCC Consent. As soon as practicable after the --------------------------- Execution Date, Entravision shall, and shall cause Holdings to, jointly with ZSPN file the FCC Consent. Entravision will diligently take, or cooperate in the taking of, or shall cause Holdings to diligently take, or cooperate in the taking of all steps that are necessary, proper or desirable to expedite the preparation of such application and to obtain FCC Consent, including, without limitation, all steps necessary to comply with the FCC's multiple ownership rules; provided, however, that in no event shall Entravision be required by the terms of this Agreement to dispose of more than three (3) radio stations in the Monterey/Salinas DMA or more than one (1) radio station in the Sacramento DMA (with such limitations referred to herein as the "Maximum -48- Required Dispositions"). Entravision will promptly provide, and shall cause Holdings to promptly provide, ZSPN with a true, complete and correct copy of any pleading or other document served on it relating to such application. If the FCC Consent imposes any condition on Entravision, Acquisition Co. or Holdings, Entravision or Acquisition Co. shall use their Best Efforts to comply, and shall cause Holdings to comply, with such condition prior to the Closing; provided, however, such efforts shall not require Entravision or dispose of assets of Entravision or the Surviving Corporation in excess of the Maximum Required Dispositions. If reconsideration or judicial review is sought with respect to the FCC Consent, and such reconsideration or review relates to Entravision, Acquisition Co. or Holdings, Entravision or Acquisition Co. shall vigorously oppose, and shall cause Holdings to oppose, such reconsideration or judicial review at their own expense. 8.7 Filing Under HSR Act. As soon as practicable after full execution of -------------------- this Agreement, Entravision agrees to make a separate filing of the Notification and Report Form pursuant to the HSR Act with respect to the Contemplated Transactions as promptly as practicable and supply any additional information or documentary material that may be required under the HSR Act and to take all other actions as reasonably necessary to cause the expiration or termination of the applicable waiting period under the HSR Act as soon as possible. Entravision will use its Best Efforts to cooperate in all respects with ZSPN in conjunction with any such filing submission or other inquiry and to promptly notify ZSPN of any communication received from or given to the Antitrust Department of the Department of Justice or the Federal Trade Commission and to permit the other party to review such communication. All HSR filing fees and expenses will be borne fifty percent (50%) by Entravision and fifty percent (50%) by ZSPN. 8.8 Required Approvals. As soon as practicable after the Execution Date, ------------------ Entravision will make all other filings required by Legal Requirements to be made by Entravision or any of the Entravision Subsidiaries in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Entravision will cooperate with ZSPN with respect to all filings that ZSPN elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions. 8.9 No Inconsistent Action. Entravision and Acquisition Co. will not ---------------------- take any action which is materially inconsistent with their obligations under this Agreement or the Exchange Agreement, or that would hinder or delay the consummation of the Contemplated Transactions or the Roll-Up, including, without limitation, consenting to an amendment, waiver of termination of the Exchange Agreement in a fashion which has an adverse effect on ZSPN or the Stockholders. Entravision and Acquisition Co. will not take any action that would disqualify or impair Entravision or Holdings as the assignees of the Radio Stations or as the owner and operator of the Radio Stations. Immediately prior to the consummation of the Roll-Up, the Corporation will have no material assets and no liabilities. 8.10 Bank Consent. Entravision shall obtain the Consent of Union Bank of ------------ California to the Contemplated Transactions within sixty (60) days of the Execution Date. -49- 8.11 Acquisition of Entravision. Prior to the Closing, Entravision will -------------------------- not enter into an agreement regarding the sale of its business or assets (other than in the Ordinary Course of Business) or any merger, consolidation, business combination, sale of ownership interest or similar transaction involving Entravision unless provision shall be made so that the Stockholders shall be entitled to receive cash in an amount equal to the Cash Consideration Value and either cash, securities or other property in the form and in an amount equal to that (and with substantially the same rights) which such Stockholders would have been entitled to receive as holders of the Class A Common Stock of the Corporation issuable to the Stockholders hereunder in the Merger and had the sale or similar transaction occurred after the Roll-Up. ARTICLE 9. POST-CLOSING COVENANTS The parties hereby agree as follows with respect to the period following the Closing: 9.1 Further Assurances. In case at any time after the Closing any ------------------ further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, all the sole cost and expense of the requesting party. 9.2 Major Stockholder Confidentiality and Non-Solicitation. Each of the ------------------------------------------------------ Major Stockholders will regard and preserve as confidential all Confidential Information of Entravision and ZSPN or their respective subsidiaries and refrain from publishing or disclosing any part of it or for using, copying or duplicating it in any way or by any means or for any purposes other than those expressly set forth in this Agreement. From and after the Closing and for a period of four (4) years thereafter, without the prior written consent of the Corporation, TSG: (i) will not wilfully or knowingly induce or attempt to induce any lessor, licensor, customer, supplier or other business associate of Entravision, the Surviving Corporation or any of their respective Subsidiaries to cease doing business with any such party; (ii) will not wilfully or knowingly interfere in a material fashion with any portion of the business of Entravision, the Surviving Corporation or any of their respective Subsidiaries after the Closing; or (iii) will not solicit any person who is or who was an employee of Entravision or induce or attempt to induce any employee of Entravision, the Surviving Corporation or any of their respective Subsidiaries to terminate his or her employment with such party. In no event will any investment by TSG in a portfolio company or the role of any affiliate of TSG as a director or advisor thereto cause the actions or activities of any such portfolio company to be attributed to TSG for purposes of this Section 9.2, nor shall this Section 9.2 apply to any future investment fund organized by the principals of TSG. 9.3 Stock Plans and Options. ----------------------- (a) Entravision shall provide to each holder of an outstanding option to -50- purchase ZSPN Common Stock (a "ZSPN Option") under the ZSPN 1999 Stock Incentive Plan the notice (if any) required pursuant to such plan. (b) From and after the Effective Time, each outstanding ZSPN Option shall be assumed by Entravision and shall be deemed to constitute a substitute option under the Entravision Communications Corporation 2000 Omnibus Equity Incentive Plan to acquire, on the same terms and conditions as were applicable under such ZSPN Option (including credit for vesting periods elapsed under the ZSPN 1999 Stock Incentive Plan), a number of shares of Entravision Class A Common Stock (rounded down to the nearest whole number) equal to the product of (i) the number of ZSPN shares pursuant to such ZSPN Option and (ii) ZSPN Share Consideration divided by (iii) the Entravision Share Consideration. The exercise price per share of Entravision Class A Common Stock (rounded up to the nearest whole cent) pursuant to such newly issued Entravision option shall be calculated as the quotient of (a) the exercise price per share of ZSPN Common Stock pursuant to such ZSPN Option and (b) the quotient of ZSPN Share Consideration and the Entravision Share Consideration. An illustration of the above calculation is attached hereto as Annex II. -------- (c) As soon as practicable after the Effective Time, Entravision shall deliver to the participants in the ZSPN 1999 Stock Incentive Plan an appropriate notice setting forth such participants' rights pursuant thereto and the substitute grants pursuant to the Entravision Communications Corporation 2000 Omnibus Equity Incentive Plan shall continue in effect on the same terms and conditions (including vesting and repurchase rights, restrictions on transfer and other contractual obligations, and subject to the adjustments required by this Section 9.3 after giving effect to the Merger). Entravision shall provide in the substitute option agreements that ZSPN Options which qualified as incentive stock options pursuant to Section 422 of the IRC prior to the Effective Time will continue to so qualify after the Effective Time. (d) Entravision shall take all corporate action necessary to reserve and make available for issuance a sufficient number of shares of Entravision Class A Common Stock for delivery upon the exercise of options substituted for the ZSPN Options assumed in accordance with this Section 9.3. As soon as practicable after the expiration of a one hundred eighty (180) day period following the IPO, Entravision shall use reasonable and diligent efforts to file a registration statement on Form S-8 (or any successor or other appropriate form) with respect to the shares of Entravision Class A Common Stock subject to options substituted for the ZSPN Options pursuant to this Section 9.3 and shall use its reasonable and diligent efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for as long as the options substituted for ZSPN Options remain outstanding. With respect to those individuals, if any, who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, Entravision shall administer options substituted for ZSPN Options pursuant to this Section 9.3 in a manner that complies with Rule 16b-3 promulgated under the Exchange Act. -51- ARTICLE 10. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE 10.1 Conditions Precedent to the Obligation of Entravision and Acquisition --------------------------------------------------------------------- Co. to Close. The obligation of Entravision and Acquisition Co. to effect the - ------------ Contemplated Transactions and to take the other actions required to be taken by Entravision and Acquisition Co. at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Entravision, in whole or in part, where permissible): (a) Representations and Warranties. Representations and warranties of ------------------------------ ZSPN and the Stockholders set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties expressly speak of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except (i) for changes contemplated by this Agreement or (ii) where the failure to be true and correct could not reasonably be expected to have a ZSPN Material Adverse Effect or a material adverse effect upon the parties' ability to consummate the Merger in accordance with this Agreement. (b) Performance. All of the covenants and obligations that ZSPN and ----------- the Stockholders are required to perform or to comply with pursuant to this Agreement at or prior to the Closing, considered collectively, and each of these covenants and obligations, considered individually, must have been duly performed and complied with in all material respects, including, without limitation, the obligations of ZSPN and the Stockholders pursuant to Section 3.4 above. (c) Closing Certificate. Entravision shall have received from a duly- ------------------- authorized officer of ZSPN a certificate, dated as of the Closing, certifying that the conditions specified in Sections 10.1(a) and 10.1(b) above have been fulfilled. (d) No Injunctions or Restraints; Illegality. No temporary ---------------------------------------- restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing or prohibiting the consummation of the Merger or limiting or restricting in a material fashion Entravision's conduct or operation of the business of Entravision or ZSPN after the Merger shall have been issued and be in effect, nor shall any proceeding brought by the Governmental Body seeking any of the foregoing be pending; nor shall any action have been taken or any statute, rule, regulation or order have been enacted, and entered or enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal or prevents or prohibits the Merger. (e) No Adverse Claims. There must not have been made or Threatened by ----------------- any Person (other than ZSPN or the Stockholders, as the case may be) any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of any material number of the Shares or the Subsidiary Shares or (ii) is -52- entitled to all or any material portion of the ZSPN Equity Consideration unless the Stockholders shall have supplied Entravision with an unconditional indemnity against such claim, liabilities, damages, reasonable costs and expenses (including reasonable attorney's fees) arising out of such claim reasonably satisfactory to Entravision and its counsel. (f) Consents. The FCC Consent shall have become a Final Order unless -------- Entravision and ZSPN shall have by mutual written agreement agreed to close on the initial FCC Consent. The applicable waiting period under the HSR Act shall have expired or been terminated and all other material consents, approvals, authorizations, exemptions and waivers from any Governmental Body that shall be required in order to enable Entravision or Acquisition Co. to consummate the Contemplated Transactions shall have been obtained. (g) IPO. The IPO shall have closed (unless ZSPN elects to proceed --- with the Interim Closing as set forth in Section 3.2 above). (h) Roll-Up. The Roll-Up shall have closed (provided that nothing in ------- this Section 10.1(h) shall be deemed to limit ZSPN's right under this Agreement to require Entravision to proceed with the Closing and Roll-Up). 10.2 Conditions Precedent to the Obligation of ZSPN and Major Stockholders --------------------------------------------------------------------- to Close. The obligation of ZSPN and the Major Stockholders to effect the - -------- Contemplated Transactions and to take the other actions required to be taken by ZSPN and the Major Stockholders at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by ZSPN, in whole or in part, where permissible): (a) Representations and Warranties. Representations and warranties ------------------------------ of Entravision set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties expressly speak of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except (i) for changes contemplated by this Agreement or (ii) where the failure to be true and correct could not reasonably be expected to have an Entravision Material Adverse Effect or a material adverse effect upon the parties' ability to consummate the Merger in accordance with this Agreement. (b) Performance. All of the covenants and obligations that ----------- Entravision and Acquisition Co. are required to perform or to comply with pursuant to this Agreement at or prior to the Closing, considered collectively, and each of these covenants and obligations, considered individually, must have been performed and complied with in all material respects, including, without limitation, the obligations of Entravision and Acquisition Co. pursuant to Section 3.5 above. (c) Closing Certificate. ZSPN shall have received from a duly- ------------------- authorized -53- officer of Entravision a certificate, dated as of the Closing, certifying that the conditions specified in Sections 10.2(a) and 10.2(b) above have been fulfilled. (d) No Injunctions or Restraints; Illegality. No temporary ---------------------------------------- restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing or prohibiting the consummation of the Merger or limiting or restriction Entravision's conduct or operation of the business of Entravision of ZSPN after the Merger shall have been issued and be in effect; nor shall any action have been taken or any statute, rule, regulation or order have been enacted, and entered or enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal or prevents or prohibits the Merger. (e) Consents. The FCC Consent shall have become a Final Order unless -------- Entravision and ZSPN shall have by mutual written agreement agreed to close on the initial FCC Consent. The applicable waiting period under the HSR Act shall have expired or been terminated and all other consents, approvals, authorizations, exemptions and waivers from any Governmental Body that shall be required in order to enable ZSPN or the Stockholders to consummate the Contemplated Transactions shall have been obtained. (f) IPO. The IPO shall have closed (unless ZSPN elects to proceed --- with the Interim Closing as set forth in Section 3.2 above). (g) Roll-Up. The Roll-Up shall have closed. ------- (h) Credit Facilities. Provision shall have been made by Entravision ----------------- to repay the City National Bank/Union Bank Credit Facilities and the Bank of Montreal Credit Facilities concurrently with the Closing. (i) Fully-Diluted Capitalization. The fully-diluted capitalization ---------------------------- of the Corporation as of the Closing (but without giving effect to the IPO) shall be as set forth in Schedule 5.4(b) subject only to adjustment to reflect --------------- the change in the Exchange Number, or the issuance of warrants to a bridge lender in connection with the closing of the Citicasters Radio acquisition. ARTICLE 11. TERMINATION 11.1 Termination Events. This Agreement may, by written notice given ------------------ prior to or at the Closing, be terminated: (a) by Entravision: (i) if there shall have been a material Breach by ZSPN or the Stockholders of any representation, warranty, covenant or agreement which could be reasonably expected to have a ZSPN Material Adverse Effect or material adverse effect upon the -54- parties' ability to consummate the Merger in accordance with the terms of this Agreement or the IPO, which Breach by its nature cannot be cured or shall not have been cured on the date immediately preceding the scheduled Closing Date; (ii) if the FCC dismisses or denies the application for the FCC Consent and such order is a Final Order; or (iii) if there shall be any final decree or order that would prevent or make unlawful the Closing; (b) by ZSPN: (i) if there shall have been a material Breach by Entravision or Acquisition Co. of any representation, warranty, covenant or agreement which could be reasonably expected to have an Entravision Material Adverse Effect or material adverse effect upon the parties' ability to consummate the Merger in accordance with the terms of this Agreement or the Roll-Up in accordance with the terms of the Exchange Agreement, which Breach by its nature cannot be cured or shall not have been cured within twenty (20) days following receipt by the breaching party of notice of such Breach or on the date immediately preceding the scheduled Closing Date, whichever is earlier; (ii) if the FCC dismisses or denies the application for the FCC Consent and such order is a Final Order; (iii) if there shall be any final decree or order that would prevent or make unlawful the Closing; (iv) if Entravision Communications Corporation has not filed a Form S-1 Registration Statement by April 30, 2000; (v) if Entravision Communications Company, L.L.C. has not closed the acquisition of Latin Communications Group Inc. on or before May 31, 2000; or (vi) the parties have not received the FCC Consent and/or the expiration or early termination of the applicable waiting period under the HSR Act on or before December 31, 2000. (c) by mutual written consent of Entravision and ZSPN; (d) by either Entravision or ZSPN if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before March 31, 2001, or such later date as the parties may agree upon; provided, however, that this section may not be utilized by any party at such time as such party is in Breach of or default under this Agreement in any material respect. 11.2 Rights of Parties for Nonperformance or Upon Termination. -------------------------------------------------------- (a) In addition to any other remedies provided by law, if ZSPN does not have a right to terminate under Section 11.1 above, but ZSPN or the Stockholders refuse to close the Contemplated Transactions or prevent the Closing due to a Breach of this Agreement, Entravision shall have the right to waive any grounds they may have to terminate under Section 11.1 above and to obtain specific performance of the obligations of ZSPN and the Stockholders to consummate the Contemplated Transactions. ZSPN and the Stockholders acknowledge and agree that the Radio Stations, the Outdoor Business and the Internet Sites are unique assets and ZSPN and the Stockholders expressly agree monetary damages would be inadequate to compensate Entravision for the refusal of ZSPN or the Stockholders to perform the obligations for which the remedy of specific performance is granted herein. Accordingly, ZSPN and the Stockholders acknowledge and agree that such refusals to perform will cause irreparable injury to -55- Entravision and that Entravision shall be entitled to obtain injunctive relief for specific performance of the obligations specifically listed in this Section 11.2. (b) In addition to any other remedies provided by law, if Entravision does not have a right to terminate pursuant to Section 11.1 above, but Entravision refuses to close the Contemplated Transactions or prevent the Closing due to a Breach of this Agreement, ZSPN shall have the right to waive any grounds they may have to terminate under Section 11.1 above and to obtain specific performance of the obligations of Entravision to consummate the contemplated transaction in accordance with the terms hereof. Entravision acknowledges and agrees that any such refusal to perform will cause irreparable injury to ZSPN and the Stockholders and ZSPN shall be entitled to obtain injunctive relief for specific performance of the obligations specifically listed in this Section 11.2. (c) If this Agreement is terminated pursuant to Section 11.1, the Contemplated Transactions shall be abandoned without further action, rights or obligations by the parties hereto to one another, and all filings, applications and other submissions made hereunder shall, to the extent practicable, be withdrawn from the persons to which they were made, except that the last sentence of Section 7.1, the second sentence of Section 13.1, Sections 13.2 and 13.14, this Section 11.2 and the Confidentiality Agreement shall remain in effect, and provided that nothing herein shall relieve any party from liability for any breach of any representation, warranty, covenant or agreement in this Agreement prior to such termination. ARTICLE 12. REPRESENTATIVES By virtue of the approval of this Agreement and the Merger by the Board of Directors of ZSPN, the approval of this Agreement by the Major Stockholders pursuant to the Certificate of Incorporation and Bylaws of ZSPN and the applicable provisions of the Delaware Code and the execution of this Agreement, each Major Stockholder agrees: 12.1 Authorization of the ZSPN Representatives. Upon adoption of this ----------------------------------------- Agreement by the Board of Directors of ZSPN and approval of this Agreement by the Major Stockholders pursuant to the Certificate of Incorporation and Bylaws of ZSPN and the applicable provisions of the Delaware Code, the ZSPN Representatives (and each successor appointed in accordance with Section 12.3 below) hereby is appointed, authorized and empowered to act, by decision of both of the ZSPN Representatives (if there is more than one), as the ZSPN Representatives, on behalf of the Major Stockholders, in connection with and to facilitate the consummation of the Contemplated Transactions, for the purposes and with the powers and authority hereinafter set forth in this Article 12, which shall include the power and authority: (a) to deliver all Certificates representing the Shares tendered therewith to Entravision and to collect and receive all moneys and stock payable to the Major Stockholders pursuant to Section 2.8 above to disburse and pay the same to each of the Major Stockholders pursuant to Section 2.8 above; and -56- (b) to make, execute, acknowledge and deliver all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the ZSPN Representatives, in their sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the activities described in paragraph (a) above and the Contemplated Transactions. The grant of authority provided for in this Section 12.1: (i) is coupled with an interest and is being granted, in part, as an inducement to Entravision and Acquisition Co. to enter into this Agreement, and shall be irrevocable and survive the death, incompetency, bankruptcy or liquidation of any Major Stockholder and shall be binding on any successor thereto; and (ii) subject to the provisions of Section 12.3 below, may be exercised by any of the ZSPN Representatives acting by signing as an ZSPN Representative of each of the Major Stockholders. 12.2 Compensation; Exculpation; Indemnity. ------------------------------------ (a) The ZSPN Representatives shall not be entitled to any fee, commission or other compensation for the performance of their services hereunder, but shall be entitled to the payment of all of their out-of-pocket expenses incurred as ZSPN Representatives, and in furtherance of the foregoing, may pay or cause to be paid or reimburse themselves for the payment of any and all such expenses. (b) In dealing with this Agreement and any instruments, agreements or documents relating thereto, and in exercising or failing to exercise all or any of the powers conferred upon the ZSPN Representatives hereunder or thereunder, (i) the ZSPN Representatives shall not assume any, and shall incur no, responsibility whatsoever to any Major Stockholder by reason of any error in judgment or other act or omission performed or omitted hereunder or in connection with this Agreement or any such other agreement, instrument or document and (iii) the ZSPN Representatives shall be entitled to rely on the advice of counsel, public accountants or other independent experts experienced in the matter at issue, and any error in judgment or other act or omission of the ZSPN Representatives pursuant to such advice shall in no event subject the ZSPN Representatives to liability to any Major Stockholder. (c) Each Major Stockholder, jointly and severally, shall indemnify the ZSPN Representatives up to, but not exceeding, an amount equal to the aggregate Share Merger Consideration received by such Person hereunder against any and all damages, liabilities, claims, obligations, costs and expenses, including reasonable attorneys, accountants and other experts fees in the amount of any judgment against them, of any nature whatsoever, arising out of or in connection with any claim, investigation, challenge, action or proceeding or in connection with the appeal thereof, relating to the acts or omissions of the ZSPN Representatives hereunder. All of the exculpations, indemnities, immunities and powers granted to the ZSPN Representatives under this Agreement shall survive the Closing and/or any termination of this Agreement. -57- (d) Entravision and the Surviving Corporation shall have the right to rely upon all actions taken or omitted to be taken by the ZSPN Representatives pursuant to this Agreement or any applicable ancillary document, and notwithstanding anything herein to the contrary, neither Entravision, Acquisition Co., ZSPN nor the Surviving Corporation shall have any responsibility or obligation whatsoever to any Major Stockholder or to any other party with respect to or arising out of any actions taken or any inaction by the ZSPN Representatives. 12.3 Removal and Replacement of a ZSPN Representatives; Successor ZSPN ----------------------------------------------------------------- Representatives; Action by ZSPN Representatives. ----------------------------------------------- (a) If one or more of the ZSPN Representatives is unable or unavailable to perform his, her or its duties hereunder, the remaining ZSPN Representatives shall have the power to act until the appointment of one or more successor ZSPN Representatives in accordance with this Section 12.3. A successor ZSPN Representative, who shall be a Major Stockholder or a representative of a non-individual Major Stockholder, shall be appointed by the remaining ZSPN Representative unless such person is unable or unwilling to accept such appointment. (b) Any ZSPN Representative or all of them may be removed at any time by a written notice delivered by the holders of a majority of the Shares to the ZSPN Representatives, the other Major Stockholders, Entravision and the Surviving Corporation. ZSPN Representatives so removed shall be replaced promptly by the holders of a majority of the Shares by written notice delivered to all of the Major Stockholders, Entravision and the Surviving Corporation. Notwithstanding the foregoing, no ZSPN Representative may be removed if such removal would result in all ZSPN Representative positions being vacant. (c) Any successor ZSPN Representative shall have all of the authority and responsibilities conferred upon or delegated to a ZSPN Representative pursuant to this Article 12. ARTICLE 13. GENERAL PROVISIONS 13.1 Tax Matters. The parties hereto intend the Merger and the Roll-Up to ----------- qualify under Section 351(a) of the Code and will use all reasonable efforts to cause the Merger and the Roll-Up to so qualify. Each party hereto will not take, and will cause such party's affiliates and representatives not to take, any actions or positions which may be expected to cause the Merger and the Roll- Up not to so qualify. Each of the parties agrees to take all actions and execute all documents deemed reasonably necessary to effectuate such qualification. 13.2 Survival of Representations and Warranties. The representations and ------------------------------------------ warranties contained herein and in any certificate or other writing delivered pursuant to this Agreement shall -58- not survive the Closing Date. All other covenants and agreements contained herein which by their terms are to be performed in whole or in part, or which prohibit actions, subsequent to the Closing Date, shall survive the Merger in accordance with their terms. 13.3 Expenses. Except as otherwise expressly provided in this Agreement, -------- each party to this Agreement shall separately bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel and accountants, regardless of whether the Contemplated Transactions are consummated. All HSR filing fees and expenses will be borne fifty percent (50%) by Entravision and fifty percent (50%) by ZSPN. 13.4 Public Announcements. Other than those incidental to filings -------------------- required to comply with Legal Requirements, any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as the parties mutually determine. Unless consented to by the other parties in advance or required by Legal Requirements, prior to the Closing, the parties hereto shall keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. The parties will consult with each other concerning the means by which the employees, customers and suppliers of ZSPN and others having dealings with ZSPN will be informed of the Contemplated Transactions, and Entravision shall have the right to be present for any such communication. 13.5 Confidentiality. Between the date of this Agreement and the Closing --------------- Date, the parties will abide by the terms and conditions of the Confidentiality Agreement. If the Contemplated Transactions are not consummated, each party will promptly return or destroy all such written information furnished by the other party. 13.6 Notices. All notices, consents, waivers and other communications ------- under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand (with written confirmation of receipt), (ii) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by certified mail, return receipt requested, or (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to Entravision or Acquisition Co: Entravision Communications Company, L.L.C. Attention: Walter F. Ulloa and Philip C. Wilkinson 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 Telephone: (310) 447-3870 Facsimile: (310) 447-3899
-59- with a required copy to: Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. Attention: Steven G. Rowles, Esq. 101 West Broadway, 17th Floor San Diego, California 92101 Telephone: (619) 515-9600 Facsimile: (619) 515-9628 If to ZSPN: Z-Spanish Media Corporation Attention: Amador S. Bustos Catherine J.K. Sandoval Gabriel Nacht 1436 Auburn Boulevard Sacramento, California 95815 Telephone: (916) 648-6090 Facsimile: (916) 646-3230 and with a required copy to: Proskauer Rose LLP Attention: Peter G. Samuels, Esq. 1585 Broadway New York, New York 10036-8299 Telephone: (212) 969-3000 Facsimile: (212) 969-2900 and with a required copy to: Shaw Pittman Attention: David Oxenford, Esq. 2001 Pennsylvania Avenue, 4th Floor Washington, D.C. 20006 Telephone: (202) 775-3546 Facsimile: (202) 296-6518 If to the Stockholders: TSG Capital Group, L.L.C. Attention: Darryl B. Thompson 177 Broad Street, 12th Floor Stamford, Connecticut 06901 Telephone: (203) 541-1535 Facsimile: (203) 541-1590 If to the ZSPN Representatives: Amador S. Bustos Z-Spanish Media Corporation 1436 Auburn Boulevard Sacramento, California 95815 Telephone: (916) 648-6090 Facsimile: (916) 646-3230 -60- Darryl B. Thompson TSG Capital Group, L.L.C. 177 Broad Street, 12th Floor Stamford, Connecticut 06901 Telephone: (203) 541-1535 Facsimile: (203) 541-1590 13.7 Further Assurances. The parties agree to furnish upon request to ------------------ each other such further information, execute and deliver to each other such other documents and to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 13.8 Waiver. The rights and remedies of the parties to this Agreement are ------ cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party, (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 13.9 Entire Agreement and Modification. This Agreement supersedes all --------------------------------- prior agreements between the parties with respect to its subject matter, including, without limitation, that certain Letter of Intent dated February 24, 2000, as amended, except for the Confidentiality Agreement, and constitutes (along with the Confidentiality Agreement and recitals hereto, and the exhibits, Schedules and documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 13.10 Schedules. The Schedules are hereby incorporated by reference into --------- this Agreement in their entirety. The disclosures in the Schedules must relate only to the representations and warranties in the section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. In the event of any inconsistency between the statements in the body of this Agreement and those in the Schedules (other than an exception expressly set forth as such in the Schedules with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. -61- 13.11 Assignment, Successors and No Third-Party Rights. No party may ------------------------------------------------ assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld or delayed. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 13.12 Severability. If any provision of this Agreement is held invalid or ------------ unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 13.13 Section Headings; Construction. The headings of sections in this ------------------------------ Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding section or sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 13.14 Time of Essence. With regard to all dates and time periods set --------------- forth or referred to in this Agreement, time is of the essence. 13.15 Attorney's Fees. The prevailing party(ies) in any Proceeding --------------- relating to the enforcement or interpretation of this Agreement may recover from the unsuccessful party(ies) all costs, expenses and actual attorney's fees (including expert witness and other consultants fees and costs) relating to or arising out of (i) the Proceeding (whether or not the Proceeding results in a judgment) and (ii) any post-judgment or post-award Proceeding including, without limitation, one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses and actual attorney's fees. 13.16 Governing Law. This Agreement will be governed by the laws of the ------------- State of Delaware without regard to conflicts of laws principles. 13.17 Jurisdiction; Service of Process. Any Proceeding seeking to enforce -------------------------------- any provision of, or based on any right arising out of, this Agreement must be brought against any of the parties in the United States District Court for the Central District of California, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such -62- Proceeding and waives any objection to venue laid therein. Process in any Proceeding referred to in the preceding sentence may be served on any party anywhere in the world. In the event that the dispute fails to meet the jurisdictional threshold requirements of the federal courts, venue shall lie in the appropriate state courts sitting in Los Angeles County, California. 13.18 Counterparts; Facsimile. This Agreement may be executed in one or ----------------------- more counterparts, all of which when fully executed and delivered by all parties hereto and taken together shall constitute a single agreement, binding against each of the parties. To the maximum extent permitted by law or by any applicable governmental authority, this Agreement may be signed and transmitted by facsimile with the same validity as if it were an ink-signed document. Each signatory below represents and warrants by his or her signature that he or she is duly authorized (on behalf of the respective entity for which such signatory has acted) to execute and deliver this instrument and any other document related to this transaction, thereby fully binding each such respective entity. [Remainder of Page Intentionally Left Blank] -63- IN WITNESS WHEREOF, the parties have executed and delivered this Acquisition Agreement and Plan of Merger as of the date first written above. Entravision ENTRAVISION COMMUNICATIONS CORPORATION, a Delaware corporation By:/s/ Walter F. Ulloa --------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By:/s/ Jeanette L. Tully --------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer ENTRAVISION COMMUNICATIONS COMPANY, L.L.C., a Delaware limited liability company By:/s/ Walter F. Ulloa --------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By:/s/ Jeanette L. Tully --------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer Acquisition Co. ZSPN ACQUISITION CORPORATION, a Delaware corporation By:/s/ Walter F. Ulloa --------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By:/s/ Jeanette L. Tully --------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer ZSPN Z-SPANISH MEDIA CORPORATION, a Delaware corporation By:/s/ Amador S. Bustos --------------------------------------------------------- Name: Amador S. Bustos ----------------------------------------------------- Title: President & CEO ----------------------------------------------------- [Counterpart Signature Page to Acquisition Agreement and Plan of Merger] Major Stockholders Z-SPANISH MEDIA HOLDINGS, L.L.C. By:/s/ Darryl B. Thompson ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- TSG ASSOCIATES II, INC. By:/s/ Darryl B. Thompson ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- TSG ASSOCIATES III, LLC By:/s/ Darryl B. Thompson ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- TSG CAPITAL FUND III, L.P. By: TSG Associates III, LLC, its General Partner By:/s/ Darryl B. Thompson ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- TSG VENTURES, L.P. By: TSGVI Associates, Inc., its General Partner By:/s/ Duane Hill ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- [Counterpart Signature Page to Acquisition Agreement and Plan of Merger] TSG CAPITAL FUND II, L.P. By: TSG Associates II, L.P., its General Partner By: TSG Associates II, Inc., its General Partner By:/s/ Darryl B. Thompson ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- /s/ Amador S. Bustos --------------------------------------------------------- Amador S. Bustos /s/ Salvador H. Campos --------------------------------------------------------- Salvador H. Campos /s/ John S. Bustos --------------------------------------------------------- John S. Bustos --------------------------------------------------------- Glenn Emanuel /s/ Arthur Rockwell --------------------------------------------------------- Arthur Rockwell BUSTOS ASSET MANAGEMENT, LLC By:/s/ Amador S. Bustos ------------------------------------------------------ Name: Amador S. Bustos -------------------------------------------------- Title: President -------------------------------------------------- [Counterpart Signature Page to Acquisition Agreement and Plan of Merger] Exhibit A Certificate of Merger Exhibit B Exchange Agreement Exhibit C Investor Rights Agreement Exhibit D Noncompetition Agreement Exhibit E Release Exhibit F Certificate of Designation of Preferences and Rights Exhibit G Warrant Exhibit H-1 Legal Opinion of Counsel for ZSPN Exhibit H-2 Legal Opinion of FCC Counsel for ZSPN Exhibit I-1 Opinion of Counsel for Entravision and Acquisition Co. Exhibit I-2 Opinion of FCC Counsel for Entravision and Acquisition Co. Exhibit J Affiliate Agreement Annex I Illustration of Conversion of Shares Annex II Illustration of Option Conversion Calculation Schedule 4.1 ZSPN Subsidiaries Schedule 4.2 Third Party Consents Schedule 4.4 Qualifications to do Business Schedule 4.6 ZSPN Subsidiaries Schedule 4.9 Liens on Property Schedule 4.10 Undisclosed Liabilities Schedule 4.11 Taxes Schedule 4.12 Employee related matters Schedule 4.14 Government Authorizations Schedule 4.15 Litigation Schedule 4.17 Absence of Certain Changes and Events Schedule 4.18 Material Contracts Schedule 4.19 Insurance Matters Schedule 4.20 Real Property Matters Schedule 4.21 Environmental Laws Schedule 4.23 Labor Relations Schedule 4.24 Intellectual Property Assets Schedule 4.25 Related Party Transactions Schedule 6.2 Non-Accredited Investors Schedule 7.3 Preservation of Business Schedule 7.16 Affiliate Agreements Schedule 5.4(d) Options, Convertible Debentures, Contracts for Sale of Securities and Voting Trusts Schedule 5.5 Corporate Structure and Capitalization Schedule 5.6 Financial Statements Schedule 5.7 Potential Liabilities Schedule 5.9 Employee Benefit Plans Schedule 5.10 Compliance with Legal Requirements Schedule 5.12 Material Contracts Schedule 5.13 Environmental Law Compliance Schedule 5.14 Intellectual Property Schedule 5.15 Relationships with Related Persons The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. EX-2.5 3 0003.txt EXCHANGE AGREEMENT EXHIBIT 2.5 EXCHANGE AGREEMENT ------------------ This Exchange Agreement (the "Agreement") is dated as of April 19, 2000 by and among Entravision Communications Corporation, a Delaware corporation (the "Corporation"), Entravision Communications Company, L.L.C., a Delaware limited liability company (the "Company"), each of the individual, trust and/or other entity members of the Company listed on Schedule "A" attached hereto and ------------ incorporated herein by this reference (each, an "Exchanging Member" and collectively, the "Exchanging Members"), each of the stockholders of the Member Companies (as defined below) of the Company listed on Schedule "A" attached ------------ hereto (each, an "Exchanging Stockholder" and collectively, the "Exchanging Stockholders") and Univision Communications Inc., a Delaware corporation ("Univision"). The Exchanging Members, the Exchanging Stockholders and Univision are individually referred to herein as an "Exchanging Party" and collectively as the "Exchanging Parties." WHEREAS, the Company is a duly formed Delaware limited liability company engaged in the ownership and operation of television and radio stations. WHEREAS, each of the Exchanging Members is an individual, trust and/or other entity that owns a direct membership interest in the Company as set forth on Schedule "A" attached hereto. ------------ WHEREAS, each of Cabrillo Broadcasting Corporation, a California corporation ("Cabrillo"), Golden Hills Broadcasting Corporation, a Delaware corporation ("Golden Hills"), KSMS-TV, Inc., a Delaware corporation ("KSMS"), Las Tres Palmas Corporation, a Delaware corporation ("Las Tres"), Tierra Alta Broadcasting, Inc., a Delaware corporation ("Tierra Alta"), Valley Channel 48, Inc., a Texas corporation ("Valley"), and Telecorpus, Inc., a Texas corporation ("Telecorpus"), (collectively, the "Member Companies"), is a corporation that owns a direct membership interest in the Company as set forth on Schedule "A" ------------ attached hereto. WHEREAS, each of the Exchanging Stockholders is an individual, trust and/or other entity that owns an indirect membership interest in the Company by virtue of his, her or its respective stockholdings in the Member Companies as set forth on Schedule "A" attached hereto. ------------ WHEREAS, the Exchanging Members together with the Member Companies own all of the outstanding membership interests in the Company. WHEREAS, Univision is the holder of that certain First Amended and Restated Non-Negotiable Subordinated Note (the "Note") dated March 2, 2000 from the Company in the principal amount of $120,000,000, and the Company, certain of the Member Companies, the Managing Members of the Company and Univision are parties to that certain Second Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement (as amended, the "Option Agreement") dated as of March 2, 2000, pursuant to which Univision holds an option to acquire a 40.0% equity interest in the Company for a total exercise price of $120,000,000. WHEREAS, the Corporation is a duly incorporated Delaware corporation formed by the Company for the purpose of effecting the Roll-Up (as defined below) contemplated by this Agreement. WHEREAS, in accordance with Section 26(i) of the First Amended and Restated Operating Agreement of the Company, as amended (the "Operating Agreement"), (i) each of the Exchanging Members is obligated to transfer to the Corporation his or its respective membership interests in the Company in exchange for newly- issued shares of Class A Common Stock or Class B Common Stock as provided for herein, (ii) each of the Exchanging Stockholders is obligated to transfer his, her or its respective stockholdings in the Member Companies to the Corporation in exchange for newly-issued shares of Class A Common Stock or Class B Common Stock and (iii) Univision desires to contribute to the Corporation its entire interest in and to the Note and the Option Agreement in exchange for newly- issued shares of Class C Common Stock, all pursuant to the terms and conditions of this Agreement (with such transactions collectively referred to herein as the "Roll-Up"). The Class A Common Stock, Class B Common Stock and Class C Common Stock are referred to collectively herein as the "Common Stock." WHEREAS, the Exchanging Members and the Member Companies executed that certain Sixth Amendment to the Operating Agreement effective as of March 31, 2000 (the "Sixth Amendment"). WHEREAS, the Corporation contemplates filing a Registration Statement with the Securities and Exchange Commission (the "Registration Statement") pursuant to which it intends to consummate the initial underwritten public offering of its Class A Common Stock (the "IPO") concurrently with the closing of the Roll- Up. WHEREAS, the Corporation and the Company have entered into that certain Acquisition Agreement and Plan of Merger (the "Merger Agreement") by and among the Corporation, the Company, ZSPN Acquisition Corporation, a wholly-owned subsidiary of the Corporation ("Acquisition Co."), on one hand, and Z-Spanish Media Corporation ("ZSPN") and its stockholders, on the other hand, pursuant to which the Corporation will acquire ZSPN pursuant to a merger of Acquisition Co. with and into ZSPN (the "Merger"). WHEREAS, pursuant to Section 3.2 of the Merger Agreement, if the closing of the Merger has not taken place by the Interim Closing Deadline (as defined in the Merger Agreement) ZSPN, in certain instances, may elect to waive the IPO as a condition to the closing of the Merger and to require the Corporation to proceed with the closing of the Merger and the Roll-Up (with such closing referred to herein as the "Interim Closing"). WHEREAS, counsel for the Corporation and the Company has previously filed certain applications with the Federal Communications Commission (the "FCC") requesting its written -2- consent (the "FCC Consent") to the assignment of the beneficial ownership of the FCC licenses held by Entravision Holdings, LLC, a California limited liability company and a subsidiary of the Company and its Managing Members, to the Corporation in accordance with the Roll-Up contemplated by this Agreement. WHEREAS, all the parties hereto intend for the Roll-Up as set forth in this Agreement to be tax-free to all parties pursuant to Section 351(a) of the Internal Revenue Code of 1986, as amended (the "Code"). WHEREAS, concurrently with the execution of this Agreement, the Company is consummating a financing pursuant to that certain Note Purchase Agreement of even date herewith between TSG Capital Fund III, L.P. ("TSG") and the Company involving the issuance of a Convertible Subordinated Promissory Note in the principal amount of $90,000,000 (the "TSG Note") by the Company in favor of TSG (the "TSG Financing"). NOW, THEREFORE, in consideration of the premises and of the mutual agreements, covenants and provisions herein contained and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. EXCHANGE AND CLOSING 1.1. Exchange. -------- (a) Subject only to the terms and conditions of this Agreement, each Exchanging Member shall as of the Closing assign, transfer and convey to the Corporation all right, title and interest in and to the entire direct membership interest in the Company held by such Exchanging Member, all as set forth opposite each such Exchanging Member's name on Schedule "A" attached hereto, ------------ (ii) each Exchanging Stockholder shall as of the Closing assign, transfer and convey to the Corporation all right, title and interest in and to the entire indirect membership interest in the Company held by such Exchanging Stockholder by virtue of his, her or its stockholdings in each of the Member Companies, all as set forth opposite each such Exchanging Stockholder's name on Schedule "A" ------------ attached hereto and (iii) Univision shall as of the Closing assign, transfer and convey to the Corporation all right, title and interest in and to the entire interest of Univision in the Note and the Option Agreement. (b) The Corporation shall as of the Closing accept the assignment and transfer by (i) each Exchanging Member of his or its entire direct membership interest in the Company and hereby assumes and agrees to perform and be bound by any and all of the conditions, covenants and obligations of such Exchanging Member pursuant to the Operating Agreement, (ii) each Exchanging Stockholder of his, her or its respective stockholdings in each of the Member Companies and hereby assumes and agrees to perform and be bound by any and all of the conditions, covenants and obligations of such Exchanging Stockholder pursuant to the -3- organizational documents of each respective Member Company and (iii) Univision of its entire interest in and to the Note and the Option Agreement and hereby assumes and agrees to perform and be bound by any and all of the conditions, covenants and obligations of Univision pursuant to the Note and the Option Agreement. (c) At the Closing, each Exchanging Party shall receive, in consideration for the Roll-Up, that number of shares of that class of Common Stock set forth on Schedule "B" attached hereto and incorporated herein by this ------------ reference computed by multiplying the fully-diluted as-converted Units held by each such Exchanging Party times thirty-four (34) (the "Exchange Number"). The rights, privileges, preferences and restrictions of the Common Stock shall be as set forth in the First Restated Certificate of Incorporation of the Corporation, substantially in the form attached hereto as Exhibit "A" and incorporated herein ----------- by this reference, which shall be filed with the Delaware Secretary of State by counsel to the Corporation and the Company prior to the Closing. (d) Each Exchanging Party acknowledges and agrees that the number of shares of Common Stock to be received by such Exchanging Party in the Roll-Up represent the amount due and owing each such Exchanging Party on a liquidation of the Company and a distribution of proceeds after allocations of Net Income and Net Loss as provided for in the Sixth Amendment. (e) Each Exchanging Member or Exchanging Stockholder further acknowledges and agrees that the number of shares of the Common Stock received by such Exchanging Party in the Roll-Up contemplated by this Agreement is good and valuable consideration for the interests being exchanged hereunder, and is an accurate reflection of the fair market value of such interests as of the date hereof. 1.2. Termination of Rights. From and after the Closing: --------------------- (a) the entire capital account and share of profits and losses of each Exchanging Member in the Company shall be deemed to be the capital account and share of profits and losses of the Corporation, such Exchanging Member shall have no further interest or rights of any kind in or with respect to his or its membership interest in the Company or under the Operating Agreement and such Exchanging Member shall be released from all further obligations under the Operating Agreement; (b) all of the rights and obligations of Univision under the Note and the Option Agreement shall be deemed to be rights and obligations of the Corporation, Univision shall have no further interest or rights of any kind in or with respect to the Note or the Option Agreement and Univision shall be released from all further obligations under the Note and the Operating Agreement; and (c) 1,000 shares of Common Stock of the Corporation held by the Company -4- shall be deemed canceled for all purposes and the Company shall promptly submit the applicable share certificate to the Corporation for cancellation. 1.3. Consent of Executive Committee. By their respective execution hereof ------------------------------ in any capacity, the Company and each member of the Executive Committee acknowledges that the Executive Committee of the Company (i) has approved the form of this Agreement, (ii) acknowledges receipt of a duly executed copy of this Agreement and (iii) in accordance with the provisions of the LLC Agreement, consents to the assignment and transfer of the membership interests of the Exchanging Members to the Corporation and to the admission of the Corporation as a new member of the Company. 1.4. Consent of Exchanging Parties. By its execution hereof, each ----------------------------- Exchanging Party (i) approves the form of this Agreement, (ii) acknowledges that it has received and reviewed in full the Registration Statement, (iii) approves and consents to the consummation of the Roll-Up, the IPO, the Merger and the TSG Financing in accordance with the documentation made available to each Exchanging Party (with such changes as the management of the Company and the Corporation may determine in its reasonable discretion), and (iv) waives any right of consent or approval, any preemptive right, right of first refusal or anti- dilution protection, or any other restriction by or privilege in favor of such Exchanging Party of any kind to prevent, restrict, delay, adversely effect or hinder the consummation of the Roll-Up, the IPO, the Merger and/or the Note Financing. Each Exchanging Party agrees to promptly execute all documents requested by the Company or Corporation reflecting the terms of this Section 1.4. 1.5. Closing. The closing of the Roll-Up and the other transactions ------- contemplated by this Agreement (the "Closing") will take place at the offices of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. in Los Angeles, California at 10:00 a.m. (Pacific time) upon the earlier to occur of: (i) the execution of the underwriting agreement by the Corporation in connection with the IPO, (ii) the consummation of the Interim Closing as defined in the Merger Agreement or (iii) ten (10) days after written notice from the Corporation to the Exchanging Parties, provided, that the FCC Consent has become a Final Order (as defined below), which requirement may be waived by the Corporation in its discretion at any time after initial issuance of the FCC Consent, or on such other date as the parties may mutually agree, or at such other time and place as the parties may mutually agree. For purposes of this Agreement, "Final Order" shall mean an order, action or decision of the FCC that has not been reversed, stayed, enjoined, annulled or suspended and as to which (i) no timely request for stay, appeal, petition for reconsideration, application for review or reconsideration by the FCC on its own motion is pending and (ii) the time for filing any such request, appeal, petition or application or for reconsideration by the FCC on its own motion, has expired. 1.6. Closing Obligations of Corporation. At the Closing, the Corporation ---------------------------------- will deliver or cause to be delivered to each Exchanging Party: (a) a duly executed stock certificate representing the number of shares of the -5- Common Stock set forth opposite each Exchanging Party's name on Schedule "B" ------------ attached hereto (subject to the obligation of each Exchanging Party pursuant to Section 2.4(b) below); (b) the closing certificate required by Section 5.2(c) below; (c) a certificate of the Secretary of the Corporation attesting to (i) the incumbency of the officers executing the Agreement and the other agreements and certificates delivered by the Corporation at the Closing and (ii) the authenticity of the Certificate of Incorporation and Bylaws of the Corporation; (d) written resolutions of the Board of Directors of the Corporation authorizing the execution, delivery and performance of this Agreement, certified by the Secretary of the Corporation; (e) a certificate of good standing for the Corporation issued by the Delaware Secretary of State not more than ten (10) days prior to the date of the Closing; and (f) such other documents as may be reasonably requested by the Exchanging Parties as necessary to consummate the transactions contemplated by this Agreement. 1.7. Closing Obligations of Exchanging Parties. At the Closing, each of ----------------------------------------- the Exchanging Parties will deliver or cause to be delivered to the Corporation: (a) to the extent applicable to each Exchanging Party, signature pages to the documents referred to in Section 2.3 and Section 2.4 below; (b) the closing certificate required by Section 5.1(c) below; and (c) such other documents as may be reasonably requested by counsel for the Corporation and the Company as necessary to consummate the transactions contemplated hereby. ARTICLE 2. ADDITIONAL INFORMATION AND AGREEMENTS 2.1. Corporation. Each Exchanging Party understands and acknowledges that ----------- the Corporation is a Delaware corporation organized to be the direct or indirect owner of all of the equity interests in the Company. 2.2. Amendment to Operating Agreement. Each Exchanging Party acknowledges -------------------------------- and agrees that, effective as of the Closing, this Agreement shall constitute an amendment of those provisions of the Operating Agreement which are inconsistent with the provisions of this Agreement. Each Exchanging Party consents to and approves such amendment, subject to its effectiveness. The provisions of the Operating Agreement as in effect on the date hereof will -6- continue to apply to each Exchanging Party until the Closing. 2.3. First Amended and Restated Bylaws. The First Amended and Restated --------------------------------- Bylaws of the Corporation at Closing shall be substantially in the form attached hereto as Exhibit "B" and incorporated herein by this reference. ----------- 2.4. Stockholders' Agreement. Solely in the event the Roll-Up is ----------------------- triggered by the occurrence of the Interim Closing or at the Corporation's option not in connection with the IPO, at the Closing, each Exchanging Party shall execute and deliver to the Corporation a counterpart signature page to a Stockholders' Agreement, in form and substance to be determined in good faith and reasonably acceptable to the parties hereto and consistent with the covenants, limitations and restrictions contained in the Operating Agreement, pursuant to which such Exchanging Party will be subject to customary certain transfer restrictions and a right of first refusal on the Common Stock, and each Exchanging Party agrees to be bound by and subject to any and all restrictions set forth therein. Such Stockholders' Agreement shall terminate as of the IPO. 2.5. Tax Distributions. Notwithstanding anything to the contrary herein, ----------------- the Company shall continue making distributions after the Closing to the Exchanging Members and Member Companies in accordance with Section 12(a) of the Operating Agreement with respect to any tax liability incurred by such persons by reason of membership in the Company through and including the Closing. 2.6. Senior Lender Matters. --------------------- (a) Solely in the event the Roll-Up is triggered by the occurrence of the Interim Closing or at the Corporation's option not in connection with the IPO, each Exchanging Party acknowledges and agrees that all of the equity interests in the Company and the Member Companies held by the Exchanging Parties have been pledged to Union Bank of California, N.A. ("Union Bank") in accordance with the terms of that certain Amended and Restated Credit Agreement (as amended, the "Credit Agreement") dated November 10, 1998 by and among the Company, the Member Companies, Union Bank and certain lenders, and each Exchanging Party hereby agrees to execute any documents and take such acts as are reasonably necessary to cause Union Bank to release to the Corporation all indicia of ownership in the Company and the Member Companies, including, without limitation, all original stock certificates and pledges. Each Exchanging Stockholder hereby further agrees, if necessary, to execute a new stock power for the shares in the Member Companies held by such Exchanging Stockholder, endorsed in blank, in favor of the Corporation. (b) Each Exchanging Party other than Univision acknowledges and agrees that all shares of the Common Stock issued to such Exchanging Party in accordance with this Agreement are subject to the terms of the Credit Agreement, and that such shares must be pledged to Union Bank concurrently with the Closing. In connection therewith, each Exchanging -7- Party agrees to execute any document and to take any act reasonably required by Union Bank at or following the Closing in order to perfect the pledge of such shares in favor of Union Bank. 2.7. Release. Each Exchanging Party other than Univision hereby ------- irrevocably releases the Corporation, the Company and each and every affiliate, stockholder, subsidiary, partner, officer, member, director and employee of the Corporation and the Company in their capacities as such, and each other Exchanging Party (each, a "Releasee") from any claims, liabilities, costs, expenses, actions, suits or demands however arising, whether at law or in equity, contingent, known or unknown, which such Exchanging Party may have or assert, in respect of any equity or membership interest in the Company or arising out of any membership in the Company that such Releasor or such Releasor's heirs, successors or assigns had with any such Releasee on or prior to the Closing; provided that this release shall not extend to (i) indebtedness owing to such Exchanging Party by any Releasee, (ii) representations or warranties made, or agreements entered into by, a Releasee in connection with this Agreement and (iii) any conduct that resulted from a Releasee's bad faith, fraud or criminal act or omission. 2.8. Waiver. Each of the Company and the Exchanging Parties acknowledges ------ and agrees that the provisions of Section 24 of the Operating Agreement shall not apply to TSG upon conversion of the TSG Note into Class A Units of the Company. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE COMPANY The Corporation and the Company (where applicable) hereby make the following representations and warranties to each Exchanging Party, each of which is deemed to be a separate representation and warranty by the Corporation and the Company (where applicable), and this Agreement is made in reliance on same: 3.1. Organization, Good Standing, Corporate Power and Qualification. The -------------------------------------------------------------- Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 3.2. Authority; Enforceability. All corporate action on the part of the ------------------------- Corporation, its officers and directors necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Corporation hereunder and the authorization, issuance and delivery of the shares of the Common Stock being issued to the Exchanging Parties hereunder has been or will be taken prior to the Closing, and each of this Agreement and the other documents contemplated hereby has been duly executed and delivered by the Corporation and constitutes a legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. -8- 3.3. No Conflicts. Subject to compliance with the federal and state ------------ securities laws, the execution, delivery and performance of this Agreement and the other documents contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, will not (i) result in a material violation or breach of any term or provision of the Certificate of Incorporation or Bylaws of the Corporation or the Certificate of Formation or Operation Agreement of the Company, or of any material statute, rule or regulation applicable to the Corporation or the Company, or (ii) conflict with in a material fashion, contravene in a material fashion, result in a material violation or breach of or default under (with or without the giving of notice or the lapse of time or both), permit any party to terminate, amend or accelerate the provisions of, or result in the imposition of any material lien upon any of the property or assets of the Corporation or the Company under any material contract, agreement, indenture, letter of credit, mortgage, security agreement, pledge agreement, deed of trust, bond, note, guarantee, surety obligation, warranty, license, franchise, permit, power of attorney, lease, instrument or other agreement to which the Corporation or the Company is a party or by which any of its material property or material assets may be bound. 3.4. Consents and Approvals. Except for the FCC Consent, the consent of ---------------------- the senior lenders of the Company in accordance with the terms of the Credit Agreement and the filings under applicable federal and state securities laws which filings are required to be made by the Corporation after the Roll-Up contemplated hereunder, no material consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority or any other third party on the part of the Corporation is required in connection with the consummation of the transactions contemplated by this Agreement. 3.5. Capitalization. The authorized capital of the Corporation shall as -------------- of the Roll-Up consist of two classes of stock designated "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is 415,000,000 shares, $0.0001 par value per share, as follows: (i) 415,000,000 shares of Common Stock, $0.0001 par value per share, consisting of 305,000,000 shares of Class A Common Stock, $0.0001 par value per share, 60,000,000 shares of Class B Common Stock, par value $0.0001 per share, 50,000,000 shares of Class C Common Stock, $0.0001 par value per share, and (ii) 50,000,000 shares shall be Preferred Stock, $0.0001 par value per share. There are 1,000 shares of Common Stock issued and outstanding as of the date hereof. No shares of Preferred Stock are issued and outstanding on the date hereof. The capitalization of the Corporation immediately after the Roll-Up shall be as set forth in Schedule "B". The rights, preferences, privileges and restrictions of ------------ the Common Stock are as stated in the Certificate of Incorporation of the Corporation. Except as contemplated by this Agreement or the Merger Agreement, no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or otherwise acquire from the Corporation any equity securities of the Corporation is authorized or outstanding, and there is no commitment by the Corporation to issue shares, subscriptions, warrants, options, convertible -9- securities or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. 3.6. Issuance of Common Stock. The shares of the Common Stock that are ------------------------ being acquired by the Exchanging Parties hereunder, when issued in accordance with the terms of this Agreement and for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable. 3.7. Litigation. There is no material action, suit, claim, proceeding or ---------- investigation pending against the Corporation or the Company at law or equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, arbitration proceeding relating to the Corporation or the Company pending under collective bargaining agreements or otherwise, or governmental inquiry pending or, to the knowledge of the Corporation or the Company, threatened against the Corporation or the Company (including, without limitation, any inquiry as to the qualification of the Corporation or the Company to hold or receive any license or permit), which questions the validity of this Agreement or the right of the Corporation or the Company to enter into it, or to consummate the transactions contemplated hereby, nor is either the Corporation or the Company aware that there is any basis for the foregoing. Neither the Corporation or the Company is a party or subject to the provisions of any material order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Corporation or the Company currently pending. 3.8. Compliance with Law. Neither the Corporation nor the Company is in ------------------- material violation or default of any material instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or of any provision of material federal or state statute, rule or regulation applicable to the Corporation or the Company. 3.9. Disclosure. The Corporation has fully provided each Exchanging Party ---------- with all the information which he, she or it has requested for deciding whether to participate in the Roll-Up hereunder and all information which the Corporation believes is reasonably necessary to enable such Exchanging Party to make such decision including, without limitation, its draft Form S-1 Registration Statement (the "Registration Statement"). Neither this Agreement, the Registration Statement nor any other statements or certificates made or delivered in connection herewith contains any material untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not materially misleading. 3.10. Brokers and Finders. Neither the Corporation nor any or its ------------------- officers, directors, employees or agents or any affiliate thereof have employed any broker or finder, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transaction contemplated hereby. 3.11. Representations Survive. The Company and the Corporation hereby ----------------------- acknowledge -10- and agree that all representations and warranties contained in this Article 3 shall be true and correct in all material respects as of the Closing, except to the extent any inaccuracy would not have a material adverse effects on the assets, liabilities or properties of the Corporation, the Company and all of their respective subsidiaries taken as a whole, and that the representations and warranties of the Company and the Corporation shall survive the Closing. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF EXCHANGING PARTIES Each of the Exchanging Parties, severally and only with respect to himself, herself or itself, hereby makes the following representations and warranties to the Corporation, each of which is deemed to be a separate representation and warranty by such parties, and this Agreement is made in reliance on same: 4.1. Authority; Enforceability. Such Exchanging Party has the right, ------------------------- authority and legal capacity to enter into, execute and deliver this Agreement and the other documents contemplated hereby and perform his, her or its obligations hereunder and thereunder, and each of this Agreement and the other documents contemplated hereby has been duly executed and delivered by such Exchanging Party and constitutes a legal, valid and binding obligation of such Exchanging Party enforceable against such Exchanging Party in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. 4.2. No Conflicts. Subject to compliance with the federal and state ------------ securities laws, the execution, delivery and performance of this Agreement and the other documents contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, will not conflict with, contravene, result in a material violation or breach of or material default under (with or without the giving of notice or the lapse of time or both), permit any party to terminate, amend or accelerate the provisions of, or result in the imposition of any material lien (or any obligation to create any material lien) upon any of the property or assets of such Exchanging Party under any contract, agreement, indenture, letter of credit, mortgage, security agreement, pledge agreement, deed of trust, bond, note, guarantee, surety obligation, warranty, license, franchise, permit, power of attorney, lease, instrument or other agreement to which such Exchanging Party is a party or by which any of his, her or its property or assets may be bound. 4.3. Consents and Approvals. No consent, approval, order or authorization ---------------------- of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority or any other third party on the part of such Exchanging Party is required in connection with the consummation of the transactions contemplated by this Agreement. -11- 4.4. Title. ----- (a) Each Exchanging Member owns, beneficially and of record, his or its membership interest in the Company set forth opposite his or its name on Schedule "A" attached hereto, this is the only membership interest in the - ------------ Company owned by such Exchanging Member and this membership interest is held by such Exchanging Member free and clear of any claim, lien, pledge, deed of trust, option, charge, security interest, hypothecation, encumbrance, right of first offer, voting trust, proxy, right of third parties or other restriction or limitation of any nature whatsoever (each, a "Lien" and collectively, "Liens") other than in the Credit Agreement. At the Closing, the Corporation will acquire good and valid title to such membership interest, free and clear of any Liens other than any Lien created under the Credit Agreement. (b) Each Exchanging Stockholder owns, beneficially and of record, his, her or its stockholdings in each of the Member Companies set forth opposite his, her or its name on Schedule "A" attached hereto, these are the only shares ------------ in the Member Companies owned by such Exchanging Stockholder and these shares is membership interest is held by such Exchanging Member free and clear of any Liens. At the Closing, the Corporation will acquire good and valid title to such shares, free and clear of any Liens other than any Lien created under the Credit Agreement. (c) Univision's rights under the Note and the Option Agreement are the only rights to equity ownership in the Company owned by Univision and such rights are held by Univision free and clear of any Liens other than any Lien created under the Credit Agreement. 4.5. Accredited Investor. Such Exchanging Party is an "accredited ------------------- investor," as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). 4.6. Restricted Securities. Such Exchanging Party understands that the --------------------- shares of the Common Stock are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Corporation in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances. In this connection, such Exchanging Party represents that he, she or it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 4.7. Investment Purpose. Such Exchanging Party is acquiring the Common ------------------ Stock under this Agreement for his, her or its own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof other than in compliance with the Securities Act and other applicable securities laws. Such Exchanging Party acknowledges that he, she or it must bear the economic risk of an investment in the Common Stock for an indefinite period of time because, among other reasons, the shares of the Common Stock -12- received by such Exchanging Party have not been registered under the Securities Act and, therefore, such securities cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Exchanging Party also acknowledges that transfers of the shares of the Common Stock received are further restricted by applicable federal and state securities laws. 4.8. Access to Information. Such Exchanging Party understands the risks --------------------- of, and other considerations relating to his, her or its acquisition and ownership of the Common Stock received. Such Exchanging Party has been provided an opportunity to ask questions of, and has received answers satisfactory to him, her or it from, the Corporation, the Company and their representatives regarding the Common Stock received, has received the Registration Statement in its entirety and has obtained any and all additional information from the Corporation and its representatives that such Exchanging Party deems necessary regarding the Common Stock received. 4.9. Evaluation of and Ability to Bear Risks. Such Exchanging Party has --------------------------------------- such knowledge and experience in financial affairs that he, she or it is capable of evaluating the merits and risks of, and other considerations relating to, the ownership of the Common Stock received, and has not relied in connection with his, her or its acquisition of the Common Stock received upon any representations, warranties or agreements other than those set forth in this Agreement. Such Exchanging Party's financial situation is such that he, she or it can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, and such Exchanging Party can afford to suffer the complete loss of his, her or its investment in such securities. 4.10. No Dispositions. Except as set forth in the Registration Statement, --------------- such Exchanging Party does not currently have, and at the Closing will not have, any plan, agreement, commitment, intention or arrangement, whether written or oral, to dispose of any of the shares of the Common Stock to be received by such Exchanging Party. For purposes of this representation, a "disposition" shall include any direct or indirect offer, offer to sell, sale, contract of sale or grant of any option to purchase, gift, transfer, pledge or other disposition, including any disposition of the economic or other risks of ownership through hedging transactions or derivatives and any other transaction that would constitute a "constructive sale" within the meaning of Section 1259 of the Code, including, without limitation, a short-sale, forward sale, equity swap or other derivative contract with respect to the Common Stock or substantially identical property, or other transaction having substantially the same effect as the foregoing. 4.11. Further Limitations on Disposition. Without in any way limiting the ---------------------------------- representations set forth above, such Exchanging Party further agrees not to make any disposition of all or any portion of the Common Stock unless and until: (i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) such Exchanging Party shall have notified the Corporation of the proposed disposition and shall have furnished the -13- Corporation with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Corporation, such Exchanging Party shall have furnished the Corporation with an opinion of counsel, reasonably satisfactory to the Corporation, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Corporation will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. 4.12. Legends. Such Exchanging Party understands and acknowledges that ------- the certificates evidencing shares of the Common Stock shall bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. 4.13. Brokers and Finders. Neither such Exchanging Party nor any of his, ------------------- her or its officers, directors, employees or agents or any affiliate thereof have employed any broker or finder, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transaction contemplated hereby. 4.14. Representations Survive Closing. Each party hereby acknowledges and ------------------------------- agrees that all representations and warranties contained in this Article 4 shall be true and correct in all respects as of the Closing and shall survive the Closing. ARTICLE 5. CONDITIONS PRECEDENT TO CLOSING 5.1. Conditions Precedent to Obligation of Corporation to Close. The ---------------------------------------------------------- obligation of the Corporation to effect the transactions contemplated by this Agreement and to take the other actions required to be taken by the Corporation at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Corporation, in whole or in part, where permissible): (a) Accuracy of Representations and Warranties. All of the ------------------------------------------ representations and warranties of the Exchanging Parties in this Agreement, considered collectively, must be accurate in all material respects when made, and as of the date of the Closing as if made on the date of the Closing, except where any inaccuracy would not have a material adverse effect on the assets, liabilities and properties of the Corporation, the Company and their respective subsidiaries taken as a whole. (b) Performance. All of the covenants and obligations that the ----------- Exchanging Parties are required to perform or to comply with pursuant to this Agreement at or prior to the -14- Closing, considered collectively, and each of these covenants and obligations, considered individually, must have been duly performed and complied with in all respects, including, without limitation, the obligations of the Exchanging Parties pursuant to Section 1.6 above. (c) Consents. The FCC Consent shall have become a Final Order, and -------- all other consents, approvals, authorizations, exemptions and waivers that shall be required in order to enable the Corporation to consummate the transactions contemplated by this Agreement shall have been obtained, including, without limitation, the consent of the senior lenders of the Company in accordance with the terms of the Credit Agreement. (d) No Proceedings. Since the date of this Agreement, there must not -------------- have been commenced or threatened against any of the Exchanging Parties any proceeding involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated by this Agreement or that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the transactions contemplated by this Agreement. 5.2. Conditions Precedent to Obligation of Exchanging Parties to Close. ----------------------------------------------------------------- The obligation of the Exchanging Parties to effect the transactions contemplated by this Agreement and to take the other actions required to be taken by the Exchanging Parties at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Exchanging Parties, in whole or in part, where permissible): (a) Performance. All of the covenants and obligations that the ----------- Corporation are required to perform or to comply with pursuant to this Agreement at or prior to the Closing, considered collectively, and each of these covenants and obligations, considered individually, must have been performed and complied with in all respects, including, without limitation, the obligations of the Corporation pursuant to Section 1.5 above. (b) No Proceedings. Since the date of this Agreement, there must not -------------- have been commenced or threatened against the Corporation or the Company any proceeding involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated by this Agreement or that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the transactions contemplated by this Agreement. ARTICLE 6. TERMINATION 6.1. Termination Events. This Agreement may, by written notice given ------------------ prior to or at the Closing, only be terminated: (a) by any party (i) if the FCC dismisses or denies the application for the FCC Consent and such order is a Final Order or (ii) if there shall be any final decree or order that -15- would prevent or make unlawful the Closing; or (b) by the Corporation solely in the event the Merger Agreement has been terminated in accordance with its terms. 6.2. Rights of Parties Upon Termination. If this Agreement is terminated ---------------------------------- as provided in Section 6.1 above, the transactions contemplated by this Agreement shall be abandoned without further action, rights or obligations by the parties hereto to one another, and all filings, applications and other submissions made hereunder shall, to the extent practicable, be withdrawn from the persons to which they were made. 6.3. Power of Attorney. The Exchanging Parties do hereby constitute and ----------------- appoint Walter F. Ulloa as their true and lawful attorney-in-fact and agent to act for them in their names, place and stead, and for his use and benefit in any and all capacities, for the limited purpose of executing any and all documentation to be executed by the Exchanging Parties in connection with the Roll-Up and the other transactions contemplated by this Agreement. The Exchanging Parties do further acknowledge and agree that the signature of Walter F. Ulloa alone on any document to be executed by any of the Exchanging Parties in connection with the transactions contemplated by this Agreement shall be effective to bind each of the Exchanging Parties and the Exchanging Parties hereby ratify and confirm the binding authority of the signature of Walter F. Ulloa on any such document. ARTICLE 7. GENERAL PROVISIONS 7.1. Tax Matters. The parties hereto intend the Roll-Up to qualify under ----------- Section 351(a) of the Code and will use all reasonable efforts to cause the Roll-Up to so qualify. Each party hereto will not take, and will cause such party's affiliates and representatives not to take, any actions or positions which may be expected to cause the Roll-Up not to so qualify. Each of the exchanging parties agrees to take all actions and execute all documents deemed reasonably necessary to effectuate such qualification, including, without limitation, acquisition of the Member Companies via merger. 7.2. Entire Agreement. This Agreement, the exhibits and schedules hereto ---------------- and any other document to be furnished pursuant to the provisions hereof embody the entire agreement and full understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, inducements, representations, warranties, covenants or undertakings other than those expressly set forth or referred to in such documents. This Agreement and such other documents supersede all prior negotiations, agreements and understandings, both written and oral, among the parties with respect to such subject matter. 7.3. Incorporation by Reference. The recitals set forth above, and all -------------------------- exhibits and schedules attached hereto, are hereby incorporated by reference into this Agreement. -16- 7.4. Headings. The headings of the articles and sections of this -------- Agreement are inserted as a matter of convenience and for reference purposes only, are of no binding effect, and in no respect define, limit, extend or interpret the scope of this Agreement or the intent of any section, and are not to be considered in construing or interpreting this Agreement. 7.5. Gender; Statutory References. All pronouns and any variations ---------------------------- thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons or the context may require. Any reference to the Securities Act or other statutes or laws will include all amendments, modifications or replacements thereto. 7.6. Amendments. Subject to applicable law, this Agreement and any ---------- exhibit or schedule attached hereto may only be amended by the parties hereto pursuant to an amendment in writing executed by the Corporation and members of the Company holding a majority of the voting power therein. 7.7. Successors and Assigns. Except as otherwise provided herein, the ---------------------- terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors, assigns, heirs, legatees, legal representatives, executors and administrators of all the parties hereto. Nothing in this Agreement, express or implied, is intended to or shall be construed to confer upon or give to any person, entity or other party (other than the parties hereto or their respective successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.8. Severability. Each term, covenant, condition and provision of this ------------ Agreement shall be viewed as separate and distinct, and in the event that any such term, covenant, condition or provision shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under applicable law, such term, covenant, condition or provision shall be excluded from this Agreement and the remaining terms, covenants, conditions and provisions shall continue in full force and effect to the maximum extent permitted by applicable law as if such term, covenant, condition or provision were excluded. 7.9. Counterparts; Facsimile. This Agreement may be executed in any ----------------------- number of counterparts, each of which shall be an original and shall not need to contain the signature of more than one party, but all of which together when fully-executed and delivered by the parties hereto shall constitute one and the same instrument, binding on all of the parties. To the maximum extent permitted by applicable law or any applicable governmental authority, each counterpart signature page delivered to the Corporation via facsimile shall be deemed to be an original and may be relied on by the parties hereto as such. 7.10. Necessary Acts. Each party to this Agreement agrees to perform any -------------- further acts, and to execute and deliver any further documents, that may be reasonably necessary to give effect to the provisions of this Agreement and the transactions contemplated herein, whether before or after the Closing. -17- 7.11. Representation of Corporation and Company. Each Exchanging Party ----------------------------------------- hereby acknowledges and agrees that Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., as corporate counsel to the Corporation and the Company, have represented the interests of the Corporation and the Company in the preparation of this Agreement, without regard to the individual interests of the Exchanging Parties. Each Exchanging Party has been urged to, and has been given the opportunity to, utilize independent legal and tax counsel in connection with this Agreement, and the rights and obligations of each Exchanging Party hereunder. Each Exchanging Party, by execution of this Agreement where indicated below, gives his, her or its informed consent to and waives any potential conflict with respect to the representation of the Corporation and the Company by Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. 7.12. Assignment. No party hereto shall have the right to assign all or ---------- any portion of its rights and interests under this Agreement or to delegate all or any portion of its duties under this Agreement without the prior written consent of each other party hereto. 7.13. Joint Effort. The provisions of this Agreement have been examined, ------------ negotiated and revised by counsel for each party and no implication shall be drawn against any party hereto by virtue of the drafting of this Agreement. 7.14. Attorney's Fees. In case any proceeding, whether at law, in equity --------------- or in arbitration, shall be brought by any party to enforce or interpret the terms or provisions of this Agreement, or any controversy arising therefrom, the prevailing party, as determined by the court or arbitrator, shall be entitled to the payment of reasonable attorney's fees and costs. 7.15. Expenses. Each party hereto shall be responsible for all expenses -------- of such party incurred in connection with the transactions contemplated by this Agreement. 7.16. Notices. All notices, requests, demands, waivers and other ------- communications to be given by any party hereunder shall be in writing and shall be (i) mailed by first-class, registered or certified mail, postage prepaid, (ii) sent by hand delivery or reputable overnight delivery service or (iii) transmitted by facsimile (provided that a copy is also sent by reputable overnight delivery service) addressed to the parties at the respective addresses for such parties as reflected on the then-current records of the Corporation or the Company (and in the case of the Corporation and the Company, with a required copy to Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., Attention: Kenneth D. Polin, Esq., 101 West Broadway, 17th Floor, San Diego, California 92101), or, in each case, to such other address as may be specified in writing to the other parties hereto. All such notices, requests, demands, waivers and other communications shall be deemed to have been given and received (a) if by personal delivery or facsimile, on the day of such delivery, (b) if by first- class, registered or certified mail, on the fifth (5th) business day after the mailing thereof or (c) if by reputable overnight delivery service, on the day delivered. 7.17. Signatory Authority. The individual or individuals signing this ------------------- Agreement on -18- behalf of any party hereto represents to the other parties hereto that he or she has full authority to do so, has received all required consents, and that his or her signature (together with the signature or signatures of any other individual signing below on behalf of such party) is (are) the only signatures required to bind the party on whose behalf he or she is signing this Agreement. 7.18. Consent of Spouse. In connection with the execution and delivery of ----------------- this Agreement, each married Exchanging Member or Exchanging Stockholder residing in a community property jurisdiction agrees to deliver a consent of spouse, substantially in the form attached hereto as Exhibit "C" and ----------- incorporated herein by this reference. 7.19. Governing Law; Venue. Notwithstanding the place where the Agreement -------------------- may be executed by any of the parties hereto, this Agreement, and the rights and obligations of the parties hereto, and any disputes relating thereto, shall in all respects be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws. The exclusive venue for any controversy arising out of the terms of this Agreement or the breach thereof shall be the Superior Court of California for the County of Los Angeles or the United States District Court for the Central District of California. 7.20. Specific Performance. Each of the Exchanging Parties acknowledges -------------------- and agrees that any refusal to perform under this Agreement will cause irreparable injury to the Company and the Corporation and their respective members and stockholders and that the Corporation shall be entitled to obtain injunctive relief for specific performance of the obligations set forth herein. Accordingly, if any Exchanging Party refuses to close the transactions contemplated by this Agreement or seeks to prevent the closing hereunder due to a breach of this Agreement, the Corporation shall have the right to obtain specific performance of the obligations of such Exchanging Party. 7.21. Additional Parties. The parties hereto agree that additional ------------------ parties holding Units in the Company may execute this Agreement and such additional parties shall, after executing counterpart copies of this Agreement as Exchanging Parties hereunder, shall be parties hereto and have all rights and obligations of the Exchanging Parties hereunder. The Company covenants to use best efforts to obtain the signatures of all members of the Company to this Agreement. [Remainder of Page Intentionally Left Blank] -19- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. Corporation ENTRAVISION COMMUNICATIONS CORPORATION, a Delaware corporation By: /s/ Walter F. Ulloa -------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully ------------------------ Jeanette L. Tully, Chief Financial Officer Company ENTRAVISION COMMUNICATIONS COMPANY, L.L.C., a Delaware limited liability company By: /s/ Walter F. Ulloa -------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully ---------------------- Jeanette L. Tully, Chief Financial Officer Univision UNIVISION COMMUNICATIONS INC., a Delaware corporation By: /s/ Robert V. Cahill --------------------- Name: Robert V. Cahill ----------------- Title: V.P.\Secretary --------------- [Signature Page No. 1 to Exchange Agreement] Exchanging Members THE WALTER F. ULLOA IRREVOCABLE TRUST OF 1996 (DATED OCTOBER 9, 1996) By: /s/ Edith Seros --------------------------------------------------------- Edith Seros, Trustee Number of Units: 23,920 Class A Units THE 1994 WILKINSON CHILDREN'S GIFT TRUST (DATED SEPTEMBER 30, 1994) /s/ Philip C. Wilkinson By: by Walter F. Ulloa, as his attorney in fact --------------------------------------------------------- Philip C. Wilkinson, Trustee By: --------------------------------------------------------- Wendy K. Wilkinson, Trustee Number of Units: 23,920 Class A Units THE PAUL A. ZEVNIK IRREVOCABLE TRUST OF 1996 (DATED NOVEMBER 2, 1996) By: /s/ Kevin Grenham --------------------------------------------------------- Kevin Grenham, Trustee By: /s/ Steven G. Rowles --------------------------------------------------------- Steven G. Rowles, Trustee Number of Units: 23,920 Class A Units /s/ Paul A. Zevnik ------------------------------------------------------------ Paul A. Zevnik, individually Number of Units: 22,119 Class C Units 10,313 Class E Units [Signature Page No. 2 to Exchange Agreement] /s/ Walter F. Ulloa ------------------------------------------------------ Walter F. Ulloa, individually Number of Units: 225,139 Class C Units /s/ Philip C. Wilkinson by Walter F. Ulloa his attorney-in-fact ------------------------------------------------------ Philip C. Wilkinson, individually Number of Units: 25,131 Class C Units NORTON PROPERTIES LIMITED PARTNERSHIP, a Nevada limited partnership By: Norton Investments, Inc., a Nevada corporation Its General Partner and Managing Partner By: /s/ George Soneff ------------------------------------------ Name: George Soneff ----------------------------------------- Title: President ---------------------------------------- Number of Units: 13,817 Class C Units /s/ Larry Safir --------------- Lawrence E. Safir, individually Number of Units: 54,284 Class D Units THE ZEVNIK-HARVARD FUND (DATED DECEMBER 31, 1997) By: /s/ Steven G. Rowles ---------------------------------------------- Steven G. Rowles, Trustee Number of Units: 5,000 Class F Units [Signature Page No. 3 to Exchange Agreement] THE ZEVNIK CHARITABLE FOUNDATION, a California nonprofit public benefit corporation By: /s/ Paul A. Zevnik ------------------- Paul A. Zevnik, Chairman and President By: /s/ Steven G. Rowles --------------------- Steven G. Rowles, Chief Financial Officer and Secretary Number of Units: 5,313 Class F Units /s/ Jeanette L. Tully ---------------------- Jeanette L. Tully, individually Number of Units: 14,161 Class D Units /s/ Bram Watkins ----------------- Bram Watkins, individually Number of Units: 4,835 Class D Units Exchanging Stockholders THE WILKINSON FAMILY TRUST (DATED JUNE 2, 1988) /s/ Philip C. Wilkinson By: by Walter F. Ulloa, as his attorney-in-fact ------------------------------------------------- Philip C. Wilkinson, Trustee By: ------------------------------------------------- Wendy K. Wilkinson, Trustee Number of Shares: 8,000 Common Stock (Cabrillo) 3,454 Common Stock (Valley) 1,734 Common Stock (Telecorpus) [Signature Page No. 4 to Exchange Agreement] THE CAROL K. LUERY REVOCABLE TRUST (U/A/D 7/27/89) By: /s/ Carol K. Luery ------------------------------------------------------ Carol K. Luery, Trustee Number of Shares: 963.8 Common Stock (Cabrillo) 319 Common Stock (Valley) 334 Common Stock (Telecorpus) /s/ Walter F. Ulloa --------------------------------------------------------- Walter F. Ulloa, individually Number of Shares: 481.9 Common Stock (Cabrillo) 2,100 Common Stock (Golden Hills) 3,000 Common Stock (KSMS) 5,000 Common Stock (Las Tres) 6,750 Common Stock (Tierra Alta) 3,454 Common Stock (Valley) 1,734 Common Stock (Telecorpus) /s/ Philip C. Wilkinson by Walter F. Ulloa, as his attorney-in-fact --------------------------------------------------------- Philip C. Wilkinson, individually Number of Shares: 1,475 Common Stock (Golden Hills) 3,000 Common Stock (KSMS) /s/ Paul A. Zevnik --------------------------------------------------------- Paul A. Zevnik, individually Number of Shares: 1,475 Common Stock (Golden Hills) 3,000 Common Stock (KSMS) 5,000 Common Stock (Las Tres) 6,750 Common Stock (Tierra Alta) [Signature Page No. 5 to Exchange Agreement] /s/ Richard D. Norton -------------------------------------------------------- Richard D. Norton, individually Number of Shares: 1,000 Common Stock (Golden Hills) 1,000 Common Stock (KSMS) 2,000 Common Stock (Tierra Alta) 509 Common Stock (Valley) 533 Common Stock (Telecorpus) /s/ Yrma G. Rico -------------------------------------------------------- Yrma G. Rico, individually Number of Shares: 4,500 Common Stock (Tierra Alta) 356 Common Stock (Valley) 247 Common Stock (Telecorpus) THE WALTER F. ULLOA IRREVOCABLE TRUST OF 1996 (DATED OCTOBER 9, 1996) By: /s/ Edith Seros ------------------------------------------------------ Edith Seros, Trustee Number of Units: 1,880 Common Stock (Telecorpus) THE 1994 WILKINSON CHILDREN'S GIFT TRUST (DATED SEPTEMBER 30, 1994) /s/ Philip C. Wilkinson By: by Walter F. Ulloa, as his attorney-in-fact ------------------------------------------------------ Philip C. Wilkinson, Trustee By: ------------------------------------------------------ Wendy K. Wilkinson, Trustee Number of Shares: 1,880 Common Stock (Telecorpus) [Signature Page No. 6 to Exchange Agreement] THE PAUL A. ZEVNIK IRREVOCABLE TRUST OF 1996 (DATED NOVEMBER 2, 1996) By: /s/ Kevin Grenham --------------------------------------------------------- Kevin Grenham, Trustee By: /s/ Steven G. Rowles --------------------------------------------------------- Steven G. Rowles, Trustee Number of Shares: 1,533 Common Stock (Telecorpus) THE ZEVNIK FAMILY L.L.C. By: /s/ Paul A. Zevnik --------------------------------------------------------- Paul A. Zevnik, Manager Number of Shares: 1,466 Common Stock (Valley) [Signature Page No. 7 to Exchange Agreement] SCHEDULE "A" EXCHANGING `MEMBERS ------------------- Name Number of Units - ---- --------------- The Walter F. Ulloa Irrevocable Trust of 1996 23,920 Class A Units The 1994 Wilkinson Children's Gift Trust 23,920 Class A Units The Paul A. Zevnik Irrevocable Trust of 1996 23,920 Class A Units Walter F. Ulloa 225,139 Class C Units Philip C. Wilkinson 25,131 Class C Units Paul A. Zevnik 22,119 Class C Units Norton Properties Limited Partnership 13,817 Class C Units Lawrence E. Safir 54,284 Class D Units Jeanette L. Tully 14,161 Class D Units Bram Watkins 4,835 Class D Units Persons Listed on Schedule "C-2" 14,875 Class D Units Paul A. Zevnik 10,313 Class E Units The Zevnik-Harvard Fund 5,000 Class F Units The Zevnik Charitable Foundation 5,313 Class F Units Persons Listed on Schedule "C-1" 80,168 Class D Units EXCHANGING STOCKHOLDERS ----------------------- Member Company/Stockholders Number and Class of Shares - --------------------------- -------------------------- Cabrillo Broadcasting Corporation, a California corporation The Wilkinson Family Trust 8,000 Common Stock The Carol K. Luery Revocable Trust 963.8 Common Stock Walter F. Ulloa 481.9 Common Stock Golden Hills Broadcasting Corporation, a Delaware corporation Walter F. Ulloa 2,100 Common Stock Philip C. Wilkinson 1,475 Common Stock Paul A. Zevnik 1,475 Common Stock Richard D. Norton 1,000 Common Stock KSMS-TV, Inc., a Delaware corporation Walter F. Ulloa 3,000 Common Stock Philip C. Wilkinson 3,000 Common Stock Paul A. Zevnik 3,000 Common Stock Richard D. Norton 1,000 Common Stock
Las Tres Palmas Corporation, a Delaware corporation Walter F. Ulloa 5,000 Common Stock Paul A. Zevnik 5,000 Common Stock Tierra Alta Broadcasting, Inc., a Delaware corporation Walter F. Ulloa 6,750 Common Stock Paul A. Zevnik 6,750 Common Stock Yrma G. Rico 4,500 Common Stock Richard D. Norton 2,000 Common Stock Valley Channel 48, Inc., a Texas corporation Walter F. Ulloa 3,454 Common Stock The Wilkinson Family Trust 3,454 Common Stock The Zevnik Family L.L.C. 1,466 Common Stock Richard D. Norton 509 Common Stock Yrma G. Rico 356 Common Stock The Carol K. Luery Revocable Trust 319 Common Stock Telecorpus, Inc., a Texas corporation The Walter F. Ulloa Irrevocable Trust of 1996 1,880 Common Stock The 1994 Wilkinson Children's Gift Trust 1,880 Common Stock Walter F. Ulloa 1,734 Common Stock The Wilkinson Family Trust 1,734 Common Stock The Paul A. Zevnik Irrevocable Trust of 1996 1,533 Common Stock Richard D. Norton 533 Common Stock The Carol K. Luery Revocable Trust 334 Common Stock Yrma G. Rico 247 Common Stock
