-----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, U2hsrvNy154uqBH7Ecfe1SbALVfqcgBw7/K9We1hzWro1lICGbcqKYxART1m6HjP dRwzq5rLFj/fYZoHjPfVYg== 0000950144-01-501762.txt : 20010510 0000950144-01-501762.hdr.sgml : 20010510 ACCESSION NUMBER: 0000950144-01-501762 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010325 FILED AS OF DATE: 20010509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000927720 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133827791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27823 FILM NUMBER: 1627251 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 10-Q 1 g69100e10-q.txt SPANISH BROADCASTING SYSTEM, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 25, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 33-82114 SPANISH BROADCASTING SYSTEM, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3827791 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2601 SOUTH BAYSHORE DRIVE, PH II COCONUT GROVE, FLORIDA 33133 (Address of principal executive offices) (Zip Code) (305) 441-6901 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of registrant's common stock outstanding as of May 8, 2001: 36,856,305 shares of Class A Common Stock, par value $.0001 per share and 27,801,900 shares of Class B Common Stock, par value $.0001 per share. 2 SPANISH BROADCASTING SYSTEM, INC. INDEX PART I. FINANCIAL INFORMATION.......................................................................... ITEM 1. FINANCIAL STATEMENTS - UNAUDITED............................................................... CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 24, 2000 AND MARCH 25, 2001............................................................................. 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE- AND SIX- MONTHS ENDED MARCH 26, 2000 AND MARCH 25, 2001................................................. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTHS ENDED MARCH 26, 2000 AND MARCH 25, 2001........................................................ 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................................................... 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................... 15 PART II. OTHER INFORMATION.............................................................................. 15 ITEM 1. LEGAL PROCEEDINGS.............................................................................. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 15 ITEM 5. OTHER INFORMATION.............................................................................. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................... 16
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS--UNAUDITED SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 24, 2000 MARCH 25, 2001 ------------------ ------------------ ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 59,558,929 37,054,808 RECEIVABLES: TRADE 30,986,110 25,154,200 BARTER 2,360,184 4,969,617 ------------------ ------------------ 33,346,294 30,123,817 LESS: ALLOWANCE FOR DOUBTFUL ACCOUNTS 8,082,275 11,605,310 ------------------ ------------------ NET RECEIVABLES 25,264,019 18,518,507 OTHER CURRENT ASSETS 3,862,182 2,698,949 ------------------ ------------------ TOTAL CURRENT ASSETS 88,685,130 58,272,264 PROPERTY AND EQUIPMENT, NET 21,675,239 24,981,470 INTANGIBLE ASSETS, NET 513,357,655 587,901,484 DEFERRED FINANCING COSTS, NET 10,794,733 10,123,469 OTHER ASSETS 178,066 311,001 ------------------ ------------------ TOTAL ASSETS $ 634,690,823 681,589,688 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: CURRENT PORTION OF LONG-TERM DEBT $ 171,262 177,106 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 13,984,267 15,064,382 ACCRUED INTEREST 11,032,889 10,560,242 DEFERRED COMMITMENT FEE 2,158,850 1,808,156 ------------------ ------------------ TOTAL CURRENT LIABILITIES 27,347,268 27,609,886 12.5% SENIOR UNSECURED NOTES 100,000 100,000 9.625% SENIOR SUBORDINATED NOTES 235,000,000 235,000,000 SENIOR CREDIT FACILITIES 65,000,000 65,000,000 OTHER LONG-TERM DEBT, LESS CURRENT PORTION 4,392,302 4,302,662 DEFERRED INCOME TAXES 28,386,169 36,126,898 STOCKHOLDERS' EQUITY: CLASS A COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED 100,000,000 SHARES; 32,399,760 SHARES ISSUED AND OUTSTANDING AT SEPT. 24, 2000; 36,856,305 SHARES ISSUED AND OUTSTANDING AT MARCH 25, 2001 3,240 3,686 CLASS B COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED 50,000,000 SHARES; 27,816,900 SHARES ISSUED AND OUTSTANDING AT SEPT. 24, 2000; 27,801,900 SHARES ISSUED AND OUTSTANDING AT MARCH 25, 2001 2,782 2,780 ADDITIONAL PAID IN CAPITAL 392,972,851 435,522,410 ACCUMULATED DEFICIT (118,513,789) (122,078,634) ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 274,465,084 313,450,242 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 634,690,823 681,589,688 ================== ==================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 4 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ------------------------------ MARCH 26, 2000 MARCH 25, 2001 MARCH 26, 2000 MARCH 25, 2001 -------------- -------------- -------------- -------------- GROSS BROADCASTING REVENUES $ 28,729,792 28,561,858 61,931,899 71,471,309 LESS: AGENCY COMMISSIONS 3,801,650 3,510,157 8,070,354 9,105,692 -------------- -------------- -------------- -------------- NET BROADCASTING REVENUES 24,928,142 25,051,701 53,861,545 62,365,617 -------------- -------------- -------------- -------------- OPERATING EXPENSES: ENGINEERING 626,587 848,166 1,212,103 1,595,623 PROGRAMMING 3,246,953 4,086,356 6,204,413 9,799,275 SELLING 5,171,226 9,153,063 11,454,596 19,811,782 GENERAL AND ADMINISTRATIVE 3,207,520 4,367,814 5,885,087 9,459,619 CORPORATE EXPENSES 2,391,330 2,644,954 15,454,514 5,156,160 DEPRECIATION AND AMORTIZATION 3,223,763 4,432,554 5,847,633 8,796,602 -------------- -------------- -------------- -------------- 17,867,379 25,532,907 46,058,346 54,619,061 -------------- -------------- -------------- -------------- OPERATING INCOME (LOSS) 7,060,763 (481,206) 7,803,199 7,746,556 OTHER (INCOME) EXPENSES: INTEREST EXPENSE, NET 4,528,397 6,585,422 7,494,673 14,022,807 OTHER, NET (48,892) (279,712) 356,215 (517,212) -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,581,258 (6,786,916) (47,689) (5,759,039) INCOME TAX EXPENSE (BENEFIT) 1,057,695 (2,625,902) (20,173) (2,194,194) -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,523,563 (4,161,014) (27,516) (3,564,845) EXTRAORDINARY ITEM, NET OF INCOME TAX -- -- (16,865,069) -- -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 1,523,563 (4,161,014) (16,892,585) (3,564,845) DIVIDENDS ON PREFERRED STOCK -- -- (28,372,393) -- -------------- -------------- -------------- -------------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 1,523,563 (4,161,014) (45,264,978) (3,564,845) -------------- -------------- -------------- -------------- NET INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM: BASIC $ 0.03 (0.06) (0.51) (0.06) DILUTED $ 0.03 (0.06) (0.51) (0.06) NET INCOME (LOSS) PER COMMON SHARE FOR EXTRAORDINARY ITEM: BASIC $ -- -- (0.30) -- DILUTED $ -- -- (0.30) -- NET INCOME (LOSS) PER COMMON SHARE: BASIC $ 0.03 (0.06) (0.81) (0.06) DILUTED $ 0.03 (0.06) (0.81) (0.06) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 60,216,660 64,658,205 56,108,682 63,511,213 DILUTED 60,610,716 64,658,205 56,108,682 63,511,213
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 5 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED MARCH 26, 2000 MARCH 25, 2001 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ (16,892,585) (3,564,845) ------------- ------------- ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: LOSS ON EARLY EXTINGUISHMENT OF DEBT 28,584,862 -- DEPRECIATION AND AMORTIZATION 5,847,633 8,796,602 GAIN ON SALE OF RADIO STATION (54,963) -- PROVISION FOR DOUBTFUL ACCOUNTS 1,646,499 4,035,667 AMORTIZATION OF DEBT DISCOUNT 61,295 -- AMORTIZATION OF DEFERRED FINANCING COSTS 513,466 695,126 ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 151,441 -- DEFERRED INCOME TAXES (8,531,911) (2,359,271) CHANGES IN OPERATING ASSETS AND LIABILITIES: DECREASE IN RECEIVABLES 2,295,461 2,709,845 (INCREASE) DECREASE IN OTHER CURRENT ASSETS (3,155,512) 457,620 INCREASE IN OTHER ASSETS (1,864) (132,935) INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES (2,611,567) 993,755 (DECREASE) INCREASE IN ACCRUED INTEREST 5,166,151 (472,647) INCREASE (DECREASE) IN DEFERRED COMMITMENT FEE 165,613 (350,694) ------------- ------------- TOTAL ADJUSTMENTS 30,076,604 14,373,068 ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 13,184,019 10,808,223 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: ACQUISITIONS OF RADIO STATIONS, NET OF CASH ACQUIRED (80,608,272) (3,412,344) PROCEED FROM SALE OF STATIONS 690,304 -- ADVANCES ON PURCHASE PRICE OF RADIO STATIONS -- (25,800,012) ADDITIONS TO PROPERTY AND EQUIPMENT (373,658) (3,992,330) ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (80,291,626) (33,204,686) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: RETIREMENT OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK (265,613,466) -- RETIREMENT OF SENIOR NOTES (190,295,268) -- DECREASE IN LOANS RECEIVABLE FROM STOCKHOLDERS 2,459,408 -- PROCEEDS FROM SENIOR SUBORDINATED NOTES 227,060,112 -- PROCEEDS FROM CLASS A COMMON STOCK 388,118,295 -- INCREASE IN DEFERRED FINANCING COSTS -- (23,862) REPAYMENT OF OTHER LONG-TERM DEBT (3,458,122) (83,796) ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 158,270,959 (107,658) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,163,352 (22,504,121) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,974,650 59,558,929 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,138,002 37,054,808 ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION: INTEREST PAID $ 5,927,284 15,315,809 ============= ============= INCOME TAXES PAID $ 430,324 145,077 ============= =============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 6 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 2001 (UNAUDITED) (1) BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of September 24, 2000 and March 25, 2001, and for the three- and six-month periods ended March 26, 2000 and March 25, 2001 do not contain all disclosures required by generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company as of and for the fiscal year ended September 24, 2000 included in the Company's fiscal year 2000 Annual Report on Form 10-K. In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal, recurring nature, necessary for a fair presentation of the results of the interim periods. The results of operations for the three- and six-month periods ended March 25, 2001 are not necessarily indicative of the results for a full year. (2) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's fiscal year ending September 30, 2001. The adoption of SFAS No. 133 had no impact on the Company's consolidated financial statements since the Company had no derivative instruments outstanding or hedging activities during the six month period ended March 25, 2001. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met in order to recognize revenue and provides guidance for disclosures related to revenue recognition policies. In June 2000, the SEC issued SAB 101B, "Second Amendment: Revenue Recognition in Financial Statements" which extends the effective date of SAB 101 to the fourth fiscal quarter of fiscal years commencing after December 15, 1999. At this time, management is still assessing the impact of SAB 101 on the Company's financial position and results of operations. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140 ("SFAS No. 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement of SFAS No. 125)". SFAS No. 140 provides guidance on accounting for (1) securitization transactions involving financial assets; (2) sales of financial assets (including loan participations); (3) factoring transactions; (4) wash sales; (5) servicing assets and liabilities; (6) collateralized borrowing arrangements; (7) securities lending transactions; (8) repurchase agreements; and (9) extinguishment of liabilities. Most of the provisions of SFAS No. 140 will become effective for transactions entered into after March 31, 2001. The Company adopted SFAS No. 140 on April 1, 2001. The adoption of SFAS No. 140 had no significant impact on the Company's consolidated financial statements. (3) ACQUISITIONS On May 8, 2000, we entered into a stock purchase agreement with Rodriguez Communications, Inc., a Delaware corporation ("RCI"), and the stockholders of RCI to acquire all of the outstanding capital stock of RCI, the owner of radio stations KMJR-FM (formerly KFOX-FM), and KNJR-FM (formerly KREA-FM) serving the Los Angeles, California market, KXJO-FM serving the San Francisco, California market and KSAH-AM serving the San Antonio, Texas market. On May 8, 2000, we also entered into (1) an asset purchase agreement with New World Broadcasters Corp., a Texas corporation and an affiliate of RCI ("New World"), to acquire radio station KTCY-FM serving the Dallas, Texas market, and (2) a stock purchase agreement with New World and 910 Broadcasting Corp., a Texas corporation and a wholly owned subsidiary of New World, to acquire all the outstanding capital stock of 910 Broadcasting Corp., the owner and operator of radio station KXEB-AM serving the Dallas, Texas market. 6 7 On November 10, 2000, we completed the purchase of all the outstanding capital stock of RCI and the purchase of radio station KTCY-FM for total consideration of $167.8 million, consisting of $42.6 million of our Class A common stock and $125.2 million in cash, including closing costs of $2.8 million. The consideration paid by us for these acquisitions was determined through arms-length negotiations between us, RCI, the shareholders of RCI and New World. We financed these acquisitions with previously unissued shares of our class A common stock, cash on hand and borrowings under our credit agreement, among us, the several banks and other financial institutions or entities from time to time party to the credit agreement and Lehman Commercial Paper, Inc., as administrative agent, dated as of July 6, 2000. Substantially all of the purchase price for these acquisitions has been allocated to FCC licenses (included in intangible assets) and a related deferred tax liability in the accompanying condensed consolidated balance sheet. We have not yet closed on the purchase of all the outstanding capital stock of 910 Broadcasting Corp., the owner of radio station KXEB-AM. FCC approval is still pending for this transaction, and there can be no assurance that the acquisition of 910 Broadcasting Corp. will be completed. Until closing on the purchase of KXEB-AM, we will continue to broadcast our programming under a time brokerage agreement that commenced on May 8, 2000. Due to the lack of continuity in the operations of the radio stations acquired in the purchase of all the capital stock of RCI (the "RCI Stations"), prior to and after RCI's acquisition of the RCI Stations, at which time we began operating the RCI Stations under time brokerage agreements until closing on November 10, 2000, we have not included separate historical financial statements or pro forma financial information relating to the acquisition of the RCI Stations. On November 2, 2000, we entered into an asset purchase agreement with the International Church of the FourSquare Gospel ("ICFG") to purchase radio station KFSG-FM in Los Angeles, California at a purchase price of $250.0 million. In connection with this acquisition, we made a non-refundable deposit of $5.0 million to be credited towards the purchase price at closing. The agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions, including receipt of regulatory approval from the FCC. On March 13, 2001, we entered into two time brokerage agreements with ICFG pursuant to which we are permitted to broadcast our programming over radio station KFSG-FM (the "TBA"), and ICFG is permitted to broadcast its programming over radio stations KMJR-FM and KNJR-FM (the "93.5 TBA") and an addendum to the asset purchase agreement (the "Addendum"). On May 1, 2001, we commenced broadcasting our programming over radio station KFSG-FM (under the call letters KXOL) under the TBA. ICFG commenced broadcasting its programming under the 93.5 TBA on May 1, 2001. The payment of $25.0 million made pursuant to the TBA, consisting of the original $5.0 million deposit and an additional payment of $20.0 million, gives us the right to broadcast our programming on radio station KFSG-FM under the TBA through March 13, 2002. We have the option to extend the term of the TBA to December 31, 2002 by making payment to ICFG of an additional $35.0 million no later than March 13, 2002. The full amounts of the payments for the TBA will be applied to the purchase price of radio station KFSG-FM if we close under the amended asset purchase agreement on or before August 1, 2002. Thereafter, there will be a charge against such credit equal to $1.2 million for each month we delay the closing past August 1, 2002. Under the amended asset purchase agreement, if we elect to extend the term of the TBA to December 31, 2002, the termination date for closing on the purchase of radio station KFSG-FM will be extended from March 13, 2002 until December 31, 2002. ICFG has the right to terminate or extend the 93.5 TBA after its initial term of 60 days. If ICFG does not extend the 93.5 TBA and we have not either closed under the amended asset purchase agreement or terminated such agreement, we will issue to ICFG warrants, exercisable for five years, to purchase 234,375 shares of our class A common stock for each month from the termination of the 93.5 TBA through March 13, 2002, with an exercise price of $6 per share. If we extend the TBA, the number of shares granted will be reduced to 197,917 shares of class A common stock for each month from March 14, 2002 through December 31, 2002, with the same exercise price. Such obligation shall terminate immediately if we either close under the amended asset purchase agreement for radio station KFSG-FM or we terminate such agreement. The acquisition of radio station KFSG-FM will be funded primarily from the senior credit facility, cash on hand and internally generated cash flow, as well as potential equity and debt financing and asset sales. There can be no assurance that the acquisition of radio station KFSG-FM will occur. 7 8 The Company and certain of its subsidiaries have guaranteed the Senior Notes on a full, unconditional, and joint and several basis. In December 1999, the Company transferred the FCC licenses of WRMA-FM, WXDJ-FM, WLEY-FM, WSKQ-FM, KLEY-FM, WPAT-FM, WCMA-FM, WEGM-FM, WMEG-FM, WCMQ-FM, and KLAX-FM, to special purpose subsidiaries that were formed solely for the purpose of holding each respective company's FCC licenses. These special purpose subsidiaries are non-guarantors of the Senior Notes as first disclosed in the prospectus relating to our Senior Notes filed in October 1999. Condensed consolidating unaudited financial information for the Company and its guarantor and non-guarantor subsidiaries is as follows:
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------- ------------- ------------ ------------ AS OF SEPTEMBER 24, 2000 ------------------------------------------------------------ CONDENSED CONSOLIDATING BALANCE SHEET Cash and cash equivalents $ 59,237,041 321,888 -- 59,558,929 Receivables, net 23,718,499 1,545,520 -- 25,264,019 Other current assets 3,315,263 546,919 -- 3,862,182 ------------- ------------ ------------ ------------ Current assets 86,270,803 2,414,327 -- 88,685,130 Property and equipment, net 14,183,896 7,491,343 -- 21,675,239 Intangible assets, net 121,115,260 392,242,395 -- 513,357,655 Deferred financing costs, net 10,792,176 2,557 -- 10,794,733 Investment in subsidiaries and intercompany 377,830,574 (283,138,307) (94,692,267) -- Other assets 178,683 (617) -- 178,066 ------------- ------------ ------------ ------------ Total assets $ 610,371,392 119,011,698 (94,692,267) 634,690,823 ============= ============ ============ ============ Current portion of long-term debt $ 53,805 117,457 -- 171,262 Accounts payable and accrued expenses 11,624,801 2,359,466 -- 13,984,267 Accrued interest 11,032,889 -- -- 11,032,889 Deferred commitment fee 2,158,850 -- -- 2,158,850 ------------- ------------ ------------ ------------ Current liabilities 24,870,345 2,476,923 -- 27,347,268 Long-term debt 300,937,384 3,554,918 -- 304,492,302 Deferred income taxes 6,186,169 22,200,000 -- 28,386,169 ------------- ------------ ------------ ------------ Total liabilities 331,993,898 28,231,841 -- 360,225,739 ------------- ------------ ------------ ------------ Common stock 6,022 1,000 (1,000) 6,022 Additional paid-in capital 392,972,851 94,691,267 (94,691,267) 392,972,851 Accumulated deficit (114,601,379) (3,912,410) -- (118,513,789) ------------- ------------ ------------ ------------ Stockholders' equity 278,377,494 90,779,857 (94,692,267) 274,465,084 ------------- ------------ ------------ ------------ Total liabilities and stockholders' equity $ 610,371,392 119,011,698 (94,692,267) 634,690,823 ============= ============ ============ ============
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ AS OF MARCH 25, 2001 ------------------------------------------------------------- CONDENSED CONSOLIDATING BALANCE SHEET Cash and cash equivalents $ 36,445,877 608,931 -- 37,054,808 Receivables, net 17,626,523 891,984 -- 18,518,507 Other current assets 2,168,204 530,745 -- 2,698,949 ------------- ------------ ------------ ------------ Current Assets 56,240,604 2,031,660 -- 58,272,264 Property and equipment, net 16,749,924 8,231,546 -- 24,981,470 Intangible assets, net 35,794,803 552,106,681 -- 587,901,484 Deferred financing costs, net 10,123,469 -- -- 10,123,469 Investment in subsidiaries and intercompany 549,532,935 (454,840,668) (94,692,267) -- Other assets 311,001 -- -- 311,001 ------------- ------------ ------------ ------------ Total Assets $ 668,752,736 107,529,219 (94,692,267) 681,589,688 ============= ============ ============ ============ Current portion of long-term debt $ 53,805 123,301 -- 177,106 Accounts payable and accrued expenses 10,532,870 4,531,512 -- 15,064,382 Accrued interest 10,560,242 -- -- 10,560,242 Deferred commitment fee 1,808,156 -- -- 1,808,156 ------------- ------------ ------------ ------------ Current Liabilities 22,955,073 4,654,813 -- 27,609,886 Long-term debt 300,910,891 3,491,771 -- 304,402,662 Deferred income taxes 13,926,898 22,200,000 -- 36,126,898 ------------- ------------ ------------ ------------ Total Liabilities 337,792,862 30,346,584 -- 368,139,446 ------------- ------------ ------------ ------------ Common stock 6,466 1,000 (1,000) 6,466 Additional paid-in capital 435,522,410 94,691,267 (94,691,267) 435,522,410 Accumulated deficit (104,569,002) (17,509,632) -- (122,078,634) ------------- ------------ ------------ ------------ Stockholders' equity 330,959,874 77,182,635 (94,692,267) 313,450,242 ------------- ------------ ------------ ------------ Total liabilities and stockholders' equity $ 668,752,736 107,529,219 (94,692,267) 681,589,688 ============= ============ ============ ============
