FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-90302
PROSPECTUS
$225,000,000
[LOGO] Entravision (large)
Entravision Communications Corporation
Exchange Offer
for
8 1/8% Senior Subordinated Notes due 2009
We hereby offer to exchange $225,000,000 aggregate principal amount of our
8 1/8% Senior Subordinated Notes due 2009, which have been registered under the
Securities Act, for $225,000,000 aggregate principal amount of our outstanding
8 1/8% Senior Subordinated Notes due 2009.
The Exchange Offer will expire at 5:00 p.m., New York City time, on August
12, 2002 (the 20/th/ business day following the date of mailing of this
prospectus), unless we extend the Exchange Offer, in our sole and absolute
discretion.
There is no existing public market for our outstanding 8 1/8% Senior
Subordinated Notes due 2009 or the registered 8 1/8% Senior Subordinated Notes
due 2009. We do not intend to list the registered 8 1/8% Senior Subordinated
Notes due 2009 on any securities exchange or seek approval for quotation
through any automated trading system.
See "Risk Factors" beginning on page 15 for a discussion of information
that you should consider prior to tendering your outstanding old notes for
exchange.
NEITHER THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
July 12, 2002
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
concerning our expectations of future revenue, expenses, the outcome of our
growth and acquisition strategy and the projected growth of the Hispanic
population in the U.S. Forward-looking statements often include words or
phrases such as "will likely result," "expect," "will continue," "anticipate,"
"may," "estimate," "intend," "plan," "project," "outlook," "seek" or similar
expressions. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed in the forward-looking statements.
Factors which could cause actual results to differ from expectations include
those discussed under the heading "Risk Factors" below. Our results of
operations may be adversely affected by one or more of these factors. These
factors do not include all factors which might affect our business and
financial condition. We caution you not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and to inherent risks
and uncertainties, such as those disclosed in this prospectus. We do not
intend, and undertake no obligation, to update any forward-looking statement.
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MARKET DATA
Market data and other statistical information used throughout this
prospectus are based on independent industry publications, government
publications, reports by market research firms or other published independent
sources. Some data are also based on our good faith estimates, which are
derived from our review of internal surveys, as well as the independent sources
listed above. Although we believe that these sources are reliable, we have not
independently verified the information and cannot guarantee its accuracy and/or
completeness.
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You should rely only upon the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer of these securities in any
jurisdiction where the offer is not permitted. You should assume the
information appearing in this prospectus is accurate only as of the date on the
front cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It does not contain all the information you may consider important in making
your investment decision. Therefore, you should read the entire prospectus
carefully including, in particular, "Risk Factors" and the financial statements
and related notes incorporated herein by reference. Unless otherwise noted, the
terms "Entravision," "we," "our" and "us" refer to Entravision Communications
Corporation and our subsidiaries. Unless specified, all financial information
in this prospectus is information regarding us and our consolidated
subsidiaries.
THE COMPANY
We are a diversified Spanish-language media company with a unique portfolio
of television, radio, outdoor advertising and publishing assets, reaching
approximately 80% of all Hispanics in the U.S.
. Television. We own and/or operate 38 primary television stations in
growing Hispanic markets that are located primarily in the southwestern
U.S., including the U.S./Mexican border markets. We are the largest
Univision Communications Inc. ("Univision")-affiliated television group,
owning Univision-affiliated stations in 21 of the top 50 Hispanic markets
in the U.S.
. Radio. We own and/or operate 56 radio stations in 25 markets, 54 of which
are located in the top 50 Hispanic markets in the U.S.
. Outdoor Advertising. We own and operate approximately 11,200 advertising
faces located primarily in high-density Hispanic communities in Los
Angeles and New York.
. Publishing. We own El Diario/la Prensa, the oldest major Spanish-language
daily newspaper in the U.S.
For the three month period ended March 31, 2002, we generated total
broadcast cash flow of $12.2 million, of which 64%, 33%, 1% and 2% was
generated from our television, radio, outdoor advertising and publishing
divisions, respectively. For the year ended December 31, 2001, we generated
total broadcast cash flow of $66.1 million, of which 53%, 34%, 10% and 3% was
generated from our television, radio, outdoor advertising and publishing
divisions, respectively.