SCHEDULE "B" FULLY-DILUTED EQUITY OWNERSHIP OF CORPORATION ---------------------------------------------
Exchanging Party Units* Shares** - ---------------- ------ -------- Walter F. Ulloa 617,451 20,993,334 The Walter F. Ulloa Irrevocable Trust of 1996 52,344 1,779,696 Philip C. Wilkinson 63,051 2,143,734 The Wilkinson Family Trust 554,400 18,849,600 The 1994 Wilkinson Children's Gift Trust 52,344 1,779,696 Paul A. Zevnik 124,653 4,238,202 The Paul A. Zevnik Irrevocable Trust of 1996 47,098 1,601,332 Richard D. Norton 84,893 2,886,362 Norton Properties Limited Partnership 13,817 469,778 Yrma G. Rico 67,128 2,282,352 The Carol K. Luery Revocable Trust 61,916 2,105,144 Lawrence E. Safir 54,284 1,845,656 Jeanette L. Tully 14,161 481,474 Bram Watkins 4,835 164,390 The Zevnik-Harvard Fund 5,000 170,000 The Zevnik-Charitable Foundation 5,313 180,642 The Zevnik Family L.L.C. 102,148 3,473,032 Persons Listed on Schedule "C-1" 80,168 2,725,712 Persons Listed on Schedule "C-2" 14,875 505,750 Univision Communications Inc. 1,293,141 43,966,783
*Represents Units owned directly and indirectly. ** Assumes exchange of 1 Unit for 34 Shares of Common Stock in the Roll-Up and is subject to adjustment based upon the final exchange ratio. SCHEDULE "C-1" ADDITIONAL HOLDINGS OF D UNITS ------------------------------
Name D Units* Shares - ---- ---------- ---------- Walter F. Ulloa 17,034 579,156 The Walter F. Ulloa Irrevocable Trust of 1996 1,444 49,096 Philip C. Wilkinson 1,739 59,126 The Wilkinson Family Trust 15,295 520,030 The 1994 Wilkinson Children's Gift Trust 1,444 49,096 Paul A. Zevnik 3,438 116,892 The Paul A. Zevnik Irrevocable Trust of 1996 1,300 44,200 Richard D. Norton 2,339 79,526 Norton Properties Limited Partnership 383 13,022 Yrma G. Rico 1,854 63,036 The Carol K. Luery Revocable Trust 1,706 58,004 The Zevnik-Harvard Fund 139 4,726 The Zevnik-Charitable Foundation 147 4,998 The Zevnik Family L.L.C. 2,818 95,812 [New List] [29,088] [988,992] __________ __________ 80,168 2,725,712
* Represents Units owned directly and indirectly. SCHEDULE "C-2" ADDITIONAL HOLDINGS OF D UNITS ------------------------------
Name D Units* Shares - ---- ---------- ---------- Walter F. Ulloa 4,961 168,674 The Walter F. Ulloa Irrevocable Trust of 1996 421 14,314 Philip C. Wilkinson 506 17,204 The Wilkinson Family Trust 4,454 151,436 The 1994 Wilkinson Children's Gift Trust 421 14,314 Paul A. Zevnik 1,001 34,034 The Paul A. Zevnik Irrevocable Trust of 1996 377 12,818 Richard D. Norton 681 23,154 Norton Properties Limited Partnership 112 3,808 Yrma G. Rico 540 18,360 The Carol K. Luery Revocable Trust 497 16,898 The Zevnik-Harvard Fund 40 1,360 The Zevnik-Charitable Foundation 43 1,462 The Zevnik Family L.L.C. 821 27,914 __________ __________ 14,875 505,750
* Represents Units owned directly and indirectly. Exhibit A First Restated Certificate of Incorporation Exhibit B First Amended and Restated Bylaws Exhibit C Consent of Spouse The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. EX-5.1 4 0004.txt OPINION OF ZEVNICK HORTON GUIBORD MCGOVERN PALMER EXHIBIT 5.1 [LETTERHEAD OF ZEVNIK HORTON GUIBORD McGOVERN PALMER & FOGNANI, L.L.P.] _____________, 2000 Entravision Communications Corporation 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 94101 Ladies and Gentlemen: At your request, we have examined Amendment No. ___ to the Registration Statement (the "Registration Statement") on Form S-1 (File No. 333-35336) of Entravision Communications Corporation, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of shares of Class A Common Stock, $0.0001 par value per share, of the Company having an aggregate offering price of up to $736 million (the "Shares"). We are familiar with the proceedings taking by the Company in connection with the authorization, issuance and sale of the Shares. Subject to certain proposed additional proceedings being taken as contemplated by the Registration Statement prior to the issuance and sale of the Shares being offered by the Company, we are of the opinion that the Shares will be duly authorized by all necessary corporate action on the part of the Company and, upon payment for and delivery of the Shares as contemplated by the Registration Statement and the countersigning of the certificate or certificates representing the Shares by a duly authorized signatory of the registrar for the Company's Common Stock, the Shares will be validly issued, fully paid and non- assessable. The law covered by this opinion is limited to the present General Corporation Law of the State of Delaware. We express no opinion as to the laws of any other jurisdiction and no opinion regarding the statutes, administrative decisions, rules, regulations or requirements of any county, municipality, subdivision or local authority of any jurisdiction. Entravision Communications Corporation _______________, 2000 Page 2 We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading "Legal Matters" in the prospectus constituting part of the Registration Statement. Respectfully submitted, ZEVNIK HORTON GUIBORD McGOVERN PALMER & FOGNANI, L.L.P. EX-10.1 5 0005.txt 2000 OMNIBUS EQUITY INCENTIVE PLAN EXHIBIT 10.1 ENTRAVISION COMMUNICATIONS CORPORATION 2000 OMNIBUS EQUITY INCENTIVE PLAN 1. Introduction. The Plan was adopted by the Board effective June 12, ------------ 2000. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (i) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (ii) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (iii) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Options (which may constitute incentive stock options or nonstatutory stock options), SARs, Restricted Shares or Stock Units. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except their choice-of-law provisions). 2. Administration. -------------- 2.1 Committee Composition. The Plan shall be administered by the --------------------- Committee. The Committee shall consist exclusively of two (2) or more directors of the Company, who shall be appointed by the Board. In addition, the composition of the Committee shall satisfy: (a) such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (b) such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code. 2.2 Committee Responsibilities. The Committee shall (i) select the -------------------------- Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (ii) determine the type, number, vesting requirements and other features and conditions of such Awards, (iii) interpret the Plan and (iv) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. 2.3 Committee for Non-Officer Grants. The Board may also appoint a -------------------------------- secondary committee of the Board, which shall be composed of one or more directors of the Company who need not satisfy the requirements of Section 2.1 above. Such secondary committee may administer the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all features and conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee. 3. Shares Available for Grants. --------------------------- 3.1 Basic Limitation. Common Shares issued pursuant to the Plan may ---------------- be authorized but unissued shares or treasury shares. The aggregate number of Options, SARs, Restricted Shares and Stock Units awarded under the Plan shall not exceed (i) 19,350,000 plus (ii) the additional Common Shares described in Section 3.2 below. The limitation of this Section 3.1 shall be subject to adjustment pursuant to Section 11 below. 3.2 Additional Shares. If Restricted Shares or Common Shares issued ----------------- upon the exercise of Options are forfeited, then such Common Shares shall again become available for Awards under the Plan. If Options, SARs or Stock Units are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for Awards under the Plan. If Stock Units are settled, then only the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section 3.1 above and the balance shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Common Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 above and the balance shall again become available for Awards under the Plan. The foregoing notwithstanding, the aggregate number of Common Shares that may be issued under the Plan upon the exercise of ISOs shall not be increased when Restricted Shares or other Common Shares are forfeited. 3.3 Dividend Equivalents. Any dividend equivalents paid or credited -------------------- under the Plan shall not be applied against the number of Options, SARs, Restricted Shares or Stock Units available for Awards, whether or not such dividend equivalents are converted into Stock Units. 4. Eligibility. ----------- 4.1 Incentive Stock Options. Only Employees who are common-law ----------------------- employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in Section 422(c)(6) of the Code are satisfied. 4.2 Other Grants. Only Employees, Outside Directors and Consultants ------------ shall be eligible for the grant of NSOs, SARs, Restricted Shares or Stock Units. 5. Options. ------- 5.1 Stock Option Agreement. Each grant of an Option under the Plan ---------------------- shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option -2- shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee's other compensation. A Stock Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2 below. 5.2 Number of Shares. Each Stock Option Agreement shall specify the ---------------- number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Section 11 below. Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 500,000 Common Shares, except that Options granted to a new Employee in the fiscal year of the Company in which his or her service as an Employee first commences shall not cover more than 1,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Section 11 below. 5.3 Exercise Price. Each Stock Option Agreement shall specify the -------------- Exercise Price; provided that the Exercise Price under an ISO shall in no event be less than one hundred percent (100%) of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NSO shall in no event be less than eighty-five percent (85%) of the Fair Market Value of a Common Share on the date of grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding. 5.4 Exercisability and Term. Each Stock Option Agreement shall ----------------------- specify the date or event when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed ten (10) years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. 5.5 Effect of Change in Control. The Committee may determine, at the --------------------------- time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company; provided that in the case of an ISO, the acceleration of exercisability shall not occur without the Optionee's written consent. 5.6 Modification or Assumption of Options. Within the limitations of ------------------------------------- the Plan, the Committee may modify, extend or assume outstanding options or may accept the -3- cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. 5.7 Buyout Provisions. The Committee may at any time (i) offer to ----------------- buy out for a payment in cash or cash equivalents an Option previously granted or (ii) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish. 6. Payment for Option Shares. ------------------------- 6.1 General Rule. The entire Exercise Price of Common Shares issued ------------ upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except as follows: (a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 6. (b) In the case of an NSO, the Committee may at any time accept payment in any form(s) described in this Section 6. 6.2 Surrender of Stock. To the extent that this Section 6.2 is ------------------ applicable, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. The Optionee shall not surrender, or attest to the ownership of, Common Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes. 6.3 Exercise/Sale. To the extent that this Section 6.3 is ------------- applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company. 6.4 Exercise/Pledge. To the extent that this Section 6.4 is --------------- applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to pledge all or part of the Common Shares -4- being purchased under the Plan to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company. 6.5 Promissory Note. To the extent that this Section 6.5 is --------------- applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) a full-recourse promissory note. However, the par value of the Common Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents. 6.6 Other Forms of Payment. To the extent that this Section 6.6 is ---------------------- applicable, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules. 7. Option Grants to Outside Directors. ---------------------------------- 7.1 Initial Grants. Each Outside Director who first becomes a member -------------- of the Board after the date of the Company's initial public offering shall receive a one-time grant of an NSO covering such number of Common Shares as determined by the Board in its discretion (subject to adjustment under Section 11 below). Such NSO shall be granted on the date when such Outside Director first joins the Board and shall become exercisable as determined by the Board in its discretion. 7.2 Annual Grants. Upon the conclusion of each regular annual ------------- meeting of the Company's stockholders held in the year 2001, or thereafter, each Outside Director who will continue serving as a member of the Board thereafter shall receive an NSO covering such number of Common Shares as determined by the Board in its discretion (subject to adjustment under Section 11 below), except that such NSO shall not be granted in the calendar year in which the same Outside Director received the NSO described in Section 7.1 above. NSOs granted under this Section 7.2 shall become exercisable in full on the first (1st) anniversary of the date of grant. 7.3 Accelerated Exercisability. All NSOs granted to an Outside -------------------------- Director under this Section 7 shall also become exercisable in full in the event of: (a) the termination of such Outside Director's service because of death, total and permanent disability or retirement at or after age 65; or (b) a Change in Control with respect to the Company. 7.4 Exercise Price. The Exercise Price under all NSOs granted to an -------------- Outside Director under this Section 7 shall be equal to one hundred percent (100%) of the Fair Market Value of a Common Share on the date of grant, payable in one of the forms described in Sections 6.1, 6.2, 6.3 and 6.4 above. -5- 7.5 Term. All NSOs granted to an Outside Director under this Section ---- 7 shall terminate on the earliest of (i) the tenth (10th) anniversary of the date of grant, (ii) the date three (3) months after the termination of such Outside Director's service for any reason other than death or total and permanent disability or (iii) the date three (3) months after the termination of such Outside Director's service because of death or total and permanent disability. 7.6 Affiliates of Outside Directors. The Committee may provide that ------------------------------- the NSOs that otherwise would be granted to an Outside Director under this Section 7 shall instead be granted to an affiliate of such Outside Director. Such affiliate shall then be deemed to be an Outside Director for purposes of the Plan, provided that the service-related vesting and termination provisions pertaining to the NSOs shall be applied with regard to the service of the Outside Director. 8. Stock Appreciation Rights. ------------------------- 8.1 SAR Agreement. Each grant of an SAR under the Plan shall be ------------- evidenced by an SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation. 8.2 Number of Shares. Each SAR Agreement shall specify the number of ---------------- Common Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 11 below. SARs granted to any Optionee in a single calendar year shall in no event pertain to more than 500,000 Common Shares, except that SARs granted to a new Employee in the fiscal year of the Company in which his or her service as an Employee first commences shall not pertain to more than 1,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Section 11 below. 8.3 Exercise Price. Each SAR Agreement shall specify the Exercise -------------- Price. An SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. 8.4 Exercisability and Term. Each SAR Agreement shall specify the ----------------------- date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited. An SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. An SAR granted under the Plan may provide that it will be exercisable only in the -6- event of a Change in Control. 8.5 Effect of Change in Control. The Committee may determine, at the --------------------------- time of granting an SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that a Change in Control occurs with respect to the Company. 8.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any ---------------- person having the right to exercise the SAR after his or her death) shall receive from the Company (i) Common Shares, (ii) cash or (iii) a combination of Common Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds the Exercise Price. If, on the date when an SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. 8.7 Modification or Assumption of SARs. Within the limitations of ---------------------------------- the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR. 9. Restricted Shares. ----------------- 9.1 Restricted Stock Agreement. Each grant of Restricted Shares -------------------------- under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical. 9.2 Payment for Awards. Subject to the following sentence, ------------------ Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including, without limitation, cash, cash equivalents, full-recourse promissory notes, past services and future services. To the extent that an Award consists of newly issued Restricted Shares, the Award recipient shall furnish consideration with a value not less than the par value of such Restricted Shares in the form of cash, cash equivalents or past services rendered to the Company (or a Parent or Subsidiary), as the Committee may determine. 9.3 Vesting Conditions. Each Award of Restricted Shares may or may ------------------ not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the -7- conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company. 9.4 Voting and Dividend Rights. The holders of Restricted Shares -------------------------- awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. 10. Stock Units. ----------- 10.1 Stock Unit Agreement. Each grant of Stock Units under the Plan -------------------- shall be evidenced by a Stock Unit Agreement between the recipient and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the recipient's other compensation. 10.2 Payment for Awards. To the extent that an Award is granted in ------------------ the form of Stock Units, no cash consideration shall be required of the Award recipients. 10.3 Vesting Conditions. Each Award of Stock Units may or may not be ------------------ subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that a Change in Control occurs with respect to the Company. 10.4 Voting and Dividend Rights. The holders of Stock Units shall -------------------------- have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach. -8- 10.5 Form and Time of Settlement of Stock Units. Settlement of ------------------------------------------ vested Stock Units may be made in the form of (i) cash, (ii) Common Shares or (iii) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include, without limitation, a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 11 below. 10.6 Death of Recipient. Any Stock Units Award that becomes payable ------------------ after the recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's estate. 10.7 Creditors' Rights. A holder of Stock Units shall have no rights ----------------- other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. 11. Protection Against Dilution. --------------------------- 11.1 Adjustments. In the event of a subdivision of the outstanding ----------- Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of: (a) the number of Options, SARs, Restricted Shares and Stock Units available for future Awards under Section 3 above; (b) the limitations set forth in Sections 5.2 and 8.2 above; (c) the number of NSOs to be granted to Outside Directors under -9- Section 7 above; (d) the number of Common Shares covered by each outstanding Option and SAR; (e) the Exercise Price under each outstanding Option and SAR; or (f) the number of Stock Units included in any prior Award which has not yet been settled. Except as provided in this Section 11, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. 11.2 Dissolution or Liquidation. To the extent not previously -------------------------- exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company. 11.3 Reorganizations. In the event that the Company is a party to a --------------- merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement shall provide for: (a) the continuation of the outstanding Awards by the Company, if the Company is a surviving corporation; (b) the assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary; (c) the substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards; (d) full exercisability or vesting and accelerated expiration of the outstanding Awards; or (e) settlement of the full value of the outstanding Awards in cash or cash equivalents followed by cancellation of such Awards. 12. Deferral of Awards. The Committee (in its sole discretion) may permit ------------------ or require a Participant to: 12.1 have cash that otherwise would be paid to such Participant as a result of the exercise of an SAR or the settlement of Stock Units credited to a deferred compensation -10- account established for such Participant by the Committee as an entry on the Company's books; 12.2 have Common Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units; or 12.3 have Common Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the settlement of Stock Units converted into amounts credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company's books. Such amounts shall be determined by reference to the Fair Market Value of such Common Shares as of the date when they otherwise would have been delivered to such Participant. A deferred compensation account established under this Section 12 may be credited with interest or other forms of investment return, as determined by the Committee. A Participant for whom such an account is established shall have no rights other than those of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement between such Participant and the Company. If the deferral or conversion of Awards is permitted or required, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such Awards, including, without limitation, the settlement of deferred compensation accounts established under this Section 12. 13. Awards Under Other Plans. The Company may grant awards under other ------------------------ plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Section 3 above. 14. Payment of Director's Fees in Securities. ---------------------------------------- 14.1 Effective Date. No provision of this Section 14 shall be -------------- effective unless and until the Board has determined to implement such provision. 14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An ----------------------------------------------------------- Outside Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An election under this Section 14 shall be filed with the Company on the prescribed form. 14.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The ---------------------------------------------------------- number of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in lieu of -11- annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The terms of such NSOs, Restricted Shares or Stock Units shall also be determined by the Board. 15. Limitations on Rights. --------------------- 15.1 Retention Rights. Neither the Plan nor any Award granted under ---------------- the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company's certificate of incorporation and bylaws, each as amended, and a written employment agreement (if any). 15.2 Stockholders' Rights. A Participant shall have no dividend -------------------- rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if applicable, the time when he or she becomes entitled to receive such Common Shares by filing any required notice of exercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan. 15.3 Regulatory Requirements. Any other provision of the Plan ----------------------- notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. 16. Withholding Taxes. ----------------- 16.1 General. To the extent required by applicable federal, state, ------- local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied. 16.2 Share Withholding. The Committee may permit a Participant to ----------------- satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. -12- 17. Future of the Plan. ------------------ 17.1 Term of the Plan. The Plan, as set forth herein, shall become ---------------- effective on June 12, 2000. The Plan shall remain in effect until it is terminated under Section 17.2 below, except that no ISOs shall be granted on or after the tenth (10th) anniversary of the later of (i) the date when the Board adopted the Plan or (ii) the date when the Board adopted the most recent increase in the number of Common Shares available under Section 3 above which was approved by the Company's stockholders. 17.2 Amendment or Termination. The Board may, at any time and for ------------------------ any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. 18. Limitation on Parachute Payments. -------------------------------- 18.1 Scope of Limitation. This Section 18 shall apply to an Award ------------------- only if: (a) the independent auditors most recently selected by the Board (the "Auditors") determine that the after-tax value of such Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under Section 4999 of the Code), will be greater after the application of this Section 18 than it was before the application of this Section 18; or (b) the Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be subject to this Section 18 (regardless of the after-tax value of such Award to the Participant). If this Section 18 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan. 18.2 Basic Rule. Except as may be set forth in a written agreement ---------- by and between the Company and the holder of an Award, in the event that the Auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a "Payment") would be nondeductible by the Company for federal income tax purposes because of the provisions concerning "excess parachute payments" in Section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Section 18, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. -13- 18.3 Reduction of Payments. If the Auditors determine that any --------------------- Payment would be nondeductible by the Company because of Section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within ten (10) days of receipt of notice. If no such election is made by the Participant within such ten (10) day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Section 18, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Auditors under this Section 18 shall be binding upon the Company and the Participant and shall be made within sixty (60) days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan. 18.4 Overpayments and Underpayments. As a result of uncertainty in ------------------------------ the application of Section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company that should not have been made (an "Overpayment") or that additional Payments that will not have been made by the Company could have been made (an "Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount subject to taxation under Section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in Section 7872(f)(2) of the Code. 18.5 Related Corporations. For purposes of this Section 18, the term -------------------- "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with Section 280G(d)(5) of the Code. 19. Definitions. ----------- -14- 19.1 "Affiliate" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than fifty percent (50%) of such entity. 19.2 "Award" means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan. 19.3 "Board" means the Company's Board of Directors, as constituted from time to time. 19.4 "Change in Control" shall mean: (a) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (b) the sale, transfer or other disposition of all or substantially all of the Company's assets; (c) a change in the composition of the Board, as a result of which fewer than fifty percent (50%) of the incumbent directors are directors who either (i) had been directors of the Company on the date twenty-four (24) months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or (d) any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Section 19.4(d), the term "person" shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction. -15- 19.5 "Code" means the Internal Revenue Code of 1986, as amended. 19.6 "Committee" means a committee of the Board, as described in Section 2 above. 19.7 "Common Share" means one (1) share of the Class A common stock of the Company. 19.8 "Company" means Entravision Communications Corporation, a Delaware corporation. 19.9 "Consultant" means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.1 above. 19.10 "Employee" means a common-law employee or officer (whether or not a director) of the Company, a Parent, a Subsidiary or an Affiliate. 19.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 19.12 "Exercise Price," in the case of an Option, means the amount for which one (1) Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. "Exercise Price," in the case of an SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one (1) Common Share in determining the amount payable upon exercise of such SAR. 19.13 "Fair Market Value" means the market price of Common Shares, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Wall Street Journal. Such determination shall be conclusive and binding on all persons. 19.14 "ISO" means an incentive stock option described in Section 422(b) of the Code. 19.15 "NSO" means a stock option not described in Sections 422 or 423 of the Code. 19.16 "Option" means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares. 19.17 "Optionee" means an individual or estate who holds an Option or SAR. -16- 19.18 "Outside Director" shall mean a member of the Board who is not an Employee. Service as an Outside Director shall be considered employment for all purposes of the Plan, except as provided in Section 4.1 above. 19.19 "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. 19.20 "Participant" means an individual or estate who holds an Award. 19.21 "Plan" means this Entravision Communications Corporation 2000 Omnibus Equity Incentive Plan, as amended from time to time. 19.22 "Restricted Share" means a Common Share awarded under the Plan. 19.23 "Restricted Stock Agreement" means the agreement between the Company and the recipient of a Restricted Share which contains the terms, conditions and restrictions pertaining to such Restricted Share. 19.24 "SAR" means a stock appreciation right granted under the Plan. 19.25 "SAR Agreement" means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her SAR. 19.26 "Stock Option Agreement" means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option. 19.27 "Stock Unit" means a bookkeeping entry representing the equivalent of one (1) Common Share, as awarded under the Plan. 19.28 "Stock Unit Agreement" means the agreement between the Company and the recipient of a Stock Unit which contains the terms, conditions and restrictions pertaining to such Stock Unit. 19.29 "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of -17- the Plan shall be considered a Subsidiary commencing as of such date. 20. Execution. To record the adoption of the Plan by the Board, the --------- Company has caused its duly authorized officer to execute this document in the name of the Company. -18- EX-10.2 6 0006.txt FORM OF VOTING AGRMT ULLOA, WILKINSON, ZEVNIK EXHIBIT 10.2 VOTING AGREEMENT ---------------- This Voting Agreement (the "Agreement") is dated ___________________, 2000 by and among Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik (each, individually, a "Stockholder" and, collectively, the "Stockholders") and Entravision Communications Corporation, a Delaware corporation (the "Company"), is entered into with reference to the following facts: WHEREAS, the Stockholders own of record all of the issued and outstanding shares of Class B Common Stock, par value $0.0001 per share, of the Company. WHEREAS, the execution and delivery of this Agreement is required by the terms of that certain Univision Roll-Up Agreement dated March 2, 2000 by and between Univision Communications Inc. and Entravision Communications Company, L.L.C. NOW, THEREFORE, the parties hereto agree as follows: 1. Voting Agreement. At any time that nominees for the election of Class ---------------- A/B Directors to the Board of Directors of the Company are submitted to the stockholders of the Company, or a proposal to remove any incumbent Class A/B Director of the Company is submitted to such stockholders, each of the Stockholders agrees to vote, or cause to be voted, all Voting Securities (as defined below) then held by such party, whether beneficially or of record, or any Voting Securities over which such party exercises voting control, in favor of the nominees designated in writing by both Walter F. Ulloa and Philip C. Wilkinson (the "Nominating Stockholders"). In addition to the foregoing, Paul A. Zevnik hereby agrees that any time a matter other than election of directors is submitted to the stockholders of the Company, he shall vote all Voting Securities then held by him, whether beneficially or of record, in the same manner as both Walter F. Ulloa and Philip C. Wilkinson. Paul A. Zevnik shall be required to vote his Voting Securities in the manner described in the preceding sentence solely in instances where both Walter F. Ulloa and Philip C. Wilkinson vote either affirmatively or negatively. In any instance in which Walter F. Ulloa and Philip C. Wilkinson vote their Voting Securities in different manners, Paul A. Zevnik will be free to vote his Voting Securities as he chooses. For the purpose of this Agreement, "Voting Securities" shall mean any and all shares of capital stock of the Company, of any class or series, which shall have the right at any time to vote in the election of the Company's directors, including without limitation, shares of the Company Class B Common Stock. 2. Designation of Nominees. For so long as such individuals have a ----------------------- contractual right to be elected to the Board of Directors of the Company, the Nominating Stockholders hereby agree to elect Amador S. Bustos and Darryl B. Thompson as Class A Directors of the Company. The Nominating Stockholders hereby irrevocably designate the following individuals as nominees for election to the Board of Directors of the Company as Class B Directors: Walter F. Ulloa, Philip C. Wilkinson and Paul A. Zevnik. The Nominating Stockholders shall also have the power to designate additional individuals as nominees for election as Class B Directors of the Company. In the event that any of the foregoing at any time are unable to serve out their terms, resign from the Board of Directors of the Company or decline to be nominated for election or reelection, then the Nominating Stockholders shall have the right to designate in writing a replacement nominee. 3. Irrevocable Proxy. Should the provisions of this Agreement be ----------------- construed to constitute the granting of proxies, such proxies shall be deemed coupled with an interest and are irrevocable for the term of this Agreement. 4. Representations and Warranties of the Stockholders. As of the date -------------------------------------------------- hereof, each Stockholder represents and warrants to the other Stockholders as follows: (a) Ownership of Securities. The Stockholder is the record and ----------------------- beneficial owner of, or exercises voting control of, the number of shares of Voting Securities of the Company set forth on the signature page to this Agreement (the "Existing Securities"). The Holder has sole voting power and sole power to issue instructions with respect to the voting of the Existing Securities, sole power of disposition and the sole power of exercise or conversion, in each case with respect to all of the Existing Securities. As of the date hereof, the Stockholder will have sole voting power and sole power to issue instructions with respect to the voting of all of the Existing Securities, sole power of disposition and the sole power of exercise or conversion, in each case with respect to all of the Existing Securities. (b) Power; Binding Agreement. The Stockholder has full power and ------------------------ authority to enter into and perform all of the Stockholder's obligations under this Agreement. This Agreement has been duly and validly executed and delivered by the Stockholder and constitutes a valid and binding agreement of the Stockholder, enforceable against the Stockholder in accordance with its terms. (c) No Conflicts. No filing with, and no permit, authorization, ------------ consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by the Stockholder and the consummation by the Stockholder of the transactions contemplated hereby, other than filings which may be required pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and neither the execution and delivery of this Agreement by the Stockholder nor the consummation by the Stockholder of the transactions contemplated hereby nor compliance by the Stockholder with any of the provisions hereof shall conflict with or result in any breach of any applicable organizational documents of the Company applicable to the Stockholder, result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third-party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Stockholder is a party or by which the Stockholder's properties or assets -2- may be bound or violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to the Stockholder or any of the Stockholder's properties or assets. 5. Transfer of Voting Securities to Permitted Transferees. During the ------------------------------------------------------ term of this Agreement, no Stockholder or any Permitted Transferee (as defined in the Company's First Restated Certificate of Incorporation) who shall become a party to or be bound this Agreement shall transfer any Voting Securities, whether now or hereafter acquired, other than to any person who agrees to be bound by and be subject to the terms and conditions of this Agreement with the same force and effect as if such person were named as a party to this Agreement. 6. Assignment; Benefits. This Agreement may not be assigned by any party -------------------- hereto without the prior written consent of each of the other parties. This Agreement shall be binding upon, and shall inure to the benefit of, each of the signatories hereto and their respective successors and permitted assigns. 7. Legend on Stock Certificates. The Company and each Stockholder shall ---------------------------- submit to the Company's transfer agent certificates evidencing the Class B Common Stock and other Voting Securities now or hereafter owned by the Stockholders at any time during the term of this Agreement and the Company shall cause the transfer agent to imprint on such certificates (or replacement certificates) a restrictive legend as follows: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A VOTING AGREEMENT DATED _______________, 2000, A COPY OF WHICH IS ON FILE WITH THE OFFICERS OF THE ISSUER OF THIS CERTIFICATE. THE SHARES ARE SUBJECT TO CERTAIN VOTING RESTRICTIONS. ANY ACTIONS TAKEN IN CONTRAVENTION TO THAT AGREEMENT SHALL BE NULL AND VOID. 8. Notices. Any notice required to be given hereunder shall be in writing ------- and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid) to the address of such party set forth on the signature pages hereto or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so delivered. 9. Specific Performance. The parties hereto agree that irreparable harm -------------------- would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. -3- 10. Amendment. This Agreement may not be amended or modified, except by --------- an instrument in writing signed by or on behalf of each of the parties hereto. This Agreement may not be waived by any party hereto, except by an instrument in writing signed by or on behalf of the party granting such waiver. 11. Governing Law. This Agreement shall be governed by, construed and ------------- enforced in accordance with the laws of the State of Delaware, without regard to its rules regarding conflict of laws. 12. Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original, but all of which together shall constitute one and the same agreement. 13. Termination. This Agreement shall commence on the date hereof and ----------- shall terminate with respect to each particular Stockholder upon the automatic conversion of such Stockholder's Class B Common Stock of the Company to Class A Common Stock of the Company pursuant to the terms of the Company's First Restated Certificate of Incorporation (or any amendment thereto). [Remainder of Page Intentionally Left Blank] -4- IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of the parties hereto, all as of the date first above written above. Stockholders ---------------------------------------------- Walter F. Ulloa Existing Securities: Class B Common Stock Number of Shares: 11,489,365 Address: 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 ---------------------------------------------- Philip C. Wilkinson Existing Securities: Class B Common Stock Number of Shares: 11,489,365 Address: 5770 Ruffin Road San Diego, California 92123 ---------------------------------------------- Paul A. Zevnik Existing Securities: Class B Common Stock Number of Shares: 4,699,803 Address: 1299 Pennsylvania Avenue, N.W., 9th Floor Washington, D.C. 20004 [Signature Page No. 1 to Voting Agreement] Company ENTRAVISION COMMUNICATIONS CORPORATION, a Delaware corporation By: -------------------------------------- Walter F. Ulloa Chairman and Chief Executive Officer By: -------------------------------------- Philip C. Wilkinson President and Chief Operating Officer Address: 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 [Signature Page No. 2 to Voting Agreement] EX-10.6 7 0007.txt 3RD AMDMT TO AMENDED & RESTATED 4/18/2000 EXHIBIT 10.6 THIRD AMENDMENT --------------- TO -- AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") dated as of April 20, 2000, is entered into among (1) KSMS-TV, - ---------- INC., a Delaware corporation, TIERRA ALTA BROADCASTING, INC., a Delaware corporation, CABRILLO BROADCASTING CORPORATION, a California corporation, GOLDEN HILLS BROADCASTING CORPORATION, a Delaware corporation, LAS TRES PALMAS CORPORATION, a Delaware corporation, VALLEY CHANNEL 48, INC., a Texas corporation, TELECORPUS, INC., a Texas corporation, and ENTRAVISION COMMUNICATIONS COMPANY, L.L.C. ("Entravision"), a Delaware limited liability ----------- company (each a "Borrower," and collectively, the "Borrowers"), (2) the several -------- --------- banks and other financial institutions from time to time parties to the Credit Agreement referred to below (the "Lenders") and (3) UNION BANK OF CALIFORNIA, ------- N.A., as agent for the Lenders (in such capacity, the "Agent"). ----- Recitals -------- A. The Borrowers, the Lenders and the Agent previously entered into that certain Amended and Restated Credit Agreement dated as of November 10, 1998 (as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 29, 1999 and the Second Amendment to Amended and Restated Credit Agreement dated as of January 14, 2000, the "Credit Agreement"). Capitalized ---------------- terms used herein and not otherwise defined shall have the meanings assigned to them in the Credit Agreement or as added to the Credit Agreement pursuant to this Amendment. B. The Borrowers have informed the Agent that Entravision desires to acquire all of the stock of Latin Communications Group Inc., a Delaware corporation, for a purchase price of approximately $252,500,000. In connection with such acquisition, the Borrowers have requested that the Agent and the Lenders agree to certain amendments, waivers and consents under the Credit Agreement, and the Agent and the Lenders have agreed, in each case subject to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. Amendments to Credit Agreement. Effective as of the date ------------------------------ first set forth above (except for the amendments of the definitions of "Operating Cash Flow" and "Total Debt" in Section 1(b) hereof and the amendment set forth in Section 1(k) hereof, all of which amendments shall be effective as of December 31, 1999) and subject to the terms and conditions hereof, the Credit Agreement is hereby amended as set forth below. (a) The definitions of "Note Purchase Agreement" and "Subordination Agreement" are deleted from Section 1.1, and the following definitions are added to Section 1.1 in appropriate alphabetical order: "`Entravision Corp.': Entravision Communications Corporation, a ----------------- Delaware corporation wholly owned by Entravision." "`Entravision IPO': the initial public offering of equity interests --------------- in Entravision Corp." "`Intercreditor Agreement': the Intercreditor Agreement, in form and ----------------------- substance to the Agent and the Lenders, between the Agent, on behalf of the Lenders, and the "Agent" under the Unrestricted Loan Agreement, on behalf of the lenders thereunder, as amended, waived, supplemented or otherwise modified from time to time. "`LCG': Latin Communications Group Inc., a Delaware corporation." --- "`TSG': TSG Capital Fund III, L.P., a Delaware limited partnership." --- "`TSG Investment Documents': the TSG Note Purchase Agreement, the TSG ------------------------ Subordinated Note and such other documents as may relate to the TSG Subordinated Note, in form and substance acceptable to the Agent, as the same may be amended from time to time in accordance with the terms hereof." "`TSG Note Purchase Agreement': the Convertible Subordinated Note --------------------------- Purchase Agreement dated as of April 20, 2000 among Entravision, Entravision Corp. and TSG, as the same may be amended from time to time in accordance with the terms hereof." "`TSG Subordinated Note': the Entravision Communications Company, --------------------- L.L.C. Subordinated Convertible Promissory Note dated April 20, 2000 executed by Entravision in favor of TSG in the principal amount of $90,000,000, as the same may be amended from time to time in accordance with the terms hereof." "`TSG Subordination Agreement': that certain Subordination Agreement --------------------------- (TSG Capital Fund III, L.P.), in form and substance satisfactory to the Agent, made by TSG in favor of the Agent, for the benefit of the Lenders, with regard to the TSG Investment Documents, as the same may be amended from time to time in accordance with the terms hereof." "`Univision Note Purchase Agreement': the Amended and Restated --------------------------------- Subordinated Note Purchase and Option Agreement dated as of December 30, 1996, as amended by the First Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated as of March 31, 1999 and the Second Amendment to Amended and Restated Subordinated Note Purchase and Option Agreement dated as of March 2, 2000, among Univision, the Borrowers and the Managing Members, as the same may be further amended from time to time in accordance with the terms hereof." -2- "`Unrestricted Loan Agreement': that certain Term Loan Agreement --------------------------- dated as of April 20, 2000 among LCG, the lenders from time to time parties thereto and Union Bank of California, N.A., as agent for such lenders." "`Unrestricted Subsidiaries': LCG and its Subsidiaries; provided, ------------------------- -------- however, that, upon the payment in full of LCG's obligations under the ------- Unrestricted Loan Agreement, LCG and its Subsidiaries shall no longer be Unrestricted Subsidiaries." (b) Each of the following definitions in Section 1.1 is amended in its entirety to read as follows: "`Applicable Revolving Loan Margin': with respect to Revolving Loans ---------------------------------- and Incremental Loans, for each LIBOR Loan and for each Base Rate Loan as set forth below:
Revolving Loan Leverage Level LIBOR Base Rate -------------- --------- --------- 1 ((greater than or equal to) 7.00:1) 3.000% 1.500% 2 ((greater than or equal to) 6.50:1 - (less than) 7.00:1) 2.750% 1.250% 3 ((greater than or equal to) 6.00:1 - (less than) 6.50:1) 2.375% 0.875% 4 ((greater than or equal to) 5.00:1 - (less than) 6:00:1) 2.000% 0.500% 5 ((greater than or equal to) 4.00:1 - (less than) 5.00:1) 1.750% 0.250% 6 ((less than) 4.00:1) 1.500% 0.000%
; provided, however, that if the Entravision IPO has not been consummated -------- ------- by September 30, 2000, each percentage listed in the table above shall increase by 0.250%, effective as of September 30, 2000, without any action by any Person." "`Operating Cash Flow': for any period, for the fiscal quarter most ------------------- recently ended and the immediately preceding three fiscal quarters, Net Income after eliminating extraordinary gains and losses, plus (i) ---- provisions for taxes, (ii) depreciation and amortization (including amortization of Program Payments), (iii) Interest Expense, (iv) permitted termination payments owing by the Borrowers resulting from early termination of a time brokerage agreement, local marketing agreement or similar agreement, (v) operating losses from Stations XUPN-TV and WBSV-TV, to the extent that such losses are incurred during the first twelve months of such Stations being on the air, and (vi) other non-cash charges, all to the extent deducted from the computation of Net Income, but after deducting, without duplication, (A) Program Payments made or scheduled to be made, (B) non-cash revenues, (C) Management Fees (except for Management Fees that have been accrued but are not to be paid until the consummation of the Entravision IPO) and (D) Corporate Overhead, all to the extent included in the calculation of Net Income." "`Revolving Loan Leverage Level': if the Maximum Total Debt Ratio ----------------------------- shall be greater than or equal to 7.00:1, the Revolving Loan Leverage Level shall be 1; if the -3- Maximum Total Debt Ratio shall be less than 7.00:1 and greater than or equal to 6.50:1, the Revolving Loan Leverage Level shall be 2; if the Maximum Total Debt Ratio shall be less than 6.50:1 and greater than or equal to 6.00:1, the Revolving Loan Leverage Level shall be 3; if the Maximum Total Debt Ratio shall be less than 6.00:1 and greater than or equal to 5.00:1, the Revolving Loan Leverage Level shall be 4; if the Maximum Total Debt Ratio shall be less than 5.00:1 and greater than or equal to 4.00:1, the Revolving Loan Leverage Level shall be 5; and if the Maximum Total Debt Ratio shall be less than 4.00:1, the Revolving Loan Leverage Level shall be 6." "`Total Debt': the aggregate principal amount of all Indebtedness ---------- (including Subordinated Indebtedness and Capitalized Lease Obligations) of the Borrowers (but excluding (a) the Indebtedness evidenced by the Univision Subordinated Note and the TSG Subordinated Note and (b) the Indebtedness of Entravision to Televisora Alco, S.A. de C.V., Imagenes NTE, S.A. de C.V. and Manuel M. Alonso in the original principal amount of $12,000,000 created in connection with Entravision's acquisition of XUPN-TV in 1998)." "`Univision Subordinated Note': the First Amended and Restated Non- --------------------------- Negotiable Subordinated Note dated March 2, 2000 executed by Entravision in favor of Univision in the principal amount of $120,000,000, as the same may be amended from time to time in accordance with the terms hereof." "`Univision Subordination Agreement': the Second Amended and Restated --------------------------------- Subordination Agreement (Univision Communications Inc.), in form and substance satisfactory to the Agent, made by Univision in favor of the Agent, for the benefit of the Lenders, with regard to the Univision Investment Documents, as the same may be amended from time to time in accordance with the terms hereof." (c) The definition of "Loan Documents" in Section 1.1 is amended by deleting the words "the Subordination Agreement" and substituting the words "the Univision Subordination Agreement, the TSG Subordination Agreement, the Intercreditor Agreement." (d) Each of (i) the definition of "Subordinated Indebtedness" in Section 1.1 and (ii) Section 3.21(d) is amended by adding the words "the TSG Investment Documents and" before the words "the Univision Investment Documents." (e) The last sentence in the definition of "Subsidiary" in Section 1.1 is amended in its entirety to read as follows: "Notwithstanding the foregoing or any other provision of this Agreement, no reference to `Subsidiary,' `Subsidiaries,' `subsidiary' or `subsidiaries,' other than the references to `Subsidiaries' in (a) the definition of `Unrestricted Subsidiaries' in this Section 1.1 and (b) Section 5.2(c), shall refer to an Unrestricted Subsidiary." (f) Each of (i) the definition of "Univision Investment Documents" in Section 1.1 and (ii) Section 6.8(b) is amended by adding the word "Univision" before the words "Note Purchase Agreement." -4- (g) Section 2.8(e) is amended in its entirety to read as follows: "(e) For purposes of determining (i) the Applicable Margin for all Loans and (ii) the Applicable Margin for the basis of the Maximum Total Debt Ratio set forth in the most recent Covenant Compliance Certificate received by the Agent in accordance with Section 5.1(b). For accrued and unpaid interest and fees only (no changes being made for interest or fee payments previously made), changes in interest rates on the Loans, or in such fees, attributable to changes in the Applicable Margin (with respect to Loans and letter of credit fees) caused by changes in the applicable Covenant Compliance shall be calculated upon the delivery of a Covenant Compliance Certificate, and such change shall be effective (y) in the case of a Base Rate Loan or such fees, from the first day subsequent to the last day covered by the Covenant Compliance Certificate and (z) in the case of a LIBOR Loan, from the first day of the Interest Period applicable to such LIBOR Loan subsequent to the last day covered by the Covenant Compliance Certificate. If, for any reason, Entravision shall fail to deliver a Covenant Compliance Certificate when due in accordance with Section 5.1(b), and such failure shall continue for a period of ten days, the Revolving Loan Leverage Level shall be deemed to be Revolving Loan Leverage Level 1 for purposes of determining the Applicable Margin on Loans or letter of credit fees, in each case retroactive to the date on which Entravision should have delivered such covenant Compliance Certificate and shall continue until a Covenant Compliance Certificate indicating a different Revolving Loan Leverage Level is delivered to the Agent." (h) The table in Section 2.16(a) is deleted and replaced with the following:
"Average Daily Used Portion of Aggregate Revolving Loan Commitment Commitment Fee Rate - ------------------------------------ ------------------- (less than or equal to) 1/3 0.750% (greater than) 1/3 - (less than or equal to) 2/3 0.500% (greater than) 2/3 0.250%"
(i) The table in Section 2.16(b) is deleted and replaced with the following:
"Average Daily Used Portion of Aggregate Incremental Loan Commitment Commitment Fee - -------------------------------------- -------------- (less than or equal to) 1/3 0.750% (greater than) 1/3 - (less than or equal to) 2/3 0.500% (greater than) 2/3 0.250%"
(j) The first sentence of Section 3.5 is amended in its entirety to read as follows: -5- "Each Borrower and each Subsidiary has good and marketable title to all of its real and personal properties and assets, free and clear of any Liens, except for the first-priority security interests granted to the Agent for the benefit of the Lenders under the Loan Documents and the second-priority security interests, securing the obligations of LCG under the Unrestricted Loan Agreement, granted pursuant to the loan documents executed in connection therewith." (k) Sections 5.1(a), (b) and (c) are amended by deleting the words "combined and combining" wherever they appear in such sections and substituting the word "consolidated" in each instance. (l) Section 5.8(iii) is amended in its entirety to read as follows: "(iii) any Letters of Credit shall be used (A) for general corporate purposes of the Borrowers and their Subsidiaries, including for Escrow Deposits, or (B) to replace a letter of credit issued by SunTrust Bank to The Rector, Churchwardens and Vestrymen of Trinity Church in The City of New York for the account of LCG, provided that the Letter of Credit Amount of such replacement Letter of Credit does not exceed $650,000 at any time." (m) A new Section 5.22 is added following Section 5.21to read as follows: "5.22 Cash Contribution to LCG. On the date of consummation of the Entravision IPO, the Borrowers will (a) deliver to the Agent, for distribution to the Lenders, (i) a pro forma Covenant Compliance Certificate showing the effect of Entravision's making a cash contribution to LCG on such date in an amount sufficient to permit LCG to pay all of its obligations under the Unrestricted Loan Agreement, including principal, interest, fees, expenses and other outstanding amounts, and (ii) a certificate executed by the Chief Financial Officer of each Borrower certifying that as of such date such officer has obtained no knowledge of any Default except as specified in such certificate and (b) make such cash contribution to LCG, but only if (i) such Covenant Compliance Certificate shows that no Default would be caused by such cash contribution and (ii) such officers' certificate shows that no other Default then exists." (n) The table in Section 6.1(a) is deleted and replaced with the following:
"Period Ratio ------ ----- Closing Date to and including 7.00:1 September 30, 1999 October 1, 1999 to and including 7.50:1 December 31, 1999
-6- January 1, 2000 to and including 6.50:1 March 31, 2000 April 1, 2000 to and including 7.50:1 September 30, 2000 October 1, 2000 to and including 6.00:1 March 31, 2001 April 1, 2001 to and including 5.50:1 September 30, 2001 October 1, 2001 to and including 5.00:1 December 31, 2001 January 1, 2002 and thereafter 4.50:1."
(o) The table in Section 6.1(b) is deleted and replaced with the following:
"Period Ratio ------ ----- Closing Date to and including 1.75:1 December 31, 1999 January 1, 2000 to and including 1.50:1 September 30, 2000 October 1, 2000 to and including 1.75:1 March 31, 2002 April 1, 2002 to and including 2.00:1 March 31, 2003 April 1, 2003 and thereafter 2.50:1."
(p) The table in Section 6.1(d) is deleted and replaced with the following:
"Period Maximum Amount ------ -------------- Fiscal Year Ending $4,000,000 December 31, 1998 Fiscal Year Ending $7,500,000 December 31, 1999 Fiscal Year Ending $3,500,000 December 31, 2000
-7- Fiscal Year Ending $2,500,000 December 31, 2001 Fiscal Years Ending $2,000,000." December 31, 2002 And thereafter
(q) Section 6.2 is amended as follows: (i) Subsection (a) is amended in its entirety to read as follows: "(a) Indebtedness created under (i) this Agreement and the other Loan Documents or (ii) the nonrecourse guarantees and related documents executed by Entravision and its Subsidiaries with respect to the obligations of LCG under the Unrestricted Loan Agreement;." (ii) The last sentence is amended in its entirety to read as follows: "Notwithstanding the foregoing, the License Subsidiaries shall not be permitted, under any circumstances, to create, incur, assume or suffer to exist any Indebtedness, other than the Indebtedness permitted pursuant to subsection (a) above." (r) Section 6.3 is amended as follows: (i) Subsection (a) is amended in its entirety to read as follows: "(a) Liens created under (i) the Loan Documents, (ii) the first- priority security agreement and related documents executed by Entravision with respect to the stock of LCG for the purpose of securing the obligations of LCG under the Unrestricted Loan Agreement or (iii) the second-priority security agreements and related documents, subject to the terms of the Intercreditor Agreement, executed by the Borrowers and their Subsidiaries for the purpose of securing the obligations of LCG under the Unrestricted Loan Agreement, it being understood that the Liens permitted pursuant to subsections (ii) and (iii) above shall be permitted, and shall not constitute or cause a Default, notwithstanding any contrary provision of any other Loan Document;." (ii) The last sentence is amended in its entirety to read as follows: "Notwithstanding the foregoing, the License Subsidiaries shall not be permitted, under any circumstances, to incur any consensual Liens or Liens securing the payment of Indebtedness for money borrowed or guaranteed, other than Liens permitted pursuant to subsection (a) above." (s) Each of Sections 6.7(a) and 6.7(e) is amended by adding the words "or the TSG Investment Documents" after the words "Univision Investment Documents." (t) Section 6.7(b) is amended in its entirety to read as follows: -8- "(b) the Borrowers' ownership interests in their Subsidiaries; and the equity contribution to LCG by Entravision that may be required by Section 5.22;." (u) Section 6.7(f) in amended in its entirety to read as follows: "(f) Escrow Deposits in an aggregate amount not to exceed $35,000,000 during the term of this Agreement (less Indebtedness outstanding under Section 6.2(k)), provided that no Default has occurred and is continuing or -------- ---- would result from the making of such investment; and." (v) The last sentence of Section 6.13 is amended in its entirety to read as follows: "The Management Fees shall accrue quarterly but be payable annually, following the Lenders' receipt of the financial statements (which must be unqualified) and Covenant Compliance Certificate referred to in Section 5.1(b); provided however, that all Management Fees accrued in 1999 but not -------- ------- paid in accordance with the foregoing may be paid from the Net Proceeds of the Entravision IPO." (w) The first sentence of Section 6.14 is amended by adding the following before the period at the end thereof: ", and compliance with the foregoing clauses (i) and (ii) shall not be required with regard to the issuance of the TSG Subordinated Note by Entravision." (x) Section 7(c) is amended by adding "or 5.22" after the last comma therein. (y) Section 7(d) is amended by adding the following at the end thereof: "(iii) any `Default' under the Unrestricted Loan Agreement shall have occurred and be continuing; or." SECTION 2. Consents and Waivers. -------------------- (a) XHAS Acquisition. ----------------- (i) The Borrowers have informed the Agent that on March 16, 2000 Subsidiaries of Entravision consummated the acquisition of (A) the stock of a Mexican corporation that holds the right to provide programming and related services to television station XHAS-TV, Channel 33, Tijuana, Mexico, and (B) a 47.5% interest in Vista Television, Inc. and Channel 57, Inc. (such acquisition herein called the "XHAS Acquisition"), for a purchase price of approximately ---- ----------- $35,170,000. (ii) Section 6.7(e) of the Credit Agreement requires consent by the Majority Lenders for any Acquisition having a maximum Consideration in an aggregate amount exceeding the greater of (i) $5,000,000 and (ii) ten percent of Net Asset Value as of the date of consummation of such Acquisition. Accordingly, the Borrowers have requested that the Majority Lenders consent to the XHAS Acquisition. -9- (iii) Subject to the fulfillment of the conditions precedent set forth in Section 3 hereof, the Lenders hereby consent, pursuant to Section 6.7(e) of the Credit Agreement, to the XHAS Acquisition. The foregoing consent is given in this instance only, shall not be construed as a consent to any violation of, or deviation from, any other term or condition of the Credit Agreement or any other Loan Document and shall not be construed to evidence the willingness of the Agent or the Lenders to give any other or additional consent, whether in similar or different circumstances. (b) LCG Acquisition. ---------------- (i) The Borrowers have informed the Agent that, on the effective date hereof, Entravision intends to acquire all of the stock of LCG (the "LCG --- Acquisition") for a purchase price of approximately $252,500,000. A portion - ----------- of such purchase price will be financed by loans extended by the lenders under the Unrestricted Loan Agreement, which will be secured by (A) a first-priority security interest in the assets of LCG and its subsidiaries, including FCC licenses (to the extent, if any, permitted by law, together with the right to receive money or other consideration upon the assignment, transfer or other disposition, direct or indirect, of any such FCC license) and other media licenses (all such FCC and other licenses, together with any such right, herein collectively called the "LCG Licenses") held by, and the stock or other equity --- -------- interests in, LCG and its subsidiaries, and (B) a second-priority security interest in the Collateral for the Obligations. (ii) Section 6.7(e) of the Credit Agreement requires consent by the Majority Lenders for any Acquisition having a maximum Consideration in an aggregate amount exceeding the greater of (i) $5,000,000 and (ii) ten percent of Net Asset Value as of the date of consummation of such Acquisition. Section 5.11 of the Credit Agreement requires each newly formed or acquired Subsidiary to provide a Guarantee, a Guarantor Security Agreement and certain other documents. Section 6.3 of the Credit Agreement prohibits the Borrowers and their Subsidiaries from creating Liens other than those specifically permitted by the exceptions to Section 6.3. Accordingly, the Borrowers have requested that the Majority Lenders consent to the LCG Acquisition, waive the requirements of Section 5.11 in connection with the LCG Acquisition and approve a second- priority security interest in the Collateral for the benefit of the lenders under the Unrestricted Loan Agreement. (iii) Subject to the fulfillment of the conditions precedent set forth in Section 3 hereof, and pursuant to Section 6.7(e) of the Credit Agreement, the Lenders hereby (A) consent to the LCG Acquisition, (B) waive the requirements of Section 5.11 in connection with the LCG Acquisition and (C) approve, pursuant to Section 1(r) above, a second-priority security interest in the Collateral for the benefit of the lenders under the Unrestricted Loan Agreement. The foregoing consent, waiver and approval are given in this instance only, shall not be construed as a consent to, or waiver or approval of, any violation of, or deviation from, any other term or condition of the Credit Agreement or any other Loan Document and shall not be construed to evidence the willingness of the Agent or the Lenders to give any other or additional consent, waiver or approval, whether in similar or different circumstances. (iv) The Lenders acknowledge that (A) at the time of consummation of the LCG Acquisition, the LCG Licenses will be temporarily assigned to the Entravision License -10- Subsidiary, whose stock is subject to a perfected first-priority security interest in favor of the Agent and will be subject to a perfected second- priority security interest in favor of the "Agent" under the Unrestricted Loan Agreement, (B) at the time of consummation of the LCG Acquisition, the assignment of the LCG Licenses to the Entravision License Subsidiary will not be the subject of a final order of the FCC, (C) pursuant to the Intercreditor Agreement, the Agent will agree that the LCG Licenses are to constitute collateral securing only the obligations of LCG under the Unrestricted Loan Agreement, and the "Agent" under the Unrestricted Loan Agreement will agree that the Media Licenses are to constitute collateral securing only the obligations of the Borrowers under the Credit Agreement, and (D) as soon as practicable after consummation of the LCG Acquisition but subject to prior approval by the FCC, the LCG Licenses will be assigned to a subsidiary of LCG, pursuant to the terms of the Unrestricted Loan Agreement, and the stock of such subsidiary will be pledged solely to the "Agent" under the Unrestricted Loan Agreement. (c) Entravision's Incurrence of Additional Subordinated Indebtedness to ------------------------------------------------------------------- Univision. ---------- (i) The Borrowers have informed the Agent that as of March 2, 2000 Univision and Entravision amended the Note Purchase Agreement, and amended and restated the Univision Subordinated Note, for the purpose of providing for the advance of an additional $110,000,000 by Univision to Entravision as Subordinated Indebtedness. The aggregate of Entravision's Subordinated Indebtedness to Univision is $120,000,000, which will be payable in a single installment on December 30, 2021; interest on such Subordinated Indebtedness will continue to be payable semiannually at the rate of 7.01% per annum. (ii) Section 6.8(a) of the Credit Agreement prohibits the modification of any document, instrument or agreement relating to the Subordinated Indebtedness (subject to exceptions that are not relevant in this case). Accordingly, the Borrowers have requested that the Lenders waive the requirements of Section 6.8(a) of the Credit Agreement in connection with the modification of the Univision Investment Documents as described in clause (i) above. (iii) Subject to the fulfillment of the conditions precedent set forth in Section 3 hereof, the Lenders hereby waive the requirements of Section 6.8(a) of the Credit Agreement in connection with the modification of the Univision Investment Documents as described in clause (i) above. The foregoing waiver is given in this instance only, shall not be construed as a waiver of any violation of, or deviation from, any other term or condition of the Credit Agreement or any other Loan Document and shall not be construed to evidence the willingness of the Agent or the Lenders to give any other or additional waiver, whether in similar or different circumstances. (d) Entravision's Incurrence of Subordinated Indebtedness to TSG. ------------------------------------------------------------- (i) The Borrowers have informed the Agent that Entravision intends to borrow $90,000,000 from TSG as Subordinated Indebtedness. Interest will accrue on such Subordinated Indebtedness at the rate of 8.0% per annum and will be payable annually; the principal of such Subordinated Indebtedness will be payable in a single installment on April __, 2004. -11- (ii) Section 6.2 prohibits the incurrence of Indebtedness by the Borrowers and their Subsidiaries, subject to certain exceptions, including an exception permitting Subordinated Indebtedness. The Credit Agreement defines "Subordinated Indebtedness" to mean the Subordinated Indebtedness of Entravision to Univision, as well as other Indebtedness that is subordinated to the Obligations on terms and conditions satisfactory to the Majority Lenders, as evidenced by their written consent thereto prior to the incurrence of such other Indebtedness. Accordingly, the Borrowers have requested that the Lenders consent to Entravision's incurrence of subordinated indebtedness to TSG as described in clause (i) above. (iii) Subject to the fulfillment of the conditions precedent set forth in Section 3 hereof, the Lenders hereby consent to Entravision's incurrence of Subordinated Indebtedness to TSG as described in clause (i) above. The foregoing consent is given in this instance only, shall not be construed as a consent to any violation of, or deviation from, any other term or condition of the Credit Agreement or any other Loan Document and shall not be construed to evidence the willingness of the Agent or the Lenders to give any other or additional consent, whether in similar or different circumstances. (e) Entravision's Equity Contribution to LCG Acquisition Corporation. ----------------------------------------------------------------- (i) The Borrowers have informed the Agent that (A) Entravision intends to contribute $145,000,000 to LCG Acquisition Corporation, a Delaware corporation wholly owned by Entravision ("LCGAC"), in the form of common ----- equity, (B) LCGAC intends to use the proceeds of such $145,000,000 in common equity to pay a portion of the approximately $252,500,000 purchase price for LCGAC's acquisition of all of the outstanding capital stock of LCG; and (C) immediately upon LCGAC's acquisition of all of the outstanding capital stock of LCG, LCGAC will be merged with and into LCG, which will be the surviving corporation. (ii) Section 6.7 of the Credit Agreement prohibits the Borrowers and their Subsidiaries from making any investment in any Person, except as specifically permitted by the exceptions to Section 6.7. The Lenders hereby acknowledge that, by their consent to the LCG Acquisition pursuant to Section 2(b)(iii) above, they are also consenting to the transactions described in clause (i) above. SECTION 3. Conditions to Effectiveness. This Amendment shall become effective --------------------------- as of the date first set forth above upon receipt by the Agent of the following, in each case in form and substance satisfactory to the Agent: (a) this Amendment, duly executed by the parties hereto; (b) evidence of the Guarantors' consent (provided that delivery of the consent of the Luery Trust shall be on a best-efforts basis) to this Amendment on the signature pages hereto; (c) an amended and restated Univision Subordination Agreement and the TSG Subordination Agreement, duly executed by the parties thereto; (d) with respect to Entravision Corp., the Guarantee, Guarantor Security Agreement, UCC-1 Financing Statements, stock certificates, legal opinion and other agreements, -12- instruments, approvals and documents required pursuant to Section 5.11 of the Credit Agreement; (e) the Intercreditor Agreement, duly executed by the Agent and by the "Agent" under the Unrestricted Loan Agreement; (f) a copy of the resolutions of the Board of Directors of each corporate Borrower and Guarantor, and a copy of the resolutions of the Executive Committee of each limited liability company Borrower and Guarantor, each dated on or before the effective date of this Amendment, authorizing the execution, delivery and performance by such Obligor of this Amendment, each Loan Document to be executed by such Obligor in connection herewith, each "Loan Document" under the Unrestricted Loan Agreement to which such Obligor is or is to be a party and any related documents or instruments to be executed by such Obligor, in each case certified by the Secretary or an Assistant Secretary, or the Managing Members (as applicable), of such Obligor as of the effective date of this Amendment, which certificate states that such resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect; (g) incumbency certificates for Entravision Corp. and TSG, in each case executed by its Secretary or an Assistant Secretary; (h) copies of (i) all amendments to the Operating Agreement not previously delivered to the Lenders, (ii) the Univision Investment Documents and (iii) the TSG Investment Documents, all in form and substance satisfactory to the Agent and certified as correct and complete by a Responsible Officer of the Borrowers; (i) the amendment fees agreed to be paid by the Borrowers to the Agent pursuant to a letter agreement separate herefrom, for the respective accounts of the Lenders in the amounts agreed to between the Agent and each Lender, together with all fees, costs and expenses, including legal fees (if requested by the Agent), payable by the Borrowers; (j) a pro forma Covenant Compliance Certificate containing calculations showing pro forma compliance with the relevant covenants after Entravision's $145,000,000 equity contribution to LCGAC; (k) evidence of the satisfaction of the conditions precedent under the Unrestricted Loan Agreement; (l) updated Schedules to the Credit Agreement, the Security Agreement and the Guarantor Security Agreements; and (m) such other approvals, opinions, evidence and documents as any Lender, through the Agent, may reasonably request; and the Agent's reasonable satisfaction as to all legal matters incident to this Amendment. SECTION 4. Representations and Warranties. Each Borrower hereby ------------------------------ represents and warrants, for the benefit of the Lenders and the Agent, as follows: (a) such Borrower has all requisite power and authority to execute, deliver and perform its obligations under this -13- Amendment and to perform its obligations under the Credit Agreement, as amended by this Amendment; (b) all actions, waivers and consents necessary or appropriate for such Borrower to execute, deliver and perform this Amendment, and to perform the Credit Agreement, as amended by this Amendment, have been duly taken and/or received; (c) this Amendment and the Credit Agreement, as amended by this Amendment, constitute the legal, valid and binding obligation of such Borrower (jointly and severally with the other Borrowers), enforceable against such Borrower in accordance with the terms hereof; (d) the execution, delivery and performance of this Amendment, and the performance of the Credit Agreement, as amended by this Amendment, will not (i) violate or contravene any material Requirement of Law, (ii) result in any material breach or violation of, or constitute a material default under, any agreement or instrument by which such Borrower or any of its property may be bound, or (iii) result in or require the creation of any Lien upon or with respect to any properties of such Borrower, whether such properties are now owned or hereafter acquired; (e) the representations and warranties contained in the Credit Agreement and the other Loan Documents are correct in all material respects on and as of the date of this Amendment, before and after giving effect to the same, as though made on and as of such date; and (f) except to the extent cured by this Amendment, no Default has occurred and is continuing. SECTION 5. Reference to and Effect on Credit Agreement and Other Loan ---------------------------------------------------------- Documents. - --------- (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Except as specifically amended herein, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lenders under the Credit Agreement or any other Loan Document or constitute a waiver of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Amendment may be executed in ------------------------- any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE-OF-LAW RULES). -14- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BORROWERS --------- KSMS-TV, INC. By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- TIERRA ALTA BROADCASTING, INC. By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- CABRILLO BROADCASTING CORPORATION By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- GOLDEN HILLS BROADCASTING CORPORATION By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- LAS TRES PALMAS CORPORATION By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- S-1 VALLEY CHANNEL 48, INC. By: /s/ Walter F. Ulloa ---------------------------------------- Name: Walter F. Ulloa -------------------------------------- Title: Chairman/CEO ------------------------------------- TELECORPUS, INC. By: /s/ Walter F. Ulloa ---------------------------------------- Name: Walter F. Ulloa -------------------------------------- Title: Chairman/CEO ------------------------------------- ENTRAVISION COMMUNICATIONS COMPANY, L.L.C. By: /s/ Walter F. Ulloa ---------------------------------------- Name: Walter F. Ulloa -------------------------------------- Title: Chairman/CEO ------------------------------------- By: /s/ Philip C. Wilkinson ---------------------------------------- Name: Philip C. Wilkinson -------------------------------------- Title: President/CEO ------------------------------------- By Walter F. Ulloa, as his Attorney-in-Fact AGENT ----- UNION BANK OF CALIFORNIA, N.A., as Agent By: /s/ Lena M. Bryant ---------------------------------------- Name: Lena M. Bryant -------------------------------------- Title: Vice President ------------------------------------- LENDERS ------- UNION BANK OF CALIFORNIA, N.A., as a Lender By: /s/ Lena M. Bryant ---------------------------------------- Name: Lena M. Bryant -------------------------------------- Title: Vice President ------------------------------------- S-2 CIBC INC., as a Lender By: /s/ Harold Birk ------------------------------------- Name: Harold Birk ----------------------------------- Title: Executive Director CIBC World Markets Corp. As Agent ---------------------------------- FIRST UNION NATIONAL BANK, as a Lender By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ABN-AMRO BANK N.V., as a Lender By: /s/ David C. Carrington ------------------------------------- Name: David C. Carrington ----------------------------------- Title: Group Vice President ---------------------------------- By: /s/ Frances O. R. Logan ------------------------------------- Name: Frances O. R. Logan ----------------------------------- Title: Senior Vice President ---------------------------------- FLEET NATIONAL BANK, as a Lender By: /s/ Sharon Hawkins ------------------------------------- Name: Sharon Hawkins ----------------------------------- Title: Vice President ---------------------------------- CITY NATIONAL BANK, as a Lender By: /s/ Rod Bollins ------------------------------------- Name: Rod Bollins ----------------------------------- Title: Vice President ---------------------------------- S-3 THE CIT GROUP/EQUIPMENT FINANCING, INC., as a Lender By: /s/ [ILLEGIBLE] ------------------------------------- Name: [ILLEGIBLE] ----------------------------------- Title: [ILLEGIBLE] ---------------------------------- PARIBAS, as a Lender By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Ian A. Hodgart ------------------------------------- Name: Ian A. Hodgart ----------------------------------- Title: Authorized Signatory ---------------------------------- Each of the undersigned, as a "Guarantor" with respect to the aforementioned Credit Agreement, hereby consents to the foregoing Third Amendment to Credit Agreement and hereby confirms and agrees that the Loan Documents executed by him, her or it are and shall continue to be in full force and effect and are hereby ratified and confirmed in all respects, except that, on and after the date first set forth above, each reference in the Loan Documents to "the Credit Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by said Third Amendment to Credit Agreement. /s/ Walter F. Ulloa - ------------------------------------------- WALTER F. ULLOA /s/ Philip C. Wilkinson - ------------------------------------------- PHILIP C. WILKINSON By Walter F. Ulloa, as his Attorney-in-Fact S-4 /s/ Paul A. Zevnik - -------------------------------------- PAUL A. ZEVNIK /s/ Richard D. Norton - -------------------------------------- RICHARD D. NORTON /s/ Irma Rico - -------------------------------------- IRMA RICO KEVIN GRENHAM and STEVE G. ROWLES, Co-Trustees of THE PAUL A. ZEVNIK TRUST dated November 2, 1996, a trust formed under the laws of the District of Columbia By: /s/ Kevin Grenham ----------------------------------- Kevin Grenham, Co-Trustee By: /s/ Steven G. Rowles ----------------------------------- Steve G. Rowles, Co-Trustee EDITH SEROS, as Trustee of THE WALTER F. ULLOA TRUST OF 1996, a trust formed under the laws of the State of California By: /s/ Edith Seros ----------------------------------- Edith Seros, Trustee S-5 PHILIP C. WILKINSON and WENDY K. WILKINSON, as Trustees of THE 1994 WILKINSON CHILDREN'S GIFT TRUST, a trust formed under the laws of the State of California By: /s/ Philip C. Wilkinson --------------------------------- Philip C. Wilkinson, Trustee By: /s/ Wendy K. Wilkinson --------------------------------- Wendy K. Wilkinson, Trustee PHILIP C. WILKINSON and WENDY K. WILKINSON, as Trustees of THE WILKINSON FAMILY TRUST, a trust formed under the laws of the State of California By: /s/ Philip C. Wilkinson --------------------------------- Philip C. Wilkinson, Trustee By: /s/ Wendy K. Wilkinson --------------------------------- Wendy K. Wilkinson, Trustee CAROL KRUIDENIER LUERY TTE, CAROL K. LUERY REVOCABLE TRUST UA DATED 7/27/98 By: --------------------------------- Carol Luery, Trustee ENTRAVISION HOLDINGS, LLC By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ S-6 ENTRAVISION-EL PASO, L.L.C. By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ ENTRAVISION, L.L.C. By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ ENTRAVISION COMMUNICATIONS OF MIDLAND, LLC By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ ENTRAVISION MIDLAND HOLDINGS, LLC By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ LOS CEREZOS TELEVISION COMPANY By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ COMERCIALIZADORA FRONTERA NORTE, S.A. DE C.V. By: /s/ Walter F. Ulloa --------------------------------- Name: Walter F. Ulloa ------------------------------- Title: Chairman/CEO ------------------------------ S-7 ENTRAVISION COMMUNICATIONS CORPORATION By: /s/ Walter F. Ulloa ----------------------------------- Name: Walter F. Ulloa --------------------------------- Title: Chairman/CEO -------------------------------- S-8 EX-10.9 8 0008.txt TERM LOAN AGR DTD 4/20/2000 LCG - UNION BANK EXHIBIT 10.9 ================================================================================ TERM LOAN AGREEMENT among LCG ACQUISITION CORPORATION, THE LENDERS PARTIES HERETO, THE BANK OF NOVA SCOTIA, as Syndication Agent, FLEET NATIONAL BANK, as Documentation Agent, and UNION BANK OF CALIFORNIA, N.A., as Agent Dated as of April 20, 2000 ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS.............................................................. 1 1.1 Defined Terms............................................................ 1 1.2 Other Definitional Provisions............................................ 15 SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS............................ 16 2.1 Loans; Commitment Amounts................................................ 16 2.2 Optional Prepayments..................................................... 17 2.3 Mandatory Prepayments.................................................... 17 2.4 Conversion and Continuation Options...................................... 17 2.5 Minimum Amounts of Tranches.............................................. 18 2.6 Interest Rates and Payment Dates......................................... 18 2.7 Computation of Interest and Fees......................................... 19 2.8 Inability to Determine Interest Rate..................................... 19 2.9 Pro Rata Treatment and Payments.......................................... 19 2.10 Illegality............................................................... 20 2.11 Increased Costs.......................................................... 20 2.12 Taxes.................................................................... 21 2.13 Indemnity................................................................ 22 2.14 Mitigation of Costs...................................................... 23 SECTION 3. REPRESENTATIONS AND WARRANTIES........................................... 23 3.1 Organization and Good Standing........................................... 23 3.2 Power and Authority...................................................... 23 3.3 Validity and Legal Effect................................................ 23 3.4 No Violation of Laws or Agreements....................................... 23 3.5 Title to Assets; Existing Encumbrances; Intellectual and Real Property... 24 3.6 Capital Structure and Equity Ownership................................... 24 3.7 Subsidiaries, Affiliates and Investments................................. 24 3.8 Material Contracts....................................................... 24 3.9 Media Licenses........................................................... 25 3.10 Taxes and Assessments.................................................... 25 3.11 Litigation and Legal Proceedings......................................... 25 3.12 Accuracy of Financial Information........................................ 26 3.13 Accuracy of Other Information............................................ 26 3.14 Compliance with Laws Generally........................................... 26 3.15 ERISA Compliance......................................................... 26 3.16 Environmental Compliance................................................. 27 3.17 Federal Regulations...................................................... 28 3.18 Fees and Commissions..................................................... 28 3.19 Publishing Business...................................................... 28 3.20 Solvency................................................................. 28 3.21 FCC-Related Representations.............................................. 28 3.22 Investment Company Act; Other Regulations................................ 29
-i- 3.23 Copyright Act Requirements............................................... 29 3.24 Nature of Business....................................................... 29 3.25 Ranking of Loans......................................................... 30 3.26 Condemnation............................................................. 30 SECTION 4. CONDITIONS PRECEDENT..................................................... 30 4.1 Conditions to Closing Date............................................... 30 SECTION 5. AFFIRMATIVE COVENANTS.................................................... 34 5.1 Financial Statements..................................................... 34 5.2 Certificates; Other Information.......................................... 35 5.3 Payment of Obligations................................................... 37 5.4 Conduct of Business and Maintenance of Existence......................... 37 5.5 Maintenance of Property; Insurance....................................... 37 5.6 Inspection of Property; Books and Records; Discussions................... 38 5.7 Environmental Laws....................................................... 38 5.8 Use of Proceeds.......................................................... 39 5.9 Compliance With Laws, Etc................................................ 39 5.10 Media Licenses........................................................... 39 5.11 Guarantees, Etc.......................................................... 40 5.12 License Subsidiary....................................................... 40 5.13 Interest Rate Protection................................................. 40 5.14 Leases and Licenses...................................................... 40 5.15 Lease and License Approvals.............................................. 40 5.16 Notices.................................................................. 41 5.17 Additional Material Contracts and Media Licenses......................... 41 SECTION 6. NEGATIVE COVENANTS....................................................... 41 6.1 Financial Condition Covenants............................................ 41 6.2 Limitation on Indebtedness............................................... 42 6.3 Limitation on Liens...................................................... 42 6.4 Limitation on Fundamental Changes........................................ 43 6.5 Limitation on Sale of Assets............................................. 43 6.6 Limitation on Dividends.................................................. 43 6.7 Limitation on Investments, Loans and Advances............................ 44 6.8 Limitation on Modifications of Certain Documents and Instruments......... 44 6.9 Transactions with Affiliates............................................. 44 6.10 Fiscal Year.............................................................. 44 6.11 Lease Obligations........................................................ 44 6.12 Unfunded Liabilities..................................................... 45 6.13 Management Fees.......................................................... 45 6.14 Equity Offerings......................................................... 45 SECTION 7. EVENTS OF DEFAULT........................................................ 45 SECTION 8. THE AGENT................................................................ 50 8.1 Appointment.............................................................. 50
-ii- 8.2 Delegation of Duties..................................................... 50 8.3 Exculpatory Provisions................................................... 50 8.4 Reliance by the Agent.................................................... 50 8.5 Notice of Default........................................................ 51 8.6 Non-Reliance on the Agent and Other Lenders.............................. 51 8.7 Indemnification.......................................................... 52 8.8 The Agent in Its Individual Capacity..................................... 52 8.9 Successor Agent.......................................................... 52 SECTION 9. MISCELLANEOUS............................................................ 52 9.1 Amendments and Waivers................................................... 52 9.2 Notices.................................................................. 53 9.3 No Waiver; Cumulative Remedies........................................... 54 9.4 Survival of Representations and Warranties............................... 54 9.5 Payment of Expenses and Taxes............................................ 55 9.6 Successors and Assigns; Participations; Purchasing Lenders............... 55 9.7 Adjustments; Set-Off..................................................... 58 9.8 Counterparts............................................................. 59 9.9 Severability............................................................. 59 9.10 Integration.............................................................. 59 9.11 GOVERNING LAW............................................................ 59 9.12 Alternative Dispute Resolution........................................... 59 9.13 Acknowledgements......................................................... 60 9.14 Headings................................................................. 61 9.15 Copies of Certificates, Etc.............................................. 61 9.16 Publicity................................................................ 61 9.17 Confidentiality.......................................................... 61
-iii- Exhibits A Form of Note B Form of Assignment and Acceptance C Form of No Default/Representation Certificate D Form of Covenant Compliance Certificate E Form of Continuation Notice Schedules 3.1 Good Standing/Foreign Qualification Jurisdictions 3.2 Missing Consents 3.5A Intellectual Property 3.5B Real Property Interests 3.5C Operating Names/Trade Names 3.6 Capital Structure/Equity Ownership 3.7 Subsidiaries, Affiliates and Investments 3.8 Material Contracts 3.9 Media Licenses 3.10 Taxes and Assessments 3.11 Material Litigation 3.18 Fees and Commissions 3.19 Publications 3.21 Pending FCC Matters 6.2 Permitted Additional Indebtedness 6.7 Permitted Additional Investments The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. -iv- TERM LOAN AGREEMENT ------------------- THIS TERM LOAN AGREEMENT, dated as of April 20, 2000, among (1) LCG ACQUISITION CORPORATION, a Delaware corporation ("LCGAC"), (2) the several banks ----- and other financial institutions from time to time parties to this Agreement (the "Lenders") and (3) UNION BANK OF CALIFORNIA, N.A., as agent for the Lenders ------- hereunder (in such capacity, the "Agent"). ----- RECITALS -------- A. LCGAC, a direct wholly-owned subsidiary of Entravision Communications Company, L.L.C., a Delaware limited liability company ("Entravision"), was ----------- organized by Entravision to acquire Latin Communications Group Inc., a Delaware corporation ("LCG"). --- B. Pursuant to the Agreement and Plan of Merger dated December 21, 1999 among Entravision, LCGAC, LCG and certain other parties (the "Merger ------ Agreement"), LCGAC will merge with and into LCG (the "Merger"), and LCG will be - --------- ------ the surviving corporation. C. LCGAC has requested that, simultaneously with the consummation of the Merger, the Lenders lend to the Borrower (i) $105,000,000 to pay a portion of the aggregate consideration to be paid by LCGAC in the Merger for outstanding shares of LCG and (ii) $10,000,000 to pay a portion of the interest accruing hereunder. The Lenders have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall ------------- have the following meanings: "Accountants": McGladrey & Pullen, LLP, or such other firm of independent ----------- certified public accountants of recognized national standing as shall be selected by the Borrower and satisfactory to the Agent. "Affiliate": as to any Person, (a) any other Person (other than a --------- Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any Person who is a director, officer, shareholder or partner (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in the preceding clause (a). For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote securities having 5% or more of the ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent": as defined in the preamble hereto. ----- "Aggregate Commitment": the sum of the Commitments set forth on the -------------------- signature pages hereto, as the same may be adjusted from time to time pursuant to the provisions hereof. "Agreement": this Term Loan Agreement, as amended, waived, supplemented or --------- otherwise modified from time to time. "Applicable Lending Office": for any Lender, its offices for LIBOR Loans ------------------------- and Base Rate Loans specified below its signature on the signature pages hereof or in the Assignment and Acceptance pursuant to which it becomes a party hereto, as the case may be, any of which offices may, upon 10 days' prior written notice to the Agent and the Borrower, be changed by such Lender. "Applicable Margin": for each LIBOR Loan and for each Base Rate Loan as set ----------------- forth below:
Period LIBOR Margin Base Rate Margin ------ ------------ ---------------- Closing Date to and including August 17, 2000 4.00% 3.00% August 18, 2000 to and including October 16, 2000 4.25% 3.25% October 17, 2000 and thereafter 4.50% 3.50%