8 9
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE THREE MONTHS ENDED MARCH 26, 2000 ------------------------------------------------------------ CONDENSED CONSOLIDATING INCOME STATEMENT Net broadcasting revenues $ 22,802,390 2,125,752 -- 24,928,142 Station operating expenses 10,340,244 1,912,042 -- 12,252,286 Corporate expenses 2,391,330 -- -- 2,391,330 Depreciation and amortization 402,142 2,821,621 -- 3,223,763 ------------ ---------- ------------ ------------ Operating income (loss) 9,668,674 (2,607,911) -- 7,060,763 Interest expense, net 4,528,397 -- -- 4,528,397 Other, net 1,982,550 (2,031,442) -- (48,892) Income tax expense (benefit) 1,301,536 (243,841) -- 1,057,695 Extraordinary item, net of income taxes -- -- -- -- ------------ ---------- ------------ ------------ Net income (loss) $ 1,856,191 (332,628) -- 1,523,563 ============ ========== ============ ============
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE THREE MONTHS ENDED MARCH 25, 2001 ------------------------------------------------------------ CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Net broadcasting revenues $ 22,664,140 2,387,561 -- 25,051,701 Station operating expenses 10,108,837 8,346,562 -- 18,455,399 Corporate expenses 2,644,954 -- -- 2,644,954 Depreciation and amortization 399,680 4,032,874 -- 4,432,554 ------------ ---------- ------------ ------------ Operating income (loss) 9,510,669 (9,991,875) -- (481,206) Interest expense, net 5,145,662 1,439,760 -- 6,585,422 Other, net 2,567,464 (2,847,176) -- (279,712) Income tax benefit (2,625,902) -- -- (2,625,902) ------------ ---------- ------------ ------------ Net income (loss) $ 4,423,445 (8,584,459) -- (4,161,014) ============ ========== ============ ============
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED MARCH 26, 2000 ------------------------------------------------------------ CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Net broadcasting revenues $ 51,687,310 2,174,235 -- 53,861,545 Station operating expenses 22,444,116 2,312,083 -- 24,756,199 Corporate expenses 15,337,454 117,060 -- 15,454,514 Depreciation and amortization 782,698 5,064,935 -- 5,847,633 ------------ ---------- ------------ ------------ Operating income (loss) 13,123,042 (5,319,843) -- 7,803,199 Interest expense, net 7,494,726 (53) -- 7,494,673 Other, net 4,409,941 (4,053,726) -- 356,215 Income tax benefit (20,173) -- -- (20,173) Extraordinary item, net of income tax (16,865,069) -- (16,865,069) ------------ ---------- ------------ ------------ Net loss $(15,626,521) (1,266,064) -- (16,892,585) ============ ========== ============ ============
9 10
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED MARCH 25, 2001 ------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Net broadcasting revenues 56,592,110 5,773,507 -- 62,365,617 Station operating expenses 31,579,830 9,086,469 -- 40,666,299 Corporate expenses 5,156,160 -- -- 5,156,160 Depreciation and amortization 2,030,565 6,766,037 -- 8,796,602 ------------ ------------ ------------ ------------ Operating income (loss) 17,825,555 (10,078,999) -- 7,746,556 Interest expense, net 11,348,497 2,674,310 -- 14,022,807 Other, net 4,363,072 (4,880,284) -- (517,212) Income tax benefit (2,194,194) -- -- (2,194,194) ------------ ------------ ------------ ------------ Net income (loss) 4,308,180 (7,873,025) -- (3,564,845) ============ ============ ============ ============
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED MARCH 26, 2000 ------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Cash flows from operating activities 11,499,720 1,684,299 -- 13,184,019 ------------ ------------ ------------ ------------ Cash flows from investing activities 243,405,429 (323,697,055) -- (80,291,626) ------------ ------------ ------------ ------------ Cash flows from financing activities (166,464,184) 324,735,143 -- 158,270,959 ============ ============ ============ ============
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED MARCH 25, 2001 ------------------------------------------------------------ CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Cash flows from operating activities 9,352,609 1,455,614 -- 10,808,223 ============ ============ ============ ============ Cash flows from investing activities 134,935,634 (168,140,320) -- (33,204,686) ============ ============ ============ ============ Cash flows from financing activities (167,079,137) 166,971,479 -- (107,658) ============ ============ ============ ============
Certain prior year amounts have been reclassified to reflect the transfer of FCC licenses from guarantor subsidiaries to non-guarantor subsidiaries. Parent-only financial information has not been provided since the parent has no operations or assets separate from its investments in its subsidiaries. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 25, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 26, 2000. NET REVENUES. Net revenues were $25.1 million for the three months ended March 25, 2001 compared to $24.9 million for the three months ended March 26, 2000, an increase of $0.2 million or 0.8%. Most of the increase was generated by the inclusion of the operating results of the stations acquired during the year 2000 in Puerto Rico, Dallas, San Antonio, San Francisco and Los Angeles, as well as our barter agreement with America Online, Inc. (the "AOL Agreement"), which commenced in September 2000. On a same station basis, we experienced decreases in net revenues, generally related to lower advertising demand. STATION OPERATING EXPENSES. Total station operating expenses were $18.5 million for the three months ended March 25, 2001 compared to $12.3 million for the three months ended March 26, 2000, an increase of $6.2 million or 50.4%. The increase was primarily attributed to the inclusion of the operating results of the stations acquired in the year 2000, as well as the expenses related to the AOL Agreement. In addition, higher compensation expenses related to improvements in our programming department, the hiring of additional programming and sales management personnel, higher marketing costs, and an increase in the allowance for doubtful accounts related to an overall softening in the general economy also increased operating expenses. BROADCAST CASH FLOW. Broadcast cash flow was $6.6 million for the three months ended March 25, 2001 compared to $12.7 million for the three months ended March 26, 2000, a decrease of $6.1 million or 48.0%. In addition, our broadcast cash flow margin decreased to 26.3% for the three months ended March 25, 2001 compared to 51.0% for the three months ended March 26, 2000, due to decreased same station net revenues and higher station operating expenses. CORPORATE EXPENSES. Corporate expenses were $2.6 million for the three months ended March 25, 2001 compared to $2.4 million for the three months ended March 26, 2000, an increase of $0.2 million or 8.3%. The increase in corporate expenses resulted mainly from an increase in professional fees. EBITDA. EBITDA was $4.0 million for the three months ended March 25, 2001 compared to $10.3 million for the three months ended March 26, 2000, a decrease of $6.3 million or 61.2%. The decrease in EBITDA was attributed to decreased broadcast cash flow. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $4.4 million for the three months ended March 25, 2001 compared to $3.2 million for the three months ended March 26, 2000, an increase of $1.2 million or 37.5%. The increase in depreciation and amortization was related to the stations acquired during the year 2000. OPERATING (LOSS) INCOME. Operating loss was $0.5 million for the three months ended March 25, 2001 compared to $7.1 million of operating income for the three months ended March 26, 2000. The operating loss was caused by the decrease in EBITDA and an increase in depreciation and amortization expense. INTEREST EXPENSE, NET. Interest expense was $6.6 million for the three months ended March 25, 2001 compared to $4.5 million of interest expense for the three months ended March 26, 2000, an increase of $2.1 million or 46.7%. This increase was due primarily to interest expense incurred on our senior secured credit facility of $65.0 million, which was entered into in July 2000. OTHER, NET. Other income was $0.3 million for the three months ended March 25, 2001 due to an insurance recovery claim related to an office building in Los Angeles. We had no meaningful other income during the three months ended March 26, 2000. NET (LOSS) INCOME. Net loss was $4.2 million for the three months ended March 25, 2001 compared to net income of $1.5 million for the three months ended March 26, 2000. The net loss was caused by the decrease in EBITDA and an increase in depreciation and amortization expense and interest expense, net. AFTER-TAX CASH FLOW. After-tax cash flow was $0.3 million for the three months ended March 25, 2001 compared to $4.7 million for the three months ended March 26, 2000, a decrease of $4.4 million or 93.6%. The decrease was primarily attributed to the decrease in EBITDA and an increase in interest expense, net. 11 12 SIX MONTHS ENDED MARCH 25, 2001 COMPARED TO THE SIX MONTHS ENDED MARCH 26, 2000. NET REVENUES. Our net revenues were $62.4 million for the six months ended March 25, 2001 compared to $53.9 million for the six months ended March 26, 2000, an increase of $8.5 million or 15.8%. Most of the increase was generated by the inclusion of the operating results of the stations acquired during the year 2000, as well as the barter AOL Agreement. On a same station basis, we experienced a decrease in net revenues, generally related to lower advertising demand. STATION OPERATING EXPENSES. Total station operating expenses were $40.7 million for the six months ended March 25, 2001 compared to $24.8 million for the six months ended March 26, 2000, an increase of $15.9 million or 64.1%. The increase was primarily attributed to the inclusion of the operating results of the stations acquired in the year 2000, as well as the expenses related to the AOL Agreement. In addition, higher compensation expenses related to improvements in our programming department, the hiring of additional programming and sales management personnel, higher marketing costs, and an increase in the allowance for doubtful accounts related to an overall softening in the general economy also increased operating expenses. BROADCAST CASH FLOW. Broadcast cash flow was $21.7 million for the six months ended March 25, 2001 compared to $29.1 million for the six months ended March 26, 2000, a decrease of $7.4 million or 25.4%. In addition, our broadcast cash flow margin decreased to 34.8% for the six months ended March 25, 2001 compared to 54.0% for the six months ended March 26, 2000, due to decreased same station net revenues and higher station operating expenses. CORPORATE EXPENSES. Corporate expenses were $5.2 million for the six months ended March 25, 2001 compared to $15.5 million for the six months ended March 26, 2000, a decrease of $10.3 million or 66.5%. The decrease in corporate expenses resulted mainly from the absence of the non-recurring severance payment in fiscal year 2001, which was recorded in the first quarter of fiscal year 2000. EBITDA. EBITDA was $16.5 million for the six months ended March 25, 2001 compared to $13.7 million for the six months ended March 26, 2000, an increase of $2.8 million or 20.4%. The increase in EBITDA was mainly attributed to decreased corporate expenses, offset by decreased broadcast cash flow. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $8.8 million for the six months ended March 25, 2001 compared to $5.8 million for the six months ended March 26, 2000, an increase of $3.0 million or 51.7%. The increase in depreciation and amortization was related to the stations acquired during the year 2000. OPERATING INCOME. Operating income was $7.7 million for the six months ended March 25, 2001 compared to $7.8 million of operating income for the six months ended March 26, 2000, a decrease of $0.1 million or 1.3%. The decrease in operating income was caused by an increase in depreciation and amortization expense, offset by an increase in EBITDA. INTEREST EXPENSE, NET. Interest expense was $14.0 million for the six months ended March 25, 2001 compared to $7.5 million of interest expense for the six months ended March 26, 2000, an increase of $6.5 million or 86.7%. This increase was due primarily to interest expense incurred on our senior secured credit facility of $65.0 million, which was entered into in July 2000. OTHER, NET. Other income was $0.5 million for the six months ended March 25, 2001 due to the settlement of a legal dispute related to a back-up auxiliary transmitter and antenna for KLAX-FM and an insurance recovery claim related to an office building in Los Angeles. We had other expenses of $0.4 million for the six months ended March 25, 2000, which resulted primarily from the write-off of financing costs. EXTRAORDINARY LOSS. During the six months ended March 25, 2001, we did not record any extraordinary items. During the six months ended March 26, 2000, we incurred an extraordinary loss of $16.9 million, net of an income tax benefit of $11.7 million, which was related to the early extinguishment of our 11% and 12 1/2% notes for an amount in excess of our carrying value and the write off of the related unamortized debt issuance costs. NET LOSS. Net loss was $3.6 million for the six months ended March 25, 2001 compared to a net loss of $16.9 million for the six months ended March 26, 2000, a decrease of $13.3 million or 78.7%. The decrease in net loss was caused by an increase in EBITDA and the absence of an extraordinary loss, offset by an increase in depreciation and amortization expense and interest expense, net. 12 13 AFTER-TAX CASH FLOW. After-tax cash flow was $5.2 million for the six months ended March 25, 2001 compared to $5.8 million for the six months ended March 26, 2000, a decrease of $0.6 million or 10.3%. The decrease was primarily attributed to the increase in interest expense, net, offset by a decrease in EBITDA. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is cash on hand, cash provided by operations and, to the extent necessary, undrawn commitments that are available under the $90.0 million senior credit facility arranged by Lehman Brothers Inc. in July 2000, of which $65.0 million was outstanding as of March 25, 2001. The senior credit facility includes a six-year $25.0 million revolving credit facility and $65.0 million multi-draw term loan facility. Our ability to increase our indebtedness is limited by the terms of the credit agreement governing our senior credit facilities and the indenture governing our senior subordinated notes. Additionally, such credit agreement and indenture place restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates and consolidations and mergers, among other things. Net cash flows provided by operating activities were $10.8 million for the six months ended March 25, 2001 compared to net cash flows provided by operating activities of $13.2 million for the six months ended March 25, 2000. Changes in our net cash flow from operating activities were primarily a result of changes in advertising revenues and station operating expenses, which were affected by the acquisition of stations during these periods. Net cash flows used in investing activities were $33.2 million for the six months ended March 25, 2001 compared to net cash flows used in investing activities of $80.3 million for the six months ended March 26, 2000. Changes in our net cash flow from investing activities were primarily a result of the acquisition and disposition of stations during these periods. Net cash flows used in financing activities were $0.1 million for the six months ended March 25, 2001 compared to net cash flows provided by financing activities of $158.3 million for the six months ended March 26, 2000. Changes in our net cash flow from financing activities during the six months ended March 26, 2000 were primarily a result of the initial public offering and related refinancing transactions that were completed during the first quarter of fiscal year 2000. Management believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our obligations in the foreseeable future, including: (1) required significant cash interest payments pursuant to the terms of the senior subordinated notes due 2009, (2) operating obligations and (3) capital expenditures. Assumptions (none of which can be assured) that underlie management's belief, include: - the economic conditions within the radio broadcasting market and economic conditions in general will not deteriorate in any material respect; - we will continue to successfully implement our business strategy; - we will not incur any material unforeseen liabilities, including environmental liabilities; and - no future acquisitions will adversely affect our liquidity. We continuously review, and are currently reviewing, opportunities to acquire additional radio stations, primarily in the largest Hispanic markets in the United States. We engage in discussions regarding potential acquisitions from time to time in the ordinary course of business. On May 8, 2000, we entered into a stock purchase agreement with Rodriguez Communications, Inc. ("RCI") and the stockholders of RCI to acquire all of the outstanding capital stock of RCI, the owner of radio stations KMJR-FM (formerly KFOX-FM) and KNJR-FM (formerly KREA-FM) serving the Los Angeles, California market, KXJO-FM serving the San Francisco, California market and KSAH-AM serving the San Antonio, Texas market. On May 8, 2000, we also entered into (1) an asset purchase agreement with New World Broadcasters Corp. ("New World") to acquire radio station KTCY-FM serving the Dallas, Texas market and (2) a stock purchase agreement with New World and 910 Broadcasting Corp., a wholly owned subsidiary of New World, to acquire all the outstanding capital stock of 910 Broadcasting Corp., the owner and operator of radio station KXEB-AM serving the Dallas, Texas market. 13 14 On November 10, 2000, we completed the purchase of all the outstanding capital stock of RCI and the purchase of radio station KTCY-FM for total consideration of $167.8 million, consisting of $42.6 million of our Class A common stock and $125.2 million in cash, including closing costs of $2.8 million. The consideration paid by us for these acquisitions was determined through arms-length negotiations between us, RCI, the shareholders of RCI and New World. We financed these acquisitions with previously unissued shares of our class A common stock, cash on hand and borrowings under our credit agreement, among us, the several banks and other financial institutions or entities from time to time party to the credit agreement and Lehman Commercial Paper, Inc., as administrative agent, dated as of July 6, 2000. We have not yet closed on the purchase of all the outstanding capital stock of 910 Broadcasting Corp., the owner of radio station KXEB-AM. FCC approval is still pending for this transaction, and there can be no assurance that the acquisition of 910 Broadcasting Corp. will be completed. Until closing on the purchase of KXEB-AM, we will continue to broadcast our programming on KXEB-AM under a time brokerage agreement that commenced on May 8, 2000. On November 2, 2000, we entered into an asset purchase agreement with the International Church of the FourSquare Gospel ("ICFG") to purchase radio station KFSG-FM in Los Angeles, California at a purchase price of $250.0 million. In connection with this acquisition, we made a non-refundable deposit of $5.0 million to be credited towards the purchase price at closing. The agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions, including receipt of regulatory approval from the FCC. On March 13, 2001, we entered into two time brokerage agreements with ICFG pursuant to which we are permitted to broadcast our programming over radio station KFSG-FM (the "TBA"), and ICFG is permitted to broadcast its programming over radio stations KMJR-FM and KNJR-FM (the "93.5 TBA") and an addendum to the asset purchase agreement (the "Addendum"). On May 1, 2001, we commenced broadcasting our programming over radio station KFSG-FM (under the call letters KXOL) under the TBA. ICFG commenced broadcasting its programming under the 93.5 TBA on May 1, 2001. The payment of $25.0 million made pursuant to the TBA, consisting of the original $5.0 million deposit and an additional payment of $20.0 million, gives us the right to broadcast our programming on radio station KFSG-FM under the TBA through March 13, 2002. We have the option to extend the term of the TBA to December 31, 2002 by making payment to ICFG of an additional $35.0 million no later than March 13, 2002. The full amounts of the payments for the TBA will be applied to the purchase price of radio station KFSG-FM if we close under the amended asset purchase agreement on or before August 1, 2002. Thereafter, there will be a charge against such credit equal to $1.2 million for each month we delay the closing past August 1, 2002. Under the amended asset purchase agreement, if we elect to extend the term of the TBA to December 31, 2002, the termination date for closing on the purchase of radio station KFSG-FM will be extended from March 13, 2002 until December 31, 2002. ICFG has the right to terminate or extend the 93.5 TBA after its initial term of 60 days. If ICFG does not extend the 93.5 TBA and we have not either closed under the amended asset purchase agreement or terminated such agreement, we will issue to ICFG warrants, exercisable for five years, to purchase 234,375 shares of our class A common stock for each month from the termination of the 93.5 TBA through March 13, 2002, with an exercise price of $6 per share. If we extend the TBA, the number of shares granted will be reduced to 197,917 shares of class A common stock for each month from March 14, 2002 through December 31, 2002 with the same exercise price. Such obligation shall terminate immediately if we either close under the amended asset purchase agreement for radio station KFSG-FM or we terminate such agreement. The acquisition of radio station KFSG-FM will be funded primarily from the senior credit facility, cash on hand and internally generated cash flow, as well as potential equity and debt financing and asset sales. There can be no assurance that the acquisition of radio station KFSG-FM will occur. We have no other written understandings, letters of intent or contracts to acquire radio stations or other companies. We anticipate that any future acquisitions would be financed through funds generated from permitted debt financing, equity financing, operations or a combination of these sources. However, there can be no assurance that financing from any of these sources, if available, can be obtained on favorable terms. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's fiscal year ending September 30, 2001. The adoption of SFAS No. 133 had no impact on the Company's consolidated financial statements since the Company had no derivative instruments outstanding or hedging activities during the six month period ended March 25, 2001. 14 15 In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met in order to recognize revenue and provides guidance for disclosures related to revenue recognition policies. In June 2000, the SEC issued SAB 101B, "Second Amendment: Revenue Recognition in Financial Statements" which extends the effective date of SAB 101 to the fourth fiscal quarter of fiscal years commencing after December 15, 1999. At this time, management is still assessing the impact of SAB 101 on the Company's financial position and results of operations. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140 ("SFAS No. 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement of SFAS No. 125)". SFAS No. 140 provides guidance on accounting for (1) securitization transactions involving financial assets; (2) sales of financial assets (including loan participations); (3) factoring transactions; (4) wash sales; (5) servicing assets and liabilities; (6) collateralized borrowing arrangements; (7) securities lending transactions; (8) repurchase agreements; and (9) extinguishment of liabilities. Most of the provisions of SFAS No. 140 will become effective for transactions entered into after March 31, 2001. The Company adopted SFAS No. 140 on April 1, 2001. The adoption of SFAS No. 140 will have a significant impact on the Company's consolidated financial statements. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1999. Discussions containing such forward-looking statements may be found in this report. In addition, when used in this report, the words "believes," "anticipates," "expects," "estimates," "plans," "intends," and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors that may cause these differences include, but are not limited to: o our substantial level of debt could limit our ability to grow and compete; o the terms of our debt restrict us from engaging in many activities and require us to satisfy various financial tests; o we have experienced net losses in the past and to the extent that we experience losses in the future, our ability to raise capital and the market prices of our securities could be adversely affected; o a large portion of our net broadcast revenue and broadcast cash flow comes from the New York and Miami markets; o loss of key personnel could adversely affect our business, including Raul Alarcon, Jr., our Chairman of the Board of Directors, President and Chief Executive Officer; o we compete for advertising revenue with other radio groups as well as television and other media, many operators of which have greater resources than we do; o our growth depends on successfully executing our acquisition strategy. We intend to grow by acquiring radio stations primarily in the largest U.S. Hispanic markets. We cannot assure you that our acquisition strategy will be successful; o Raul Alarcon, Jr., Chairman of the Board of Directors, Chief Executive Officer and President, has majority voting control; o we must be able to respond to rapidly changing technology, services and standards which characterize our industry in order to remain competitive; o our business depends on maintaining our FCC licenses. We cannot assure you that we will be able to maintain these licenses; o we may face regulatory review for additional acquisitions in our existing markets and, potentially, new markets; o a national or regional recession could impair our revenues; and o future sales by existing stockholders could depress the market price of our class A common stock. Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended September 24, 2000 and in the three- and six-month periods ended March 25, 2001. However, there can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition. We are not subject to currency fluctuations since we do not have any international operations other than Puerto Rico where the currency is the U.S. dollar. Other than our senior credit facility, we do not have any variable rate debt, or derivative financial or commodity instruments. At the current level of drawing under the senior credit facility, a 10% increase in interest rates would not have a material impact on net interest expense. Consequently, we have determined not to pursue any type of hedging transactions. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time we are involved in litigation incidental to the conduct of our business, such as contract matters and employee-related matters. We are not currently a party to litigation, which in the opinion of management, is likely to have a material adverse effect on our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were submitted to a vote of shareholders at our annual meeting of shareholders held on March 5, 2001: (1) Voters elected the following five incumbent directors with the noted vote tabulation:
Class A Common Stock Class B Common Stock Total -------------------------------- --------------------------------- ------------------------------------ Votes Votes Votes Directors Votes For Against Abstentions Votes for Against Abstentions Votes for Against Abstentions - --------- --------- ------- ----------- --------- ------- ----------- --------- ------- ----------- Raul Alarcon, Jr. 25,481,039 -- 1,174,349 261,667,500 -- -- 287,148,539 -- 1,174,349 Pablo Raul Alarcon, Sr. 25,600,109 -- 1,055,279 261,667,500 -- -- 287,267,609 -- 1,055,279 Jose Grimalt 25,583,459 -- 1,071,929 261,667,500 -- -- 287,250,959 -- 1,071,929 Roman Martinez IV 25,498,489 -- 1,156,899 261,667,500 -- -- 287,165,989 -- 1,156,899 Jason L. Shrinsky 25,512,859 -- 1,142,529 261,667,500 -- -- 287,180,559 -- 1,142,529
There were no broker non-votes. (2) Voters approved the ratification of the appointment of KPMG LLP as independent auditors to audit our financial statements for the year ending September 30, 2001. There was a total of 288,282,588 votes for, consisting of 26,615,088 votes by Class A shareholders and 261,667,500 votes by Class B shareholders, and 20,698 votes against.by Class A shareholders. There were 19,602 abstentions by Class A shareholders and no broker non-votes. ITEM 5. OTHER INFORMATION DIRECTORS On May 7, 2001, Roman Martinez IV resigned from his position as a member of our board of directors. FEES PAID TO KPMG LLP The following table sets forth the aggregate fees billed to us for the fiscal year ended September 24, 2000 by our independent certified accountants, KPMG LLP: Audit Fees ..................................................... $ 500,000 (1) Financial Information Systems Design and Implementation Fees..... $ -- All Other Fees ................................................. $ 827,000 (2)
15 16 The audit committee of the board of directors has considered whether the provision of the services by KPMG LLP covered by "Financial Information Systems Design and Implementation Fees" and "All Other Fees" above is compatible with maintaining KPMG LLP's independence and has determined that such provision of services is compatible with maintaining KPMG LLP's independence. (1) Includes fees for the audit of our annual consolidated financial statements for the fiscal year ended September 24, 2000, and the reviews of our quarterly condensed consolidated financial information included in our reports on Form 10-Q filed during fiscal year 2000. (2) Includes fees related to internal audit services, tax consulting and compliance services and other non-audit special projects (including SEC filings for our initial public offering in November 1999 and certain significant acquisitions in fiscal 2000; statutory financial statements required for Puerto Rico tax purposes; and debt compliance letters required under our senior subordinated notes payable and our senior credit facilities). NETWORK AFFILIATION AGREEMENT On April 5, 2001, SBS of San Francisco, Inc. entered into a two-year radio network affiliation agreement with Clear Channel Broadcasting, Inc. ("Clear Channel") whereby Clear Channel provides a network programming service consisting of rock music programming to our radio station KXJO-FM in Alameda, California. The network agreement provides for monthly compensation payments to KXJO of $100,000 for the first year. For the second year of the agreement and for the automatic renewal term of one additional year, the payments will be adjusted based upon a compensation formula using the consumer price index, as more fully described in the agreement. The agreement may be terminated by either party upon thirty days' prior written notice. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 10.1 First Amendment to Credit Agreement, dated as of March 5, 2001, by and among the Company, the lenders party to the Credit Agreement dated as of July 6, 2000 and Lehman Commercial Paper, Inc. 10.2 Addendum to Asset Purchase Agreement, dated March 13, 2001, by and between International Church of the FourSquare Gospel and the Company. 16 17 10.3 Time Brokerage Agreement, dated March 13, 2001, by and between International Church of the FourSquare Gospel and the Company. 10.4 93.5 Time Brokerage Agreement, dated March 13, 2001, by and between Spanish Broadcasting System Southwest, Inc. and International Church of the FourSquare Gospel. 10.5 Radio Network Affiliation Agreement, dated April 5, 2001, between Clear Channel Broadcasting, Inc. and SBS of San Francisco, Inc. (b) Reports on Form 8-K. (i) The Company filed an amended report on Form 8-K dated January 24, 2001 (the "Amended 8-K"), to amend the report on Form 8-K dated November 27, 2000, to add that: (1) On November 10, 2000, SBS completed the purchase of all the outstanding capital stock of Rodriguez Communications, Inc. ("RCI") and the purchase of radio station KTCY-FM, for total consideration of 164.3 million, consisting of 42.6 million of SBS's Class A common stock and 121.7 million in cash. (2) Due to the lack of continuity in the operations of the radio stations (the "Assets") acquired in the purchase of all the capital stock of RCI, prior to and after RCI's acquisition of the Assets, at which time the Company began operating the Assets, the Company did not include separate audited financial statements or pro forma financial information relating to the acquisition of the Assets in the Amended 8-K. (3) The Company had not yet closed on the purchase of all the outstanding capital stock of 910 Broadcasting Corp., the owner of radio station KXEB-AM, as of the date of the Amended 8-K. FCC approval was still pending for this transaction as of the date of the Amended 8-K and there could be no assurances that the acquisition of 910 Broadcasting Corp. would be completed. (4) The Company did not include separate audited financial statements or pro forma financial information relating to the acquisition of KTCY-FM (Pilot Point, Texas) from New World Broadcasters Corp. ("New World") or the potential acquisition of all the outstanding capital stock of 910 Broadcasting Corp., the owner of KXEB-AM (Sherman, Texas), in the Amended 8-K because neither acquisition is considered significant. (5) Of the total purchase price paid by the Company for the capital stock of RCI and the purchase of KTCY-FM from New World, $40.5 million was allocated to the purchase of KTCY-FM from New World. The purchase price for KXEB-AM is $0.95 million. (ii) The Company filed a report on Form 8-K dated February 9, 2001, which reported that the annual meeting of the shareholders of the Company was re-scheduled from February 9, 2001 to March 5, 2001. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Spanish Broadcasting System, Inc., a Delaware Corporation By: /s/ JOSEPH A. GARCIA -------------------------------------------- Joseph A. Garcia, Executive Vice President, Date: May 9, 2001 Chief Financial Officer and Secretary (principal financial and accounting officer and duly authorized officer of the registrant) 18 EX-10.1 2 g69100ex10-1.txt FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.1 FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement (including Exhibit A and the Consent of Subsidiary Guarantors attached hereto, this "Amendment") is dated as of March 5, 2001 and entered into by and among Spanish Broadcasting System, Inc., a Delaware corporation (the "Borrower"), the Lenders party to the Credit Agreement described below and Lehman Commercial Paper Inc. as Administrative Agent (the "Administrative Agent"). RECITALS A. The Borrower, the Lenders and the Administrative Agent have entered into a Credit Agreement dated as of July 6, 2000 (the "Credit Agreement"). Capitalized terms used in this Amendment without definition shall have the meanings given such terms in the Credit Agreement. B. The Borrower has requested that the Lenders agree, subject to the conditions and upon the terms set forth in this Amendment, to amend the Credit Agreement as herein set forth. C. The Lenders are willing to agree to amend the Credit Agreement subject to the conditions and on the terms set forth herein. NOW THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the Borrower, the Lenders and the Administrative Agent hereby agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the conditions and upon the terms set forth in this Amendment and in reliance on the representations and warranties of the Borrower set forth in this Amendment, the Credit Agreement is hereby amended as follows: 1.1 Annex A: Pricing Grid For Revolving Credit Loans, Swing Loans and Term Loans. Annex A of the Credit Agreement is deleted and Annex A(am), attached as Exhibit A to this Amendment, is inserted in its place. 1.2 Section 1.1: Defined Terms. Section 1.1 of the Credit Agreement is amended: (a) by inserting immediately after "provided, that" in the definition of "Applicable Margin": (a) effective on the First Amendment Effective Date and at all times thereafter until the Grid Effective Date, the Applicable Margin for Base Rate Loans shall be 2.00% and -1- 2 the Applicable Margin for Eurodollar Loans shall be 3.00% and (b) effective (b) by deleting in its entirety the text of the definition of "Grid Effective Date" and replacing it with: "Grid Effective Date": the date that is the later of (a) the six-month anniversary of the Syndication Date and (b) the date of delivery to the Administrative Agent of the Borrower's financial statements for the first two fiscal quarters ending after the Syndication Date. (c) by deleting the term "Annex A" in the definition of "Pricing Grid" and replacing it with "Annex A(am)". (d) by deleting the date "June 30, 2006" in the definition of "Scheduled Revolving Credit Termination Date" and replacing it with "December 31, 2006". (e) by deleting the last sentence in the definition of "Term Loan Commitment" and replacing it with: The original aggregate amount of the Term Loan Commitments was $125,000,000, in respect of which (a) $65,000,000 in principal amount of Term Loans were made to the Borrower during the Term Loan Commitment Period and are outstanding as of the date of the First Amendment, (b) all obligations to make any additional Term Loans expired on the last day of the Term Loan Commitment Period, and (c) accordingly, as of the date of the First Amendment, the aggregate amount of the Term Loan Commitments is $65,000,000, consisting of $65,000,000 in principal amount of Term Loans funded, outstanding and repayable on the terms set forth in this Agreement and no Lender is obligated to make any additional Term Loans. (f) by adding the following new definitions in proper alphabetical order: "First Amendment": the First Amendment to this Credit Agreement dated as of March 5, 2001. "First Amendment Effective Date": the earlier of (a) March 31, 2001 and (b) the Syndication Date. "Syndication Date": the date on which the first assignments are made in the syndication of the credit facilities established hereby. -2- 3 1.3 Section 2.3: Repayment of Term Loans. Section 2.3 of the Credit Agreement is amended by deleting the text thereof in its entirety and replacing it with: Repayment of Term Loans. The Borrower shall pay the principal amount of the Term Loans in twenty consecutive quarterly installments commencing on March 31, 2002 and continuing on the last day of each June, September, December and March of each year thereafter through December 31, 2006, and the amount of the quarterly installment due on each such payment date shall be determined by applying the payment percentage set forth next to such payment date below to the amount of the Term Loans outstanding on the last day of the Term Loan Commitment Period:
Payment Date Payment Percentage ------------ ------------------ March 31, 2002 1.25% June 30, 2002 1.25% September 30, 2002 1.25% December 31, 2002 1.25% March 31, 2003 3.75% June 30, 2003 3.75% September 30, 2003 3.75% December 31, 2003 3.75% March 31, 2004 5.00% June 30, 2004 5.00% September 30, 2004 5.00% December 31, 2004 5.00% March 31, 2005 6.25% June 30, 2005 6.25% September 30, 2005 6.25% December 31, 2005 6.25% March 31, 2006 8.75% June 30, 2006 8.75% September 30, 2006 8.75% December 31, 2006 8.75%
Notwithstanding the foregoing, the aggregate outstanding principal balance of the Term Loans shall be due and payable in full in immediately available funds on December 31, 2006, if not sooner paid in full. 1.4 Section 7.1(c): Consolidated Leverage Ratio. The entry "FQ2 and FQ3 in 2001" in the first column in Section 7.1(c) of the Credit Agreement and the corresponding entry "6.50" in the second column of that Section are deleted and replaced by the following: -3- 4 FQ2 in 2001 6.75 FQ3 in 2001 6.50 2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. In order to induce the Lenders and the Administrative Agent to enter into this Amendment, the Borrower represents and warrants to each Lender and the Administrative Agent that the following statements are true, correct and complete: 2.1 Existence, Good Standing, Power and Authority. The Borrower and each Subsidiary Guarantor is duly organized and validly existing and in good standing under the laws of the State in which it was organized and has all corporate or other organizational power and authority to enter into this Amendment. 2.2 Authorization. The execution and delivery of this Amendment and the performance of the obligations of the Borrower and each Subsidiary Guarantor under or in respect of this Amendment and the Credit Agreement as amended hereby have been duly authorized by all necessary corporate or other organizational action on the part of the Borrower and the Subsidiary Guarantors. 2.3 No Conflict or Violation or Required Consent or Approval. The execution and delivery of this Amendment by the Borrower and the Subsidiary Guarantors and the performance of the obligations under or in respect of this Amendment and the Credit Agreement as amended hereby do not and will not conflict with or violate (a) any provision of the articles or certificate of incorporation or bylaws or other governing documents of the Borrower or any Subsidiary, (b) any law or governmental rule or regulation applicable to or binding on the Borrower or any Subsidiary, (c) any order, judgment or decree of any court or other governmental agency binding on the Borrower or any Subsidiary, or (d) any indenture, agreement or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary, or any property of any of them, is bound, and do not and will not require any consent or approval of any Person. 2.4 Execution, Delivery and Enforceability. This Amendment has been duly executed and delivered by the Borrower and each Subsidiary Guarantor and is the legal, valid and binding obligations of the Borrower and the Subsidiary Guarantors, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally or by general equitable principles. 2.5 No Default. No event has occurred and is continuing or will result from the execution and delivery of this Amendment that constitutes or would constitute a Default. 2.6 Representations and Warranties. Each of the representations and warranties of the Borrower or any Subsidiary Guarantor set forth in any Loan Document is true and correct in all material -4- 5 respects on the date hereof and will be true and correct in all material respects on the date this Amendment becomes effective, except (in each case) to the extent such representations and warranties speak expressly to an earlier date. 2.7 Subsidiary Guarantors. Each Person that is, as of the date of this Amendment, a Subsidiary and a Subsidiary Guarantor has duly executed and delivered a counterpart of the Guarantee and Collateral Agreement. 3. EFFECTIVENESS OF THIS AMENDMENT. This Amendment shall be effective when this Amendment has been duly executed and delivered by the Borrower, the Administrative Agent and the Lenders and the Consent of Subsidiary Guarantors included herein has been duly executed and delivered by each of the Subsidiary Guarantors. Delivery of a telecopy signature page signed on behalf of a Lender or the Administrative Agent shall be sufficient evidence of such execution and delivery by it. 4. EFFECT OF AMENDMENT. From and after the date on which this Amendment becomes effective, all references in the Loan Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. As expressly amended hereby, the Credit Agreement and the other Loan Documents, including the Liens granted thereunder, shall remain in full force and effect and are hereby ratified and confirmed. This Amendment is a Loan Document. 5. APPLICABLE LAW AND MISCELLANEOUS PROVISIONS. This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. The provisions of Article X of the Credit Agreement shall apply with like effect to this Amendment. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by a duly authorized officer as of the date first above written. SPANISH BROADCASTING SYSTEM, INC. By: --------------------------------------- Name: ---------------------------------- Title: --------------------------------- LEHMAN COMMERCIAL PAPER INC., as Lender and as Administrative Agent By: --------------------------------------- Name: ---------------------------------- Title: --------------------------------- 7 EXHIBIT A Annex A(am) PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS AND TERM LOANS Commencing on the Grid Effective Date, the Applicable Margin shall be determined on a quarterly basis based on the Consolidated Leverage Ratio as of the last day of the most recent fiscal quarter and for the period of four consecutive fiscal quarters then ended, as set forth below:
------------------------------------------------------------------------- Consolidated Leverage Applicable Margin Applicable Margin for Ratio for Eurodollar Loans Base Rate Loans ------------------------------------------------------------------------- >6:1 3.00% 2.00% - ------------------------------------------------------------------------- >5:1 and <6:1 2.75% 1.75% - ------------------------------------------------------------------------- >4:1 and <5:1 2.50% 1.50% - ------------------------------------------------------------------------- <4:1 2.25% 1.25% -------------------------------------------------------------------------
provided, that the Applicable Margin will be the highest rate set forth above (3.00% for Eurodollar Rate Loans and 2.00% for Base Rate Loans) whenever any Event of Default is continuing. Changes in the Applicable Margin resulting from changes in the Consolidated Leverage Ratio shall become effective on the date on which financial statements are delivered to the Lenders pursuant to Section 6.1 (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 6:1. 8 CONSENT OF SUBSIDIARY GUARANTORS Each of the undersigned hereby (a) represents and warrants to the Administrative Agent and the Lenders that it is a Subsidiary and a Subsidiary Guarantor and has duly authorized, executed and delivered a counterpart of, or assumption agreement in respect of, the Guarantee and Collateral Agreement, (b) consents to the foregoing Amendment, (c) acknowledges that, notwithstanding the execution and delivery of the foregoing Amendment, its obligations under the Guarantee and Collateral Agreement and each other Loan Document executed by it are not impaired or affected and all guaranties given and security interests and liens granted thereunder remain and shall continue in full force and effect, and (d) confirms and ratifies its obligations under the Guarantee and Collateral Agreement and each other Loan Document executed by it. [intentionally left blank] 9 IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Consent of Subsidiary Guarantors as of the 5th day of March, 2001. SPANISH BROADCASTING SYSTEM FINANCE CORPORATION, a Delaware corporation SPANISH BROADCASTING SYSTEM OF GREATER MIAMI, INC. SPANISH BROADCASTING SYSTEM OF ILLINOIS, INC. SPANISH BROADCASTING SYSTEM, INC., a New Jersey corporation SPANISH BROADCASTING SYSTEM OF SAN ANTONIO, INC. ALARCON HOLDINGS, INC. SPANISH BROADCASTING SYSTEM OF CALIFORNIA, INC. SPANISH BROADCASTING SYSTEM OF PUERTO RICO, INC., a Delaware corporation SPANISH BROADCASTING SYSTEM OF FLORIDA, INC. SBS OF GREATER NEW YORK, INC. SBS FUNDING, INC. SPANISH BROADCASTING SYSTEM OF PUERTO RICO, INC., a Puerto Rico corporation SPANISH BROADCASTING SYSTEM NETWORK, INC. SBS PROMOTIONS, INC. WRMA LICENSING, INC. WXDJ LICENSING, INC. WLEY LICENSING, INC. WSKQ LICENSING, INC. KLEY LICENSING, INC. WCMQ LICENSING, INC. KLAX LICENSING, INC. WPAT LICENSING, INC. WCMA LICENSING, INC. WEGM LICENSING, INC. WMEG LICENSING, INC. KSAH LICENSING, INC. KNJR LICENSING, INC. KMJR LICENSING, INC. KXJO LICENSING, INC. KTCY LICENSING, INC. SBS OF SAN FRANCISCO, INC. SPANISH BROADCASTING SYSTEM SOUTHWEST, INC. By: -------------------------------------- Name: an authorized officer of each of the foregoing Subsidiary Guarantors EX-10.2 3 g69100ex10-2.txt ADDENDUM & ASSET PURCHASE AGREEMENT 1 Exhibit 10.2 ADDENDUM TO ASSET PURCHASE AGREEMENT This Addendum to Asset Purchase Agreement, dated March 13, 2001 ("Addendum"), amends that certain Asset Purchase Agreement dated November 9, 2000, by and between INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL, a California nonprofit religious corporation ("SELLER"), and SPANISH BROADCASTING SYSTEM, INC., a Delaware corporation ("PURCHASER") ("Purchase Agreement"). WITNESSETH: WHEREAS, Seller and Purchaser have this 13th day of March, 2001, entered into two (2) Time Brokerage Agreements; one involving radio station KSFG (FM) ("TBA") and a separate agreement involving radio stations KMJR (FM) and KNJR (FM) ("93.5 TBA"); and WHEREAS, Seller and Purchaser have agreed to amend the Purchase Agreement to reflect the agreements set forth in the TBAs as more particularly described below. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained the parties agree as follows: 1. Article I (Defined Terms) is amended to include, at page 4, the following definition of "TBA": "That certain Time Brokerage Agreement, dated March 13, 2001, by and between International Church of the Foursquare Gospel as Licensee ("ICFG") and Spanish Broadcasting System, Inc. as Broker ("SBS")." 2. Article I (Defined Terms) is amended to include, at page 4, the following definition of "93.5 TBA": "That certain 93.5 Time Brokerage Agreement, dated March 13, 2001, by and between International Church of the Foursquare Gospel as Broker ("ICFG") and Spanish Broadcasting System SouthWest, Inc. as Licensee ("SBS-SW")." 3. Sections 2.04(a) and (b) are hereby amended to include the following additional provision: "Should the FCC dismiss the assignment application granted January 11, 2001 (File No. BALH-20001109AAS) ("Assignment Application") assigning Station from Seller to Purchaser, Seller and Purchaser agree to refile the subject Assignment Application within five (5) business days and to follow the steps and procedures set out at Section 2.04(1) to obtain the requisite FCC approval. Further, if required by applicable law, Seller and Purchaser shall make any further necessary filings under the HSR Act pursuant to the terms set forth in Section 2.04(2)." 2 4. Section 2.05 is hereby amended to include the following provision: "Except as specified in paragraph (d) of Attachment 1 to the TBA, any payments made pursuant to the TBA will be credited against the Purchase Price. Any and all fees required by said filings shall be paid by Purchaser." 5. Section 2.06 is hereby amended to include the following provision: "Further, upon the execution of the TBA, the Earnest Money Deposit will be released to and paid over to Seller. All interest earned on the Earnest Money Deposit shall be released to and paid over to Purchaser." 6. The closing provision provided for in Section 3.01 is hereby deleted in its entirety and is hereby replaced by the following provision: "Subject to the terms of this Agreement and the TBA, and subject to the consent of the FCC, the purchase of the Assets and the assumption of the Assumed Liabilities contemplated by the Agreement shall take place at the offices of Kaye Scholer LLP, 1999 Avenue of the Americas, Los Angeles, California, at such time as Seller and Purchaser may mutually agree upon in writing, on or before the expiration of the TBA on March 13, 2002, or December 31, 2002, if Purchaser elects to extend the TBA for a second term as provided for in the TBA." 7. Section 6.06 is amended to include the following: "Notwithstanding anything above to the contrary, should the FCC dismiss the Assignment Application during the time in which the TBA is in effect, the parties agree to resubmit the Assignment Application and proceed as provided for hereinabove." 8. Section 8.01 is amended to include a subsection (f) to read as follows: "Seller shall have the right to terminate in the event of any material uncured breach by Purchaser or SBS-SW of their obligations under the TBA or the 93.5 TBA." [signature page follows] 2 3 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be duly executed as of the date first above written by their respective officers thereunto duly authorized. "SELLER" INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL By: /s/ Brent Morgan ----------------------------------------- Name: Brent R. Morgan Title: Treasurer By: ----------------------------------------- Name: Title: "PURCHASER" SPANISH BROADCASTING SYSTEM, INC. By: /s/ Raul Alarcon, Jr. ----------------------------------------- Raul Alarcon, Jr., Chairman of the Board, Chief Executive Officer and President By: /s/ Joseph A. Garcia ----------------------------------------- Name:Joseph A. Garcia Title:Chief Financial Officer, Executive Vice President and Secretary EX-10.3 4 g69100ex10-3.txt TIME BROKERAGE AGREEMENT 1 Exhibit 10.3 TIME BROKERAGE AGREEMENT TIME BROKERAGE AGREEMENT ("Agreement"), made this 13th day of March, 2001, by and among INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL, a religious non-profit corporation, organized and existing under the laws of the State of California, as Licensee ("ICFG"), SPANISH BROADCASTING SYSTEM, INC., a Delaware corporation, as Broker ("SBS"). WHEREAS, ICFG owns and operates Radio Station KFSG (FM), Los Angeles, California (the "Station"), pursuant to authorizations issued by the Federal Communications Commission ("FCC"). WHEREAS, subject to the prior consent of the FCC, which consent was granted on January 11, 2001, ICFG intends to assign to SBS, the Station's FCC licenses and certain other assets used in the operation of the Station. WHEREAS, ICFG wishes to retain SBS to provide programming for the Station that is in conformity with Station's policies and procedures, FCC policies for time brokerage arrangements, and the provisions hereof pending consummation of the sale of Station to SBS. WHEREAS, SBS agrees to use the Station to broadcast such programming of its selection that is in conformity with all rules, regulations and policies of the FCC, subject to ICFG's full authority to manage and control the operation of the Station. WHEREAS, SBS and ICFG agree to cooperate to make this Agreement work to the benefit of the public and both parties and as contemplated herein. NOW, THEREFORE, in consideration of the above recitals and mutual promises and covenants contained herein, the parties, intending to be legally bound, agree as follows: SECTION 1. STATION AIR TIME 1.1 Representations. Both SBS and ICFG represent that they are legally qualified, empowered and able to enter into this Agreement and that the execution, delivery and performance hereof shall not constitute a breach or violation of any material agreement, contract or other obligation to which either party is subject or by which it is bound. 1.2 Effective Date; Term. The effective date of this Agreement shall be the date of the signing of this Agreement as set forth above ("Effective Date"). It shall continue in force for an initial term ending on the first anniversary of the Effective Date, unless both parties mutually agree to an earlier date ("Termination Date"), and may be extended by SBS for a second term ending December 31, 2002, per Attachment 1 attached hereto and made a part hereby, unless otherwise extended or terminated as set forth below. Further, SBS shall commence 2 broadcasting its programming on Station under this Agreement at such time as it shall elect, but in no event earlier than March 31, 2001 (the "Commencement Date"). 1.3. Scope. During the term of this Agreement and any renewal thereof, ICFG shall make available to SBS broadcast time on the Station as set forth in this Agreement. SBS shall deliver such programming, at its expense, to the Station's transmitter facilities or other authorized remote control points as reasonably designated by ICFG. Subject to ICFG's reasonable approval, as set forth in this Agreement, SBS shall provide programming of SBS's selection complete with commercial matter, news, public service announcements and other suitable programming to ICFG up to one hundred sixty-eight hours per week. 1.4 Consideration. As consideration for the air time made available hereunder SBS shall make payments to ICFG as set forth in paragraphs (a) and (b) of Attachment 1. 1.5 ICFG Operation of Station. ICFG will have full authority, power and control over the management and operations of the Station during the term of this Agreement and during any renewal of such term. ICFG will bear all responsibility for Station compliance with all applicable provisions of the Communications Act of 1934, as amended (the "Act"), the rules, regulations and policies of the FCC and other applicable laws. ICFG shall be solely responsible for and pay in a timely manner all operating costs of the Station, including but not limited to, maintenance of the studio and transmitting facilities and costs of electricity, except that SBS shall be responsible for the costs of its programming as provided in Sections 1.7 and 2.3 hereof. ICFG shall employ at its expense management level and other employees consisting of a General Manager and such operational and other personnel as outlined in the budget previously provided to SBS, who will direct the day-to-day operations of the Station, and who will report to and be accountable to ICFG. ICFG shall be responsible for the salaries, taxes, insurance and related costs for all personnel employed by the Station and shall maintain insurance satisfactory to SBS covering the Station's transmission facilities, and SBS shall be responsible for reimbursing ICFG for such expenses. During the term of this Agreement and any renewal hereof, SBS agrees to perform, without charge, routine monitoring of the Station's transmitter performance and tower lighting by remote control, if and when requested by ICFG. Any new equipment purchased by SBS to improve the operation of the Station shall become the property of ICFG until such time as station is sold to SBS. 1.6 ICFG Representation and Warranties. ICFG represents and warrants as follows: (a) ICFG owns and holds or will hold all licenses and other permits and authorizations necessary for the operation of the Station, and such licenses, permits and authorizations are and will be in full force and effect throughout the term of this Agreement. There is not now pending, or to ICFG's best knowledge, threatened, any action by the FCC or by any other party to revoke, cancel, suspend, refuse to renew or modify adversely any of such 2 3 licenses, permits or authorizations. ICFG is not in material violation of any statute, ordinance, rule, regulation, policy, order or decree of any federal, state or local entity, court or authority having jurisdiction over it or the Station, which would have an adverse effect upon ICFG, the Station or upon ICFG's ability to perform this Agreement. All reports and applications required to be filed with the FCC or any other governmental body have been, and during the course of the term of this Agreement or any renewal thereof, will be filed in a timely and complete manner. During the term of this Agreement and any renewal thereof, ICFG shall not dispose of, transfer, assign or pledge any of ICFG's assets and properties except with the prior written consent of the SBS, if such action would adversely affect ICFG's performance hereunder or the business and operations of ICFG or the Station permitted hereby. (b) ICFG shall pay, in a timely fashion, all of the expenses incurred in operating the Station including salaries and benefits of Station's General Manager and one-half of one employee, lease payments, utilities, taxes, programming expenses, etc., (except those for which a good faith dispute has been raised with the vendor or taxing authority); shall provide SBS with a certificate of such timely payment within thirty (30) days of the end of each month; and shall be reimbursed by SBS for those payments; ICFG's failure to pay pursuant to this provision will be considered a breach of this Agreement. 1.7 SBS Responsibility. SBS shall be solely responsible for any expenses incurred in the origination and/or delivery of programming from any remote location and for any publicity or promotional expenses incurred by SBS, including, without limitation, ASCAP and BMI music license fees for all programming provided by SBS. Such payments by SBS shall be in addition to any other payments to be made by SBS under this Agreement. 1.8 Contracts. SBS will enter into no third-party contracts, leases or agreements which will bind ICFG in any way except with ICFG's prior written approval, such approval shall not be unreasonably withheld. 1.9 Station Operations. With respect to the operation of the Station, ICFG shall notify SBS prior to: (i) making any changes in management personnel; (ii) entering into any material contractual obligations in excess of $10,000 individually or $50,000 in the aggregate; (iii) purchasing equipment with value in excess of $25,000; or (iv) making any other material changes in the operation of the Station. SECTION 2. STATION'S OBLIGATION TO ITS COMMUNITY OF LICENSE 2.1. ICFG Authority. Notwithstanding any other provision of this Agreement, SBS recognizes that ICFG has certain obligations to broadcast programming to meet the needs and interests of its community of license. From time to time the ICFG shall air specific programming on issues of importance to the local community. Nothing in this Agreement shall abrogate the unrestricted authority of the ICFG to discharge its obligations to the public and to comply with the Act and the rules and policies of the FCC. 3 4 2.2. Additional ICFG Obligations. Although both parties shall cooperate in the broadcast of emergency information over the Station, ICFG shall also retain the right to interrupt SBS's programming in case of an emergency or for programming which, in the reasonable good faith judgment of ICFG, is of greater local or national public importance. ICFG shall also coordinate with SBS the Station's hourly station identification and any other announcements required to be aired by FCC rules. ICFG shall continue to maintain a main studio, as that term is defined by the FCC, within each Station's principal community contour, shall maintain its local public inspection file in accordance with FCC rules, regulations and policies, and shall prepare and place in such inspection file or files in a timely manner all material required by Section 73.3526 of the FCC's Rules. SBS shall, upon request by ICFG, provide ICFG with such information concerning SBS's programs and advertising as is necessary to assist ICFG in the preparation of such information. ICFG shall also maintain the station logs, receive and respond to telephone inquiries, and control and oversee any remote control point which may be established for the Station. 2.3 Responsibility for Employees and Expenses. SBS shall employ and be solely responsible for the salaries, taxes, insurance and related costs for all personnel used in the production of its programming (including, but not limited to, salespeople, technical staff, traffic personnel, board operators and programming staff). ICFG will provide and be responsible for the Station's personnel necessary for the broadcast transmission of its own programs (including, without limitation, the Station's General Manager and such operational and other personnel as may be necessary or appropriate), and will be responsible for the salaries, taxes, benefits, insurance and related costs for all ICFG's employees used in the broadcast transmission of its programs and necessary to other aspects of Station's operation subject to reimbursement pursuant to Section 1.7(b) hereof. Whenever on the Station's premises, all personnel shall be subject to the overall supervision of ICFG's General Manager. SECTION 3. STATION'S PROGRAMMING POLICIES 3.1 Broadcast Station Programming Policy Statement. ICFG has adopted and will enforce a Broadcast Station Programming Policy Statement (the "Policy Statement"), a copy of which appears as Attachment 3 hereto and which may be amended in a reasonable manner from time to time by ICFG upon notice to SBS. SBS agrees and covenants to comply in all material respects with the Policy Statement, to all rules and regulations of the FCC, and to all changes subsequently made by ICFG or the FCC. SBS shall furnish or cause to be furnished the artistic personnel and material for the programs as provided by this Agreement and all programs shall be prepared and presented in conformity with the rules, regulations and policies of the FCC and with the Policy Statement set forth in Attachment 2 hereto. All advertising spots and promotional material or announcements shall comply with applicable federal, state and local regulations and policies and shall be produced in accordance with quality standards established by SBS. If ICFG reasonably determines that a program supplied by SBS is unsatisfactory or unsuitable or contrary to the public interest, or does not comply with the Policy Statement it may, upon prior written notice to SBS, suspend or cancel such program without liability to SBS. 4 5 ICFG will use all reasonable efforts to provide such written notice to SBS prior to the suspension or cancellation of such program. 3.2 ICFG Control of Programming. SBS recognizes that the ICFG has full authority to control the operation of the Station. The parties agree that ICFG's authority includes but is not limited to the right to reject or refuse such portions of the SBS's programming which ICFG reasonably believes to be unsatisfactory, unsuitable or contrary to the public interest. SBS shall have the right to change the programming supplied to ICFG and shall give ICFG at least twenty-four (24) hours notice of substantial and material changes in such programming. 3.3 SBS Compliance with Copyright Act. SBS represents and warrants to ICFG that SBS has full authority to broadcast its programming on the Station, and that SBS shall not broadcast any material in violation of the Copyright Act. All music supplied by SBS shall be: (i) licensed by ASCAP, SESAC or BMI; (ii) in the public domain; or (iii) cleared at the source by SBS. ICFG will maintain ASCAP, BMI and SESAC licenses as necessary. The right to use the programming and to authorize its use in any manner shall be and remain vested in SBS. 3.4 Sales. SBS shall retain all revenues from the sale of advertising time within the programming it provides to the ICFG. SBS shall be responsible for payment of the commissions due to any national sales representative engaged by it for the purpose of selling national advertising which is carried during the programming it provides to ICFG. 3.5 Payola. SBS agrees that it will not accept any consideration, compensation, gift or gratuity of any kind whatsoever, regardless of its value or form, including, but not limited to, a commission, discount, bonus, material, supplies or other merchandise, services or labor (collectively "Consideration"), whether or not pursuant to written contracts or agreements between SBS and merchants or advertisers, unless the payer is identified in the program for which Consideration was provided as having paid for or furnished such Consideration, in accordance with the Act and FCC requirements. SBS agrees to annually, or more frequently at the request of the ICFG, execute and provide ICFG with a Payola Affidavit from each of its employees involved with the Station substantially in the form attached hereto as Attachment 3. 