; provided, however, that if the Entravision IPO is not consummated prior to -------- ------- September 30, 2000, each percentage listed in the table above shall automatically increase by 0.25%, effective with respect to all interest accruing on or after September 30, 2000. "Asset Disposition": the sale, sale and leaseback, transfer, conveyance, ----------------- exchange, long-term lease accorded sales treatment under GAAP or similar disposition (including by means of a merger, consolidation, amalgamation, joint venture or other substantive combination) of any of the Properties, business or assets (other than marketable securities, including "margin stock" within the meaning of Regulation U, liquid investments and other financial instruments but, including, without limitation, the assignment of any lease, license or permit relating to the Properties) of the Borrower or any of its Subsidiaries to any Person or Persons other than to the Borrower or any of its Subsidiaries; provided that Asset Dispositions shall not include the sale in the ordinary - -------- course of business of equipment. "Assignment and Acceptance": an Assignment and Acceptance in the form of ------------------------- Exhibit B to this Agreement. -2- "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, --------- to the next 1/16 of 1%) equal to the greater of (a) the Reference Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "Reference Rate" shall mean the rate of interest per annum publicly -------------- announced from time to time by Union Bank of California, N.A. as its "reference rate" in effect at its office in Los Angeles, California. "Federal Funds ------------- Effective Rate" shall mean, for any day, the weighted average of the rates on - -------------- overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If, for any reason, the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including, without limitation, the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Reference Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Reference Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": that portion of the Loans the rate of interest --------------- applicable to which is based upon the Base Rate. "Borrower": prior to the Merger, LCGAC, and, from and after the Merger, --------- LCG, as surviving corporation. "Business Day": a day other than a Saturday, Sunday or other day on which ------------ commercial banks in the State of California are authorized or required by law to close and which, in the case of a LIBOR Loan, is a Eurodollar Business Day. "Capitalized Lease Obligations": obligations for the payment of rent for ----------------------------- any real or personal property under leases or agreements to lease that, in accordance with GAAP, have been or should be capitalized on the books of the lessee and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other ------------- equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), any and all warrants, options or rights to purchase, or any other securities convertible into, any of the foregoing. "Cash Income Taxes": cash income taxes paid by the Borrower and its ----------------- Subsidiaries during the fiscal quarter most recently ended and the immediately preceding three fiscal quarters. "Change in Control": either ----------------- (a) Entravision shall no longer be the owner of all of the Capital Stock of the Borrower; or -3- (b) (i) Walter F. Ulloa and Philip C. Wilkinson cease collectively to have, directly or indirectly, Voting Control of Entravision; or (ii) So long as Entravision is a limited liability company, Walter F. Ulloa and Philip C. Wilkinson cease to (A) be the Managing Members thereof, (B) have the veto rights with regard to decisions of the Executive Committee set forth in Section 16(a)(i) of the Operating Agreement and (C) have the power to appoint the Executive Committee thereof. "Closing Date": the date on which the conditions precedent set forth in ------------ Section 4.1 have been satisfied. "Code": the Internal Revenue Code of 1986, as amended from time to time. ---- "Collateral": all of the property (tangible or intangible) purported to be ---------- subject to the lien or security interest purported to be created by any security agreement, pledge agreement, assignment or other security document heretofore or hereafter executed by the Borrower as security for all or part of the Obligations. "Collateral Documents": the Security Agreement, all notices of security -------------------- interests in deposit accounts requested by the Agent pursuant to the Security Agreement, Form UCC-1 Financing Statements and amendments thereto and any other document executed by the Borrower encumbering the Collateral or evidencing or perfecting a security interest therein for the benefit of the Lenders. "Commitment Percentage": with respect to each Lender, the percentage --------------------- equivalent of the ratio which such Lender's Commitment bears to the Aggregate Commitment, as such Lender's Commitment and the Aggregate Commitment may be adjusted from time to time pursuant to the terms hereof, or, following termination of the Aggregate Commitment, the percentage equivalent of the ratio which such Lender's outstanding principal balance of Loans bear to the principal balance of all Loans outstanding, excluding from such calculation Lenders which have failed or refused to fund a Loan when required to do so. "Commitments": as to any Lender, the amount listed as its "Commitment" on ----------- the signature pages hereto to make a term loan hereunder through its Applicable Lending Office, as the same shall be adjusted from time to time pursuant to this Agreement. "Commonly Controlled Entity": as to any Person, an entity, whether or not -------------------------- incorporated, which is under common control with such Person within the meaning of Section 4001 of ERISA or is part of a group which includes such Person and which is treated as a single employer under Section 414 of the Code. "Communications Act": the Communications Act of 1934, as amended, and the ------------------ rules, regulations and policies issued thereunder, as from time to time in effect. "Continuation Notice": a request for continuation or conversion of a Loan ------------------- as set forth in Section 2.4, substantially in the form of Exhibit E. -4- "Contractual Obligation": as to any Person, any provision of any security ---------------------- issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Corporate Overhead": for any period, all general and administrative ------------------ expenses of the Borrower and its Subsidiaries for such period not solely attributable to an individual Station or group of Stations or publication. For the purpose of illustration (and not for the purpose of limiting the foregoing), Corporate Overhead shall include the general and administrative expenses of the headquarters office of the Borrower, the salaries of its officers, lease expenses for its headquarters office and the legal and accounting expenses relating to the Borrower, and not relating solely to any Station, group of Stations or publication. "Covenant Compliance Certificate": a certificate of the Chief Financial ------------------------------- Officer of the Borrower substantially in the form of Exhibit D hereto. "Default": any of the events specified in Section 7, whether or not any ------- requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" and "$": dollars in lawful currency of the United States. ------- - "Entravision": as defined in Recital A hereto. ----------- "Entravision Credit Agreement": that certain Amended and Restated Credit ---------------------------- Agreement dated as of November 10, 1998, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 29, 1999, the Second Amendment to Amended and Restated Credit Agreement dated as of January 14, 2000, and the Third Amendment to Amended and Restated Credit Agreement dated as of April 20, 2000, and as it may be further amended, waived, supplemented or otherwise modified from time to time, among (1) KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc. and Entravision, (2) the lenders parties thereto and (3) Union Bank of California, N.A., as agent for such lenders. "Entravision IPO": the initial public offering of equity interests in --------------- Entravision Communications Corporation, a Delaware corporation wholly owned by Entravision. "Entravision License Subsidiary": Entravision Holdings, LLC, a California ------------------------------ limited liability company, which is owned 99.999% by Entravision, 0.0005% by Walter F. Ulloa and 0.0005% by Philip C. Wilkinson, formed solely for the purpose of holding the Entravision Media Licenses. "Entravision Media Licenses": any franchise, license, permit, certificate, -------------------------- ordinance, approval or other authorization, or any renewal or extension thereof, from any federal, state or local government or governmental agency, department or body that is necessary for the broadcast or other operations of Entravision or any of its Subsidiaries (other than the Borrower and its Subsidiaries). -5- "Entravision Station": any radio station, any full power television ------------------- station, low power television station, any translator and any other television system now or hereafter owned, leased or operated by Entravision or any of its Subsidiaries (other than the Borrower and its Subsidiaries). "Environmental Control Statutes": as defined in Section 3.16. ------------------------------ "Equity Offering": the sale or issuance (or reissuance) by the Borrower or --------------- any Subsidiary of any equity interest (common stock, preferred stock, partnership interests, member interests or otherwise) or any options, warrants, convertible securities or other rights to purchase such beneficial or equity interests. "Equityholder Agreements" each shareholder agreement, member agreement, ----------------------- partner agreement, voting agreement, buy-sell agreement, option, warrant, put, call, right of first refusal, and any other agreement or instrument with conversion rights into equity of the Borrower or any Subsidiary either (a) between the Borrower or any Subsidiary and any holder or prospective holder of any equity interest of the Borrower or any Subsidiary (including interests convertible into such equity) or (b) otherwise between any two or more such holders of equity interests. "ERISA": the Employee Retirement Income Security Act of 1974, as amended ----- from time to time. "ERISA Affiliate": as to any Person, each trade or business including such --------------- Person, whether or not incorporated, which together with such Person would be treated as a single employer under Section 4001(a)(14) of ERISA. "Eurodollar Business Day": shall mean any day on which banks are open for ----------------------- dealings in Dollar deposits in the London Interbank Market. "Event of Default": any of the events specified in Section 7, provided ---------------- -------- that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Excluded Taxes": all taxes imposed on or by reference to the net income -------------- of the Agent or any Lender or its Applicable Lending Office by any Governmental Authority and all franchise taxes, taxes on doing business or taxes measured by capital or net worth imposed on the Agent or on any Lender or its Applicable Lending Office by any Governmental Authority and any taxes imposed by any Governmental Authority arising as a consequence of the failure of any Lender to provide accurate documentation required to be provided by such Lender pursuant to Section 2.12(b). "FCC": the Federal Communications Commission or any successor thereto. --- "Federal Funds Effective Rate": as defined in the definition of "Base ---------------------------- ---- Rate" contained in this Section 1.1. "Final Order": an order, action or decision of the FCC that has not been ----------- reversed, stayed, enjoined, annulled or suspended and as to which (i) no timely request for stay, appeal, petition -6- for reconsideration, application for review or reconsideration by the FCC on its own motion is pending and (ii) the time for filing any such request, appeal, petition or application, or for reconsideration by the FCC on its own motion, has expired. "GAAP": generally accepted accounting principles in the United States in ---- effect from time to time. If, at any time, GAAP changes in a manner which will materially affect the calculations determining compliance by the Borrower with any of the covenants in Section 6.1, such covenants shall continue to be calculated in accordance with GAAP in effect prior to such changes in GAAP. "Governmental Authority": any nation or government, any federal, state or ---------------------- other political subdivision thereof and any federal, state or local entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any -------------------- ------------------- obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counter-indemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") ------------------- of any other third Person (the "primary obligor") in any manner, whether --------------- directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall -------- ------- not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lesser of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Guarantees": the guarantees made by each of the Guarantors (which ---------- guarantees shall be nonrecourse except for any executed by a Subsidiary of the Borrower), and all other guarantees executed by a Guarantor in favor of the Agent for the benefit of the Lenders, in form and substance substantially identical to those executed in connection with the Entravision Credit Agreement, as the same may be amended or modified from time to time in accordance with the terms hereof. -7- "Guarantor Collateral": all of the property (tangible or intangible) -------------------- purported to be subject to the lien or security interest purported to be created by any security agreement, pledge agreement, assignment or other security document heretofore or hereafter executed by any Guarantor as security for all or part of the Obligations or the Guarantees. "Guarantor Collateral Documents": the Guarantor Security Agreements, all ------------------------------ notices of security interests in deposit accounts requested by the Agent pursuant to the Guarantor Security Agreements, Form UCC-1 Financing Statements and amendments thereto and any other document executed by any Guarantor encumbering the Guarantor Collateral or evidencing or perfecting a security interest therein in favor of the Agent for the benefit of the Lenders. "Guarantor Security Agreements": each security agreement (which, in the ----------------------------- case of Walter F. Ulloa and Philip C. Wilkinson, shall be only with respect to their equity interests in the Entravision License Subsidiary), in form and substance substantially identical to those executed in connection with the Entravision Credit Agreement, made by each Guarantor in favor of the Agent, for the benefit of the Lenders, as the same may be amended from time to time in accordance with the terms hereof. "Guarantors": (i) each Subsidiary of the Borrower, (ii) Walter F. Ulloa, ---------- (iii) Philip C. Wilkinson, (iv) Entravision and (v) each Subsidiary of Entravision other than the Borrower, including but not limited to the Entravision License Subsidiary. "Indebtedness": of any Person at any date, without duplication, (a) all ------------ indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than (i) current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices and (ii) current income taxes) or that is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Capitalized Lease Obligations, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all obligations of such Person, whether absolute or contingent, in respect of letters of credit opened for the account of such Person (other than any letters of credit opened for the purpose of facilitating the purchase of goods and services in the ordinary course of business and having a term of not more than 360 days), (f) all obligations of such Person under Non-Compete Agreements and (g) all Guarantee Obligations of such Person in respect of any indebtedness, obligations or liabilities of any other Person of the type referred to in clauses (a) through (f) of this definition. "Insolvency": with respect to any Multiemployer Plan, the condition that ---------- such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Intellectual Property": as defined in Section 3.5. --------------------- "Intercreditor Agreement": the Intercreditor Agreement, in form and ----------------------- substance satisfactory to the Agent and the Lenders, between the Agent, on behalf of the Lenders, and the -8- "Agent" under the Entravision Credit Agreement, on behalf of the lenders thereunder, as amended, waived, supplemented or otherwise modified from time to time. "Interest Expense": for any specified period ended as of any specified ---------------- date, (A) the sum of (i) the amount of all interest on Total Debt which was paid, payable and/or accrued for such period (without duplication of previous amounts), (ii) all commitment fees paid, payable and/or accrued for such period (without duplication of previous amounts) to any lender in exchange for such lender's commitment to lend and (iii) net amounts payable (or receivable) under all Interest Rate Agreements, less (B) all interest income. ---- "Interest Payment Date": (a) as to any Base Rate Loan, the last day of --------------------- each March, June, September and December to occur while the Loans are outstanding, (b) as to any LIBOR Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any LIBOR Loan having an Interest Period longer than three months, each day which is at the end of each three month-period within such Interest Period after the first day of such Interest Period and the last day of such Interest Period and (d) for each of (a), (b) and (c) above, on the day on which the Loans become due and payable in full or are paid or prepaid in full. "Interest Period": with respect to any LIBOR Loan: --------------- (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or Continuation Notice, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Agent not less than three Eurodollar Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are - -------- subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during an Interest Period. -9- "Interest Rate Agreement": any interest rate protection agreement, ----------------------- interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement entered into pursuant to Section 5.13 with any Lender or any Affiliate of a Lender under which the Borrower is a party or a beneficiary. "Interest Reserve Account": a bank account to be established and ------------------------ maintained at Union Bank of California, N.A., Los Angeles, under the control of the Agent, for the purpose of holding certain Loan proceeds to be used to pay interest on the Loans until the funds in such account are exhausted or, if earlier, the Obligations have been paid in full. "Investment Company Act": as defined in Section 3.22. ---------------------- "LCGAC": as defined in the preamble hereto. ----- "LCG License Subsidiary": LCG Holdings, L.L.C., a Delaware limited ---------------------- liability company, which is wholly-owned by the Borrower and was formed solely for the purpose of holding Media Licenses and FCC files and records with respect thereto. "Lenders": as defined in the preamble hereto and Section 8.8 hereof. When ------- used in any Collateral Document, Guarantee or Guarantor Collateral Document, such term shall be deemed to include Affiliates of Lenders (and any Person that was a Lender or an Affiliate of a Lender at the time of its entry into an Interest Rate Agreement), to the extent the Borrower has Obligations to such Person arising under an Interest Rate Agreement, it being understood that such documents shall secure such Obligations ratably with all other Obligations. "LIBOR": with respect to each day during each Interest Period pertaining ----- to a LIBOR Loan, the rate of interest determined by the Agent to be the rate per annum at which deposits in dollars would be offered to the Agent by leading banks in the London Interbank Market at or about 9:00 a.m., Los Angeles time, two Eurodollar Business Days prior to the beginning of such Interest Period, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such Interest Period. "LIBOR Adjusted Rate": with respect to each day during each Interest ------------------- Period pertaining to a LIBOR Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): LIBOR ----------------------------------- 1.00 - LIBOR Reserve Requirements "LIBOR Loans": that portion of the Loans the rate of interest applicable ----------- to which is based upon LIBOR. "LIBOR Reserve Requirements": for any day as applied to a LIBOR Loan, the -------------------------- aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with -10- reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such Federal Reserve System. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capitalized Lease Obligation having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Loan" and "Loans": collectively, each term loan made under Section ---- ----- 2.1(a). "Loan Documents": this Agreement, the Notes, the Collateral Documents, the -------------- Guarantor Collateral Documents, the Intercreditor Agreement, the Guarantees, any Interest Rate Agreements, and the closing side letter referred to in Section 4.1(g) and any other agreement executed by an Obligor in connection therewith and herewith including, but not limited to, UCC-1 Financing Statements, as such agreements and documents may be amended, supplemented and otherwise modified from time to time in accordance with the terms hereof. "Majority Lenders": Lenders having Commitments equal to or more than 51% ---------------- of the Aggregate Commitment, or, following the termination of the Aggregate Commitment, Lenders with outstanding Loans having an unpaid principal balance equal to or more than 51% of the unpaid principal balance of all Loans outstanding, excluding from such calculation Lenders which have failed or refused to fund a Loan when required to do so. "Margin Stock": as defined in Regulation U. ------------ "Material Adverse Effect": a material adverse effect on (a) the business, ----------------------- operations, property, condition or prospects (financial or otherwise) of the Borrower and its Subsidiaries (taken as a whole) or Entravision and its Subsidiaries (other than the Borrower and its Subsidiaries), taken as a whole, (b) the ability of the Borrower and its Subsidiaries (taken as a whole) or Entravision and its Subsidiaries (other than the Borrower and its Subsidiaries), taken as a whole to perform their respective obligations under the Loan Documents or (c) the validity or enforceability of the Loan Documents or the rights or remedies of the Agent and the Lenders hereunder or thereunder. "Material Contracts": as defined in Section 3.8. ------------------ "Maturity Date": the earlier of (i) April 18, 2001 or such earlier date as ------------- the Loans shall mature (whether by acceleration or otherwise) and (ii) consummation of the Entravision IPO. "Media Licenses": any franchise, license, permit, certificate, ordinance, -------------- approval or other authorization, or any renewal or extension thereof, from any federal, state or local government or governmental agency, department or body that is necessary for the radio broadcasting operations of the Borrower or any Subsidiaries. -11- "Merger": as defined in the Recitals hereto. ------ "Merger Agreement": as defined in the Recitals hereto. ---------------- "Multiemployer Plan": a plan which is a multiemployer plan as defined in ------------------ Section 4001(a)(3) of ERISA. "Net Income": for the Borrower and its Subsidiaries on a consolidated ---------- basis, net income as determined in accordance with GAAP. "Non-Compete Agreements": all agreements pursuant to which the Borrower or ---------------------- any Subsidiary has agreed to make payments (whether in cash or in kind) to another Person for the agreement of such Person not to compete with the Borrower or such Subsidiary in a given area. "Note": as defined in Section 2.1(c). ---- "Obligations": the unpaid principal of and interest on (including, without ----------- limitation, interest accruing after the maturity of the Loans and interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding and whether or not at a default rate) the Notes, all obligations of the Borrower to any Lender or Affiliate of a Lender (or any Person that was a Lender or Affiliate of a Lender at the time of its entry into an Interest Rate Agreement) arising under any Interest Rate Agreement, and all other obligations and liabilities of the Borrower to the Agent and the Lenders, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, any other Loan Document and any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees and disbursements of counsel, and the allocated reasonable cost of internal counsel, to the Agent or the Lenders that are required to be paid by the Borrower pursuant to the terms of this Agreement) or otherwise. "Obligor": the Borrower, LCG, each Subsidiary, each Guarantor and any ------- other Person (other than a Lender) obligated under any Loan Document. "Occupancy Agreements": as defined in Section 5.14. -------------------- "Operating Cash Flow": for any specified period ended as of any specified ------------------- date, Net Income after eliminating extraordinary gains and losses, plus (i) ---- provisions for taxes, (ii) depreciation and amortization, (iii) Interest Expense, (iv) permitted termination payments owing by the Borrower resulting from early termination of a time brokerage agreement, local marketing agreement or similar agreement, (v) operating losses from Stations KVBC-FM and KRNV-FM, to the extent that such losses are incurred during the first twelve months of such Stations being on the air, and (vi) other non-cash charges, all to the extent deducted from the computation of Net Income, but after deducting, without duplication, (A) non-cash revenues and (B) Corporate Overhead, all to the extent included in the calculation of Net Income. -12- "Organic Documents": relative to any entity, its certificate and articles ----------------- of incorporation or organization, its by-laws or operating agreements, and all Equityholder Agreements, voting agreements and similar arrangements applicable to any of its authorized shares of capital stock, its partnership interests or its member interests, and any other arrangements relating to the control or management of any such entity (whether existing as corporation, a partnership, a limited liability company or otherwise). "Participant": as defined in Section 9.6(b). ----------- "PBGC": the Pension Benefit Guaranty Corporation established pursuant to ---- Subtitle A of Title IV of ERISA or any successor thereto. "Person": any individual, firm, partnership, joint venture, corporation, ------ association, limited liability company, business enterprise trust, unincorporated organization, government or department or agency thereof or other entity, whether acting in an individual, fiduciary or other capacity. "Plan": as to any Person, any plan (other than a Multiemployer Plan) ---- subject to Title IV of ERISA maintained for employees of such Person or any ERISA Affiliate of such Person (and any such plan no longer maintained by such Person or any of such Person's ERISA Affiliates to which such Person or any of such Person's ERISA Affiliates has made or was required to make any contributions within any of the five preceding years). "Program Services Agreements": any local marketing agreement, time --------------------------- brokerage agreement, program services agreement or similar agreement providing for the Borrower or its Subsidiaries (other than License Subsidiaries) to program or sell advertising on all or any portion of the broadcast time of any television or radio station. "Prohibited Transaction": with respect to any Plan, a prohibited ---------------------- transaction (as defined in Section 406 of ERISA) with respect to such Plan. "Properties": the collective reference to the real and personal property ---------- owned, leased, used, occupied or operated, under license or permit, by the Borrower and its Subsidiaries. "Purchasing Lenders": as defined in Section 9.6(c). ------------------ "Register": as defined in Section 9.6(d). -------- "Regulation D": Regulation D of the Board of Governors of the Federal ------------ Reserve System, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof and any successor regulation thereto. "Regulation U": Regulation U of the Board of Governors of the Federal ------------ Reserve System, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof and any successor regulation thereto. "Reorganization": with respect to any Multiemployer Plan, the condition -------------- that such plan is in reorganization within the meaning of Section 4241 of ERISA. -13- "Reportable Event": any of the events set forth in Section 4043(b) of ---------------- ERISA, other than those events as to which the thirty-day notice period is waived under PBGC regulations. "Requirement of Law": as to any Person, the Organic Documents of such ------------------ Person, and any law, treaty, rule or regulation, determination or policy statement or interpretation of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": with respect to any Person, the chief executive ------------------- officer, the president, the managing member or members (as applicable, with respect to any limited liability company), any executive vice president, any senior vice president or any vice president or, with respect to financial matters, the chief financial officer, treasurer or controller. "Security Agreement": the Security Agreement in form and substance ------------------ reasonably satisfactory to the Majority Lenders, made by the Borrower in favor of the Agent, for the benefit of the Lenders, in respect of the tangible and intangible personal property of the Borrower described therein, as the same may be amended from time to time in accordance with the terms hereof. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, -------------------- but which is not a Multiemployer Plan. "Solvent": when used with respect to any Person, that: ------- (i) the present fair salable value of such Person's assets is in excess of the total amount of the probable liability on such Person's liabilities; (ii) such Person is able to pay its debts as they become due; and (iii) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all businesses in which such Person is about to engage. "Station": any radio station now or hereafter owned, leased or operated by ------- the Borrower or any of its Subsidiaries. "Subsidiary": as to any Person at any time of determination, a ---------- corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Taxes": as defined in Section 2.12(a). ----- -14- "Termination Event": (i) a Reportable Event, (ii) the institution of ----------------- proceedings to terminate a Single Employer Plan by the PBGC under Section 4042 of ERISA, (iii) the appointment by the PBGC of a trustee to administer any Single Employer Plan or (iv) the existence of any other event or condition that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment by the PBGC of a trustee to administer, any Single Employer Plan. "Total Debt": the aggregate principal amount of all Indebtedness ---------- (including Capitalized Lease Obligations) of the Borrower and its Subsidiaries. "Total Interest Coverage Ratio": the ratio of Operating Cash Flow to ----------------------------- Interest Expense. "Tranche": the collective reference to LIBOR Loans the Interest Periods ------- with respect to all of which begin on the same date and end on the same later date (whether or not such LIBOR Loans shall originally have been made on the same day). "Transferee": as defined in Section 9.6(f). ---------- "Type": as to any Loan, its nature as a Base Rate Loan or a LIBOR Loan. ---- "Univision": as applicable, Univision Communications Inc., a Delaware --------- corporation, or The Univision Network Limited Partnership, a Delaware limited partnership. "Voting Control": (i) with respect to any corporation, the power to elect a -------------- majority of the board of directors of such corporation and (ii) with respect to Entravision, ownership of a Majority in Interest (as defined in the Operating Agreement) of each class of membership units of Entravision having voting power. 1.2 Other Definitional Provisions. ----------------------------- (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, any other Loan Document or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein, in the Notes, in any other Loan Document, and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. -15- (e) For the purpose of determining financial covenant compliance hereunder for any period, divestitures and asset sales occurring during such period will be included in the calculations for such period on a pro forma basis, and will be deemed to have occurred on the first day of such period. SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS 2.1 Loans; Commitment Amounts. ------------------------- (a) Subject to the terms and conditions hereof, each Lender severally agrees to make a term loan through its Applicable Lending Office to the Borrower on the Closing Date in accordance with the provisions of this Agreement in an aggregate principal amount equal to the amount of the Commitment of such Lender. After the making of such Loans, each Commitment, and the Aggregate Commitment, shall terminate. (b) Subject to Sections 2.8 and 2.10, the Loans may from time to time be (i) LIBOR Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with either Section 2.1(d) or 2.4. Each Lender may make or maintain its Loan to the Borrower by or through any Applicable Lending Office. (c) The Loan made by each Lender to the Borrower shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A (a "Note"), with appropriate insertions therein as to payee, date and principal ---- amount, payable to the order of such Lender and representing the obligations of the Borrower to pay the aggregate unpaid principal amount of the Loan made by such Lender to the Borrower in accordance with the terms of this Agreement, with interest thereon as prescribed in Sections 2.6 and 2.7. Each Lender is hereby authorized (but not required) to record the date and amount of each payment or prepayment of principal of its Loan made to the Borrower, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of LIBOR Loans, the length of each Interest Period with respect thereto, in the books and records of such Lender, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. The - ----- ----- failure of any Lender to make any such recordation or notation in the books and records of the Lender (or any error in such recordation or notation) shall not affect the obligations of the Borrower hereunder or under the Notes. Each Note shall (i) be dated the Closing Date, (ii) provide for the payment of interest in accordance with Sections 2.6 and 2.7 and (iii) be stated to be payable on the Maturity Date. (d) The Borrower shall give the Agent irrevocable written notice (which notice must be received by the Agent prior to 10:00 A.M., Los Angeles time, one Business Day prior to, or if all or any part of the Loans are requested to be made as LIBOR Loans, three Eurodollar Business Days prior to, the Closing Date) requesting that the Lenders make the Loans in accordance with their respective Commitments on the Closing Date and specifying (i) subject to Section 2.1(b), whether the Loans are to be LIBOR Loans, Base Rate Loans or a combination thereof and (ii) if the Loans are to be entirely or partly LIBOR Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Upon receipt of such notice, the Agent shall promptly notify each Lender thereof. Not later than 12:00 noon, Los Angeles time on the Closing Date, each Lender shall make available to the Agent at its office -16- specified in Section 9.2 the amount of such Lender's Commitment in immediately available funds. The Agent may, in the absence of notification from any Lender that such Lender has not made its pro rata share available to the Agent, on such date, credit the account of the Borrower on the books of such office of the Agent with the aggregate amount of Loans. (e) All outstanding Loans shall be due and payable, to the extent not previously paid in accordance with the terms hereof, on the Maturity Date. (f) Neither the Agent nor any Lender shall be responsible for the obligation or Commitment of any other Lender hereunder, nor will the failure of any Lender to comply with the terms of this Agreement relieve any other Lender or the Borrower of its obligations under this Agreement and the Notes. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. 2.2 Optional Prepayments. The Borrower may on the last day of any -------------------- Interest Period with respect thereto, in the case of LIBOR Loans, or at any time and from time to time, in the case of Base Rate Loans, prepay the Loans, in whole or in part, without premium or penalty, upon at least three Business Days' irrevocable written notice, in the case of LIBOR Loans, and upon at least one Business Day's irrevocable written notice, in the case of Base Rate Loans, from the Borrower to the Agent, specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Amounts prepaid may not be reborrowed. Upon receipt of any such notice from the Borrower, the Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable by the Borrower on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments of Loans shall be in an aggregate principal amount of $1,000,000 and integral multiples of $250,000 in excess thereof. 2.3 Mandatory Prepayments. --------------------- (a) If the Borrower or any of its Subsidiaries receives insurance proceeds or condemnation proceeds with respect to any of their Properties that are not fully applied (or contractually committed pursuant to contract(s) approved by the Agent in its reasonable discretion) toward the repair or replacement of such damaged or condemned Property within 90 days of the receipt thereof, the Borrower shall, on such 90th day prepay the Loans in an amount equal to the amount of such proceeds not so applied. (b) Each prepayment of the Loans pursuant to this Section 2.3 shall be accompanied by payment in full of all accrued interest to and including the date of such prepayment, together with any additional amounts owing pursuant to Section 2.13. 2.4 Conversion and Continuation Options. ----------------------------------- (a) The Borrower may elect from time to time to convert LIBOR Loans to Base Rate Loans, by the Borrower giving the Agent at least two Business Days' prior irrevocable written notice of such election pursuant to a Continuation Notice, provided that any such conversion of LIBOR Loans may only be made on the last day of an Interest Period with respect thereto. The -17- Borrower may elect from time to time to convert Base Rate Loans to LIBOR Loans by the Borrower giving the Agent at least three Eurodollar Business Days' prior irrevocable written notice of such election pursuant to a Continuation Notice. Any such notice of conversion to LIBOR Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice, the Agent shall promptly notify each Lender thereof. All or any part of outstanding LIBOR Loans and Base Rate Loans may be converted as provided herein, provided that (i) any such conversion may only be made if, after giving effect thereto, Section 2.5 shall not have been contravened, (ii) no Loan may be converted into a LIBOR Loan after the date that is one month prior to the Maturity Date and (iii) the Borrower shall not have the right to elect to continue at the end of the applicable Interest Period, or to convert to, a LIBOR Loan if a Default shall have occurred and be continuing. (b) Any LIBOR Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such LIBOR Loan, provided that no LIBOR Loan may be continued -------- as such (i) if, after giving effect thereto, Section 2.5 would be contravened, (ii) after the date that is one month prior to the Maturity Date or (iii) if a Default shall have occurred and be continuing and provided, further, that if the -------- ------- Borrower shall fail to give any required notice as described above in this Section or if such continuation is not permitted pursuant to the preceding proviso, such Loans shall be automatically converted to Base Rate Loans on the last day of such then-expiring Interest Period. 2.5 Minimum Amounts of Tranches. All borrowings, conversions and --------------------------- continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Tranche shall be equal to $1,000,000 or a whole multiple of $100,000 in excess thereof and, in any case, there shall not be more than 12 Tranches. 2.6 Interest Rates and Payment Dates. -------------------------------- (a) Each LIBOR Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the LIBOR Adjusted Rate plus the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (c) If any Default shall have occurred and be continuing, all amounts outstanding shall bear interest at a rate per annum which is the rate described in paragraph (b) of this Section plus 2% from the date of the occurrence of such Default until such Default is no longer continuing (after as well as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable on demand. -18- (e) If and so long as funds are available in the Interest Reserve Account, the Agent shall deduct funds from the Interest Reserve Account, and shall distribute such funds pro rata to the Lenders, to pay interest due and payable on the Loans. 2.7 Computation of Interest and Fees. -------------------------------- (a) Interest on Base Rate Loans (other than Base Rate Loans based on the Federal Funds Effective Rate) shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed, and interest on LIBOR Loans and all other Obligations of the Borrower shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Adjusted Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the LIBOR Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Base Rate is announced or such change in the LIBOR Reserve Requirements becomes effective, as the case may be. The Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.8 Inability to Determine Interest Rate. In the event that prior to the ------------------------------------ first day of any Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or (b) the Agent shall have received notice from the Majority Lenders acting in good faith that the LIBOR Adjusted Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans requested to be made on the first day of such Interest Period shall accrue interest at the Base Rate, (y) Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans shall be continued as Base Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Agent, no further LIBOR Loans shall be made or continued as such, nor shall the Borrower have the right to convert Base Rate Loans to LIBOR Loans. 2.9 Pro Rata Treatment and Payments. The borrowing by the Borrower from ------------------------------- the Lenders hereunder shall be made pro rata according to the respective Commitment Percentages of the applicable Lenders. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective -19- outstanding principal and interest amounts of the Loans then held by the Lenders. All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 noon, Los Angeles time, on the due date thereof to the Agent, for the account of the applicable Lenders, at the Agent's office specified in Section 9.2, in Dollars and in immediately available funds. The Agent shall distribute such payments to the applicable Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Loan becomes due and payable on a day other than a Eurodollar Business Day, the maturity thereof shall be extended to the next succeeding Eurodollar Business Day (and interest shall continue to accrue thereon at the applicable rate) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Eurodollar Business Day. 2.10 Illegality. Notwithstanding any other provision herein, if any change ---------- after the Closing Date in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender or Applicable Lending Office to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Base Rate Loans to LIBOR Loans shall forthwith be suspended during such period of illegality and (b) the Loans of such Lender or Applicable Lending Office then outstanding as LIBOR Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.13. To the extent that a Lender's LIBOR Loans have been converted to Base Rate Loans pursuant to this Section 2.10, all payments and prepayments of principal that otherwise would be applied to such Lender's LIBOR Loans shall be applied instead to its Base Rate Loans. 2.11 Increased Costs. --------------- (a) In the event that any change after the Closing Date in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law but, if not having the force of law, generally applicable to and complied with by banks and financial institutions of the same general type as such Lender in the relevant jurisdiction) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirements against assets held by, letters of credit or guarantees issued by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such -20- Lender or Applicable Lending Office which is not otherwise included in the determination of the LIBOR Adjusted Rate hereunder; or (ii) shall impose on such Lender or Applicable Lending Office any other condition; and the result of any of the foregoing is to increase the cost to such Lender or Applicable Lending Office, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining LIBOR Loans or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall immediately pay to the Agent, on behalf of such Lender or Applicable Lending Office, as applicable, upon the request of such Lender any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender or any Applicable Lending Office becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender or Applicable Lending Office, through the Agent, to the Borrower shall be conclusive evidence of the accuracy of the information so recorded, absent manifest error. The obligations of the Borrower under this Section 2.11(a) shall survive the termination of this Agreement and the payment of the Loans, the Notes and all other amounts payable hereunder. (b) If, after the date of this Agreement, the introduction of or any change in any applicable law, rule, regulation or guideline regarding capital adequacy, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, affects the amount of capital required or expected to be maintained by any Lender or any corporation controlling any Lender, and such Lender (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) determines that the amount of capital maintained by such Lender or such corporation, which is attributable to or based upon the Loans, the Commitments or this Agreement, must be increased as a consequence of such introduction or change by an amount deemed by such Lender to be material, then, upon demand of the Agent at the request of such Lender, the Borrower shall immediately pay to the Agent on behalf of such Lender, additional amounts sufficient to compensate such Lender or such corporation for the increased costs to such Lender or corporation of such increased capital. Any such demand shall be accompanied by a certificate of such Lender setting forth in reasonable detail the computation of any such increased costs, which certificate shall be conclusive, absent manifest error. The obligations of the Borrower under this Section 2.11(b) shall survive the termination of this Agreement and the payment of the Loans, the Notes and all other amounts payable hereunder. 2.12 Taxes. ----- (a) All payments made by the Borrower in respect of the Obligations shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority or any political subdivision or taxing authority thereof or therein, other than Excluded Taxes (all such non-Excluded Taxes being hereinafter called "Taxes"). If any -21- Taxes are required to be withheld from any amounts payable to the Agent or any Lender in respect of the Obligations, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. The Agent or a Lender, as the case may be, shall deliver to the Borrower a certificate in good faith setting forth the amount of such Taxes, the calculation of such Taxes and an explanation of the requirement therefor, all in reasonable detail and such certificate shall be conclusive, absent manifest error. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the Agent, for its own account or for the account of such Lender, as the case may be, a copy of an original official receipt received by the Borrower showing payment thereof or such other evidence of payment reasonably satisfactory to the Agent. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties (and related reasonable fees and expenses of counsel) that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Lender that is not organized under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form W-9, W-8BEN or W-8ECI (as applicable to it) or successor applicable form. Each such Lender also agrees to deliver to the Borrower and the Agent two further copies of the said Form W-9, W-8BEN or W-8ECI (as applicable to it), or successor applicable forms or other manner or certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower or the Agent, unless in any such case an event beyond the control of such Lender (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required, which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it, and such Lender so advised the Borrower and the Agent. Each such Lender shall certify pursuant to such Forms that it is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. 2.13 Indemnity. The Borrower agrees to indemnify each Lender and to hold --------- each Lender harmless from and to pay each Lender within 5 Business Days of such Lender's demand the amount of any liability, loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained (including reasonable fees and expenses of counsel) which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment when due of the principal amount of or interest on any LIBOR Loan, (b) default by the Borrower in making a borrowing of, conversion into or continuation of LIBOR Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making by the Borrower of a prepayment or conversion of LIBOR -22- Loans on a day which is not the last day of an Interest Period with respect thereto. A Lender's certificate as to such liability, loss or expense shall be deemed conclusive, absent manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 2.14 Mitigation of Costs. If any Lender, by changing its Applicable ------------------- Lending Office or taking any other reasonable action, so long as making such change or taking such other action is not disadvantageous to it in any financial, regulatory or other respect, can mitigate any adverse effect on the Borrower under Section 2.8, 2.10, 2.11, or 2.12, such Lender shall take such action. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Agent and each Lender, such representations to be given, with respect to the Closing Date, both before and after the consummation of the Merger, that: 3.1 Organization and Good Standing. The Borrower and each Subsidiary (a) ------------------------------ is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (b) has all requisite power and authority (corporate, partnership, limited liability company and otherwise) to own its properties and to conduct its business as now conducted and as currently proposed to be conducted and (c) is duly qualified to conduct business as a foreign organization and is currently in good standing in each state and jurisdiction in which it conducts business. Each state and jurisdiction in which the Borrower or any Subsidiary is organized or is (or should be) qualified to conduct business is listed on Schedule 3.1 hereto. 3.2 Power and Authority. The Borrower has all requisite power and ------------------- authority under applicable law and under its Organic Documents to consummate the Merger and to borrow hereunder. The Borrower and each Subsidiary has all requisite power and authority under applicable law and under its Organic Documents to execute, deliver and perform the obligations under the Loan Documents to which it is a party. Except as disclosed on Schedule 3.2 hereto, all actions, waivers and consents (corporate, regulatory and otherwise) necessary or appropriate for the Borrower and each Subsidiary to execute, deliver and perform the Loan Documents to which it is a party and for the Borrower to consummate the Merger have been taken and/or received. Except as provided in Section 4.1(r)(i), all applicable waiting periods in connection with the Merger and the other transactions contemplated hereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Merger or the rights of the Borrower of its Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. 3.3 Validity and Legal Effect. This Agreement constitutes, and the other ------------------------- Loan Documents to which the Borrower or any Subsidiary is a party, constitute (or will constitute when executed and delivered), the legal, valid and binding obligations of the Borrower and each Subsidiary enforceable against it in accordance with the terms thereof. 3.4 No Violation of Laws or Agreements. The execution, delivery and ---------------------------------- performance of the Loan Documents, (a) will not violate or contravene any Requirement of Law, (b) will not -23- result in any material breach or violation of, or constitute a material default under, any agreement or instrument by which the Borrower, any Subsidiary or any of its respective properties may be bound, and (c) will not result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any properties of the Borrower or any Subsidiary, whether such properties are now owned or hereafter acquired. 3.5 Title to Assets; Existing Encumbrances; Intellectual and Real ------------------------------------------------------------- Property. The Borrower and each Subsidiary has good and marketable title to all - -------- of its real and personal properties and assets, free and clear of any Liens, except the security interests granted to the Agent for the benefit of the Lenders under the Loan Documents. Schedule 3.5A hereto lists each trademark, service mark, copyright, patent, database, customized application software and systems integration software, trade secret and other intellectual property owned, licensed, leased, controlled or applied for by the Borrower or any Subsidiary (the "Intellectual Property"). To the Borrower's knowledge, no claim --------------------- has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower know of any valid basis for any such claim. To the Borrower's knowledge, the use of such Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person, nor, to the Borrower's knowledge, does the use by other Persons of such Intellectual Property infringe on the rights of the Borrower and its Subsidiaries. Schedule 3.5B hereto lists each real property interest and license owned, leased or otherwise used by the Borrower or any Subsidiary, together with relevant identifying information describing, among other things, the location and use of each such real property interest or license, whether such interest is owned or leased. Each such property and asset is in good order and repair (ordinary wear and tear excepted) and is fully covered by the insurance required under the Loan Documents. Each such property and asset owned by the Borrower is titled in the current legal name of the Borrower. Each such property and asset owned by any Subsidiary is titled in the current legal name of such Subsidiary. The Borrower has not, and no Subsidiary has, used (or permitted the filing of any financing statement under) any legal or operating name at any time during the twelve consecutive calendar months immediately preceding the execution of this Agreement, except as identified on Schedule 3.5C hereto. 3.6 Capital Structure and Equity Ownership. Schedule 3.6 hereto -------------------------------------- accurately and completely discloses (a) the number of shares and classes of equity ownership rights and interests of the Borrower (whether existing as common or preferred stock or warrants, options or other instruments convertible into such equity) and (b) the ownership thereof. All such shares and interests are validly existing, fully paid and non-assessable. There are no Equityholder Agreements with respect to the Borrower or any Subsidiary. 3.7 Subsidiaries, Affiliates and Investments. Schedule 3.7 hereto ---------------------------------------- accurately and completely discloses (a) each Subsidiary and Affiliate of the Borrower (other than its officers and directors) and (b) each investment in or loan to any other Person by the Borrower or any Subsidiary. 3.8 Material Contracts. Schedule 3.8 hereto accurately and completely ------------------ discloses each contract and agreement material to the financial condition or operation of the Borrower or any Subsidiary (each, a "Material Contract," and ----------------- collectively, the "Material Contracts"). The Borrower has not, and no Subsidiary ------------------ has, committed any unwaived breach or default under any -24- Material Contract, and the Borrower has no knowledge or reason to believe that any other party to any Material Contract has or might have committed any unwaived breach or default thereof. Each of the Material Contracts is a legal, valid and binding obligation of the Borrower and Subsidiary party thereto, enforceable in accordance with its terms. The Agent has received a complete and correct copy of each of the Material Contracts (including in each case all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all amendments thereto and other side letters or agreements affecting the terms thereof. 3.9 Media Licenses. The Borrower and each Subsidiary have obtained, and -------------- are holding through the Entravision License Subsidiary or the LCG License Subsidiary, all Media Licenses necessary or required in the conduct of their respective businesses and/or the operation of their respective properties. Each Media License is valid, binding and enforceable on, against and by the Borrower or such Subsidiary, as applicable. Each Media License is subsisting without any defaults thereunder or enforceable adverse limitations thereon, and no Media License is subject to any proceedings or claims opposing the issuance, renewal, development or use thereof or contesting the validity thereof. Schedule 3.9 hereto accurately and completely lists each material Media License directly or indirectly owned by the Borrower (including, whether or not otherwise "material", each Media License issued by the FCC, and further including all pending applications and renewals therefor), together with relevant identifying information describing such Media License. With respect to each FCC license listed on Schedule 3.9 hereto, the description shall include, among other things, the call sign, frequency, location, file number, issuance date (original or most recent renewal), and expiration date. 3.10 Taxes and Assessments. Except as disclosed on Schedule 3.10 hereto, --------------------- the Borrower and each Subsidiary has timely filed all required tax returns and reports (federal, state and local) or has properly filed for extensions of the time for the filing thereof. The Borrower has no knowledge of any deficiency, penalty or additional assessment due or appropriate in connection with any such taxes. All taxes (federal, state and local) imposed upon the Borrower or any Subsidiary or any of its properties, operations or income have been paid and discharged prior to the date when any interest or penalty would accrue for the nonpayment thereof, except for those taxes being contested in good faith by appropriate proceedings diligently prosecuted and with adequate reserves reflected on the financial statements in accordance with GAAP (all as also disclosed on Schedule 3.10 hereto). There are no taxes imposed on the Borrower or its Subsidiaries by any political subdivision or taxing authority due or payable either on or by virtue of the execution and delivery by the Borrower, the Agent, or the Lenders of this Agreement or any other Loan Document to which the Borrower or its Subsidiaries are party, or on any payment to be made by the Borrower pursuant hereto or thereto. 3.11 Litigation and Legal Proceedings. Except as disclosed on Schedule -------------------------------- 3.11 hereto, there is no litigation, claim, investigation, administrative proceeding, labor controversy or similar action that is pending or, to the best of the Borrower's knowledge and information after due inquiry, threatened, except as set forth in the following clauses (i) and (ii), (i) against the Borrower, any Subsidiary or any Property that, if adversely resolved, could have a Material Adverse Effect, (ii) with respect to any Loan Document or the transactions contemplated thereby or (iii) with respect to the legality, validity or enforceability of the Merger. -25- 3.12 Accuracy of Financial Information. --------------------------------- (a) All information previously furnished to the Agent and the Lenders concerning the financial condition and operations of LCGAC and LCG, including (i) a balance sheet of LCGAC dated the Closing Date showing no assets or liabilities of LCGAC and (ii) the audited consolidated and consolidating financial statements of LCG as of December 31, 1999, (A) have been prepared in accordance with GAAP consistently applied, (B) are true, accurate and complete in all material respects, (C) fairly present the financial condition of the organizations covered thereby as of the dates and for the periods covered thereby and (D) disclose all material liabilities (contingent and otherwise) of LCGAC and LCG, respectively. (b) (i) With respect to the balance sheet delivered pursuant to Section 3.12(a), since the Closing Date there has been no event or condition resulting in a Material Adverse Effect and (ii) with respect to the audited financial statements delivered pursuant to Section 3.12(a), since December 31, 1999 there has been no event or condition resulting in a Material Adverse Effect. 3.13 Accuracy of Other Information. All information contained in any ----------------------------- material application, schedule, report, certificate, or any other document given to the Agent or any Lender by the Borrower or any other Person in connection with the Loan Documents is in all material respects true, accurate and complete, and no such Person has omitted to state therein (or failed to include in any such document) any material fact or any fact necessary to make such information not misleading. All projections given to the Agent or any Lender by the Borrower or any other Person on behalf of the Borrower have been prepared with a reasonable basis and in good faith making use of such information as was available at the date such projection was made. The projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made and as of the Closing Date, it being recognized that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. 3.14 Compliance with Laws Generally. The Borrower and each Subsidiary is ------------------------------ in compliance in all material respects with all Requirements of Law applicable to it, its operations and its properties. 3.15 ERISA Compliance. ---------------- (a) The Borrower and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA, and all rules, regulations and orders implementing ERISA. (b) None of the Borrower, any Subsidiary or any ERISA Affiliate thereof maintains or contributes to (or has maintained or contributed to) any Multiemployer Plan under which the Borrower, any Subsidiary or any ERISA Affiliate thereof could have any withdrawal liability. (c) None of the Borrower, any Subsidiary or any ERISA Affiliate thereof sponsors or maintains any defined benefit pension plan under which there is an accumulated funding deficiency within the meaning of Section 412 of the Code, whether or not waived. -26- (d) The liability for accrued benefits under each defined benefit pension plan that will be sponsored or maintained by the Borrower, any Subsidiary or any ERISA Affiliate thereof (determined on the basis of the actuarial assumptions utilized by the PBGC) does not exceed the aggregate fair market value of the assets under each such defined benefit pension plan. (e) The aggregate liability of the Borrower, each Subsidiary and each ERISA Affiliate thereof arising out of or relating to a failure of any employee benefit plan within the meaning of Section 3(2) of ERISA to comply with provisions of ERISA or the Code will not have a Material Adverse Effect. (f) There does not exist any unfunded liability (determined on the basis of actuarial assumptions utilized by the actuary for the plan in preparing the most recent annual report) of the Borrower, any Subsidiary or any ERISA Affiliate thereof under any plan, program or arrangement providing post- retirement, life or health benefits. (g) No Reportable Event and no Prohibited Transaction (as defined in ERISA) has occurred or is occurring with respect to any plan with which the Borrower or any Subsidiary is associated. 3.16 Environmental Compliance. ------------------------ (a) The Borrower and each Subsidiary has received all permits and filed all notifications necessary under and is otherwise in compliance in all material respects with all federal, state and local laws, rules and regulations governing the control, removal, storage, transportation, spill, release or discharge of hazardous or toxic wastes, substances and petroleum products, including, without limitation, as provided in the provisions of and the regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, (ii) the Solid Waste Disposal Act, (iii) the Clean Water Act and the Clean Air Act, (iv) the Hazardous Materials Transportation Act, (v) the Resource Conservation and Recovery Act of 1976 and (vi) the Federal Water Pollution Control Act Amendments of 1972 (all of the foregoing enumerated and non-enumerated statutes, including without limitation any applicable state or local statutes, all as amended, collectively, the "Environmental Control Statutes"). ------------------------------ (b) The Borrower has not, and no Subsidiary has, given any written or oral notice to the Environmental Protection Agency ("EPA") or any state or local --- agency with regard to any actual or imminently threatened removal, storage, transportation, spill, release or discharge of hazardous or toxic wastes, substances or petroleum products either (i) on properties owned or leased by the Borrower or such Subsidiary or (ii) otherwise in connection with the conduct of its business and operations. (c) The Borrower has not, and no Subsidiary has, received notice that it is potentially responsible for costs of clean-up of any actual or imminently threatened spill, release or discharge of hazardous or toxic wastes or substances or petroleum products pursuant to any Environmental Control Statute. (d) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Control Statute to which -27- the Borrower or any of its Subsidiaries is named as a party with respect to the Properties or the business conducted at the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Control Statute with respect to the Properties or such business. 3.17 Federal Regulations. No part of the proceeds of any Loans are ------------------- intended to be or will be used, directly or indirectly for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System. If requested by any Lender or the Agent, and in any event upon consummation of any acquisition involving the purchase of stock by the Borrower or any Subsidiary, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of Form U-1 referred to in Regulation U. 3.18 Fees and Commissions. Except as disclosed on Schedule 3.18 hereto or -------------------- as required by the letter referred to in Section 4.1(g), the Borrower does not and will not owe, and no Subsidiary owes or will owe, any fees or commissions of any kind in connection with this Agreement or the transactions contemplated hereby, and the Borrower does not know of any claim (or any basis for any claim) for any fees or commissions in connection with this Agreement or such transactions. 3.19 Publishing Business. The Borrower and each Subsidiary possess all ------------------- licenses necessary or required in the conduct of its publishing businesses and/or the operation of its properties used in connection with such businesses. Each license is valid, binding and enforceable on, against and by the Borrower or such Subsidiary, as applicable. Each license is subsisting without any defaults thereunder or enforceable adverse limitations thereon, and no such license is subject to any proceedings or claims opposing the issuance, renewal, development or use thereof or contesting the validity thereof. Each publication owned or operated by the Borrower or any Subsidiary is listed on Schedule 3.19. 3.20 Solvency. Immediately prior to and upon the execution of this -------- Agreement and the funding of the Loans on the Closing Date, the Borrower and each Guarantor was, is and will be Solvent. 3.21 FCC-Related Representations. Without limiting the generality of the --------------------------- foregoing representations and warranties, the Borrower further represents and warrants as follows: (a) Except as described on Schedule 3.21 hereto, there is no outstanding or unresolved (i) application by the Borrower or any Subsidiary for any Media License or by the Entravision License Subsidiary for any Entravision Media License, including any renewal of any Media License or Entravision Media License, (ii) to the best of the Borrower's knowledge, material complaint to the FCC regarding the Borrower, any Subsidiary, the Entravision License Subsidiary, any Media License or any Entravision Media License, (iii) litigation, investigation or other inquiry by or before the FCC involving the Borrower, any Subsidiary, the Entravision License Subsidiary, any Media License or any Entravision Media License, or (iv) FCC enforcement proceeding against the Borrower, any Subsidiary, the Entravision License -28- Subsidiary, any Media License or any Entravision Media License, including without limitation, any notice of violation, any notice of apparent liability for forfeiture, or any forfeiture. (b) The Media Licenses identified on Schedule 3.9 hereto constitute all of the Media Licenses required by the Communications Act for the operation of the Borrower's and each Subsidiary's business as it is currently being operated. Each such Media License is validly outstanding and effective and has been renewed by the FCC without condition for a full term in accordance with the Communications Act. There are no modifications, amendments or revocations (pending or, to the best knowledge of the Borrower after due inquiry, threatened) that could materially and adversely affect the operations or financial condition of the Borrower, any Subsidiary or any Station. After due inquiry, the Borrower does not know of any reason why the FCC would not routinely grant, for a full term and without condition, the application by the Borrower , any Subsidiary or the Entravision License Subsidiary, as applicable, for the renewal of each Media License and Entravision Media License over which the FCC has jurisdiction, when and as such application shall become due to be filed with the FCC. (c) Except as described on Schedule 3.21 hereto, after due inquiry, the Borrower does not know of any application currently pending before, or to be filed with, the FCC, the grant of which application would result in the authorization of a new or modified station whose authorized transmissions would materially and impermissibly interfere with any of the operations, signals, transmission or receptions of the Borrower or its Subsidiaries (as such impermissible interference is described in the FCC's rules, regulations and policies, including, without limitation, the FCC's rules relating to Receiver Induced Third Order Intermodulation Effect, Blanketing, Antenna Separation, Desired-to-Undesired Signal Ratios, and Prohibited Contour Overlap). 3.22 Investment Company Act; Other Regulations. The Borrower is not, and ----------------------------------------- no Subsidiary is, an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). ---------------------- 3.23 Copyright Act Requirements. The Borrower and each Subsidiary has -------------------------- recorded or deposited with and paid to the United States Copyright Office, the Registrar of Copyrights, the Patent and Trademark Office, the American Society of Composers, Authors and Publishers, Broadcast Music, Inc. and/or any other licensors of copyrighted materials, all notices, statements of account, royalty fees and other documents and instruments required under the terms and conditions of any patent, trademark, service mark, trade name and copyright used in the operation of a Station and/or the Copyright Act of 1976, as amended from time to time, and the rules and regulations promulgated thereunder and, except as disclosed in writing to the Agent, is not liable in a material amount to any Person for copyright infringement under any law, rule, regulation, contract or license as a result of its business operation. 3.24 Nature of Business. The Borrower is not, and no Subsidiary is, ------------------ engaged in any material business other than the ownership and operation of Spanish-language radio stations, a Spanish-language radio network, Spanish- language newspapers and other Spanish-language print publications. -29- 3.25 Ranking of Loans. This Agreement and the other Loan Documents to ---------------- which the Borrower is party, when executed, and the Loans, when borrowed are and will be the direct and general obligations of the Borrower. The Borrower's obligations hereunder and thereunder rank and will rank at least pari passu in ---- ----- priority of payment to all other Indebtedness of the Borrower and its Subsidiaries. 3.26 Condemnation. To the Borrower's knowledge, no taking of any of the ------------ Properties or any part thereof through eminent domain, conveyance in lieu thereof, condemnation or similar proceeding is pending or, to the knowledge of the Borrower, threatened by any Governmental Authority. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Closing Date. The agreement of each Lender to make the -------------------------- Loans requested to be made by it on the Closing Date is subject to the satisfaction, immediately prior to or concurrently with the making of such Loans on the Closing Date, of the following conditions precedent: (a) Merger. (i) The Merger shall have been consummated in accordance with ------ the terms of the Merger Agreement, without any waiver or amendment not consented to by the Agent, and the Agent shall have received a certificate of a Responsible Officer of the Borrower to the effect that all material transactions contemplated by the Merger Agreement to be consummated on or prior to the Closing Date have been consummated without any such waiver or amendment; (ii) The Agent shall have received a copy of the certificate of merger filed with the Delaware Secretary of State evidencing the consummation of the Merger; (iii) The Agent shall have received evidence, in form and substance satisfactory to the Agent, that Entravision has made an equity investment in the Borrower, on terms and conditions satisfactory to the Agent, in the amount of at least $145,000,000; (iv) The Agent shall have received a copy of the Merger Agreement (including the Disclosure Schedules thereto), along with all bills of sale and similar agreements and documents relating thereto, certified by the Borrower to be true, correct and complete copies thereof, with no amendments thereto; (v) The Agent shall have received all necessary corporate resolutions of the shareholders and board of directors of LCG approving the Merger; (vi) The Agent shall have received the legal opinions of counsel delivered under the Merger Agreement, each in form and substance satisfactory to the Agent, and each such opinion shall contain a statement or be accompanied by a letter addressed to the Agent and the Lenders dated the Closing Date, to the effect that the Agent and the Lenders may rely upon such opinion to the same extent as if it were originally addressed to each of them; (vii) The Agent shall have received evidence, in form and substance satisfactory to the Agent, that the aggregate consideration paid for all outstanding shares of LCG -30- in connection with the Merger shall not exceed $252,000,000, and the Agent shall have received a certificate of a Responsible Officer of the Borrower to such effect; and (viii) The Agent shall have received evidence, in form and substance satisfactory to the Agent, that the Merger is in compliance with the Hart-Scott- Rodino Act, and that any necessary approval thereunder has been obtained and is in full force and effect. (b) Credit Agreement. The Agent shall have received this Agreement, ---------------- executed and delivered by an officer of the Borrower as of the Closing Date. (c) Other Loan Documents. The Agent shall have received the Notes, the -------------------- Guarantees, the Guarantor Security Agreements, the Security Agreement, the Intercreditor Agreement and all UCC-1 Financing Statements and other agreements or instruments required to create or perfect a security interest in the Collateral executed in connection herewith, in each case executed and delivered by an officer of the relevant Obligor. (d) Incumbency Certificates. The Agent shall have received an incumbency ----------------------- certificate of LCGAC, LCG (setting forth the officers thereof immediately after the consummation of the Merger) and each other Guarantor, in each case dated the Closing Date and executed by one of its Responsible Officers or its Secretary or Assistant Secretary. (e) Corporate/Limited Liability Company Proceedings. The Agent shall have ----------------------------------------------- received a copy of the resolutions of the Board of Directors of LCGAC, LCG (immediately after the consummation of the Merger) and each other corporate Guarantor, and a copy of the resolutions of the appropriate governing body of each limited liability company Guarantor, each dated as of the Closing Date authorizing (i) the execution, delivery and performance of the Loan Documents to which it is or will be a party, (ii) the borrowings contemplated hereunder (in the case of LCGAC and LCG), (iii) the consummation of the Merger (in the case of LCGAC and LCG) and (iv) the execution and delivery on behalf of the Borrower of all notices, certificates and other documents to be delivered under the Loan Documents from time to time, in each case certified by the Secretary or an Assistant Secretary of such Obligor or the Managing Member(s) of such Obligor, as applicable, as of the Closing Date, which certificate states that such resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect. (f) Organic Documents. The Agent shall have received copies of the ----------------- Organic Documents of LCGAC, LCG (immediately after consummation of the Merger) and each other Guarantor, certified as of the Closing Date as complete and correct copies thereof (or, with respect to copies of Organic Documents which have not been amended since their delivery under the Entravision Credit Agreement, a certificate stating that such copies remain complete and correct and such documents have not been amended) by the Secretary or an Assistant Secretary of such Obligor. (g) Fees and Costs. The Agent shall have received payment of all fees, -------------- costs and expenses, including legal fees (if requested by the Agent) and the fees set forth in the closing side letter executed by the Borrower and the Agent in connection herewith, accrued and unpaid -31- and otherwise due and payable on or before the Closing Date by the Borrower in connection with this Agreement. (h) Legal Opinions. The Agent shall have received, with a counterpart for -------------- each Lender, the following executed legal opinions: (i) the executed legal opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., counsel to the Borrower and the Guarantors, in form and substance satisfactory to the Agent; (ii) the executed legal opinion of Thompson, Hine & Flory, LLP, FCC counsel to the Borrower and the Guarantors, in form and substance satisfactory to the Agent; (iii) the executed legal opinions of (A) Fried, Frank, Harris, Shriver & Jacobson and Leventhal, Senter & Lerman, P.L.L.C., counsel to the sellers under the Merger Agreement, and (B) Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., counsel to the purchasers under the Merger Agreement, in each case in the form delivered pursuant to the Merger Agreement and either addressed to the Agent and the Lenders or with a letter authorizing the Agent and the Lenders to rely on such legal opinions; and (iv) such other legal opinions as the Agent may reasonably request. (i) Material Contracts. The Agent shall have received, with a counterpart ------------------ for each Lender, copies of (i) each Material Contract and (ii) to the extent not referred to in clause (i), the Merger Agreement. (j) Recording/Filing. The Agent shall have received as of the Closing ---------------- Date evidence of (i) the filing, or of provision acceptable to the Agent for the filing, of appropriate financing statements naming the Agent, for the benefit of the Lenders, as secured party (including recordation of all fixture filings requested by the Agent), in such office or offices as may be necessary or, in the reasonable opinion of the Agent, desirable to perfect the security interests purported to be created by any of the Collateral Documents or the Guarantor Collateral Documents, (ii) the payment by the Borrower of all filing taxes or assessments imposed by any such state or county office and (iii) all filings and other actions necessary or desirable to perfect a security interest in any intellectual property of any Obligor pledged under the Loan Documents. (k) Lien Searches. The Agent shall have received such UCC searches as it ------------- shall deem necessary. (l) Stock Certificates; Etc. The Agent shall have received (i) original ------------------------ stock certificates representing all outstanding shares of stock of the Borrower and each corporate Subsidiary, together with an undated stock power for each of such certificates, duly executed in blank by an authorized officer of the pledgor and (ii) such Limited Liability Company Notices and Limited Liability Company Acknowledgments as are required by the Security Agreement or any Guarantor Security Agreement. -32- (m) Good Standing Certificates. With respect to the LCGAC, LCG and each -------------------------- Guarantor, the Agent shall have received a certificate, dated a recent date, of the Secretary of State of the state of formation of such Obligor and each other jurisdiction where such Obligor is required to be qualified to do business under such jurisdiction's law, certifying as to the existence and good standing of, and the payment of taxes by, each Obligor in such state. (n) No Default/Representations. No Default shall have occurred and be -------------------------- continuing on the Closing Date or would occur after giving effect to the Loans requested to be made on the Closing Date, and the representations and warranties contained in this Agreement and each other Loan Document and certificate or other writing delivered to the Lenders in satisfaction of the conditions set forth in this Section 4.1 prior to or on the Closing Date shall be correct in all material respects on and as of the Closing Date, and the Agent shall have received a certificate of the Borrower to such effect in the form of Exhibit C, dated as of the Closing Date and executed by a Responsible Officer of the Borrower. (o) No Prohibitions. No statute, rule, regulation, order, decree or --------------- preliminary or permanent injunction of any court or administrative agency or, to the best knowledge of the Borrower, any such action threatened by any Person, shall be in effect that prohibits the Lenders from consummating the transactions contemplated by this Agreement or any other Loan Document, and the Agent shall have received a certificate of a Responsible Officer of the Borrower to such effect. (p) Solvency Certificate. The Agent shall have received a certificate of -------------------- the Chief Financial Officer of the Borrower and each Guarantor, to the effect that the Borrower and each Guarantor is Solvent after giving effect to the consummation of the Merger, the funding of the Loans, the execution and delivery of the Guarantees, and the payment of all estimated legal, investment banking, accounting, and other fees related hereto and thereto. (q) Insurance Policies. The Agent shall have received evidence that the ------------------ insurance policies provided for in Section 5.5 and in the other Loan Documents are in full force and effect, certified by the insurance broker therefor, together with appropriate evidence showing the Agent as an additional named insured or loss payee, as appropriate, for the benefit of the Lenders, all in form and substance reasonably satisfactory to the Agent. (r) Operational Consents; FCC Matters. The Agent shall have received --------------------------------- evidence, in form and substance reasonably satisfactory to the Agent that (i) all necessary FCC consents to the transaction contemplated by the Merger Agreement have been obtained, provided that such consents need not have become Final Orders, (ii) the Borrower and its Subsidiaries have obtained all FCC consents and licenses required by law or necessary for the operation of the Borrower and its Subsidiaries, (iii) the Borrower and its Subsidiaries have obtained all other consents and licenses required by law or necessary for the operation of the Borrower and its Subsidiaries and (iv) pro forma applications for FCC approval of the transfer of the Media Licenses to the LCG License Subsidiary have been filed with the FCC. (s) Existing Indebtedness. The Agent shall have received evidence --------------------- satisfactory to it of (i) the full repayment of all existing Indebtedness of the Borrower and its Subsidiaries, except as described in Schedule 6.2, and (ii) the termination of all guarantees and collateral pledges (or -33- evidence that arrangements for termination of such collateral pledges satisfactory to the Agent shall have been made). (t) Operating Cash Flow. The Agent shall have received a certificate of a ------------------- Responsible Officer of the Borrower stating that the consolidated Operating Cash Flow of the Borrower and its Subsidiaries for the twelve months ended on January 31, 2000 was not less than $7,200,000, including calculations with respect thereto in the form set forth in paragraph 2 of the Covenant Compliance Certificate. (u) Financial Information. The Agent shall have received (i) the --------------------- financial statements referred to in Section 3.12, (ii) a pro forma balance sheet --- ----- of the Borrower and its Subsidiaries giving effect to the Merger, in form and substance satisfactory to the Agent, (iii) projections of the performance of the Borrower, in form and substance satisfactory to the Agent, and (iv) an operating budget for the Borrower and its Subsidiaries for the period from the Closing Date through December 31, 2000, in form and substance satisfactory to the Agent. (v) Third Amendment to Entravision Credit Agreement. The Agent shall have ----------------------------------------------- received evidence of the satisfaction of the conditions precedent to the third amendment, dated as of the date hereof, to the Entravision Credit Agreement. (w) Additional Proceedings. The Agent shall have received such other ---------------------- approvals, opinions and documents as any Lender, through the Agent, may reasonably request and all legal matters incident to the making of such Loans shall be reasonably satisfactory to the Agent. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as any Commitment remains in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Agent hereunder: 5.1 Financial Statements -------------------- (a) Within 120 days after the close of each fiscal year, the Borrower shall deliver to the Agent, for distribution to the Lenders, a complete set of audited annual consolidated and consolidating financial statements of the Borrower, including a balance sheet, an income statement, a cash flow statement and a reconciliation of consolidated net worth (with accompanying notes and schedules). Such financial statements (i) must be prepared in accordance with GAAP consistently applied and (ii) must be certified without qualification by the Accountants. Together with the audited financial statements, the Agent must also receive a certificate signed by such Accountants, at the time of the completion of the annual audit, (A) stating that the financial statements fairly present the consolidated and consolidating financial condition of the Borrower as of the date thereof and for the periods covered thereby and (B) that, to the knowledge of such Accountants, no Default exists under Section 6.1, to the extent such Section relates to accounting matters. (b) Within 45 days after the end of each fiscal quarter, the Borrower shall deliver to the Agent, for distribution to the Lenders, (x) unaudited consolidated and consolidating financial statements of the Borrower for such quarter and (y) unaudited consolidated and consolidating -34- financial statements for the Borrower for the year-to-date period ended as of the end of such quarter, in each case in form and substance acceptable to the Agent. Such financial statements shall include, without limitation, a balance sheet, income statement and operating cash flow statement (with appropriate notes and schedules) and shall include a comparison of the results of each such period with the results for the same period of the previous fiscal year and with the budgeted results set forth in the budget referred to in Section 5.2(c) (or, prior to delivery of such budget, the budget delivered on the Closing Date) and must be prepared in accordance with GAAP consistently applied. In the case of the financial statements referred to in clause (y), such financial statements shall be prepared in accordance with GAAP consistently applied (except as required by Section 1.2(e)). Together with the quarterly financial statements, the Agent must also receive (i) a certificate executed by the Chief Financial Officer of the Borrower (A) stating that the financial statements fairly present the financial condition of the Borrower as of the date thereof and for the periods covered thereby, (B) certifying that as of the date of such certificate such officer has obtained no knowledge of any Default except as specified in such certificate and (C) certifying that to the best of such officer's knowledge, no Default has occurred and the Borrower is in compliance with its respective covenants in the Loan Documents to which it is party and (ii) a Covenant Compliance Certificate. (c) Within 30 days after the end of each month, the Borrower shall deliver to the Agent, for distribution to the Lenders, an unaudited monthly consolidated and consolidating income statement and balance sheet, along with a comparison of the results of such month with the same month of the previous fiscal year and with the budgeted results set forth in the budget referred to in Section 5.2(c) (or, prior to delivery of such budget, the budget delivered on the Closing Date), in each case in form and substance acceptable to the Agent, certified by a Responsible Officer of the Borrower as fairly presenting the financial condition of the Borrower as of the date thereof and for the period covered thereby. (d) Within 45 days of the end of each fiscal quarter, the Borrower shall deliver to the Agent, for distribution to the Lenders, a financial report, in form and substance acceptable to the Agent, relating to the operations of each Station and each publication as at the end of such quarter and the portion of the fiscal year through the end of such quarter, certified by a Responsible Officer of the Borrower as fairly presenting the financial condition of each Station and publication as of the end of such quarter. 5.2 Certificates; Other Information. The Borrower shall furnish to the ------------------------------- Agent, for distribution to the Lenders: (a) within five Business Days after the same are filed, copies of all financial statements and reports that the Borrower or any Subsidiary may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (b) promptly but, in any event, within five Business Days after receipt thereof, copies of all financial reports (including, without limitation, management letters), if any, submitted to the Borrower or any Subsidiary by the Accountants in connection with any annual or interim audit of the books thereof; -35- (c) by January 31 of each year, commencing with the fiscal year ending on December 31, 2000, a copy of the annual operating budget for the Borrower and its Subsidiaries for such fiscal year, in form satisfactory to the Agent; (d) as soon as possible and in any event within five Business Days after the occurrence of a Default or, in the good faith determination of a Responsible Officer of the Borrower, a Material Adverse Effect, the written statement by a Responsible Officer of the Borrower, setting forth the details of such Default or Material Adverse Effect and the action that the Borrower proposes to take with respect thereto; (e) promptly, but in any event within 30 days after any change in the senior management personnel of the Borrower, written notice of such change; (f) promptly but, in any event, within five Business Days after the same become available, copies of all statements, reports and other information that the Borrower sends to any holder of an equity interest therein; (g) (A) as soon as possible and in any event within 30 days after the Borrower knows or has reason to know that any Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower proposes to take with respect thereto, (B) promptly and in any event within ten days after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from the PBGC, copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan, (C) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Single Employer Plan maintained for or covering employees of the Borrower or any Subsidiary if the present value of the accrued benefits under the Plan exceeds its assets by an amount in excess of $500,000 and (D) promptly and in any event within ten days after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice received by the Borrower or such ERISA Affiliates concerning the imposition or amount of withdrawal liability under Section 4202 of ERISA or indicating that such Multiemployer Plan may enter reorganization status under Section 4241 of ERISA; (h) promptly after the commencement thereof, but in any event not later than five Business Days after service of process with respect thereto on, or the obtaining of knowledge by, the Borrower or any Subsidiary, notice of each material action, suit or proceeding before any Governmental Authority; (i) promptly after the sending or filing thereof, but in any event not later than ten Business Days following such sending or filing, copies of (A) all Ownership Reports on FCC Form 323 (or any similar form which may be adopted by the FCC from time to time) relating to any Media License or Entravision Media License, and any supplements thereto, and (B) all statements, reports and other information filed with the FCC by or on behalf of the Borrower, any Subsidiary or the Entravision License Subsidiary with respect to any Media License or Entravision Media License; -36- (j) promptly, but in any event within one Business Day after any period during which the transmission at any Station or transmission site is interrupted or curtailed for an aggregate of 12 hours or more (whether or not consecutive), written notice thereof; (k) promptly upon receipt thereof, but in any event not later than five Business Days following such receipt, copies of all notices and other communications that the Borrower, any Subsidiary or the Entravision License Subsidiary shall have received from the FCC with respect to any FCC hearing, order or dispute (A) directly concerning the Borrower, any Subsidiary, the Entravision License Subsidiary, any Station, any Media License or any Entravision Media License or (B) that may have a Material Adverse Effect; (l) promptly upon receipt thereof, but in any event not later than ten Business Days following such receipt, copies of all Arbitron rating period reports; and (m) promptly, such additional financial and other information as any Lender, through the Agent, may from time to time reasonably request. 5.3 Payment of Obligations. The Borrower shall, and shall cause each of ---------------------- its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the failure to so satisfy such obligations would not have a Material Adverse Effect or except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 Conduct of Business and Maintenance of Existence. The Borrower shall, ------------------------------------------------ and shall cause each of its Subsidiaries to, continue to engage in business of the same general type as conducted by the Borrower and its Subsidiaries as of the Closing Date and preserve, renew and keep in full force and effect its corporate or limited liability company existence, as applicable, and take all reasonable action to maintain all rights, registrations, licenses, privileges and franchises necessary or desirable in the normal conduct of its business, and comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. The Borrower shall, and shall ---------------------------------- cause each of its Subsidiaries to, keep all property useful or necessary in its business in good working order and condition (ordinary wear and tear excepted); maintain with financially sound and reputable insurance companies or associations insurance on such of its property in at least such amounts and against such risks as are usually insured against in the same general area by companies engaged in the same or a similar business (including casualty, liability, fire, flood, business interruption, earthquake and workers' compensation); and furnish to the Agent, upon written request, full information as to the insurance carried. All such policies of insurance on the property of the Borrower and the Subsidiaries shall contain an endorsement, in form and substance reasonably satisfactory to the Agent in its sole discretion, showing the Agent, on behalf of the Lenders, as additional insured or loss payee, as appropriate, or as its interests appear. Such endorsement, or an independent instrument furnished to the Agent, shall provide that the insurance companies will give the Agent at least 25 days' prior written notice before any -37- such policy or policies of insurance shall be altered or canceled. All policies of insurance required to be maintained under this Agreement shall be in customary form and with insurers reasonably acceptable to the Agent, and all such policies shall be in such amounts as shall be customary for similar companies in the same or similar business in the same geographical area. The Borrower shall deliver to the Agent insurance certificates certified by the Borrower's insurance brokers, as to the existence and effectiveness of each policy of insurance and evidence of payment of all premiums then due and payable therefor. In addition, the Borrower shall notify the Agent promptly of any occurrence causing a material loss of any insured Property and the estimated (or actual, if available) amount of such loss. Further, the Borrower and its Subsidiaries shall maintain all insurance required under the other Loan Documents. (i) Each policy for liability insurance shall provide for all losses to be paid on behalf of the Agent and the Borrower or Subsidiary (as the case may be), as their respective interests may appear, and each policy for property damage insurance shall, to the extent applicable to equipment and inventory, provide for all losses (except for losses of less than $500,000 per occurrence, which may be paid directly to the Borrower or such Subsidiary, as applicable) to be paid directly to the Agent. (ii) Reimbursement under any liability insurance maintained by the Borrower or its Subsidiaries pursuant to this Section 5.5 may be paid directly to the Person who shall have incurred liability covered by such insurance. In the case of any loss involving damage to equipment or inventory as to which clause (iii) of this Section 5.5 is not applicable, the Borrower will make or cause to be made the necessary repairs to or replacements of such equipment or inventory, and any proceeds of insurance maintained by the Borrower or its Subsidiaries pursuant to this Section 5.5 shall be paid by the Agent to the Borrower or such Subsidiaries, upon presentation of invoices and other evidence of obligations, as reimbursement for the costs of such repairs or replacements. (iii) Upon the occurrence and during the continuance of a Default, all insurance proceeds in respect of such equipment or inventory shall be paid to the Agent and applied in repayment of the Loans. 5.6 Inspection of Property; Books and Records; Discussions. The Borrower ------------------------------------------------------ shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all material dealings and transactions in relation to its business and activities; and upon reasonable notice and at such reasonable times during usual business hours, permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its Accountants. 5.7 Environmental Laws. The Borrower shall, and shall cause each of its ------------------ Subsidiaries to: (a) Comply in all material respects with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Control Statutes and obtain and comply in -38- all material respects with any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Control Statutes; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Control Statutes and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Control Statutes except to the extent that the same are being contested in good faith by appropriate proceedings; and (c) Defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Control Statutes applicable to the operations of the Borrower or any of its Subsidiaries, or the Borrower's or any of its Subsidiaries' interest in Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorneys' and consultants' fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. 5.8 Use of Proceeds. The Borrower will use (i) $105,000,000 of the --------------- proceeds of the Loans to pay a portion of the aggregate consideration to be paid by LCGAC in the Merger for outstanding shares of LCG and (ii) $10,000,000 of the proceeds of the Loans to fund the Interest Reserve Account. 5.9 Compliance With Laws, Etc. The Borrower shall comply, and shall cause ------------------------- each of its Subsidiaries to comply, in all material respects with all applicable Requirements of Law, such compliance to include, without limitation (i) paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its Properties and (ii) paying all lawful claims which if unpaid might become a Lien upon any of its Properties; provided, however, that neither the Borrower -------- ------- nor any of such Subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as (A) the validity or applicability thereof is being contested in good faith by appropriate proceedings or the failure to pay such tax, assessment, charge, levy or claim would not (in the reasonable judgment of the Majority Lenders) have a Material Adverse Effect and (B) the Borrower or such Subsidiary shall, to the extent required by GAAP, have set aside on its books adequate reserves with respect thereto. 5.10 Media Licenses. The Borrower will obtain, maintain and preserve, and -------------- cause each of its Subsidiaries to obtain, maintain and preserve, all Media Licenses (and will cause the Media Licenses to be held by the Entravision License Subsidiary or the LCG License Subsidiary in accordance with the terms of this Agreement), including without limitation, by filing with the FCC (i) those of the Loan Documents required to be filed under the FCC's rules and regulations within 30 days after the Closing Date and (ii) all reports (including Ownership Reports on FCC Form 323) and other documents required to be filed by the Communications Act in connection -39- with the transactions contemplated hereby and maintaining public records and files in accordance with Communications Act and the rules and regulations of the FCC. 5.11 Guarantees, Etc. The Borrower will cause each of its Subsidiaries --------------- hereafter formed or acquired to execute and deliver to the Agent promptly upon the formation or acquisition thereof (i) a Guarantee in form and substance satisfactory to the Agent, guaranteeing the Obligations, (ii) a Guarantor Security Agreement, in form and substance satisfactory to the Agent, granting to the Agent, for the benefit of the Lenders, a security interest in the tangible and intangible personal property of such Subsidiary, together with appropriate Lien searches requested by the Agent indicating the Lenders' first priority Lien on such personal property and (iii) UCC-1 Financing Statements, duly executed by such Subsidiary, in form and substance satisfactory to the Agent and, in connection with such deliveries, cause to be delivered to the Agent (A) the stock certificates representing the issued and outstanding shares of stock of such Subsidiary, together with undated stock powers executed in blank, (B) a favorable written opinion of counsel satisfactory to the Agent as to such matters relating thereto as any Lender through the Agent may reasonably request, in form and substance satisfactory to the Agent and (C) such other agreements, instruments, approvals or other documents as any Lender through the Agent may reasonably request. 5.12 License Subsidiary. The Borrower will cause each Media License to be ------------------ transferred to the LCG License Subsidiary by May 31, 2000 and to be held by the LCG License Subsidiary at all times thereafter until the Obligations have been paid in full and all Commitments have expired. The Borrower will not permit the LCG License Subsidiary to (i) own any right, franchise or other asset except for Media Licenses (and FCC files and records with respect thereto) or (ii) engage in any business other than holding such Media License, files and records. 5.13 Interest Rate Protection. Within 30 days after the Closing Date, the ------------------------ Borrower will enter into and maintain one or more Interest Rate Agreements, each in form and substance reasonably satisfactory to the Agent, covering a minimum of 75% of the Loans outstanding on the Closing Date. 5.14 Leases and Licenses. The Borrower shall or shall cause its ------------------- Subsidiaries to perform and carry out, in all material respects, all of the provisions of all of the leases, licenses, permits and any other occupancy agreements relating to real property or real property interests (the "Occupancy --------- Agreements") to be performed by the Borrower or any of its Subsidiaries and - ---------- shall appear in and defend any action in which the validity of any of the Occupancy Agreements relating to any real property or real property interests is at issue and shall commence and maintain any action or proceeding necessary to establish or maintain the validity of any of such Occupancy Agreements and to enforce the provisions thereof. 5.15 Lease and License Approvals. The Borrower and its Subsidiaries shall --------------------------- submit to the Agent for its prior approval any leases, licenses, permits or other Occupancy Agreements relating to real property or real property interests that the Borrower or any of its Subsidiaries may desire to execute or obtain, which provide for the payment of rent or license fees in excess of $100,000 in any fiscal year. Each such agreement shall be subject to the approval of the Agent, such approval not to be unreasonably withheld. The Agent may require that any lease, license or -40- other similar agreement become part of the Collateral or the Guarantor Collateral, and the Borrower and its Subsidiaries shall provide or cause to be provided any and all Collateral Documents or Guarantor Collateral Documents or other documents to be executed in connection therewith requested by the Agent and provide the Agent with title insurance (to the extent applicable) as a condition to approval. 5.16 Notices. The Borrower will provide, and will cause its Subsidiaries ------- to provide to the Agent, within 5 Business Days following receipt by the Borrower or any Subsidiary, copies of all notices received by the Borrower or such Subsidiary (i) under any Material Contract or any instrument, document or agreement relating to any Subordinated Indebtedness, relating to any material default, any claimed force majeure or any other material provision thereof and (ii) from the Internal Revenue Service or other taxing authority relating to any material dispute regarding deductions, audits or any other material matter which, if adversely determined against the Borrower or such Subsidiary, would have a Material Adverse Effect. 5.17 Additional Material Contracts and Media Licenses. The Borrower (a) ------------------------------------------------ will notify the Agent in writing within 90 calendar days after executing, entering into, becoming bound by or subject to or otherwise obtaining any contract, agreement or Media License that should have been listed on Schedule 3.8 hereto or Schedule 3.9 hereto if it had existed as of the Closing Date and (b) will concurrently update Schedule 3.8 hereto or Schedule 3.9 hereto (as appropriate). SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that from and after the Closing Date, so long as any Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Agent hereunder: 6.1 Financial Condition Covenants. The Borrower shall not: ----------------------------- (a) Total Interest Coverage Ratio. Permit the Total Interest Coverage ----------------------------- Ratio for the Borrower and its Subsidiaries on a consolidated basis, for the period representing the number of whole months (not exceeding twelve months) that have passed from and including May 1, 2000 to and including the last day of the fiscal quarter of the Borrower ending on the applicable date specified below, as determined by reference to the applicable Covenant Compliance Certificate to be provided pursuant to Section 5.1(b), to be less than the following levels for the periods indicated:
Period Ending Ratio ------------- ----- September 30, 2000 1.35:1 December 31, 2000 1.50:1 and thereafter
; provided, however, that the Borrower need not comply with the foregoing -------- ------- covenant for any period specified above during which all interest in respect of the Loans was paid from the Interest Reserve Account. -41- (b) Minimum Operating Cash Flow. Permit the Operating Cash Flow of the --------------------------- Borrower and its Subsidiaries on a consolidated basis, for the twelve months ended as of the end of any fiscal quarter of the Borrower as determined by reference to the applicable Covenant Compliance Certificate to be provided pursuant to Section 5.1(b), to be less than the following levels for the periods indicated:
Period Ending Maximum Amount ------------- -------------- June 30, 2000 $8,000,000 September 30, 2000 $8,500,000 December 31, 2000 $9,200,000 and thereafter
6.2 Limitation on Indebtedness. The Borrower shall not create, incur, -------------------------- assume or suffer to exist any Indebtedness, and shall not permit any of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness, except for: (a) Indebtedness created hereunder and under the Notes; (b) Indebtedness of the Borrower or any Subsidiary outstanding on the Closing Date and listed on Schedule 6.2; (c) Indebtedness (i) under any Interest Rate Agreement required pursuant to Section 5.13, (ii) evidenced by performance bonds or letters of credit issued in the ordinary course of business or reimbursement obligations in respect thereof, (iii) evidenced by a letter of credit facility related to insurance associated with claims for work-related injuries or (iv) for bank overdrafts incurred in the ordinary course of business that are promptly repaid; and (d) trade credit incurred to acquire goods, supplies, services and incurred in the ordinary and normal course of business. Notwithstanding the foregoing, the LCG License Subsidiary shall not be permitted, under any circumstances, to create, incur, assume or suffer to exist any Indebtedness, other than the Indebtedness created under the Loan Documents. 6.3 Limitation on Liens. The Borrower shall not, and shall not permit ------------------- any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens created hereunder or under any of the other Loan Documents; (b) Liens existing on any Property at the time of its acquisition and not created in anticipation of such acquisition; (c) Liens arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other -42- enforcement thereof is effectively stayed and claims secured thereby are being contested in good faith by appropriate proceedings; (d) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto -------- are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (e) Liens created by operation of law not securing the payment of Indebtedness for money borrowed or guaranteed, including carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business, which are not overdue for a period of more than 45 days or which are being contested in good faith by appropriate proceedings; (f) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (g) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; and (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business, which, in the aggregate, would not cause a Material Adverse Effect. Notwithstanding the foregoing, the LCG License Subsidiary shall not be permitted, under any circumstances, to incur any consensual Liens or Liens securing the payment of Indebtedness for money borrowed or guaranteed, other than Liens created by the Loan Documents. 6.4 Limitation on Fundamental Changes. The Borrower shall not, and shall --------------------------------- not permit any of its Subsidiaries to, enter into any merger, consolidation or amalgamation (other than the Merger), or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or create or acquire any Subsidiary or Affiliate (unless the documents required by Section 5.11 are executed and delivered) or convey, sell, lease, assign, transfer or otherwise dispose of (including by making any Station subject to any local marketing or similar agreement) all or substantially all of its property, business or assets. 6.5 Limitation on Sale of Assets. The Borrower shall not, and shall not ---------------------------- permit any of its Subsidiaries to, make any Asset Disposition without the prior written consent of the Majority Lenders in each case, such consent not to be unreasonably withheld. 6.6 Limitation on Dividends. The Borrower shall not, and shall not permit ----------------------- any of its Subsidiaries to (a) if a corporation, declare or pay any dividend (other than dividends payable solely in common stock of the Borrower or its Subsidiaries) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Borrower or its Subsidiaries or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, and (b) if a partnership or a limited liability company, -43- make any distribution with respect to the ownership interests therein, or, in either case, any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary. 6.7 Limitation on Investments, Loans and Advances. The Borrower shall --------------------------------------------- not, and shall not permit any of its Subsidiaries to, make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in (any of the foregoing, an "investment"), any Person, except for: ---------- (a) consummation of the Merger in accordance with the terms of Section 4.1; (b) the Borrower's ownership interest in its Subsidiaries; (c) investments in marketable securities, liquid investments and other financial instruments that are acquired for investment purposes and may be readily sold or otherwise liquidated, that have a value which may be readily established and which are investment grade; (d) extensions of trade credit in the ordinary course of business; and (e) investments existing on the Closing Date and listed on Schedule 6.7. Notwithstanding the foregoing, the LCG License Subsidiary shall not be permitted, under any circumstances, to make any investments. 6.8 Limitation on Modifications of Certain Documents and Instruments. ---------------------------------------------------------------- The Borrower shall not, and shall not permit its Subsidiaries to, terminate, amend or modify any provision of any document, instrument or agreement relating to any Material Contract or any Organic Document, in each case which could have a Material Adverse Effect. 6.9 Transactions with Affiliates. The Borrower shall not, and shall not ---------------------------- permit any of its Subsidiaries to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate or any Subsidiary less than wholly- owned, directly or indirectly, by the Borrower, unless such transaction (i) is otherwise permitted under this Agreement or (ii) is in the ordinary course of the Borrower's or such Subsidiary's business and is upon terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. 6.10 Fiscal Year. The Borrower shall not permit its fiscal year or the ----------- fiscal year of any of its Subsidiaries to end on a day other than December 31. 6.11 Lease Obligations. The Borrower shall not, and shall not permit any ----------------- of its Subsidiaries to, sell, assign or otherwise transfer any of its Properties, rights or assets (whether now owned or hereafter acquired) to any Person and thereafter directly or indirectly lease back the same or similar property. -44- 6.12 Unfunded Liabilities. The Borrower shall not permit unfunded -------------------- liabilities for any and all Plans maintained for or covering employees of the Borrower or any Subsidiary to exceed $500,000 in the aggregate at any time. 6.13 Management Fees. The Borrower shall not, and shall not permit any of --------------- its Subsidiaries to, incur any management fees for services rendered. 6.14 Equity Offerings. The Borrower shall not, and shall not permit any of ---------------- its Subsidiaries to, consummate or agree to consummate any Equity Offering. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal on any Note when due, the Borrower shall fail to pay any interest on any Note, any fee referred to in the letter referred to in Section 4.1(g) within two Business Days after any such interest or fee becomes due in accordance with the terms thereof and hereof, or the Borrower shall fail to pay any other amount payable hereunder within five Business Days after written notice that such other amount is due; or (b) Any representation or warranty made or deemed made by any Obligor herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) The Borrower shall default in the observance or performance of any agreement contained in Section 5.2(d), 5.3, 5.4, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, or any provision of Section 6; or (d) (i) Any Obligor shall default in the observance or performance of any other material agreement contained in this Agreement or the other Loan Documents (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after the earlier of (y) notice thereof from the Agent to the Borrower and (z) actual knowledge thereof by a senior officer of such Obligor (unless such default is of such a nature that it cannot reasonably be cured within 30 days after the date described in clause (y) or (z), as applicable, in which case the defaulting Obligor has not commenced the cure thereof within such 30-day period and/or has not thereafter diligently pursued the completion of the same), (ii) any material provision of any Loan Document shall at any time for any reason be declared null and void, or the validity or enforceability of any Loan Document shall at any time be contested by any Obligor, or a proceeding shall be commenced by any Obligor, or by any Governmental Authority or other Person having jurisdiction over any Obligor, seeking to establish the invalidity or unenforceability thereof, or any Obligor shall deny that it has any liability or obligation purported to be created under any Loan Document or (iii) a "Default" shall have occurred and be continuing under the Entravision Credit Agreement; or (e) Any Guarantee shall cease, for any reason, to be in full force and effect, and such occurrence shall have a Material Adverse Effect; or -45- (f) Except as set forth in Section 7(d)(iii), the Borrower or any other Obligor shall (i) default in any payment of principal or interest, regardless of the amount, due in respect of any (A) Indebtedness (other than the Notes), issued under the same indenture or other agreement, if the original principal amount of Indebtedness covered by such indenture or agreement is $500,000 or greater or (B) any Guarantee Obligation with respect to an amount of $500,000 or greater, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created, whether or not such default has been waived by the holders of such Indebtedness or Guarantee Obligation; or (ii) default in the observance or performance of any other material agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable or such Indebtedness to be required to be defeased or purchased; or (g) (i) The Borrower or any other Obligor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any other Obligor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any other Obligor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged, unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any other Obligor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any other Obligor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any other Obligor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due or there shall be a general assignment for the benefit of creditors; or (h) (i) Any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee would reasonably be expected to result in the -46- termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA (other than a standard termination) or (v) the Borrower or any Commonly Controlled Entity would reasonably be expected to incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; and in each case regarding clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to subject the Borrower or any other Obligor to any tax, penalty or other liabilities in the aggregate to exceed $500,000; or (i) One or more judgments or decrees shall be entered against the Borrower or any other Obligor involving in the aggregate a liability (not paid or fully covered by insurance) of $250,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof or in any event five days before the date of any sale pursuant to such judgment or decree or any non-monetary judgment or order shall be entered against the Borrower or any other Obligor that is reasonably likely to have a Material Adverse Effect and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment, which has not been stayed pending appeal or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (j) There shall occur any default in the material observance or material performance of any Material Contract or any such Material Contract shall terminate or otherwise no longer be in full force and effect, in each case to the extent such default or termination could reasonably be expected to have a Material Adverse Effect; or (k) (A) any designation by any Governmental Authority (including the FCC) of an evidentiary hearing with regard to any application of the Borrower, any of its Subsidiaries, or any other Obligor requesting any authorization from such Governmental Authority shall fail to be dismissed within 120 days after such designation and the Agent, in its reasonable judgment after consultation with its FCC counsel, believes that it is more likely than not that the result thereof will be the termination, revocation, suspension, non-renewal or material (and adverse) modification of any material Media License held by the Borrower or its Subsidiaries, or any material Entravision Media License held by Entravision or any of its Subsidiaries (other than the Borrower or its Subsidiaries), or (B) any Governmental Authority (including the FCC) shall terminate, revoke or substantially and adversely modify any material Media License of the Borrower or its Subsidiaries, or any material Entravision Media License held by Entravision or any of its Subsidiaries (other than the Borrower or its Subsidiaries), or (C) any action or proceeding commenced by any Governmental Authority (including the FCC) seeking the termination, suspension, revocation, non-renewal or substantial and adverse modification of any material Media License or any material Entravision Media License shall fail to be dismissed within 120 days after such commencement, and the Agent, in its reasonable judgment after consultation with its FCC counsel, believes that such proceeding will more likely than not result in such termination, suspension, revocation, non-renewal or substantial and adverse modification, or (D) any material Media License or any material Entravision Media License shall expire by its terms and is not renewed in a timely manner, or any material agreement which is necessary to the operation of any broadcast facility or transmission site relating to any material Media License or any material Entravision Media License shall expire or is revoked or -47- terminated and is not replaced by a comparable substitute or a substitute reasonably acceptable to the Agent. (For purposes of this Section 7(k), a "material" Media License is (1) any Media License (other than a Media License issued by the FCC), alone or in conjunction with other Media Licenses then subject to any of the circumstances described in this Section, the loss of which (in the Agent's reasonable judgment) could have a Material Adverse Effect, (2) any Entravision Media License (other than an Entravision Media License issued by the FCC), alone or in conjunction with other Entravision Media Licenses then subject to any of the circumstances described in this Section, the loss of which (in the Agent's reasonable judgment) could have a Material Adverse Effect and (3) any Media License or Entravision Media License issued by the FCC. Notwithstanding the foregoing, with respect to the type of event described in clause (A) or clause (C) above, the occurrence of such event will not constitute an Event of Default under and for purposes of clause (A) or clause (C) of this Section 7(k) only, provided that (and so long as) each of the following -------- ---- conditions is satisfied to the Agent's satisfaction: (i) the Borrower provides the Agent with written notice of such event within five Business Days after it or any other Obligor is notified by the FCC of such designation (and also provides a copy of any such notice received from the FCC), and (ii) the notice of designation affirmatively indicates that it relates only to the licenses or applications of a single Station or a single Entravision Station rather than to the licenses and/or applications of more than one Station or Entravision Station, and (iii) with respect to any Media License, if an adverse ruling in the proceeding would threaten the Borrower's ability to continue providing the same level of underlying service by such Station as theretofore provided, then (A) the Borrower shall make a prepayment of the Loans (within 30 Business Days after receiving notice of such designation from the FCC) in an amount sufficient for the Borrower to remain in compliance with each of the financial covenants under Section 6.1 hereof without including any of the Operating Cash Flow attributable to such Station and (B) the Borrower shall thereafter exclude the Operating Cash Flow attributable to such Station from the calculation of the Borrower's consolidated Operating Cash Flow. Any such prepayment and exclusion from Operating Cash Flow will be permanent unless and until the FCC proceeding regarding such license or application is finally resolved to the Agent's satisfaction in a manner favorable to the Borrower and without any divestiture of assets required by the FCC or otherwise voluntarily accomplished by the Borrower pursuant to the next sentence. Once the Borrower has made such prepayment and exclusion from Operating Cash Flow under the circumstances contemplated by this clause (iii), then the Borrower may thereafter sell the assets relating to such Station (and only such Station) pursuant to a transaction with an unrelated third party (i.e., a non-Affiliate) for value ---- received provided that (1) the Borrower gives the Agent written notice of such -------- ---- transaction at least 30 days (but not more than 60 days) prior to consummation of such transaction, (2) the representation under Section 3.20 regarding solvency of the Borrower is true immediately prior to and following any such disposition, (3) such transaction does not cause a Material Adverse Effect or otherwise violate any covenant hereunder or otherwise cause a Default hereunder, (4) the Borrower provides the Agent with a certificate renewing the representations and warranties in the Loan Documents and (if and to the extent appropriate) updating the various schedules to the Loan Documents to make the representations and warranties therein true, accurate and complete following such transaction and (5) the proceeds of such transaction are promptly used to prepay the Loans; or -48- (l) Any material provision of any Loan Document, after delivery thereof pursuant to the provisions hereof, shall, for any reason other than an act or omission by the Agent, cease to be valid or enforceable in accordance with its terms and such cessation shall have a Material Adverse Effect, or any security interest created under any Loan Document shall for any reason other than an act or omission by the Agent, cease to be a valid and perfected first-priority security interest or Lien (except as otherwise stated or permitted herein or therein) in any material portion of the Collateral, the Guarantor Collateral or the property purported to be covered thereby; or (m) A Change in Control shall have occurred; provided that, the occurrence of any event which would constitute a Change in Control shall not constitute an Event of Default under this Section 7(m) if such event is by reason of the death or disability of either or both of Walter F. Ulloa and Philip C. Wilkinson and (i) no other Default has occurred and is continuing and (ii) there has been presented to the Lenders within 120 days of such death or disability a plan for reorganization of, and operation of the business of, the Borrower and Entravision (which plan shall include compliance with the terms of this Agreement and the other Loan Documents) in the absence of such individual or individuals (as applicable) which is satisfactory to the Majority Lenders in their reasonable discretion; or (n) The operations of any Station or any Entravision Station shall be interrupted or curtailed at any time for a period in excess of 96 hours (whether or not consecutive) during any period of seven consecutive days; or (o) With respect to any Obligor that is organized as a limited liability company, any member thereof (A) experiences an event described in Section 7(g) hereof, (B) dies, dissolves or otherwise terminates its existence, or (C) withdraws from membership in such limited liability company. Notwithstanding the foregoing, such event will not constitute an Event of Default hereunder if (1) within 15 Business Days of the occurrence such event, the Agent is notified thereof in writing and (2) within 30 days of the occurrence of such event (or within such shorter period as may be required by applicable law or the applicable Organic Documents for such limited liability company), the remaining members of such limited liability company take all action necessary, if any (in a manner reasonably acceptable to the Agent) to continue the existence of such limited liability company as an operating organization liable to the Agent for its obligations under the Loan Documents; then, and in any such event, (A) if such event is an Event of Default specified in paragraph (g) above, automatically the Commitments to the Borrower shall immediately terminate and the Loans made to the Borrower hereunder (with accrued interest thereon) and all other Obligations shall immediately become due and payable, and (B) if such event is any other Event of Default, with the consent of the Majority Lenders, the Agent may, or upon the request of the Majority Lenders, the Agent shall, take any or all of the following actions: (i) by notice to the Borrower declare the Commitments to the Borrower to be terminated forthwith, whereupon such Commitments shall immediately terminate; and (ii) by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other Obligations under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. In all cases, with the consent of the Majority Lenders, the Agent may enforce any or all of the Liens and security interests and other rights and remedies created pursuant to any Loan -49- Document or available at law or in equity. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower. SECTION 8. THE AGENT 8.1 Appointment. Each Lender hereby irrevocably designates and appoints ----------- Union Bank of California, N.A. as Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Union Bank of California, N.A., as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 8.2 Delegation of Duties. The Agent may execute any of its duties under -------------------- this Agreement and the other Loan Documents by or through agents or attorneys- in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither the Agent nor any of its officers, ---------------------- directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower, any Subsidiary or any other Obligor or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of the Borrower, any Subsidiary or any other Obligor to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower, any Subsidiary or any other Obligor. 8.4 Reliance by the Agent. The Agent shall be entitled to rely, and shall --------------------- be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), the Accountants and independent -50- accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders or all Lenders, as it deems appropriate, or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense (except to the extent incurred as a result of the Agent's gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Majority Lenders or all Lenders, as may be required, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 8.5 Notice of Default. The Agent shall not be deemed to have knowledge or ----------------- notice of the occurrence of any Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Default as shall be reasonably directed by the Majority Lenders or all Lenders as appropriate; provided that unless and until the Agent shall have received such -------- directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders or as the Agent shall believe necessary to protect the Lenders' interests in the Collateral or the Guarantor Collateral. 8.6 Non-Reliance on the Agent and Other Lenders. Each Lender expressly ------------------------------------------- acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Borrower, any Subsidiary or any other Obligor, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower, any Subsidiary and the other Obligors and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower, its Subsidiaries and the other Obligors. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower, any Subsidiary or any other Obligor that may come into the possession of the Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. -51- 8.7 Indemnification. The Lenders agree to indemnify the Agent in its --------------- capacity as such (to the extent not reimbursed by the Borrower, its Subsidiaries or the other Obligors and without limiting the obligation of such Persons to do so), ratably according to the respective amounts of their Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including, without limitation, the allocated cost of internal counsel), expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent, in its capacity as Agent, but not as a Lender hereunder, in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such - -------- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Notes and all other amounts payable hereunder. 8.8 The Agent in Its Individual Capacity. The Agent and its Affiliates ------------------------------------ may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, any Subsidiary and the other Obligors as though the Agent were not the Agent hereunder and under the other Loan Documents. With respect to the Agent, the Loans made by the Agent, and any Note issued to the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 8.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice --------------- to the Lenders. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower (which consent shall not be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Agent and the term "Agent" shall mean such successor agent, effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Further, if the Agent no longer has any Loans or Commitment hereunder, the Agent shall immediately resign and shall be replaced, and have the benefits, as set forth in this Section 8.9. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. Neither this Agreement, any Note, any other ---------------------- Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section. With the prior written consent of the Majority Lenders and the Borrower (and, in the case of any Loan Document other than this Agreement, the relevant Obligor), the Borrower may, from time to time, enter into written amendments, -52- supplements or modifications hereto and to the Notes and the other Loan Documents for the purposes of adding any provisions to this Agreement or the Notes or the other Loan Documents or changing in any manner the rights of the Lenders, the Borrower or any other Obligor hereunder or thereunder or waiving, on such terms and conditions as may be specified in such instrument, any of the requirements of this Agreement or the Notes or the other Loan Documents or any Default and its consequences; provided, however, that no such waiver and no such -------- ------- amendment, supplement or modification shall (i) (a) reduce the amount or extend the maturity of any Note or any installment due thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce the amount or extend the time of payment of any fee, indemnity or reimbursement payable to any Lender hereunder, or change the amount of any Lender's Commitment, in each case without the written consent of the Lender affected thereby; or (b) amend, modify or waive any provision of this Section 9.1 or reduce the percentage specified in or otherwise modify the definition of Majority Lenders, or consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement and the other Loan Documents; or (c) release any Obligor from any liability under its respective Loan Documents; or (d) release any material portion of the Collateral or any material portion of the Guarantor Collateral, except for any Asset Disposition or release of Lien permitted by this Agreement or any other Loan Document; or (e) amend, modify or waive, directly or indirectly, any of the provisions of Section 2.1(f) or 2.9; or (f) amend, modify or waive any provision of this Agreement requiring the consent or approval of all Lenders; or (g) increase the amount of the Aggregate Commitment, in each case set forth in clauses (i)(b) through (i)(g) above without the written consent of all the Lenders; or (ii) amend, modify or waive any provision of Section 8 without the written consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Obligors, the Lenders, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Obligors, the Lenders and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes and any other Loan Documents, and any Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default, or impair any right consequent thereon. 9.2 Notices. All notices, requests and demands or other communications to ------- or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 3 days after being deposited in the United States mail, certified and postage prepaid and return receipt requested, or, in the case of telecopy notice, when received, in each case addressed as follows in the case of the Borrower and the Agent, and as set forth on the signature pages hereto, or in the Assignment and Acceptance pursuant to which a Person becomes a party hereto, in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Borrower: -53- LCG Acquisition Corporation 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 Attention: Walter F. Ulloa Philip C. Wilkinson Jeanette Tully Telecopy: (310) 447-3899 With a copy to (which shall not constitute notice to the Borrower): Thompson Hine & Flory, LLP 1920 N Street, N.W. Washington, DC 20036-1601 Attention: Barry A. Friedman, Esq. Telecopy: (202) 331-8330 and Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. 101 West Broadway, 17th Floor San Diego, California 92101 Attention: Kenneth D. Polin, Esq. Telecopy: (619) 515-9628 The Agent: Union Bank of California, N.A 445 South Figueroa Street Los Angeles, California 90071 Attention: Lena M. Bryant Telecopy: (213) 236-5747 provided that any notice, request or demand to or upon the Agent or the Lenders - -------- pursuant to Section 2.1, 2.2 or 2.4 shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay ------------------------------ in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. -54- 9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay to ----------------------------- reimburse the Agent for all its reasonable costs and out-of-pocket expenses (including travel and other expenses incurred by it or its agents in connection with performing due diligence with regard hereto) incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby (including those contemplated to occur on the Closing Date), including, without limitation, syndication efforts in connection with this Agreement and the reasonable fees and disbursements of counsel to the Agent (including special counsel with regard to FCC matters, special counsel with regard to Collateral or Guarantor Collateral located outside of California and the allocated costs of internal counsel to the Agent), which counsel fees shall be subject to the approval of the Borrower, such approval not to be unreasonably withheld or delayed, (b) after the occurrence and during the continuance of a Default, to pay or reimburse the Agent and each Lender for all its reasonable costs and out- of-pocket expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work- out" or of any insolvency or bankruptcy proceeding, including, without limitation, reasonable legal fees and disbursements of counsel to the Agent and each Lender (including the allocated costs of internal counsel to the Agent), (c) to pay, and indemnify and hold harmless each Lender and the Agent from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents and (d) to pay, and indemnify and hold harmless each Lender and the Agent from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including the allocated cost of internal counsel and the reasonable legal fees and disbursements of outside counsel to the Lenders and the Agent), expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes and the other Loan Documents, the Merger or the use of the proceeds of the Loans and any such other documents (all the foregoing, collectively, the "indemnified liabilities" irrespective of whether the transactions contemplated by this Agreement and the other Loan Documents are consummated), provided, that the Borrower shall have no obligation hereunder to -------- the Agent or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Agent or such Lender or their agents or attorneys-in-fact. The agreements in this Section shall survive repayment of the Notes and all other amounts payable hereunder. The Agent and the Lenders agree to provide reasonable details and supporting information concerning any costs and expenses required to be paid by the Borrower pursuant to the terms hereof. 9.6 Successors and Assigns; Participations; Purchasing Lenders. ----------------------------------------------------------- (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent, all future holders of the Notes and their respective successors and -55- assigns, except that the Borrower may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking or finance business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any ------------ Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents; provided that the holder of any such participation, other than an -------- Affiliate of such Lender, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting the extension of the maturity of any portion of the principal amount of a Loan or any portion of interest or fees related thereto allocated to such participation or a reduction of the principal amount or principal payment amount of or the rate of interest payable on the Loans or any fees related thereto, or a release of any Obligor or any substantial portion of the Collateral or the Guarantor Collateral or any increase in participation amounts. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. The Borrower agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount continuing of its participating interest were owing directly to it as a Lender under this Agreement or any Note, provided that such -------- Participant shall only be entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Lenders the proceeds thereof as provided in Section 9.7. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.11, 2.12 and 2.13 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount - -------- pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any of its Affiliates or to any Lender, any Affiliate thereof or to one or more additional lenders or financial institutions ("Purchasing Lenders"), which additional ------------------ lenders shall be subject to the consent of the Borrower (such consent not to be unreasonably withheld and not to be required if a Default has occurred and is continuing) all or any part of its rights and obligations under this Agreement, the Notes and the other Loan Documents pursuant to an Assignment and Acceptance substantially in the form of Exhibit B, executed by such Purchasing Lender and such transferor Lender and delivered to the Agent for its acceptance and recording in the Register (as defined in (d) below), provided, that any such -------- sale must result in the Purchasing Lender having at least $5,000,000 in aggregate amount of obligations under this Agreement, the Notes and the other Loan Documents. Upon -56- such execution, delivery, acceptance and recording, from and after the transfer effective date determined pursuant to such Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent of such assigned portion and as provided in such Assignment and Acceptance, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement, the Notes and the other Loan Documents. On or prior to the transfer effective date determined pursuant to such Assignment and Acceptance, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note or Notes to the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance, and if the transferor Lender has retained a Commitment hereunder, new Notes to the order of the transferor Lender in an amount equal to the Commitments retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Lender shall be returned by the Agent to the Borrower marked "canceled." (d) The Agent shall maintain at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and -------- the Commitment of, and principal amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by a transferor Lender and Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Borrower and the Agent) together with payment to the Agent (except in the case of a Lender assigning to its Affiliate) of a registration and processing fee of $3,500, the Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. (f) The Borrower authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any ---------- and all financial information in such Lender's possession concerning the Borrower and its Subsidiaries and Affiliates, which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or any other Loan Document or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Subsidiaries and Affiliates prior to becoming a party to this Agreement. -57- (g) If, pursuant to this Section, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender and the Agent (for the benefit of the transferor Lender, the Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Borrower or the transferor Lender with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the transferor Lender, the Agent and the Borrower either U.S. Internal Revenue Service Form W-9, W-8BEN or W-8ECI (as applicable to it) (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Agent and the Borrower) to provide the transferor Lender, the Agent and the Borrower a new Form W-9, W-8BEN or W-8ECI (as applicable to it) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under its Notes to any Federal Reserve Bank in accordance with applicable law. 9.7 Adjustments; Set-Off. --------------------- (a) If any Lender (a "benefited Lender") shall at any time receive any ---------------- payment of all or part of its Loans or interest thereon, or fees, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or interest thereon, or fees, such benefited Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loans or fees, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such -------- ------- excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, with the prior consent of the Majority Lenders, each Lender shall have the right, exercisable upon the occurrence and during the continuance of an Event of Default and acceleration of the Obligations pursuant to Section 7, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set-off and appropriate and apply against any such Obligations any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, -58- at any time held or owing by such Lender or any branch or agency thereof or bank controlling such Lender to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice -------- shall not affect the validity of such set-off and application. 9.8 Counterparts. This Agreement may be executed by one or more of the ------------ parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 9.9 Severability. Any provision of this Agreement which is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 Integration. This Agreement represents the entire agreement of the ----------- Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 9.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES). 9.12 Alternative Dispute Resolution. ------------------------------- (a) Claims Subject To Judicial Reference; Selection Of Referee. All ---------------------------------------------------------- Claims, including any and all questions of law or fact relating thereto, shall, at the written request of any Party, be determined by Reference. The Parties shall select a single neutral referee, who shall be a retired state or federal judge with at least five years of judicial experience in civil matters. In the event that the Parties cannot agree upon a referee, the referee shall be appointed by the court. The Parties shall equally bear the fees and expenses of the referee unless the referee otherwise provides in the statement of decision. (b) Waiver Of Jury Trial. In connection with a Reference or any other -------------------- action or proceeding, whether brought in state or federal court, the Parties hereby expressly, intentionally and deliberately waive any right they may otherwise have to trial by jury of any Claim. (c) Conduct Of Reference. Except as provided in this Section 9.12, the -------------------- Reference shall be conducted pursuant to Applicable State Law. The referee shall determine all issues relating to the applicability, interpretation, legality and enforceability of this Section 9.12. (d) Provisional Remedies, Self-Help And Foreclosure. No provision of this ----------------------------------------------- Section 9.12 shall limit the right of any party to (i) exercise self-help remedies including set-off, -59- (ii) foreclose against or sell any Collateral or Guarantor Collateral, by power of sale or otherwise or (iii) obtain or oppose provisional or ancillary remedies from a court of competent jurisdiction before, after or during the pendency of the Reference. The exercise of, or opposition to, any such remedy does not waive the right of any Party to Reference pursuant to this Section 9.12. (e) Limitation On Damages. In the event that punitive damages are --------------------- permitted under Applicable State Law, the amount thereof shall not exceed a sum equal to three times the amount of actual damages as determined by the referee. (f) Severability. In the event that any provision of this Section 9.12 is ------------ found to be illegal or unenforceable, the remainder of this Section 9.12 shall remain in full force and effect. (g) Miscellaneous. In the event that multiple Claims are asserted, some ------------- of which are found not subject to this Section 9.12, the Parties agree to stay the proceedings of the Claims not subject to this Section 9.12 until all other Claims are resolved in accordance with this Section. In the event that Claims are asserted against multiple parties, some of whom are not subject to this Section, the Parties agree to sever the Claims subject to this Section 9.12 and resolve them in accordance with this Section 9.12. In the event of any challenge to the legality or enforceability of this Section 9.12, the prevailing Party shall be entitled to recover the costs and expenses, including reasonable attorneys' fees, incurred by it in connection therewith. Applicable State Law shall govern the interpretation of this Section 9.12. (h) Defined Terms. As used in this Section 9.12, the following terms ------------- shall have the respective meanings set forth below: "Applicable State Law": the law of the State of California; provided, -------------------- however, that if any Party seeks to (i) exercise self-help remedies, including set-off, (ii) foreclose against or sell any Collateral or Guarantor Collateral, by power of sale or otherwise or (iii) obtain or oppose provisional or ancillary remedies from a court of competent jurisdiction before, after or during the pendency of the Reference, the law of the state where such Collateral or Guarantor Collateral, as the case may be, is located shall govern the exercise of or opposition to such rights and remedies. "Claim": any claim, cause of action, action, dispute or controversy ----- between or among the Parties, whether sounding in contract, tort or otherwise, which arises out of or relates to: (i) any of the Loan Documents; (ii) any negotiations or communications relating to any of the Loan Documents, whether or not incorporated into the Loan Documents or any indebtedness evidenced thereby; or (iii) any alleged agreements, promises, representations or transactions in connection therewith. "Party": any Obligor, any Lender or the Agent. ----- "Reference": a judicial reference conducted pursuant to this Section 9.12 --------- in accordance with Applicable State Law, as in effect at the time the referee is selected pursuant to Section 9.12(a). 9.13 Acknowledgements. The Borrower hereby acknowledges that: ---------------- -60- (a) its has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Loan Documents; (b) neither the Agent nor any Lender has any fiduciary relationship to the Borrower solely by virtue of any of the Loan Documents, and the relationship pursuant to the Loan Documents between the Agent and the Lenders, on one hand, and the Borrower on the other hand, is solely that of creditor and debtor; and (c) no joint venture exists among the Lenders or among the Borrower, on one hand and the Lenders, on the other hand. 9.14 Headings. Section headings herein are included for convenience of -------- reference only and shall not constitute a part of this Agreement for any other purpose. 9.15 Copies of Certificates, Etc. Whenever the Borrower is required to --------------------------- deliver notices, certificates, opinions, statements or other information hereunder to the Agent for delivery to any Lender (including under Article 4), it shall do so in such number of copies as the Agent shall reasonably specify. 9.16 Publicity. The Agent shall have the right to review and approve, in --------- advance, any public announcements (in any form) and any filings describing or quoting from the credit arrangements reflected in this Agreement and the other Loan Documents, provided, however, that the Borrower (i) shall be permitted to -------- ------- file copies of any Loan Document with the FCC or any other governmental agency as required by law and (ii) shall also be permitted to disclose information concerning the Loan Documents if the Borrower's attorneys reasonably believe that such disclosure is required by law. 9.17 Confidentiality. The Lenders shall take normal and reasonable --------------- precautions to maintain the confidentiality of all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower, but may, in any event, make disclosures (i) reasonably required by any bona fide transferee, assignee or participant in connection with the contemplated transfer or assignment of any of the Commitments or Loans or participations therein or (ii) as required or requested by any governmental agency or representative thereof or as required pursuant to legal process or (iii) to its attorneys and accountants or (iv) as required by law or (v) in connection with litigation involving any Lender; provided that such transferee, assignee or participant agrees to comply with the provisions of this Section 9.17 unless specifically prohibited by applicable law or court order. In no event shall any Lender be obligated or required to return any materials furnished by the Borrower or any Subsidiary. -61- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Los Angeles, California by their proper and duly authorized officers as of the day and year first above written. BORROWER -------- LCG ACQUISITION CORPORATION By: /s/ Walter F. Ulloa Name: Walter F. Ulloa Title: Chairman/CEO AGENT ----- UNION BANK OF CALIFORNIA, N.A., as Agent By: /s/ Lena M. Bryant Name: Lena M. Bryant Title: Vice President LENDERS ------- UNION BANK OF CALIFORNIA, N.A., as a Lender By: /s/ Lena M. Bryant Name: Lena M. Bryant Title: Vice President Commitment: $115,000,000 Address for Notices ------------------- (a) For Credit: ---------- 445 South Figueroa Street Los Angeles, California 90071 Attention: Lena M. Bryant Telephone: (213) 236-7535 Facsimile: (213) 236-5747 (b) For Operations: -------------- 445 South Figueroa Street Los Angeles, California 90071 Attention: Liliane Biermann Telephone: (213) 236-4054 Facsimile: (213) 236-5276 Approved Lending Offices ------------------------ Applicable Lending Office for Base Rate Loans: 445 South Figueroa Street Los Angeles, California 90071 Applicable Lending Office for LIBOR Loans: 445 South Figueroa Street Los Angeles, California 90071 EX-10.10 9 0009.txt SEC AGR DTD 4/20/2000 LCG & UNION BANK EXHIBIT 10.10 SECURITY AGREEMENT ------------------ This SECURITY AGREEMENT, is dated as of April 20, 2000, and made by LATIN COMMUNICATIONS GROUP INC., a Delaware corporation (the "Grantor"), in favor of ------- UNION BANK OF CALIFORNIA, N.A., a national banking association, as agent (the "Agent") for the Lenders (as defined in the Loan Agreement referred to below, - ------ the "Lenders"). ------- RECITALS -------- A. Concurrently herewith, the Agent, the Lenders and LCG Acquisition Corporation ("LCGAC") are entering into a Term Loan Agreement dated as of April ----- 20, 2000 (said Agreement, as it may hereafter be amended, modified or restated from time to time, being called the "Loan Agreement"). -------------- B. LCGAC is a wholly-owned subsidiary of Entravision Communications Company, L.L.C., a Delaware limited liability company ("Entravision"), and was ----------- formed for the purpose of consummating the Merger described below. Concurrently with the funding contemplated by the Loan Agreement, LCGAC will merge with and into the Grantor, with the Grantor being the survivor of such merger (the "Merger"). As a result of the Merger, the Grantor will assume all obligations ------ and liabilities of LCGAC under the Loan Agreement. Entravision owns and operates a number of successful Spanish language radio and television stations, and the Grantor anticipates benefiting from becoming a subsidiary of Entravision. C. It is a condition precedent to the extension of credit by the Lenders under the Loan Agreement that the Grantor shall have executed and delivered this Agreement. D. Terms defined in the Loan Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Section 1.2 of the Loan Agreement are incorporated herein by reference. AGREEMENT --------- NOW, THEREFORE, in order to induce the Lenders to enter into the Loan Agreement and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, the Grantor hereby represents, warrants, covenants, agrees, assigns and grants as follows: 1. Definitions Unless the context otherwise requires, terms defined in ----------- the Uniform Commercial Code of the State of California (the "Uniform Commercial ------------------ Code") and not otherwise defined in this Agreement or in the Loan Agreement - ---- shall have the meanings defined for those terms in the Uniform Commercial Code. In addition, the following terms shall have the meanings respectively set forth after each: "Certificates" means all certificates, instruments and other documents now ------------ or hereafter representing or evidencing any Pledged Securities or any Pledged Limited Liability Company Interests. "Collateral" means and includes all present and future right, title and ---------- interest of the Grantor in or to any personal property or assets whatsoever, whether now owned or existing or hereafter arising or acquired and wheresoever located, and all rights and powers of the Grantor to transfer any interest in or to any personal property or assets whatsoever, including, without limitation, any and all of the following personal property: (a) All present and future accounts, accounts receivable, agreements, guarantees, contracts (including without limitation the Material Contracts), leases, licenses (including without limitation all licenses of transmitters, transmitter towers and related equipment other than the FCC licenses), contract rights and rights to payment (collectively, the "Accounts"), together with all --------- instruments, documents, chattel paper, security agreements, guaranties, undertakings, surety bonds, insurance policies, notes and drafts, and all forms of obligations owing to the Grantor or in which the Grantor may have any interest, however created or arising; (b) All present and future general intangibles, including without limitation the proprietary rights of the Grantor in all Media Licenses (including without limitation the FCC licenses for the Stations described in Schedule 3.9 attached to the Loan Agreement and including, without limitation, - ------------ goodwill, going concern value, all of the Grantor's rights under or relating to any Media License and the proceeds of any Media License and the right to receive money or other consideration upon the sale, assignment or transfer of any Media License; provided, however, that the Collateral does not include at any time any --------- ------- license granted by the FCC to the extent, but only to the extent, that the Grantor is prohibited at that time from granting a security interest therein pursuant to the Communications Act, but includes, to the maximum extent permitted by law, all rights incident or appurtenant to such Media License and the rights to receive all proceeds derived from or in connection with the sale, assignment or transfer of such Media License), all tax refunds of every kind and nature to which the Grantor now or hereafter may become entitled, however arising, all other refunds, all commitments to extend financing to the Grantor, and all deposits, goodwill, choses in action, trade secrets, computer programs, software, customer lists, trademarks, trade names, patents, licenses, copyrights, technology, processes, proprietary information and insurance proceeds, including, without limitation, the Copyrights, the Patents, the Marks and the Programs, and the goodwill of the Grantor's business connected with and symbolized by the Marks; (c) All present and future demand, time, savings, passbook, deposit and like accounts (general or special) (collectively, the "Deposit Accounts") in ---------------- which the Grantor has any interest which are maintained with any bank, savings and loan association, credit union or like organization, including, without limitation, each account listed on Schedule D attached hereto and made a part ---------- hereof, and all money, cash and cash equivalents of the Grantor, whether or not deposited in any Deposit Account; (d) All present and future books and records, including, without limitation, books of account and ledgers of every kind and nature, all electronically recorded data relating to the Grantor or the business thereof, all receptacles and containers for such records, and all files and correspondence; (e) All present and future goods, including, without limitation, all equipment, machinery, cameras, recording equipment, transmitters, transmitting towers, broadcasting -2- equipment, videotapes, audio tapes and other recorded media, tools, molds, dies, furniture, furnishings, fixtures, trade fixtures, printing equipment, motor vehicles and all other goods used in connection with or in the conduct of the Grantor's business, including, but not limited to, all goods as defined in Section 9-109(2) of the Uniform Commercial Code (collectively, the "Equipment"); --------- (f) All present and future inventory and merchandise, including, without limitation, all present and future goods held for sale or lease or to be furnished under a contract of service, all videotapes, audio tapes and other recorded media, all raw materials, work in process and finished goods, all packing materials, supplies and containers relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts and documents of title relating to any of the foregoing (collectively, the "Inventory"); --------- (g) All present and future stocks, bonds, debentures, securities, subscription rights, options, warrants, puts, calls, certificates, partnership interests, limited liability company interests, joint venture interests and investment and/or brokerage accounts, including without limitation the Certificates, the Pledged Securities, the Pledged Partnership Interests and the Pledged Limited Liability Company Interests, and all rights, preferences, privileges, dividends, distributions (in cash or in kind), redemption payments or liquidation payments with respect thereto; (h) All present and future accessions, appurtenances, components, repairs, repair parts, spare parts, replacements, substitutions, additions, issue and/or improvements to or of or with respect to any of the foregoing; (i) All other tangible and intangible personal property of the Grantor; (j) All rights, remedies, powers and/or privileges of the Grantor with respect to any of the foregoing; and (k) Any and all proceeds and products of the foregoing, including without limitation, all money, accounts, general intangibles, deposit accounts, documents, instruments, chattel paper, goods, insurance proceeds and any other tangible or intangible property received upon the sale or disposition of any of the foregoing. "Copyrights" means all: ---------- (i) copyrights, whether or not published or registered under the Copyright Act of 1976, 17 U.S.C. Section 101 et seq., as the same shall be amended from time to time, and any predecessor or successor statute thereto (the "Copyright Act"), and applications for registration of copyrights, and ------------- all works of authorship and other intellectual property rights therein, including, without limitation, copyrights for computer programs, source code and object code data bases and related materials and documentation and including, without limitation, the registered copyrights and copyright applications listed on Schedule 3.5A attached to the Loan Agreement (as ------------- such Schedule may be supplemented from time to time in accordance with the terms of the Loan Agreement), and (a) all renewals, revisions, derivative works, enhancements, modifications, updates, new releases and other revisions thereof, (b) all income, royalties, damages and payments now -3- and hereafter due and/or payable with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (c) the right to sue for past, present and future infringements thereof and (d) all of the Grantor's rights corresponding thereto throughout the world; (ii) rights under or interests in any copyright license agreements with any other party, whether the Grantor is a licensee or licensor under any such license agreement, including, without limitation, the copyright license agreements listed on Schedule 3.5A attached to the Loan Agreement ------------- (as such Schedule may be supplemented from time to time in accordance with the terms of the Loan Agreement), and the right to use the foregoing in connection with the enforcement of the Lenders' rights under the Loan Documents; and (iii) copyrightable materials now or hereafter owned by the Grantor, including Programs not copyrighted, all tangible property embodying the copyrights described in clause (i) hereof or such copyrightable materials, and all tangible property covered by the licenses described in clause (ii) hereof. "Limited Liability Company Acknowledgement" shall have the meaning ascribed ----------------------------------------- to it in Section 4(b) of this Agreement. "Limited Liability Company Assets" means all assets, whether tangible or -------------------------------- intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Limited Liability Company Interests. "Limited Liability Company Interests" means the entire limited liability ----------------------------------- company interest at any time owned by the Grantor in any Pledged Entity. "Limited Liability Company Notice" shall have the meaning ascribed to it in -------------------------------- Section 4(b) of this Agreement. "Marks" means all (i) trademarks, trademark registrations, interests under ----- trademark license agreements, tradenames, trademark applications, service marks, business names, trade styles, designs, logos and other source or business identifiers for which registrations have been issued or applied for in the United States Patent and Trademark Office or in any other office or with any other official anywhere in the world or which are used in the United States or any state, territory or possession thereof, or in any other place, nation or jurisdiction anywhere in the world including, without limitation, the trademarks, trademark registrations, applications, service marks, business names, trade styles, design logos and other source or business identifiers listed on Schedule 3.5A attached to the Loan Agreement (as such Schedule may be ------------- supplemented from time to time in accordance with the terms of the Loan Agreement), (ii) licenses pertaining to any such mark whether the Grantor is licensor or licensee including, without limitation, the licenses listed on Schedule 3.5A to the Loan Agreement (as such Schedule may be supplemented from - ------------- time to time in accordance with the terms of the Loan Agreement), (iii) all income, royalties, damages and payments now and hereafter due and/or payable with respect to any such mark or -4- any such license, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) rights to sue for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world, (vi) all product specification documents and production and quality control manuals used in the manufacture of products sold under or in connection with such marks, (vii) all documents that reveal the name and address of all sources of supply of, and all terms of purchase and delivery for, all materials and components used in the production of products sold under or in connection with such marks, (viii) all documents constituting or concerning the then current or proposed advertising and promotion by the Grantor, its subsidiaries or licensees of products sold under or in connection with such marks, including, without limitation, all documents that reveal the media used or to be used and the cost for all such advertising conducted within the described period or planned for such products and (ix) renewals and proceeds of any of the foregoing. "Patents" means all (i) letters patent, design patents, utility patents, ------- inventions and trade secrets, all patents and patent applications in the United States Patent and Trademark Office, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, including, without limitation, those patents listed on Schedule 3.5A attached to the Loan Agreement (as such Schedule may be ------------- supplemented from time to time in accordance with the terms of the Loan Agreement), (ii) licenses pertaining to any patent whether the Grantor is licensor or licensee, (iii) income, royalties, damages and payments now and hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) rights to sue for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for and (vi) the reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the foregoing. "Pledged Collateral" means the Certificates, the Pledged Securities, the ------------------ Pledged Partnership Interests and the Pledged Limited Liability Company Interests. "Pledged Entity" means each limited liability company set forth in Schedule -------------- -------- A attached hereto, together with any other limited liability company in which - - the Grantor may have an interest at any time. "Pledged Limited Liability Company Interests" means all interests in any ------------------------------------------- Pledged Entities held by the Grantor, including, but not limited to, those Limited Liability Company Interests identified in Schedule A attached hereto, as ---------- such Schedule may be supplemented from time to time in accordance with the terms of this Agreement, including, but not limited to, (i) all the capital thereof and its interest in all profits, losses, Limited Liability Company Assets and other distributions in respect thereof; (ii) all other payments due or to become due to the Grantor in respect of such Limited Liability Company Interests; (iii) all of the Grantor's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any in respect of such Limited Liability Company Interests; (iv) all of the Grantor's rights to exercise and enforce every right, power, remedy, authority, option and privilege relating to such Limited Liability Company Interests; and (v) all other property hereafter delivered in substitution for or in addition to any of the foregoing and all certificates and instruments representing or evidencing such other -5- property received, receivable or otherwise distributed in respect of or in exchange for any or all thereof. "Pledged Partnership Interests" means all interests in any partnership or ----------------------------- joint venture held by the Grantor including but not limited to those partnerships and/or joint ventures identified in Schedule A attached hereto and ---------- made a part hereof, as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement, and all dividends, cash, instruments and other properties from time to time received, to be received or otherwise distributed in respect of or in exchange for any or all of such interests. "Pledged Securities" means all shares of capital stock of any issuer in ------------------ which the Grantor has an interest, including but not limited to, those shares of stock identified in Schedule A attached hereto, as such Schedule may be ---------- supplemented from time to time in accordance with the terms of this Agreement, and all dividends, cash, instruments and other properties from time to time received, to be received or otherwise distributed in respect of or in exchange for any or all of such shares. "Programs" means all (a) media broadcasting programs originating from the -------- Grantor or any Affiliate of the Grantor, all other general intangibles of a like nature, and all recordings and renewals thereof; and (b) licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensee or licensor and providing for the grant of any right to produce, use, sell, broadcast or rebroadcast any media or broadcasting programs. "Secured Party" means, collectively, the Agent and the Lenders. ------------- 2. Creation of Security Interest The Grantor hereby pledges to the ----------------------------- Agent for the ratable benefit of the Lenders, and grants to the Agent for the ratable benefit of the Lenders a security interest in and to, all right, title and interest of the Grantor in and to all presently existing and hereafter acquired Collateral. The security interest and pledge created by this Section 2 shall continue in effect so long as any Obligation (as defined below) remains unpaid or any Commitment remains in effect. 3. Security for Obligations This Agreement and the security interests ------------------------ granted herein secure the prompt payment, in full in cash, and full performance of, all obligations of the Grantor now or hereafter existing under any Loan Document, whether for principal, interest, fees, expenses or otherwise, including without limitation all obligations of the Grantor now or hereafter existing under this Agreement, and all interest that accrues (whether or not allowed) at the then applicable rate (including interest at the rate for overdue payments described in Section 2.6(c) of the Loan Agreement) specified in the Loan Agreement on all or any part of any of such obligations after the filing of any petition or pleading against the Grantor for a proceeding under any bankruptcy or related law (collectively, the "Obligations"). ----------- 4. Delivery of Pledged Collateral ------------------------------ (a) Each Certificate shall, on (i) the Closing Date (with respect to Certificates existing on such date) and (ii) the day on which such Certificate shall be received or acquired by the Grantor (with respect to Certificates received or acquired after the Closing Date), be delivered to and held by the Agent on behalf of the Lenders and shall be in suitable form for -6- transfer by delivery, or shall be accompanied by duly executed undated endorsements, instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Agent. (b) With respect to each Limited Liability Company Interest, on (i) the Closing Date (with respect to Limited Liability Company Interests existing on such date) and (ii) the day on which any Limited Liability Company Interest shall be acquired by the Grantor (with respect to Limited Liability Company Interests acquired after the Closing Date), a notice in the form set forth in Schedule F attached hereto (the "Limited Liability Company Notice") shall be - ---------- -------------------------------- appropriately completed and delivered to each Pledged Entity, notifying each Pledged Entity of the existence of this Agreement, a certified copy of this Agreement shall be delivered by the Grantor to the relevant Pledged Entity, and the Grantor shall have received and delivered to the Agent a copy of such Limited Liability Company Notice, along with an acknowledgment in the form set forth in Schedule F attached hereto (the "Limited Liability Company ---------- ------------------------- Acknowledgment"), duly executed by the relevant Pledged Entity. - -------------- (c) Subject to any necessary prior approval of the FCC, the Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, without notice to the Grantor, to transfer to or to direct the Grantor or any nominee of the Grantor to register or cause to be registered in the name of the Agent or any of its nominees any or all of the Pledged Securities or Pledged Limited Liability Company Interests. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Securities or Pledged Limited Liability Company Interests for certificates or instruments of smaller or larger denominations. 5. Further Assurances ------------------ (a) At any time and from time to time at the reasonable written request of the Agent, the Grantor shall execute and deliver to the Agent, at the Grantor's expense, all such financing statements and other instruments, certificates and documents (including notices to financial institutions holding deposit accounts of the Grantor as to the security interest granted hereby) in form and substance reasonably satisfactory to the Agent, and perform all such other acts as shall be necessary or reasonably desirable to fully perfect or protect or maintain, when filed, recorded, delivered or performed, the Secured Party's security interests granted pursuant to this Agreement or to enable the Lenders to exercise and enforce their rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor shall: (i) at the request of the Agent, mark conspicuously each document included in the Inventory and each other contract relating to the Accounts, and all chattel paper, instruments and other documents and each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Agent, indicating that such document, contract, chattel paper, instrument or Collateral is subject to the security interest granted hereby; (ii) at the request of the Agent, if any Account or contract or other writing relating thereto shall be evidenced by a promissory note or other instrument, deliver and pledge to the Agent, for the ratable benefit of the Lenders, such note or other instrument duly endorsed and accompanied by duly executed undated instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Agent; (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Agent may reasonably -7- request, in order to perfect and preserve, with the required priority, the security interests granted, or purported to be granted hereby; (iv) upon the Grantor's registration, or application therefor, of any copyright under the Copyright Act, at the Agent's request execute and deliver to the Agent for recordation and filing in the United States Copyright Office a copy of this Agreement or another appropriate copyright mortgage document in form and substance reasonably satisfactory to the Agent; (v) upon the Grantor's registration, or application therefor, of any Patent or Mark, execute and deliver to the Agent for recordation and filing in the United States Patent and Trademark Office a copy of this Agreement or another appropriate patent or trademark mortgage document, as applicable, in form and substance reasonably satisfactory to the Agent; and (vi) with respect to any Material Contract in which the Grantor now has or hereafter acquires an interest which by its terms prohibits assignment, the Grantor will use its best efforts to procure the consent of the counterparty to such contract (a "Consent") in form and substance ------- reasonably satisfactory to the Agent. (b) At any time and from time to time, the Agent shall be entitled to file and/or record any or all such financing statements, instruments and documents held by it, and any or all such further financing statements, documents and instruments, relative to the Collateral or any part thereof in each instance, and to take all such other actions as the Agent may reasonably deem appropriate to perfect and to maintain perfected the security interests granted herein. (c) The Grantor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (d) The Grantor shall furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request. Upon the Grantor's publication or registration, or application for registration, of any copyright under the Copyright Act, the Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule 3.5A to the Loan Agreement to reflect the ------------- publication or registration of such copyright or application therefor. Upon the Grantor's obtaining any rights and interests in any additional Marks, the Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule 3.5A to the Loan ------------- Agreement to reflect such additional Marks. Upon the Grantor's obtaining any rights and interests in any additional Patents, the Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule 3.5A to the Loan Agreement to reflect such ------------- additional Patents. Upon the Grantor's receipt or acquisition of any additional shares of capital stock of any Person or any additional partnership interests in any partnership or joint venture, the Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule A attached hereto to reflect such additional Pledged ---------- Collateral. Upon the Grantor's receipt or acquisition of any additional Limited Liability Company Interest, the Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule A attached hereto to reflect such additional Pledged ---------- Collateral and, to the extent such Limited Liability Company -8- Interest is certificated, deliver to the Agent the certificates therefor, accompanied by such instruments of transfer as are acceptable to the Agent. (e) With respect to any Collateral consisting of certificates of title or the like as to which Secured Party's security interest need be perfected by, or the priority thereof need be assured by, notation on the certificate of title pertaining to such Collateral, the Grantor will upon demand of the Agent note the lien on such certificate of title in favor of the Lenders. (f) With respect to any Collateral consisting of securities, instruments, partnership or joint venture interests, interests in limited liability companies, or the like, the Grantor hereby consents and agrees that, upon the occurrence and during the continuance of an Event of Default, subject to any necessary prior approval of the FCC, the issuers of, or obligors on, any such Collateral, or any registrar or transfer agent or trustee for any such Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of the Agent to effect any transfer or exercise any right hereunder or with respect to any such Collateral subject to the terms hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by the Grantor or any other Person to such issuers or such obligors or to any such registrar or transfer agent or trustee. (g) With respect to any Media Licenses: (i) The parties acknowledge their intention that, upon the occurrence of an Event of Default, the Agent and the Lenders shall receive, to the fullest extent permitted by Requirements of Law (including, without limitation, the Communications Act), all rights necessary or desirable to obtain, use or sell such Collateral or to have such Collateral or rights in connection therewith sold for the benefit of the Lenders and, in connection therewith, to assign the Media Licenses or to have the Media Licenses assigned to such purchaser, and to exercise all remedies available to the Lenders under this Agreement, the other Loan Documents, the Uniform Commercial Code and other applicable law. (ii) The parties agree that, in the event of changes in any Requirement of Law occurring after the date hereof that affect in any manner the Lenders' rights of access to, or use or sale of, the Media Licenses, or the procedures necessary to enable the Lenders to obtain such rights of access, use or sale (including changes allowing greater access), the Lenders and the Grantor, upon request of any of the Lenders or the Agent, shall amend this Agreement and the other Loan Documents in such manner as the Lenders or the Agent shall reasonably request, in order to provide the Lenders with such rights to the greatest extent possible consistent with then-applicable Requirements of Law. 6. Voting Rights; Dividends; etc Subject to any necessary prior ----------------------------- approval from the FCC, so long as no Event of Default shall have occurred and be continuing: (a) Voting Rights. The Grantor shall be entitled to exercise any and all ------------- voting and other consensual rights pertaining to the Pledged Securities, the Pledged Partnership Interests and the Pledged Limited Liability Company Interests (including, but not limited to, all voting, consent, administration, management and other rights and remedies under any partnership -9- agreement or any limited liability company agreement or otherwise with respect to the Pledged Securities, the Pledged Partnership Interests or the Pledged Limited Liability Company Interests), or any part thereof, for any purpose not inconsistent with the terms of this Agreement, the Loan Agreement or the other Loan Documents; provided, however, that the Grantor shall not exercise any such -------- ------- right if it would result in a Default. (b) Dividend and Distribution Rights. Subject to the terms of the Loan -------------------------------- Agreement, the Grantor shall be entitled to receive and to retain and use any and all dividends or distributions paid in respect of the Pledged Securities, the Pledged Partnership Interests or the Pledged Limited Liability Company Interests; provided, however, that any and all -------- ------- (i) non-cash dividends or distributions in the form of capital stock, certificated limited liability company interests, instruments or other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests, (ii) dividends and other distributions paid or payable in cash in respect of any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests, shall, except as otherwise provided for in the Loan Agreement or the other Loan Documents, forthwith be delivered to the Agent, in the case of (i) above, to be held as Collateral and shall, if received by the Grantor, be received in trust for the benefit of Secured Party, be segregated from the other property of the Grantor and forthwith be delivered to the Agent as Collateral in the same form as so received (with any necessary endorsements), and in the case of (ii) and (iii) above, to be applied to the Obligations or otherwise to be held as Collateral. 7. Rights as to Pledged Collateral During Event of Default When an ------------------------------------------------------- Event of Default has occurred and is continuing, subject to any necessary prior approval of the FCC: (a) Voting, Dividend and Distribution Rights. At the option of the ---------------------------------------- Agent, all rights of the Grantor to exercise the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 6(a) above, and to receive the dividends and distributions that it would otherwise be authorized to receive and retain pursuant to Section 6(b) above, shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and to hold as Pledged Collateral such dividends and distributions during the continuance of such Event of Default. (b) Dividends and Distributions Held in Trust. All dividends and other ----------------------------------------- distributions that are received by the Grantor contrary to the provisions of Section 7(a) of this Agreement shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of -10- the Grantor and forthwith shall be paid over to the Agent as Collateral in the same form as so received (with any necessary endorsements). 8. Irrevocable Proxy The Grantor hereby revokes all previous proxies ----------------- with regard to the Pledged Securities and the Pledged Limited Liability Company Interests and, subject to any necessary prior approval of the FCC, appoints the Agent as its proxyholder and attorney-in-fact to (i) attend and vote at any and all meetings of the shareholders of the corporation(s) that issued the Pledged Securities (whether or not transferred into the name of the Agent), and any adjournments thereof, held on or after the date of the giving of this proxy and prior to the termination of this proxy and to execute any and all written consents, waivers and ratifications of shareholders of such corporation(s) executed on or after the date of the giving of this proxy and prior to the termination of this proxy, with the same effect as if the Grantor had personally attended the meetings or had personally voted its shares or had personally signed the written consents, waivers or ratification, and (ii) to attend and vote at any and all meetings of the members of the Pledged Entities (whether or not such Pledged Limited Liability Company Interests are transferred into the name of the Agent), and any adjournments thereof, held on or after the date of the giving of this proxy and to execute any and all written consents, waivers and ratifications of the Pledged Entities executed on or after the date of the giving of this proxy and prior to the termination of this proxy with the same effect as if the Grantor had personally attended the meetings or had personally voted on its Limited Liability Company Interests or had personally signed the consents, waivers or ratifications; provided, however, that the Agent as -------- ------- proxyholder shall have rights hereunder only upon the occurrence and during the continuance of an Event of Default and subject to Section 16(j) hereof. The Grantor hereby authorizes the Agent to substitute another Person (which Person shall be a successor to the rights of the Agent hereunder, a nominee appointed by the Agent to serve as proxyholder, or otherwise as approved by the Grantor in writing, such approval not to be unreasonably withheld) as the proxyholder and, upon the occurrence or during the continuance of any Event of Default, hereby authorizes and directs the proxyholder to file this proxy and the substitution instrument with the secretary of the appropriate corporation. This proxy is coupled with an interest and is irrevocable until such time as all Obligations have been indefeasibly paid in full. 9. Copyrights ---------- (a) Royalties. The Grantor hereby agrees that the use by the Agent or any --------- Lender of the Copyrights as authorized hereunder in connection with the Agent's or the Lenders' exercise of their rights and remedies hereunder shall be without any liability for royalties or other related charges from the Agent or the Lenders to the Grantor. (b) Restrictions on Future Agreements. Subject to the terms hereof and --------------------------------- of the Loan Agreement, the Grantor shall be permitted to manage, license and administer its Copyrights, Patents and Marks in such manner as the Grantor in its reasonable business judgment deems desirable; provided, however, that the -------- ------- Grantor will not, without the Agent's prior written consent, (a) enter into any copyright license agreements or (b) take any action, or permit any action to be taken by others, including, without limitation, licensees, or fail to take any action, which would customarily be taken by a Person in the same business and in similar circumstances as the Grantor. -11- (c) Duties of Grantor. The Grantor shall have the duty to: (i) prosecute ----------------- diligently any copyright application included in the Copyrights, (ii) at the request of the Agent, make application for registration of such uncopyrighted but copyrightable material owned by the Grantor as the Agent reasonably deems appropriate, (iii) place notices of copyright on all copyrightable property produced or owned by the Grantor embodying the Copyrights and use diligent reasonable efforts to have its licensees do the same and (iv) take all reasonable action necessary to preserve and maintain all of the Grantor's rights in the Copyrights that are or shall be necessary in the operation of the Grantor's business, including, without limitation, making timely filings for renewals and extensions of registered Copyrights and diligently monitoring unauthorized use thereof. Any expenses incurred in connection with the foregoing shall be borne by the Grantor. Neither the Agent nor the Lenders shall have any duty with respect to the Copyrights other than to act lawfully and without gross negligence or willful misconduct. Without limiting the generality of the foregoing, neither the Agent nor the Lenders shall be under any obligation to take any steps necessary to preserve rights in the Copyrights against any other parties, but the Agent may do so at its option upon the occurrence and during the continuance of an Event of Default, and all reasonable expenses incurred in connection therewith shall be for the account of the Grantor and shall be added to the Obligations. 10. Patents and Marks ----------------- (a) Royalties. The Grantor hereby agrees that any rights granted --------- hereunder to the Lenders with respect to Patents and Marks shall be applicable to all territories in which the Grantor has the right to use such Patents and Marks, from time to time, and without any liability for royalties or other related charges from the Lenders to the Grantor. (b) Restrictions on Future Agreements. The Grantor will not, without the --------------------------------- Agent's prior written consent, abandon any Patent or Mark in which the Grantor now owns or hereafter acquires any rights or interests or enter into any agreement, including, without limitation, any license agreement, which is inconsistent with the Grantor's obligations under this Agreement, and the Grantor further agrees that it will not take any action, or permit any action to be taken by others subject to its control, including licensees, or fail to take any action which would customarily be taken by a Person in the same business and in similar circumstances as the Grantor. (c) Duties of Grantor. The Grantor shall have the duty to (i) prosecute ----------------- diligently any patent application or trademark application pending as of the date hereof or thereafter until the Obligations shall have been indefeasibly paid in full and no Commitment remains outstanding, (ii) upon the occurrence and during the continuance of an Event of Default, make application on unpatented but patentable inventions owned by the Grantor and on Marks, as the case may be, as the Agent reasonably deems appropriate, (iii) file and prosecute opposition and cancellation proceedings and (iv) take all reasonable action necessary to preserve and maintain all rights in patent applications of the Patents and in applications for registrations of the Marks. Any expenses incurred in connection with such applications shall be borne by the Grantor. The Grantor shall not abandon any right to file a Patent application or Mark application without the consent of the Agent. The Grantor shall give proper statutory notice in connection with its use of each such Mark to the extent necessary for the protection of each of the Marks. The Grantor shall notify the Agent of any suits it commences to enforce the Patents and Marks and shall -12- provide the Agent with copies of any documents reasonably requested by the Agent relating to such suits. 11. Grantor's Representations and Warranties. The Grantor represents and --------------------------------------------------------------------- warrants as follows - ------------------- (a) (i) The locations listed on Schedule B attached hereto and made a part ---------- hereof constitute all locations at which Inventory and/or Equipment are located; (ii) the chief executive office of the Grantor, where the Grantor keeps its records concerning the Collateral and the chattel paper evidencing the Collateral, is located at the address set forth for the Grantor on Schedule C ---------- attached hereto and made a part hereof; (iii) all records concerning any Account, any Material Contract and all originals of all contracts and other writings that evidence any Account are located at the addresses listed on Schedule C attached hereto; and (iv) the Grantor has exclusive possession and - ---------- control of the Equipment and the Inventory. (b) The Grantor is the legal and beneficial owner of the Collateral free and clear of all Liens except for Liens permitted by Section 6.3 of the Loan Agreement. The Grantor has the power, authority and legal right to grant the security interests in the Collateral purported to be granted hereby, and to execute, deliver and perform this Agreement. The pledge of the Collateral pursuant to this Agreement creates a valid security interest in the Collateral. Upon the filing of appropriate financing statements in the filing offices set forth on Schedule E attached hereto, the recordation of appropriate ---------- documentation with the United States Copyright Office and the United States Patent and Trademark Office, as applicable, the giving of a Limited Liability Company Notice to the Pledged Entities and the delivery to the Agent of the Certificates, as the case may be, the Secured Party will have a first-priority (except for any Liens or security interests permitted under Section 6.3 of the Loan Agreement that have priority by operation of law) perfected security interest in the Collateral. (c) The Pledged Securities and the Pledged Limited Liability Company Interests have been duly authorized and validly issued and are fully paid and nonassessable. (d) No consent of any Person, including any partner in a partnership with respect to which the Grantor has pledged its interest as a Pledged Partnership Interest or any member in a Pledged Entity, is required for the pledge by the Grantor of the Collateral other than consents required under the agreements described on Schedule 3.2 to the Loan Agreement. ------------ (e) The Pledged Securities described on Schedule A attached hereto ---------- constitute (i) all of the shares of capital stock of any Person owned by the Grantor and (ii) that percentage of the issued and outstanding shares of the respective issuers thereof indicated on Schedule A attached hereto, and there ----------- is no other class of shares issued and outstanding of the respective issuers thereof except as set forth on Schedule A attached hereto. The Pledged ---------- Partnership Interests described on Schedule A attached hereto constitute all of ---------- the partnerships or joint ventures in which the Grantor has an interest, and the Grantor's respective percentage interest in each such partnership or joint venture is as set forth on such Schedule A attached hereto. The Pledged ---------- Limited Liability Company Interests described on Schedule A attached hereto ---------- constitute all of the Limited Liability Company Interests of the Grantor and the Grantor's respective percentage interest in each such Pledged Entity is as set forth on Schedule A attached hereto. The Pledged ---------- -13- Limited Liability Company Interests described on Schedule A constitute (i) 100% ---------- of the Limited Liability Company Interests owned by the Grantor, and (ii) 100% of the Limited Liability Company interests of each Subsidiary directly owned by the Grantor. (f) Subject to Section 16(j) hereof, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority (other than such authorizations, approvals and other actions as have already been taken and are in full force and effect) is required (A) for the pledge of the Collateral or the grant of the security interest in the Collateral by the Grantor hereby or for the execution, delivery or performance of this Agreement by the Grantor, or (B) for the exercise by the Agent of the voting rights in the Pledged Securities, the Pledged Partnership Interests and the Pledged Limited Liability Company Interests or of any other rights or remedies in respect of the Collateral hereunder except as may be required in connection with any disposition of Collateral consisting of securities by laws affecting the offering and sale of securities generally. (g) The Grantor does not now own, is not a licensee of, and has not applied for any Patents. The Grantor does not now own, is not a licensee of, and has not applied for any Marks, other than those set forth on Schedule 3.5A to the Loan Agreement, none of which have been registered with, or for which an application for registration has been made with, any Governmental Authority. (h) The Grantor does not now own, is not a licensee of, and has not applied for any Copyrights. (i) The deposit accounts listed on Schedule D attached hereto and made a ---------- part hereof constitute all deposit accounts maintained by the Grantor [(other than any payroll or other operating account having a balance not greater than $250,000 at any time (and provided that such excluded accounts shall not at any time have an aggregate balance in excess of $2,000,000).] (j) None of the Material Contracts contains provisions prohibiting the assignment thereof by the Grantor to the Lenders, which has not been waived by the counterparty thereto pursuant to a Consent. 12. Grantor's Covenants In addition to the other covenants and ------------------- agreements set forth herein and in the other Loan Documents, the Grantor covenants and agrees as follows: (a) The Grantor will pay, prior to delinquency, all taxes, charges, Liens and assessments against the Collateral owned by it, except those with respect to which the amount or validity is being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Grantor. (b) The Collateral will not be used in violation of any material law, regulation or ordinance or any Requirement of Law applicable to the Grantor owning it, nor used in any way that will void or impair any insurance required to be carried in connection therewith. (c) The Grantor will keep the Collateral in reasonably good repair, working order and operating condition (normal wear and tear excluded), and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto and, as -14- appropriate and applicable, will otherwise deal with the Collateral in all such ways as are considered customary practice by owners of like property. (d) The Grantor will take all reasonable steps to preserve and protect the Collateral. (e) The Grantor will maintain all insurance coverage required pursuant to the Loan Documents. (f) The Grantor will promptly notify the Agent in writing in the event of any material damage to the Collateral from any source whatsoever. (g) The Grantor will not (i) establish any location of Inventory or Equipment not listed on Schedule B hereto, (ii) move its principal place of ---------- business, chief executive office or any other office listed on Schedule C hereto ---------- or (iii) adopt, use or conduct business under any trade name or other corporate or fictitious name not disclosed on Schedule 3.5C to the Loan Agreement, except ------------- upon not less than 30 days' prior notice to the Agent and the Grantor's prior compliance with all applicable requirements of Section 5 hereof necessary to perfect the Secured Party's security interest hereunder. (h) The Grantor shall not withdraw as a member of any Pledged Entity, or file or pursue or take any action that may, directly or indirectly, cause a dissolution or liquidation of or with respect to any Pledged Entity or seek a partition of any property of any Pledged Entity. (i) Subject to the provisions of Section 16(j) hereof, the Grantor agrees to take any action which the Agent may reasonably request in order to obtain from the FCC such approval as may be necessary to enable the Lenders to exercise and enjoy the full rights and benefits granted to them by this Agreement, including the use of the Grantor's best efforts to assist in obtaining the approval of the FCC for any action or transaction contemplated by this Agreement for which such approval is required by law. 13. Agent's Rights Regarding Collateral At any time and from time to ----------------------------------- time, the Agent (for the benefit of the Secured Party) may, to the extent necessary or desirable to protect the security hereunder, but the Agent shall not be obligated to: (a) (whether or not a Default has occurred) itself or through its representatives, at its own expense, upon reasonable notice and at such reasonable times during usual business hours, visit and inspect the Grantor's properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and discuss the business, operations, properties and financial and other condition of the Grantor and its Subsidiaries with officers and employees of the Grantor and its Subsidiaries and with its Accountants or (b) if a Default has occurred and is continuing, at the expense of the Grantor, perform any obligation of the Grantor under this Agreement. At any time and from time to time, at the expense of the Grantor, the Agent (for the benefit of the Secured Party) may, to the extent necessary or desirable to protect the security hereunder, but the Agent shall not be obligated to: (i) notify obligors on the Collateral that the Collateral has been assigned as security to the Agent for the benefit of the Secured Party; (ii) at any time and from time to time request from obligors on the Collateral, in the name of the Grantor or in the name of the Secured Party, information concerning the Collateral and the amounts owing thereon; and (iii) after an Event of Default has occurred and is continuing, direct -15- obligors under the contracts included in the Collateral to which the Grantor is party to direct their performance to the Agent or the Lenders. The Grantor shall keep proper books and records and accounts in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all material dealings and transactions pertaining to the Collateral. The Agent shall at all reasonable times on reasonable notice have full access to and the right to audit any and all of the Grantor's books and records pertaining to the Collateral, and to confirm and verify the value of the Collateral. Neither the Agent nor the Lenders shall be under any duty or obligation whatsoever to take any action to preserve any rights of or against any prior or other parties in connection with the Collateral, to exercise any voting rights or managerial rights with respect to any Collateral or to make or give any presentments for payment, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor or notices of any other nature whatsoever in connection with the Collateral or the Obligations. Neither the Agent nor the Lenders shall be under any duty or obligation whatsoever to take any action to protect or preserve the Collateral or any rights of the Grantor therein, or to make collections or enforce payment thereon, or to participate in any foreclosure or other proceeding in connection therewith. Nothing contained herein or in any Consent shall constitute an assumption by the Lenders of the Grantor's obligations under the contracts assigned hereunder unless the Agent shall have given written notice to the counterparty to such assigned contract of the Lenders' intention to assume such contract. The Grantor shall continue to be liable for performance of its obligations under such contracts. Nothing contained herein shall be construed to make the Agent or any Lender liable as a member of any Pledged Entity or partner in any partnership with respect to which the Grantor has pledged its interest as a Pledged Limited Liability Company Interest or a Pledged Partnership Interest, and the Agent and the Lenders by virtue of this Agreement or otherwise (except as referred to in the following sentence) shall not have any of the duties, obligations or liabilities of a member of any Pledged Entity or partner in such partnership. The parties hereto expressly agree that, unless the Agent shall become the absolute owner of a Pledged Limited Liability Company Interest or Pledged Partnership Interest pursuant hereto, this Agreement shall not be construed as creating a partnership or joint venture among the Agent, any Lender and/or the Grantor. Except as provided in the immediately preceding sentence, the Agent, by accepting this Agreement, did not intend to become a member of any Pledged Entity or partner in any partnership with respect to which the Grantor has pledged its interest as a Pledged Limited Liability Company Interest or a Pledged Partnership Interest, or otherwise be deemed to be a co-venturer with respect to the Grantor or any Pledged Entity or partner in any such partnership, either before or after an Event of Default shall have occurred. 14. Collections on the Collateral Except as provided to the contrary in ----------------------------- the Loan Agreement, the Grantor shall have the right to use and to continue to make collections on and receive dividends and other proceeds of all of the Collateral in the ordinary course of business so long as no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, at the option of the Agent, the Grantor's right to make collections on and receive dividends and other proceeds of the Collateral and to use or dispose of such collections and proceeds shall terminate, and any and all dividends, proceeds and collections, including all partial or total prepayments, then held or thereafter received on or on account of the Collateral will be held or received by the Grantor in trust for the Secured Party and immediately delivered in kind to the Agent (duly endorsed to the Agent, if required), to be -16- applied to the Obligations or held as Collateral, as the Agent shall elect. Upon the occurrence and during the continuance of an Event of Default, the Agent shall have the right at all times to receive, receipt for, endorse, assign, deposit and deliver, in the name of the Agent or the Lenders or in the name of the Grantor, any and all checks, notes, drafts and other instruments for the payment of money constituting proceeds of or otherwise relating to the Collateral; and the Grantor hereby authorizes the Agent to affix, by facsimile signature or otherwise, the general or special endorsement of the Grantor, in such manner as the Agent shall deem advisable, to any such instrument in the event the same has been delivered to or obtained by the Agent without appropriate endorsement, and the Agent and any collecting bank are hereby authorized to consider such endorsement to be a sufficient, valid and effective endorsement by the Grantor, to the same extent as though it were manually executed by the duly authorized representative of the Grantor, regardless of by whom or under what circumstances or by what authority such endorsement actually is affixed, without duty of inquiry or responsibility as to such matters, and the Grantor hereby expressly waives demand, presentment, protest and notice of protest or dishonor and all other notices of every kind and nature with respect to any such instrument. 