3.6 Cooperation on Programming. ICFG shall, on a regular basis, cooperate with SBS to assess the issues of concern to its community and address those issues in its public service programming. SBS, in cooperation with ICFG, will endeavor to ensure that programming responsive to the needs and interests of the community of license and surrounding area is broadcast, in compliance with applicable FCC requirements. ICFG will describe those issues and the programming that is broadcast in response to those issues and place issues/programs lists in the Station's public inspection files as required by FCC rules. Further, ICFG may request, and SBS shall provide, information concerning such of SBS's programs as are responsive to community issues so as to assist ICFG in the satisfaction of its public service programming obligations. 5 6 3.7 Staffing Requirements. ICFG will be in full compliance with the main studio staff requirements as specified by the FCC. SECTION 4. INDEMNIFICATION 4.1 SBS's Indemnification. SBS shall indemnify and hold harmless ICFG from and against any and all claims, losses, costs, liabilities, damages, forfeitures and expenses (including reasonable legal fees and other expenses incidental thereto) of every kind, nature and description (collectively, "Damages") resulting from(i) SBS's breach of any representation, warranty, covenant or agreement contained in this Agreement, or (ii) any action taken by SBS or its employees and agents with respect to the Station, or any failure by SBS or its employees and agents to take any action with respect to the Station, including, without limitation, Damages relating to violations of the Act or any rule, regulation or policy of the FCC, slander, defamation or other claims relating to programming provided by SBS and SBS's broadcast and sale of advertising time on the Station. 4.2 ICFG's Indemnification. ICFG shall indemnify and hold harmless SBS from and against any and all claims, losses, consents, liabilities, damages, FCC forfeitures and expenses (including reasonable legal fees and other expenses incidental thereto) of every kind, nature and description, arising out of ICFG's operations and broadcasts to the extent permitted by law and any action taken by the ICFG or its employees and agents with respect to the Station, or any failure by ICFG or its employees and agents to take any action with respect to the Station. 4.3 Limitation. Neither ICFG nor SBS shall be entitled to indemnification pursuant to this section unless such claim for indemnification is asserted in writing delivered to the other party. 4.4 Time Brokerage Challenge. If this Agreement is challenged at the FCC, whether or not in connection with the Station's license renewal applications, counsel for ICFG and counsel for SBS shall jointly defend the Agreement and the parties' performance thereunder throughout all FCC proceedings at the sole expense of SBS. If portions of this Agreement do not receive the approval of the FCC Staff, then the parties shall reform the Agreement as necessary to satisfy the FCC Staff s concerns or, at SBS's option and expense, seek reversal of the Staff s decision and approval from the full Commission or a court of law. 4.5 Assignment Application. Should the FCC require the parties hereto to dismiss the assignment application (BALH-20001109-AAS) granted on January 11, 2001, ICFG and SBS agree to re-file the application within five (5) business days following said dismissal and further agree to prosecute the re-filed application in good faith per the terms of that certain Asset Purchase Agreement executed by the parties on November 2, 2000 and amended on March 13, 2001. SECTION 5. ACCESS TO SBS MATERIALS AND CORRESPONDENCE 6 7 5.1 Political Advertising. SBS shall cooperate with ICFG to assist ICFG in complying with all rules of the FCC regarding political broadcasting. ICFG shall promptly supply to SBS, and SBS shall promptly supply to ICFG, such information, including all inquiries concerning the broadcast of political advertising, as may be necessary to comply with FCC rules and policies, including the lowest unit rate, equal opportunities, reasonable access, political file and related requirements of federal law. ICFG, in consultation with SBS, shall develop a statement which discloses its political broadcasting policies to political candidates, and SBS shall follow those policies and rates in the sale of political programming and advertising. In the event that SBS fails to satisfy the political broadcasting requirements under the Act and the rules and regulations of the FCC and such failure inhibits ICFG in its compliance with the political broadcasting requirements of the FCC, then to the extent reasonably necessary to assure such compliance, SBS shall release broadcast time and/or advertising availabilities to ICFG at no cost to ICFG; provided, however, that all revenues realized by ICFG as a result of such a release of advertising time shall be immediately paid to SBS. SECTION 6. TERMINATION AND REMEDIES UPON DEFAULT 6.1 Termination. In addition to other remedies available at law or equity, this Agreement may be terminated as set forth below by either ICFG or SBS by written notice to the other, if the party seeking to terminate is not then in material default or breach hereof, upon the occurrence of any of the following: (a) subject to the provisions of Section 7.9, this Agreement is declared invalid or illegal in whole or substantial part by an order or decree of an administrative agency or court of competent jurisdiction and such order or decree has become final and no longer subject to further administrative or judicial review; (b) the other party is in material breach of its obligations hereunder as provided for in Attachment 1 or has failed to cure any other breach within thirty (30) days of notice from the non-breaching party if a cure period is available; (c) the mutual consent of both parties; (d) there has been a material change in FCC rules, policies or precedent that would cause this Agreement to be in violation thereof and such change is in effect and not the subject of an appeal or further administrative review and this Agreement cannot be reformed, in a manner acceptable to Buyer and Seller, to remove and/or eliminate the violation; (e) upon sale of the Station to SBS. In the absence of an earlier termination pursuant to the provisions set forth above, this Agreement will expire on December 31, 2002. Further, if this Agreement terminates due to a 7 8 material uncured breach or for failure to make the second payment under this Agreement, as provided in Attachment 1, the Purchase Agreement shall also terminate. 6.2 Force Majeure. Any failure or impairment of the Station's facilities or any delay or interruption in the broadcast of programs, or failure at any time to furnish facilities, in whole or in part, for broadcast, due to circumstances of extraordinary and unpreventable character that are beyond the reasonable control of, and are unforeseen by, ICFG, including, but not limited to, strikes, lockouts, material or labor restrictions by any governmental authority, civil riot, flood, fire, earthquake, storm, or for power reductions necessitated for maintenance of the Station or for maintenance of any other station located on the tower from which the Station will be broadcasting, shall not constitute a breach of this Agreement and ICFG will not be liable to SBS for reimbursement or reduction of the consideration owed to ICFG. 6.3 Other Agreements. During the term of this Agreement or any renewal hereof, ICFG will not enter into any other time brokerage, program provision, local management or similar agreement with any third party. SECTION 7. MISCELLANEOUS 7.1 Assignment. (a) ICFG's Right to Assign. Neither this Agreement nor any of the rights, interests or obligations of ICFG hereunder shall be assigned, encumbered, hypothecated or otherwise transferred without the prior written consent of SBS which shall not be unreasonably withheld. (b) SBS's Right to Assign. SBS shall have the unrestricted right to assign to any person or entity who possesses (x) all requisite qualifications to hold broadcast licenses issued by the FCC and (y) the financial capacity to perform SBS's obligations hereunder. In addition, SBS shall have the right to collaterally assign its rights and interests hereunder to its senior lenders. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (d) ICFG agrees to enter into such agreements and confirmations as SBS's senior lenders may reasonably require and which in so doing does not contravene existing ICFG lender agreements: (i) to acknowledge and confirm any collateral assignment of this Agreement to such senior lenders, subject to recognition by such senior lenders of ICFG's rights hereunder; (ii) to provide for simultaneous notice and reasonable cure rights, which rights must be exercised within 30 days after the 30-day period specified in Section 6.1(b) hereof, to such senior lenders of any default by SBS under this Agreement; (iii) to provide simultaneous notice and reasonable cure rights, which rights must be exercised within 30 days after the expiration of 8 9 the 30-day period specified in Section 6.1(b) hereof, to such senior lenders prior to any election or action by ICFG to terminate or cancel this Agreement and, if requested by such senior lenders, to enter into a new Agreement with such senior lenders or their nominee, successor or purchaser who qualifies as a "SBS's Assignee" in accordance with Section 7.1(b) hereof on the same terms and conditions as this Agreement; (iv) in the event that such senior lenders shall be entitled to foreclose or otherwise acquire SBS's interest in this Agreement, or if such senior lenders (or their nominee, successor or purchaser who qualifies as a "SBS's Assignee" in accordance with Section 7.1(b) hereof) shall have elected to enter into a new Agreement, on the same terms and conditions as this Agreement, with ICFG: to enable such senior lenders to acquire SBS's interest in this Agreement to any purchaser or assignee of such senior lenders who qualifies as a "SBS's Assignee" in accordance with Section 7.1(b) hereof, or require ICFG to enter into a new Agreement, on the same terms and conditions as this Agreement, directly with any purchaser or assignee of such senior lenders who qualifies as a "SBS's Assignee" in accordance with Section 7.1(b) hereof, and (v) provide for such other assurances as such senior lenders shall reasonably request in connection with the exercise of their rights under this paragraph 7.1(d). Notwithstanding anything to the contrary set forth above, there is no cure period available to the senior lenders for SBS's failure to make the second payment under this Agreement. 7.2 Call Letters. Upon request of SBS and at SBS's expense and subject to the consent of the ICFG, ICFG shall apply to the FCC for authority to change the call letters of the Station (with the consent of the FCC) to such call letters that SBS shall reasonably designate. ICFG must coordinate with SBS any proposed changes to the call letters of the Station before the ICFG takes any action to change such letters. 7.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. 7.4 Entire Agreement. This Agreement and the Attachments hereto, and an Asset Purchase Agreement between the parties dated November 2, 2000, as amended on March 13, 2001, embody the entire agreement and understanding of the parties and supersede any and all prior agreements, arrangements and understandings relating to matters provided for herein. No amendment, waiver of compliance with any provision or condition hereof, or consent pursuant to this Agreement will be effective unless evidenced by an instrument in writing signed by the parties. 7.5 Taxes. ICFG and SBS shall each pay its own ad valorem taxes, if any, which may be assessed on such party's respective personal property for the periods that such items are owned by such party. SBS shall pay all taxes, if any, to which the consideration specified in Section 1.5 herein is subject, provided that ICFG is responsible for payment of its own income taxes. 9 10 7.6 Headings. The headings are for convenience only and will not control or affect the meaning or construction of the provisions of this Agreement. 7.7 Governing Law. The obligations of ICFG and SBS are subject to applicable federal, state and local law, rules and regulations, including, but not limited to, the Act and the Rules and Regulations of the FCC. The construction and performance of the Agreement will be governed by the laws of the State of California. 7.8 Notices. All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be (i) in writing, (ii) sent by telecopy (with receipt personally confirmed by telephone), delivered by personal delivery, or sent by commercial delivery service or certified mail, return receipt requested, (iii) deemed to have been given on the date telecopied with receipt confirmed, the date of personal delivery, or the date set forth in the records of the delivery service or on the return receipt, and (iv) addressed as follows: To SBS: Mr. Raul Alarcon, Jr. Spanish Broadcasting System, Inc. 2601 South Bayshore Drive Penthouse II Coconut Grove, Florida 33133 Telecopy: (305) 444-2179 Telephone: (305) 441-6901 Copy to: Jason L. Shrinsky, Esq. Kaye Scholer LLP 901 15th Street, N.W. Suite 1100 Washington, D.C. 20005 Telecopy: (202) 682-3580 Telephone: (202) 682-3506 To ICFG: International Church of the the Foursquare Gospel 1910 West Sunset Blvd Los Angeles, California 90026-0176 ATTN: Brent R. Morgan Telecopy: (213) 989-4565 Telephone: (213) 989-4360 Copy to: Farrand Cooper P.C. 235 Montgomery Street, Suite 905 San Francisco, California 94104 10 11 ATTN: Stephen R. Farrand, Esq. Telecopy: (415) 677-2950 Telephone: (415) 399-3903 or to any such other or additional persons and addresses as the parties may from time to time designate in a writing delivered in accordance with this Section 7.8. 7.9 Severability. If any provision of this Agreement or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. In the event that the FCC alters or modifies its rules or policies in a fashion which would raise substantial and material question as to the validity of any provision of this Agreement, the parties hereto shall negotiate in good faith to revise any such provision of this Agreement with a view toward assuring compliance with all then existing FCC rules and policies which may be applicable, while attempting to preserve, as closely as possible, the intent of the parties as embodied in the provision of this Agreement which is to be so modified. 7.10 Specific Performance. The parties recognize that in the event ICFG should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. In the event that SBS is not itself in material default or breach of this Agreement, SBS shall therefore be entitled to obtain specific performance of all terms of this Agreement. In the event of any action to enforce this Agreement, ICFG hereby waives the defense that there is an adequate remedy at law. 7.11 Arbitration/Governing Law. ANY DISPUTE ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES) AND SHALL BE RESOLVED AT LOS ANGELES, CALIFORNIA BY ARBITRATION BEFORE A RETIRED JUDGE OF THE CALIFORNIA COURTS ASSOCIATED WITH JAMS MUTUALLY ACCEPTABLE TO THE PARTIES, OR, FAILING AGREEMENT BY THE PARTIES, APPOINTED BY THE PRESIDING JUDGE OF THE COURT OF GENERAL JURISDICTION IN THE COUNTY OF LOS ANGELES, CALIFORNIA. SUCH ARBITRATION SHALL BE COMMENCED UPON THE WRITTEN REQUEST OF ANY PARTY, AND SHALL BE CONDUCTED ON A CONFIDENTIAL BASIS. WITHOUT LIMITING ANY OTHER POWERS OF THE ARBITRATOR, THE ARBITRATOR SHALL HAVE THE AUTHORITY OF A JUDGE PRO TEM WITH THE AUTHORITY TO ISSUE EQUITABLE ORDERS, INCLUDING ANY EX PARTE ORDERS, DEEMED NECESSARY OR APPROPRIATE UNDER THE CIRCUMSTANCES. ARBITRATION SHALL BE CONDUCTED AS A TRIAL BY THE COURT APPLYING THE SUBSTANTIVE AND PROCEDURAL. LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO ITS CONFLICT OF LAW RULES) WITH A WRITTEN 11 12 STATEMENT OF DECISION. JUDGMENT UPON THE ARBITRATOR'S AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. BOTH PARTIES EXPRESSLY SUBMIT AND AGREE TO THE JURISDICTION AND VENUE AS PROVIDED HEREIN. THE PARTIES SHALL EQUALLY SHARE AND PAY THE ARBITRATOR'S FEES AND RELATED COSTS. EACH PARTY SHALL BEAR ITS OWN ATTORNEYS' FEES AND COSTS INCURRED IN CONNECTION WITH ANY SUCH ARBITRATION AND ANY APPEAL THEREFROM. /s/BM /s/ RA - ---------------------- ------------------------ ICFG-initials SBS-initials 7.12 No Joint Venture. Nothing in this Agreement shall be deemed to create a joint venture between ICFG and SBS. [signature page follows] 12 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL By:/s/ Brent R. Morgan --------------------------------- Brent R. Morgan SPANISH BROADCASTING SYSTEM, INC. By:/s/ Raul Alarcon, Jr. -------------------------------- Raul Alarcon, Jr. 13 14 ATTACHMENT 1 TERMS AND CONDITIONS (a) A payment by SBS of $25 million consisting of a wire transfer of federal funds, to be released to ICFG upon the signing of the Agreement and the Purchase Agreement (as defined below), in the amount of $20 million and the release of that certain $5 million Escrow Deposit paid into escrow by SBS to support that certain Asset Purchase Agreement between ICFG and SBS, dated November 2, 2000, as amended on March 13, 2001 ("Purchase Agreement"). (b) SBS shall have the unrestricted right to extend the Agreement to December 31, 2002, by providing ICFG with thirty (30) days prior written notice ("Extension Notice") and then delivering by wire transfer of federal funds an additional $35 million payment on or before the Termination Date. If the said $35 million payment is not received by 5:00 p.m. pacific time on the Termination Date, the Agreement will end at midnight on the day following the Termination Date, and SBS shall have no right to continue broadcasting over the facilities of Station. There is no grace period or cure period for SBS's failure to make this second payment as specified. If SBS shall fail to deliver the Extension Notice on or before thirty (30) days prior to the Termination Date, the Agreement shall automatically terminate at midnight on the Termination Date and SBS shall have no right to continue broadcasting using the facilities of Station after midnight on the Termination Date. (c) All payments made to ICFG by SBS, i.e., $25 million for the first term and $35 million for the second term are non-refundable and are the exclusive property of ICFG; provided, ICFG is not in material uncured breach of either the Agreement or the Purchase Agreement, but, subject to paragraph (d) below, such payments shall be applied against the $250 million purchase price under the Purchase Agreement (the "Purchase Price") and reduce the amount due at Closing by the amount previously paid, i.e., $25 million or, $60 million (upon the receipt of the second payment of $35 million), if the Closing takes place in accordance with the Purchase Agreement. (d) Provided that the Agreement is still in force beginning August 1, 2002, and continuing for each calendar month thereafter that the Agreement continues to be in force, SBS agrees that $1.2 million of the pre-paid Purchase Price payment will not be credited against the Purchase Price to be delivered by SBS to ICFG at the consummation of the sale of Station to SBS pursuant to the Purchase Agreement. By way of example, if the sale of Station is consummated on December 15, 2002, then, in that event, 5X $1.2 million or $6 million will not be credited against the Purchase Price to be delivered by SBS to ICFG pursuant to the Purchase Agreement. 