15. Possession of Collateral by Agent All the Collateral now, heretofore --------------------------------- or hereafter delivered to the Agent shall be held by the Agent in its possession, custody and control. Any or all of the Collateral delivered to the Agent constituting cash or cash equivalents shall, prior to the occurrence of any Event of Default, be held in an interest-bearing account with one or more of the Lenders, and shall be, upon request of the Grantor, invested in investments permitted by Section 6.7(c) of the Loan Agreement. Nothing herein shall obligate the Agent to obtain any particular return thereon. Upon the occurrence and during the continuance of an Event of Default, whenever any of the Collateral is in the Agent's possession, custody or control, the Agent may use, operate and consume the Collateral, whether for the purpose of preserving and/or protecting the Collateral, or for the purpose of performing any of the Grantor's obligations with respect thereto, or otherwise, and, subject to the terms of Section 9.7 of the Loan Agreement, any or all of the Collateral delivered to the Agent constituting cash or cash equivalents shall be applied by the Agent to payment of the Obligations to the extent permitted by the terms of the Loan Agreement or otherwise held as Collateral as the Agent shall elect. The Agent may at any time deliver or redeliver the Collateral or any part thereof to the Grantor, and the receipt of any of the same by the Grantor shall be complete and full acquittance for the Collateral so delivered, and the Agent thereafter shall be discharged from any liability or responsibility arising after such delivery to the Grantor. So long as the Agent exercises reasonable care with respect to any Collateral in its possession, custody or control, neither the Agent nor the Lenders shall have any liability for any loss of or damage to any Collateral, and in no event shall the Agent or the Lenders have liability for any diminution in value of Collateral occasioned by economic or market conditions or events, absent the gross negligence or willful misconduct of the Agent or any of the Lenders. The Agent shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Collateral in the possession, custody or control of the Agent is accorded treatment substantially equal to that which the Agent accords similar property for its own account, it being understood that neither the Agent nor the Lenders shall have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Agent or any Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any Person with respect to any Collateral. -17- 16. Remedies -------- (a) Rights Upon Event of Default. Upon the occurrence and during the ---------------------------- continuance of an Event of Default, the Grantor shall be in default hereunder and the Agent for the benefit of the Secured Party shall have, in any jurisdiction where enforcement is sought, in addition to all other rights and remedies that the Agent on behalf of the Secured Party may have under this Agreement and under applicable laws or in equity, all rights and remedies of a secured party under the Uniform Commercial Code as enacted in any such jurisdiction in effect at that time, and in addition the following rights and remedies, all of which may be exercised with or without further notice to the Grantor except such notice as may be specifically required by applicable law: (a) to foreclose the Liens and security interests created hereunder or under any other Loan Document by any available judicial procedure or without judicial process; (b) to enter any premises where any Collateral may be located for the purpose of securing, protecting, inventorying, appraising, inspecting, repairing, preserving, storing, preparing, processing, taking possession of or removing the same; (c) to sell, assign, lease or otherwise dispose of any Collateral or any part thereof, either at public or private sale or at any broker's board, in lot or in bulk, for cash, on credit or otherwise, with or without representations or warranties and upon such terms as shall be commercially reasonable; (d) to notify obligors on the Collateral that the Collateral has been assigned to the Agent for the benefit of the Secured Party and that all payments thereon, or performance with respect thereto, are to be made directly and exclusively to the Agent for the account of the Secured Party; (e) to collect by legal proceedings or otherwise all dividends, distributions, interest, principal or other sums now or hereafter payable upon or on account of the Collateral; (f) to enter into any extension, reorganization, disposition, merger or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith the Agent may deposit or surrender control of the Collateral and/or accept other property in exchange for the Collateral as the Agent reasonably deems appropriate and is commercially reasonable; (g) to settle, compromise or release, on terms acceptable to the Agent, in whole or in part, any amounts owing on the Collateral and/or any disputes with respect thereto; (h) to extend the time of payment, make allowances and adjustments and issue credits in connection with the Collateral in the name of the Agent for the benefit of the Secured Party or in the name of the Grantor; (i) to enforce payment and prosecute any action or proceeding with respect to any or all of the Collateral and take or bring, in the name of the Secured Party or in the name of the Grantor, any and all steps, actions, suits or proceedings deemed necessary or reasonably desirable by the Agent to effect collection of or to realize upon the Collateral, including any judicial or nonjudicial foreclosure thereof or thereon, and the Grantor specifically consents to any nonjudicial foreclosure of any or all of the Collateral or any other action taken by the Lenders which may release any obligor from personal liability on any of the Collateral, and the Grantor waives (such waiver not to affect the Agent's agreement to give notice of sale in certain circumstances pursuant to Section 16(d)), to the extent permitted by applicable law, any right to receive notice of any public or private judicial or nonjudicial sale or foreclosure of any security or any of the Collateral, and any money or other property received by the Agent in exchange for or on account of the Collateral, whether representing collections or proceeds of Collateral, and whether resulting from voluntary payments or foreclosure proceedings or other legal action taken by the Agent or the Grantor may be applied by the Agent, without notice to the Grantor, to the Obligations in such order and manner as the Agent in its sole discretion shall determine; (j) to insure, protect and preserve the Collateral; (k) to exercise all rights, remedies, powers or privileges provided under any of the Loan Documents; and (l) to remove, from any -18- premises where the same may be located, the Collateral and any and all documents, instruments, files and records, and any receptacles and cabinets containing the same, relating to the Collateral, and the Agent may, at the cost and expense of the Grantor, use such of its supplies, equipment, facilities and space at its places of business as may be necessary or appropriate to properly administer, process, store, control, prepare for sale or disposition and/or sell or dispose of the Collateral or to properly administer and control the handling of collections and realizations thereon, and the Agent shall be deemed to have a rent-free tenancy of any premises of the Grantor for such purposes and for such periods of time as reasonably required by the Agent. The Grantor will, at the Agent's request, assemble the Collateral and make it available to the Agent at places which the Agent may designate, whether at the premises of the Grantor or elsewhere, and will make available to the Agent, free of cost, all premises, equipment and facilities of the Grantor for the purpose of the Agent's taking possession of the Collateral or storing the same or removing or putting the Collateral in salable form or selling or disposing of the same. Nothing herein contained shall be construed to give the Agent or the Lenders or any purchaser of the Collateral the right to operate any of the Stations without the prior consent of the FCC, to the extent required by law or the terms of any Media License. (b) Possession by Agent. Upon the occurrence and during the continuance ------------------- of an Event of Default, the Agent also shall have the right, without notice or demand (other than any notice required by Section 7 of the Loan Agreement), either in person, by agent or by a receiver to be appointed by a court in accordance with the provisions of applicable law (and the Grantor hereby expressly consents, to the fullest extent permitted by applicable law, upon the occurrence and during the continuance of an Event of Default to the appointment of such a receiver), and, to the extent permitted by applicable law, without regard to the adequacy of any security for the Obligations, to take possession of the Collateral or any part thereof and to collect and receive the rents, issues, profits, income and proceeds thereof. The taking possession of the Collateral by the Agent shall not cure or waive any Event of Default or notice thereof or invalidate any act done pursuant to such notice. The rights, remedies and powers of any receiver appointed by a court shall be as ordered by said court. (c) Sale of Collateral. Any public or private sale or other disposition ------------------ of the Collateral may be held at any office of the Agent, or at the Grantor's place of business, or at any other place permitted by applicable law, and without the necessity of the Collateral's being within the view of prospective purchasers. The Agent may direct the order and manner of sale of the Collateral, or portions thereof, as it in its sole and absolute discretion may determine provided such sale is commercially reasonable, and the Grantor expressly waives, to the extent permitted by applicable law, any right to direct the order and manner of sale of any Collateral. The Agent or any Person acting on the Agent's behalf may bid and purchase at any such sale or other disposition. In addition to the other rights of the Agent and the Lenders hereunder, the Grantor hereby grants to the Agent and the Lenders a license or other right to use, without charge, the Grantor's labels, copyrights, patents, rights of use of any name, trade names, trademarks and advertising matter, or any property of a similar nature, including, without limitation, the Copyrights, the Patents and the Marks in advertising for sale and selling any Collateral. (d) Notice of Sale. Unless the Collateral is perishable or threatens to -------------- decline speedily in value or is of a type customarily sold on a recognized market, the Agent will give the Grantor -19- reasonable notice of the time and place of any public sale thereof or of the time on or after which any private sale thereof is to be made. The requirement of reasonable notice conclusively shall be met if such notice is mailed, certified mail, postage prepaid, to the Grantor at its address set forth on the signature page hereto or delivered or otherwise sent to the Grantor, at least five (5) Business Days before the date of the sale. The Grantor expressly waives, to the fullest extent permitted by applicable law, any right to receive notice of any public or private sale of any Collateral or other security for the Obligations except as expressly provided for in this paragraph. The Agent shall not be obligated to make any sale of the Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Collateral may have been given. The Agent may, without notice or publication, except as required by applicable law, adjourn the sale from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice (except as required by applicable law), be made at the time and place to which the same was so adjourned. (e) Private Sales. With respect to any Collateral consisting of ------------- securities, partnership interests, membership interests, joint venture interests or the like, and whether or not any of such Collateral has been effectively registered under the Securities Act of 1933, as amended, or other applicable laws, the Agent may, in its sole and absolute discretion, sell all or any part of such Collateral at private sale in such manner and under such circumstances as the Agent may deem necessary or advisable in order that the sale may be lawfully conducted in a commercially reasonable manner. Without limiting the foregoing, the Agent may (i) approach and negotiate with a limited number of potential purchasers, and (ii) restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing such Collateral for their own account for investment and not with a view to the distribution or resale thereof. In the event that any such Collateral is sold at private sale, the Grantor agrees to the extent permitted by applicable law that if such Collateral is sold for a price which is commercially reasonable, then (A) the Grantor shall not be entitled to a credit against the Obligations in an amount in excess of the purchase price, and (B) the Lenders shall not incur any liability or responsibility to the Grantor in connection therewith, notwithstanding the possibility that a substantially higher price might have been realized at a public sale. The Grantor recognizes that a ready market may not exist for such Collateral if it is not regularly traded on a recognized securities exchange, and that a sale by the Agent of any such Collateral for an amount less than a pro rata share of the fair market value of the issuer's assets minus liabilities may be commercially reasonable in view of the difficulties that may be encountered in attempting to sell a large amount of such Collateral or Collateral that is privately traded. (f) Title of Purchasers. Upon consummation of any sale of Collateral ------------------- hereunder, the Agent on behalf of the Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the Collateral so sold absolutely free from any claim or right upon the part of the Grantor or any other Person claiming through the Grantor, and the Grantor hereby waives (to the extent permitted by applicable laws) all rights of redemption, stay and appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Collateral is made on credit or for future delivery, the Agent shall not be required to apply any portion of the sale price to the Obligations until such amount actually is received by the Agent, and any Collateral so sold may be retained by the Agent until the sale price is paid in full by the purchaser or purchasers thereof. The Secured -20- Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Collateral so sold, and, in case of any such failure, the Collateral may be sold again. (g) Disposition of Proceeds of Sale. The proceeds resulting from the ------------------------------- collection, liquidation, sale or other disposition of the Collateral shall be applied, first, to the reasonable costs and expenses (including reasonable ----- attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting and liquidating the Collateral, and the like; second, ------ to the satisfaction of all Obligations; and third, any surplus remaining after ----- the satisfaction of all Obligations, provided no Commitment exists, to be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. (h) Certain Waivers. To the extent permitted by applicable law, the --------------- Grantor waives all claims, damages and demands against the Agent and the Lenders arising out of the repossession, retention or sale of the Collateral, or any part or parts thereof, except to the extent any such claims, damages and awards arise out of the gross negligence or willful misconduct of the Agent or the Lenders. (i) Remedies Cumulative. The rights and remedies provided under this ------------------- Agreement are cumulative and may be exercised singly or concurrently, and are not exclusive of any other rights and remedies provided by law or equity. (j) Compliance with Communications Act. ---------------------------------- (i) Notwithstanding any other provision of this Agreement, any foreclosure on, sale, transfer or other disposition of, or the exercise of any right to vote or consent with respect to, any of the Collateral as provided herein or any other action taken or proposed to be taken by the Agent hereunder which would affect the operational, voting or other control of any entity holding a Media License shall be made in accordance with the Communications Act and the terms of each Media License, including, to the extent applicable under the Communications Act in effect at the time of a Default, any requirement that there be a public or private sale. (ii) Notwithstanding anything to the contrary contained in this Agreement, or in the Loan Agreement or the other Loan Documents or in any other related instrument, the Agent shall not, without first obtaining any consent or approval of the FCC, take any action pursuant to this Agreement which would constitute or result in any change of control of a Subsidiary holding a Media License if any such change in control would require, under then existing law, the prior approval of the FCC. (iii) If an Event of Default shall have occurred and be continuing, the Grantor shall take any action which the Agent may reasonably request in the exercise of its rights and remedies under this Agreement in order to transfer and assign to the Agent or to one or more third parties as the Agent may designate, or to a combination of the foregoing, the Collateral for the purposes of a public or private sale. To enforce the provisions of this Section 16, the Agent is empowered to request, and the Grantor agrees to authorize, the appointment of a receiver or trustee from any court of competent jurisdiction. Such receiver or trustee shall be instructed to seek from the FCC (and any other Governmental -21- Authority, if required) any necessary prior consent to an involuntary transfer of control or assignment of any Media License or of any entity whose stock, partnership interests or other securities are subject to this Agreement, for the purpose of seeking a bona fide purchaser to whom such Media License or control of such entity ultimately will be transferred or assigned in connection with a public or private sale. The Grantor hereby agrees to authorize (including the Grantor's execution of any necessary or appropriate applications or other instruments) such an involuntary transfer of control or assignment upon the reasonable request of the receiver or trustee so appointed; and, if the Grantor's approval is required by the court and the Grantor shall refuse to authorize such transfer or assignment, then, to the extent permitted by the Communications Act in effect at such time and provided that the Grantor has been given 5 Business Days' prior written notice telecopied to its telecopier number set forth on the signature page hereof, and the Grantor has not responded by executing any such applications or other instruments, the clerk of the court may execute in the place of the Grantor any application or other instrument necessary or appropriate for the obtaining of such consent. Upon the occurrence and during the continuance of an Event of Default, the Grantor shall further use its best efforts to assist in obtaining the approval of the FCC (and that required by any other Governmental Authority) for any action or transaction contemplated by this Agreement, including without limitation, the preparation, execution and filing with the FCC of the assignor's or transferor's portion of any application or applications for consent to the assignment of any Media License or transfer of control of any entity holding or controlling any Media License as may be necessary or appropriate under the Communications Act for approval of the transfer or assignment of any portion of the Collateral or any Media License. The Grantor further agrees that, because of the unique nature of its undertaking in this Section 16, the same may be specifically enforced, and it hereby waives, and agrees to waive, any claim or defense that the Agent or the Lenders would have an adequate remedy at law for the breach of this undertaking and any requirement for the posting of bond or other security. This Section 16 shall not be deemed to limit any other rights of the Agent and the Lenders available under applicable law and consistent with the Communications Act. (k) Notice. The Agent shall use reasonable efforts to give the Grantor ------ prior written notice of the exercise of any remedy provided for herein, provided -------- that the failure to give such notice after reasonable efforts shall not subject the Agent or any Lender to liability and shall not affect the validity or exercise of any remedy hereunder. 17. Agent Appointed Attorney-in-Fact To the full extent permitted by -------------------------------- applicable law, including the Communications Act, and subject to Section 16(j) hereof, the Grantor hereby irrevocably appoints the Agent as the Grantor's attorney-in-fact, effective upon and during the continuance of an Event of Default, with full authority in the place and stead of the Grantor, and in the name of the Grantor, or otherwise, from time to time, in the Agent's sole and absolute discretion to do any of the following acts or things: (a) to do all acts and things and to execute all documents necessary or advisable to perfect and continue perfected the security interests created by this Agreement and to preserve, maintain and protect the Collateral; (b) to do any and every act that the Grantor is obligated to do under this Agreement; (c) to prepare, sign, file and record, in the Grantor's name, any financing statement covering the Collateral; (d) to endorse and transfer the Collateral upon foreclosure by the Agent; (e) to grant or issue an exclusive or -22- nonexclusive license under the Copyrights, the Programs, the Patents or the Marks to anyone upon foreclosure by the Agent; (f) to assign, pledge, convey or otherwise transfer title in or dispose of the Copyrights, the Programs, the Patents or the Marks to anyone upon foreclosure by the Agent; and (g) to file any claims or take any action or institute any proceedings that the Agent may reasonably deem necessary or desirable for the protection or enforcement of any of the rights of the Lenders with respect to any of the Copyrights, the Programs, the Patents and the Marks; provided, however, that the Agent shall be -------- ------- under no obligation whatsoever to take any of the foregoing actions, and neither the Agent nor the Lenders shall have any liability or responsibility for any act or omission (other than the Agent's or the Lenders' own gross negligence or willful misconduct) taken with respect thereto. The Grantor hereby agrees to repay within 10 Business Days after demand all reasonable out-of-pocket costs and expenses (including attorneys' fees) incurred or expended by the Agent in exercising any right or taking any action under this Agreement. 18. Costs and Expenses The Grantor agrees to pay to the Agent all ------------------ reasonable costs and out-of- pocket expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by the Agent in the enforcement or attempted enforcement of this Agreement, whether or not an action is filed in connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All reasonable advances, charges, costs and expenses, including reasonable attorneys' fees and disbursements, incurred or paid by the Agent in exercising any right, privilege, power or remedy conferred by this Agreement (including, without limitation, the right to perform any Obligation of the Grantor under the Loan Documents), or in the enforcement or attempted enforcement thereof, shall be secured hereby and shall become a part of the Obligations and shall be due and payable to the Agent by the Grantor on demand therefor. 19. Transfers and Other Liens The Grantor agrees that, except as ------------------------- specifically permitted under the Loan Agreement or any other Loan Document, it will not (i) sell, assign, exchange, transfer or otherwise dispose of, or contract to sell, assign, exchange, transfer or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral, except for Liens in favor of the Agent for the benefit of the Lenders or otherwise permitted under the Loan Agreement or any other Loan Document. 20. Understandings With Respect to Waivers and Consents The Grantor --------------------------------------------------- warrants and agrees that each of the waivers and consents set forth herein are made with full knowledge of its significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which the Grantor otherwise may have against the Secured Party or others, or against any Collateral. If any of the waivers or consents herein are determined to be unenforceable under applicable law, such waivers and consents shall be effective to the maximum extent permitted by law. 21. Indemnity The Grantor agrees to indemnify the Agent and the Lenders --------- from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent such claims, losses or liabilities result from the Agent's or the Lenders' gross negligence or willful misconduct. -23- 22. Amendments, Etc No amendment or waiver of any provision of this --------------- Agreement nor consent to any departure by the Grantor herefrom (other than supplements to the Schedules hereto in accordance with the terms of this Agreement) shall in any event be effective unless the same shall be in writing and made in accordance with Section 9.1 of the Loan Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 23. Notices All notices and other communications provided for hereunder ------- shall be given in the manner set forth in Section 9.2 of the Loan Agreement, and if to the Agent, to the address set forth for it in Section 9.2 of the Loan Agreement and if to the Grantor, to the address set forth for it on the signature page hereof. 24. Continuing Security Interest: Transfer of Notes; Termination (a) ------------------------------------------------------------ This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until indefeasible payment in full in cash of the Obligations and the termination or expiration of the Commitments, (ii) be binding upon the Grantor, its successors and assigns and (iii) inure, together with the rights and remedies of the Lenders hereunder, to the benefit of the Agent, any successor Agent and the Lenders, subject to the terms and conditions of the Loan Agreement. Subject to the terms of the Loan Agreement, any Lender may assign or otherwise transfer any Loans, its Commitment or any rights in Collateral held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Agent or Lender herein or otherwise. Nothing set forth herein or in any other Loan Document is intended or shall be construed to give to any other party any right, remedy or claim under, to or in respect of this Agreement or any other Loan Document or any Collateral. The Grantor's successors and assigns shall include, without limitation, a receiver, trustee or debtor-in-possession thereof or therefor, provided that, except as otherwise permitted under the Loan -------- ---- Agreement or any other Loan Document, none of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Lenders. 25. Release of Grantor (a) This Agreement and all obligations of the ------------------ Grantor hereunder and all security interests granted hereby shall be released and terminated when all Obligations have been indefeasibly paid in full in cash and when all Commitments have expired or have otherwise been terminated. Upon such release and termination of all Obligations and such expiration or termination of all Commitments and the security interest hereunder, all rights in and to the Collateral pledged or assigned by the Grantor hereunder shall automatically revert to the Grantor, and the Agent and the Lenders shall return any pledged Collateral in their possession to the Grantor, or to the Person or Persons legally entitled thereto, and shall endorse, execute, deliver, record and file all instruments and documents, and do all other acts and things, reasonably required for the return of the Collateral to the Grantor, or to the Person or Persons legally entitled thereto, and to evidence or document the release of the interests of the Secured Party arising under this Agreement, all as reasonably requested by, and at the sole expense of, the Grantor. 26. GOVERNING LAW THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW -24- RULES), EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA ARE GOVERNED BY THE LAWS OF SUCH JURISDICTION. 27. Covenant Not to Issue Uncertificated Securities The Grantor ----------------------------------------------- represents and warrants to the Lenders that all of the Pledged Securities are in certificated form (as contemplated by Article 8 of the Uniform Commercial Code), and covenants to the Lenders that it will not permit any of its Subsidiaries which are issuers of Pledged Securities to issue any securities in uncertificated form or seek to convert all or any part of any Pledged Securities into uncertificated form (as contemplated by Article 8 of the Uniform Commercial Code). 28. Covenant Not to Dilute Interests of Secured Party in Securities The --------------------------------------------------------------- Grantor represents, warrants and covenants to the Secured Party that it will (i) not at any time cause or permit any Subsidiary that is an issuer of Pledged Securities to issue any additional capital stock or any warrant options or other rights to acquire any additional capital stock, other than to the Grantor or as otherwise permitted under the Loan Agreement and (ii) pledge to the Agent in accordance with the terms hereof, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of the Pledged Securities. 29. Form of Pledged Limited Liability Interests/Covenant Not to Dilute ------------------------------------------------------------------ The Grantor represents, warrants and covenants to the Secured Party that all of the Pledged Limited Liability Company Interests are in the form (certificated or uncertificated) indicated on Schedule A attached hereto (as contemplated by ---------- Article 8 of the Uniform Commercial Code), and covenants to the Lenders that it will (i) not at any time cause or permit any Pledged Entities to issue any additional membership interests or any other rights or options to acquire any additional limited liability company interests, other than to the Grantor or as otherwise permitted under the Loan Agreement, and (ii) pledge to the Agent in accordance with the terms hereof, immediately upon its acquisition (directly or indirectly) thereof, any and all additional Limited Liability Company Interests of each Pledged Entity. 30. Alternative Dispute Resolution Section 9.12 of the Loan Agreement is ------------------------------ incorporated herein by this reference; provided, however, that all references -------- ------- therein to "Obligor" shall mean and be references to "Grantor," and all references therein to "Section 9.12" shall mean and be references to "Section 30." 31. Copies of Certificates, Etc Whenever the Grantor is required to --------------------------- deliver notices, certificates, opinions, statements or other information hereunder to the Agent for delivery to any Lender, it shall do so in such number of copies as the Agent shall reasonably specify. -25- IN WITNESS WHEREOF, the Grantor has executed this Agreement by its duly authorized representative as of the date first written above. GRANTOR ------- LATIN COMMUNICATIONS GROUP INC. By: /s/ Walter F. Ulloa Name: Walter F. Ulloa Title: Chairman/CEO Address for Notices: 2425 Olympic Boulevard, Suite 6000 West Santa Monica, California 90404 Attention Walter F. Ulloa Jeanette Tully Telecopy: (310) 447-3899 S-1 STATE OF CALIFORNIA, ) ) ss. County of Los Angeles ) On April __, 2000, before me, __________________________, a Notary Public in and for the State of California, personally appeared_________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he or she executed the within instrument in his or her authorized capacity and that, by his or her signature on the within instrument, the person or entity upon behalf of which he or she acted executed the within instrument. WITNESS my hand and official seal. ------- Signature _________________________ (Seal) Schedule A Pledged Collateral Schedule B Locations of Equipment and Inventory Schedule C Locations of Books and Records Schedule D Deposit Accounts Schedule E UCC Filing Offices Schedule F Form of Limited Liability Company Notice The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. F-1 EX-10.11 10 0010.txt PLEDGE AGR DTD 4/20/2000 ULLOA-WILKINSON & UNION BK EXHIBIT 10.11 PLEDGE AGREEMENT ---------------- This PLEDGE AGREEMENT, is dated as of April 20, 2000, and made by WALTER F. ULLOA and PHILIP C. WILKINSON (each, a "Pledgor" and collectively, the ------- "Pledgors"), whose obligations hereunder are joint and several, in favor of -------- UNION BANK OF CALIFORNIA, N.A., a national banking association, as agent (the "Agent") for the Lenders (as defined in the Loan Agreement referred to below, ----- the "Lenders"). ------- RECITALS -------- A. Concurrently herewith, (a) the Agent, the Lenders and LCG Acquisition Corporation are entering into a Term Loan Agreement dated as of April 20, 2000 (said Agreement, as it may hereafter be amended, modified or restated from time to time, herein referred to as the "Loan Agreement"), and (b) the Pledgors are -------------- entering into a Nonrecourse Guarantee dated as of even date herewith in favor of the Agent for the benefit of the Lenders (said Guarantee, as it may hereafter be amended, modified or restated from time to time, herein referred to as the "Guarantee"). --------- B. The Loan Agreement requires, and the Pledgors desire, that the Pledgors' obligations under the Guarantee be secured by this Agreement. C. Terms defined in the Loan Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Section 1.2 of the Loan Agreement are incorporated herein by reference. AGREEMENT --------- NOW, THEREFORE, in order to induce the Lenders to enter into the Loan Agreement and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, each Pledgor hereby represents, warrants, covenants, agrees, assigns and grants as follows: 1. Definitions. Unless the context otherwise requires, terms defined in ----------- the Uniform Commercial Code of the State of California (the "Uniform Commercial ------------------ Code") and not otherwise defined in this Agreement or in the Loan Agreement - ---- shall have the meanings defined for those terms in the Uniform Commercial Code. In addition, the following terms shall have the meanings respectively set forth after each: "Collateral" means and includes all present and future right, title and ---------- interest of each Pledgor in or to, and all rights and powers of each Pledgor to transfer any interest in or to, any and all of the following property, whether now owned or existing or hereafter arising or acquired and wheresoever located: (a) All Pledged Limited Liability Company Interests, and all rights, preferences, privileges, dividends, distributions (in cash or in kind), redemption payments or liquidation payments with respect thereto (but excluding any dividends, distributions, redemption payments or liquidation payments to the extent (x) received by such Pledgor and (y) paid in accordance with the terms of the Loan Agreement); (b) All rights, remedies, powers and/or privileges of such Pledgor with respect to any of the foregoing; and (c) Any and all proceeds and products of the foregoing, including without limitation, all money, accounts, general intangibles, deposit accounts, documents, instruments, chattel paper, goods, insurance proceeds and any other tangible or intangible property received upon the sale or disposition of any of the foregoing. "Limited Liability Company Acknowledgement" shall have the meaning ascribed ----------------------------------------- to it in Section 4(a) of this Agreement. "Limited Liability Company Assets" means all assets, whether tangible or -------------------------------- intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Limited Liability Company Interests. "Limited Liability Company Interests" means the entire limited liability ----------------------------------- company interest at any time owned by either Pledgor in any Pledged Entity. "Limited Liability Company Notice" shall have the meaning ascribed to it in -------------------------------- Section 4(a) of this Agreement. "Pledged Collateral" means the Pledged Limited Liability Interests. ------------------ "Pledged Entity" means each limited liability company set forth in Schedule -------------- -------- A attached hereto, as such Schedule may be supplemented from time to time in - - accordance with the terms of this Agreement. "Pledged Limited Liability Company Interests" means all interests in any ------------------------------------------- Pledged Entities held by any Pledgor, including, but not limited to, those Limited Liability Company Interests identified in Schedule A attached hereto, as ---------- such Schedule may be supplemented from time to time in accordance with the terms of this Agreement, including, but not limited to, (i) all the capital thereof and any Pledgor's interest in all profits, losses, Limited Liability Company Assets and other distributions in respect thereof; (ii) all other payments due or to become due to any Pledgor in respect of such Limited Liability Company Interests; (iii) all of any Pledgor's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any in respect of such Limited Liability Company Interests; (iv) all of any Pledgor's rights to exercise and enforce every right, power, remedy, authority, option and privilege relating to such Limited Liability Company Interests; and (v) all other property hereafter delivered in substitution for or in addition to any of the foregoing and all certificates and instruments representing or evidencing such other property received, receivable or otherwise distributed in respect of or in exchange for any or all thereof. -2- "Secured Party" means, collectively, the Agent and the Lenders. ------------- 2. Creation of Security Interest. Each Pledgor hereby assigns and pledges ----------------------------- to the Agent for the ratable benefit of the Lenders, and grants to the Agent for the ratable benefit of the Lenders, a security interest in and to, all right, title and interest of such Pledgor in and to all presently existing and hereafter acquired Collateral. The security interest and pledge created by this Section 2 shall continue in effect so long as any Obligation (as defined below) remains unpaid or any Commitment remains in effect. 3. Security for Obligations. This Agreement and the security interests ------------------------ granted herein secure the prompt payment, in full in cash, and full performance of, all obligations of each Pledgor now or hereafter existing under the Guarantee, and any documents executed by any Pledgor in connection therewith, whether for principal, interest, fees, expenses or otherwise, including without limitation all obligations of each Pledgor now or hereafter existing under this Agreement, and all interest that accrues (whether or not allowed) at the then applicable rate (including interest at the rate for overdue payments described in Section 2.6(c) of the Loan Agreement) specified in the Loan Agreement on all or any part of any of such obligations after the filing of any petition or pleading against the Borrower or any Pledgor for a proceeding under any bankruptcy or related law (collectively, the "Obligations"). ----------- 4. Delivery of Pledged Collateral. ------------------------------ (a) With respect to each Limited Liability Company Interest, on (i) the Closing Date (with respect to Limited Liability Company Interests existing on such date) and (ii) the day on which any Limited Liability Company Interest shall be acquired by any Pledgor (with respect to Limited Liability Company Interests acquired after the Closing Date), a notice in the form set forth in Schedule C attached hereto (the "Limited Liability Company Notice") shall be - ---------- -------------------------------- appropriately completed and delivered to each Pledged Entity, notifying each Pledged Entity of the existence of this Agreement, a certified copy of this Agreement shall be delivered by each Pledgor to the relevant Pledged Entity, and each Pledgor shall have received and delivered to the Agent a copy of such Limited Liability Company Notice, along with an acknowledgment in the form set forth in Schedule C attached hereto (the "Limited Liability Company ---------- ------------------------- Acknowledgment"), duly executed by the relevant Pledged Entity. - -------------- (b) Subject to any necessary prior approval of the FCC, the Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, without notice to any Pledgor, to transfer to or to direct any Pledgor or any nominee of any Pledgor to register or cause to be registered in the name of the Agent or any of its nominees any or all of the Pledged Limited Liability Company Interests. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Limited Liability Company Interests for certificates or instruments of smaller or larger denominations. 5. Further Assurances. ------------------ (a) At any time and from time to time at the reasonable written request of the Agent, each Pledgor shall execute and deliver to the Agent, at such Pledgor's expense, all such financing statements and other instruments, certificates and documents in form and substance -3- reasonably satisfactory to the Agent, and perform all such other acts as shall be necessary or reasonably desirable to fully perfect or protect or maintain, when filed, recorded, delivered or performed, the Secured Party's security interests granted pursuant to this Agreement or to enable the Lenders to exercise and enforce their rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Pledgor shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and preserve, with the required priority, the security interests granted, or purported to be granted hereby. (b) At any time and from time to time, the Agent shall be entitled to file and/or record any or all such financing statements, instruments and documents held by it, and any or all such further financing statements, documents and instruments, relative to the Collateral or any part thereof in each instance, and to take all such other actions as the Agent may reasonably deem appropriate to perfect and to maintain perfected the security interests granted herein. (c) Each Pledgor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (d) Each Pledgor shall furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request. Upon any Pledgor's receipt or acquisition of any additional Limited Liability Company Interest, such Pledgor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule -------- A attached hereto to reflect such additional Pledged Collateral and, to the - - extent such Limited Liability Company Interest is certificated, deliver to the Agent the certificates therefor, accompanied by such instruments of transfer as are acceptable to the Agent. (e) With respect to any Collateral consisting of interests in limited liability companies, or the like, each Pledgor hereby consents and agrees that, upon the occurrence and during the continuance of an Event of Default, subject to any necessary prior approval of the FCC, the Pledged Entities, or obligors on any such Collateral, or any registrar or transfer agent or trustee for any such Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of the Agent to effect any transfer or exercise any right hereunder or with respect to any such Collateral subject to the terms hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by such Pledgor or any other Person to the Pledged Entities or such obligors or to any such registrar or transfer agent or trustee. 6. Voting Rights; Dividends; etc. Subject to any necessary prior ----------------------------- approval from the FCC, so long as no Event of Default shall have occurred and be continuing: (a) Voting Rights. Each Pledgor shall be entitled to exercise any and all ------------- voting and other consensual rights pertaining to the Pledged Limited Liability Company Interests (including, -4- but not limited to, all voting, consent, administration, management and other rights and remedies under any limited liability company agreement or otherwise with respect to the Pledged Limited Liability Company Interests), or any part thereof, for any purpose not inconsistent with the terms of this Agreement, the Loan Agreement or the other Loan Documents; provided, however, that such Pledgor -------- ------- shall not exercise any such right if it would result in a Default. (b) Dividend and Distribution Rights. Subject to the terms of the Loan -------------------------------- Agreement, each Pledgor shall be entitled to receive and to retain and use (and the Agent and the Lenders shall have no security interest in) any and all dividends or distributions paid in respect of the Pledged Limited Liability Company Interests in accordance with the terms of the Loan Agreement; provided, -------- however, that any and all - ------- (i) non-cash dividends or distributions in the form of capital stock, certificated limited liability company interests, instruments or other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Limited Liability Company Interests, (ii) dividends and other distributions paid or payable in cash in respect of any Pledged Limited Liability Company Interests in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Limited Liability Company Interests, shall forthwith be delivered to the Agent, in the case of (i) above, to be held as Collateral and shall, if received by any Pledgor, be received in trust for the benefit of the Secured Party, be segregated from the other property of such Pledgor and forthwith be delivered to the Agent as Collateral in the same form as so received (with any necessary endorsements), and in the case of (ii) and (iii) above, to be applied to the Obligations or otherwise to be held as Collateral. 7. Rights as to Pledged Collateral During Event of Default. When an ------------------------------------------------------- Event of Default has occurred and is continuing, subject to any necessary prior approval of the FCC: (a) Voting, Dividend and Distribution Rights. At the option of the Agent, ---------------------------------------- all rights of each Pledgor to exercise the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 6(a) above, and to receive the dividends and distributions that it would otherwise be authorized to receive and retain pursuant to Section 6(b) above, shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and to hold as Collateral such dividends and distributions during the continuance of such Event of Default. (b) Dividends and Distributions Held in Trust. All dividends and other ----------------------------------------- distributions that are received by any Pledgor contrary to the provisions of Section 7(a) of this Agreement shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of such Pledgor and forthwith shall be paid over to the Agent as Collateral in the same form as so received (with any necessary endorsements). -5- 8. Irrevocable Proxy. Each Pledgor hereby revokes all previous proxies ----------------- with regard to the Pledged Limited Liability Company Interests and, subject to any necessary prior approval of the FCC, appoints the Agent as its proxy-holder and attorney-in-fact to attend and vote at any and all meetings of the members of the Pledged Entities (whether or not such Pledged Limited Liability Company Interests are transferred into the name of the Agent), and any adjournments thereof, held on or after the date of the giving of this proxy and to execute any and all written consents, waivers and ratifications of the Pledged Entities executed on or after the date of the giving of this proxy and prior to the termination of this proxy with the same effect as if such Pledgor had personally attended the meetings or had personally voted on its Limited Liability Company Interests or had personally signed the consents, waivers or ratifications; provided, however, that the Agent as proxy-holder shall have rights hereunder - -------- ------- only upon the occurrence and during the continuance of an Event of Default and subject to Section 14(j) hereof. Each Pledgor hereby authorizes the Agent to substitute another Person (which Person shall be a successor to the rights of the Agent hereunder, a nominee appointed by the Agent to serve as proxy-holder, or otherwise as approved by such Pledgor in writing, such approval not to be unreasonably withheld) as the proxy-holder and, upon the occurrence or during the continuance of any Event of Default, hereby authorizes and directs the proxy-holder to file this proxy and the substitution instrument with the appropriate officer of the Pledged Entity. This proxy is coupled with an interest and is irrevocable until such time as no part of any Commitment remains outstanding and all Obligations have been indefeasibly paid in full. 9. Pledgors' Representations and Warranties. Each Pledgor represents and ---------------------------------------- warrants as follows: (a) Each Pledgor is an individual and resides in the County and the State specified therefor on the signature pages hereof. (b) Each Pledgor is the legal and beneficial owner of the Collateral free and clear of all Liens (other than Liens in favor of the lenders under the Entravision Credit Agreement (the "ECC Lien")). Each Pledgor has the legal -------- right to grant the security interests in the Collateral purported to be granted hereby, and to execute, deliver and perform this Agreement. The pledge of the Collateral pursuant to this Agreement creates a valid security interest in the Collateral. Upon the filing of appropriate financing statements in the filing offices set forth on Schedule B attached hereto and the giving of a Limited ---------- Liability Company Notice to the Pledged Entities, the Secured Party will have a perfected security interest in the Collateral subject only to the ECC Lien. (c) The Pledged Limited Liability Company Interests have been duly authorized and validly issued and are fully paid and nonassessable. (d) No consent of any Person, including any member in a Pledged Entity, is required for the pledge by any Pledgor of the Collateral. (e) The Pledged Limited Liability Company Interests described on Schedule -------- A attached hereto constitute all of the Limited Liability Company Interests of - - each Pledgor and each Pledgor's respective percentage interest in each such Pledged Entity is as set forth on Schedule A attached hereto. ---------- -6- (f) Subject to Section 14(j) hereof, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority (other than such authorizations, approvals and other actions as have already been taken and are in full force and effect) is required (A) for the pledge of the Collateral or the grant of the security interest in the Collateral by any Pledgor hereby or for the execution, delivery or performance of this Agreement by any Pledgor, or (B) for the exercise by the Agent of the voting rights in the Pledged Limited Liability Company Interests or of any other rights or remedies in respect of the Collateral hereunder. 10. Pledgors' Covenants. In addition to the other covenants and ------------------- agreements set forth herein and in the other Loan Documents, each Pledgor covenants and agrees as follows: (a) Each Pledgor will pay, prior to delinquency, all taxes, charges, Liens and assessments against the Collateral owned by it, except those with respect to which the amount or validity is being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of such Pledgor. (b) No Pledgor will move his or her residence from the location set forth on the signature pages hereof except upon not less than 20 days' prior notice to the Agent and such Pledgor's prior compliance with all applicable requirements of Section 5 hereof necessary to perfect the Lenders' security interest hereunder. (c) No Pledgor shall withdraw as a member of any Pledged Entity, or file or pursue or take any action that may, directly or indirectly, cause a dissolution or liquidation of or with respect to any Pledged Entity or seek a partition of any property of any Pledged Entity. (d) Subject to the provisions of Section 14(j) hereof, each Pledgor agrees to take any action which the Agent may reasonably request in order to obtain from the FCC such approval as may be necessary to enable the Lenders to exercise and enjoy the full rights and benefits granted to them by this Agreement, including the use of such Pledgor's best efforts to assist in obtaining the approval of the FCC for any action or transaction contemplated by this Agreement for which such approval is required by law. 11. Agent's Rights Regarding Collateral. At any time and from time to ----------------------------------- time, the Agent (for the benefit of the Secured Party) may, to the extent necessary or desirable to protect the security hereunder, but the Agent shall not be obligated to: (a) (whether or not a Default has occurred) itself or through its representatives, at its own expense, upon reasonable notice and at such reasonable times during usual business hours, visit and inspect the properties of the Pledged Entities and examine and make abstracts from any of the books and records of those Pledged Entities at any reasonable time and as often as may reasonably be desired and discuss the business, operations, properties and financial and other condition of any Pledged Entity or (b) if a Default has occurred and is continuing, at the expense of the Pledgors, perform any obligation of any Pledgor under this Agreement. Neither the Agent nor the Lenders shall be under any duty or obligation whatsoever to take any action to preserve any rights of or against any prior or other parties in connection with the Collateral, to exercise any voting rights or managerial rights with respect to any Collateral or to make or give any presentments for payment, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor or notices of any other nature whatsoever in connection with the Collateral or the Obligations. -7- Neither the Agent nor the Lenders shall be under any duty or obligation whatsoever to take any action to protect or preserve the Collateral or any rights of any Pledgor therein, or to make collections or enforce payment thereon, or to participate in any foreclosure or other proceeding in connection therewith. Nothing contained herein shall be construed to make the Agent or any Lender liable as a member of any Pledged Entity, and the Agent or any Lenders by virtue of this Agreement or otherwise (except as referred to in the following sentence) shall not have any of the duties, obligations or liabilities of a member of any Pledged Entity. The parties hereto expressly agree that, unless the Agent shall become the absolute owner of a Pledged Limited Liability Company Interest pursuant hereto, this Agreement shall not be construed as creating a partnership or joint venture among the Agent, any Lender, any Pledged Entity or the Borrower and/or any Pledgor. Except as provided in the immediately preceding sentence, the Agent, by accepting this Agreement, did not intend to become a member of any Pledged Entity or otherwise be deemed to be a co-venturer with respect to any Pledgor or any Pledged Entity, either before or after an Event of Default shall have occurred. 12. Collections on the Collateral. Except as provided to the contrary in ----------------------------- the Loan Agreement, each Pledgor shall have the right to use and to continue to make collections on and receive dividends and other proceeds of all of the Collateral in the ordinary course of business so long as no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, at the option of the Agent, each Pledgor's right to make collections on and receive dividends and other proceeds of the Collateral and to use or dispose of such collections and proceeds shall terminate, and any and all dividends, proceeds and collections, including all partial or total prepayments, then held or thereafter received on or on account of the Collateral will be held or received by such Pledgor in trust for the Secured Party and immediately delivered in kind to the Agent (duly endorsed to the Agent, if required), to be applied to the Obligations or held as Collateral, as the Agent shall elect. Upon the occurrence and during the continuance of an Event of Default, the Agent shall have the right at all times to receive, receipt for, endorse, assign, deposit and deliver, in the name of the Agent or the Lenders or in the name of any Pledgor, any and all checks, notes, drafts and other instruments for the payment of money constituting proceeds of or otherwise relating to the Collateral; and each Pledgor hereby authorizes the Agent to affix, by facsimile signature or otherwise, the general or special endorsement of such Pledgor, in such manner as the Agent shall deem advisable, to any such instrument in the event the same has been delivered to or obtained by the Agent without appropriate endorsement, and the Agent and any collecting bank are hereby authorized to consider such endorsement to be a sufficient, valid and effective endorsement by such Pledgor, to the same extent as though it were manually executed by the duly authorized representative of such Pledgor, regardless of by whom or under what circumstances or by what authority such endorsement actually is affixed, without duty of inquiry or responsibility as to such matters, and each Pledgor hereby expressly waives demand, presentment, protest and notice of protest or dishonor and all other notices of every kind and nature with respect to any such instrument. 13. Possession of Collateral by Agent. All the Collateral now, heretofore --------------------------------- or hereafter delivered to the Agent shall be held by the Agent in its possession, custody and control. Any or all of the Collateral delivered to the Agent constituting cash or cash equivalents shall, prior to the occurrence of any Event of Default, be held in an interest-bearing account with one or more of -8- the Lenders, and shall be, upon request of the Pledgor that has delivered such Collateral, invested in investments permitted by Section 6.7(c) of the Loan Agreement. Nothing herein shall obligate Agent to obtain any particular return thereon. Upon the occurrence and during the continuance of an Event of Default, whenever any of the Collateral is in the Agent's possession, custody or control, the Agent may use and consume the Collateral, whether for the purpose of preserving and/or protecting the Collateral, or for the purpose of performing any of any Pledgor's obligations with respect thereto, or otherwise, and, subject to the terms of Section 9.7 of the Loan Agreement, any or all of the Collateral delivered to the Agent constituting cash or cash equivalents shall be applied by the Agent to payment of the Obligations to the extent permitted by the terms of the Loan Agreement or otherwise held as Collateral as the Agent shall elect. The Agent may at any time deliver or redeliver the Collateral or any part thereof to the Pledgor that has delivered such Collateral, and the receipt of any of the same by such Pledgor shall be complete and full acquittance for the Collateral so delivered, and the Agent thereafter shall be discharged from any liability or responsibility arising after such delivery to such Pledgor. So long as the Agent exercises reasonable care with respect to any Collateral in its possession, custody or control, neither the Agent nor the Lenders shall have any liability for any loss of or damage to any Collateral, and in no event shall the Agent or the Lenders have liability for any diminution in value of the Collateral occasioned by economic or market conditions or events, absent the gross negligence or willful misconduct of the Agent or any of the Lenders. The Agent shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Collateral in the possession, custody or control of the Agent is accorded treatment substantially equal to that which the Agent accords similar property for its own account, it being understood that neither the Agent nor the Lenders shall have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Agent or any Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any Person with respect to any Collateral. 14. Remedies. -------- (a) Rights Upon Event of Default. Upon the occurrence and during the ---------------------------- continuance of an Event of Default, each Pledgor shall be in default hereunder and the Agent for the benefit of the Secured Party shall have, in any jurisdiction where enforcement is sought, in addition to all other rights and remedies that the Agent on behalf of the Secured Party may have under this Agreement and under applicable laws or in equity, all rights and remedies of a secured party under the Uniform Commercial Code as enacted in any such jurisdiction in effect at that time, and in addition the following rights and remedies, all of which may be exercised with or without further notice to any Pledgor except such notice as may be specifically required by applicable law: (a) to foreclose the Liens and security interests created hereunder or under any other Loan Document by any available judicial procedure or without judicial process; (b) to sell, assign or otherwise dispose of any Collateral or any part thereof, either at public or private sale [or at any broker's board, in lot or in bulk], for cash, on credit or otherwise, with or without representations or warranties and upon such terms as shall be commercially reasonable; (c) to collect by legal proceedings or otherwise all dividends, distributions, interest, principal or other sums now or hereafter payable upon or on account of the Collateral; (d) to enter into any extension, reorganization, disposition, merger or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith the Agent may deposit or surrender -9- control of the Collateral and/or accept other property in exchange for the Collateral as the Agent reasonably deems appropriate and is commercially reasonable; (e) to settle, compromise or release, on terms acceptable to the Agent, in whole or in part, any amounts owing on the Collateral and/or any disputes with respect thereto; (f) to enforce payment and prosecute any action or proceeding with respect to any or all of the Collateral and take or bring, in the name of the Secured Party or in the name of any Pledgor, any and all steps, actions, suits or proceedings deemed necessary or reasonably desirable by the Agent to effect collection of or to realize upon the Collateral, including any judicial or nonjudicial foreclosure thereof or thereon, and each Pledgor specifically consents to any nonjudicial foreclosure of any or all of the Collateral or any other action taken by the Lenders which may release any obligor from personal liability on any of the Collateral, and each Pledgor waives (such waiver not to affect the Agent's agreement to give notice of sale in certain circumstances pursuant to Section 14(d)), to the extent permitted by applicable law, any right to receive notice of any public or private judicial or nonjudicial sale or foreclosure of any security or any of the Collateral, and any money or other property received by the Agent in exchange for or on account of the Collateral, whether representing collections or proceeds of Collateral, and whether resulting from voluntary payments or foreclosure proceedings or other legal action taken by the Agent or any Pledgor, may be applied by the Agent, without notice to any Pledgor, to the Obligations in such order and manner as the Agent in its sole discretion shall determine; (g) to insure, protect and preserve the Collateral; (h) to exercise all rights, remedies, powers or privileges provided under any of the Loan Documents; and (i) to remove, from any premises where the same may be located, the Collateral and any and all documents, instruments, files and records, and any receptacles and cabinets containing the same, relating to the Collateral, and the Agent may, at the cost and expense of the Pledgors, use such of its supplies, equipment, facilities and space at its places of business as may be necessary or appropriate to properly administer, process, store, control, prepare for sale or disposition and/or sell or dispose of the Collateral or to properly administer and control the handling of collections and realizations thereon, and the Agent shall be deemed to have a rent-free tenancy of any premises of the Pledgors for such purposes and for such periods of time as reasonably required by the Agent. Nothing herein contained shall be construed to give the Agent or the Lenders or any purchaser of the Collateral the right to operate any of the Stations or the Entravision Stations without the prior consent of the FCC, to the extent required by law or the terms of any Media License or Entravision Media License. (b) Possession by Agent. Upon the occurrence and during the continuance ------------------- of an Event of Default, the Agent also shall have the right, without notice or demand (other than any notice required by Section 7 of the Loan Agreement), either in person, by agent or by a receiver to be appointed by a court in accordance with the provisions of applicable law (and each Pledgor hereby expressly consents, to the fullest extent permitted by applicable law, upon the occurrence and during the continuance of an Event of Default to the appointment of such a receiver), and, to the extent permitted by applicable law, without regard to the adequacy of any security for the Obligations, to take possession of the Collateral or any part thereof and to collect and receive the rents, issues, profits, income and proceeds thereof. The taking possession of the Collateral by the Agent shall not cure or waive any Event of Default or notice thereof or invalidate any act done pursuant to such notice. The rights, remedies and powers of any receiver appointed by a court shall be as ordered by said court. -10- (c) Sale of Collateral. Any public or private sale or other disposition ------------------ of the Collateral may be held at any office of the Agent, or at any Pledgor's place of business, if any, or at any other place permitted by applicable law, and without the necessity of the Collateral's being within the view of prospective purchasers. The Agent may direct the order and manner of sale of the Collateral, or portions thereof, as it in its sole and absolute discretion may determine provided such sale is commercially reasonable, and each Pledgor expressly waives, to the extent permitted by applicable law, any right to direct the order and manner of sale of any Collateral. The Agent or any Person acting on the Agent's behalf may bid and purchase at any such sale or other disposition. (d) Notice of Sale. Unless the Collateral is perishable or threatens to -------------- decline speedily in value or is of a type customarily sold on a recognized market, the Agent will give the Pledgor that has pledged such Collateral reasonable notice of the time and place of any public sale thereof or of the time on or after which any private sale thereof is to be made. The requirement of reasonable notice conclusively shall be met if such notice is mailed, certified mail, postage prepaid, to such Pledgor at its address set forth on the signature page hereto or delivered or otherwise sent to such Pledgor, at least five (5) Business Days before the date of the sale. Each Pledgor expressly waives, to the fullest extent permitted by applicable law, any right to receive notice of any public or private sale of any Collateral or other security for the Obligations except as expressly provided for in this paragraph. The Agent shall not be obligated to make any sale of the Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Collateral may have been given. The Agent may, without notice or publication, except as required by applicable law, adjourn the sale from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice (except as required by applicable law), be made at the time and place to which the same was so adjourned. (e) Private Sales. Whether or not any Collateral has been effectively ------------- registered under the Securities Act of 1933, as amended, or other applicable laws, the Agent may, in its sole and absolute discretion, sell all or any part of such Collateral at private sale in such manner and under such circumstances as the Agent may deem necessary or advisable in order that the sale may be lawfully conducted in a commercially reasonable manner. Without limiting the foregoing, the Agent may (i) approach and negotiate with a limited number of potential purchasers, and (ii) restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing such Collateral for their own account for investment and not with a view to the distribution or resale thereof. In the event that any such Collateral is sold at private sale, each Pledgor agrees to the extent permitted by applicable law that if such Collateral is sold for a price which is commercially reasonable, then (A) such Pledgor shall not be entitled to a credit against the Obligations in an amount in excess of the purchase price, and (B) the Lenders shall not incur any liability or responsibility to such Pledgor in connection therewith, notwithstanding the possibility that a substantially higher price might have been realized at a public sale. Each Pledgor recognizes that a ready market may not exist for such Collateral if it is not regularly traded on a recognized securities exchange, and that a sale by the Agent of any such Collateral for an amount less than a pro rata share of the fair market value of any Pledged Entity's assets minus liabilities may be commercially reasonable in view of the difficulties that may be encountered in attempting to sell a large amount of such Collateral or Collateral that is privately traded. -11- (f) Title of Purchasers. Upon consummation of any sale of Collateral ------------------- hereunder, the Agent on behalf of the Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the Collateral so sold absolutely free from any claim or right upon the part of the Pledgor that has pledged such Collateral or any other Person claiming through such Pledgor, and each Pledgor hereby waives (to the extent permitted by applicable laws) all rights of redemption, stay and appraisal that it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Collateral is made on credit or for future delivery, the Agent shall not be required to apply any portion of the sale price to the Obligations until such amount actually is received by the Agent, and any Collateral so sold may be retained by the Agent until the sale price is paid in full by the purchaser or purchasers thereof. The Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Collateral so sold, and, in case of any such failure, the Collateral may be sold again. (g) Disposition of Proceeds of Sale. The proceeds resulting from the ------------------------------- collection, liquidation, sale or other disposition of the Collateral shall be applied, first, to the reasonable costs and expenses (including reasonable ----- attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting and liquidating the Collateral, and the like; second, ------ to the satisfaction of all Obligations; and third, any surplus remaining after ----- the satisfaction of all Obligations, provided no Commitment exists, to be paid over to the Pledgor that has pledged such Collateral or to whomsoever may be lawfully entitled to receive such surplus. (h) Certain Waivers. To the extent permitted by applicable law, each --------------- Pledgor waives all claims, damages and demands against the Agent and the Lenders arising out of the repossession, retention or sale of the Collateral, or any part or parts thereof, except to the extent any such claims, damages and awards arise out of the gross negligence or willful misconduct of the Agent or the Lenders. (i) Remedies Cumulative. The rights and remedies provided under this ------------------- Agreement are cumulative and may be exercised singly or concurrently, and are not exclusive of any other rights and remedies provided by law or equity. (j) Compliance with Communications Act. ---------------------------------- (i) Notwithstanding any other provision of this Agreement, any foreclosure on, sale, transfer or other disposition of, or the exercise of any right to vote or consent with respect to, any of the Collateral as provided herein or any other action taken or proposed to be taken by the Agent hereunder that would affect the operational, voting or other control of any entity holding a Media License or an Entravision Media License shall be made in accordance with the Communications Act and the terms of each Media License or Entravision Media License, including, to the extent applicable under the Communications Act in effect at the time of a Default, any requirement that there be a public or private sale. -12- (ii) Notwithstanding anything to the contrary contained in this Agreement, or in the Loan Agreement or the other Loan Documents or in any other related instrument, the Agent shall not, without first obtaining any consent or approval of the FCC, take any action pursuant to this Agreement that would constitute or result in any change of control of a Subsidiary holding a Media License or an Entravision Media License if any such change in control would require, under then existing law, the prior approval of the FCC. (iii) If an Event of Default shall have occurred and be continuing, each Pledgor shall take any action which the Agent may reasonably request in the exercise of its rights and remedies under this Agreement in order to transfer and assign to the Agent or to one or more third parties as the Agent may designate, or to a combination of the foregoing, the Collateral for the purposes of a public or private sale. To enforce the provisions of this Section 14, the Agent is empowered to request, and each Pledgor agrees to authorize, the appointment of a receiver or trustee from any court of competent jurisdiction. Such receiver or trustee shall be instructed to seek from the FCC (and any other Governmental Authority, if required) any necessary prior consent to an involuntary transfer of control or assignment of any Media License or Entravision Media License or of any entity whose limited liability company interests are subject to this Agreement, for the purpose of seeking a bona fide purchaser to whom such Media License or Entravision Media License or control of such entity ultimately will be transferred or assigned in connection with a public or private sale. Each Pledgor hereby agrees to authorize (including such Pledgor's execution of any necessary or appropriate applications or other instruments) such an involuntary transfer of control or assignment upon the reasonable request of the receiver or trustee so appointed; and, if any Pledgor's approval is required by the court and such Pledgor shall refuse to authorize such transfer or assignment, then, to the extent permitted by the Communications Act in effect at such time and provided that such Pledgor has been given 5 Business Days' prior written notice telecopied to its telecopier number set forth on the signature pages hereof and such Pledgor has not responded by executing any such applications or other instruments, the clerk of the court may execute in the place of such Pledgor any application or other instrument necessary or appropriate for the obtaining of such consent. Upon the occurrence and during the continuance of an Event of Default, each Pledgor shall further use its best efforts to assist in obtaining the approval of the FCC (and that required by any other Governmental Authority) for any action or transaction contemplated by this Agreement, including without limitation, the preparation, execution and filing with the FCC of the assignor's or transferor's portion of any application or applications for consent to the assignment of any Media License or Entravision Media License or transfer of control of any entity holding or controlling any Media License or Entravision Media License as may be necessary or appropriate under the Communications Act for approval of the transfer or assignment of any portion of the Collateral or any Media License or Entravision Media License. Each Pledgor further agrees that, because of the unique nature of its undertaking in this Section 14, the same may be specifically enforced, and it hereby waives, and agrees to waive, any claim or defense that the Agent or the Lenders would have an adequate remedy at law for the breach of this undertaking and any requirement for the posting of bond or other security. This Section 14 shall not be deemed to limit any other rights of the Agent and the Lenders available under applicable law and consistent with the Communications Act. -13- (k) Notice. The Agent shall use reasonable efforts to give the relevant ------ Pledgor prior written notice of the exercise of any remedy provided for herein, provided that the failure to give such notice after reasonable efforts shall not - -------- subject the Agent or any Lender to liability and shall not affect the validity or exercise of any remedy hereunder. 15. Agent Appointed Attorney-in-Fact. To the full extent permitted by -------------------------------- applicable law, including the Communications Act, and subject to Section 14(j) hereof, each Pledgor hereby irrevocably appoints the Agent as such Pledgor's attorney-in-fact, effective upon and during the continuance of an Event of Default, with full authority in the place and stead of such Pledgor, and in the name of such Pledgor, or otherwise, from time to time, in the Agent's sole and absolute discretion to do any of the following acts or things: (a) to do all acts and things and to execute all documents necessary or advisable to perfect and continue perfected the security interests created by this Agreement and to preserve, maintain and protect the Collateral; (b) to do any and every act which such Pledgor is obligated to do under this Agreement; (c) to prepare, sign, file and record, in such Pledgor's name, any financing statement covering the Collateral; (d) to endorse and transfer the Collateral upon foreclosure by the Agent; and (e) to file any claims or take any action or institute any proceedings which the Agent may reasonably deem necessary or desirable for the protection or enforcement of any of the rights of the Lenders with respect to any of the Collateral; provided, however, that the Agent shall be under no -------- ------- obligation whatsoever to take any of the foregoing actions, and neither the Agent nor the Lenders shall have any liability or responsibility for any act or omission (other than the Agent's or the Lenders' own gross negligence or willful misconduct) taken with respect thereto. Each Pledgor hereby agrees to repay within 10 Business Days after demand all reasonable out-of-pocket costs and expenses (including attorneys' fees) incurred or expended by the Agent in exercising any right or taking any action under this Agreement. 16. Costs and Expenses. Each Pledgor agrees to pay to the Agent all ------------------ reasonable costs and out-of-pocket expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by the Agent in the enforcement or attempted enforcement of this Agreement, whether or not an action is filed in connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All reasonable advances, charges, costs and expenses, including reasonable attorneys' fees and disbursements, incurred or paid by the Agent in exercising any right, privilege, power or remedy conferred by this Agreement (including, without limitation, the right to perform any Obligation of any Pledgor), or in the enforcement or attempted enforcement thereof, shall be secured hereby and shall become a part of the Obligations and shall be due and payable to the Agent by each Pledgor on demand therefor. Notwithstanding the terms of this Section 16, no Pledgor shall be liable for any expenses or fees covered by this Section 16 unless such Pledgor has, through such Pledgor's own actions, prevented or attempted to prevent enforcement of the rights and remedies of the Agent and the Lenders under this Agreement. 17. Transfers and Other Liens. Each Pledgor agrees that, except as ------------------------- specifically permitted under the Loan Agreement or any other Loan Document, it will not (a) sell, assign, exchange, transfer or otherwise dispose of, or contract to sell, assign, exchange, transfer or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (b) create or permit to exist any Lien upon or with respect to any of the Collateral, except for Liens in favor of the Agent for the benefit of the Lenders. -14- 18. Understandings With Respect to Waivers and Consents. Each Pledgor --------------------------------------------------- warrants and agrees that each of the waivers and consents set forth herein are made with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which such Pledgor otherwise may have against the Secured Party or others, or against any Collateral. If any of the waivers or consents herein are determined to be unenforceable under applicable law, such waivers and consents shall be effective to the maximum extent permitted by law. 19. Amendments, Etc. No amendment or waiver of any provision of this --------------- Agreement nor consent to any departure by any Pledgor herefrom (other than supplements to the Schedules hereto in accordance with the terms of this Agreement) shall in any event be effective unless the same shall be in writing and made in accordance with Section 9.1 of the Loan Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 20. Notices. All notices and other communications provided for hereunder ------- shall be given in the manner set forth in Section 9.2 of the Loan Agreement, and if to the Agent, to the address set forth for it in Section 9.2 of the Loan Agreement and if to any Pledgor, to the address set forth for it on the signature pages hereof. 21. Continuing Security Interest: Transfer of Notes; Termination. (a) ------------------------------------------------------------ This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until indefeasible payment in full in cash of the Obligations and the termination or expiration of the Commitments, (ii) be binding upon each Pledgor, its successors and assigns and (iii) inure, together with the rights and remedies of the Lenders hereunder, to the benefit of the Agent, any successor Agent and the Lenders, subject to the terms and conditions of the Loan Agreement. Subject to the terms of the Loan Agreement, any Lender may assign or otherwise transfer the Guarantee, any Loans, its Commitment or any rights in the Collateral held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Agent or Lender herein or otherwise. Nothing set forth herein or in any other Loan Document is intended or shall be construed to give to any other party any right, remedy or claim under, to or in respect of this Agreement or any other Loan Document or any Collateral. Each Pledgor's successors and assigns shall include, without limitation, a receiver, trustee or debtor-in-possession thereof or therefor, provided that, none of the rights or -------- ---- obligations of any Pledgor hereunder may be assigned or otherwise transferred without the prior written consent of the Lenders. 22. Release of Pledgors. This Agreement and all obligations of the ------------------- Pledgors hereunder and all security interests granted hereby shall be released and terminated when the following has occurred, as applicable, (i) all Obligations have been indefeasibly paid in full in cash and when all Commitments have expired or have otherwise been terminated or (ii) if the Lenders shall give their prior written consent to the transfer of the Pledged Limited Liability Company Interests, upon the effectiveness of such consent. Upon such release and termination of all Obligations and such expiration or termination of all Commitments and the security interest hereunder, all rights in and to the Collateral pledged or assigned by each Pledgor hereunder shall automatically revert to such Pledgor, and the Agent and the Lenders shall return any pledged Collateral in their possession to such Pledgor, or to the Person or Persons legally -15- entitled thereto, and shall endorse, execute, deliver, record and file all instruments and documents, and do all other acts and things, reasonably required for the return of the Collateral to such Pledgor, or to the Person or Persons legally entitled thereto, and to evidence or document the release of the interests of the Secured Party arising under this Agreement, all as reasonably requested by, and at the sole expense of, such Pledgor. 23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES). 24. Form of Pledged Limited Liability Interests/Covenant Not to Dilute. ------------------------------------------------------------------ Each Pledgor represents, warrants and covenants to the Secured Party that all of the Pledged Limited Liability Company Interests are in the form (certificated or uncertificated) indicated on Schedule A attached hereto (as contemplated by ---------- Article 8 of the Uniform Commercial Code), and covenants to the Lenders that it will (i) not at any time cause or permit any Pledged Entities to issue any additional membership interests or any other rights or options to acquire any additional limited liability company interests, other than to a Pledgor or as otherwise permitted under the Loan Agreement, and (ii) pledge to the Agent in accordance with the terms hereof, immediately upon and to the extent of such Pledgor's acquisition (directly or indirectly) thereof, any and all additional Limited Liability Company Interests of each Pledged Entity. 25. Alternative Dispute Resolution. ------------------------------ (a) Claims Subject To Judicial Reference; Selection Of Referee. All ---------------------------------------------------------- Claims, including any and all questions of law or fact relating thereto, shall, at the written request of any Party, be determined by Reference. The Parties shall select a single neutral referee, who shall be a retired state or federal judge with at least five years of judicial experience in civil matters. In the event that the Parties cannot agree upon a referee, the referee shall be appointed by the court. The Parties shall equally bear the fees and expenses of the referee unless the referee otherwise provides in the statement of decision. (b) Waiver Of Jury Trial. In connection with a Reference or any other -------------------- action or proceeding, whether brought in state or federal court, the Parties hereby expressly, intentionally and deliberately waive any right they may otherwise have to trial by jury of any Claim. (c) Conduct Of Reference. Except as provided in this Section 25, the -------------------- Reference shall be conducted pursuant to Applicable State Law. The referee shall determine all issues relating to the applicability, interpretation, legality and enforceability of this Section 25. (d) Provisional Remedies, Self-Help And Foreclosure. No provision of this ----------------------------------------------- Section 25 shall limit the right of any party to (i) exercise self-help remedies including set-off, (ii) foreclose against or sell any Collateral, by power of sale or otherwise or (iii) obtain or oppose provisional or ancillary remedies from a court of competent jurisdiction before, after or during the pendency of the Reference. The exercise of, or opposition to, any such remedy does not waive the right of any Party to Reference pursuant to this Section 25. -16- (e) Limitation On Damages. In the event that punitive damages are --------------------- permitted under Applicable State Law, the amount thereof shall not exceed a sum equal to three times the amount of actual damages as determined by the referee. (f) Severability. In the event that any provision of this Section 25 is ------------ to be illegal or unenforceable, the remainder of this Section 25 shall remain in full force and effect. (g) Miscellaneous. In the event that multiple Claims are asserted, some ------------- of which are found not subject to this Section 25, the Parties agree to stay the proceedings of the Claims not subject to this Section 25 until all other Claims are resolved in accordance with this Section. In the event that Claims are asserted against multiple parties, some of whom are not subject to this Section, the Parties agree to sever the Claims subject to this Section 25 and resolve them in accordance with this Section 25. In the event of any challenge to the legality or enforceability of this Section 25, the prevailing Party shall be entitled to recover the costs and expenses, including reasonable attorneys' fees, incurred by it in connection therewith. Applicable State Law shall govern the interpretation of this Section 25. (h) Defined Terms. As used in this Section 25, the following terms shall ------------- have the respective meanings set forth below: "Applicable State Law": the law of the State of California; provided, -------------------- however, that if any Party seeks to (i) exercise self-help remedies, including set-off, (ii) foreclose against or sell any Collateral, by power of sale or otherwise or (iii) obtain or oppose provisional or ancillary remedies from a court of competent jurisdiction before, after or during the pendency of the Reference, the law of the state where such Collateral is located shall govern the exercise of or opposition to such rights and remedies. "Claim": any claim, cause of action, action, dispute or controversy ----- between or among the Parties, whether sounding in contract, tort or otherwise, which arises out of or relates to: (i) this Agreement; (ii) any negotiations or communications relating to this Agreement, whether or not incorporated into this Agreement or any indebtedness evidenced thereby; or (iii) any alleged agreements, promises, representations or transactions in connection therewith. "Party": any Pledgor, any Lender or the Agent. ----- "Reference": a judicial reference conducted pursuant to this Section 25 in --------- accordance with Applicable State Law, as in effect at the time the referee is selected pursuant to Section 25. 26. Counterparts. This Agreement may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 27. Recourse. Notwithstanding any provision of this Agreement to the -------- contrary, the obligations and liabilities of each Pledgor hereunder shall be limited to the Collateral and, if an Event of Default and/or a default by any Pledgor hereunder or under the Guarantee shall occur and be continuing, the Agent's and the Lenders' sole recourse against such Pledgor shall be to the Collateral. -17- IN WITNESS WHEREOF, each Pledgor has executed this Agreement as of the date first written above. PLEDGOR ------- /s/ Walter F. Ulloa ------------------------------------ WALTER F. ULLOA Residence: Los Angeles County, California Address for Notices: 657 Amalfi Drive Pacific Palisades, CA 90272 Telecopier: 310-454-4983 S-1 /s/ Philip C. Wilkinson ------------------------------------------- PHILIP C. WILKINSON By Walter F. Ulloa, his attorney-in-fact Residence: San Diego County, California Address for Notices: P.O. Box 2630 Rancho Santa Fe, CA 92067 Telecopier: 619-756-9438 S-2 Schedule A Pledged Collateral Schedule B UCC Filing Offices Schedule C Form of Limited Liability Company Notice The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. C-1 EX-10.18 11 0011.txt FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.18 INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement (the "Agreement") is made and entered into as of ________________, 2000 by and between Entravision Communications Corporation, a Delaware corporation (the "Company"), and _______________________ (the "Indemnitee"). WHEREAS, the Indemnitee is an officer or director of the Company and performs a valuable services for the Company. WHEREAS, the First Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Company provides for the indemnification of the officers or directors of the Company to the maximum extent authorized by the Delaware General Corporation Law, as amended (the "Law"). WHEREAS, the Certificate of Incorporation and the Law, by their nonexclusive nature, permit contracts between the Company and the officers or directors of the Company with respect to indemnification of such officers or directors. WHEREAS, in accordance with the authorization as provided by the Law, the Company may purchase and maintain a policy or policies of directors' and officers' liability insurance, covering certain liabilities which may be incurred by its officers or directors in the performance of their obligations to the Company. WHEREAS, in order to induce the Indemnitee to continue to serve as an officer or director of the Company, the Company has determined and agreed to enter into this contract with the Indemnitee. NOW, THEREFORE, in consideration of the Indemnitee's service as an officer or director after the date hereof, the parties hereto agree as follows: 1. Indemnity of the Indemnitee. The Company hereby agrees to hold --------------------------- harmless and indemnify the Indemnitee to the full extent authorized or permitted by the provisions of the Law, as such may be amended from time to time, and Article 11 of the Certificate of Incorporation, as such may be amended. In furtherance of the foregoing indemnification, and without limiting the generality thereof: (a) Other Than Proceedings by or in the Right of the Proceedings ------------------------------------------------------------ Company. The Indemnitee shall be entitled to the rights of indemnification - ------- provided in this Section l(a) if, by reason of his or her Corporate Status (as defined below), he or she is, or is threatened to be made, a party to or participant in any Proceeding (as defined below) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a), the Indemnitee shall be indemnified against all Expenses (as defined below), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his or her conduct was unlawful. (b) Proceedings by or in the Right of the Company. The Indemnitee --------------------------------------------- shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his or her Corporate Status, he or she is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b), the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with such Proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which the Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Chancery Court of Delaware shall determine that such indemnification may be made. (c) Indemnification for Expenses of a Party Who Is Wholly or Partly --------------------------------------------------------------- Successful. Notwithstanding any other provision of this Agreement, to the - ---------- extent that the Indemnitee is, by reason of his or her Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he or she shall be indemnified to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him or her or on his of her behalf in connection therewith. If the Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 2. Additional Indemnity. In addition to, and without regard to any -------------------- limitations on, the indemnification provided for in Section 1 above, the Company shall and hereby does indemnify and hold harmless the Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf if, by reason of his or her Corporate Status, he or she is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of the Indemnitee. The only limitation that shall exist upon the Company's obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to the Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 below) to be unlawful under Delaware law. -2- 3. Contribution in the Event of Joint Liability. -------------------------------------------- (a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring the Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against the Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against the Indemnitee. (b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, the Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary, ad the degree to which their conduct is active or passive. (c) The Company hereby agrees to fully indemnify and hold the Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company other than the Indemnitee who may be jointly liable with the Indemnitee. -3- 4. Indemnification for Expenses of a Witness. Notwithstanding any other ----------------------------------------- provision of this Agreement, to the extent that the Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which the Indemnitee is not a party, he or she shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. 5. Advancement of Expenses. Notwithstanding any other provision of this ----------------------- Agreement, the Company shall advance all Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding by reason of the Indemnitee's Corporate Status within ten (10) days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by the Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of the Indemnitee to repay any Expenses advanced if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 5 shall be subject to the condition that, if, when and to the extent that the Company determines that the Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by the Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if the Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that the Indemnitee should be indemnified under applicable law, any determination made by the Company that the Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and the Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). 6. Procedures and Presumptions for Determination of Entitlement to --------------------------------------------------------------- Indemnification. It is the intent of this Agreement to secure for the - --------------- Indemnitee rights of indemnity that are as favorable as may be permitted under the law and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether the Indemnitee is entitled to indemnification under this Agreement: (a) To obtain indemnification (including, without limitation, the advancement of Expenses and contribution by the Company) under this Agreement, the Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that the Indemnitee has requested indemnification. -4- (b) Upon written request by the Indemnitee for indemnification pursuant to the first sentence of Section 6(a) above, a determination, if required by applicable law, with respect to the Indemnitee's entitlement thereto shall be made in the specific case by one of the following three methods, which shall be at the election of the Indemnitee: (i) by a majority vote of the disinterested directors, even though less than a quorum, (ii) by independent legal counsel in a written opinion or (iii) by the stockholders. (c) If the determination of entitlement to indemnification is to be made by Independent Counsel (as defined below) pursuant to Section 6(b) above, the Independent Counsel shall be selected as provided in this Section 6(c). The Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors). The Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to the Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 13 below, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by the Indemnitee of a written request for indemnification pursuant to Section 6(a) above, no Independent Counsel shall have been selected and not objected to, either the Company or the Indemnitee may petition the Chancery Court of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or the Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) above. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) above, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed. (d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that the Indemnitee is entitled to indemnification under this Agreement if the Indemnitee has submitted a request for indemnification in accordance with Section 6(a) above. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. (e) The Indemnitee shall be deemed to have acted in good faith if the Indemnitee's action is based on the records or books of account of the Enterprise (as defined -5- below), including financial statements, or on information supplied to the Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to the Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that the Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. (f) If the person, persons or entity empowered or selected under this Section 6 to determine whether the Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact necessary to make the Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such thirty (30) day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(g) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) above and if (i) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors or the Disinterested Directors (as defined below), if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (ii) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat. (g) The Indemnitee shall cooperate with the person, persons or entity making such determination with respect to the Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors, or stockholder of the Company shall act reasonably and in good faith in making a determination under the Agreement of the Indemnitee's -6- entitlement to indemnification. Any costs or expenses (including attorney's fees and disbursements) incurred by the Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to the Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold the Indemnitee harmless therefrom. (h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which the Indemnitee is a party is resolved in any manner other than by adverse judgment against the Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that the Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. 7. Remedies of the Indemnitee. -------------------------- (a) In the event that (i) a determination is made pursuant to Section 6 above that the Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 above, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 6(b) above within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that the Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 above, the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his or her entitlement to such indemnification. The Indemnitee shall commence such proceeding seeking an adjudication within one hundred eighty (180) days following the date on which the Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a). The Company shall not oppose the Indemnitee's right to seek any such adjudication. (b) In the event that a determination shall have been made pursuant to Section 6(b) above that the Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, on the merits and the Indemnitee shall not be prejudiced by reason of that adverse determination under Section 6(b) above. (c) If a determination shall have been made pursuant to Section 6(b) above that the Indemnitee is entitled to indemnification, the Company shall be bound by such -7- determination in any judicial proceeding commenced pursuant to this Section 7, absent a prohibition of such indemnification under applicable law. (d) In the event that the Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his or her rights under, or to recover damages for breach of, this Agreement, or to recover under any directors' and officers' liability insurance policies maintained by the Company the Company shall pay on his or her behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 below) actually and reasonably incurred by him or her in such judicial adjudication, regardless of whether the Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery. (e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. 8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. ----------------------------------------------------------- (a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws of the Company, any agreement, a vote of stockholders or a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of the Indemnitee under this Agreement in respect of any action taken or omitted by such the Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that the Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, the Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. -8- (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 9. Exception to Right of Indemnification. Notwithstanding any other ------------------------------------- provision of this Agreement, the Indemnitee shall not be entitled to indemnification under this Agreement with respect to any Proceeding brought by the Indemnitee, or any claim therein, unless (i) the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors of the Company or (ii) such Proceeding is being brought by the Indemnitee to assert, interpret or enforce his or her rights under this Agreement. 10. Duration of Agreement. All agreements and obligations of the Company --------------------- contained herein shall continue during the period the Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as the Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 above) by reason of his or her Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether the Indemnitee continues to serve as an officer or director of the Company or any other Enterprise at the Company's request. 11. Security. To the extent requested by the Indemnitee and approved by -------- the Board of Directors of the Company, the Company may at any time and from time to time provide security to the Indemnitee for the Company's obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee, which shall not be unreasonably withheld. 12. Enforcement. ----------- -9- (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce the Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that the Indemnitee is relying upon this Agreement in serving as an officer or director of the Company. (b) The Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. 13. Definitions. For purposes of this Agreement: ----------- (a) "Corporate Status" shall describe the status of a person who is or was a director, officer, employee or agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the express written request of the Company. (b) "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee. (c) "Enterprise" shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of which the Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary. (d) "Expenses" shall include all reasonable attorney's fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating or being or preparing to be a witness in a Proceeding. (e) "Independent Counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or the Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, -10- claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (f) "Proceeding" shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which the Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that the Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his or her part while acting as an officer or director of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he or she is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement; and excluding one initiated by an the Indemnitee pursuant to Section 7 above to enforce his or her rights under this Agreement. 14. Severability. If any provision or provisions of this Agreement shall ------------ be held by a court of competent jurisdiction to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. 15. Modification and Waiver. No supplement, modification, termination or ----------------------- amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 16. Notice by the Indemnitee. The Indemnitee agrees promptly to notify ------------------------ the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company. -11- 17. Notices. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third (3rd) business day after the date on which it is so mailed to the addresses for the Company and the Indemnitee set forth on the signature page hereto, or to such other address as may have been furnished to the Indemnitee by the Company or to the Company by the Indemnitee, as the case may be. 18. Counterparts; Facsimile. This Agreement may be executed in one or ----------------------- more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. To the maximum extent permitted by applicable law, this Agreement may be executed by facsimile. 19. Headings. The headings of the paragraphs of this Agreement are -------- inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 20. Governing Law. The parties agree that this Agreement shall be ------------- governed by, and construed and enforced in accordance with, the laws of the State of Delaware without application of the conflict of laws principles thereof. 