15 (e) Should SBS or its affiliates during the term of this Agreement sell five of the following six radio stations: KXJO (FM), Alameda, California, KTCY (FM), Denison, Texas, KXEB (AM), Sherman, Texas, KSAH (AM), Universal City, Texas, KMJR (FM), Redondo Beach California, KNJR (FM), Ontario, California, following the closing of the fifth station, SBS shall proceed as soon as reasonably possible, but not later than sixty (60) days from such closing and in no event later than December 31, 2002, to close the purchase of radio station KFSG, Los Angeles, CA as provided in the Purchase Agreement. SBS's failure to close as provided herein shall constitute a material default under the Purchase Agreement and this Agreement. (f) Upon the termination of the 93.5 Time Brokerage Agreement, dated March 13, 2001, between Spanish Broadcasting System SouthWest, Inc. ("SBS-SW") and ICFG with respect to the broadcasting of ICFG's programming on radio stations KMJR-FM and KNJR-FM, currently owned by SBS-SW (the "93.5 TBA"), subject to the schedule set forth below SBS will grant to ICFG one or more transferable common stock warrants, subject to standard anti-dilution for stock splits, stock dividends, combinations, reclassifications and the like, and containing a "net exercise" provision allowing ICFG to exercise the warrants in exchange for relinquishment of shares for which the warrants would otherwise be exercisable, based on the then-current fair market value of the shares. The warrants will give ICFG the right to purchase shares of SBS Class A Common Stock (the "Class A Common Stock") with an exercise price for each warrant share of $6.00 (as adjusted for the anti-dilution provisions as noted above). Subject to the following sentence, the warrants shall be exercisable for that number of shares of Class A Common Stock determined as follows: (a) 234,375 warrant shares per month, prorated for any partial months, for each month from the date of termination of the 93.5 TBA through and including the earliest of (i) Termination Date, (ii) the Closing (as defined below), and (iii) the termination of the Purchase Agreement, and (b) if and only if SBS extends the term of the Agreement and makes the $35 million payment required in connection therewith, 197,917 warrant shares per month, prorated for any partial months, from the Termination Date until the earliest of (i) such time as Station's sale to SBS is consummated under the Purchase Agreement (the "Closing"), (ii) the termination of the Purchase Agreement, and (iii) December 31, 2002. The warrants will either be granted at the date of termination of the 93.5 TBA, and will provide for accrual and exercisability of the warrants in the amounts and upon the terms and conditions described in the preceding sentence, or SBS will grant individual warrants each month for the number of shares of Class A Common Stock which have accrued pursuant to the preceding sentence. For the purposes of this paragraph, the warrants will be exercisable for a period of sixty (60) months, beginning on January 1, 2002 and terminating on December 31, 2006, at which time they will expire if not exercised. Upon ICFG's exercise of any warrant, SBS shall have the unrestricted right, at its sole option, to repurchase the portion of the warrant being exercised by ICFG for cash in an amount per share equal to the closing price on the day which is two (2) business days prior to the date such shares are to be repurchased minus $6.00 per share (as adjusted for the anti-dilution provisions set forth above). If SBS elects to repurchase all or any portion of the warrants being exercised by ICFG, as set forth above, it shall give ICFG two (2) business days prior written notice. SBS, at its expense, will use its commercially reasonable best efforts and fully cooperate with ICFG to cause the common stock issuable upon exercise of 16 the warrants to be registered under the Securities Act of 1933, as amended, prior to the time the warrants are exercised, and in any event, will file registration statements and use its commercially reasonable best efforts to cause the registration statements to be effective as soon as practicable after the warrants become exercisable. Further, SBS, at its sole expense, shall make all filings as may be required by any governmental regulatory agency in connection with the authorization, issuance, and exercise of the warrants described in this paragraph (f). SBS represents that as of the date hereof, (i) it has 36,856,305 shares of Class A Common Stock and 27,801,900 shares of Class B Common Stock outstanding, (ii) there are no outstanding agreements or commitments (including the grant of any registration rights superior to those of ICFG hereunder) which would prevent the issuance or exercise of the warrants pursuant to this paragraph (f) or the registration of the Class A Common Stock, (iii) and it will have full corporate authority and approval to issue the warrants on the date of issuance. SBS agrees that from the date hereof until the expiration of the warrants, it will maintain sufficient authorized Class A Common Stock for purposes of exercise of the warrants. (g) In the event the Purchase Agreement is not consummated and the Agreement is terminated, SBS agrees to transfer to ICFG all the Station's tangible and intangible assets, including, but not limited to, call letters, jingles and format rights used exclusively in the operations of the Station, as well as all assets purchased for use exclusively in the operations of Station, such as equipment located at the transmitter site, all free and clear of liens and encumbrances of any kind. Further, in the event the Closing as provided under the Purchase Agreement is not consummated, ICFG shall have the right to negotiate employment agreements with the Station's employees, and to assume, at ICFG's option, service agreements entered into by SBS in connection with the operation of the Station. Subject to the foregoing, SBS shall retain ownership of all cash, security deposits, accounts receivables and other like cash items. (h) SBS, during the first thirty (30) day period beginning on the Commencement Date, shall (i) cooperate in the orderly transfer of ICFG's current programming on KFSG (FM) to Stations under the 93.5 TBA and (ii) broadcast in English one (1) ten-second announcement per hour informing its listening audience of the KFSG (FM) frequency switch and inviting all interested listeners to turn to 93.5 MHZ to hear the former KFSG (FM) programming format. (i) SBS shall pay for all fees required in connection with any governmental approvals under the Agreement and the Purchase Agreement, or in connection with any modifications or amendments to the Purchase Agreement. Further, all filings and renewals of filings required to transfer the licenses of Station to SBS shall be made on a timely basis in order to close the sale of Station under the Purchase Agreement no later than December 31, 2002. 17 ATTACHMENT 2 BROADCAST STATION PROGRAMMING POLICY STATEMENT The following sets forth the policies generally applicable to the presentation of programming and advertising over Station KFSG(FM), Los Angeles, California. All programming and advertising broadcast by the Station must conform to these policies and to the provisions of the Communications Act of 1934, as amended (the "Act"), and the Rules and Regulations of the Federal Communications Commission ("FCC"). Station's Identification The Station must broadcast a Station identification announcement once an hour as close to the hour as feasible in a natural breach in the programming. The announcement must include (1) the Station's call letters, followed immediately by (2) the Station's city of license. Broadcast of Telephone Conversations Before recording a telephone conversation for broadcast or broadcasting such a conversation simultaneously with its occurrence, any party to the call must be informed that the call will be broadcast or will be recorded for later broadcast, and the party's consent to such broadcast must be obtained. This requirement does not apply to calls initiated by the other party which are made in a context in which it is customary for the Station to broadcast telephone calls. Sponsorship Identification When money, service or other valuable consideration is either directly or indirectly paid or promised as part of an arrangement to transmit any programming, the Station at the time of broadcast shall announce (1) that the matter is sponsored, either whole or in part; and (2) by whom or on whose behalf the matter is sponsored. Products or services furnished to the Station in consideration for an identification of any person, product, service, trademark or brand name shall be identified in this manner. In the case of any political or controversial issue broadcast for which any material or service is furnished as an inducement for its transmission, an announcement shall be made at the beginning and conclusion of the broadcast stating (1) the material or service that has been furnished; and (2) the person(s) or association(s) on whose behalf the programming is transmitted. However, if the broadcast is 5 minutes duration or less, the required announcement need only be made either at its beginning or end. Prior to any sponsored broadcast involving political matters or controversial issues, the Station shall obtain a list of the chief executive officers, members of the executive committee or board of 18 directors of the sponsoring organization and shall place this list in the Station's public inspection files. Payola/Plugola The Station, the personnel, or SBS shall not accept or agree to accept from any person any money, service or other valuable consideration for the broadcast of any matter unless such fact is disclosed to the Station so that all required Station identification announcements can be made. All persons responsible for station programming must, from time to time, execute such documents as may be required by Station's management to confirm their understanding of and compliance with the FCC's sponsorship identification requirements. Rebroadcasts The Station shall not rebroadcast the signal of any other broadcast Station without first obtaining such Station's prior written consent to such rebroadcast. Fairness The Station shall seek to afford coverage to contrasting viewpoints concerning controversial issues of public importance. Personal Attacks The Station shall not air attacks upon the honesty, character, integrity or like personal qualities of any identified person or group. If such an attack should nonetheless occur during the presentation of views on a controversial issue of public importance, those responsible for programming shall submit a tape or transcript of the broadcast to station management and to the person attacked within 48 hours, and shall offer the person attacked a reasonable opportunity to respond. Political Editorials Unless specifically authorized by Station's management, the Station shall not air any editorial which either endorses or opposes a legally qualified candidate for public office. 19 Political Broadcasting All "uses" of the Station by legally qualified candidates for elective office shall be in accordance with the Act and the FCC's Rules and policies, including without limitation, equal opportunities requirements, reasonable access requirements, lowest unit charge requirements and similar rules and regulations. Obscenity and Indecency The Station shall not broadcast any obscene material. Material is deemed to be obscene if the average person, applying contemporary community standards in the local community, would find that the material, taken as a whole, appeals to the prurient interest; depicts or describes in a patently offensive way sexual conduct specifically defined by applicable state law; and taken as a whole, lacks serious literary, artistic, political or scientific value. The Station shall not broadcast any indecent material outside of the periods of time prescribed by the FCC. Material is deemed to be indecent if it includes language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory activities or organs. Billing No entity which sells advertising for airing on the Station shall knowingly issue any bill, invoice or other document which contains false information concerning the amount charged or the broadcast of advertising which is the subject of the bill or invoice. No entity which sells advertising for airing on the Station shall misrepresent the nature or content of aired advertising, nor the quantity, time of day, or day on which such advertising was broadcast. Contests Any contests conducted on the Station shall be conducted substantially as announced or advertised. Advertisements or announcements concerning such contests shall fully and accurately disclose the contest's material terms. No contest description shall be false, misleading or deceptive with respect to any material term. Hoaxes The Station shall not knowingly broadcast false information concerning a crime or catastrophe. Emergency Information Any emergency information which is broadcast by the Station shall be transmitted immediately. Lottery 20 The Station shall not advertise or broadcast any information concerning any lottery (except approved state lotteries). The Station may advertise and provide information about lotteries conducted by non-profit groups, governmental entities and in certain situations, by commercial organizations, if and only if there is no state or local restriction or ban on such advertising or information and the lottery is legal under state or local law. Any and all lottery advertising must first be approved by Station's management. Advertising The Station shall comply with all federal, state and local laws concerning advertising, including without limitation, all laws concerning misleading advertising, and the advertising of alcoholic beverages. Programming Prohibitions Knowing broadcast of the following types of programs and announcements is prohibited. False Claims. False or unwarranted claims for any product or service. Unfair Imitation. Infringements of another advertiser's rights through plagiarism or unfair imitation of either program idea or copy, or any other unfair competition. Commercial Disparagement. Any unfair disparagement of competitors or competitive goods. Profanity. Any programs or announcements that are slanderous, obscene, profane, vulgar, repulsive or offensive, as evaluated by Station's management. Violence. Any programs which are excessively violent. Unauthorized Testimonials. Any testimonials which cannot be authenticated. 21 ATTACHMENT 3 PAYOLA STATEMENT 22 FORM OF PAYOLA AFFIDAVIT City of _________________ ) ) County of_______________ ) ss: ) State of_________________ ) ANTI-PAYOLA/PLUGOLA AFFIDAVIT __________________________________, being first duly sworn, deposes and says as follows: 1. He/She is ______________________ for __________________. 2. He/She has acted in the above capacity since ________________. 3. No matter has been broadcast by Station ______ for which service, money or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted, by him/her from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 4. So far as he/she is aware, no matter has been broadcast by Station _____ for which service, money or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted by Station _______ or by any independent contractor engaged by Station ______ in furnishing programs, from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 5. In the future, he/she will not pay, promise to pay, request or receive any service, money, or any other valuable consideration, direct or indirect, from a third party, in exchange for the influencing of, or the attempt to influence, the preparation of presentation of broadcast matter on Station ______. 6. Nothing contained herein is intended to, or shall prohibit receipt or acceptance of anything with the expressed knowledge and approval of my employer, but henceforth any such approval must be given in writing by someone expressly authorized to give such approval. 23 - 2 - 7. He/She, his/her spouse and immediate family do ___ do not ___ have any present direct or indirect ownership interest in (other than an investment in a corporation whose stock is publicly held), serve as an officer or director of, whether with or without compensation, or serve as an employee of, any person, firm or corporation engaged in: 1. The publishing of music; 2. The production, distribution (including wholesale and retail sales outlets), manufacture or exploitation of music, films, tapes, recordings or electrical transcription of any program material intended for radio broadcast use; 3. The exploitation, promotion or management or persons rendering artistic, production and/or other services in the entertainment field; 4. The ownership or operation of one or more radio or television stations; 5. The wholesale or retail sale of records intended for public purchase; 6. Advertising on Station _____, or any other station owned by its licensee (excluding nominal stockholdings in publicly owned companies). 8. The facts and circumstances relating to such interest are none ___ as follows ___: _______________________________________________________________ _______________________________________________________________ __________________________________ Affiant Subscribed and sworn to before me this _____ day of ____________, 200__ ___________________________ Notary Public My Commission expires:_____________ EX-10.4 5 g69100ex10-4.txt 93.5 TIME BROKERAGE AGREEMENT 1 EXHIBIT 10.4 93.5 TIME BROKERAGE AGREEMENT 93.5 TIME BROKERAGE AGREEMENT ("Agreement"), made this 13th day of March, 2001, by and between SPANISH BROADCASTING SYSTEM SOUTHWEST, INC., a Delaware corporation, as Licensee ("SBS-SW") and INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL, a religious non-profit corporation, organized and existing under the laws of the State of California, as Broker ("ICFG"). WHEREAS, SBS-SW owns and operates Radio Station KMJR (FM), Redondo Beach, California and Radio Station KNJR (FM), Ontario, California (the "Stations"), pursuant to authorizations issued by the Federal Communications Commission ("FCC"). WHEREAS, SBS-SW wishes to retain ICFG to provide programming for the Stations that is in conformity with Stations' policies and procedures, FCC policies for time brokerage arrangements. WHEREAS, ICFG agrees to use the Stations to broadcast such programming of its selection, including the rebroadcast of any other station owned or operated by ICFG, that is in conformity with all rules, regulations and policies of the FCC, subject to SBS-SW's full authority to manage and control the operation of the Stations. WHEREAS, ICFG and SBS-SW agree to cooperate to make this Agreement work to the benefit of the public and both parties and as contemplated herein. NOW, THEREFORE, in consideration of the above recitals and mutual promises and covenants contained herein, the parties, intending to be legally bound, agree as follows: SECTION 1. STATION AIR TIME 1.1 Representations. Both ICFG and SBS-SW represent that they are legally qualified, empowered and able to enter into this Agreement and that the execution, delivery and performance hereof shall not constitute a breach or violation of any material agreement, contract or other obligation to which either party is subject or by which it is bound. 1.2 Effective Date; Term. The effective date of this Agreement shall be the date of the signing of this Agreement as set forth above ("Effective Date"). It shall continue in force for an initial period of 60 days from the Commencement Date (as defined below) and may be extended by ICFG for two additional 60-day periods upon 30 days' prior written notice to SBS-SW. Further, ICFG shall commence broadcasting its programming on Stations at such time as it shall elect, but in no event earlier than March 31, 2001 (the "Commencement Date"). 1.3. Scope. During the term of this Agreement and any renewal thereof, SBS- SW shall make available to ICFG broadcast time upon the Stations as set forth in this Agreement. ICFG shall deliver such programming, at its expense, to the Stations' transmitter facilities or other authorized remote control points as reasonably designated by SBS-SW. 2 Subject to SBS-SW's reasonable approval, as set forth in this Agreement, ICFG shall provide programming of ICFG's selection complete with commercial matter, news, public service announcements and other suitable programming to SBS-SW up to one hundred sixty-eight hours per week. 1.4 Consideration. As consideration for the air time made available hereunder ICFG shall make payments to SBS-SW as set forth in Attachment 1. 1.5 SBS-SW Operation of Stations. SBS-SW will have full authority, power and control over the management and operations of the Stations during the term of this Agreement and during any renewal of such term. SBS-SW will bear all responsibility for Stations compliance with all applicable provisions of the Communications Act of 1934, as amended (the "Act"), the rules, regulations and policies of the FCC and other applicable laws. SBS-SW shall be solely responsible for and pay in a timely manner all operating costs of the Stations, including but not limited to, maintenance of the studio and transmitting facilities and costs of electricity, except that ICFG shall be responsible for the costs of its programming as provided in Sections 1.7 and 2.3 hereof. SBS-SW shall employ at its expense management level and other employees consisting of a General Manager and such operational and other personnel as outlined in the budget previously provided to ICFG, who will direct the day-to-day operations of the Stations, and who will report to and be accountable to SBS-SW. SBS-SW shall be responsible for the salaries, taxes, insurance and related costs for all personnel employed by the Stations and shall maintain insurance satisfactory to ICFG covering the Stations' transmission facilities. 1.6 SBS-SW Representation and Warranties. SBS-SW represents and warrants as follows: (a) SBS-SW owns and holds or will hold all licenses and other permits and authorizations necessary for the operation of the Stations, and such licenses, permits and authorizations are and will be in full force and effect throughout the term of this Agreement. There is not now pending, or to SBS-SW's best knowledge, threatened, any action by the FCC or by any other party to revoke, cancel, suspend, refuse to renew or modify adversely any of such licenses, permits or authorizations. SBS-SW is not in material violation of any statute, ordinance, rule, regulation, policy, order or decree of any federal, state or local entity, court or authority having jurisdiction over it or the Stations, which would have an adverse effect upon the SBS-SW, the Stations or upon SBS-SW's ability to perform this Agreement. All reports and applications required to be filed with the FCC or any other governmental body have been, and during the course of the term of this Agreement or any renewal thereof, will be filed in a timely and complete manner. During the term of this Agreement and any renewal thereof, SBS-SW shall not dispose of, transfer, assign or pledge any of licensee's assets and properties except with the prior written consent of ICFG, if such action would adversely affect SBS-SW's performance hereunder or the business and operations of SBS-SW or the Stations permitted hereby. (b) SBS-SW shall pay, in a timely fashion, all of the expenses incurred in operating the Stations including salaries and benefits of its employees, lease payments, utilities, taxes, programming expenses, etc., (except those for which a good faith dispute has 2 3 been raised with the vendor or taxing authority): shall provide ICFG with a certificate of such timely payment within thirty (30) days of the end of each month. 1.7 ICFG Responsibility. ICFG shall be solely responsible for any expenses incurred in the origination and/or delivery of programming from any remote location and for any publicity or promotional expenses incurred by ICFG, including, without limitation, ASCAP and BMI music license fees for all programming provided by ICFG. Such payments by ICFG shall be in addition to any other payments to be made by ICFG under this Agreement. 1.8 Contracts. ICFG will enter into no third-party contracts, leases or agreements which will bind SBS-SW in any way except with SBS-SW's prior written approval, such approval shall not be unreasonably withheld. 1.9 Stations Operations. With respect to the operation of the Stations, SBS- SW shall notify ICFG prior to: (i) making any changes in management personnel; (ii) entering into any material contractual obligations in excess of $10,000 individually or $50,000 in the aggregate; (iii) purchasing equipment with value in excess of $25,000; or (iv) making any other material changes in the operation of the Stations. SECTION 2. STATION'S OBLIGATION TO ITS COMMUNITY OF LICENSE 2.1. SBS-SW Authority. Notwithstanding any other provision of this Agreement, ICFG recognizes that SBS-SW has certain obligations to broadcast programming to meet the needs and interests of its community of license. From time to time the SBS-SW shall air specific programming on issues of importance to the local community. Nothing in this Agreement shall abrogate the unrestricted authority of the SBS-SW to discharge its obligations to the public and to comply with the Act and the rules and policies of the FCC. 2.2. Additional SBS-SW Obligations. Although both parties shall cooperate in the broadcast of emergency information over the Stations, SBS-SW shall also retain the right to interrupt ICFG's programming in case of an emergency or for programming which, in the reasonable good faith judgment of SBS-SW, is of greater local or national public importance. SBS-SW shall also coordinate with ICFG the Stations' hourly station identification and any other announcements required to be aired by FCC rules. SBS-SW shall continue to maintain a main studio, as that term is defined by the FCC, within each Stations' principal community contour, shall maintain its local public inspection file in accordance with FCC rules, regulations and policies, and shall prepare and place in such inspection file or files in a timely manner all material required by Section 73.3526 of the FCC's Rules. ICFG shall, upon request by SBS-SW, provide SBS-SW with such information concerning ICFG's programs and advertising as is necessary to assist SBS-SW in the preparation of such information. SBS-SW shall also maintain the station logs, receive and respond to telephone inquiries, and control and oversee any remote control point which may be established for the Stations. 