21. Gender. Use of the masculine pronoun shall be deemed to include usage ------ of the feminine pronoun where appropriate. [Remainder of Page Intentionally Left Blank] -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. Company ENTRAVISION COMMUNICATIONS CORPORATION By:____________________________________________________ Name:__________________________________________________ Title:_________________________________________________ Address: 2425 Olympic Boulevard, Suite 6000 West Santa Monica California 94101 Indemnitee _______________________________________________________ ___________________________ Address:_______________________________________________ _______________________________________________ [Signature Page to Indemnification Agreement] EX-10.19 12 0012.txt CONVERTIBLE SUBORDINATED PURCHASE AGRMNT EXHIBIT 10.19 CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT This Convertible Subordinated Note Purchase Agreement is made as of the 20/th/ day of April, 2000 (this "Agreement"), by and among Entravision Communications Company, L.L.C., a Delaware limited liability company (the "Company"), Entravision Communications Corporation, a Delaware corporation (the "Corporation") (with the Company and the Corporation jointly referred to herein as "Entravision"), and the investor listed on Schedule "A" hereto, herein ------------ referred to as an "Investor," with reference to the following facts: WHEREAS, the Investor wishes to purchase Ninety Million Dollars ($90,000,000) in the principal amount of a Convertible Subordinated Note (the "Note") from the Company. WHEREAS, the Company operates a diverse Hispanic-oriented media business. WHEREAS, it is contemplated that the Corporation will become the successor in interest to the Company in accordance with the terms of that certain Exchange Agreement by and among Entravision Communications Company, L.L.C., its members and Univision Communications Inc., a copy of which is attached hereto as Exhibit ------- "A", in an exchange transaction (the "Roll-Up"). - --- WHEREAS, the Company is party to that certain Acquisition Agreement and Plan of Merger dated December 21, 1999, (the "LCG Acquisition Agreement") pursuant to which it is contemplated that the Company will acquire Latin Communications Group, Inc. (the "LCG Acquisition"). WHEREAS, Entravision, ZSPN Acquisition Corporation, Z-Spanish Media Corporation and its stockholders have entered into that certain Acquisition Agreement and Plan of Merger (the "Z-Spanish Agreement") effective April 20, 2000, pursuant to which it is contemplated that the Corporation will acquire Z- Spanish Media Corporation (the "Z-Spanish Merger") concurrently with the Roll- Up. WHEREAS, the Corporation plans to consummate an underwritten initial public offering of its Class A Common Stock (the "IPO"). WHEREAS, the Note is mandatorily exchangeable into Series A Convertible Preferred Stock of the Corporation (the "Series A Preferred Stock") concurrently with the closing of the Roll-Up. WHEREAS, the Corporation has provided to the Investor, and the Investor has thoroughly reviewed, the Corporation's draft registration statement on Form S-1 as prepared on April 18, 2000 to be filed with the Securities and Exchange Commission (the "Registration Statement"). WHEREAS, the Company and the Corporation wish to sell the Note to the Investor on the terms set forth herein and enter into the Investor Rights Agreement substantially in the form attached hereto as Exhibit "B" and ----------- incorporated herein by this reference (the "Investor Rights Agreement"). The parties hereby agree as follows: 1. Purchase and Sale of Convertible Promissory Note. ------------------------------------------------ 1.1. Sale and Issuance of Convertible Promissory Note. Subject to ------------------------------------------------ the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing and the Company agrees to sell and issue to the Investor a Note in substantially the form attached hereto as Exhibit "C" in the principal amount ----------- specified with respect to the Investor on Schedule "A" to this Agreement. The ------------ purchase price of the Note shall be equal to 100% of the principal amount of such Note. 1.2. Closing. The purchase and sale of the Note shall take place at ------- the offices of Proskauer Rose LLP 1585 Broadway, New York, New York 10036 at 1:00 p.m. (local time) on the day before the closing of the LCG Acquisition (assuming that all conditions to closing have been satisfied), or at such other time and place as the Company and the Investor mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing, the Company shall deliver to the Investor the Note to be purchased by the Investor against payment of the purchase price therefor by wire transfer in same day funds. 2. Representations and Warranties of Entravision. All representations --------------------------------------------- made by Entravision in this Section 2 shall be made jointly and severally by both the Company and the Corporation and references to Entravision shall apply to both the Company and the Corporation. Entravision hereby represents and warrants to the Investor that, except as set forth in the Registration Statement or as set forth on the Schedule of Exceptions attached hereto as Schedule "B" ------------ (the "Schedule of Exceptions"), which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1. Organization, Good Standing and Qualification. The Company is a --------------------------------------------- limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. Copies of the Company's Certificate of Formation and Operating Agreement (as amended) and Corporation's First Amended and Restated Certificate of Incorporation (the "Restated Certificate"), Bylaws, minutes and consents of stockholders and of the Board of Directors are available for inspection at the Company's -2- offices and true, correct and complete copies of such documents have been previously made available to the Investor or the Investor's special counsel. 2.2. Authority; No Conflict; Consents. -------------------------------- (a) This Agreement constitutes the legal, valid and binding obligation of the Company and the Corporation, enforceable against the Company and the Corporation in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and is subject to general principles of equity. Except for third party consents which have already been obtained, the Company and the Corporation have the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement, the Note, the Investor Rights Agreement and to perform their respective obligations thereunder. (b) Neither the execution and delivery of this Agreement by the Company or the Corporation nor the consummation or performance of any of the transactions contemplated by this Agreement by the Company or the Corporation will give any Person the right to prevent, delay or otherwise interfere with any of the transactions contemplated by this Agreement pursuant to: (i) any material provision of the respective organizational documents of the Company and the Corporation; (ii) any resolution adopted by the members, stockholders or the Board of Directors of the Company or the Corporation, as the case may be; (iii) any material legal requirement or material order to which the Company or the Corporation may be subject; or (iv) any material contract to which the Company or the Corporation is a party or by which the Company or the Corporation may be bound. (c) Except as set forth on Schedule 2.2(c), the Company and the --------------- Corporation are not and will not be required to give any notice to or obtain any third-party consents from any Person in connection with the execution and delivery of this Agreement, the Note or the Investor Rights Agreement or the consummation or performance of any of the transactions contemplated by this Agreement. 2.3. Broker's or Finder's Fees. Neither the Company, the ------------------------- Corporation, nor their agents have incurred any Liabilities for broker's or finder's fees or agents commissions or other similar payment in connection with this Agreement. 2.4. Capitalization. -------------- (a) The authorized capital stock of the Corporation as of the Roll-Up shall consist of (i) 305,000,000 shares of Class A Common Stock, $0.0001 par value per share, none of which are issued and outstanding, (ii) 60,000,000 shares of Class B Common Stock, $0.0001 par value per share, none of which are issued and outstanding, (iii) 50,000,000 shares of Class C Common Stock, $0.0001 par value per share, none of which are issued and outstanding and (iv) -3- 50,000,000 shares of Preferred Stock $0.0001 par value per share, none of which are issued and outstanding. (b) Schedule 2.4(b) sets forth a pro forma fully-diluted --------------- capitalization of the Corporation as of the closing of the Roll-Up. The fully- diluted capitalization of the Corporation as of the closing of the Roll-Up shall be as set forth on Schedule 2.4(b), subject only to any adjustment in the --------------- Exchange Number (as defined in the Exchange Agreement). (c) The outstanding units of membership interest in the Company (the "Units") consist of an aggregate of 2,019,879 Units, 1,555,037 of which are designated Class A Units, none of which are designated Class B Units, 286,206 of which are designated Class C Units, 168,323 of which are designated Class D Units, 10,313 of which are designated Class E Units and 10,313 of which are designated Class F Units. (d) Except as set forth on Schedule 2.4(d), (i) there are no --------------- other options, warrants, stock appreciation rights, subscriptions, convertible debentures or other rights, commitments or any other similar agreements for the purchase of any securities of Entravision, (ii) there are no material contracts relating to the issuance, sale, registration or transfer of any equity securities or other securities of Entravision and (iii) there are no voting trust agreements or other material contracts, agreements or arrangements restricting voting rights or transferability with respect to Entravision. 2.5. Entravision Subsidiaries. ------------------------ (a) Schedule 2.5 sets forth a list of all of the direct or ------------ indirect subsidiaries of Entravision (the "Entravision Subsidiaries"). Except as set forth on Schedule 2.5, Entravision owns, either directly or indirectly ------------ through one or more of the Entravision Subsidiaries, all of the capital stock or membership interests of each of the Entravision Subsidiaries free and clear of any material encumbrance. (b) The authorized capital stock and number of outstanding shares or membership interests of each of the Entravision Subsidiaries is set forth on Schedule 2.5 (the "Entravision Subsidiary Shares"). Entravision is and ------------ will be on the Closing Date the record and beneficial owner and holder of all of the Entravision Subsidiary Shares, which will be at Closing free and clear of all material encumbrances. No legend or other reference to any purported encumbrance appears upon any stock certificate representing the Entravision Subsidiary Shares. All of the Entravision Subsidiary Shares have been duly authorized and validly issued and are fully paid and nonassessable. None of the Entravision Subsidiary Shares were issued in violation of the Securities Act or any other material legal requirement. (c) Except as set forth on Schedule 2.5, (i) there are no ------------ options, warrants, stock appreciation rights, subscriptions, convertible debentures, registration rights agreements, or other rights, commitments or any other similar agreements for the purchase of any securities of any of the Entravision Subsidiaries, (ii) there are no material contracts relating to the issuance, -4- sale or transfer of any equity securities or other securities of any of the Entravision Subsidiaries and (iii) there are no voting trust agreements or other material contracts, agreements or arrangements restricting voting rights or transferability with respect to any of the Entravision Subsidiaries. 2.6. Entravision Financial Statements. Entravision has delivered to -------------------------------- the Investor true, complete and correct copies of the audited balance sheets of Entravision as of December 31, 1999, and the related statements of income and cash flows for the period then ended (including notes thereto), included in the Registration Statement as audited by McGladrey & Pullen, LLP, certified public accountants (the "Entravision Financial Statements"). Except as set forth on Schedule 2.6, the Entravision Financial Statements fairly present in all - ------------ material respects the consolidated financial condition of Entravision and the Entravision Subsidiaries and the assets and liabilities of Entravision and the Entravision Subsidiaries as of the respective dates thereof and the results of operations, changes in stockholders' equity and cash flows for the periods therein specified, and have been prepared from the books and records of Entravision and the Entravision Subsidiaries in accordance with generally accepted accounting principles, applied on a consistent basis ("GAAP"). The Entravision Financial Statements reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements, and except that the unaudited Entravision Financial Statements were prepared on an interim basis, are subject to normal year-end adjustments and do not contain all of the footnote disclosures required by GAAP. 2.7. No Undisclosed Liabilities. Except as set forth on -------------------------- Schedule 2.7, Entravision and the Entravision Subsidiaries do not have any - ------------ material liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate could reasonably be expected to have a material adverse effect on the assets, liabilities or properties of Entravision and the Entravision Subsidiaries collectively, excluding matters affecting the broadcasting or print industries generally and excluding general economic condition (an "Entravision Material Adverse Effect"), other than (i) liabilities reflected in the Entravision Financial Statements, (ii) liabilities specifically described in this Agreement or in the Entravision Schedules or (iii) normal or recurring liabilities incurred since the date of the Entravision Financial Statements in the ordinary course of business. 2.8. Taxes. ----- (a) Each of Entravision and the Entravision Subsidiaries have accurately prepared and timely filed (or will so file) all material tax returns required to be filed at or before the Closing relating to any and all taxes concerning or attributable to Entravision or any of the Entravision Subsidiaries or to their operations, and such tax returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law. Entravision has made available to the Investor true, complete and correct copies of all such tax returns filed by Entravision and the Entravision Subsidiaries in the past five (5) years. -5- (b) There is no tax sharing agreement that will require any payment by Entravision or any of the Entravision Subsidiaries after the date of this Agreement. (c) Each of Entravision and the Entravision Subsidiaries as of the Closing: (i) will have paid all material taxes it is required to pay prior to the Closing and (ii) will have withheld with respect to its employees all material federal and state income taxes, FICA, FUTA and other taxes required to be withheld, except in each case for taxes contested in good faith by appropriate proceedings for which adequate reserves have been taken and except where the failure (if any) to pay or withhold such taxes could not reasonably be expected to have an Entravision Material Adverse Effect. (d) There is no material tax deficiency outstanding, proposed or assessed against Entravision or any of the Entravision Subsidiaries that is not reflected as a liability on the most recently prepared balance sheet of Entravision nor has Entravision or any of the Entravision Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any tax. (e) Neither Entravision nor any of the Entravision Subsidiaries has any material liability for unpaid federal, state, local or foreign taxes that has not been accrued for or reserved on the Entravision Financial Statements, whether asserted or unasserted, contingent or otherwise. 2.9. Employee Benefit Plans. ---------------------- (a) Entravision has made available to the Investor or its special counsel all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar employee benefit plans, and all unexpired severance agreements, written or otherwise, for the benefit of, or relating to, any current or former employee of Entravision or any of the Entravision Subsidiaries or any trade or business (whether or not incorporated) which is a member or which is under common control with Entravision within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended ("IRC") (together, the "Entravision Employee Plans"). Entravision does not maintain and has never maintained or contributed to any employee benefit plan subject to Title IV of ERISA (including a multiemployer plan as defined in Section 3(37) of ERISA). (b) With respect to each Entravision Employee Plan, Entravision has made available to the Investor or its special counsel, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the IRS with respect to an Entravision Employee Plan subject to such filing requirement, (ii) such Entravision Employee Plan, (iii) each trust agreement and group annuity contract, if any, relating to such Entravision Employee Plan, and (iv) the most recent determination letter issued with respect to any plan which is intended to be qualified under Section 401(a) of the IRC. -6- (c) With respect to the Entravision Employee Plans, individually and in the aggregate, no event has occurred, and to the Knowledge of Entravision there exists no condition or set of circumstances, in connection with which Entravision or any of the Entravision Subsidiaries could be subject to any material liability under ERISA, the IRC or any other applicable law. (d) With respect to the Entravision Employee Plans, individually and in the aggregate, there are no material funded benefit obligations for which contributions have not been made or properly accrued and there are no material unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP, on the Entravision Financial Statements. (e) Except as set forth in Schedule 2.9, and except as provided for in ------------ this Agreement, neither Entravision nor any of the Entravision Subsidiaries is a party to any oral or written (i) union or collective bargaining agreement, (ii) material agreement with any officer or other key employee of Entravision or any of the Entravision Subsidiaries, the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Entravision of the nature contemplated by this Agreement or a Change in Control (as defined in the Note), (iii) agreement with any officer of Entravision or any of the Entravision Subsidiaries providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of One Hundred Thousand Dollar ($100,000.00) per annum, or (iv) material agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or a Change of Control [as defined in the Note] or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. 2.10. Compliance with Legal Requirements. Except as set forth on Schedule ---------------------------------- -------- 2.10: (i) Entravision and the Entravision Subsidiaries are in compliance in all - ---- material respects with each material legal requirement that is or was applicable to them; (ii) to the knowledge of Entravision, no event has occurred or circumstance exists that (with or without notice or lapse of time) constitutes or results in a material violation by Entravision of, or a material failure on the part of Entravision or the Entravision Subsidiaries to comply with, any material legal requirement or gives rise to any obligation on the part of Entravision or the Entravision Subsidiaries to undertake, or to bear all or any material portion of the cost of, any remedial action of any material nature; and (iii) neither Entravision nor any of the Entravision Subsidiaries has received any written notice or other written communication from any governmental body or any other person regarding any actual or alleged material violation of, or material failure to comply with, any material legal requirement, any actual, alleged, possible or potential material obligation on the part of Entravision or any of the Entravision Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature. -7- 2.11. Legal Proceedings. There is no action, suit or proceeding, claim, ----------------- arbitration or, to the knowledge of Entravision, investigation against Entravision or any of the Entravision Subsidiaries pending or, to the knowledge of Entravision, threatened, or as to which Entravision or any of the Entravision Subsidiaries has received any written notice of assertion, which, if decided adversely to Entravision or such Subsidiary, could reasonably be expected to have an Entravision Material Adverse Effect or a material adverse effect on the ability of Entravision to consummate the transactions contemplated by this Agreement. 2.12. Applicable Contracts; No Defaults. --------------------------------- (a) Entravision has made available to the Investor or its special counsel, true, complete and correct copies of each contract under which Entravision or the Entravision Subsidiaries has any material rights or have become subject to any material obligation or liability or by which Entravision, the Entravision Subsidiaries or any of the material assets owned or used by them are bound (an "Applicable Contract"). Each Applicable Contract is in full force and effect and is valid and enforceable in all material respects in accordance with its terms. (b) Except as set forth on Schedule 2.12: (i) Entravision or the ------------- Entravision Subsidiaries, as the case may be, are, and at all times during the last twelve (12) months have been, in material compliance with the applicable terms and requirements of each Applicable Contract; (ii) to the knowledge of Entravision, no event has occurred or circumstance exists that (with or without notice or lapse of time) would be reasonably likely to contravene, conflict with or result in a material violation or material breach of, or give Entravision or the Entravision Subsidiaries, as the case may be, or other Person the right to declare a default or exercise any materially adverse remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Applicable Contract; and (iii) Entravision and the Entravision Subsidiaries, as the case may be, have not given to or received from any other Person any written notice or other written communication regarding any actual, alleged, possible or potential material violation or material breach of, or material default under, any Applicable Contract, which has not been cured, waived or otherwise resolved in full. 2.13. Compliance with Environmental Laws. Except as set forth on ---------------------------------- Schedule 2.13, (i) all of the operations Entravision and the Entravision - ------------- Subsidiaries are and have been in compliance with all environmental laws as currently in effect, (ii) neither Entravision, the Entravision Subsidiaries nor any of their predecessors used, released or disposed of any hazardous substance in any manner that could reasonably be expected to result in material liability, (iii) none of the property owned, leased or operated by Entravision or the Entravision Subsidiaries is contaminated by any hazardous substance, and (iv) none of the property owned, leased or operated by Entravision or the Entravision Subsidiaries is affected by any condition that could reasonably be expected to result in liability under any environmental law as currently in effect. 2.14. Intellectual Property. --------------------- -8- (a) The term "Entravision Intellectual Property Assets" includes the following proprietary items of Entravision and the Entravision Subsidiaries: (i) the name and FCC call letters listed on Schedule 2.14, all fictional business ------------- names, trading names, domain names or URLs, registered and unregistered trademarks, service marks and applications; (ii) all patents, patent applications and inventions and discoveries that may be patentable; (iii) all copyrights in both published works and unpublished works; (iv) all rights in mask works; (v) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings and blue prints owned, used or licensed by Entravision or the Entravision Subsidiaries as licensee or licensor. (b) There are no outstanding and, to the knowledge of Entravision, no Threatened material disputes or disagreements with respect to the Entravision Intellectual Property Assets or any Applicable Contract related to the Entravision Intellectual Property Assets. The Entravision Intellectual Property Assets are all those necessary for the operation of the businesses of the Entravision media properties as they are currently conducted in all material respects. Entravision and the Entravision Subsidiaries are the owners of all right, title and interest in and to each of the Entravision Intellectual Property Assets, free and clear of all material encumbrances, and have the right to use without payment to a third-party all of the Entravision Intellectual Property Assets. 2.15. Relationships With Related Persons. Except as set forth in Schedule ---------------------------------- -------- 2.15, no "affiliate" (as such term is defined in the rules promulgated under the - ---- Securities Exchange Act of 1934, as amended (the "Exchange Act")) of a Person (a "Related Person") of Entravision or the Entravision Subsidiaries has had any interest in any property (whether real, personal or mixed and whether tangible or intangible), used in or pertaining to the businesses of the Entravision media properties. No Related Person of Entravision or the Entravision Subsidiaries has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Entravision media properties other than business dealings or transactions conducted in the ordinary course of business with the Entravision media properties at substantially prevailing market prices and on substantially prevailing market terms or (ii) engaged in competition with the businesses of the Entravision media properties (a "Competing Business") in any market presently served by the Entravision media properties except for less than five percent (5%) of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Except as set forth on Schedule 2.15, no Related Person of Entravision or the Entravision ------------- Subsidiaries is a party to any Applicable Contract with, or has any claim or right against, the Entravision media properties. 2.16. Disclosure. None of the representations or warranties made by ---------- Entravision (as modified by the Schedules), nor any statement made in the Registration Statement or any other schedule or certificate furnished by Entravision pursuant to this Agreement, (to the extent such documents were prepared by or include information provided by Entravision), contains or will contain at the Closing, any material untrue statement or omits, or will omit at the Closing to state -9- any material fact necessary in order to make the statements contained therein not materially misleading. 2.17. Valid Issuance of Note. The Note that is being purchased by the ---------------------- Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Note, the Investor Rights Agreement and applicable state and federal securities laws. The units of membership interest issuable upon conversion of the Note purchased under this Agreement have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Operating Agreement of the Company, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Operating Agreement and under applicable state and federal securities laws. The Series A Preferred Stock that may be issued to the Investor upon exchange of the Note, when issued and delivered in accordance with the terms thereof, will be duly and validly issued, fully paid and nonassessable, and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investor Rights Agreement and applicable state and federal securities laws. The Class A Common Stock issuable upon conversion of the Series A Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investor Rights Agreement and under applicable state and federal securities laws. 2.18. Registration Rights. Except as provided in the Investor Rights ------------------- Agreement or the Registration Rights Agreement to be entered into in connection with the Z-Spanish Agreement, the Corporation has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.19. Ownership Condition and Sufficiency of Assets. The material assets --------------------------------------------- of Entravision are structurally sound, are of reasonable good operating condition and repair and are reasonably adequate for the uses to which they are being put, and none of such assets is in need of maintenance or repairs, except for ordinary routine maintenance and repairs that are not material in nature or cost. The assets of Entravision taken as a whole are sufficient for the continued conduct of its media business in substantially the same manner as conducted prior to the Closing. 3. Representations and Warranties of the Investor. The Investor hereby ---------------------------------------------- represents and warrants that: 3.1. Authorization. The Investor has full power and authority to ------------- enter into this Agreement and the Investor Rights Agreement and each such Agreement constitutes its valid and legally binding obligation, enforceable in accordance with their respective terms, except (a) as -10- limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (c) to the extent the indemnification provisions contained in the Investor Rights Agreement may be limited by applicable federal or state securities laws. 3.2. Purchase Entirely for Own Account. This Agreement is made with --------------------------------- the Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Note, the Series A Preferred Stock to be received by the Investor upon exchange of the Note, the Class A Units issuable upon conversion of the Note, and the Common Stock issuable upon conversion of the Series A Preferred Stock (collectively, the "Securities") will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3. Disclosure of Information. The Investor believes it has ------------------------- received all the information it considers necessary or appropriate for deciding whether to purchase the Note. The Investor further represents that it has reviewed the Registration Statement and had an opportunity to ask questions and receive answers from Entravision regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of Entravision. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon. 3.4. Investment Experience. The Investor is an investor in --------------------- securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Note. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Securities. 3.5. Investor Suitability. The Investor represents that it qualifies -------------------- as an "accredited investor" as such term is defined in Rule 501(a) or Regulation D under the Securities Act. To be an accredited investor, the Investor understands that it must fall within one of the following categories at the time of the sale of Securities to the Investor: (a) any bank as defined in Section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; any broker or dealer -11- registered pursuant to Section 13 of the Exchange Act; any insurance company as defined in Section 2(13) of the Securities Act; any broker or dealer registered pursuant to Section 15 of the Exchange Act: any investment company registered under the Investment Company Act of 1940 or any business development company as defined in Section 2(a)(48) of the Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefits of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self- directed plan, with investment decisions made solely by persons that are accredited investors; (b) any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; (c) any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Note, with total assets in excess of $5,000,000; (d) any Executive Committee member or executive officer of the Company; (e) any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; (f) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year; (g) any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; or (h) any entity in which all the equity owners are accredited investors as defined above. 3.6. Restricted Securities. The Investor understands that the Note --------------------- it is purchasing is characterized as "restricted securities" under the federal securities laws inasmuch as it is being acquired from the Company in a transaction not involving a public offering and that -12- under such laws and applicable regulations such securities may be resold without registration under the Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.7. Further Limitations on Disposition. Without in any way limiting ---------------------------------- the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Note unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the Investor Rights Agreement provided and to the extent this Section and such agreement are then applicable, and: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) The Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a reasonably detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, the Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such Registration Statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to an Affiliate, a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, or by an Investor that is a trust to any affiliate or successor trust or trustee if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8. Legends. It is understood that the certificates evidencing the ------- Note may bear legends in substantially the following forms: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT." -13- (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 4. Conditions of Investor's Obligations at Closing. The obligations of ----------------------------------------------- the Investor under subsection 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against the Investor unless consented to in writing: 4.1. Representations and Warranties. The representations and ------------------------------ warranties of Entravision contained in Section 2 shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2. Performance. The Company shall have performed and complied with ----------- all agreements, obligations and conditions contained in this Agreement in all material respects that are required to be performed or complied with by it on or before the Closing. 4.3. Compliance Certificate. The Chief Financial Officer of the ---------------------- Company shall deliver to the Investor at the Closing a certificate stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that, except as set forth in the Registration Statement, there shall not have been any material adverse change in the assets, liabilities or properties of the Company since January 1, 2000. 4.4. Qualifications. All authorizations, approvals, or permits, if -------------- any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Note pursuant to this Agreement shall be duly obtained and effective as of the Closing. 4.5. Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor or to the Investor's special counsel, as the case may be, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 4.6. Opinion of Company Counsel. The Investor shall have received -------------------------- from Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P., counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as Exhibit "D." - ----------- 4.7. Investor Rights Agreement. The Company and the Investor shall ------------------------- have entered into the Investor Rights Agreement. 4.8. Consents and Waivers. The Company shall have obtained on or -------------------- before Closing any and all consents, permits and waivers necessary for consummation of the -14- transactions contemplated by this Agreement, including, without limitation, consent of the Company's senior lender and Univision Communications, Inc. 4.9. LCG Acquisition. The LCG Acquisition Agreement shall be in full --------------- force and effect and Entravision shall be proceeding diligently to close the LCG Acquisition within forty-eight (48) hours of the Closing. 4.10. Z-Spanish Merger Agreement. The Z-Spanish Merger Agreement -------------------------- shall have been executed and shall be in full force and effect. 4.11. Management Rights Letter. Entravision will execute and ------------------------ deliver a Management Rights Letter substantially in the form of Exhibit "E" ----------- attached hereto to TSG Capital Fund III, L.P. 5. Conditions of the Company's Obligations at Closing. The obligations -------------------------------------------------- of the Company to the Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor: 5.1. Representations and Warranties. The representations and ------------------------------ warranties of the Investor contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2. Payment of Purchase Price. The Investor shall have delivered ------------------------- the purchase price as specified in Section 1.2. 5.3. Qualifications. All authorizations, approvals, or permits, if -------------- any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6. Certificate of Designation. Prior to the automatic exchange of the -------------------------- Note for Series A Preferred Stock as provided for in Section 8 of the Note, the Company shall file the Certificate of Designation of Series A Preferred Stock in the form attached hereto as Exhibit "F." ---------- 7. Miscellaneous. ------------- 7.1. Termination by the Investor. If the Company does not timely --------------------------- satisfy the conditions to closing set forth in Section 4.9 and 4.10 above, the Investor may terminate its commitment to purchase the Note by delivery of written notice to Company. 7.2. Survival of Warranties. The warranties, representations and ---------------------- covenants of Entravision and the Investor contained in or made pursuant to this Agreement shall survive the -15- execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company. 7.3. Successors and Assigns. Except as otherwise provided herein, ---------------------- the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.4. Governing Law; Submission to Jurisdiction; Venue. This ------------------------------------------------ Agreement shall be governed by, and construed in accordance with, the law of the State of New York. All judicial proceedings brought against Entravision or the Investor with respect to this Agreement shall be brought exclusively in any state or federal court of competent jurisdiction in New York County, New York, and by execution and delivery of this Agreement Entravision accepts, the exclusive jurisdiction of the aforesaid courts for such purpose. Entravision hereby waives any claim that New York County, New York is an inconvenient forum or an improper forum based on lack of venue. The exclusive choice of forum for Entravision as set forth in this Section 7.4 will not be deemed to preclude the enforcement by the Investor of any judgment obtained in any other forum or the taking by the Investor of any action to enforce the same in any other appropriate jurisdiction. 7.5. Counterparts; Facsimile. This Agreement may be executed in one ----------------------- or more counterparts, all of which when fully executed and delivered by all parties hereto and taken together shall constitute a single agreement, binding against each of the parties. To the maximum extent permitted by law or by any applicable governmental authority, this Agreement may be signed and transmitted by facsimile with the same validity as if it were an ink-signed document. Each signatory below represents and warrants by his or her signature that he or she is duly authorized (on behalf of the respective entity for which such signatory has acted) to execute and deliver this instrument and any other document related to this transaction, thereby fully binding each such respective entity. 7.6. Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.7. Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon delivery by facsimile or by overnight courier or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. -16- 7.8. Finder's Fee. Each party represents that it neither is nor will ------------ be obligated for any finder's fee or commission in connection with this transaction. The Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.9. Expenses. Each party shall pay all costs and expenses that it -------- incurs with respect to the negotiation, execution, delivery and performance of this Agreement. Notwithstanding the foregoing, (a) if the Company does not satisfy the conditions of closing contained in Section 4.9 and 4.10 above, and the Investor terminates its commitment pursuant to Section 7.1 above, the Company shall reimburse the Investor for documented costs reasonably incurred up to a maximum of Fifty Thousand Dollars ($50,000); and (b) if the transactions contemplated hereby are completed, the Company will pay the reasonable fees and disbursements of one special counsel for the Investor, in connection with the preparation, negotiation, execution and delivery of this Agreement, the Note and the other Transaction Agreements and any amendment, waiver or consent, or request therefor, under this Agreement, the Note or any Transaction Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Investor Rights Agreement, or the Restated Certificate, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 7.10. Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the principal amount of the Note. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 7.11. Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. -17- 7.12. Entire Agreement. This Agreement and the documents referred to ---------------- herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. [Remainder of Page Intentionally Left Blank] -18- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Company ENTRAVISION COMMUNICATIONS COMPANY, L.L.C., a Delaware limited liability company By: /s/ Walter F. Ulloa -------------------------------------------------------- Walter F. Ulloa, Chairman, Chief Executive Officer and Managing Member By: /s/ Jeanette L. Tully -------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer Corporation ENTRAVISION COMMUNICATIONS CORPORATION, a Delaware corporation By: /s/ Walter F. Ulloa -------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully -------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer Investor TSG CAPITAL FUND III, L.P. By: TSG Associates III, LLC, its General Partner By: /s/ Darryl B. Thompson --------------------------------------------------- Name: ------------------------------------------------- Title: ------------------------------------------------ [Signature Page to Convertible Subordinated Note Purchase Agreement] Schedule A Investor Schedule B Schedule of Exceptions Schedule 2.2(c) Required Third Party Consents Schedule 2.4(b) Pro Forma Fully-Diluted Capitalization Table Schedule 2.4(d) Options, Convertible Debentures, Contracts for Sale of Securities and Voting Trusts Schedule 2.5 Corporate Structure and Capitalization Schedule 2.6 Financial Statements Schedule 2.7 Potential Liabilities Schedule 2.9 Employee Benefit Plans Schedule 2.10 Compliance with Legal Requirements Schedule 2.12 Material Contracts Schedule 2.13 Environmental Law Compliance Schedule 2.14 Intellectual Property Schedule 2.15 Relationships with Related Persons Exhibit A Exchange Agreement Exhibit B Investor Rights Agreement Exhibit C Convertible Promissory Note Exhibit D Opinion of Counsel Exhibit E Management Rights Letter Exhibit F Form of Certificate of Designation The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. INVESTOR -------- TSG Capital Fund III, L.P. Attention: Darryl B. Thompson 177 Broad Street, 12/th/ Floor Stamford, Connecticut 06901 Facsimile: (203) 541-1590 SCHEDULE "B" SCHEDULE OF EXCEPTIONS ---------------------- EXHIBIT "A" EXCHANGE AGREEMENT ------------------ EXHIBIT "B" INVESTOR RIGHTS AGREEMENT ------------------------- EXHIBIT "C" CONVERTIBLE PROMISSORY NOTE --------------------------- EXHIBIT "D" OPINION OF COUNSEL ------------------ EXHIBIT "E" MANAGEMENT RIGHTS LETTER ------------------------ EXHIBIT "F" FORM OF CERTIFICATE OF DESIGNATION ---------------------------------- EX-10.20 13 0013.txt CONVERTIBLE PROMISSORY NOTE EXHIBIT 10.20 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. ENTRAVISION COMMUNICATIONS COMPANY, L.L.C. SUBORDINATED CONVERTIBLE PROMISSORY NOTE $90,000,000 April 20, 2000 New York, New York FOR VALUE RECEIVED, Entravision Communications Company, L.L.C., a Delaware limited liability company (the "Company"), promises to pay to TSG Capital Fund III, L.P., a Delaware limited partnership (the "Holder"), or its registered assigns, the principal sum of Ninety Million Dollars ($90,000,000), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this subordinated convertible promissory note ("Note") on the unpaid principal balance calculated in accordance with Section 2 hereof. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder from the date of this Note as set forth above (the "Effective Date"), shall be due and payable on the earlier of (i) the fourth (4/th/) anniversary of the Effective Date, or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by the Holder or become automatically due and payable in accordance with Section 4 hereof. This Note is issued pursuant to the Note Purchase Agreement (as defined below). All payments of principal and interest hereunder shall be made by wire transfer to the account set forth on Schedule "A" or another bank account designated in writing by Holder. 1. Definitions. As used in this Note, the following capitalized terms ----------- have the following meanings: (a) "Company" includes the limited liability company initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note. (b) "Certificate" shall mean the First Amended and Restated Certificate of Incorporation of the Corporation as amended and/or restated and effective immediately prior to the exchange of this Note. (c) "Change of Control" means the occurrence of any event whereby a person or group of persons acting in concert (other than current owners) shall (i) become (whether by merger, consolidation, or transfer, redemption or issuance of capital stock, limited liability company interests, other Equity Securities or otherwise) the beneficial owners (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities constituting more than fifty percent (50%) of the combined voting power of or the economic equity interest in the then-outstanding Equity Securities of the Company (or any surviving or resulting Person) or (ii) acquire assets constituting all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. (d) "Class A Units" shall mean the Class A Units evidencing a membership interest in the Company in accordance with the terms of the Certificate of Formation and operating agreement of the Company, as amended from time to time. (e) "Corporation" shall mean Entravision Communications Corporation, a Delaware corporation. (f) "Equity Securities" of any Person shall mean (a) all common stock, preferred stock, participations, shares, membership or partnership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing. (g) "Event of Default" has the meaning given in Section 5 hereof. (h) "Holder" shall mean the person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note. (i) "Indebtedness" means all amounts owing with respect to indebtedness for borrowed money (but excluding the deferred purchase price of property or assets and accounts receivable or similar items arising in the ordinary course of business). (j) "IPO" means a public offering of common stock of the Corporation, pursuant to a registration statement that is declared effective under the Securities Act that results in net proceeds to the Corporation of not less than Fifty Million Dollars ($50,000,000). (k) "Make-Whole Premium" shall be an additional amount of interest payable by the Company to the Holder solely in the event of a default pursuant to Section 5(c) below in an amount equal to the difference between (i) interest otherwise paid pursuant to the terms of this Note and (ii) an amount equal to a thirty percent (30%) return, compounded annually, on the principal amount of this Note for the period between the Effective Date and the date all amounts due under this Note are paid. (l) "Note Purchase Agreement" shall mean the Note Purchase Agreement dated April 20, 2000 between the Company and the Holder (as amended, modified or supplemented from time to time). -2- (m) "Obligations" shall mean and include all loans, advances, debts, liabilities and financial obligations, howsoever arising, owed by the Company to the Holder, now existing or hereafter arising under or pursuant to the terms of this Note, including, without limitation, all interest, fees, charges, expenses, and attorneys' fees and costs. (n) "Operating Agreement" shall mean the Operating Agreement of the Company, as amended from time to time. (o) "Person" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority. (p) "Roll-Up" means the closing of that certain exchange transaction contemplated by the Exchange Agreement dated April 20, 2000, by and among the Company, its members and Univision Communications, Inc. (q) "Securities Act" shall mean the Securities Act of 1933, as amended. (r) "Senior Indebtedness" shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note, the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other amounts due in connection with, (i) secured or unsecured indebtedness or financial obligation of the Company or its Subsidiaries, to banks, commercial finance lenders, insurance companies, leasing or equipment financing institutions or other lending or financial institutions regularly engaged in the business of lending money or for reimbursement obligations, or letters of credit (excluding debt that is convertible or exercisable into equity through venture capital, investment banking or similar institutions which sometimes engage in lending activities but which are primarily engaged in investments in equity securities), and (ii) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or (iii) any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. (s) "Subsidiary" shall mean (a) any corporation of which more than fifty percent (50%) of the issued and outstanding Equity Securities having ordinary voting power to elect a majority of the Board of Directors of such corporation is at the time directly or indirectly owned or controlled by the Company, (b) any partnership, limited liability company, joint venture, or other association of which more than fifty percent (50%) of the Equity Securities having the power to vote, direct or control the management of such partnership, limited liability company, joint venture or other association is at the time directly or indirectly owned and controlled by the Company, (c) any other entity included in the financial statements of the Company on a consolidated basis. -3- (t) "Transaction Documents" shall mean this Note and the Note Purchase Agreement, and any other documents that may be exchanged between the Company and the Holder in connection with the issuance of the Note. 2. Interest. The interest rate to be applied to the unpaid principal -------- balance of this Note shall be eight and one-half percent (8.5%) per annum and all accrued interest shall be payable annually in cash on each anniversary of the Effective Date and on each date on which a payment of principal is due hereunder. In the event this Note is converted into Class A Units of the Company or automatically exchanged into Series A Preferred Stock of the Corporation in accordance with Section 8, all interest accrued under this Note shall be payable at the option of the Company (or the Corporation) either in cash or in additional Class A Units or Series A Preferred Stock, valued as set forth in Section 8 below and shall be paid at the time of conversion or exchange. In the event of an occurrence of an Event of Default pursuant to Section 5(c) below, the Company shall be obligated to pay the Holder additional interest in an amount equal to the Make-Whole Premium. 3. Prepayment. Upon twenty (20) days prior written notice to the Holder ---------- and on a date which is at least twelve (12) months after the Effective Date of this Note, the Company may prepay this Note in whole or in part, unless the Holder elects to convert the Note in accordance with Section 8(a) of this Note. No prepayment of this Note may be made at any time prior to the date twelve (12) months after the Effective Date. 4. Certain Covenants. While any amount is outstanding under the Note, ----------------- without the prior written consent of the Holder: (a) Dividends, Redemptions, Etc. Neither the Company nor the Corporation nor any of their Subsidiaries shall (i) pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities, other than the repurchase of shares of common stock under option agreements or restricted stock purchase agreements with employees, directors or consultants pursuant to arrangements approved by the Executive Committee of the Company or the Board of Directors of the Corporation, as the case may be, and in no event shall such arrangements include the purchase or acquisition of Equity Securities of the Company or the Corporation held by Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik or any affiliates or transferees thereof without the prior written consent of the Holder, which consent shall not be unreasonably withheld; (iii) return any capital to any holder of its Equity Securities; (iv) make any distribution of assets to any holder of its Equity Securities; or (v) set apart any sum for any such purpose; provided, however, that any Subsidiary may pay cash dividends to the Company. (b) Incur Indebtedness. The Company or any Subsidiaries shall not incur any Indebtedness which violates the terms of that certain Amended and Restated Credit Agreement dated November 10, 1998, as amended from time to time, between the Company and Union -4- Bank of California, N.A. or any successor agreement with the lead lender upon refinancing of such debt. (c) Liquidation. The Company shall not liquidate, dissolve or wind-up its affairs. (d) Amend Organizational Documents. The Company shall not amend its Certificate of Formation or Operating Agreement and the Corporation will not amend its Certificate of Incorporation or Bylaws in a fashion which will adversely affect the rights of the Holder of this Note or the holders of the Series A Preferred Stock issuable upon conversion or exchange of this Note. (e) Amend the Exchange Agreement. The Company shall not consent to the amendment of the Exchange Agreement (or the First Restated Certificate of Incorporation or First Amended and Restated Bylaws of the Corporation attached as exhibits to the Exchange Agreement) in a fashion which will adversely affect the rights of the Holder of this Note or the holders of the Series A Preferred Stock issuable upon conversion or exchange of this Note. 5. Events of Default. The occurrence of any of the following shall ----------------- constitute an "Event of Default" under this Note and the other Transaction Documents. Promptly upon the occurrence thereof, the Company shall provide the Holder with written notice of the occurrence of any Event of Default hereunder or any event of default with respect to any Senior Indebtedness. (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on the due date hereunder or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document on the date due and such failure continues for five (5) days; or (b) Voluntary Bankruptcy or Insolvency Proceedings. The Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, (vii) becomes subject to an involuntary bankruptcy case or other proceedings seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect which is not dismissed within ninety (90) days after the commencement thereof, or (viii) take any action for the purpose of effecting any of the foregoing; or -5- (c) Closing of Roll-Up. The Company shall fail to close the Roll-Up by the Interim Closing Deadline, as defined in that certain Acquisition Agreement and Plan of Merger by and among the Company, the Corporation, ZSPN Acquisition Corporation, Z-Spanish Media Corporation and its stockholders of even date herewith (the "Merger Agreement"). 6. Rights of the Holder Upon Default. Upon the occurrence or existence --------------------------------- of any Event of Default other than as described in Section 5(b) above, and at any time thereafter during the continuance of such Event of Default, the Holder may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding; provided that if an Event of Default under Section 5(b) shall occur no declaration or notice by the Holder shall be necessary and such Event of Default shall occur automatically. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 7. Subordination. The indebtedness evidenced by this Note is hereby ------------- expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all of Senior Indebtedness of the Company or its Subsidiaries. (a) Insolvency Proceedings. If there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of the Company, (i) no amount shall be paid by the Company in respect of the principal of, interest on or other amounts due with respect to this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of the Holder of this Note which shall assert any right to receive any payments in respect of the principal of and interest on all of the Senior Indebtedness then outstanding. (b) Default on Senior Indebtedness. If there shall occur an event of default which has been declared in writing with respect to any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof and the Holder shall have received written notice thereof from the holder of such Senior Indebtedness or the Company, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note. (c) Further Assurances. By acceptance of this Note, the Holder agrees to execute and deliver customary forms of subordination agreements requested from time to time by -6- the holders of Senior Indebtedness, and as a condition to the Holder's rights hereunder, the Company may require that Holder execute such forms of subordination agreements; provided that such forms shall not impose on the Holder terms less favorable than those provided herein. The Holder undertakes and agrees for the benefit of the holders of the Senior Indebtedness to execute, verify, deliver and file any proofs of claim that such holders may at any time require to prove and realize upon any rights or claims pertaining to the Note and to effectuate the full benefit of the subordination contained herein. Upon the failure of the Holder to do so, such holders of Senior Indebtedness shall be deemed to be irrevocably appointed as the agent and attorney-in-fact of the Holder to execute, verify, deliver and file any such proofs of claim. (d) No Impairment. Subject to the rights, if any, of the holders of Senior Indebtedness under this Section 7 to receive cash, securities or other properties otherwise payable or deliverable to the Holder, nothing contained in this Section 7 shall impair, as between the Company and the Holder, the obligation of the Company, subject to the terms and conditions hereof, to pay to the Holder the principal hereof and interest hereon as and when the same become due and payable, or shall prevent the Holder, upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law. The provisions of this Section 7 shall not apply to or in any manner restrict a conversion or exchange of the Notes under Section 8 hereof. (e) Reliance of the Holders of Senior Indebtedness. The Holder, by its acceptance hereof, shall be deemed to acknowledge and agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the Indebtedness evidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness. A right of the holders of the Senior Indebtedness to enforce subordination as herein provided shall not at any time or in any way be affected or impaired by any failure to act on the part of the Company with the holders of the Senior Indebtedness, or by any non-compliance by the Company or any of its Subsidiaries with any of the terms, provisions or covenants of the Transaction Documents, regardless of any knowledge thereof, the holders of the Senior Indebtedness may have or otherwise be charged with. 8. Conversion. ---------- (a) Voluntary Conversion. The Holder has the right, at the Holder's option at any time following December 31, 2000 (or at any time prior to December 31, 2000, solely in connection with the exercise of the Holder's co-sale rights pursuant to Section 2.4 of the Investor Rights Agreement), at any time prior to payment in full of this Note or exchange pursuant to Section 8(b) below to convert the Note at the office of the Company, into the number of Class A Units of the Company which is equal to the quotient obtained by dividing (i) the entire unpaid -7- principal amount of this Note by (ii) the Note Conversion Price. For purposes of this Section 8(a), the "Note Conversion Price" shall be $198.37. (b) Automatic Exchange. The entire unpaid principal amount of this Note shall be automatically exchanged into Series A Preferred Stock of the Corporation concurrently with the closing of the Roll-Up. The number of shares of Series A Preferred Stock into which this Note shall be exchanged in the event of an automatic exchange pursuant to this Section 8(b) shall be equal to the entire unpaid principal amount of this Note divided by an amount equal to the lower of (i) 115% of the Entravision Share Consideration (as defined in the Merger Agreement) or (ii) the greater of ninety three percent (93%) of the price per share of Class A Common Stock of the Corporation issued in the IPO, or the Entravision Share Price (as defined in the Merger Agreement). (c) Note Conversion Price Adjustments for Certain Dilutive Issuances, Splits and Combinations. The Note Conversion Price shall be subject to adjustment from time to time as follows: (i) (1) If the Company shall issue, after the Effective Date, any Additional Units (as defined below) without consideration or for a consideration per share less than the Note Conversion Price in effect immediately prior to the issuance of such Additional Units, the Note Conversion Price in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Note Conversion Price by a fraction, the numerator of which shall be the number of Units outstanding immediately prior to such issuance plus the number of Units that the aggregate consideration received by the Company for such issuance (including Units deemed to be issued pursuant to Sections 8(c)(i)(5)(a) or (b)) would purchase at such Note Conversion Price; and the denominator of which shall be the number of Units outstanding immediately prior to such issuance (including Units deemed to be issued pursuant to Sections 8(c)(i)(5)(a) or (b)) plus the number of such Additional Units. (2) No adjustment of the Note Conversion Price shall be made in an amount less than One Cent ($0.01), provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 8(c)(i)(5)(c) and (5)(d) below, no adjustment of such Note Conversion Price pursuant to this Section 8(c)(i) shall have the effect of increasing the Note Conversion Price above the Note Conversion Price in effect immediately prior to such adjustment. (3) In the case of the issuance of Units for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any -8- reasonable discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (4) In the case of the issuance of the Units for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Executive Committee of the Company in good faith irrespective of any accounting treatment. (5) In the case of the issuance (whether before, on or after the Effective Date) of options to purchase or rights to subscribe for Units, securities by their terms convertible into or exchangeable for Units or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this Section 8(c)(i) and Section 8(c)(ii) below: (a) The aggregate maximum number of Units deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Units shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 8(c)(i)(3) and 8(c)(i)(4) above), if any, received by the Company upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights for the Units covered thereby. (b) The aggregate maximum number of Units deliverable upon conversion of or in exchange (to the extent then convertible or exchangeable) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 8(c)(i)(3) and 8(c)(i)(4) above). (c) In the event of any change in the number of Units deliverable or in the consideration payable to the corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, without limitation, a change resulting from the antidilution provisions thereof, the Note Conversion Price, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Units or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. -9- (d) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Note Conversion Price, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of Units (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (e) The number of Units deemed issued and the consideration deemed paid therefor pursuant to Sections 8(c)(i)(5)(a) and (b) above shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 8(c)(i)(5)(c) or (d) above. (ii) "Additional Units" shall mean any Units issued (or deemed to have been issued pursuant to Section 8(c)(i)(5) above) by the Company after the Effective Date other than: (1) Units issued pursuant to a transaction described in Section 8(c)(iii) below; (2) Units issued upon conversion of the Note; (3) Units issued to banks, lenders and equipment lessors in connection with debt financings or equipment leases; (4) Units issued for consideration other than cash in connection with mergers, consolidations, acquisitions of assets and other acquisitions or strategic transactions with non-affiliated third parties as approved by the Executive Committee of the Company; (5) Units issued to members, Executive Committee members, officers, employees and consultants pursuant to an equity incentive plan or arranged approval by the Company's Executive Committee up to a maximum of fifteen percent (15%) of the equity of the Company on a fully-diluted basis; or (6) Units issued by way of dividend or other distribution on Units for which an adjustment is made under Section 8(c)(iii) below. (iii) In the event the Company should at any time or from time to time after the Effective Date fix a record date for the effectuation of a split or subdivision of the outstanding Units or the determination of the holders of Units entitled to receive a dividend or other distribution payable in additional Units or other securities or rights convertible into, or -10- entitling the holder thereof to receive directly or indirectly, additional Units (hereinafter referred to as "Unit Equivalents") without payment of any consideration by such holder for the additional Units or the Unit Equivalents (including the additional Units issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Note Conversion Price shall be appropriately decreased so that the number of Units issuable on conversion of the Note shall be increased in proportion to such increase of the aggregate number of Units outstanding and those issuable with respect to such Unit Equivalents with the number of Units issuable with respect to Unit Equivalents determined from time to time in the manner provided for deemed issuances in Section 8(c)(i)(5) above. (iv) If the number of Units outstanding at any time after the Effective Date is decreased by a combination of the outstanding Units, then, following the record date of such combination, the Note Conversion Price shall be appropriately increased so that the number of Units issuable on conversion of the Note shall be decreased in proportion to such decrease in outstanding Units. (d) Recapitalizations. If at any time or from time to time there shall be a recapitalization, reclassification of the Units, or a merger, transfer, consolidation or exchange in respect of the Units and does not constitute a Change in Control (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 8 or Section 9) provision shall be made so that the Holders of the Note shall thereafter be entitled to receive upon conversion of the Note the number of Units or other securities or property of the Company or otherwise, to which a Holder of Units deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 8 with respect to the rights of the Holders of the Note after the recapitalization to the end that the provisions of this Section 8 (including adjustment of the Note Conversion Price then in effect and the number of Units purchasable upon conversion of the Note) shall be applicable after that event as nearly equivalent as may be practicable. (e) Conversion Procedure. (i) Conversion Pursuant to Section 8(a). Before the Holder shall be entitled to convert this Note into Class A Units, it shall surrender this Note, duly endorsed, at the office of the Company and shall give written notice by registered or certified mail, postage prepaid, to the Company at its principal corporate office, of the election to convert the same pursuant to Section 8(a), and shall state therein the name or names in which the Class A Units are to be issued. The Company shall, as soon as practicable thereafter, issue the Class A Units to which the Holder shall be entitled upon conversion. The conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of this Note, and the Person or Persons entitled to receive the Class A Units upon such conversion shall be treated for all purposes as the record holder or the Holders of such Class A Units as of such date. -11- Upon such conversion, the Holder shall be deemed to be admitted as a member of the Company concurrently with such conversion, subject to the execution by the Holder of the Operating Agreement of the Company, as amended, evidencing such Holder's agreement to be bound by the terms, conditions and restrictions of such Operating Agreement, as amended. The Company will take all other actions and execute all other documents as reasonably necessary to admit the Holder as a member of the Company. (ii) Exchange Pursuant to Section 8(b). If this Note is automatically exchanged, the Company shall give at least five (5) days written notice which shall be delivered to the Holder at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Company is located, notifying the Holder of the exchange to be effected, the amount of Series A Preferred Stock to be issued upon exchange, the date on which such exchange is expected to occur and calling upon the Holder to surrender to the Company, in the manner and at the place designated, the Note. Upon receipt of such notice, the Holder shall surrender this Note on the date of the Exchange, duly endorsed, at the principal office of the Company. At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to the Holder at such principal office a certificate or certificates for the Series A Preferred Stock to which the Holder shall be entitled upon such exchange (bearing such legends as are required by the Note Purchase Agreement and applicable state and federal securities laws in the reasonable opinion of counsel to the Company), together with any other securities and property to which the Holder is entitled upon such exchange under the terms of this Note, including, without limitation, all accrued and unpaid interest. Any exchange of this Note pursuant to Section 8(b) shall be deemed to have been made immediately prior to the close of business on the date of surrender of the Note, and on and after such date the Persons entitled to receive the Series A Preferred Stock issuable upon such exchange shall be treated for all purposes as the record holder of such Series A Preferred Stock. (f) Fractional Shares; Effect of Conversion or Exchange. The Company may, but shall not be obligated to, issue any fractional Class A Units or shares of Series A Preferred Stock upon conversion or exchange of this Note. In the event that the Company elects not to issue fractional shares, the Company shall round the number of Units or shares to the nearest whole Unit or share, provided that if such rounding would result in the Holder receiving less than ninety nine point nine percent (99.9%) of the amount of such Common Stock to which he is entitled, pursuant to this Section 8, such fractional shall be rounded up to the next whole Unit or share. (g) No Impairment. The Company will not, by amendment of its Operating Agreement or Certificate of Formation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of Equity Securities or other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times, in good faith, assist in carrying out all of the provisions of this Section 8 and the undertaking of all action as may be necessary or -12- appropriate in order to protect the conversion or exchange rights of the Holder against impairment. 9. Change of Control. Upon the occurrence of a Change of Control, the ----------------- Holder shall have the right to require the Company to repurchase all or any part (equal to One Thousand Dollars ($1,000) or an integral multiple thereof) of the Note pursuant to the offer described below (the "Change of Control Offer") at an offer price equal to the greater of: (i) the aggregate principal amount of Note plus accrued and unpaid interest thereon or (ii) the amount the Holder would have received if the Holder had converted this Note into Class A Units of the Company pursuant to the provisions of Section 8(a) above immediately prior to such Change of Control. At least thirty (30) days prior to any Change of Control, the Company shall mail a notice (the "Change of Control Notice") to the Holder describing the transaction to constitute the Change of Control offering to repurchase the Note concurrently with the completion of the Change of Control (the "Payment Date"). The Holder shall provide written notice to the Company detailing the extent to which it accepts such repurchase offer within twenty- five days of the Change of Control Notice. Upon surrender of the Note, duly endorsed and delivered to the Company's principal office, the Company shall pay all amounts due the Holder pursuant to such repurchase offer on the Payment Date. 10. Successors and Assigns. Subject to the restrictions on transfer ---------------------- described in the Note Purchase Agreement, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 11. Assignment by the Company. Neither this Note nor any of the rights, ------------------------- interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Holder. 12. Waiver. The Company hereby waives presentment, demand, or protest and ------ any notice of any kind in connection with the delivery, acceptance, performance, default, acceleration, or collection of this Note. 13. Notices. Any notice, request or other communication required or ------- permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by recognized overnight courier or personal delivery at the respective addresses of the parties as set forth in the Note Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 14. No Intent of Usury. Nothing contained in this Note or in the ------------------ Agreement shall be deemed to require the payment by the Company or the retention by the Holder of interest in excess of the maximum legal rate (the "Maximum Legal Rate"). All agreements between the Holder and the Company pertaining to the obligation evidenced hereby (the "Loan") are -13- expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of the Loan or otherwise, shall the amount paid or agreed to be paid to the Holder for the use, forbearance, or detention of money to be loaned hereunder exceed the Maximum Legal Rate. If, under any circumstance whatsoever, the fulfillment of any provision of this Note or the Note Purchase Agreement shall involve transcending the limits of validity prescribed by law, then, ipso facto, the obligation to be fulfilled by the Company shall be reduced to the limit of such validity. This provision shall control every provision of all agreements between the Company and the Holder. In the event at any time the interest paid shall exceed the Maximum Legal Rate, the excess amount shall be deemed to be held in trust by the Holder for the exclusive use and benefit of the Company; provided, however, that such amounts held in trust may be applied to interest or other lawful consideration payable under the terms of this Note and the Note Purchase Agreement if such amounts can be so applied without violating applicable laws and without exceeding the Maximum Legal Rate. The Holder may commingle any such amounts with its own funds. If at the time the Note is paid, the total amount deemed to be interest under applicable laws exceeds the Maximum Legal Rate, the maximum liability of the Company shall be expressly limited to the legal maximum amounts, and in the event any excess sums have been paid or are payable such amounts shall be promptly repaid or credited to the Company. In the event the interest or other consideration payable by the Company hereunder is exempt from applicable usury statutes, or for any other reason is not limited by law, none of the provisions of this paragraph shall be construed so as to limit the interest or other consideration payable under the terms of this Note or the Agreement. 15. Payment. Payment shall be made in lawful tender of the United States. ------- 16. Expenses. If any action of law or in equity is necessary to enforce -------- or interpret the terms of this Note, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which said party may be entitled. 17. Governing Law; Submission to Jurisdiction; Venue. This Note shall be ------------------------------------------------ governed by, and construed in accordance with, the law of the State of New York. All judicial proceedings brought against the Company or any Holder with respect to this Note shall be brought exclusively in any state or federal court of competent jurisdiction in New York County, New York, and by execution and delivery of this Note the Company accepts, the exclusive jurisdiction of the aforesaid courts for such purpose. The Company hereby waives any claim that New York County, New York is an inconvenient forum or an improper forum based on lack of venue. The exclusive choice of forum for the Company as set forth in this Section 17 will not be deemed to preclude the enforcement by the Holder of any judgment obtained in any other forum or the taking by the Holder of any action to enforce the same in any other appropriate jurisdiction. [Remainder of Page Intentionally Left Blank] -14- IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. "Company" ENTRAVISION COMMUNICATIONS COMPANY, L.L.C., a Delaware limited liability company By: /s/ Walter F. Ulloa -------------------------------------------------- Walter F. Ulloa Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully -------------------------------------------------- Jeanette L. Tully, Chief Financial Officer [Signature Page to Subordinated Convertible Promissory Note] -15- LOGO OF QUADRAMED] FOR: QUADRAMED CORPORATION CONTACTS: Melissa Frediani/VP of Marketing (415) 482-2100 www.quadramed.com ----------------- NOT FOR IMMEDIATE RELEASE Megan Riske/Sterling Hager, Inc. (617) 926-6665, ext. 366 Mriske@sterlinghager.com QUADRAMED NAMES MARK N. THOMAS AS NEW CHIEF FINANCIAL OFFICER --Former Lifeguard, Inc. CFO to Lead Financial Operations at Healthcare Information Systems Company-- San Rafael, CA--June XX, 2000--QuadraMed Corporation (Nasdaq: QMDC)--a leading healthcare information systems company dedicated to linking hospitals to their constituents--today announced that Mark N. Thomas has been named the company's Chief Financial Officer. Thomas joins QuadraMed with more than 24 years of experience in financial operations, corporate and strategic planning in the healthcare, insurance, and manufacturing industries. He will report directly to QuadraMed President John Cracchiolo. "Thomas has a long history of successfully managing the financial operations of multi million dollar corporations," said Cracchiolo. "QuadraMed will look to him for his seasoned experience in strategic planning and developing financially-sound Internet initiatives as the company continues to expand the functionalities of our Web-enabled solutions and services." Most recently Thomas served as the CFO of Lifeguard, Inc., one of Northern California's leading independent health plans. Thomas oversaw the treasury, accounting, regulatory reporting, as well as the strategic planning and e-commerce initiatives of the $430 million company. During his tenure at Lifeguard, Thomas designed and implemented a profit center performance system, revised the company's investment policy and aligned its investment portfolio. Previously, Thomas held executive management roles for two insurance companies owned buy Xerox Corporation, serving as their controller, managing director and treasurer. Thomas also directed corporate planning and forecasting for Fireman's Fund Insurance Companies. A Graduate of Wharton Graduate School, Thomas has a double MBA in finance and strategic planning. He received Bachelor's degrees in economics and political science from Occidental College and a degree in executive education on corporate strategy from the University of Michigan. QuadraMed Names Mark N. Thomas As New Chief Financial Officer/Page 2 of 2 About QuadraMed Corporation QuadraMed Corporation uses technology to transform disparate healthcare data into valuable, enterprise-wide information. The Company's web-enabled software and service solutions allow healthcare institutions to generate operational efficiencies, improve cash flow and measure the cost and quality of care. QuadraMed has implemented its solutions in more than 4,000 provider sites across North America, representing over 60% of the nation's hospitals. For more information about QuadraMed, its products and services, visit http://www.quadramed.com. - ------------------------ QuadraMed has a significant talent pool, which--through its active participation in professional and trade organizations--has helped to shape the healthcare information technology industry. With broad-based consulting expertise in healthcare business operations and information management, the Company has substantial expertise in the core components stipulated within IIIPAA legislation. In addition to its web-enabled software solutions, QuadraMed has developed The American Hospital Directory (AHD.com)--the most comprehensive resource for hospital and healthcare benchmarking information on the Web. The site details key measurements of hospitals and their performance, including the services they provide, financial statements, utilization statistics and cost analysis. The site is the only one of its kind to integrate data from the American Hospital Association's Guide to the Health Care Field(TM). ================================================================================ QuadraMed is a trademark of the QuadraMed Corporation. All other trademarks and registered trademarks are the properties of their respective holders. # # # EX-10.21 14 0014.txt INVESTOR RIGHTS AGREEMENT EXHIBIT 10.21 INVESTOR RIGHTS AGREEMENT This Investor Rights Agreement (this "Agreement") is made as of April 19, 2000 (the "Effective Date"), by and among Entravision Communications Corporation, a Delaware corporation (the "Corporation"), Entravision Communications Company, L.L.C., a Delaware limited liability company (the "Company"), TSG Capital Fund III, L.P. (the "Investor"), and the other principal equityholders of the Company and their affiliates and the Corporation set forth on the signature pages hereto (the "Major Stockholders"). WHEREAS, the Company, the Corporation and the Investor are parties to that certain Convertible Subordinated Note Purchase Agreement (the "Purchase Agreement") providing for, among other things, the purchase and sale of a Convertible Subordinated Note of the Company (the "Note") which are automatically exchangeable into Series A Convertible Preferred Stock of the Corporation (the "Series A Preferred Stock") concurrently with the Roll-Up (as defined in the Purchase Agreement). WHEREAS, the Major Stockholders are the principal holders of the membership units in the Company (the "Units") and will become the principal holders of common stock of the Corporation ("Common Stock") concurrently with the Roll-Up (as defined in the Purchase Agreement). WHEREAS, the Company and the Corporation desire to grant to the Investor certain registration, co-sale, voting, right of first refusal, information and other rights as set forth herein. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Registration Rights. The Corporation covenants and agrees as follows ------------------- (capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement): 1.1. Definitions. For purposes of this Section 1: ----------- 1.1.1. The term "1934 Act" means the Securities Exchange Act of l934, as amended. 1.1.2. The term "Act" means the Securities Act of 1933, as amended. 1.1.3. The term "Closing" has the meaning ascribed to it in the Purchase Agreement. 1.1.4. The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Corporation with the SEC. 1.1.5. The term "Holder" means the Investor and its respective permitted successors and assigns. 1.1.6. The terms "register," registered and registration refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document by the SEC. 1.1.7. The term "Registrable Securities" means (i) Common Stock issuable or issued upon conversion of the Series A Preferred Stock which the Investor currently has the right to acquire by conversion or exchange of the Note, and (ii) any Common Stock of the Corporation issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in clause (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not duly assigned as provided herein or any Registrable Securities after such securities have been sold to the public or sold pursuant to Rule 144 promulgated under the Act. 1.1.8. The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. 1.1.9. The term "SEC" shall mean the Securities and Exchange Commission. 1.2. Request for Registration ------------------------ 1.2.1. Registration Rights. If the Corporation shall receive ------------------- at any time after one (1) year after the effective date (the "IPO Date") of the first registration statement for a public offering of securities of the Corporation (other than a registration statement relating either to the sale of securities to employees of the Corporation pursuant to a stock option, stock purchase or similar plan), a written request from Holders of fifty percent (50%) or more of the Registrable Securities then outstanding ("Initiating Holders"), requesting that the Corporation file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price, net of underwriting discounts and commissions, of at least $20 million, then the Corporation shall: -2- (a) within twenty (20) days of the receipt thereof, give written notice of such request to all Holders; and (b) use reasonable and diligent efforts to cause such shares to be registered under the Act as soon as practicable, subject to the limitations of subsection 1.2.2. 1.2.2. Underwriting: Requirements. If the Initiating Holders -------------------------- intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Corporation as a part of their request made pursuant to subsection 1.2.1 and the Corporation shall include such information in the written notice referred to in subsection 1.2.1.(a). The underwriter will be selected by the Corporation from among the lead underwriters in its initial public offering or from another investment banking firm of national repute and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder or other holder of securities of the Corporation to include securities in such registration shall be conditioned upon such Holder's or holders' participation in such underwriting and the inclusion of such Holder's or holders' securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder or holder) to the extent provided herein. All Holders and other holders of securities of the Corporation proposing to distribute their securities through such underwriting shall (together with the Corporation as provided in subsection 1.5.5) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Corporation shall so advise all Holders of Registrable Securities and other holders of registration rights which would otherwise be underwritten pursuant hereto, and the number of securities that may be included in the underwriting on behalf of each Holder or other holder shall be allocated on a pro-rata basis among the selling stockholders according to the total number of securities held by each such selling stockholder and entitled to inclusion therein on the basis of a registration rights agreement with the Corporation; provided, however, that the numbers of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration. For purposes of allocating securities to be included in any offering, for any selling stockholder which is a partnership or corporation, the "affiliates" (as defined in Rule 405 under the Act), partners, retired partners and stockholders of such holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. To facilitate the allocation of shares in accordance with the above provisions, the Corporation may round the number of shares allocated to any Holder to the nearest 100 shares. -3- 1.2.3. Notwithstanding the foregoing, if the Corporation shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be seriously detrimental to the Corporation and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Corporation shall have the right to defer taking action with respect to such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Corporation may not utilize this right more than once in any twelve-month period. 1.2.4. In addition, the Corporation shall not be obligated to effect,or to take any action to effect, any registration pursuant to this Section 1.2: (a) Of more than fifty percent (50%) of the Registrable Securities eligible to make a demand pursuant to Section 1.2.1 in the two (2) year periodfollowing the IPO Date. (b) Of more than one (1) demand registration in the two (2) year period following the IPO Date. (c) After the Corporation has effected two (2) such registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective. (d) During the period starting with the date sixty (60) days prior to the Corporation's good faith estimate of the date of filing of, and ending on a date one hundred eighty (I80) days after the effective date of, (x) the Corporation's initial registered offering of its securities to the general public (other than a registration statement relating to either the sale of securities to employees of the Corporation pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), (y) a previous registration subject to this Section 1.2 or (z) a previous registration subject to Section 1.3 hereof; provided, that, the Corporation is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (e) In any particular jurisdiction in which the Corporation would be required to execute a general consent to service of process, unless the Corporation is already subject to service in such jurisdiction and except as required by the Act; or (f) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below. 1.3. Corporation Registration. ------------------------ -4- 1.3.1. Registration Rights. If (but without any obligation to ------------------- do so) the Corporation proposes to register (including for this purpose a registration effected by the Corporation for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than the initial public offering of its securities or a registration relating solely to the sale of securities to participants in a Corporation stock plan, a registration pursuant to a Rule 145 transaction, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Corporation shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Corporation in accordance with Section 4.5, the Corporation shall, subject to the provisions of paragraph 1.3.2 below, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.3.2. Underwriting Requirements. In connection with any ------------------------- offering involving an underwriting of shares of the Corporation's capital stock, the Corporation shall not be required under this Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Corporation and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Corporation. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Corporation that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Corporation shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering. Allocation of securities to be sold in any such offering shall be made on a pro- rata basis among the selling stockholders according to the total number of securities held by each such selling stockholder and entitled to inclusion therein on the basis of a registration rights agreement now or hereafter entered into with the Corporation. For purposes of allocation of securities to be included in any offering, for any selling stockholder which is a partnership or corporation, the "affiliates" (as defined in Rule 405 under the Act), partners, retired partners and stockholders of such holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.4. Form S-3 Registration. In case the Corporation shall receive --------------------- from any Holder or Holders of Registrable Securities a written request or requests that the Corporation -5- effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Corporation will: 1.4.1. promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and 1.4.2. as soon as practicable, effect such registration and all such qualifications and compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Corporation; provided, however, that the Corporation shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if the Registrable Securities requested by all Holders to be registered pursuant to this Section 1.4 have an anticipated aggregate offering price to the public (before deducting any underwriter discounts, concessions or commissions) of less than $1,000,000; (2) if Form S-3 is not available for such offering by the Holders; (3) if the Corporation shall furnish to the Holders a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be seriously detrimental to the Corporation and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Corporation shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Corporation shall not utilize this right more than once in any twelve-month period; (4) if the Corporation has, within the twelve (12) month period preceding the date of such request, already effected one (1) or more registrations on Form S-3 pursuant to this Section 1.4; or (5) in any particular jurisdiction in which the Corporation would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. 1.4.3. Subject to the foregoing, the Corporation shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration pursuant to Sections 1.2. 1.5. Obligations of the Corporation. Whenever required under this ------------------------------ Section 1 to effect the registration of any Registrable Securities, the Corporation shall, as expeditiously as reasonably possible: 1.5.1. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the -6- Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that such 90-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Corporation. 1.5.2. Prepare and file with the SEC such amendments including post-effective amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. 1.5.3. Furnish (at no cost) to the Holders such numbers of copies of a prospectus, including a preliminary prospectus and each amendment and supplement thereto, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 1.5.4. Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 1.5.5. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and performs its obligations under such an agreement. 1.5.6. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 1.5.7. Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Corporation are then listed. 1.5.8. Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. -7- 1.5.9. In the event of any underwritten public offering, cooperate with the selling Holders, the underwriters participating in the offering and their counsel in any due diligence investigation reasonably requested by the selling Holders or the underwriters in connection therewith, and participate, to the extent reasonably requested by the managing underwriter for the offering or the selling Holder, in efforts to sell the Registrable Securities under the offering (including, without limitation, participating in "roadshow" meetings with prospective investors at reasonable times) that would be customary for underwritten primary offerings of a comparable amount of equity securities by the Corporation. 1.5.10. Notify each Holder of Registrable Securities covered by such registration statement: (i) when such registration statement or any post-effective amendment to the registration statement has been declared effective by the SEC, (ii) of any request by the SEC for amendments or supplements to such registration statement or prospectus or for additional information; and (iii) of the receipt by the Corporation of any notification from any public board or body with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. 1.5.11. Notify each Holder of Registrable Securities of the issuance of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and the Corporation shall use its reasonable best efforts to prevent the issuance of any stop order, or if any order is issued, to obtain the withdrawal thereof. 1.5.12. Take all actions necessary to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities and the transfer thereof upon resale by the Holder of such Registrable Securities in accordance with the applicable prospectus. 1.5.13. Otherwise use its reasonable and diligent efforts in its performance of its obligations hereunder to comply with all applicable rules and regulations of the SEC and of state securities commissions and nay stock exchange or automated quotation system. 1.6. Furnish Information. ------------------- 1.6.1. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Corporation such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6.2. The Corporation shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 if, due to the operation of -8- subsection 1.6.1, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Corporation's obligation to initiate such registration as specified in subsection 1.2.1 or subsection 1.4.2, whichever is applicable. 1.7. Expenses of Demand, Corporation or S-3 Registration. All --------------------------------------------------- expenses (exclusive of underwriting discounts and commissions and stock transfer taxes) incurred in connection with registrations, filings or qualifications pursuant to this Section 1 including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Corporation and the reasonable fees and disbursements of one counsel for all selling Holders of Registrable Securities shall be borne by the Corporation. 1.8. Delay of Registration. No Holder shall have any right to obtain --------------------- or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.9. Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Section 1: 1.9.1. To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder, the constituent partners and members, or officers, directors employees and affiliates of each Holder and, if such holder is a natural person his or her heirs, personal representatives and assigns, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Corporation of the Act, any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Corporation will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.9.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld), nor -9- shall the Corporation be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information fumished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting such losses, claims, damages, or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Corporation shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. 1.9.2. To the extent permitted by law, each selling Holder will indemnify and hold harmless the Corporation, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Corporation within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, severally but not jointly, against any losses, claims, damages, or liabilities joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall Holder's cumulative, aggregate liability under this subsection 1.9.2, under Section 1.9.4, or under such sections together, exceed. the net proceeds received by such Holder from the offering out of which such Violation arises. 1.9.3. Promptly after receipt by an indemnified party under this Section l.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with one counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which -10- may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, except to the extent the failure to deliver notice prejudices its ability to defend such action. Any omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. 1.9.4. If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and of the indemnified party on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 1.9.5. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. In addition, any indemnity agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party. 1.9.6. The obligations of the Corporation and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10. Reports under Securities Exchange Act of 1934. With a view to --------------------------------------------- making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the -11- Corporation to the public without registration or pursuant to a registration on Form S-3, the Corporation agrees to: 1.10.1. make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Corporation for the offering of its securities to the general public; 1.10.2. take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Corporation for the offering of its securities to the general public is declared effective; 1.10.3. file with the SEC in a timely manner all reports and other documents required of the Corporation under the Act and the 1934 Act; and 1.10.4. furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Corporation that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Corporation), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Corporation and such other reports and documents so filed by the Corporation, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11. Assignment of Registration Rights. The rights to cause the --------------------------------- Corporation to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to, (i) in the case of any Holder that is a partnership, limited liability company or corporation, any current and former constituent partners, members, stockholders, affiliate funds and affiliates of that Holder, or (ii) in the case of any Holder, (x) a transferee or assignee of such securities who, after such assignment or transfer, holds at least twenty percent (20%) (as appropriately adjusted for all stock splits, dividends, combinations, reclassifications and other like transactions) of the Registrable Securities originally held by such transferring Holder, (y) a transferee or assignee who is a spouse, lineal descendant, adopted child, father, mother, brother or sister (each, a "Family Member") of Holder or (z) or to a trust, the beneficiaries of which are exclusively the Holder and/or Family Members, provided, in each case, that: (a) the Corporation is, within a reasonable time after such transfer, fumished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, -12- including without limitation the provisions of Section 1.12 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, the holdings of "affiliates" (as defined in Rule 405 under the Act) of such holder, affiliated partnerships, constituent or retired partners of such partnerships (as well as Family Members of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with such partnership and its affiliated partnerships and other entities; provided, that, all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.12. "Market Stand-Off" Agreement. Each Holder hereby agrees that, ---------------------------- for a period of one (1) year following the IPO Date, it shall not directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Registrable Securities of the Corporation held by it at any time during such period. During such one (1) year period, each Holder agrees to provide to the underwriters of any public offering such further agreements as such underwriter may reasonably request in connection with this market stand-off agreement, provided that the terms of such agreements are substantially consistent with the provisions of this Section 1.12. In order to enforce the foregoing covenant, the Corporation may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one (1) year period. Notwithstanding the foregoing, the obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction. 1.13. Termination of Registration Rights. The right of any Holder to ---------------------------------- request registration or to include Registrable Securities in any registration pursuant to this Section 1 shall terminate upon the earlier of (i) the date which is five (5) years after the IPO Date, or (ii) such date as a public trading market shall exist for the Corporation's Common Stock and all shares of Registrable Securities beneficially owned and subject to Rule 144 aggregation by such Holder may immediately be sold under Rule 144 (without regard to Rule 144(k)) during any 90-day period, provided that such Holder is not then an "affiliate" of the Corporation within the meaning of Rule 144 and such Holder owns less than 1% of the then outstanding shares of Common Stock. 1.14. Limitations on Subsequent Registration Rights. From and after --------------------------------------------- the date -13- of this Agreement, the Corporation shall not, without the prior written consent of the Holders of at least a majority of the Registrable Securities then outstanding, enter into any agreement with any Holder or prospective holder of any securities of the Corporation granting registration rights with respect to such securities, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included. 2. Covenants. --------- 2.1. Delivery of Financial Statements. The Corporation and the -------------------------------- Company shall deliver to each Holder of at least $10 million in principal amount of Notes and/or at least 1,200,000 shares as appropriately adjusted for all stock splits, dividends, combinations, reclassifications and other like transactions of Series A Preferred Stock and/or Common Stock (each, a "Major Holder"): 2.1.1. as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company or the Corporation commencing with the fiscal year ending December 31, 2000, an income statement for such fiscal year, a balance sheet of the Company or the Corporation and statement of stockholders' equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited by independent public accountants of nationally recognized standing selected by the Corporation; 2.1.2. as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company or the Corporation, if available, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; 2.1.3. as soon as practicable, any written reports to the members or stockholders of the Company or the Corporation; or 2.1.4. such other information relating to the financial condition, business or corporate affairs of the Company or the Corporation as the Holder or any assignee of the Holder may from time to time request, provided, however, that the Corporation shall not be obligated under this subsection 2.1.4 or any other subsection of Section 2.1 to provide information which it deems in good faith to be a trade secret or similar confidential information. 2.2. Termination of Information Covenant. Unless otherwise ----------------------------------- specifically provided, the covenants set forth in this Section 2.1 shall terminate and be of no further force or effect (i) upon consummation of a public offering of the Corporation's Common Stock with -14- total gross offering proceeds to the Corporation in excess of $50 million (a "Qualified Public Offering"), or (ii) as to the Investor, or transferee or assignee of the Investor, who holds less than $10 million in principal amount of Notes and/or 1,200,000 of the then outstanding shares of the Series A Preferred Stock (or Common Stock issued upon conversion thereof). 2.3. Entravision Issuances. --------------------- 2.3.1. Right to Maintain Proportionate Ownership. ----------------------------------------- (a) In the event (i) the Company desires to sell and issue units of its membership interests or rights, options or other securities exercisable for or convertible into units of its membership interests (directly or indirectly) and whether or not such right or option or other security is immediately exercisable or convertible ("Units"), or (ii) the Corporation desires to sell and issue shares of its capital stock or rights, options or other securities exercisable for or convertible into shares of its capital stock (directly or indirectly) and whether or not such right or option or other security is immediately exercisable or convertible ("Shares") (with Units and Shares referred to collectively as the "Equity Securities" and the Company and the Corporation referred to herein collectively as "Entravision"), then Entravision shall first notify each Holder of the material terms of the proposed sale (including price and number of Equity Securities to be offered) and shall permit each Holder to acquire, at the time of consummation of such proposed issuance and sale and on such terms as are specified in Entravision's notice pursuant hereto, such number of Equity Securities proposed for issuance and sale as would be required to enable each to maintain its ownership rights in Entravision following such issuance, on an as-converted, and/or exercised, fully diluted percentage basis (without regard to reserved but unissued options), at the level maintained by it immediately prior to such proposed issuance. The Holders shall each have fifteen (15) days after the date of any such notice to elect by notice to Entravision to purchase such Equity Securities on such terms and at the time the proposed sale is consummated. For the purposes of determining the number of Equity Securities held by a Holder, transferee or assignee of Equity Securities the holdings of "affiliates" (as defined in Rule 405 under the Act), affiliated partnerships and other entities, constituent or retired partners of such partnerships (as well as Family Members of such partners or spouses who acquire Equity Securities by gift, will or intestate succession) shall be aggregated together with such affiliates, partnership and its affiliated partnerships and other entities. Each Holder shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates (or to assign such right of first offer to such partners and affiliates) in such proportions as it deems appropriate. (b) The right to maintain proportionate ownership set forth in this Section 2.3.1 shall not be applicable (A) to the issuance or sale of Equity Securities (or options or warrants therefor) approved by Entravision's Executive Committee, Board of Directors or Compensation Committee thereof to officers, directors, executive committee members, employees or consultants (pursuant to equity purchase, equity option or similar plans) for the primary purpose of soliciting or retaining their services, (B) to the issuance of Equity -15- Securities upon conversion of Entravision's Equity Securities, provided such Equity Securities are outstanding on the date hereof or the issuance or sale was effected in accordance with this Section 2.3, (C) to the issuance of securities in connection with a bona fide business acquisition of or by Entravision approved by the Executive Committee or the Board of Directors with a non- affiliated third party, whether by merger, consolidation, sale or transfer of assets, sale or exchange of Equity Securities or otherwise, (D) to the issuance of Equity Securities to financial institutions or lessors in connection with bona fide, arm's-length commercial credit arrangements, equipment financings or similar transactions approved by the Executive Committee or the Board of Directors, (E) to the issuance of Equity Securities in connection with any Equity Security split, Equity Security dividend or recapitalization by Entravision, (F) to the issuance of Equity Securities of Entravision (or options or warrants therefor) pursuant to strategic transactions with a non-affiliated third party approved by the Executive Committee or the Board of Directors with a primary purpose other than equity financing, (G) the issue of Equity Securities in connection with the conversion of convertible subordinated debt held by Univision Communications Inc., as of the date hereof or (H) securities issued in the IPO. (c) The right to maintain proportionate ownership set forth in this Section 2.3.1 shall terminate upon the earlier of immediately prior to the closing of a Qualified Public Offering or immediately prior to the closing of a "Qualified Acquisition" (defined below). For purposes of this Agreement, a "Qualified Acquisition" shall mean: (i) any consolidation or merger of Entravision with or into any other corporation or corporations following which the holders of Entravision's outstanding Equity Securities immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain Equity Securities representing a majority of the voting power of the surviving corporation of such consolidation or merger or stock representing a majority of the voting power of an entity that wholly owns, directly or indirectly, the surviving entity of such consolidation or merger; (ii) the sale, transfer or assignment of Equity Securities of Entravision representing a majority of the voting power of all Entravision's outstanding voting Equity Securities by the holders thereof to an acquiring party in a single transaction or series of related transactions; (iii) any other sale, transfer or assignment of Equity Securities of Entravision representing over fifty percent (50%) of the voting power of Entravision's then outstanding voting Equity Securities by the holders thereof to an acquiring party; or (iv) the sale or transfer of all or substantially all of Entravision's assets. 2.4. Co-Sale Rights. -------------- 2.4.1. Transfer Notice. If at any time a Major Stockholder --------------- proposes to transfer Equity Securities to any person pursuant to an understanding with such person (a "Transfer"), then such Major Stockholder shall give Entravision and each Holder written notice of the Major Stockholder's intention to make the Transfer (the "Transfer Notice"), which Transfer Notice shall include (i) a description of the Equity Securities to be transferred (the "Offered Equity Securities"), (ii) the identity of the prospective transferee(s) and (iii) the consideration and the material terms and conditions upon which the proposed Transfer is to be -16- made. The Transfer Notice shall include a copy of any written proposal, term sheet or letter of intent or other agreement related to the proposed Transfer. 2.4.2. Right to Participate. Each Holder which notifies the -------------------- Major Stockholder proposing to make a Transfer in writing within fifteen (15) days after receipt of the Transfer Notice shall have the right to participate in the sale of the Equity Securities on the same terms and conditions as specified in the Transfer Notice (such proposed terms and conditions, a "Purchase Offer"). To the extent a Holder exercises such right of participation in accordance with the terms and conditions set forth below, the number of Equity Securities that the Major Stockholder may sell pursuant to such Purchase Offer shall be correspondingly reduced. The right of participation of the Holders shall be subject to the following terms and conditions: (a) Each Holder may sell all or any part of that number of Holder Equity Securities equal to the product obtained by multiplying the aggregate number of Equity Securities covered by the Purchase Offer by a fraction, (x) the numerator of which shall be the number of Equity Securities (on an as-converted, as-exercised fully diluted basis) at the time owned by such Holder and (y) the denominator of which shall be the number of shares of Equity Securities (on an as converted, as-exercised fully diluted basis) at the time owned by all Holders electing to participate in the sale and all Major Stockholders participating in the sale. (b) Each Holder may effect its participation in the sale by first taking all steps necessary to convert the securities of Entravision currently held by such Holder into Class A Units, in the case of a Purchase Offer with respect to Units or Class A Common Stock, in the case of a Purchase Offer of Class A Common Stock or Class B Common Stock of the Corporation. Such Holder shall also deliver to the Major Stockholder, for transfer to the purchase offeror, an assignment separate from certificate, in the case of Class A Units, or one or more certificates, properly endorsed for transfer, in the case of Class A Common Stock, that represents the number of Equity Securities that the Holder elects to sell pursuant to Section 2.4.2. (c) To the extent that any prospective purchaser or purchasers prohibit such exercise of co-sale right or otherwise refuse to purchase Equity Securities from a Holder exercising its co-sale right hereunder, the Major Stockholder shall not sell to such prospective purchaser or purchasers any Equity Securities unless and until, simultaneously with such sale, the Major Stockholder shall purchase such Equity Securities from such Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Major Stockholder's Notice. 2.4.3. Mechanics of Transfer. The assignment or stock --------------------- certificates that the Holders deliver to the Major Stockholders pursuant to Section 2.4.2 shall be transferred by such Major Stockholder to the purchase offeror in consummation of the sale of the Major Stockholder's Equity Securities pursuant to the terms and conditions specified in the Transfer -17- Notice, and the Major Stockholders shall promptly thereafter remit to each of the Holders that portion of the sale proceeds to which each Holder is entitled by reason of its participation in such sale. In the event that less than all the Equity Securities represented by such assignment separate from certificate or the shares represented by such a stock certificate are sold pursuant to Section 2.4.1, the Seller shall instruct the Corporation or the Company to issue a new certificate to the Holder representing the shares not sold. 2.4.4. No Effect on Subsequent Rights. The exercise or ------------------------------ non-exercise of the rights of any Holder hereunder to participate in one or more sales of the Major Stockholders' Equity Securities made by a Major Stockholder shall not adversely affect the Holder's rights to participate in subsequent sales of Equity Securities by a Major Stockholder. Any person who acquires Equity Securities from a Major Stockholder must prior to or concurrently with any such transfer execute and deliver a written agreement satisfactory in form and substance to the Holders agreeing to be bound by the provisions of this Agreement. 2.5. Prohibited Transfers. -------------------- 2.5.1. Agreement Not to Transfer. Any attempt by a Major ------------------------- Stockholder to transfer any Equity Securities in violation of Section 2.4 shall be void and Entravision agrees that it will not effect such a transfer nor will it treat any alleged transferee in violation of Section 2.4 as the holder of such shares. 2.5.2. Repurchase. In the event a Major Stockholder should ---------- sell any Equity Securities in contravention of the participation rights of the Holders under Section 2.4 (a "Prohibited Transfer"), each Holder shall have the option to sell to such Major Stockholder a number of Registrable Securities equal to such Holder's pro rata share (as determined pursuant to Section 2.4.2(a) above), provided, that, the date of the Transfer Notice (if any) shall be understood to mean the date of the Prohibited Transfer, on the following terms and conditions: (a) The price per share at which such Equity Securities are to be sold to such Major Stockholder under this Section 2.5.2 shall be equal to the price per share paid by the third-party purchaser or purchasers of the Equity Securities (the "Contingent Purchaser") to such Major Stockholder. (b) Such Holder shall deliver to such Major Stockholder as applicable within ninety (90) days after such Holder has received notice from a Major Stockholder or otherwise become aware of the Prohibited Transfer, the assignment separate from certificate or the certificate or certificates representing Equity Securities to be sold, each certificate to be properly endorsed for transfer. (c) Such Major Stockholder shall, immediately upon receipt of the assignment or certificates for the Shares, pay the aggregate purchase price therefor, by certified check or bank draft made payable to the order of such Holder, and shall reimburse -18- such Holder for any reasonable additional expenses, including reasonable legal fees and expenses, incurred in effecting such purchase and sale. 2.5.3. Exclusions. The participation rights of the Holders ---------- set forth in Section 2.4 shall not pertain or apply to (i) any pledge of Equity Securities made by a Major Stockholder that creates only a security interest, (ii) any bona fide gift or estate planning transaction, (iii) any distribution by a Major Stockholder that is a partnership to the current or former partners or other interest holders of such Major Stockholder or (iv) any distribution or transfer by a Major Stockholder to any other Major Stockholders or to affiliate (as defined in Rule 405 under the Act) of such Major Stockholder or any other Major Stockholder, provided, that, in each case, the pledgee, transferee or donee shall furnish the Holders with a written agreement to be bound by and comply with all provisions of this Agreement applicable to the Major Stockholders. 2.6. Termination. The provisions of Sections 2.4 and 2.5 shall ----------- terminate immediately prior to the closing of a Qualified Public Offering or a Qualified Acquisition. 3. Series A Designee. In the period that at least fifty percent (50%) of ----------------- the shares of Series A Preferred Stock remain outstanding, each Major Stockholder shall vote (or shall cause to be voted) all shares of Equity Securities owned or controlled by such Major Stockholder (including any Equity Securities hereafter acquired), at any regular or special meeting of shareholders of the Corporation, shall take all action by written consent in lieu of such meeting of shareholders, and shall take all other actions necessary, to ensure that there shall be elected as a director and member of the Board of Directors of the Corporation one (1) individual (the "Series A Designee") designated by the holders of a majority of the outstanding Series A Preferred Stock. The Series A Designee shall be removed (with or without cause), if holders of a majority of the outstanding Series A Preferred Stock so request such removal by written notice to the Corporation. If stockholder approval is required for any removal hereunder, such removal shall be effected upon the affirmative vote or action by written consents of holders of a majority of the outstanding Series A Preferred Stock, and each Major Stockholder hereby agrees to vote all such shares then owned or held of record by him, or to take action by written consent, to effect such removal. In the event that a vacancy is created on the Board of Directors of the Corporation by the death, disability, retirement, resignation or removal (with or without cause) of the Series A Designee, each Major Stockholder hereby agrees to vote or take action by written consent, in each case, to the extent such Major Stockholder shall be entitled to do so, and to use his reasonable and diligent efforts to cause the remaining directors to vote or take action by written consent, for the election of a nominee to be designated by the holders of a majority of the outstanding Series A Preferred Stock. -19- Each Major Stockholder covenants and agrees that, except as a result of transfers expressly permitted by, and pursuant to and in accordance with, this Agreement, such Major Stockholder will have sole voting power with respect to such Major Stockholder's Equity Securities and will not grant any proxy with respect to such Equity Securities, enter into any voting trust or other voting agreement or arrangement with respect to such Equity Securities, enter into any voting trust or other voting agreement or arrangement with respect to such Equity Securities or grant any other rights to vote such Equity Securities inconsistent with the agreement to vote such Equity Securities as set forth herein. 4. Negative Covenants. ------------------ 4.1. Without the consent of Holders of the majority of the Registrable Securities, neither the Company nor the Corporation shall: (a) declare or pay any dividend, or make any other distribution or payment, on any Equity Securities (except on the Corporation's Series A Preferred Stock, dividends or distributions payable by the Company or the Corporation in their respective Equity Securities or dividends or distributions payable to the Company or the Corporation by any subsidiary thereof); (b) purchase, redeem or otherwise retire for value any Equity Securities of the Company or the Corporation (other than repurchase of Equity Securities from employees, officers, directors, consultants or other persons performing services for the Company or the Corporation or any subsidiary pursuant to arrangements approved by the Executive Committee of the Company or the Board of Directors of the Corporation, as the case may be, and in no event shall such arrangements include the purchase or acquisition of Equity Securities of the Company or the Corporation held by Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik or any affiliates or transferees thereof without the prior written consent of the holders of the majority of the Registrable Securities, which consent shall not be unreasonably withheld); (c) liquidate, dissolve or wind-up the Company or the Corporation; (d) enter into or engage in any transaction with an affiliate (as defined in the 1934 Act) on terms less advantageous to the Company or the Corporation than would be the case if such transaction had been effected with a non-affiliate; (e) issue or incur any indebtedness which violates the terms of that certain Amended and Restated Credit Agreement dated November 10, 1998, as amended from time to time, between the Company and Union Bank of California, N.A. or any successor agreement with the lead lender upon refinancing of such debt; (f) the Company shall not amend its Certificate of Formation or -20- Operating Agreement and the Corporation shall not amend its Certificate of Incorporation or Bylaws in any fashion which will adversely affect the rights of the Investor; or (g) the Company shall not consent to the amendment of the Exchange Agreement (or the First Restated Certificate of Incorporation or the First Amended and Restated Bylaws of the Corporation attached as exhibits to the Exchange Agreement) in a fashion that in adversely affect the rights of the Investor. 4.2. The provisions of this Section 4 shall terminate immediately prior to the closing of a Qualified Public Offering or Qualified Acquisition. 5. Affirmative Covenants. --------------------- 5.1. The Company and the Corporation will, and will cause each of their subsidiaries to, preserve and maintain its existence and its material rights, franchises, leases, licenses and privileges in the state of its incorporation or organization, except where the failure to do so would not have a material adverse effect on the assets, liabilities or properties of the Company or the Corporation and their subsidiaries taken as a whole (a "Material Adverse Effect"). 5.2. The Company and the Corporation will, and will cause each of their subsidiaries to, comply in all material respects with the requirements of all applicable laws, regulations, contracts and licenses, except where the failure to do so would not have a Material Adverse Effect. 5.3. The Company and the Corporation will file and pay all taxes and assessments when due (except in the case of a bona fide dispute), except where the failure to do so would not have a Material Adverse Effect. 5.4. The Company and the Corporation will complete the Roll-Up in accordance with the Exchange Agreement no later than the Interim Closing Deadline as defined in that certain Acquisition Agreement and Plan of Merger by and among the Company, the Corporation, ZSPN Acquisition Corporation and Z- Spanish Media Corporation and its stockholders of even date herewith. 5.5. The provisions of this Section 5 shall terminate immediately prior to the closing of a Qualified Public Offering or Qualified Acquisition. 6. Miscellaneous. ------------- 6.1. Successors and Assigns. Except as otherwise provided herein, ---------------------- the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of -21- Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.2. Governing Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of Delaware, without regard to conflicts of law provisions of the State of Delaware or any other state. 6.3. Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.4. Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.5. Notices. Except as otherwise provided herein, all notices and ------- other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of confirmed facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Holder or Major Stockholder, at such Holder's or Major Stockholder's address as set forth on Exhibit "A" hereto and (ii) if to the Corporation, at the address ----------- of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 6.6. Expenses. Except as otherwise provided herein, if any action at -------- law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.7. Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Corporation, the holders of a majority of the Registrable Securities then outstanding, and the holders of a majority of the Major Stockholders' Equity Securities then outstanding; provided, further, that the provisions of Section 3 hereof relating to the Series A Director Designee shall not be amended without the written consent of TSG for so long as TSG has the -22- right to designate such Designee. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Corporation and each Major Stockholder. 6.8. Aggregation of Stock. All Shares held or acquired by entities, -------------------- partnerships, former partnerships or "affiliates" (as defined in Rule 405 under the Act) of a Holder or Family Members of such Holder, or trusts the beneficiaries of which are affiliated entities or persons and/or Family Members of such Holder (collectively, "Affiliates") shall be aggregated together for the purpose of determining the availability or discharge of any rights of such Holder under this Agreement. Any Affiliate or Affiliate group shall be entitled to designate one person as representative of such group for the purpose of exercising any right or undertaking any obligation of such group hereunder (including without limitation voting any Shares held by any such Affiliate or member of any such Affiliate group), and the Company and the Corporation shall be entitled to rely on the representative for such purposes. 6.9. Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.10. Entire Agreement: Amendment: Waiver. This Agreement (including ----------------------------------- the Exhibits hereto, if any) constitutes the full and entire understanding and Agreement between the parties with regard to the subjects hereof and thereof. 6.11. Specific Performance: Proxies. The parties hereto agree that ----------------------------- irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with these specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, if any provision in this Agreement shall constitute the granting of a proxy, the parties hereto agree that such proxy shall be deemed to be coupled with an interest. [Remainder of Page Intentionally Left Blank] -23- IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first above written. ENTRAVISION COMMUNICATIONS CORPORATION By: /s/ Walter F. Ulloa -------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully -------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer ENTRAVISION COMMUNICATIONS COMPANY, L.L.C. By: /s/ Walter F. Ulloa -------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: /s/ Jeanette L. Tully -------------------------------------------------------- Jeanette L. Tully, Chief Financial Officer TSG CAPITAL FUND III, L.P. By: /s/ Darryl B. Thompson -------------------------------------------------------- Name: ------------------------------------------------------ Title: ------------------------------------------------------ /s/ Walter F. Ulloa ------------------------------------------------------------ Walter F. Ulloa Philip C. Wilkinson by Walter F. Ulloa, as his attorney in fact /s/ Walter F. Ulloa ------------------------------------------------------------ Philip C. Wilkinson /s/ Paul A. Zevnik ------------------------------------------------------------ Paul A. Zevnik [Counterpart Signature Page to Investor Rights Agreement] -24- EX-10.22 15 0015.txt FORM OF CERTIFICATE OF DESIGNATIONS EXHIBIT 10.22 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK Pursuant to Section 151 of the General Corporation Law of the State of Delaware Entravision Communications Corporation, a corporation organized and existing under the laws of the State of Delaware, does hereby certify that, pursuant to the authority conferred on the Board of Directors of this corporation by the First Restated Certificate of Incorporation of this corporation in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of this corporation adopted the following resolution establishing a series of Preferred Stock of this corporation designated "Series A Convertible Preferred Stock": RESOLVED, that pursuant to the authority conferred on the Board of Directors of this corporation by Article 4 of the First Restated Certificate of Incorporation, as amended, a series of Preferred Stock, par value $.0001 per share, of this corporation is hereby established and created, and that the designation of the number of shares thereof and the voting and other powers, preferences and other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series A Convertible Preferred Stock 1. Designation; Rank. An amount of shares of the Preferred Stock shall be ----------------- designated "Series A Convertible Preferred Stock" (the "Series A Preferred Stock"), par value $.0001 per share and the number of shares constituting such series shall be [$90,000,000 divided by price at which Subordinated Note is exchanged for Series A Preferred Stock pursuant to Section 8(b) of the Subordinated Convertible Promissory Note issued by Entravision Communications Company, L.L.C. to TSG Capital Fund III, L.P.]. The Series A Preferred Stock will rank junior, with respect to dividend rights and rights on liquidation, winding up and dissolution to other classes of series of preferred stock to be established by the Board of Directors of the Corporation if such preferred stock is not convertible to common stock or other securities convertible into common stock of the Corporation and the aggregate liquidation preference of such preferred stock (exclusive of accrued but unpaid dividends) is less than or equal to One Hundred Million Dollars ($100,000,000) or, in addition, to the extent such classes or series of preferred stock are issued in connection with a financial undertaking set forth in Section 3.3 of that certain Acquisition Agreement and Plan of Merger dated April 20, 2000 by and among the Corporation, Entravision Communications Company, L.L.C., Z-Spanish Media Corporation and other persons (the "Merger Agreement") (collectively, the "Senior Preferred Stock"). The Series A Preferred Stock shall rank pari passu with respect to any Series B Redeemable Pay-in-Kind Preferred Stock issuable pursuant to the terms of the Merger Agreement (the "Series B Preferred Stock") with respect to dividend rights and rights upon liquidation, winding-up and dissolution. The Series A Preferred Stock will rank senior to all other classes of preferred stock of the Corporation and the common stock of the Corporation (collectively, "Junior Securities"), with respect to dividend rights and rights upon liquidation, winding up and dissolution, . 2. No Issuance of Additional Shares. The number of authorized shares of -------------------------------- Series A Preferred Stock may be reduced or eliminated by the Board of Directors of this corporation or a duly authorized committee thereof in compliance with the General Corporation Law of the State of Delaware stating that such reduction has been authorized, and the number of authorized shares of Series A Preferred Stock shall not be increased without the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock. 3. Dividends. --------- (a) Dividends and Distributions. Subject to the terms set forth --------------------------- herein and the rights of the Senior Preferred Stock, the holders of shares of Series A Preferred Stock shall be entitled to receive out of assets legally available for that purpose, an annual cumulative dividend equal to 8.5% of the then applicable Liquidation Preference (as defined in Section 4(a) below) (i.e., 8.5% per annum compounded annually) from the date of issuance of the shares of Series A Preferred Stock. (b) The Series A Preferred Stock and the Series B Preferred Stock (collectively, the "Preferred Stock") shall rank pari passu with respect to dividends, and in the event the Corporation fails to pay full dividends accrued on outstanding shares of Series A Preferred Stock and Series B Preferred Stock, any partial amounts which are paid as dividends by the Corporation with respect to Series A Preferred Stock and Series B Preferred Stock shall be paid to the holders of such shares of Preferred Stock in proportion (as nearly as practicable) to the amounts such holders would be entitled to receive if they were to be paid the full accrued and unpaid dividends on such Preferred Stock. (c) All dividends or distributions declared upon the Series A Preferred Stock shall be declared pro rata per share. (d) The holders of the Series A Preferred Stock shall be entitled to payments of accrued and unpaid dividends upon liquidation of the corporation as set forth in Section 4 below or the redemption of the Series A Preferred Stock as set forth in Section 5 below, and in each such case shall be entitled to all accrued and unpaid dividends whether or not declared by the corporation, or as otherwise required under this Section 3. (e) The corporation shall not declare or pay any dividend on shares of Junior Securities until the holders of the Series A Preferred Stock have received the full cumulative dividends accrued thereon pursuant to clause (a). (f) In computing accrued and unpaid dividends on the Series A Preferred -2- Stock, such dividends shall be computed on a daily basis through the date as of which such dividends are required to be paid by the terms hereof. 4. Liquidation Preference. ---------------------- (a) In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, subject to the rights of the Senior Preferred Stock and the rights of series of Preferred Stock that may from time to time come into existence in accordance with and subject to the terms hereof, including, without limitation, Section 8(b) hereof, the holders of Series A Preferred Stock shall be entitled to receive after any distribution with respect to Senior Preferred Stock and, prior and in preference to any distribution of any of the assets of this corporation to the holders of any Junior Securities by reason of their ownership thereof, an amount per share (the "Liquidation Preference") equal to the sum of (i) [$8.4746]/1/ for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price") and (ii) accrued but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts to which the holders of the Series A Preferred Stock and Series B Preferred Stock are entitled, then, the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the amount payable to such holders. If the Corporation issues the Series B Preferred Stock in accordance with the Merger Agreement, the Series A Preferred Stock and the Series B Preferred Stock shall rank pari passu with respect to distributions on liquidation. (b) Upon completion of the distribution required by subsection (a) of this Section 4, all of the remaining assets of this corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each. (c) (i) For purposes of this Section 4, a liquidation, dissolution or winding up of this corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the Series A Preferred Stock then outstanding shall determine otherwise) a transaction whereby a person or group of persons acting in concert (other than current stockholders) shall: (A) become (whether by merger, consolidation, or transfer, redemption or issuance of capital stock or otherwise) the beneficial owners (within the meaning of Rule 13d-3 under the Securities and Exchange Act of 1934, as amended) of securities constituting more than fifty percent (50%) of the combined voting power of or the economic - -------------- /1/ As calculated pursuant to Section 8(b) of the Subordinated Convertible Promissory Note issued by the Entravision Communications Company to TSG Capital Fund III, L.P. -3- equity interests in the then outstanding securities of the corporation (or any surviving or resulting person) or (B) acquire assets constituting all or substantially all of the assets of the corporation and its subsidiaries on a consolidated basis (with (A) and/or (B) constituting a "Change in Control"). (ii) In any of such events, if the consideration received by this corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this corporation and the holders of at least a majority of the outstanding shares of Series A Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by this corporation and the holders of at least a majority of the outstanding shares of such Series A Preferred Stock. (iii) In the event the requirements of this Section 4 are not complied with, this corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 4 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 4(c)(iv) hereof. -4- (iv) This corporation shall give each holder of record of Series A Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 4, and this corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this corporation has given the first notice provided for herein or sooner than ten (10) days after this corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series A Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the outstanding shares of such Series A Preferred Stock. 5. Redemption. ---------- (a) At any time, or from time to time, after April 19, 2001, and after such time as the closing price of the corporation's common stock as quoted on the New York Stock Exchange or the Nasdaq National Market equals or exceeds, for fifteen (15) consecutive trading days, one hundred thirty percent (130%) of the initial trading price of the corporation's common stock immediately following the initial public offering of the corporation, the corporation shall have the option, exercisable upon the expiration of the fifteen (15) day period after written notice delivered to the holders of Series A Preferred Stock by hand (the "Corporate Redemption Date") to the holders of the Series A Preferred Stock, to redeem all or any portion of the Series A Preferred Stock specified in such notice by paying in cash therefor a sum per share equal to the Original Series A Issue Price per share of Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like) plus all accrued but unpaid dividends on such share (the "Series A Redemption Price"). At any time, or from time to time, after April 19, 2006, but within ninety (90) days after the receipt by this corporation of a written request from the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock that all or, if less than all, a specified percentage of such holders' shares of Series A Preferred Stock be redeemed ("Optional Redemption Request"), and concurrently with surrender by such holders of the certificates representing such shares, this corporation shall, to the extent it may lawfully do so, redeem in full (referred to herein as an "Optional Redemption Date") the shares specified in such request by paying in cash therefor the Series A Redemption Price. If the corporation receives an Optional Redemption Request, it will, within fifteen (15) days of receipt, provide written notice to each holder of Series A Preferred Stock who did not submit such request of its receipt thereof and will offer all such holders the opportunity to direct that their shares be redeemed concurrently with the redemption pursuant to the Optional Redemption Request. On April 19, 2010, this corporation shall, to the extent it may lawfully do so, redeem all outstanding Series A Preferred Stock for an amount equal to the Series A Redemption Price on that date (the "Mandatory Redemption Date"). The Corporate Redemption Date, the Optional Redemption Date and the Mandatory Redemption Date are referred to collectively herein as the -5- "Redemption Date"). Any redemption of Series A Preferred Stock effected pursuant to this subsection 5(a) shall be made on a pro rata basis among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock proposed to be redeemed from such holders. (b) At least fifteen (15) but no more than thirty (30) days prior to each of the Corporation Redemption Date, the Optional Redemption Date and the Mandatory Redemption Date written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series A Preferred Stock to be redeemed, at the address last shown on the records of this corporation for such holder, notifying such holder of the redemption to be effected on the applicable Redemption Date, specifying the number of shares to be redeemed from such holder, the applicable Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to this corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in subsection (5)(c), on or after each Redemption Date, each holder of Series A Preferred Stock to be redeemed on such Redemption Date shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series A Preferred Stock designated for redemption on such Redemption Date in the Redemption Notice as holders of Series A Preferred Stock (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of this corporation legally available for redemption of shares of Series A Preferred Stock on a Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed on such date, those funds that are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed such that each holder of a share of Series A Preferred Stock receives the same percentage of the applicable Series A Redemption Price. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of this corporation are legally available for the redemption of shares of Series A Preferred Stock, such funds will immediately be used to redeem the balance of the shares that this corporation has become obliged to redeem on any Redemption Date but that it has not redeemed. -6- 6. Conversion. The holders of the Series A Preferred Stock shall have ---------- conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share and on or prior to the date such shares are redeemed, at the office of this corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price; provided, however, that until the closing of a firmly underwritten public offering of the corporation's securities, which results in net proceeds to the corporation of at least $50,000,000 (the "IPO"), the Conversion Price for the Series A Preferred Stock shall be subject to adjustment as set forth in subsection 6(d). Upon conversion of each share of Series A Preferred Stock into Common Stock, all accrued but unpaid dividends with respect to such share of Series A Preferred Stock shall be waived and forgiven and the corporation shall have no further obligation with respect to such dividends. (b) Mechanics of Conversion. Before any holder of Series A Preferred ----------------------- Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Series A Preferred Stock, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities. (c) Conversion Price Adjustments of Preferred Stock for Certain ----------------------------------------------------------- Dilutive Issuances, Splits and Combinations. Until the IPO, the Conversion - ------------------------------------------- Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: -7- (i) (A) If this corporation shall issue, after the date upon which any shares of Series A Preferred Stock were first issued (the "Purchase Date"), any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Stock, the Conversion Price in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 6(c)(i)(E)(1) or(2)) plus the number of shares of Common Stock that the aggregate consideration received by this corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 6(c)(i)(E)(1) or (2)) plus the number of shares of such Additional Stock. (B) No adjustment of the Conversion Price for the Series A Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 6(c)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors in good faith irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(c)(i) and subsection 4(c)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to -8- purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 6(c)(i)(C) and (c)(i)(D)), if any, received by this corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (to the extent then convertible or exchangeable) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 6(c)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 6(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type -9- described in either subsection 6(c)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 6(c)(i)(E)) by this corporation after the Purchase Date other than: (A) Common Stock issued pursuant to a transaction described in subsection 6(d) hereof; or (B) Shares of Common Stock issuable or issued to employees, consultants, directors or vendors (if in transactions with primarily non- financing purposes) of this corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of this corporation in an amount not to exceed fifteen percent (15%) of the capital stock of the corporation on a fully-diluted basis. (C) shares of Common Stock issued as an equity kicker to banks, lenders and equipment lessors in connection with debt financings or equipment leases; (D) shares of Common Stock issued for consideration other than cash in connection with mergers, consolidations, acquisitions of assets and other acquisitions or strategic transactions with non-affiliated third parties as approved by the Board of Directors; (E) shares of Common Stock issued pursuant to the terms of that certain Exchange Agreement dated April 19, 2000 by and among the corporation, Entravision Communications Company, L.L.C. (the "LLC"), the individual and/or trust members of the LCC and Univision Communications Inc. (F) shares of Common Stock issued pursuant to the IPO; or (iii) any right of the Series A Preferred Stock to adjust the Conversion Price pursuant to this Section 6(c) shall terminate concurrently with the closing of the IPO. (d) Stock Splits. ------------ (i) In the event this corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common -10- Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 6(c)(i)(E). (ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) Recapitalizations. If at any time or from time to time there shall ----------------- be a recapitalization or reclassification of the Common Stock (or a merger, transfer, consolidation, or exchange in respect to Units which does not constitute a Change in Control, other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 6 or Section 4) provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of this corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 6 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (f) No Impairment. This corporation will not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment. (g) No Fractional Shares and Certificate as to Adjustments. ------------------------------------------------------ (i) No fractional shares shall be issued upon the conversion of any -11- share or shares of the Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section 6, this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series A Preferred Stock. (h) Notices of Record Date. In the event of any taking by this ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Series A Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (i) Reservation of Stock Issuable Upon Conversion. This corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Restated Certificate of Incorporation. (j) Notices. Any notice required by the provisions of this Section 6 to ------- be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address -12- appearing on the books of this corporation. 7. Voting Rights. Except as set forth in Section 8 below or required by ------------- Delaware law, the Series A Preferred Stock shall have no voting rights. 8. Protective Provisions. So long as any shares of Series A Preferred --------------------- Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock: (a) amend the Certificate of Incorporation (as amended) of this corporation or the bylaws of this corporation in any manner (including, without limitation, by means of a merger or consolidation) which adversely affects the rights of the Series A Preferred Stock; (b) authorize or issue, or obligate itself to issue, any other equity security having a preference over, or being on a parity with, the Series A Preferred Stock with respect to dividends, liquidation, redemption or voting, including any other security convertible into or exercisable for any equity security other than Senior Preferred Stock shares of Series B Preferred Stock issued pursuant to the Merger Agreement; or (c) enter into or engage in any transaction with an affiliate (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) on terms materially less advantageous to the Corporation or its stockholders and would be the case if such transaction had been effected with a non-affiliate. 9. Status of Redeemed or Converted Stock. In the event any shares of ------------------------------------- Series A Preferred Stock shall be redeemed or converted pursuant to Section 5 or Section 6 hereof, the shares so redeemed or converted shall be canceled and shall not be issuable by this corporation. The Restated Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in this corporation's authorized capital stock. [Remainder of Page Intentionally Left Blank] -13- IN WITNESS WHEREOF, Entravision Communications Corporation has caused this certificate to be signed duly executed by its duly authorized officers and attested by its secretary this ____ day of __________, 2000. ENTRAVISION COMMUNICATIONS CORPORATION By:____________________________________ Walter F. Ulloa Chairman and Chief Executive Officer By:____________________________________ Jeanette L. Tully Chief Financial Officer ATTEST: ___________________________________ Paul A. Zevnik Secretary [Signature Page to Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock] -14- EX-10.23 16 0016.txt FORM OF INVESTOR RIGHTS AGREEMENT EXHIBIT 10.23 INVESTOR RIGHTS AGREEMENT This Investor Rights Agreement (this "Agreement") is made as of __________, 2000 (the "Effective Date"), by and among Entravision Communications Corporation, a Delaware corporation (the "Corporation"), the former holders of Common Stock of Z-Spanish Media Corporation, a Delaware corporation ("ZSPN") listed on Exhibit "A" hereto (the "ZSPN Stockholders"), Univision Communications ----------- Inc. ("Univision"), and the other stockholders other than Univision of the Corporation listed on Exhibit "A" hereto (the "Founders"). ----------- WHEREAS, the Corporation, its wholly-owned subsidiary, ZSPN Acquisition Corporation, Entravision Communications Company, L.L.C., ZSPN and the ZSPN Stockholders are parties to that certain Acquisition Agreement and Plan of Merger dated April ____, 2000 pursuant to which the Corporation has acquired ZSPN and the ZSPN Stockholders have received shares of Class A Common Stock of the Corporation. WHEREAS, the Founders and Univision are holders of Class A Common Stock, Class B Common Stock and Class C Common Stock of the Corporation received in connection with an incorporation transaction pursuant to the terms of that certain Exchange Agreement dated April 19, 2000, by an among the Corporation, the Company, the Founding Stockholders and other members of the Company. WHEREAS, the Corporation desires to grant to the Holders (as defined below) certain registration rights as set forth herein. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Registration Rights. The Corporation covenants and agrees as follows ------------------- (capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement): 1.1. Definitions. For purposes of this Section 1: ----------- 1.1.1. The term "1934 Act" means the Securities Exchange Act of l934, as amended. 1.1.2. The term "Act" means the Securities Act of 1933, as amended. 1.1.3. The term "Closing" has the meaning ascribed to it in the Merger Agreement. 1.1.4. The term "Common Stock" refers collectively to both the Class A Common Stock and Class B Common Stock of the Corporation. 1.1.5. The term "Demand Holder" shall mean the Holders other than Amador S. Bustos, Bustos Asset Management, L.L.C., John S. Bustos, Salvador H. Campos, Elias Conde, Mark S. Paretchan, Gonsalo Siles, Rafael Vasquez, John Vuko, Glenn Emanuel and Arthur Rockwell. 1.1.6. The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Corporation with the SEC. 1.1.7. The term "Founders Registrable Securities" means (i) Common Stock currently held by the Founders as specified on Exhibit "A", and ----------- (ii) any Common Stock of the Corporation issued as (or issuable upon the conversion or exercise of any warrants right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in clause (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's right under this Section 1 are not duly assigned as provided herein or any Registrable Securities after such securities have been sold to the public or sold pursuant to Rule 144 promulgated under the Act. 1.1.8. The term "Holder" means the ZSPN Stockholders, Univision, the Founders and their respective permitted successors and assigns. 1.1.9. The terms "register," registered and registration refer to a registration effected by preparing and filing, a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document by the SEC. 1.1.10. The term "Registrable Securities" means the Founders Registrable Securities and the ZSPN Registrable Securities. 1.1.11. The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, Registrable Securities. 1.1.12. The term "SEC" shall mean the Securities and Exchange Commission. 1.1.13. The term "ZSPN Registrable Securities" means (i) the Common Stock currently held by ZSPN Stockholders as a result of the Merger as specified on Exhibit "A" and (ii) any Common Stock of the Corporation issued as ----------- (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in -2- clause (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not duly assigned as provided herein or any Registrable Securities after such securities have been sold to the public or sold pursuant to Rule 144 promulgated under the Act. 1.2. Request for Registration. ------------------------ 1.2.1. Registration Rights. If the Corporation shall receive ------------------- at any time after one (1) year after the effective date of the first registration statement for a public offering of securities of the Corporation (other than a registration statement relating either to the sale of securities to employees of the Corporation pursuant to a stock option, stock purchase or similar plan), a written request from the holders of a majority of the ZSPN Registrable Securities, the holders of a majority of the Founders Registrable Securities, or Univision ("Initiating Holders"), requesting that the Corporation file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price, net of underwriting discounts and commissions, of at least $20 million, then the Corporation shall: (a) within twenty (20) days of the receipt thereof, give written notice of such request to all Holders; and (b) use reasonable and diligent efforts to cause such shares to be registered under the Act as soon as practicable, subject to the limitations of subsection 1.2.2. 1.2.2. Underwriting: Requirements. If the Initiating Holders -------------------------- intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Corporation as a part of their request made pursuant to subsection 1.2.1 and the Corporation shall include such information in the written notice referred to in subsection 1.2.1. The underwriter will be selected by the Corporation from the lead underwriters in its initial public offering or from another investment banking firm of national repute and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder or other holder of securities of the Corporation to include securities in such registration shall be conditioned upon such Holder's or holders' participation in such underwriting and the inclusion of such Holder's or holders' securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder or holder) to the extent provided herein. All Holders and other holders of securities of the Corporation proposing to distribute their securities through such underwriting shall (together with the Corporation as provided in subsection 1.5.5) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Corporation shall so advise all Holders of Registrable Securities and other holders of registration rights which would otherwise be -3- underwritten pursuant hereto, and the number of securities that may be included in the underwriting on behalf of each Holder or other holder shall be allocated on a pro-rata basis among the selling stockholders according to the total number of securities held by each such selling stockholder and entitled to inclusion therein on the basis of a registration rights agreement with the Corporation; provided, however, that the numbers of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration. For purposes of allocating securities to be included in any offering, for any selling stockholder which is a partnership or corporation, the "affiliates" (as defined in Rule 405 under the Act), partners, retired partners and stockholders of such holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. To facilitate the allocation of shares in accordance with the above provisions, the Corporation may round the number of shares allocated to any Holder to the nearest 100 shares. 1.2.3. Notwithstanding the foregoing, if the Corporation shall furnish to Demand Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be seriously detrimental to the Corporation and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Corporation shall have the right to defer taking action with respect to such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Corporation may not utilize this right more than once in any twelve-month period. 1.2.4. In addition, the Corporation shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (a) With respect to the ZSPN Stockholders, after the Corporation has effected one (1) such registration pursuant to Section 1.2 in which the ZSPN Stockholders were the majority of the Initiating Holders and such registration has been declared or ordered effective. (b) With respect to the Founders, after the Corporation has effected two (2) such registrations pursuant to Section 1.2 in which the Founders were the majority of the Initiating Holders and such registrations have been declared or ordered effective. (c) With respect to Univision, after the Corporation has effected one (1) such registration pursuant to Section 1.2 in which Univision was the Initiating Holder. -4- (d) During the period starting with the date sixty (60) days prior to the Corporation's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, (x) the Corporation's initial registered offering of its securities to the general public (other than a registration statement relating to either the sale of securities to employees of the Corporation pursuant to a stock option, stock purchase or similar plan), (y) a previous registration subject to this Section 1.2 or (z) a previous registration subject to Section 1.3 hereof; provided, that, the Corporation is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (e) In any particular jurisdiction in which the Corporation would be required to execute a general consent to service of process, unless the Corporation is already subject to service in such jurisdiction and except as required by the Act; or (f) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below. 1.3. Corporation Registration. ------------------------ 1.3.1. Registration Rights. If (but without any obligation ------------------- to do so) the Corporation proposes to register (including for this purpose a registration effected by the Corporation for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than the initial public offering of its securities or a registration relating solely to the sale of securities to participants in a Corporation stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Corporation shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Corporation in accordance with Section 4.5, the Corporation shall, subject to the provisions of paragraph 1.3.2 below, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.3.2. Underwriting Requirements. In connection with any ------------------------- offering involving an underwriting of shares of the Corporation's capital stock other than its initial public offering, the Corporation shall not be required under this Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Corporation and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Corporation. If the total amount of securities, including Registrable Securities, requested by stockholders to be -5- included in such offering exceeds the amount of securities sold other than by the Corporation that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Corporation shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering. Allocation of securities to be sold in any such offering shall be made on a pro-rata basis among the selling stockholders according to the total number of securities held by each such selling stockholder and entitled to inclusion therein on the basis of a registration rights agreement with the Corporation. For purposes of allocation of securities to be included in any offering now or hereafter entered into, for any selling stockholder which is a partnership or corporation, the "affiliates" (as defined in Rule 405 under the Act), partners, retired partners and stockholders of such holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.4. Form S-3 Registration. In case the Corporation shall receive --------------------- from any Holder or Holders of ZSPN Registrable Securities a written request or requests that the Corporation effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Corporation will: 1.4.1. promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and 1.4.2. as soon as practicable, effect such registration and all such qualifications and compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Corporation; provided, however, that the Corporation shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if the Registrable Securities requested by all Holders to be registered pursuant to this Section 1.4 have an anticipated aggregate offering price to the public (before deducting any underwriter discounts, concessions or commissions) of less than $1,000,000; (2) if Form S-3 is not available for such offering by the Holders; (3) if the Corporation shall furnish to the Holders a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be seriously detrimental to the Corporation and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Corporation shall have the right to defer the filing of the Form S-3 registration statement for a period of not more -6- than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Corporation shall not utilize this right more than twice in any twelve-month period; (4) if the Corporation has, within the twelve (12) month period preceding the date of such request, already effected one (1) or more registrations on Form S-3 pursuant to this Section 1.4; or (5) in any particular jurisdiction in which the Corporation would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. 1.4.3. Subject to the foregoing, the Corporation shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration pursuant to Sections 1.2. 1.5. Obligations of the Corporation. Whenever required under this ------------------------------ Section 1 to effect the registration of any Registrable Securities, the Corporation shall, as expeditiously as reasonably possible: 1.5.1. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that such 90-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Corporation. 1.5.2. Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. 1.5.3. Furnish (at no cost) to the Holders such numbers of copies of a prospectus, including a preliminary prospectus and of each amendment and supplement thereto, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 1.5.4. Use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business -7- or to file a general consent to service of process in any such states or jurisdictions. 1.5.5. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and performs its obligations under such an agreement. 1.5.6. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 1.5.7. Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Corporation are then listed. 1.5.8. Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.5.9. In the event of any underwritten public offering, cooperate with the selling Holders, the underwriters participating in the offering and their counsel in any due diligence investigation reasonably requested by the selling Holders or the underwriters in connection therewith, and participate, to the extent reasonably requested by the managing underwriter for the offering or the selling Holder, in efforts to sell the Registrable Securities under the offering (including, without limitation, participating in "roadshow" meetings with prospective investors at reasonable times) that would be customary for underwritten primary offerings of a comparable amount of equity securities by the Corporation. 1.5.10. Notify each Holder of Registrable Securities covered by such registration statement: (i) when such registration statement or any post- effective amendment to the registration statement has been declared effective by the SEC, (ii) of any request by the SEC for amendments or supplements to such registration statement or prospectus or for additional information; and (iii) of the receipt by the Corporation of any notification from any public board or body with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. 1.5.11. Notify each Holder of Registrable Securities of the issuance of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and the Corporation shall use its reasonable best efforts to prevent the issuance of any stop order, or if any order is issued, to obtain the withdrawal thereof. -8- 1.5.12. Take all actions necessary to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities and the transfer thereof upon resale by the Holder of such Registrable Securities in accordance with the applicable prospectus. 1.5.13. Otherwise use its reasonable and diligent efforts in performance of its obligations hereunder to comply with all applicable rules and regulations of the SEC and of state securities commissions and any stock exchange or automated quotation system. 1.6. Furnish Information. ------------------- 1.6.1. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Corporation such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6.2. The Corporation shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 if, due to the operation of subsection 1.6. 1, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Corporation's obligation to initiate such registration as specified in subsection 1.2.1 or subsection 1.4.2, whichever is applicable. 1.7. Expenses of Demand, Corporation or S-3 Registration. All --------------------------------------------------- expenses (exclusive of underwriting discounts and commissions and stock transfer taxes) incurred in connection with registrations, filings or qualifications pursuant to this Section 1 including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Corporation and the reasonable fees and disbursements of one counsel for all selling Holders of ZSPN Registrable Securities and one counsel for all selling Holders of Founders Registrable Securities shall be bome by the Corporation. 1.8. Delay of Registration. No Holder shall have any right to obtain --------------------- or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.9. Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Section 1: -9- 1.9.1. To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder, the constituent partners and members, or officers, directors and employees of each Holder, and, if such Holder is a natural person, his or her heirs, personal representatives and assigns, and any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Corporation of the Act, any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Corporation will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.9.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld), nor shall the Corporation be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information fumished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; provided, further, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting such losses, claims, damages, or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Corporation shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. 1.9.2. To the extent permitted by law, each selling Holder will indemnify and hold harmless the Corporation, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Corporation within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, severally but not jointly, against any losses, claims, damages, or liabilities joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise -10- out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall Holder's cumulative, aggregate liability under this subsection 1.9.2, under Section 1.9.4, or under such sections together, exceed the net proceeds received by such Holder from the offering out of which such Violation arises. 1.9.3. Promptly after receipt by an indemnified party under this Section l.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with one counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 1.9 except to the extent the failure to deliver notice prejudices its ability to defend such action. Any omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. 1.9.4. If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and of the indemnified party on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue -11- or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 1.9.5. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. In addition, any indemnity agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party. 1.9.6. The obligations of the Corporation and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10. Reports under Securities Exchange Act of 1934. With a view to --------------------------------------------- making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Corporation to the public without registration or pursuant to a registration on Form S-3, the Corporation agrees to: 1.10.1. make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Corporation for the offering of its securities to the general public; 1.10.2. take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Corporation for the offering of its securities to the general public is declared effective; 1.10.3. file with the SEC in a timely manner all reports and other documents required of the Corporation under the Act and the 1934 Act; and 1.10.4. furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Corporation that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Corporation), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it -12- qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Corporation and such other reports and documents so filed by the Corporation, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11. Assignment of Registration Rights. The rights to cause the --------------------------------- Corporation to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to, (i) in the case of any Holder that is a partnership, limited liability company or corporation, any current and former constituent partners, members, stockholders, affiliate funds and affiliates of that Holder, or (ii) in the case of any Holder, (x) a transferee or assignee of such securities who, after such assignment or transfer, holds at least twenty percent (20%) of the Holder's shares (as appropriately adjusted for all stock splits, dividends, combinations, reclassifications and other like transactions) of the Registrable Securities originally held by such transferring Holder, (y) a transferee or assignee who is a spouse, lineal descendant, adopted child, father, mother, brother or sister (each, a "Family Member") of Holder or (z) or to a trust, the beneficiaries of which are exclusively the Holder and/or Family Members, provided, in each case, that: (a) the Corporation is, within a reasonable time after such transfer, fumished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.12 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, the holdings of "affiliates" (as defined in Rule 405 under the Act) of such holder, affiliated partnerships, constituent or retired partners of such partnerships (as well as Family Members of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with such partnership and its affiliated partnerships and other entities; provided, that, all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.12. "Market Stand-Off" Agreement. Each Holder hereby agrees that, ---------------------------- during the period of duration specified by the Corporation and an underwriter of common stock or other securities of the Corporation, following the effective date of the registration statement of the Corporation filed under the Act relating to its initial public stock offering, it shall not, to the extent requested by the Corporation and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Registrable Securities of the Corporation held by it at any time during such period except common stock included in such registration; provided, however, that: -13- 1.12.1. all officers and directors of the Corporation shall have entered into similar agreements; 1.12.2. the Corporation uses its best efforts to obtain from persons who hold greater than five percent (5%) of the Corporation's outstanding capital stock, a lock-up agreement similar to that set forth in this Section 1.12; and 1.12.3. such market stand-off time period shall not exceed ninety (90) days (or such period as reasonably requested by the Corporation's underwriters). Each Holder agrees to provide to the other underwriters of any public offering in which such Holder is selling Registrable Securities such further agreements as such underwriter may reasonably request in connection with this market stand-off agreement, provided that the terms of such agreements are substantially consistent with the provisions of this Section 1.12. In order to enforce the foregoing covenant, the Corporation may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, the obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction. 1.13. Termination of Registration Rights. The right of any Holder to ---------------------------------- request registration or to include Registrable Securities in any registration pursuant to this Section 1 shall terminate upon the earlier of (i) the date which is five (5) years after the date immediately prior to the closing of the initial public offering of the Corporation's Common Stock, or (ii) such date as a public trading market shall exist for the Corporation's Common Stock and all shares of Registrable Securities beneficially owned and subject to Rule 144 aggregation by such Holder may immediately be sold under Rule 144 (without regard to Rule 144(k)) during any 90-day period, provided that such Holder is not then an "affiliate" of the Corporation within the meaning of Rule 144 and such Holder owns less than I% of the then outstanding shares of Common Stock. 1.14. Limitations on Subsequent Registration Rights. From and after --------------------------------------------- the date of this Agreement, the Corporation shall not, without the prior written consent of the Holders of at least a majority of the ZSPN Registrable Securities and a majority of the Founders Registrable Securities then outstanding, enter into any agreement with any Holder or prospective holder of any securities of the Corporation granting registration rights with respect to such securities, unless under the terms of such agreement or as expressly provided in this Agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included. -14- 1.15. Co-Sale Rights. -------------- 1.15.1. Transfer Notice. If at any time a Founder proposes to --------------- transfer shares of capital stock of the Corporation or rights, options or other securities exercisable for or convertible into shares of capital stock of the Corporation (directly or indirectly) whether or not such right or option or other security is immediately exercisable or convertible (collectively, the "Equity Securities") to any person or entity pursuant to an understanding with such person or entity (a "Transfer"), then such Founder shall give the Corporation and each Holder written notice of the Founder's intention to make the Transfer (the "Transfer Notice"), which Transfer Notice shall include (i) a description of the Equity Securities to be transferred (the Offered Equity Securities"), (ii) the identity of the prospective transferee(s) and (iii) the consideration and material terms and conditions upon which the proposed transfer is to be made. The Transfer Notice shall include a copy of any written proposal, term sheet or letter or intent or other agreement related to the proposed Transfer. 1.15.2. Right to Participate. Each Holder which notifies the -------------------- Founder proposing to make a transfer in writing within thirty (30) days after receipt of the Transfer Notice shall have the right to participate in the sale of the Equity Securities on the same terms and conditions as specified in the Transfer Notice (such proposed terms and conditions, a "Purchase Officer"). To the extent a Holder exercises such right of participation in accordance with the terms and conditions set forth below, the number of Equity Securities that the Founder may sell pursuant to such Purchase Offer shall be correspondingly reduced. The right of participation of the Holders shall be subject to the following terms and conditions. (a) Each Holder may sell all or any part of that number of Equity Securities equal to the product obtained by multiplying the aggregate number of Holder Equity Securities covered by the Purchase Offer by a fraction, (x) the numerator of which shall be the number of Equity Securities (on an as-converted, as exercised fully-diluted basis) at the time owned by such Holder and (y) the denominator of which shall be the number of shares of Equity Securities (on an as-converted, as-exercised fully-diluted basis) at the time owned by all Holders electing to participate in the sale and all Founders participating in the sale. (b) Each Holder may effect its participation in the sale by delivering to the Founder, for transfer to the prospective transferee(s) identified in the Transfer Notice, one or more certificates, properly endorsed for transfer, that represents the number of Equity Securities that the Holder elects to sell pursuant to this Section 1.15. (c) To the extent that any prospective transferee(s) identified in the Purchase Notice prohibit such exercise of co-sale rights or otherwise refuse to purchase Equity Securities from a Holder exercising its co- sale right hereunder, the Founder shall not sell to such prospective transferee(s) any Equity Securities unless and until, simultaneously with such sale, the Founder shall purchase such Equity Securities from such Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice. -15- 1.15.3. Mechanics of Transfer. The assignment or stock --------------------- certificates that the Holders deliver to the Founder pursuant to this Section 1.15 shall be transferred by such Founder to the prospective transferee(s) identified in the Transfer Notice in consummation of the sale of the Founder's Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Founder shall promptly thereafter remit to each of the Holders participating in the sale that portion of the sale proceeds to which each Holder is entitled by reason of its participation in such sale. In the event that less than all the Equity Securities represented by such assignment separate from certificate or the shares represented by such a stock certificate are sold pursuant to this Section 1.15, the Founder shall instruct the Corporation to issue a new certificate to the Holder representing the shares not sold. 1.15.4. No Effect on Subsequent Rights. The exercise or ------------------------------ non-exercise of the rights of any Holder hereunder to participate in one or more sale of the Founder's Equity Securities made by a Founder shall not adversely affect the Holder's rights to participate in subsequent sales of Equity Securities by a Founder. 1.15.5. Termination. The provisions of this Section 1.15 shall ----------- terminate and be of no further force or effect immediately prior to the closing of a public offering of the Corporation's common stock with total gross offering proceeds to the Corporation in excess of $50 million. 20 Miscellaneous. ------------- 2.1. Successors and Assigns. Except as otherwise provided herein, ---------------------- the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2.2. Governing Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of Delaware, without regard to conflicts of law provisions of the State of Delaware or any other state. 2.3. Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2.4. Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. -16- 2.5. Notices. Except as otherwise provided herein, all notices and ------- other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of confirmed facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Holder, at such Holder's address as set forth on Exhibit "A" hereto and (ii) if ----------- to the Corporation, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 2.6. Expenses. Except as otherwise provided herein, if any action at -------- law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 2.7. Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Corporation, the holders of a majority of the ZSPN Registrable Securities then outstanding, and the holders of a majority of the Founders Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Corporation. 2.8. Aggregation of Stock. All Shares held or acquired by entities, -------------------- partnerships, former partnerships or "affiliates" (as defined in Rule 405 under the Act) of a Holder or Family Members of such Holder, or trusts the beneficiaries of which are affiliated entities or persons and/or Family Members of such Holder (collectively, "Affiliates") shall be aggregated together for the purpose of determining the availability or discharge of any rights of such Holder under this Agreement. Any Affiliate or Affiliate group shall be entitled to designate one person as representative of such group for the purpose of exercising any right or undertaking any obligation of such group hereunder (including without limitation voting any Shares held by any such Affiliate or member of any such Affiliate group), and the Corporation shall be entitled to rely on the representative for such purposes. 2.9. Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and -17- shall be enforceable in accordance with its terms. 2.10. Entire Agreement: Amendment: Waiver. This Agreement (including ----------------------------------- the exhibits hereto, if any) constitutes the full and entire understanding and Agreement between the parties with regard to the subjects hereof and thereof. [Remainder of Page Intentionally Left Blank] -18- IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first above written. Corporation ENTRAVISION COMMUNICATIONS CORPORATION By: --------------------------------------------------------- Walter F. Ulloa, Chairman and Chief Executive Officer By: --------------------------------------------------------- Philip C. Wilkinson, President and Chief Operating Officer Company ENTRAVISION COMMUNICATIONS COMPANY, L.L.C. By: --------------------------------------------------------- Walter F. Ulloa, Chairman, Chief Executive Officer and Managing Member By: --------------------------------------------------------- Philip C. Wilkinson, President, Chief Operating Officer and Managing Member ZSPN Z-SPANISH MEDIA CORPORATION By: --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------ [Counterpart Signature Page to Investor Rights Agreement] -19- IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first above written. Individual ZSPN Investor Non-Individual ZSPN Investor - --------------------------------- ---------------------------------- Signature Print Company Name By: - --------------------------------- ------------------------------- Print Name Signature Address: ------------------------- ---------------------------------- Print Name and Title - --------------------------------- Address: -------------------------- ---------------------------------- [Counterpart Signature Page to Investor Rights Agreement] -20- IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first above written. Founder ----------------------------------------------- Signature Print Name: ------------------------------------ [Counterpart Signature Page to Investor Rights Agreement] -21- EX-10.25 17 0017.txt OFFICE LEASE DATED AUGUST 19, 1999 EXHIBIT 10.25 ------------- THE WATER GARDEN ---------------- OFFICE LEASE ------------ This Office Lease, which includes the preceding Summary of Basic Lease Information (the "Summary") attached hereto and incorporated herein by this reference (the Office Lease and Summary are sometimes collectively referred to herein as the "Lease"), dated as of the date set forth in Section 1 of the --------- Summary is made by and between WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company ("Landlord"), and ENTRAVISION COMMUNICATIONS COMPANY, LLC, a Delaware limited liability company ("Tenant"). ARTICLE 1 --------- PREMISES, BUILDING, PROJECT, AND COMMON AREAS --------------------------------------------- 1.1 Premises, Building, Project and Common Areas. -------------------------------------------- 1.1.1 The Premises. Upon and subject to the terms hereinafter set ------------ forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 4.2 of the Summary (the ----------- "Premises"), which Premises are located in the "Building," as that term is defined in Section 1.1.2, below. The outline of the Premises is set forth in ------------- Exhibit A attached hereto. - --------- 1.1.2 The Building and The Project. The Premises are a part of the ---------------------------- building set forth in Section 4.1 of the Summary (the "Building") located in ----------- Santa Monica, California. The Building is part of an office project known as "The Water Garden" which contains another office building (the "Adjacent Building"). The term "Project," as used in this Lease, shall mean (i) the Building, the Adjacent Building, and the "Common Areas", as that term is defined in Section 1.1.3 below, (ii) the land (which is improved with landscaping, ------------- subterranean parking facilities and other improvements) upon which the Building, the Adjacent Building, and the Common Areas are located, and (iii) at Landlord's discretion, any additional real property, areas, buildings or other improvements added thereto pursuant to the terms of Section 1.1.4 of this Lease. ------------- 1.1.3 Common Areas. Tenant shall have the non-exclusive right to use ------------ in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the --------- Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project, whether or not those areas are open to the general public (such areas, together with such other portions of the Project designated by Landlord, in its reasonable discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, such as balconies abutting tenants' premises, are collectively referred to herein as the "Common Areas"). The Common Areas shall consist of the "Project Common Areas" and the "Building Common Areas". The term "Project Common Areas", as used in this Lease, shall mean the portion of the Project designated as such by Landlord. "Building Common Areas", as used in this Lease, shall mean the portions of the Common Areas located within the Building designated as such by Landlord. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord, provided that Landlord shall maintain and operate the same in a manner consistent with that of other first-class, mid-rise office buildings (including the office buildings to be constructed adjacent to the Project as "Phase II" of The Water Garden, hereafter referred to as "Phase II") in the Santa Monica, California area, which are comparable in terms of size, quality of construction, appearance, and services and amenities (the "Comparable Buildings"). Except when and where Tenant's right of access is excluded as the result of (i) an emergency, (ii) a requirement by law, or (iii) a specific provision set forth in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the "Lease Term," as that term is defined in Section 2.1 of this ----------- Lease. 1.1.4 Landlord's Use and Operation of the Building, Project, and ---------------------------------------------------------- Common Areas. Landlord reserves the right from time to time without notice to - ------------ Tenant (i) to close temporarily any of the Common Areas; (ii) to make reasonable changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, passages, stairways and other ingress and egress, direction of traffic, landscaped areas, loading and unloading areas, and walkways; (iii) to expand the Building or the Adjacent Building; (iv) to add additional buildings and improvements to the Common Areas; (v) to designate land outside the Project to be part of the Project, and in connection with the improvement of such land to add additional buildings and common areas to the Project; provided that, notwithstanding anything to the contrary contained in this Lease, the Project shall not be expanded to include more than the land located in Santa Monica, California, which has Olympic Boulevard as its Southern boundary, Cloverfield Boulevard as its Western boundary, Colorado Avenue as its Northern boundary, and 26th street as its Eastern boundary; (vi) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or to any adjacent land, or any portion thereof; and (vii) to do and perform such other acts and make such other changes in, to or with respect to the Project, Common Areas and Building or the expansion thereof as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 1.2 Verification of Rentable Square Feet of Premises, Building, and --------------------------------------------------------------- Project. For purposes of this Lease, "rentable square feet" and "usable square - ------- feet" of the Premises shall be deemed to be as set forth in Section 4.2 of the Summary and the rentable square footage of the Building shall be deemed to be 332,896 rentable square feet. 1.3 Base, Shell and Core Work in the Premises. Except as specifically set ----------------------------------------- forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit E (the "Tenant Work Letter"), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises or the Project except as specifically set forth in this Lease and the Tenant Work Letter. ARTICLE 2 --------- INITIAl LEASE TERM; OPTION TERM ------------------------------- 2.1 Initial Lease Term. The terms and provisions of this Lease shall be ------------------ effective as of the date of this Lease. The term of this Lease (the "Lease Term") shall be as set forth in Section 5.1 of the Summary, shall commence on ----------- the earlier to occur of (i) the date Tenant opens for business in the Premises, and (ii) the date of "Substantial Completion", as that term is defined in this Article 2, of the Premises by Landlord (the "Lease Commencement Date"), and - --------- shall terminate on the date set forth in Section 5.3 of the Summary (the "Lease ----------- Expiration Date") unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the eleventh month thereafter and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. For purposes of this Lease, "Substantial Completion" of the Premises shall occur upon the completion of construction, as reasonably determined by Landlord, of the "Tenant Improvements," as that term is defined in Section 1 of the Tenant Work Letter, in the Premises pursuant to the plans and drawings which are prepared pursuant to the terms of the Tenant Work Letter, with the exception of any punch list items and any tenant fixtures, work- stations, built-in furniture, or equipment to be installed by Tenant in the Premises pursuant to the terms of the Tenant Work Letter or to be installed under the supervision of "Contractor" as that term is defined in Section 4.1 of the Tenant Work Letter. Within thirty (30) days following the Substantial Completion of the Premises, Landlord shall deliver to Tenant a notice (the "Notice of Lease Term Dates") in substantially the form as set forth in Exhibit B attached hereto, which notice Tenant shall execute and return to Landlord within ten (10) business days of receipt thereof, and thereafter the dates set forth on such notice shall be conclusive and binding upon Tenant. Failure of Tenant to timely execute and deliver the -2- Notice of Lease Term Dates shall constitute an acknowledgment by Tenant that the statements included in such notice are true and correct, without exception. 2.2 Option Term. ----------- 2.2.1 Option Right. Landlord hereby grants the Tenant originally ------------ named in the Lease (the "Original Tenant") one (1) option to extend the Lease Term for a period of five (5) years (the "Option Term"), which option shall be exercisable only by written notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such notice, Tenant is not in monetary or material non-monetary default (collectively, "Material Default") under this Lease. Upon the proper exercise of such option to extend, and provided that, as of the end of the initial Lease Term, Tenant is not in Material Default under this Lease, the Lease Term, as it applies to the Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall be personal to the Original Tenant or any "Affiliate," as that term is defined in Section 14.7, below, and may only be exercised by the Original Tenant or any Affiliate (and not any other assignee, sublessee or transferee of the Original Tenant's interest in this Lease) if the Original Tenant or any Affiliate occupies the entire Premises. 2.2.2 Option Rent. The rent payable by Tenant during the Option Term ----------- (the "Option Rent") shall be equal to the rent (including additional rent and considering any "base year" or "expense stop" applicable thereto), including all escalations, at which, as of the commencement of the Option Term, tenants are leasing non-sublease, non-encumbered, non-equity space comparable in size, location and quality to the Premises, for a term of five (5) years, which comparable space is located in the Project and in Phase II, or, if there are not a sufficient number of current comparable transactions in the Project and in Phase II, then in the Comparable Buildings (the "Comparable Transactions"), in either case taking into consideration the following concessions (collectively, the "Renewal Concessions"): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same can be utilized by Tenant based upon the fact that the precise tenant improvements existing in the Premises are specifically suitable to Tenant; and (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space; provided, however, that in calculating the Option Rent, no consideration shall be given to (i) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with Tenant's exercise of its right to lease the Premises during the Option Term or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space, and (ii) any period of rental abatement, if any, granted to tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces. The Option Rent shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant's Rent obligations during the Option Term. Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants). 2.2.3 Exercise of Option. The option contained in this Section 2.2 ------------------ shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice (the "Interest Notice") to Landlord not more than fifteen (15) months nor less than fourteen (14) months prior to the expiration of the initial Lease Term, stating that Tenant is interested in exercising its option; (ii) Landlord, after receipt of Tenant's notice, shall deliver notice (the "Option Rent Notice") to Tenant not less than thirteen (13) months prior to the expiration of the initial Lease Term, setting forth the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before the date occurring thirty (30) days after Tenant's receipt of the Option Rent Notice, exercise the option by delivering written notice (the "Exercise Notice") thereof to Landlord, and upon, and concurrently with, such exercise, Tenant may, at its option, accept or reject the Option Rent. If Tenant does not affirmatively accept the Option Rent contained in the Option Rent Notice, or if Tenant timely delivers the Exercise Notice without -3- having previously delivered to Landlord the Interest Notice, then the parties shall follow the procedure, and the Option Rent shall be determined, as set forth in Section 2.2.4 below. ------------- 2.2.4 Determination of Option Rent. In the event Tenant does not ---------------------------- timely and appropriately accept the Option Rent or Tenant timely and appropriately objects to Landlord's determination of Option Rent, as the case may be, Landlord and Tenant shall use good faith efforts to attempt to agree upon the Option Rent. If Landlord and Tenant fail to reach agreement within ten (10) days following Tenant's objection to the Option Rent (the "Outside Agreement Date"), then each party shall make a separate determination of the Option Rent, within five (5) days, concurrently exchange such determinations and such determinations shall be submitted to arbitration in accordance with Sections 2.2.4.1 through 2.2.4.7 below. - -------------------------------- 2.2.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be an independent real estate broker or appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of commercial properties in the West Los Angeles, California area. The determination of the arbitrators shall be limited solely to the issue area of whether Landlord's or Tenant's submitted Option Rent is the closest to the actual Option Rent as determined by the arbitrators, taking into account the requirements of Section ------- 2.2.2 of this Lease. Each such arbitrator shall be appointed within fifteen - ----- (15) days after the applicable Outside Agreement Date. 2.2.4.2 The two (2) arbitrators so appointed shall within ten (10) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators. 2.2.4.3 The three (3) arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Option Rent and shall notify Landlord and Tenant thereof. 2.2.4.4 The decision of the majority of the three (3) arbitrators shall be final and binding upon Landlord and Tenant and judgment on such decision may be rendered in a court of competent jurisdiction. 2.2.4.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. 2.2.4.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 2.2.4. ------------- 2.2.4.7 The cost of arbitration shall be paid by Landlord and Tenant equally. ARTICLE 3 --------- BASE RENT --------- Tenant shall pay, without notice or demand, to Landlord or Landlord's agent at the management office of the Project, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ("Base Rent") as set forth in Section 6 of the Summary, payable in equal monthly installments as set forth in Section 6 of the Summary in advance on or before the first day of each and every month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term shall be paid at the time of Tenant's execution of this Lease by certified or -4- cashier's check. If the Lease Commencement Date falls on a day of the month other than the first day of such month, the Rent for the first fractional month shall accrue on a daily basis for the period from the Lease Commencement Date to the end of such calendar month. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis. ARTICLE 4 --------- ADDITIONAL RENT --------------- 4.1 General Terms. As set forth in this Article 4, in addition to paying ------------- the Base Rent specified in Article 3 of this Lease, Tenant shall pay "Tenant's Share" of the annual "Project Expenses," as those terms are defined in Sections 4.2.6 and 4.2.4 of this Lease, respectively, allocated to the tenants of the Building pursuant to the terms of Section 4.3.1 below, to the extent such Project Expenses allocated to the tenants of the Building which are in excess of such Project Expenses applicable to the "Base Year," as that term is defined in Section 4.2.1 of this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the "Additional Rent", and the Base Rent and the Additional Rent are sometimes herein collectively referred to as "Rent." All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term. 4.2 Definitions. As used in this Article 4, the following terms shall ----------- have the meanings hereinafter set forth: 4.2.1 "Base Year" shall mean the period set forth in Section 7.1 of the Summary. 4.2.2 "Expense Year" shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires. 4.2.3 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature incurred in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Project, including, without limitation, any amounts paid or incurred for (i) the cost of supplying all utilities, the cost of operating, maintaining, repairing, renovating, complying with conservation measures in connection with, and managing the utility systems, mechanical systems, sanitary and storm drainage systems, and elevator systems, and the cost of supplies and equipment, maintenance, and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with the implementation and operation of a transportation system management program or a municipal or public shuttle service or parking program; (iii) the cost of all insurance carried in connection with the Project, or any portion thereof; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area repair, restoration, and maintenance, including, but not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants; (vii) payments under any equipment rental agreements or management agreements (including the cost of any management fee and the fair rental value of any office space provided thereunder); (viii) wages, salaries and other compensation and benefits of all persons engaged in the operation, maintenance, management, or security of the Project, or any portion thereof, including employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; (ix) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Project, or any portion thereof; (x) the cost of operation, repair, maintenance and replacement of all systems and equipment which serve the Project in whole or part; (xi) the cost of janitorial services, alarm and security service, window cleaning, -5- trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) the cost of any capital improvements made to the Project which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project, or any portion thereof, or made to all or any portion of the Project, or any portion thereof, after the Lease Commencement Date that are required under any governmental law or regulation that was not applicable to the Project at the time that permits for the construction of the Building were obtained; provided, however, that each such permitted capital expenditure shall be amortized (including interest on the unamortized cost) over its useful life as reasonably determined; and (xiii) the cost of operations, maintenance, repairs, and other expenditures (whether capital or non-capital in nature) with respect to the "Child Care Facilities," as that term is defined in Section 29.9 below, and their lease at the Project. ------------ Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include: (a) costs, including marketing costs, legal fees, space planners' fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities); (b) except as set forth in this Section 4.2.3, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment; (c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant's carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company; (d) any bad debt loss, rent loss, or reserves for bad debts or rent loss; (e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord's general corporate overhead and general and administrative expenses; (f) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager; (g) amount paid as ground rental for the Project by the Landlord; (h) except for a Project management fee to the extent allowed pursuant to item (m), below, overhead and profit increment paid to the Landlord or to subsidiaries or -6- affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis; (i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense; (j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project ; (k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (l) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings or other objects of art; (m) fees payable by Landlord for management of the Project in excess of three and one-half percent (3.5%) (the "Management Fee Cap") of Landlord's gross rental revenues, adjusted and grossed up to reflect a one hundred percent (100%) occupancy of the Building with all tenants paying rent, including base rent, pass-throughs, and parking fees (but excluding the cost of after hours services or utilities) from the Project for any calendar year or portion thereof; (n) any costs expressly excluded from Operating Expenses elsewhere in this Lease; (o) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project; (p) costs arising from the gross negligence or wilful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services; (q) costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; (r) costs arising from Landlord's charitable or political contributions; (s) subject to expenses expressly permitted pursuant to the terms of Section 4.2.3 (xii), above, any costs to correct defects in the original design or construction of the Project; and -7- (t) advertising and marketing expenditures. If the Project is not fully occupied during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Project been fully occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. In no event shall the components of Project Expenses for any Expense Year related to electrical costs be less than the components of Project Expenses related to electrical costs in the Base Year. 4.2.4 "Project Expenses" shall mean the sum of "Operating Expenses" and "Tax Expenses". 4.2.5 "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with all or any portion of the Project), which shall be paid during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. 4.2.5.1 Tax Expenses shall include, without limitation: (i) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for the purposes of this Lease; (ii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (iii) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and (iv) Any possessory taxes charged or levied in lieu of real estate taxes. 4.2.5.2 Any expenses incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. -8- 4.2.5.3 Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. --------- 4.2.5.4 The amount of Tax Expenses for the Base Year attributable to the valuation of the Project, inclusive of tenant improvements, shall be known as "Base Taxes." If, in any comparison year subsequent to the Base Year, the amount of Tax Expenses decreases, then for purposes of all subsequent comparison years, including the comparison year in which such decrease in Tax Expenses occurs, the Base Taxes shall be decreased by an amount equal to the decrease in Tax Expenses. 4.2.5.5 Notwithstanding anything to the contrary in this Section 4.2.5, the following shall be excluded from Tax Expenses: 4.2.5.5.1 All excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes applied or measured by Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project); and 4.2.5.5.2 Any items included as Operating Expenses. 4.2.6 "Tenant's Share" shall mean the percentage set forth in Section 7.2 of the Summary. Tenant's Share was calculated by multiplying the number of rentable square feet of the Premises by 100, and dividing the product by the total rentable square feet in the Building. 