2.3 Responsibility for Employees and Expenses. ICFG shall employ and be solely responsible for the salaries, taxes, insurance and related costs for all personnel used in the 3 4 production of its programming (including, but not limited to, salespeople, technical staff, traffic personnel, board operators and programming staff). SBS-SW will provide and be responsible for the Stations' personnel necessary for the broadcast transmission of its own programs (including, without limitation, the Stations' General Manager and such operational and other personnel as may be necessary or appropriate), and will be responsible for the salaries, taxes, benefits, insurance and related costs for all SBS-SW's employees used in the broadcast transmission of its programs and necessary to other aspects of Stations' operation subject to reimbursement pursuant to Section 1.7(b) hereof. Whenever on the Stations' premises, all personnel shall be subject to the overall supervision of SBS-SW's General Manager. SECTION 3. STATION'S PROGRAMMING POLICIES 3.1 Broadcast Stations Programming Policy Statement. SBS-SW has adopted and will enforce a Broadcast Stations Programming Policy Statement (the "Policy Statement"), a copy of which appears as Attachment 2 hereto and which may be amended in a reasonable manner from time to time by SBS-SW upon notice to ICFG. ICFG agrees and covenants to comply in all material respects with the Policy Statement, to all rules and regulations of the FCC, and to all changes subsequently made by SBS-SW or the FCC. ICFG shall furnish or cause to be furnished the artistic personnel and material for the programs as provided by this Agreement and all programs shall be prepared and presented in conformity with the rules, regulations and policies of the FCC and with the Policy Statement set forth in Attachment 3 hereto. All advertising spots and promotional material or announcements shall comply with applicable federal, state and local regulations and policies and shall be produced in accordance with quality standards established by ICFG. If SBS-SW reasonably determines that a program supplied by ICFG is unsatisfactory or unsuitable or contrary to the public interest, or does not comply with the Policy Statement it may, upon prior written notice to ICFG, suspend or cancel such program without liability to ICFG. SBS-SW will use all reasonable efforts to provide such written notice to ICFG prior to the suspension or cancellation of such program. 3.2 SBS-SW Control of Programming. ICFG recognizes that SBS-SW has full authority to control the operation of the Stations. The parties agree that SBS-SW's authority includes but is not limited to the right to reject or refuse such portions of ICFG's programming which SBS-SW reasonably believes to be unsatisfactory, unsuitable or contrary to the public interest. ICFG shall have the right to change the programming supplied to SBS-SW and shall give SBS-SW at least twenty-four (24) hours notice of substantial and material changes in such programming. 3.3 ICFG Compliance with Copyright Act. ICFG represents and warrants to SBS-SW that ICFG has full authority to broadcast its programming on the Stations, and that ICFG shall not broadcast any material in violation of the Copyright Act. All music supplied by ICFG shall be: (i) licensed by ASCAP, SESAC or BMI; (ii) in the public domain; or (iii) cleared at the source by ICFG. SBS-SW will maintain ASCAP, BMI and SESAC licenses as necessary. The right to use the programming and to authorize its use in any manner shall be and remain vested in ICFG. 4 5 3.4 Sales. ICFG shall retain all revenues from the sale of advertising time within the programming it provides to SBS-SW. ICFG shall be responsible for payment of the commissions due to any national sales representative engaged by it for the purpose of selling national advertising which is carried during the programming it provides to SBS-SW. 3.5 Payola. ICFG agrees that it will not accept any consideration, compensation, gift or gratuity of any kind whatsoever, regardless of its value or form, including, but not limited to, a commission, discount, bonus, material, supplies or other merchandise, services or labor (collectively "Consideration"), whether or not pursuant to written contracts or agreements between ICFG and merchants or advertisers, unless the payer is identified in the program for which Consideration was provided as having paid for or furnished such Consideration, in accordance with the Act and FCC requirements. ICFG agrees to annually, or more frequently at the request of the SBS-SW, execute and provide SBS-SW with a Payola Affidavit from each of its employees involved with the Stations substantially in the form attached hereto as Attachment 3. 3.6 Cooperation on Programming. SBS-SW shall, on a regular basis, cooperate with ICFG to assess the issues of concern to its community and address those issues in its public service programming. ICFG, in cooperation with SBS-SW, will endeavor to ensure that programming responsive to the needs and interests of the community of license and surrounding area is broadcast, in compliance with applicable FCC requirements. SBS-SW will describe those issues and the programming that is broadcast in response to those issues and place issues/programs lists in the Stations' public inspection files as required by FCC rules. Further, SBS-SW may request, and ICFG shall provide, information concerning such of ICFG's programs as are responsive to community issues so as to assist SBS-SW in the satisfaction of its public service programming obligations. 3.7 Staffing Requirements. SBS-SW will be in full compliance with the main studio staff requirements as specified by the FCC. SECTION 4. INDEMNIFICATION 4.1 ICFG's Indemnification. ICFG shall indemnify and hold harmless SBS- SW from and against any and all claims, losses, costs, liabilities, damages, forfeitures and expenses (including reasonable legal fees and other expenses incidental thereto) of every kind, nature and description (collectively, "Damages") resulting from(i) ICFG's breach of any representation, warranty, covenant or agreement contained in this Agreement, or (ii) any action taken by ICFG or its employees and agents with respect to the Stations, or any failure by ICFG or its employees and agents to take any action with respect to the Stations, including, without limitation, Damages relating to violations of the Act or any rule, regulation or policy of the FCC, slander, defamation or other claims relating to programming provided by ICFG and ICFG's broadcast and sale of advertising time on the Stations. 4.2 SBS-SW's Indemnification. SBS-SW shall indemnify and hold harmless ICFG from and against any and all claims, losses, consents, liabilities, damages, FCC forfeitures 5 6 and expenses (including reasonable legal fees and other expenses incidental thereto) of every kind, nature and description, arising out of SBS-SW's operations and broadcasts to the extent permitted by law and any action taken by the SBS-SW or its employees and agents with respect to the Stations, or any failure by SBS-SW or its employees and agents to take any action with respect to the Stations. 4.3 Limitation. Neither SBS-SW nor ICFG shall be entitled to indemnification pursuant to this section unless such claim for indemnification is asserted in writing delivered to the other party. 4.4 Time Brokerage Challenge. If this Agreement is challenged at the FCC, whether or not in connection with the Stations' license renewal applications, counsel for SBS- SW and counsel for ICFG shall jointly defend the Agreement and the parties' performance thereunder throughout all FCC proceedings at the sole expense of ICFG. If portions of this Agreement do not receive the approval of the FCC Staff, then the parties shall reform the Agreement as necessary to satisfy the FCC Staff s concerns or, at ICFG's option and expense, seek reversal of the Staff s decision and approval from the full Commission or a court of law. SECTION 5. ACCESS TO BROKER MATERIALS AND CORRESPONDENCE 5.1 Political Advertising. ICFG shall cooperate with SBS-SW to assist SBS- SW in complying with all rules of the FCC regarding political broadcasting. SBS-SW shall promptly supply to ICFG, and ICFG shall promptly supply to SBS-SW, such information, including all inquiries concerning the broadcast of political advertising, as may be necessary to comply with FCC rules and policies, including the lowest unit rate, equal opportunities, reasonable access, political file and related requirements of federal law. SBS-SW, in consultation with ICFG, shall develop a statement which discloses its political broadcasting policies to political candidates, and ICFG shall follow those policies and rates in the sale of political programming and advertising. In the event that ICFG fails to satisfy the political broadcasting requirements under the Act and the rules and regulations of the FCC and such failure inhibits SBS-SW in its compliance with the political broadcasting requirements of the FCC, then to the extent reasonably necessary to assure such compliance, ICFG shall release broadcast time and/or advertising availabilities to SBS-SW at no cost to SBS-SW; provided, however, that all revenues realized by SBS-SW as a result of such a release of advertising time shall be immediately paid to ICFG. SECTION 6. TERMINATION AND REMEDIES UPON DEFAULT 6.1 Termination. In addition to other remedies available at law or equity, this Agreement may be terminated as set forth below by either SBS-SW or ICFG by written notice to the other, if the party seeking to terminate is not then in material default or breach hereof, upon the occurrence of any of the following: (a) subject to the provisions of Section 7.9, this Agreement is declared invalid or illegal in whole or substantial part by an order or decree of an administrative agency or 6 7 court of competent jurisdiction and such order or decree has become final and no longer subject to further administrative or judicial review; (b) the other party is in material breach of its obligations hereunder and has failed to cure such breach within thirty (30) days of notice from the non-breaching party; (c) the mutual consent of both parties; (d) there has been a material change in FCC rules, policies or precedent that would cause this Agreement to be in violation thereof and such change is in effect and not the subject of an appeal or further administrative review and this Agreement cannot be reformed, in a manner acceptable to Buyer and Seller, to remove and/or eliminate the violation; and (e) upon ICFG's prior thirty (30) day's notice to SBS-SW to discontinue this Agreement. Further, if this Agreement terminates due to a material uncured breach by SBS, that certain Asset Purchase Agreement, dated November 2, 2000, by and between ICFG and Spanish Broadcasting System, Inc., as amended, shall also terminate. 6.2 Force Majeure. Any failure or impairment of the Stations' facilities or any delay or interruption in the broadcast of programs, or failure at any time to furnish facilities, in whole or in part, for broadcast, due to circumstances of extraordinary and unpreventable character that are beyond the reasonable control of, and are unforeseen by, SBS-SW, including, but not limited to, strikes, lockouts, material or labor restrictions by any governmental authority, civil riot, flood, fire, earthquake, storm, or for power reductions necessitated for maintenance of the Stations or for maintenance of other stations located on the tower from which the Stations will be broadcasting, shall not constitute a breach of this Agreement and SBS-SW will not be liable to ICFG for reimbursement or reduction of the consideration owed to SBS-SW. 6.3 Other Agreements. During the term of this Agreement or any renewal hereof, SBS-SW will not enter into any other time brokerage, program provision, local management or similar agreement with any third party. SECTION 7. MISCELLANEOUS 7.1 Assignment. (a) SBS-SW's Right to Assign. SBS-SW shall have the unrestricted right to assign its interest herein to any purchaser of radio stations. 7 8 (b) ICFG's Right to Assign. ICFG shall have no right to assign to any person or entity. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 7.2 Call Letters. Upon request of ICFG and at ICFG's expense and subject to the consent of the SBS-SW, SBS-SW shall apply to the FCC for authority to change the call letters of the Stations (with the consent of the FCC) to such call letters that ICFG shall reasonably designate. SBS-SW must coordinate with ICFG any proposed changes to the call letters of the Stations before the SBS-SW takes any action to change such letters. 7.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. 7.4 Entire Agreement. This Agreement and the Attachments hereto, embody the entire agreement and understanding of the parties and supersede any and all prior agreements, arrangements and understandings relating to matters provided for herein. No amendment, waiver of compliance with any provision or condition hereof, or consent pursuant to this Agreement will be effective unless evidenced by an instrument in writing signed by the parties. 7.5 Taxes. SBS-SW and ICFG shall each pay its own ad valorem taxes, if any, which may be assessed on such party's respective personal property for the periods that such items are owned by such party. ICFG shall pay all taxes, if any, to which the consideration specified in Section 1.5 herein is subject, provided that SBS-SW is responsible for payment of its own income taxes. 7.6 Headings. The headings are for convenience only and will not control or affect the meaning or construction of the provisions of this Agreement. 7.7 Governing Law. The obligations of SBS-SW and ICFG are subject to applicable federal, state and local law, rules and regulations, including, but not limited to, the Act and the Rules and Regulations of the FCC. The construction and performance of the Agreement will be governed by the laws of the State of California. 7.8 Notices. All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be (i) in writing, (ii) sent by telecopy (with receipt personally confirmed by telephone), delivered by personal delivery, or sent by commercial delivery service or certified mail, return receipt requested, (iii) deemed to have been given on the date telecopied with receipt confirmed, the date of personal delivery, or the date set forth in the records of the delivery service or on the return receipt, and (iv) addressed as follows: To SBS-SW: Mr. Raul Alarcon, Jr. --------- Spanish Broadcasting System, Inc. 8 9 2601 South Bayshore Drive Penthouse II Coconut Grove, Florida 33133 Telecopy: (305) 444-2179 Telephone: (305) 441-6901 Copy to: Jason L. Shrinsky, Esq. ------- Kaye Scholer LLP 901 15th Street, N.W. Suite 1100 Washington, D.C. 20005 Telecopy: (202) 682-3580 Telephone: (202) 682-3506 To ICFG: International Church of the ------- the Foursquare Gospel 1910 West Sunset Blvd Los Angeles, California 90026-0176 ATTN: Brent R. Morgan Telecopy: (213) 989-4565 Telephone: (213) 989-4360 Copy to: Farrand Cooper P.C. ------- 235 Montgomery Street, Suite 905 San Francisco, California 94104 ATTN: Stephen R. Farrand, Esq. Telecopy: (415) 677-2950 Telephone: (415) 399-3903 or to any such other or additional persons and addresses as the parties may from time to time designate in a writing delivered in accordance with this Section 7.8. 7.9 Severability. If any provision of this Agreement or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. In the event that the FCC alters or modifies its rules or policies in a fashion which would raise substantial and material question as to the validity of any provision of this Agreement, the parties hereto shall negotiate in good faith to revise any such provision of this Agreement with a view toward assuring compliance with all then existing FCC rules and policies which may be applicable, while attempting to preserve, as closely as possible, the intent of the parties as embodied in the provision of this Agreement which is to be so modified. 7.10 Specific Performance. The parties recognize that in the event SBS-SW should refuse to perform under the provisions of this Agreement, monetary damages alone will 9 10 not be adequate. In the event that ICFG is not itself in material default or breach of this Agreement, ICFG shall therefore be entitled to obtain specific performance of all terms of this Agreement. In the event of any action to enforce this Agreement, SBS-SW hereby waives the defense that there is an adequate remedy at law. 7.11 Arbitration. ANY DISPUTE ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES) AND SHALL BE RESOLVED AT LOS ANGELES, CALIFORNIA BY ARBITRATION BEFORE A RETIRED JUDGE OF THE CALIFORNIA COURTS ASSOCIATED WITH JAMS MUTUALLY ACCEPTABLE TO THE PARTIES, OR, FAILING AGREEMENT BY THE PARTIES, APPOINTED BY THE PRESIDING JUDGE OF THE COURT OF GENERAL JURISDICTION IN THE COUNTY OF LOS ANGELES, CALIFORNIA. SUCH ARBITRATION SHALL BE COMMENCED UPON THE WRITTEN REQUEST OF ANY PARTY, AND SHALL BE CONDUCTED ON A CONFIDENTIAL BASIS. WITHOUT LIMITING ANY OTHER POWERS OF THE ARBITRATOR, THE ARBITRATOR SHALL HAVE THE AUTHORITY OF A JUDGE PRO TEM WITH THE AUTHORITY TO ISSUE EQUITABLE ORDERS, INCLUDING ANY EX PARTE ORDERS, DEEMED NECESSARY OR APPROPRIATE UNDER THE CIRCUMSTANCES. ARBITRATION SHALL BE CONDUCTED AS A TRIAL BY THE COURT APPLYING THE SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO ITS CONFLICT OF LAW RULES) WITH A WRITTEN STATEMENT OF DECISION. JUDGMENT UPON THE ARBITRATOR'S AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. BOTH PARTIES EXPRESSLY SUBMIT AND AGREE TO THE JURISDICTION AND VENUE AS PROVIDED HEREIN. THE PARTIES SHALL EQUALLY SHARE AND PAY THE ARBITRATOR'S FEES AND RELATED COSTS. EACH PARTY SHALL BEAR ITS OWN ATTORNEYS' FEES AND COSTS INCURRED IN CONNECTION WITH ANY SUCH ARBITRATION AND ANY APPEAL THEREFROM. /s/ BM /s/ RA ----------------- ------------------- ICFG - initials SBS-SW - initials 7.12 No Joint Venture. Nothing in this Agreement shall be deemed to create a joint venture between SBS-SW and ICFG. [signature page follows] 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. SPANISH BROADCASTING SYSTEM SOUTHWEST, INC. By: /s/ RAUL ALARCON, JR. ---------------------------------- Raul Alarcon, Jr. INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL By: /s/ BRENT MORGAN ---------------------------------- Brent R. Morgan ACKNOWLEDGED AND AGREED TO AS TO SECTION 6.1(e) ONLY: SPANISH BROADCASTING SYSTEM, INC. By: /s/ RAUL ALARCON, JR. ----------------------------------- Raul Alarcon, Jr. 11 12 ATTACHMENT 1 CONSIDERATION None. 12 13 ATTACHMENT 2 BROADCAST STATION PROGRAMMING POLICY STATEMENT The following sets forth the policies generally applicable to the presentation of programming and advertising over Stations KMJR (FM), Los Angeles, California and KNJR (FM), Los Angeles, California. All programming and advertising broadcast by the Stations must conform to these policies and to the provisions of the Communications Act of 1934, as amended (the "Act"), and the Rules and Regulations of the Federal Communications Commission ("FCC"). Stations' Identification The Stations must broadcast a Stations identification announcement once an hour as close to the hour as feasible in a natural breach in the programming. The announcement must include (1) the Stations' call letters, followed immediately by (2) the Stations' city of license. Broadcast of Telephone Conversations Before recording a telephone conversation for broadcast or broadcasting such a conversation simultaneously with its occurrence, any party to the call must be informed that the call will be broadcast or will be recorded for later broadcast, and the party's consent to such broadcast must be obtained. This requirement does not apply to calls initiated by the other party which are made in a context in which it is customary for the Stations to broadcast telephone calls. Sponsorship Identification When money, service or other valuable consideration is either directly or indirectly paid or promised as part of an arrangement to transmit any programming, the Stations at the time of broadcast shall announce (1) that the matter is sponsored, either whole or in part; and (2) by whom or on whose behalf the matter is sponsored. Products or services furnished to the Stations in consideration for an identification of any person, product, service, trademark or brand name shall be identified in this manner. In the case of any political or controversial issue broadcast for which any material or service is furnished as an inducement for its transmission, an announcement shall be made at the beginning and conclusion of the broadcast stating (1) the material or service that has been furnished; and (2) the person(s) or association(s) on whose behalf the programming is transmitted. However, if the broadcast is 5 minutes duration or less, the required announcement need only be made either at its beginning or end. Prior to any sponsored broadcast involving political matters or controversial issues, the Stations shall obtain a list of the chief executive officers, members of the executive committee or board of 13 14 directors of the sponsoring organization and shall place this list in the Stations' public inspection files. Payola/Plugola The Stations, the personnel, or ICFG shall not accept or agree to accept from any person any money, service or other valuable consideration for the broadcast of any matter unless such fact is disclosed to the Stations so that all required Stations identification announcements can be made. All persons responsible for station programming must, from time to time, execute such documents as may be required by Stations' management to confirm their understanding of and compliance with the FCC's sponsorship identification requirements. Rebroadcasts The Stations shall not rebroadcast the signal of any other broadcast Stations without first obtaining such Stations' prior written consent to such rebroadcast. Fairness The Stations shall seek to afford coverage to contrasting viewpoints concerning controversial issues of public importance. Personal Attacks The Stations shall not air attacks upon the honesty, character, integrity or like personal qualities of any identified person or group. If such an attack should nonetheless occur during the presentation of views on a controversial issue of public importance, those responsible for programming shall submit a tape or transcript of the broadcast to station management and to the person attacked within 48 hours, and shall offer the person attacked a reasonable opportunity to respond. Political Editorials Unless specifically authorized by Stations' management, the Stations shall not air any editorial which either endorses or opposes a legally qualified candidate for public office. Political Broadcasting All "uses" of the Stations by legally qualified candidates for elective office shall be in accordance with the Act and the FCC's Rules and policies, including without limitation, equal opportunities requirements, reasonable access requirements, lowest unit charge requirements and similar rules and regulations. Obscenity and Indecency 14 15 The Stations shall not broadcast any obscene material. Material is deemed to be obscene if the average person, applying contemporary community standards in the local community, would find that the material, taken as a whole, appeals to the prurient interest; depicts or describes in a patently offensive way sexual conduct specifically defined by applicable state law; and taken as a whole, lacks serious literary, artistic, political or scientific value. The Stations shall not broadcast any indecent material outside of the periods of time prescribed by the FCC. Material is deemed to be indecent if it includes language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory activities or organs. Billing No entity which sells advertising for airing on the Stations shall knowingly issue any bill, invoice or other document which contains false information concerning the amount charged or the broadcast of advertising which is the subject of the bill or invoice. No entity which sells advertising for airing on the Stations shall misrepresent the nature or content of aired advertising, nor the quantity, time of day, or day on which such advertising was broadcast. Contests Any contests conducted on the Stations shall be conducted substantially as announced or advertised. Advertisements or announcements concerning such contests shall fully and accurately disclose the contest's material terms. No contest description shall be false, misleading or deceptive with respect to any material term. Hoaxes The Stations shall not knowingly broadcast false information concerning a crime or catastrophe. Emergency Information Any emergency information which is broadcast by the Stations shall be transmitted immediately. Lottery The Stations shall not advertise or broadcast any information concerning any lottery (except approved state lotteries). The Stations may advertise and provide information about lotteries conducted by non-profit groups, governmental entities and in certain situations, by commercial organizations, if and only if there is no state or local restriction or ban on such advertising or information and the lottery is legal under state or local law. Any and all lottery advertising must first be approved by Stations' management. Advertising 15 16 The Stations shall comply with all federal, state and local laws concerning advertising, including without limitation, all laws concerning misleading advertising, and the advertising of alcoholic beverages. Programming Prohibitions Knowing broadcast of the following types of programs and announcements is prohibited. False Claims. False or unwarranted claims for any product or service. Unfair Imitation. Infringements of another advertiser's rights through plagiarism or unfair imitation of either program idea or copy, or any other unfair competition. Commercial Disparagement. Any unfair disparagement of competitors or competitive goods. Profanity. Any programs or announcements that are slanderous, obscene, profane, vulgar, repulsive or offensive, as evaluated by Stations' management. Violence. Any programs which are excessively violent. Unauthorized Testimonials. Any testimonials which cannot be authenticated. 16 17 ATTACHMENT 3 PAYOLA STATEMENT 17 18 FORM OF PAYOLA AFFIDAVIT City of _________________ ) ) County of_______________ ) ss: ) State of_________________ ) ANTI-PAYOLA/PLUGOLA AFFIDAVIT __________________________________, being first duly sworn, deposes and says as follows: 1. He/She is ______________________ for __________________. 2. He/She has acted in the above capacity since ________________. 3. No matter has been broadcast by Stations ______ for which service, money or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted, by him/her from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 4. So far as he/she is aware, no matter has been broadcast by Stations _____ for which service, money or other valuable consideration has been directly or indirectly paid, or promised to, or charged, or accepted by Stations _______ or by any independent contractor engaged by Stations ______ in furnishing programs, from any person, which matter at the time so broadcast has not been announced or otherwise indicated as paid for or furnished by such person. 5. In the future, he/she will not pay, promise to pay, request or receive any service, money, or any other valuable consideration, direct or indirect, from a third party, in exchange for the influencing of, or the attempt to influence, the preparation of presentation of broadcast matter on Stations ______. 6. Nothing contained herein is intended to, or shall prohibit receipt or acceptance of anything with the expressed knowledge and approval of my employer, but henceforth any such approval must be given in writing by someone expressly authorized to give such approval. 19 7. He/She, his/her spouse and immediate family do ___ do not ___ have any present direct or indirect ownership interest in (other than an investment in a corporation whose stock is publicly held), serve as an officer or director of, whether with or without compensation, or serve as an employee of, any person, firm or corporation engaged in: 1. The publishing of music; 2. The production, distribution (including wholesale and retail sales outlets), manufacture or exploitation of music, films, tapes, recordings or electrical transcription of any program material intended for radio broadcast use; 3. The exploitation, promotion or management or persons rendering artistic, production and/or other services in the entertainment field; 4. The ownership or operation of one or more radio or television stations; 5. The wholesale or retail sale of records intended for public purchase; 6. Advertising on Stations _____, or any other station owned by its licensee (excluding nominal stockholdings in publicly owned companies). 8. The facts and circumstances relating to such interest are none ___ as follows ___: _______________________________________________________________ _______________________________________________________________ __________________________________ Affiant Subscribed and sworn to before me this _____ day of ____________, 200__ ___________________________ Notary Public My Commission expires:_____________ 2 EX-10.5 6 g69100ex10-5.txt RADIO NETWORK AFFILIATION AGREEMENT 1 EXHIBIT 10.5 RADIO NETWORK AFFILIATION AGREEMENT THIS RADIO NETWORK AFFILIATION AGREEMENT (this "Agreement") is made as of April 5, 2001 between Clear Channel Broadcasting, Inc. ("Clear Channel") and SBS of San Francisco, Inc. ("SBS"), the Federal Communications Commission ("FCC") licensee of radio station KXJO-FM, Alameda, California ("KXJO"). Recitals Clear Channel provides to affiliated stations a radio network programming service (the "Rock Network") consisting of rock music programming targeted to 18 to 49 year old adults, including top-rated personalities, national and locally researched music, national contesting, marketing and benchmark programming features. KXJO is desirous of airing Rock Network programming and wishes to affiliate with the Rock Network on the terms and conditions set forth herein. Agreement NOW, THEREFORE, taking the foregoing recitals into account, and in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. NETWORK AFFILIATION AND BROADCAST OF ROCK NETWORK PROGRAMS A. Clear Channel will offer the Rock Network programming feed for broadcast by KXJO. Clear Channel will have the right to authorize any other radio broadcast station to air Rock Network programming, regardless of the community to which such station is licensed by the FCC. B. Except as provided in I.C and I.D below, KXJO agrees to broadcast in its entirety all Rock Network programming which it chooses to broadcast, including, but not limited to, the network commercials, network identifications, program promotional material and credit announcements therein (the "Network Programs"), and except for the inclusion of local announcements or programming in periods designated in Schedule A attached hereto as available for such material, KXJO agrees to broadcast such Network Programs without interruption, deletion, or addition of any kind. Clear Channel may at any time, upon prior written notice to KXJO, substitute for any scheduled Network Program another Network Program. Nothing contained in this agreement shall be construed to prevent or hinder Clear Channel, upon notice to KXJO as soon as practicable, from cancelling any Network Program(s) or adding any Network Program(s) reasonably acceptable to KXJO. C. KXJO will carry every network commercial in the time periods designated in Schedule A attached hereto, even if it does not otherwise accept the Network Program(s) in 2 those time periods, unless KXJO reasonably believes such commercial to be unsuitable for broadcast in the station's community. Such commercials shall be carried at a time or times mutually agreeable to KXJO and Clear Channel. D. With respect to Network Programs, nothing herein contained shall be construed to prevent or hinder KXJO from (a) rejecting or refusing a Network Program(s) which KXJO reasonably believes to be unsuitable for broadcast, or (b) substituting a program which, in KXJO's opinion, is of greater local or national importance. KXJO shall give Clear Channel prompt written notification of any such refusal, rejection or substitution. E. The Rock Network may from time to time distribute Network Programs that are sustaining or local spot carrier programs. Such programs may not be interrupted for commercial announcements unless Clear Channel has designated periods of time available for local sale. KXJO agrees to abide by any restrictions Clear Channel has specified with respect to such local availabilities. F. KXJO agrees that no Network Program fed to it by the Rock Network will be broadcast on a delayed basis without Clear Channel's prior approval. G. Rock Network Programs will be delivered to KXJO via TI line. Clear Channel shall bear all costs of delivering the Rock Network feed to KXJO's studio, including but, not limited to, the cost of any receiving equipment and maintenance thereof. H. Clear Channel will provide traffic and continuity services to KXJO in connection with Rock Network programming at no cost to KXJO. Clear Channel will not engage in any sales or billing activities with respect to advertising sold locally by KXJO. II. STATION COMPENSATION Clear Channel agrees to pay SBS compensation in accordance with the provisions set forth in Schedule A attached hereto and made a part hereof. III. GENERAL A. KXJO will submit reports in writing on forms provided by Clear Channel not later than the deadline date specified on such forms, or ten (10) days after receipt of such forms, whichever is earlier. These reports will cover Network Programs and commercials broadcast by KXJO as Clear Channel may reasonably request, including, but not limited to, declarations of clearance and affidavits of performance. B. KXJO is responsible for the strict accuracy of its declarations of clearance and affidavits of performance. If a Radar (or other monitoring service) audit determines that a program or commercial was not broadcast at the time indicated in a KXJO declaration of clearance or affidavit of performance, and such discrepancy is substantial, Clear Channel shall -2- 3 be entitled to deduct such amount from compensation payments due KXJO as will make Clear Channel whole for the program(s) or commercial(s) not broadcast. C. Subject to the provisions of Schedule A to this agreement, neither KXJO nor Clear Channel shall incur any liability hereunder because of Clear Channel's failure to deliver, or KXJO's failure to broadcast, any or all Network Programs due to: a) failure of facilities; b) labor disputes, or c) causes beyond the control of the party so failing to broadcast or deliver. D. All questions or discrepancies regarding compensation must be presented to Clear Channel in writing within six (6) months of the period in question or within six (6) months of the receipt of payment for the broadcast month in question, whichever is greater. Otherwise, all payments and/or penalties shall be deemed accepted and corrected by SBS. E. In the event that KXJO at any time files an application to change its community of license, transmitter location, power, frequency or hours of operation, or makes a change in program format (other than as a result of KXJO's affiliation with the Rock Network pursuant to this Agreement), KXJO agrees to notify Clear Channel, in writing, within forty-eight (48) hours of such filing or format change. If Clear Channel determines in its sole discretion, reasonably exercised, that any such change will have a materially adverse effect on the value of this Agreement to Clear Channel, Clear Channel shall have the right at any time from the date of such notice until six (6) months thereafter to terminate this Agreement effective upon two (2) weeks' prior written notice. F. KXJO agrees not to authorize, cause, permit or enable anything to be done, including, but not limited to, cablecasting or internet streaming, whereby any Rock Network programming supplied to KXJO is used for any purpose other than broadcasting by KXJO in its over-the-air service area, which broadcast is intended for reception by the general public in places to which no admission is charged, without Clear Channel's prior written consent. KXJO further agrees not to authorize, cause or permit anything to be done whereby any Rock Network programming supplied to KXJO is rebroadcast over a translator outside KXJO's over-the-air service area without Clear Channel's prior written consent. G. Except for Network Programs which are fed to KXJO with the express understanding that they may be taped for subsequent broadcast, KXJO agrees not to authorize, cause or permit anything to be done whereby a tape (other than a logger tape) is made or a recording is broadcast, of a program which has been or is being distributed on the Rock Network. H. KXJO agrees to maintain such licenses, including performing rights licenses as now are or hereafter may be in general use by radio broadcasting stations, as are necessary for KXJO to broadcast the Rock Network radio programs furnished hereunder. -3- 4 I. Neither party may assign this Agreement without the prior written consent of the other party, such consent not to be unreasonably withheld. Notwithstanding the preceding sentence, either party may assign this Agreement without the consent of the other party to an entity controlling, controlled by, or under common control with, the assigning party. SBS further agrees that if any application is made to the FCC for any assignment or transfer of control of KXJO's license, or any interest therein, it will notify Clear Channel in writing immediately. If Clear Channel consents to the assignment of this Agreement to the proposed assignee or transferee following such notice, SBS will procure and deliver to Clear Channel, in form satisfactory to Clear Channel, the agreement of the proposed assignee or transferee that, upon consummation of the assignment or transfer of control of KXJO's license, the assignee or transferee will assume and perform this Agreement in its entirety without limitation of any kind. J. In the event KXJO ceases operation for any reason, SBS will notify Clear Channel immediately. If KXJO ceases operation for a continuous period of thirty (30) days, Clear Channel shall have the right, if it so desires, to terminate this Agreement upon forty-eight (48) hours written notice. K. No inducements, representations or warranties except as specifically set forth herein have been made by any of the parties to this Agreement. This Agreement, including Schedule A attached hereto, constitutes the entire contract between the parties hereto and supersedes any and all prior affiliation agreements, broadcasting commitments, or any other understandings between KXJO and the Rock Network of whatever nature. No provision of this Agreement shall be changed or modified, nor shall this Agreement be discharged in whole or in part, except by an agreement in writing, signed by the party against whom the change, modification or discharge is claimed or sought to be enforced, nor shall any waiver of any of the conditions or provisions of this Agreement be effective and binding unless such waiver shall be in writing and signed by the party against whom the waiver is asserted; and no waiver of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or of any other provision. L. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. M. All notices hereunder may be given by hand delivery, facsimile or regular mail, and shall be deemed given as of the date of hand delivery, the date of confirmed facsimile delivery or three days after deposit in the United States mail, at the respective addresses of KXJO and Clear Channel as set forth below: If to KXJO: Spanish Broadcasting Systems, Inc. 2601 S. Bayshore Drive, Penthouse II Coconut Grove, FL 33133 Attn.: Joseph Garcia, CFO -4- 5 If to Clear Channel: Clear Channel Broadcasting, Inc. 50 East RiverCenter Boulevard 12th Floor Covington, Kentucky 41011 Attention: Randy Michaels, President Telecopier No.: 859-655-9345 IV. TERM The initial term of this Agreement shall be from April 9, 2001 (the "Commencement Date") to and including April 8, 2003. This Agreement shall be automatically renewed on the same terms and conditions (subject to Schedule A attached hereto) for one (1) additional term of one (1) year, unless either party shall give the other party written notice not less than ninety (90) days prior to the expiration of the initial term that it elects not to have the agreement renewed. Notwithstanding the foregoing provisions of this Section IV, this Agreement may be terminated by either party upon thirty (30) days' prior written notice to the other party. [SIGNATURE PAGE FOLLOWS] -5- 6 SIGNATURE PAGE TO RADIO NETWORK AFFILIATION AGREEMENT IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. SBS: SBS OF SAN FRANCISCO, INC. By: /s/ Joseph A. Garcia -------------------------------------- Name: Joseph Garcia Title: Vice President - CEO CLEAR CHANNEL: CLEAR CHANNEL BROADCASTING, INC. By: /s/ David L. Crowl ------------------------------------- Name: David L. Crowl Title: Regional Senior Vice President 7 SCHEDULE A Compensation During the first year of the term of this Agreement, the base monthly network compensation payable by Clear Channel to KXJO shall be $100,000 (the "Base Compensation Amount"). The Base Compensation Amount for additional years of the term of this Agreement (including the one (1) year renewal term, if any) shall be determined by multiplying the Base Compensation Amount for the current year of this Agreement by a fraction the numerator of which shall be the official Consumer Price Index for All Urban Consumers (CPI-U) U.S. City Average, All Goods and Services Base (1967 = -100) as promulgated by the U.S. Bureau of Labor Statistics of the United States Department of Labor, for the third month prior to each anniversary of the Commencement Date and the denominator of which shall be said Consumer Price Index for the month of the Commencement Date of this Agreement. The "Adjusted Monthly Compensation Amount" shall be the sum determined by the following formula: Adjusted Monthly Compensation Amount = X ------------------------------------ - Base Compensation Amount Y where X = number of :60 Rock Network commercial units cleared by KXJO; and Y = total number of :60 commercial units in Rock Network programming fed to KXJO, according to the following schedule: Network Commercial Clearance: Monday - Friday 5:00-5:30A - 4 units/day Monday - Friday 5:00-10:00A - 66 units/day Monday - Friday 10A-3:00P - 47 units/day Monday - Friday 3:00-8:00P - 57 units/day Monday - Friday 8:00P-12:00M - 42 units/day Monday - Friday 12:00M-5:00A - 57 units/day Saturday 5:00-5:30A - 4 units/day Saturday 5:30-10:00A - 45 units/day Saturday 10A-3:00P - 52 units/day Saturday 3:00-8:00P - 52 units/day Saturday 8:00P-12:00M - 41 units/day Monday - Friday 12:00M-5:00A - 47 units/day 8 Sunday 5:00-5:30A - 4 units/day Sunday 5:30-10:00A - 45 units/day Sunday 10A-3:00P - 52 units/day Sunday 3:00-8:00P - 52 units/day Sunday 8:00P - 12:00M - 41 units/day Monday - Friday 12:00M - 5:00A - 47 units/day Within five (5) days after execution of this Agreement, Clear Channel shall pay to SBS an amount equal to the aggregate Base Compensation Amount for the first three (3) months of this Agreement. Clear Channel may deduct amounts from subsequent monthly payments to account for commercial units not cleared by KXJO during the first three (3) months of this Agreement. With respect to the fourth (4th) and subsequent months of this Agreement, Clear Channel shall pay the Adjusted Monthly Compensation Amount on a monthly basis not later than the fifteenth day of the month immediately following the month for which the Adjusted Monthly Compensation Amount has been calculated. The Adjusted Monthly Compensation Amount, the Base Compensation Amount and the clearance calculation shall be prorated for any partial months during which this Agreement is in effect. KXJO will retain the right to sell for its own account three (3) local :60 second commercial units per hour of Rock Network programming (Monday- Sunday 6 am-12 midnight, total of 378 units per week) ("Local Units"). The Local Units shall be available for sale solely by KXJO's local sales staff, and shall not be sold for the purpose of resale by any person or entity. Clear Channel will have an option to sell any Local Units which are unsold by KXJO. In the event Clear Channel sells any unsold Local Units, KXJO will be entitled to 15% of the revenue from such sales. -----END PRIVACY-ENHANCED MESSAGE-----