4.3 Allocation and Calculation of Project Expenses. ---------------------------------------------- 4.3.1 Allocation of Project Expenses to Tenants of the Building. --------------------------------------------------------- Project Expenses (i.e., Operating Expenses and Tax Expenses) are determined ---- annually for the Project as a whole. Since the Building is only one of the buildings which constitute the Project, Project Expenses shall be allocated by Landlord, in its reasonable discretion, to both the tenants of the Building and the tenants of the other buildings in the Project. The portion of Project Expenses allocated to the tenants of the Building shall consist of (i) all Project Expenses attributable solely to the Building and (ii) an equitable portion of Project Expenses attributable to the Project as a whole and not attributable solely to the Building, the Adjacent Building or to any other building of the Project. Additionally, in allocating Project Expenses to the tenants of the Building, Landlord shall have the right, from time to time, to equitably allocate some or all of the Project Expenses allocable to tenants of the Building among different tenants of the Building (the "Cost Pools"). Such Cost Pools may include, but shall not be limited to, the office space tenants of the Building and the retail space tenants of the Building. 4.3.2 Calculation of Project Expenses. Notwithstanding anything to ------------------------------- the contrary set forth in this Article 4, when calculating the Project Expenses --------- for the Base Year, such Project Expenses shall include any increase in Tax Expenses attributable to special assessments, charges, costs, or fees, or due to modifications or changes in governmental laws or regulations, including but not limited to the institution of a split tax roll, and Operating Expenses shall include market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, and utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages and amortized costs relating to capital improvements; provided, however, that at such time as any such particular assessments, charges, costs or fees are no longer included in Operating Expenses, such particular assessments, charges, costs or fees shall be excluded from the Base Year calculation of Operating Expenses. 4.4 Calculation and Payment of Additional Rent. ------------------------------------------ 4.4.1 Calculation of Excess. For every Expense Year ending or --------------------- commencing within the Lease Term, Tenant shall pay to Landlord, in the manner set forth in Section 4.4.2, -9- below, and as Additional Rent, an amount equal to Tenant's Share of Project Expenses for such Expense Year in excess of Tenant's Share of Project Expenses for the Base Year (the "Excess"). 4.4.2 Statement of Actual Project Expenses and Payment by Tenant. ---------------------------------------------------------- Landlord shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year, a statement (the "Statement") which shall state the Project Expenses incurred or accrued for such preceding Expense Year and the amount thereof allocated to the tenants of the Building, and which shall indicate the amount, if any, of Tenant's Share of Project Expenses in excess of Tenant's Share of Project Expenses for the Base Year. Upon receipt of the Statement for each Expense Year ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant's Share of Project Expenses for such Expense Year in excess of Tenant's Share of Project Expenses for the Base Year, less the amounts, if any, paid during such Expense Year as "Estimated Additional Rent," as that term is defined in Section 4.4.3, below. If the amount of Tenant's Share of Project Expenses for such Expense Year in excess of Tenant's Share of Project Expenses for the Base Year is less than the amount paid by Tenant as Estimated Additional Rent during the applicable period of the Expense Year (but not including any period of the Expense Year which occurs after the Lease has terminated), Landlord shall pay the difference to Tenant together with the applicable Statement, even if the Lease has terminated or expired. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Project Expenses allocated to the tenants of the Building for the Expense Year in which this Lease terminates, if Tenant's Share of Project Expenses for such Expense Year is in excess of Tenant's Share of Project Expenses for the Base Year, then Tenant shall immediately pay to Landlord an amount as calculated pursuant to the provisions of Section 4.4.1 of this Lease. The provisions of this Section 4.4.2 shall survive the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant's Share of any Project Expenses attributable to any Expense Year which are first billed to Tenant more than twenty-four (24) months after the earlier of Tenant's receipt of the Statement for the applicable Expense Year or the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant's Share of Project Expenses levied by any governmental authority or by any public utility companies at any time following the Expense Year to which such Project Expenses are attributable. 4.4.3 Statement of Estimated Project Expenses. In addition, Landlord --------------------------------------- shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth Landlord's reasonable estimate (the "Estimate") of what the total amount of Project Expenses for the then-current Expense Year shall be, the amount thereof to be allocated to the tenants of the Building, and the estimated amount of Tenant's Share of Project Expenses in excess of Tenant's Share of the Project Expenses for the Base Year (the "Estimated Additional Rent"). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Additional Rent under this Article 4. If, pursuant to the Estimate Statement, Estimated Additional Rent is calculated for the then-current Expense Year, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Additional Rent for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.3). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set forth in the previous Estimate Statement delivered by Landlord to Tenant. 4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible. ---------------------------------------------------------------- Tenant shall reimburse Landlord upon demand for any and all taxes required to be paid by Landlord, excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when: -10- 4.5.1 Said taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord; 4.5.2 Said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project (including the Project parking facility); or 4.5.3 Said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. 4.6 Landlord's Books and Records. In the event that Tenant disputes the ---------------------------- amount of Additional Rent set forth in any annual Statement delivered by Landlord, then within one (1) year after receipt of such Statement by Tenant (the "Review Period"), Tenant shall have the right to notify Landlord in writing that it intends to cause one of its employees or an independent certified public accountant (which accountant must be qualified and experienced and must be employed by a firm which derives its primary revenues from its accounting practice) to inspect and copy (provided Tenant signs Landlord's confidentiality agreement, in such form as is commercially reasonable and such accountant or auditor is not hired on a contingent fee basis) Landlord's accounting records at Landlord's office in the Project for the Expense Year covered by such Statement during normal business hours ("Tenant's Review"). Tenant shall provide Landlord with not less than two (2) weeks' prior written notice of its desire to conduct Tenant's Review. In connection with the foregoing review, Landlord shall furnish Tenant with such reasonable supporting documentation relating to the subject Statement (and the Statement for the Base Year, provided that such supporting documentation relating to the Statement for the Base Year shall be for informational purposes only and not for the purpose of any audit of the Base Year Statement if the time period for Tenant's audit of the Base Year Statement shall have expired) as Tenant may reasonably request. In no event shall Tenant have the right to conduct Tenant's Review if Tenant is then in default under the Lease, including, without limitation, the payment by Tenant of all Additional Rent amounts described in the Statement which is the subject of Tenant's Review, which payment, at Tenant's election, may be made under dispute. In the event that Tenant shall fail to provide Landlord with written notification within the Review Period following receipt of a particular Statement of Tenant's desire to conduct a Tenant's Review, Tenant shall have no further right to dispute the amounts of Additional Rent set forth on such Statement. In the event that following Tenant's Review, Tenant and Landlord continue to dispute the amounts of Additional Rent shown on Landlord's Statement and Landlord and Tenant are unable to resolve such dispute, then either Landlord or Tenant shall cause a final and determinative audit to be made by Landlord's accountant of the proper amount of the disputed items and/or categories of Project Expenses to be shown on such Statement (the "Final Award"). The results of such Final Award shall be conclusive and binding upon both Landlord and Tenant. If the resolution of the parties' dispute with regard to the Additional Rent shown on the Statement, whether pursuant to Tenant's Review or the Final Award reveals an error in the calculation of Tenant's Share of Project Expenses to be paid for such Expense Year, the parties' sole remedy shall be for the parties to make appropriate payments or reimbursements, as the case may be, to each other as are determined to be owing. Any such payments shall be made within thirty (30) days following the resolution of such dispute. At Landlord's election, the parties shall treat any overpayments resulting from the foregoing resolution of such parties' dispute as a credit against Rent until such amounts are otherwise paid by Landlord. Tenant shall be responsible for all costs and expenses associated with Tenant's Review and any Final Award, provided that if the parties' final resolution of the dispute involves the overstatement by Landlord of Project Expenses for such Expense Year in excess of four percent (4%), then Landlord shall be responsible for all reasonable, out-of-pocket costs and expenses associated with Tenant's Review and any Final Award. This provision shall survive the termination of this Lease to allow the parties to enforce their respective rights hereunder. -11- ARTICLE 5 --------- USE OF PREMISES --------------- Tenant shall use the Premises solely for general office purposes consistent with the character of the Project as a first-class office building project, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit C, attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project. Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Project. Tenant shall not use or allow another person or entity to use any part of the Premises for the storage, use, treatment, manufacture or sale of "Hazardous Material," as that term is defined in Section 29.23 of this Lease. ARTICLE 6 --------- SERVICES AND UTILITIES ---------------------- 6.1 Standard Tenant Services. Landlord shall provide the following ------------------------ services on all days (unless otherwise stated below) during the Lease Term. 6.1.1 Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises, from Monday through Friday, during the period from 8 A.M. to 6 P.M. and on Saturday during the period from 9 A.M. to 1 P.M., except for the date of observation of New Year's Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord's discretion, other nationally recognized holidays (collectively, the "Holidays"). 6.1.2 Landlord shall provide adequate electrical wiring and facilities and power for normal general office use as reasonably determined by Landlord. Landlord shall replace lamps, starters, and ballasts for Building standard lighting fixtures within the Premises at Tenant's request at Landlord's cost, which cost may be included by Landlord in Project Expenses. Landlord shall replace, at Tenant's cost, lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises. 6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes. 6.1.4 Landlord shall provide janitorial services Monday through Friday except the date of observation of the Holidays, in and about the Premises and window washing services in a manner consistent with other first-class office buildings in the Santa Monica, California area. 6.2 Overstandard Tenant Use. Except as approved by Landlord as part of ----------------------- the "Tenant Improvements," as that term is defined in Section 2.1 of the Tenant Work Letter, Tenant shall not, without Landlord's prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess -12- consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, including the cost of such additional metering devices. If Tenant desires to use heat, ventilation or air conditioning during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord such prior notice, as Landlord shall from time to time establish as appropriate, of Tenant's desired use and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to time establish. Amounts payable by Tenant to Landlord for such use of additional utilities shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. 6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable ------------------- for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6, including, but not limited to, a failure to provide telecommunications, including telephone risers. Landlord may comply with voluntary controls or guidelines promulgated by any governmental entity relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease, provided that the Premises are not thereby rendered untenantable. 6.4 Rent Abatement. If Landlord fails to perform the obligations required -------------- of Landlord under the terms of this Lease and such failure causes all or a portion of the Premises to be untenantable and unusable by Tenant and such failure relates to the nonfunctioning of the heat, ventilation, and air conditioning system in the Premises, the electricity in the Premises, the nonfunctioning of the elevator service to the Premises, or a failure to provide access to the Premises, Tenant shall give Landlord notice (the "Initial Notice"), specifying such failure to perform by Landlord (the "Landlord Default"). If Landlord has not cured such Landlord Default within five (5) business days after the receipt of the Initial Notice (the "Eligibility Period"), Tenant may deliver an additional notice to Landlord (the "Additional Notice"), specifying such Landlord Default and Tenant's intention to abate the payment of Rent under this Lease. If Landlord does not cure such Landlord Default within five (5) business days of receipt of the Additional Notice, Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not used by Tenant, for the period beginning on the date five (5) business days after the Initial Notice to the earlier of the date Landlord cures such Landlord Default or the date Tenant recommences the use of such portion of the Premises. Such right to abate Rent shall be Tenant's sole and exclusive remedy at law or in equity for a Landlord Default. Except as provided in this Section 6.4, nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder. ARTICLE 7 --------- REPAIRS ------- Tenant shall, at Tenant's own expense, keep the Premises, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term. In addition, Tenant shall, at Tenant's own expense, but under the supervision and subject -13- to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances; provided however, that, at Landlord's option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and replacements forthwith upon being billed for same. Notwithstanding the foregoing, Landlord shall be responsible for repairs to the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, and the electrical, plumbing, HVAC and other base Building systems and equipment serving the Premises and/or the Building, except to the extent that such repairs are required due to the negligence or wilful misconduct of Tenant; provided, however, that if such repairs are due to the negligence of Tenant, Landlord shall nevertheless make such repairs at Tenant's expense, or, if covered by Landlord's insurance, Tenant shall only be obligated to pay any deductible in connection therewith. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree. Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect. ARTICLE 8 --------- ADDITIONS AND ALTERATIONS ------------------------- 8.1 Landlord's Consent to Alterations. Tenant may not make any --------------------------------- improvements, alterations, additions or changes to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord; provided however, that Tenant may make strictly cosmetic changes to the finish work in the Premises, not requiring any structural or other substantial modifications to the Premises, upon thirty (30) days prior notice to Landlord. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8. 8.2 Manner of Construction. Landlord may impose, as a condition of its ---------------------- consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its sole discretion may deem desirable, including, but not limited to, the requirement that upon Landlord's request, Tenant shall, at Tenant's expense, remove such Alterations upon the expiration or any early termination of the Lease Term, and/or the requirement that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen selected by Landlord. Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of Santa Monica, all in conformance with Landlord's construction rules and regulations. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project, or interfere with the labor force working in the Project. In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project management office a reproducible copy of the "as built" drawings of the Alterations. -14- 8.3 Payment for Improvements. In the event Tenant orders any Alterations ------------------------ or repair work directly from Landlord, or from the contractor selected by Landlord, the charges for such work shall be deemed Additional Rent under this Lease, payable within five (5) days of billing therefor, either periodically during construction or upon the substantial completion of such work, at Landlord's option. Upon completion of such work, Tenant shall deliver to Landlord evidence of payment, contractors' affidavits and full and final waivers of all liens for labor, services or materials. Tenant shall pay to Landlord a percentage of the cost of such work sufficient to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work, not to exceed five percent (5%) of the cost of the work. 8.4 Construction Insurance. In the event that Tenant makes any ---------------------- Alterations Tenant agrees to carry "Builder's All Risk" insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co- obligee. 8.5 Landlord's Property. All Alterations, improvements, fixtures and/or ------------------- equipment which may be installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal. Furthermore, if Landlord, as a condition to Landlord's consent to any Alteration, requires that Tenant remove any Alteration upon the expiration or early termination of the Lease Term, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant's expense, to remove such Alterations and to repair any damage to the Premises and Building caused by such removal. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations, Landlord may do so and may charge the cost thereof to Tenant. ARTICLE 9 --------- COVENANT AGAINST LIENS ---------------------- Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Project or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant's interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Project, the Building or the Premises, or any portion thereof, with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed on or before the date occurring five (5) days after notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant. -15- ARTICLE 10 ---------- INSURANCE --------- 10.1 Indemnification and Waiver. To the extent not prohibited by law, -------------------------- Landlord, its members and their respective partners, subpartners, officers, agents, servants, employees, and independent contractors (collectively, "Landlord Parties") shall not be liable for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant. Tenant shall indemnify, defend, protect, and hold harmless Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) from any cause arising out of or relating (directly or indirectly) to this Lease, the tenancy created under this Lease, or the Premises, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or wilful misconduct of Landlord. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from all liability for, consequential damages other than those consequential damages incurred by Landlord in connection with a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease. 10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance. --------------------------------------------------------------- Tenant shall, at Tenant's expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body. 10.3 Tenant's Insurance. Tenant shall maintain the following coverages in ------------------ the following amounts. 10.3.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than: Bodily Injury and Property Damage Liability $3,000,000 each occurrence $3,000,000 annual aggregate Personal Injury Liability $3,000,000 each occurrence $3,000,000 annual aggregate 0% Insured's participation 10.3.2 Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the "Base Building," as that term is defined hereinbelow), and (iii) all other improvements, alterations and additions to the Premises. The term "Base Building," for purposes of this Lease, shall mean the structural portions of the Building, and the public restrooms and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. Such insurance shall be written on an "all risks" of physical loss or damage basis, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage. -16- 10.3.3 Workers Compensation Insurance in form and with limits in accordance with the laws of the State of California, including Occupational Disease Insurance, and Voluntary Compensation Insurance, and Employer's Liability Insurance with limits not less than Five Hundred Thousand Dollars ($500,000.00) per occurrence; per employee for disease; and in the aggregate for disease. 10.4 Form of Policies. The minimum limits of policies of insurance ---------------- required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, Tooley & Company, and any other party Landlord reasonably specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. Tenant shall be permitted to provide the insurance required under this Lease by obtaining a blanket policy or policies to be maintained by Tenant. The coverage afforded to Landlord under this Lease shall in no way be limited, diminished or reduced because of the fact that such policy or policies are blanket in nature. 10.5 Subrogation. Landlord and Tenant agree to have their respective ----------- insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance carried by Landlord and Tenant, respectively, is not invalidated thereby. As long as such waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, or other similar insurance. 10.6 Additional Insurance Obligations. Tenant shall carry and maintain -------------------------------- during the entire Lease Term, at Tenant's sole cost and expense, such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord, but in no event in excess of the amounts and types of insurance then being required by landlords of other Comparable Buildings. ARTICLE 11 ---------- DAMAGE AND DESTRUCTION ---------------------- 11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly ---------------------------------------- notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Base Building or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Base Building or the Common Areas deemed desirable by Landlord, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Tenant shall, at Tenant's sole cost and expense, repair any injury or damage to the Premises which is not part of the Base Building, in accordance with Article 8, above, and shall return the Premises to their original condition. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair of the Base Building or the Common Areas; provided, -17- however, that if such fire or other casualty shall have damaged the Base Building or Common Areas necessary to Tenant's occupancy, and if such damage is not the result of the negligence or wilful misconduct of Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of Rent during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease as the sole result of the damage to the Base Building or the Common Areas, and not occupied by Tenant as a result thereof. 11.2 Landlord's Option to Repair. Notwithstanding the terms of Section --------------------------- 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project; and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs to be made by Landlord cannot reasonably be completed within one hundred twenty (120) days after the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage which is required to be repaired by Landlord is not fully covered, except for deductible amounts, by Landlord's insurance policies; or (iv) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord's termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, Tenant may elect not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant. Furthermore, if neither Landlord nor Tenant has terminated this Lease, and the repairs are not actually completed within such 180-day period, Tenant shall have the right to terminate this Lease during the first five (5) business days of each calendar month following the end of such period until such time as the repairs are complete, by notice to Landlord (the "Damage Termination Notice"), effective as of a date set forth in the Damage Termination Notice (the "Damage Termination Date"), which Damage Termination Date shall not be less than ten (10) business days following the end of each such month. Notwithstanding the foregoing, if Tenant delivers a Damage Termination Notice to Landlord, then Landlord shall have the right to suspend the occurrence of the Damage Termination Date for a period ending thirty (30) days after the Damage Termination Date set forth in the Damage Termination Notice by delivering to Tenant, within five (5) business days of Landlord's receipt of the Damage Termination Notice, a certificate of Landlord's contractor responsible for the repair of the damage certifying that it is such contractor's good faith judgment that the repairs shall be substantially completed within thirty (30) days after the Damage Termination Date. If repairs shall be substantially completed prior to the expiration of such thirty-day period, then the Damage Termination Notice shall be of no force or effect, but if the repairs shall not be substantially completed within such thirty-day period, then this Lease shall terminate upon the expiration of such thirty-day period. At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Tenant may request that Landlord inform Tenant of Landlord's reasonable opinion of the date of completion of the repairs and Landlord shall respond to such request within five (5) business days. 11.3 Waiver of Statutory Provisions. The provisions of this Lease, ------------------------------ including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project. -18- 11.4 Damage Near End of Term. In the event that the Premises, the ----------------------- Building, or the Project is destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term, then notwithstanding anything contained in this Article 11, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. In the event that the Premises, the Building, or the Project is destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term such that Tenant cannot use the Premises for the use permitted hereunder, then notwithstanding anything contained in this Article 11, Tenant shall have the option to terminate this Lease by giving written notice to Landlord of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. In the event that Landlord or Tenant terminates this Lease pursuant to this Section 11.4, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of damage, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. ARTICLE 12 ---------- NONWAIVER --------- No waiver of any provision of this Lease shall be implied by any failure of Landlord or Tenant to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, and any waiver by Landlord or Tenant of any provision of this Lease may only be in writing. Additionally, no express waiver shall affect any provision other than the one specified in such waiver and then only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment. ARTICLE 13 ---------- CONDEMNATION ------------ If the whole or more than twenty-five percent (25%) of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking. Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. -19- ARTICLE 14 ---------- ASSIGNMENT AND SUBLETTING ------------------------- 14.1 Transfers. Tenant shall not, without the prior written consent of --------- Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "Transferee"). If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer Notice") shall include (i) the proposed effective date of the Transfer, which shall not be less than twenty (20) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "Subject Space"), (iii) all of the material terms of the proposed Transfer and the consideration therefor (including calculation of the "Transfer Premium", as that term is defined in Section 14.3 below, in connection with such Transfer), the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and any other information reasonably required by Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space, and such other information as Landlord may reasonably require. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's review and processing fees, as well as any reasonable legal fees incurred by Landlord, within thirty (30) days after written request by Landlord, which fees shall not exceed One Thousand and No/100 Dollars ($1,000.00) for a Transfer in the ordinary course of business. 14.2 Landlord's Consent. Landlord shall not unreasonably withhold its ------------------ consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: 14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project, or would be a significantly less prestigious occupant of the Building than Tenant; 14.2.2 The Transferee is either a governmental agency or instrumentality thereof; 14.2.3 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the Lease on the date consent is requested; 14.2.4 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease; 14.2.5 The terms of the proposed Transfer will allow the Transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or 14.2.7 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, (ii) is negotiating with Landlord to lease space in the Project at such time, or (iii) has negotiated with Landlord during the three (3)-month period immediately preceding the Transfer Notice. -20- If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any material changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted ------------ unreasonably under this Article 14, their sole remedies shall be declaratory ---------- judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. 14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition ---------------- thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord forty percent (40%) of any "Transfer Premium," as that term is defined in this Section 14.3, received by Tenant from such Transferee. "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Rent and Additional Rent payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Premises is transferred. "Transfer Premium" shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. 14.4 Landlord's Option as to Subject Space. Notwithstanding anything to ------------------------------------- the contrary contained in this Article 14, in the event Tenant contemplates an assignment or a sublease, when aggregated with any other subleases, exceeds three thousand (3,000) rentable square feet (or in the event of any other Transfer or Transfers entered into by Tenant as a subterfuge in order to avoid the terms of this Section 14.4), Tenant shall give Landlord notice (the "Intention to Transfer Notice") of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined). The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the "Contemplated Transfer Space"), the contemplated date of commencement of the Contemplated Transfer (the "Contemplated Effective Date"), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space for the term set forth in the Intention to Transfer Notice. Thereafter, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space. In the event such option is exercised by Landlord, this Lease shall be canceled and terminated with respect to such Contemplated Transfer Space as of the Contemplated Effective Date until the last day of the term of the contemplated Transfer as set forth in the Intention to Transfer Notice. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to timely elect to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other terms of this Article 14, for a period of nine (9) months (the "Nine Month Period") commencing on the last day of such thirty (30) day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any Transfer made during the Nine Month Period, provided that any such Transfer is substantially on the terms set forth in the Intention to Transfer -21- Notice, and provided further that any such Transfer shall be subject to the remaining terms of this Article 14. If such a Transfer is not so consummated within the Nine Month Period (or if a Transfer is so consummated, then upon the expiration of the term of any Transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect any contemplated Transfer, as provided above in this Section 14.4. 14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the ------------------ terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. 14.6 Additional Transfers. For purposes of this Lease, the term -------------------- "Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded ---- through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or, (B) the sale or other transfer of more than an aggregate of fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death) within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12)-month period. 14.7 Non-Transfers. Notwithstanding anything to the contrary contained in ------------- this Lease, neither (i) an assignment to a transferee of all or substantially all of the assets of Tenant, (ii) an assignment of the Premises to a transferee which is the resulting entity of a merger or consolidation of Tenant with another entity, (iii) a change in ownership or control resulting from an offering of common stock or similar securities (whether as a public offering or a private placement to one more groups of investors), nor (iv) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant), shall be deemed a Transfer under Article 14 of this Lease, provided ---------- that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such transfer or transferee as set forth in items (i) through (iv) above, that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, and that such transferee or affiliate shall have a net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles (the "Net Worth") at least equal to the greater of (A) the Net Worth of Tenant immediately prior to such assignment or sublease, or (B) the Net Worth on the date of this Lease of the original named Tenant. The transferee in items (i) through (iv), above, shall be referred to as an "Affiliate." "Control," as used in this Section ------- 14.7, shall mean the ownership, directly or indirectly, of at least fifty-one - ---- percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity. ARTICLE 15 ---------- SURRENDER OF PREMISES; ---------------------- REMOVAL OF TRADE FIXTURES ------------------------- 15.1 Surrender of Premises. No act or thing done by Landlord or any agent --------------------- or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by -22- Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises. 15.2 Removal of Tenant Property by Tenant. Upon the expiration of the ------------------------------------ Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. ARTICLE 16 ---------- HOLDING OVER ------------ If Tenant holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to twice the Base Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender (including such tenant's lost profits) and any lost profits to Landlord resulting therefrom. ARTICLE 17 ---------- ESTOPPEL CERTIFICATES --------------------- Within seven (7) business days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit D, attached hereto (or such other form as may be reasonably required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. Failure of Tenant to timely execute and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. -23- ARTICLE 18 ---------- SUBORDINATION ------------- This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any first mortgage or trust deed, now or hereafter in force against the Building or Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Landlord's delivery to Tenant of commercially reasonable non-disturbance agreement(s) in favor of Tenant from any ground lessors, mortgage holders or lien holders of Landlord who later come into existence at any time prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant's agreement to be bound by the terms of this Article 18. Tenant ---------- covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof, to attorn, without any deductions or set-offs whatsoever, to the purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof if so requested to do so by such purchaser, and to recognize such purchaser as the lessor under this Lease. Tenant shall, within five (5) days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations hereunder in the event of any foreclosure proceeding or sale. ARTICLE 19 ---------- DEFAULTS; REMEDIES ------------------ 19.1 Defaults. The occurrence of any of the following shall constitute a -------- default of this Lease by Tenant: 19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, within three (3) days after written notice from Landlord that the same is past due; or 19.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant, provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, then Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to cure such default; or 19.1.3 To the extent permitted by law, a general assignment by Tenant or any guarantor of the Lease for the benefit of creditors, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or 19.1.4 The hypothecation or assignment of this Lease or subletting of the Premises, or attempts at such actions, in violation of Article 14 hereof; or 19.1.5 The failure by Tenant to occupy the Premises within sixty (60) days after the Substantial Completion of the Premises. -24- 19.2 Remedies Upon Default. Upon the occurrence of any event of default --------------------- by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever. 19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following: (i) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus (ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due. 19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate -------------------- this Lease on account of any default by Tenant as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder. -25- ARTICLE 20 ---------- ATTORNEYS' FEES --------------- If either party commences litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties hereto agree to and hereby do waive any right to a trial by jury and, in the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys' fees as may have been incurred. ARTICLE 21 ---------- LETTER OF CREDIT ---------------- 21.1 Letter of Credit. Tenant shall deliver to Landlord concurrently with ---------------- Tenant's execution of this Lease, an unconditional, clean, irrevocable letter of credit (the "L-C") in an initial amount equal to the sum of Four Hundred Thousand and No/100 Dollars ($400,000.00) (the "L-C Amount"), which L-C shall be issued by Union Bank of California, and which L-C shall be in a form and content as set forth in Exhibit F, attached hereto. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the L-C. 21.2 Application of the L-C. The L-C shall be held by Landlord as ---------------------- security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the initial Lease Term. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, or if Tenant fails to renew the L-C at least thirty (30) days before its expiration, Landlord may, but shall not be required to, draw upon all or any portion of the L-C for payment of any Rent or any other sum in default, or for the payment of any amount that Landlord may reasonably spend or may become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant's default, provided that if Tenant fails to renew the L-C at least thirty (30) days before its expiration, then Landlord shall have the right to draw upon the entire L-C. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not (a) prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C, nor (b) operate as a limitation on any recovery to which Landlord may otherwise be entitled. Any amount of the L-C which is drawn upon by Landlord, but is not used or applied by Landlord shall be held by Landlord and deemed a security deposit (the "L-C Security Deposit"). If any portion of the L-C is drawn upon, Tenant shall, within five (5) days after written demand therefor, either (i) deposit cash with Landlord (which cash shall be applied by Landlord to the L-C Security Deposit) in an amount sufficient to cause the sum of the L-C Security Deposit and the amount of the remaining L-C to be equivalent to the amount of the L-C then required under this Lease or (ii) reinstate the L-C to the amount then required under this Lease, and if any portion of the L-C Security Deposit is used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord (which cash shall be applied by Landlord to the L-C Security Deposit) in an amount sufficient to restore the L-C Security Deposit to the amount then required under this Lease, and Tenant's failure to do so shall be a default under this Lease. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Project and the Building and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the L-C Security Deposit and/or the L-C to the transferee or mortgagee, and in the event of such transfer, Tenant shall look solely to such transferee or mortgagee for the return of the L-C Security Deposit and/or the L-C. If Tenant is not then in default under this Lease, the L-C Amount shall be reduced during the initial Lease Term as follows: (i) commencing on the first day of the fourth (4th) Lease Year, the L-C Amount shall be reduced to Three Hundred Twenty Thousand and No/100 Dollars ($320,000.00); (ii) commencing on the first day of the fifth (5th) Lease Year, the L-C Amount shall be reduced to Two Hundred Forty Thousand and No/100 Dollars ($240,000.00); (iii) commencing on the -26- first day of the sixth (6th) Lease Year, the L-C Amount shall be reduced to One Hundred Sixty Thousand and No/100 Dollars ($160,000.00); and (iv) commencing on the first day of the seventh (7th) Lease Year, the L-C Amount shall be reduced to Eighty Thousand and No/100 Dollars ($80,000.00) and shall remain at such amount during the remainder of the Lease Term. Notwithstanding the previous sentence, in the event that as of the first day of the fourth (4th) Lease Year and continuing thereafter, Tenant has a net worth of at least Five Hundred Million Dollars ($500,000,000.00) and an annual net income of at least Thirty Million Dollars ($30,000,000.00) (collectively, the "Financial Requirement"), the L-C Amount shall reduce on the first day of the fourth (4th) Lease Year to Two Hundred Thousand and No/100 Dollars ($200,000.00) and on the first day of the fifth (5th) Lease Year, the L-C Amount shall reduce to Zero Dollars ($0.00); provided that in the event that following the first day of the fourth (4th) Lease Year, Tenant does not meet the Financial Requirement, then the L-C Amount shall be as set forth in the preceding sentence. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the L-C Security Deposit and/or the L-C, or any balance thereof, shall be returned to Tenant within thirty (30) days following the expiration of the initial Lease Term. ARTICLE 22 ---------- SUBSTITUTION OF OTHER PREMISES ------------------------------ Landlord shall have the privilege of moving Tenant to other space in the Building comparable to the Premises, and all terms hereof shall apply to the new space with equal force; provided that Tenant's then existing monetary obligations under this Lease shall not be increased as a result of such relocation of the Premises. In such event, Landlord shall give Tenant at least ninety (90) days prior notice, shall provide Tenant, at Landlord's sole cost and expense, with tenant improvements at least equal in quality to those in the Premises and comparable in layout, decor and nature and shall move Tenant's effects to the new space at Landlord's sole cost and expense at such time and in such manner as to inconvenience Tenant as little as practicable. In addition, Landlord shall reimburse Tenant for the reasonable costs and expenses incurred by Tenant in connection with such relocation (including, but not limited to, the costs of reasonable supplies of replacement stationery, marketing materials, announcements of new address plus postage and computer, data transmission and telephone installations, cabling and wiring), within thirty (30) days of Landlord's receipt of an invoice therefor. Simultaneously with such relocation of the Premises, the parties shall immediately execute an amendment to this Lease stating the relocation of the Premises. ARTICLE 23 ---------- SIGNS ----- 23.1 General. Tenant's identifying signage shall be provided by Landlord, ------- at Tenant's cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord's Building standard signage program. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion. Tenant's identifying entry on the building directory located in the lobby of the Building shall be provided by Landlord, at Tenant's cost. 23.2 Building Directory. A building directory will be located in the ------------------ lobby of the Building. Tenant shall have the right, at Tenant's sole cost and expense, to designate name strips to be displayed under Tenant's entry in such directory at the rate of two (2) strips per each 1,000 rentable square feet of the Premises. -27- ARTICLE 24 ---------- COMPLIANCE WITH LAW ------------------- Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, "Applicable Laws"). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant's use of the Premises for non-general office use, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the "Base, Shell, and Core," as that term is defined in Section 1.1 of the Tenant Work Letter, but, as to the Base, Shell, and Core, only to the extent such obligations are triggered by Tenant's Alterations, the Tenant Improvements, or Tenant's use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. Landlord shall comply with all Applicable Laws relating to the Base, Shell, and Core, Project and Common Areas, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord's failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably or materially affect the safety of Tenant's employees, create a significant health hazard for Tenant's employees, or create a material liability for the Tenant. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with, and amortized to the extent required by, the terms of Section 4.2.3 above. ARTICLE 25 ---------- LATE CHARGES ------------ If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days after written notice from Landlord, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within five (5) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to the lesser of (i) eighteen percent (18%) per annum or (ii) the highest rate permitted by applicable law. ARTICLE 26 ---------- LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT ---------------------------------------------------- 26.1 Landlord's Cure. All covenants and agreements to be kept or --------------- performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease, within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant (except in the case of an emergency), make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. -28- 26.2 Tenant's Reimbursement. Except as may be specifically provided to ---------------------- the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of Section 26.1; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term. ARTICLE 27 ---------- ENTRY BY LANDLORD ----------------- Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees or tenants, or to the ground or underlying lessors; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent and may take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. ARTICLE 28 ---------- TENANT PARKING -------------- Tenant hereby rents from Landlord, commencing on the Lease Commencement Date, the amount of parking passes set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term and any extension thereof, which parking passes shall pertain to the Project parking facility. Notwithstanding the foregoing, during the first (1st) Lease Year, Tenant shall have the right to rent between nineteen (19) and the number of parking passes set forth in Section 9 of the Summary. Prior to the end of the first Lease Year, Tenant shall deliver to Landlord notice specifying the number of unreserved parking passes Tenant shall rent during the remainder of the Lease Term, which number shall not be less than nineteen (19) nor more than the number of passes set forth in Section 9 of the Summary. Commencing on the first day of the second Lease Year and continuing throughout the remainder of the Lease Term, Tenant shall rent the number of unreserved parking passes specified in Tenant's notice. In the event that Tenant rents fewer than the number of passes set forth in Section 9 of the Summary, Tenant shall have the right to rent additional unreserved parking passes such that the total passes rented by Tenant does not exceed the number of passes set forth in Section 9 of the Summary on an "as available basis," as -29- determined by Landlord in Landlord's sole discretion. In lieu of up to five (5) unreserved parking passes, Tenant may rent passes for up to five (5) reserved parking spaces in the Project parking facility, three (3) of which shall be on the "P-1" Level and the remainder of which shall be on the "P-2" or "P-3" levels. Tenant shall give Landlord written notice of such election no later than the Lease Commencement Date, and Tenant shall thereafter during the remainder of the Lease Term rent such number of reserved parking spaces. Tenant shall have the right to rent additional passes for reserved or unreserved parking spaces on an "as available" basis, as determined by Landlord. Tenant shall pay to Landlord for automobile parking passes on a monthly basis the prevailing rate charged from time to time for parking passes in the Project. Tenant's continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the Project parking facility and upon Tenant's cooperation in seeing that Tenant's employees and visitors also comply with such rules and regulations. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval. ARTICLE 29 ---------- MISCELLANEOUS PROVISIONS ------------------------ 29.1 Binding Effect. Subject to all other provisions of this Lease, each -------------- of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease. 29.2 Modification of Lease. Should any current or prospective mortgagee --------------------- or ground lessor for the Building or Project require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. Should Landlord or any such prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term, Tenant agrees to execute and deliver such short form of Lease to Landlord within ten (10) days following the request therefor. 29.3 Transfer of Landlord's Interest. Tenant acknowledges that Landlord ------------------------------- has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer. Tenant further acknowledges that Landlord may assign its interest in this Lease to the holder of any mortgage or deed of trust as additional security, but agrees that an assignment shall not release Landlord from its obligations hereunder and Tenant shall continue to look to Landlord for the performance of its obligations hereunder. 29.4 Prohibition Against Recording. Except as provided in Section 29.3 of ----------------------------- this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election. 29.5 Captions. The captions of Articles and Sections are for convenience -------- only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections. 29.6 Time of Essence. Time is of the essence of this Lease and each of --------------- its provisions. -30- 29.7 Partial Invalidity. If any term, provision or condition contained ------------------ in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law. 29.8 No Warranty. In executing and delivering this Lease, Tenant has not ----------- relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto. 29.9 Child Care Facilities. Tenant acknowledges that any child care --------------------- facilities located in the Project (the "Child Care Facilities") which are available to Tenant and Tenant's employees are provided by a third party (the "Child Care Provider") which is leasing space in the Project, and not by Landlord. If Tenant or its employees choose to use the Child Care Facilities, Tenant acknowledges that Tenant and Tenant's employees are not relying upon any investigation which Landlord may have conducted concerning the Child Care Provider or any warranties or representation with respect thereto, it being the sole responsibility of Tenant and the individual user of the Child Care Facilities to conduct any and all investigations of the Child Care Facilities prior to making use thereof. Accordingly, Landlord shall have no responsibility with respect to the quality or care provided by the Child Care Facilities, or for any acts or omissions of the Child Care Provider. Furthermore, Tenant, for Tenant and for Tenant's employees, hereby agrees that Landlord, its members and their respective partners, subpartners, officers, agents, servants, employees, and independent contractors shall not be liable for, and are hereby released from any responsibility for any loss, cost, damage, expense or liability, either to person or property, arising from the use of the Child Care Facilities by Tenant or Tenant's employees. Tenant hereby covenants that Tenant shall inform all of Tenant's employees of the provisions of this Section 29.9 prior to such employees' use of the Child Care Facilities. 29.10 Entire Agreement. It is understood and acknowledged that there are ---------------- no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith, contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises and shall be considered to be the only agreements between the parties hereto and their representatives and agents. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. 29.11 Right to Lease. Landlord reserves the absolute right to effect such -------------- other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project. 29.12 Force Majeure. Any prevention, delay or stoppage due to strikes, ------------- lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure. -31- 29.13 Notices. All notices, demands, statements, designations, approvals ------- or other communications (collectively, "Notices") given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant at the appropriate address set forth in Section 11 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the following addresses, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant: J.P. Morgan Investment Management, Inc. 522 Fifth Avenue 12th Floor New York, New York 10036 Attention: Mr. David Chen, Vice-President and Tooley & Company 2425 Olympic Boulevard Suite 520-East Santa Monica, California 90404 Attention: Building Manager With a copy to: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90067 Attn: Anton N. Natsis, Esq. Any Notice will be deemed given on the date it is mailed as provided in this Section 29.13 or upon the date personal delivery is made. If Tenant is notified of the identity and address of the holder of any deed of trust or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant's exercising any remedy available to Tenant. 29.14 Joint and Several. If there is more than one Tenant, the ----------------- obligations imposed upon Tenant under this Lease shall be joint and several. 29.15 Authority. If Tenant is a corporation or partnership, each --------- individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. 29.16 Governing Law. This Lease shall be construed and enforced in ------------- accordance with the laws of the State of California. 29.17 Submission of Lease. Submission of this instrument for examination ------------------- or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 29.18 Brokers. Landlord and Tenant hereby warrant to each other that they ------- have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 10 of the Summary (the "Brokers"), whose commissions shall be the responsibility of Landlord pursuant to a separate written agreement, and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, -32- liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. 29.19 Independent Covenants. This Lease shall be construed as though the --------------------- covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building or Project or any portion thereof, whose address has theretofore been given to Tenant, and an opportunity is granted to Landlord and such holder to correct such violations as provided above. 29.20 Project or Building Name and Signage. Landlord shall have the right ------------------------------------ at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity, without the prior written consent of Landlord. 29.21 Transportation Management. Tenant shall fully comply with all ------------------------- present or future programs intended to manage parking, transportation or traffic in and around the Project or Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation- related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees. 29.22 No Discrimination. Tenant covenants by and for itself, its heirs, ----------------- executors, administrators and assigns, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises. 29.23 Hazardous Material. As used herein, the term "Hazardous Material" ------------------ means any hazardous or toxic substance, material or waste which is or becomes regulated by, or is dealt with in, any local governmental authority, the State of California or the United States Government. Tenant acknowledges that Landlord may incur costs (A) for complying with laws, codes, regulations or ordinances relating to Hazardous Material, or (B) otherwise in connection with Hazardous Material including, without limitation, the following: (i) Hazardous Material present in soil or ground water; (ii) Hazardous Material that migrates, flows, percolates, diffuses or in any way moves onto or under the Project; (iii) Hazardous Material present on or under the Project as a result of any discharge, dumping or spilling (whether accidental or otherwise) on the Project by other tenants of the Project or their agents, employees, contractors or invitees, or by others; and (iv) material which becomes Hazardous Material due to a change in laws, codes, regulations or ordinances which relate to hazardous or toxic material, substances or waste. Subject to the terms of Section 4.2.3(q), above, Tenant agrees that the costs incurred by Landlord with respect to, or in connection with, the Project for complying with laws, codes, regulations or -33- ordinances relating to Hazardous Material shall be an Operating Expense, unless the cost of such compliance, as between Landlord and Tenant, is made the responsibility of Tenant under this Lease. To the extent any such Operating Expense relating to Hazardous Material is subsequently recovered or reimbursed through insurance, or recovery from responsible third parties, or other action, Tenant shall be entitled to a proportionate share of such Operating Expense to which such recovery or reimbursement relates. 29.24 Development of the Project. -------------------------- 29.24.1 Subdivision. Tenant acknowledges that the Project has been ----------- subdivided. Landlord reserves the right to further subdivide all or a portion of the buildings and Common Areas in the Project. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from a subdivision and any all maps in connection therewith. Notwithstanding anything to the contrary set forth in this Lease, the separate ownership of any buildings and/or Common Areas of the Project by an entity other than Landlord shall not affect the calculation of Project Expenses or Tenant's payment of Tenant's Share of Project Expenses. 29.24.2 The Other Improvements. If portions of the Project or ---------------------- property adjacent to the Project (collectively, the "Other Improvements") are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any of the Other Improvements to provide (i) for reciprocal rights of access, use and/or enjoyment of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and all or any portion of the Other Improvements, (iii) for the allocation of a portion of the Project Expenses to the Other Improvements and the allocation of a portion of the operating expenses and taxes for the Other Improvements to the Project, (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project, and (v) for any other matter which Landlord deems necessary. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord's right to sell all or any portion of the Project or any other of Landlord's rights described in this Lease. 29.24.3 Construction of Project and Other Improvements. Tenant ---------------------------------------------- acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant's occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction. 29.25 Tenant's ERISA Representation. Tenant hereby represents and ----------------------------- warrants to Landlord that none of the assets of Tenant are "plan assets" as that term is defined in 29 C.F.R. (S) 2509.75-2 or (S) 2510.3-101. 29.26 Landlord Exculpation. It is expressly understood and agreed that -------------------- notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord hereunder (including any successor landlord hereunder) and any recourse by Tenant against Landlord shall be limited solely and exclusively to the interest of Landlord in and to the Building. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.26 shall inure to the benefit of Landlord's and the Landlord Parties' present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord's obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not -34- limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring. 29.27 Health Club. The Spectrum Club health club located in the Project ----------- currently offers Tenant's management and employees a forty-five percent (45%) discount on the one-time basic membership fees provided that such management and/or employees obtain such memberships within sixty (60) days following the Lease Commencement Date. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written. "Landlord": WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company By: ---------------------------------------- David Chen, Vice President "Tenant": ENTRAVISION COMMUNICATIONS COMPANY, LLC, a Delaware limited liability company By: ---------------------------------------- Its: ----------------------------------- By: ---------------------------------------- Its: ----------------------------------- -35- EXHIBIT A --------- THE WATER GARDEN ---------------- OUTLINE OF PREMISES ------------------- EXHIBIT A - Page 1 EXHIBIT B --------- THE WATER GARDEN ---------------- NOTICE OF LEASE TERM DATES -------------------------- To: ----------------------- ----------------------- ----------------------- ----------------------- Re: Office Lease dated , 19 between WATER GARDEN ----------------- -- COMPANY L.L.C., a Delaware Limited Liability Company ("Landlord"), and , a ----------------------------------- ----------------------- ("Tenant") concerning Suite on floor(s) of the ------ ---------- office building located at , Santa ------------------------------- Monica, California. Gentlemen: In accordance with the referenced Office Lease (the "Lease"), we wish to advise you and/or confirm as follows: 1. The Substantial Completion of the Premises has occurred, and the Lease Term shall commence on or has commenced on for a ----------------- term of ending on . ---------------------- ------------------ 2. Rent commenced to accrue on , in the amount of -------------------- . ------------------- 3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease. 4. Your rent checks should be made payable to -------------------------- at . ---------------------------- 5. The exact number of rentable square feet within the Premises is 9,307 rentable (7,911 usable) square feet. 6. Tenant's Share as adjusted based upon the exact number of rentable square feet within the Premises is 2.7958%. Pursuant to the terms of Article 2 of your Lease, you are required to return an executed copy of this Notice to within ten (10) ---------------- business days following your receipt hereof, and thereafter the statements set forth herein shall be conclusive and binding upon you. Your failure to timely execute and return this Notice shall constitute your acknowledgment that the statements included herein are true and correct, without exception. EXHIBIT B - Page 1 "Landlord": WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company By: ------------------------------------------ Its: ------------------------------------- Agreed to and Accepted as of , 19 . --------------- -- "Tenant": , - --------------------------- a -------------------------- By: ------------------------- Its: --------------------- By: ------------------------- Its: --------------------- EXHIBIT B - Page 2 EXHIBIT C --------- THE WATER GARDEN ---------------- RULES AND REGULATIONS --------------------- Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. 1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises. 3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the greater Los Angeles area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property. 4. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. No service deliveries (other than messenger services) will be allowed between hours of 4:00 p.m. to 6:00 p.m., Monday through Friday. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant. 5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours and in such specific elevator as shall be designated by Landlord. 6. Any requests of Tenant shall be directed to the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord. 7. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and its agents to prevent such activities. 8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any EXHIBIT C - Page 1 kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it. 9. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws (except in connection with customary picture hanging and office decoration), or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord's consent first had and obtained. 10. Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord. 11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid or material. 12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord. 13. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein. 14. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, bicycles or other vehicles. 15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters' laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 16. Landlord will approve where and how telephone and telegraph wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. 17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 18. Tenant, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use them only as a means of ingress and egress for the Premises. 19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building's heating and air conditioning system, and shall refrain from attempting to adjust any controls. 20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Santa Monica, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. EXHIBIT C - Page 2 21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 22. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord. Tenant shall abide by Landlord's regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas. 24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's reasonable judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. EXHIBIT C - Page 3 EXHIBIT D --------- THE WATER GARDEN ---------------- FORM OF TENANT'S ESTOPPEL CERTIFICATE ------------------------------------- The undersigned as Tenant under that certain Office Lease (the "Lease") made and entered into as of , 199 by and between ----------- - as Landlord, and the undersigned as Tenant, for - ------------------------------- Premises on the floor(s) of the office building located at ---------- , Santa Monica, California , certifies as - ---------------------- ----------- follows: 1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises. 2. The undersigned currently occupies the Premises described in the Lease. 3. The Lease Term commenced on , and the Lease Term expires on --------- . - ------------ 4. Base Rent became payable on . ----------------- 5. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A. 6. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows: 7. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of the holder of the first deed of trust on the Premises. 8. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through . The current monthly installment of Base Rent is -------------- $ . --------- 9. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. 10. The current amount of the Security Deposit held by Landlord is $ . ---------- 11. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease. 12. As of the date hereof, there are no existing defenses or offsets that the undersigned has against Landlord nor have any events occurred that with the passage of time or the giving of notice, or both, would constitute a default on the part of Landlord under the Lease. 13. The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee, or a prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making of such loan or acquisition of such property. EXHIBIT D - Page 1 14. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so. Executed at on the day of , 19 . ------------------ ---- --------- -- "Tenant": , ------------------------------ a ---------------------------- By: --------------------------- Its: ---------------------- By: --------------------------- Its: ---------------------- EXHIBIT D - Page 2 EXHIBIT E --------- THE WATER GARDEN ---------------- TENANT WORK LETTER ------------------ This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All capitalized terms used but not defined herein shall have the meanings given such terms in this Lease. All references in this Tenant Work Letter to Articles or Sections of "this Lease" shall mean the relevant portion of Articles 1 through 29 of this Lease to which this Tenant --------------------- Work Letter is attached as Exhibit E and of which this Tenant Work Letter forms --------- a part, and all references in this Tenant Work Letter to Sections of "this Tenant Work Letter" shall mean the relevant portion of Sections 1 through 6 of -------------------- this Tenant Work Letter. SECTION 1 --------- LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES ----------------------------------------------- 1.1 Base, Shell and Core of the Premises as Constructed by Landlord. --------------------------------------------------------------- Landlord shall construct, at its sole cost and expense, the base, shell, and core (i) of the Premises and (ii) of the floor of the Building on which the Premises is located (collectively, the "Base, Shell, and Core") in accordance with the plans and specifications for the Base, Shell, and Core and on an unoccupied basis (the "Plans"). Landlord shall, at Landlord's sole cost and expense (and not be deducted from the "Tenant Improvement Allowance," as that term is defined in Section 2.1, below) make any modifications to the Base, Shell and Core which are necessary for the same to comply with Applicable Laws on an unoccupied basis necessary for Tenant to obtain a certificate of occupancy for the Premises or otherwise legally occupy the Premises. The Base, Shell and Core shall include only the following items. 1.1.1 Core Improvements. ----------------- 1.1.1.1 Toilet Rooms. The men's and women's toilets shall be ------------ complete with countertops, ceramic tile walls and floors, lavatory mirrors, lighting, ceilings, toilet partitions, toilet accessories, and high quality plumbing fixtures. 1.1.1.2 Passenger Elevator Lobby. The Passenger elevator lobby ------------------------ shall be complete with (i) finished ceiling, finished lighting, and floor coverings, (ii) fire/smoke doors, which will be finished recessed double solid- core wood doors installed complete with hardware, (iii) walls, completed with wall coverings and base, and (iv) elevator doors and frames, which will be painted metal, and call button and hall lantern face plates, which will be stainless steel. 1.1.1.3 Janitor's Closet, Telephone Room, and Electrical Room. ----------------------------------------------------- The janitor's closet shall be complete with painted walls, floor coverings and resilient base. The telephone and electrical rooms are unfinished and will include a telephone backboard and electrical distribution panelboards, respectively, for each full floor Tenant occupies (to the extent Tenant partially occupies a floor, only a portion of such distribution electrical panel board on such floor, based upon the proportionate amount of area on such floor occupied by Tenant, shall be available to Tenant). 1.1.1.4 Lifesafety. All required alarm and communication ---------- systems within the janitor's closet, telephone and electrical rooms, service elevator lobby area, the stairwells, the passenger elevator lobby area, and toilet rooms. 1.1.1.5 HVAC. The main distribution loop duct and heating hot ---- water supply and return lines (including valves) for the heating, ventilation and air conditioning system. EXHIBIT E - Page 1 1.1.1.6 Sprinkler. The sprinkler system, which shall include --------- only the main floor shut-off valves, alarms, primary loop piping, distribution piping, and heads installed with deflectors. 1.1.1.7 Service Elevator Lobby. The service elevator lobby ---------------------- complete with floor covering, resilient base, painted walls, ceiling, lighting, and elevator door and frame, which will be painted metal. 1.1.1.8 Balance of Core. All exposed core doors shall be --------------- completed with painted hollow metal frames, finished solid core wood doors or finished hollow metal doors, and hardware, and all exterior/exposed wall surfaces of the core shall be drywall, taped, floated, and sanded ready for paint. The balance of the core shall also include exit signs and fire extinguishers as required by applicable building code (the "Code") for unoccupied space. 1.1.2 Base and Shell Improvements. The structural frame of --------------------------- the Building shall be complete, including fireproofing and finished slab ready for floor coverings. 1.1.3 Items Relating to the Public Corridor (only as to that ------------------------------------------------------ portion of the Premises, if any, which occupies only a portion of a floor, - -------------------------------------------------------------------------- rather than an entire floor, of the Building). The following items relating to - --------------------------------------------- the public corridor: the wall coverings (finished corridor side only) on corridor and core walls, the floor covering, lighting, HVAC system, finished ceiling, appropriate signage, alarm and communication systems, and the sprinkler systems. SECTION 2 --------- TENANT IMPROVEMENTS ------------------- 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time ---------------------------- tenant improvement allowance (the "Tenant Improvement Allowance") in the amount of One Hundred Ninety-Seven Thousand Seven Hundred Seventy-Five and No/100 Dollars ($197,775.00) (i.e., $25.00 per usable square foot of the Premises) for the costs relating to the initial design and construction of Tenant's improvements which are permanently affixed to the Premises (the "Tenant Improvements"). In addition, Landlord shall contribute an amount not to exceed $0.15 per usable square foot of the Premises ("Landlord's Drawing Contribution") toward the cost of one (1) preliminary space plan to be prepared by "Architect," as that term is defined in Section 3.1, below, and no portion of the Landlord's Drawing Contribution, if any, remaining after the completion of the Tenant Improvements shall be available for use by Tenant. In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance and the Landlord's Drawing Contribution. In the event that any portion of the Tenant Improvement Allowance remains sixty (60) days following the Lease Commencement Date, Tenant shall no longer have the right to such unused portion of the Tenant Improvement Allowance and such remaining portion of the Tenant Improvement Allowance shall be the sole property of Landlord. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlord's property under the terms of Section 8.5 of this Lease. 2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise ------------------------------------------------ set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord's disbursement process) only for the following items and costs (collectively, the "Tenant Improvement Allowance Items"): 2.2.1 Payment of the fees of the "Architect" and the "Engineers," as those terms are defined in Sections 3.1 of this Tenant Work Letter, which payment shall, notwithstanding anything to the contrary contained in this Tenant Work Letter, not exceed an aggregate amount equal to $6.50 per usable square foot of the Premises, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord's consultants in connection with the preparation and review of the "Construction Drawings," as that term is defined in Section 3.1 of this Tenant Work Letter; EXHIBIT E - Page 2 2.2.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements; 2.2.3 The cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, and contractors' fees and general conditions; 2.2.4 The cost of any changes in the Base, Shell and Core work when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith; 2.2.5 The cost of any changes to the Construction Drawings, Tenant Improvements or Landlord's Work required by Code; 2.2.6 Sales and use taxes and Title 24 fees; 2.2.7 "Landlord's Supervision Fee", as that term is defined in Section 4.3.2 of this Tenant Work Letter; and 2.2.8 All other costs to be reasonably expended by Landlord in connection with the construction of the Tenant Improvements. 2.3 Standard Tenant Improvement Package. Landlord has established ----------------------------------- specifications (the "Specifications") for some of the Building standard components to be used in the construction of the Tenant Improvements in the Premises (collectively, the "Standard Improvement Package"). The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications, provided that Landlord may, at Landlord's option, require the Tenant Improvements to comply with certain Specifications. Landlord may make changes to the Specifications for the Standard Improvement Package from time to time. SECTION 3 --------- CONSTRUCTION DRAWINGS --------------------- 3.1 Selection of Architect/Construction Drawings. Tenant shall retain -------------------------------------------- Gensler as the architect/space planner (the "Architect") to prepare the "Construction Drawings", as that term is defined in this Section 3.1. Tenant shall retain Landlord's engineering consultants (the "Engineers") to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises, which work is not part of the Base, Shell and Core work. The fees changed by the Engineers shall be comparable to the fees charged by comparable engineers performing comparable work in the Comparable Buildings. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "Construction Drawings." All Construction Drawings shall comply with Landlord's drawing format and specifications. Landlord's review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant's waiver and indemnity set forth in Section 10.1 of this Lease shall specifically apply to the Construction Drawings. Furthermore, Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the Plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. 3.2 Final Space Plan. On or before the date set forth in Schedule 1, ---------------- Tenant and the Architect shall prepare the final space plan for Tenant Improvements in the Premises, shall receive preliminary plan check approval for the same from the Department of Building and EXHIBIT E - Page 3 Safety of the City of Santa Monica (collectively, the "Final Space Plan"), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan and proof of receipt of preliminary plan check approval to Landlord for reasonable Landlord's approval. 3.3 Non-Standard Improvement Package Items. On or before the date set -------------------------------------- forth in Schedule 1, (i) Tenant shall submit to Landlord, for Landlord's approval, all necessary architectural and engineering design, details, and specifications to allow Landlord to immediately prepare an appropriate "Partial Cost Proposal," as that term is defined below in Section 4.2 of this Tenant Work Letter, for all materials necessary to the construction of (A) the structural portions of any interior stairway or dumbwaiter, and the openings (and required structural support areas) necessary to accommodate the placement of such interior stairways or dumbwaiters in the Premises and (B) all other structural supports and reinforcements necessary to the construction of the Tenant Improvements (collectively, the "Structural Items"); and (ii) Tenant shall provide Landlord, for Landlord's approval, with complete specifications, details and architectural and engineering drawings to allow Landlord to immediately prepare a Partial Cost Proposal for all materials, components, finishes, equipment, and improvements which are not part of the Standard Improvement Package. 3.4 Final Working Drawings. On or before the date set forth in Schedule ---------------------- 1, Tenant, Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work, to obtain all applicable permits, and to subsequently construct the work (collectively, the "Final Working Drawings") and shall submit the same to Landlord for Landlord's reasonable approval. 3.5 Permits. ------- 3.5.1 Structural Permits. Simultaneously with Tenant's submittal ------------------ of the items described in Sections 3.3(i)(A) and 3.3(i)(B), above, Tenant shall use its best, good faith, efforts and all due diligence to cooperate with Architect, the Engineers, Landlord and "Contractor," as that term is defined in Section 4.1, below, to do all acts necessary, including cooperation in the preparation of shop drawings, if necessary, to obtain permits (the "Structural Permits") for the immediate construction of the Structural Items, and Tenant acknowledges that in connection therewith Landlord and/or Contractor, as opposed to Tenant, on behalf of Tenant and as Tenant's agent, may be the appropriate party to obtain such permits. 3.5.2 Other Permits. After the approval of the Final Working ------------- Drawings by Landlord (the "Approved Working Drawings"), Tenant shall immediately submit same to the City of Santa Monica for all applicable building permits (except the Structural Permits to the extent the same have already been received pursuant to the terms of Section 3.5.1, above) necessary to allow Contractor to commence and fully complete the construction of the Tenant Improvements (the "Permits"), and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to take part in all phases of the permitting process, and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal. 3.5.3 Other Terms. Notwithstanding anything to the contrary set ----------- forth in this Section 3.5, Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that the obtaining of the same shall be Tenant's responsibility (even as to the Structural Permits); provided, however, that Landlord shall, in any event, cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, provided that Landlord may withhold its consent, in its sole discretion, to any change in the Approved Working Drawings, if such change would directly or indirectly delay the Substantial Completion of the Premises. EXHIBIT E - Page 4 3.6 Time Deadlines. Tenant shall use its best, good faith, efforts and -------------- all due diligence to cooperate with Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the permits, and with Contractor for approval of the Cost Proposal, as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a weekly basis to discuss Tenant's progress in connection with the same. The applicable dates for approval of items, plans and drawings and selection of a contractor as described in this Section 3, Section 4, below, and in this Tenant Work Letter are set forth and further elaborated upon in Schedule 1 (the "Time Deadlines"), attached hereto. Tenant agrees to comply with the Time Deadlines. SECTION 4 --------- CONSTRUCTION OF THE TENANT IMPROVEMENTS --------------------------------------- 4.1 Contractor. A contractor retained by Landlord, shall construct the ---------- Tenant Improvements. Such contractor ("Contractor") shall be mutually selected by Landlord and Tenant from three (3) general contractors upon whom Landlord and Tenant have mutually agreed and to whom Landlord has bid the Tenant Improvement Work, and Tenant shall deliver notice of its selection of the Contractor to Landlord on or before the date set forth in Schedule 1. 4.2 Cost Proposal. After the Approved Working Drawings are signed by ------------- Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the construction of the Tenant Improvements (the "Cost Proposal"). Notwithstanding the foregoing, portions of the cost of the Tenant Improvements may be delivered to Tenant as such portions of the Tenant Improvements are priced by Contractor (on an individual item-by- item or trade-by-trade basis), even before the Approved Working Drawings are completed (the "Partial Cost Proposal") for purposes of facilitating the early purchase of items and construction of the same. Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of the same, or, as to a Partial Cost Proposal within two (2) business days of receipt of the same, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to purchase the items set forth in the Cost Proposal or Partial Cost Proposal, as the case may be, and to commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal or the last Partial Cost Proposal to Landlord, as the case may be, shall be known hereafter as the "Cost Proposal Delivery Date". The total of all Partial Cost Proposals, if any, shall be known as the Cost Proposal. 4.3 Construction of Tenant Improvements by Landlord's Contractor under the ---------------------------------------------------------------------- Supervision of Landlord. - ----------------------- 4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date, --------------------- Tenant shall deliver to Landlord cash in an amount (the "Over-Allowance Amount") equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Tenant to Landlord within five (5) days following Landlord's request as an addition to the Over-Allowance Amount. 4.3.2 Landlord's Retainment of Contractor. After Tenant selects ----------------------------------- the Contractor, Landlord shall independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the "Landlord Supervision Fee") to Landlord in an amount equal to the product EXHIBIT E - Page 5 of (i) five percent (5%) and (ii) an amount equal to the Tenant Improvement Allowance plus the Over-Allowance Amount (as such Over-Allowance Amount may increase pursuant to the terms of this Tenant Work Letter). 4.3.3 Contractor's Warranties and Guaranties. Landlord hereby -------------------------------------- assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements. Such warranties and guaranties of Contractor shall guarantee that the Tenant Improvements shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof, and Contractor shall be responsible for the replacement or repair, without additional charge, of the Tenant Improvements that shall become defective within one (1) year after Substantial Completion of the Premises. The correction of such work shall include, without additional charge, all additional expenses and damages in connection with such removal or replacement of all or any part of the Tenant Improvements. 4.3.4 Tenant's Covenants. Tenant hereby indemnifies Landlord ------------------ for any loss, claims, damages or delays arising from the actions of Architect on the Premises or in the Project. Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause Contractor and Architect to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with Section 3093 of the Civil Code of the State of California or any successor statute and furnish a copy thereof to Landlord upon recordation, failing which, Landlord may itself execute and file the same on behalf of Tenant as Tenant's agent for such purpose. In addition, immediately after the Substantial Completion of the Premises, Tenant shall have prepared and delivered to the Project management office a copy of the "as built" plans and specifications (including all working drawings) for the Tenant Improvements. SECTION 5 --------- COMPLETION OF THE TENANT IMPROVEMENTS; -------------------------------------- LEASE COMMENCEMENT DATE ----------------------- Except as provided in this Section 5, the Lease Commencement Date shall occur as set forth in Article 2 of this Lease. If there shall be a delay or there are delays in the Substantial Completion of the Premises or in the occurrence of any of the other conditions precedent to the Lease Commencement Date, as set forth in Article 2 of this Lease, as a direct, indirect, partial, or total result of: 5.1 Tenant's failure to comply with the Time Deadlines; 5.2 Tenant's failure to timely approve any matter requiring Tenant's approval; 5.3 A breach by Tenant of the terms of this Tenant Work Letter or the Lease; 5.4 Changes in any of the Construction Drawings after reasonable disapproval of the same by Landlord or because the same do not comply with Code or other applicable laws; 5.5 Tenant's request for changes in the Approved Working Drawings; 5.6 Tenant's requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated date of Substantial Completion of the Premises, as set forth in the Lease, or which are different from, or not included in, the Standard Improvement Package; 5.7 Changes to the Base, Shell and Core work or Landlord Work required by the Approved Working Drawings (other than work to be performed by Landlord so that the Base, Shell and Core complies with Applicable Laws (as required by Section 1.1, above)); or 5.8 Any other acts or omissions of Tenant, or its agents, or employees; EXHIBIT E - Page 6 then, notwithstanding anything to the contrary set forth in the Lease or this Tenant Work Letter and regardless of the actual date of the Substantial Completion of the Premises, the Lease Commencement Date shall be deemed to be the date the Lease Commencement Date would have occurred if no Tenant delay or delays, as set forth above, had occurred. SECTION 6 --------- MISCELLANEOUS ------------- 6.1 Tenant's Entry Into the Premises Prior to Substantial Completion. ---------------------------------------------------------------- Provided that Tenant and its agents do not interfere with Contractor's work in the Project and the Premises, Contractor shall allow Tenant access to the Premises prior to the Substantial Completion of the Premises (but if such access is to be prior to the issuance of the Temporary Certificate of Occupancy for the Building, then such access shall be only as allowed by the City of Santa Monica) for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant's data and telephone equipment) in the Premises. Prior to Tenant's entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the approximate timing and purpose of Tenant's entry. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Project or Premises and against injury to any persons caused by Tenant's actions pursuant to this Section 6.1. 6.2 Freight Elevators. Landlord shall, consistent with its obligations to ----------------- other tenants of the Building, and subject to the needs of Landlord with respect to the construction of the Base, Shell and Core of the Building, make the freight elevator reasonably available to Tenant in connection with initial decorating, furnishing and moving into the Premises at no charge to Tenant. 6.3 Tenant's Representative. Tenant has designated Walter Ulloa as its ----------------------- sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter. 6.4 Landlord's Representative. Landlord has designated Brenda ------------------------- Tiefenthaler as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter. 6.5 Time of the Essence in This Tenant Work Letter. Unless otherwise ---------------------------------------------- indicated, all references herein to a "number of days" shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord's sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence. 6.6 Tenant's Lease Default. Notwithstanding any provision to the contrary ---------------------- contained in this Lease, if an event of default as described in Section 19.1 of this Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5.3 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease. 6.7 Existing Tenant Improvements. Landlord shall not remove, and Tenant ---------------------------- shall be entitled to use at no cost, all existing tenant improvements in the Premises, including, but not limited to, window coverings, demising walls, HVAC systems and ducting, and ceiling tiles. EXHIBIT E - Page 7 SCHEDULE 1 TO EXHIBIT E ----------------------- TIME DEADLINES --------------
Dates Actions to be Performed ----- ----------------------- A. August 30, 1999 Final Space Plan to be completed by Tenant and delivered to Landlord, and Contractor to be selected by Tenant and notice of selection to be given by Tenant to Landlord. B. September 20, 1999 Architectural working drawings ready for engineering. C. October 7, 1999 Tenant to deliver Final Working Drawings to Landlord. D. Five (5) business days after the Tenant to approve all or a portion of Cost receipt of a complete Cost Proposal by Proposal and deliver all or a portion of Cost Tenant, or two (2) business days after Proposal to Landlord, as applicable. the receipt of a Partial Cost Proposal by Tenant, as the case may be.
SCHEDULE 1 TO EXHIBIT E - Page 1 EXHIBIT F --------- THE WATER GARDEN ---------------- FORM OF LETTER OF CREDIT ------------------------ (Letterhead of a money center bank acceptable to the Landlord) August 19, 1999 WATER GARDEN COMPANY L.L.C. c/o Tooley & Company 2425 Olympic Boulevard Suite 520-East Santa Monica California 90404 Attention: General Manager Ladies and Gentlemen: We hereby establish our Irrevocable Letter of Credit and authorize you to draw on us at sight for the account of Entravision Communications Company, LLC ("Entravision") the aggregate amount of Four Hundred Thousand and No/100 Dollars ($400,000.00), which amount shall decrease as set forth in that certain Office Lease dated August 19, 1999 (the "Lease") between Entravision and "Beneficiary," as that term is defined below, for space in that certain office building located at 2425 Olympic Boulevard, Santa Monica, California (the "Building"). Funds under this Letter of Credit are available to the beneficiary hereof as follows: Any or all of the sums hereunder may be drawn down at any time and from time to time from and after the date hereof by Water Garden Company L.L.C. ("Beneficiary") when accompanied by this Letter of Credit and a written statement signed by a representative of Beneficiary, certifying that such moneys are due and owing to Beneficiary, and a sight draft executed and endorsed by a representative of Beneficiary. This Letter of Credit is transferable in its entirety. Should a transfer be desired, such transfer will be subject to the return to us of this advice, together with written instructions. The amount of each draft must be endorsed on the reverse hereof by the negotiating bank. We hereby agree that this Letter of Credit shall be duly honored upon presentation and delivery of the certification specified above. This Letter of Credit shall expire on . -------------- Notwithstanding the above expiration date of this Letter of Credit, the term of this Letter of Credit shall be automatically renewed for successive, additional one (1) year periods unless, at least thirty (30) days prior to any such date of expiration, the undersigned shall give written notice to the parties listed in Section 29.13 of the Lease, by certified mail, return receipt requested and at the address set forth above or at such other address as may be given to the undersigned by Beneficiary, that this Letter of Credit will not be renewed. EXHIBIT F - Page 1 This Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce Publication 400. Very truly yours, (Name of Issuing Bank) By: ---------------------------------- EXHIBIT F - Page 2 OFFICE LEASE ------------ THE WATER GARDEN ---------------- WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company, as Landlord, and ENTRAVISION COMMUNICATIONS COMPANY, LLC, a Delaware limited liability company, as Tenant. THE WATER GARDEN ---------------- SUMMARY OF BASIC LEASE INFORMATION ---------------------------------- The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the "Summary"). This Summary is hereby incorporated into and made a part of the attached Office Lease (the "Office Lease") which pertains to the "Project," as that term is defined in the Office Lease, commonly known as "The Water Garden" located in Santa Monica, California. This Summary and the Office Lease are collectively referred to herein as the "Lease". Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.
TERMS OF LEASE (References are to the Office Lease) DESCRIPTION ------------------ ----------- 1. Date: August 19, 1999. 2. Landlord: WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company 3. Tenant: ENTRAVISION COMMUNICATIONS COMPANY, LLC, a Delaware limited liability company. 4. Premises (Article 1). 4.1 Building Address: 2425 Olympic Boulevard, Santa Monica, California 90404. 4.2 Premises: Approximately 9,307 rentable (7,911 usable) square feet of space located on the 6th floor of the Building, commonly known as Suite 6000-West as further set forth in Exhibit A to the Office Lease. 5. Lease Term (Article 2). 5.1 Length of Term: Seven (7) years. 5.2 Lease Commencement Date: The Lease Commencement Date shall occur as set forth in Article 2 of the Office Lease. The Lease Commencement Date is anticipated to be December 1, 1999. 5.3 Lease Expiration Date: The last day of the month in which the 7th anniversary of the Lease Commencement Date occurs. 5.4 Option to Extend the Lease One (1) option to extend the Lease Term for five (5) Term: years, as set forth in Section 2.2, below.
(ii) 6. Base Rent (Article 3):
Monthly Annual Rental Rate Period of Time Installment of per Rentable During Lease Term Annual Base Rent Base Rent Square Foot ----------------- ---------------- -------------- ------------------ First month through thirtieth month $318,299.40 $26,524.95 $34.20 Thirty-first month through sixtieth month $340,636.20 $28,386.35 $36.60 Sixty-first month through Lease Expiration Date $374,141.40 $31,178.45 $40.20 7. Additional Rent (Article 4). 7.1 Base Year: The calendar year of 2000 7.2 Tenant's Share: Approximately 2.7958%. 8. Letter of Credit (Article 21): $400,000.00, which amount shall decrease pursuant to the terms of Article 21. 9. Parking Pass Ratio (Article 28): Three (3) parking passes for every 1,000 rentable square feet of the Premises. 10. Broker(s) (Section 29.18): Tooley & Company 11150 Santa Monica Boulevard Suite 200 Los Angeles, California 90025 and Bailes & Associates, Inc. 11601 Wilshire Boulevard, Suite 1900 Los Angeles, California 90025 11. Address of Tenant (Section Entravision Communications Company, LLC 29.13): 11900 Olympic Boulevard, Suite 590 Los Angeles, California 90064 Attention: Ms. Jeanette Tully (Prior to Lease Commencement Date) and Entravision Communications Company, LLC 2425 Olympic Boulevard, Suite 6000-West Santa Monica, California 90404 Attention: Ms. Jeanette Tully (After Lease Commencement Date)
(iii) The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant. "Landlord": WATER GARDEN COMPANY L.L.C., a Delaware Limited Liability Company By: /s/ David Chen David Chen, Vice President "Tenant": ENTRAVISION COMMUNICATIONS COMPANY, LLC, a Delaware limited liability company By: /s/ Jeanette Tully Its: Exec VP-Treasurer By: /s/ Philip C. Wilkinson Its: President-COO (iv) THE WATER GARDEN ---------------- INDEX -----
ARTICLE SUBJECT MATTER PAGE - ------- -------------- ---- SUMMARY OF BASIC LEASE INFORMATION ii ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS........... 1 ARTICLE 2 INITIAL LEASE TERM; OPTION TERM......................... 2 ARTICLE 3 BASE RENT............................................... 4 ARTICLE 4 ADDITIONAL RENT......................................... 5 ARTICLE 5 USE OF PREMISES......................................... 12 ARTICLE 6 SERVICES AND UTILITIES.................................. 12 ARTICLE 7 REPAIRS................................................. 13 ARTICLE 8 ADDITIONS AND ALTERATIONS............................... 14 ARTICLE 9 COVENANT AGAINST LIENS.................................. 15 ARTICLE 10 INSURANCE............................................... 16 ARTICLE 11 DAMAGE AND DESTRUCTION.................................. 17 ARTICLE 12 NONWAIVER............................................... 19 ARTICLE 13 CONDEMNATION............................................ 19 ARTICLE 14 ASSIGNMENT AND SUBLETTING............................... 20 ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES........ 22 ARTICLE 16 HOLDING OVER............................................ 23 ARTICLE 17 ESTOPPEL CERTIFICATES................................... 23 ARTICLE 18 SUBORDINATION........................................... 24 ARTICLE 19 DEFAULTS; REMEDIES...................................... 24 ARTICLE 20 ATTORNEYS' FEES......................................... 26 ARTICLE 21 LETTER OF CREDIT........................................ 26 ARTICLE 22 SUBSTITUTION OF OTHER PREMISES.......................... 27 ARTICLE 23 SIGNS................................................... 27 ARTICLE 24 COMPLIANCE WITH LAW..................................... 28 ARTICLE 25 LATE CHARGES............................................ 28 ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT.... 28 ARTICLE 27 ENTRY BY LANDLORD....................................... 29 ARTICLE 28 TENANT PARKING.......................................... 29 ARTICLE 29 MISCELLANEOUS PROVISIONS................................ 30
EXHIBITS A OUTLINE OF PREMISES B FORM OF NOTICE OF LEASE TERM DATES C RULES AND REGULATIONS D FORM OF TENANT'S ESTOPPEL CERTIFICATE E TENANT WORK LETTER F FORM OF LETTER OF CREDIT The registrant hereby agrees to furnish a copy of any omitted schedule or exhibit upon request. (v) EX-23.2 18 0018.txt CONSENT OF MCGLADREY & PULLEN, LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 No. 333-35336 of our report, dated March 18, 2000, except for Note 12 as to which the date is June 13, 2000, relating to the consolidated financial statements of Entravision Communications Corporation and subsidiaries, our report dated February 25, 2000 relating to the financial statements of DeSoto - Channel 62 Associates, Ltd., and our report dated June 9, 2000 relating to the special purpose financial statements of radio stations KFRQ (FM), KKPS (FM), KVPA (FM) and KVLY (FM), which are owned by Sunburst Media, L.P. We also consent to the reference to our Firm under the caption "Experts" in the Prospectus. /s/ McGladrey & Pullen, LLP Pasadena, California June 13, 2000 EX-23.3 19 0019.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.3 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 30, 2000, with respect to the consolidated financial statements of Latin Communications Group, Inc. included in Amendment No.1 to the Registration Statement (Form S-1 No. 333-35336) and related Prospectus of Entravision Communications Corporation for the registration of its common stock. /s/ Ernst & Young LLP San Jose, California June 13, 2000 EX-23.4 20 0020.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to the Registration Statement of Entravision Communications Corporation on Form S-1 of our report dated March 24, 2000, relating to the financial statements of Z-Spanish Media Corporation and its Predecessor, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Sacramento, California June 12, 2000 -----END PRIVACY-ENHANCED MESSAGE-----