Our strategy is to continue to improve the revenue growth of and cash flow
from our media properties by strengthening our position in existing markets and
expanding into new markets with significant Hispanic populations. We believe
that the favorable demographics of the Hispanic population in the U.S. and the
rapid increase in advertising targeting Hispanics provide significant
opportunities for growth. In addition, we believe that we have a competitive
advantage due to our strategic relationship with Univision and our ability to
realize synergies by owning television and radio stations in the same market.
As a result of the successful ongoing implementation of our strategy, we
have achieved impressive growth:
. From 1999 to 2001, net revenue grew at a compound annual rate of 88.2%
from $59 million to $208.9 million.
. From 1999 to 2001, broadcast cash flow grew at a compound annual rate of
69.7% from $22.9 million to $66.1 million.
. From 1999 to 2001, EBITDA grew at a compound annual rate of 71.6% from
$17.1 million to $50.4 million.
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THE HISPANIC MARKET OPPORTUNITY
Our media assets target the most densely-populated and fastest-growing
Hispanic markets in the U.S. We operate media properties in 12 of the 15
highest-density Hispanic markets in the U.S. In addition, among the top 25
Hispanic markets in the U.S., we operate media properties in 12 of the 15
fastest growing markets. We believe that targeting the Hispanic market will
translate into strong growth for the foreseeable future for the following
reasons:
. The overall Hispanic population is growing at approximately seven times
the rate of the non-Hispanic population in the U.S.
. Approximately 68% of all Hispanics in the U.S. speak Spanish at home. This
percentage is expected to remain relatively constant through 2020.
. Buying power of the Hispanic population in the U.S. is expected to
increase significantly, rising from total consumer expenditures of
approximately $444 billion in 2000 to an estimate in excess of $1 trillion
by 2010.
. We believe that the demographic profile of the Hispanic audience makes it
attractive to advertisers and that the larger size and younger age of
Hispanic households lead Hispanics to spend more per household on many
categories of goods and services.
. Nearly $2.2 billion of total advertising expenditures in the U.S. were
placed in Spanish-language media in 2001, of which approximately 84% was
placed in Spanish-language television and radio advertising.
BUSINESS STRATEGY
We seek to increase our advertising revenue through the following strategies:
. Continue to Capitalize on Univision's Premier Programming. We are the
largest Univision-affiliated television group for Univision's primary
network, as well as its second network, Telefutura, which was launched in
January 2002. Univision's primary network is the most-watched television
network (English- or Spanish-language) among Hispanic households,
capturing approximately a 78% market share of the U.S. Spanish-language
prime time audience as of March 2002. Univision makes its networks'
Spanish-language programming available to our television stations 24 hours
a day, including a prime time schedule on its primary network of
substantially all first-run programming throughout the year. Univision
owns approximately 31% of our common stock and is a key source of our
programming through network affiliation agreements with its primary
network expiring in 2021.
. Benefit from Favorable Rating Trends. During 2001, we substantially
increased our audience share in key markets for both television and radio.
In the latest February 2002 sweeps, we were rated the #1 Spanish-language
television station in all of our subscriber markets and, in five of those
markets, we were rated the #1 station (English- or Spanish-language)
during prime time among viewers 18-34 years of age, beating all
English-language networks, including ABC, NBC, CBS and Fox. We continue to
benefit from strong ratings in our television group, which has driven our
above-average industry revenue growth rates. During the past twelve
months, we implemented substantial improvements to our radio group
including station upgrades, music reformatting and key management hires.
We have been successful in improving our radio operations as achieved in
the latest Winter 2002 Arbitron book where the shares of our radio group
(for all our subscriber stations) increased 35% from Winter of 2001. Our
recent increases in ratings lead us to believe that our radio stations are
now positioned to generate significant revenue and cash flow going forward.
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. Capture Internal Growth Opportunities. We believe that we have many
opportunities to increase the revenue and cash flow of our media
properties. First, as our developmental radio and television properties
mature, we expect significant increases in our operating margins from
those properties. With strong management expertise and an efficient cost
infrastructure in place, these stations have the ability to grow revenue
while controlling costs. Secondly, the 2000 Census data showed that more
Hispanics reside in many of our markets than previously estimated. As a
result, we expect corresponding ratings increases that could translate
into increased revenue. Lastly, a narrowing of the pricing disparity
between English-language and Spanish-language advertising rates provides
us with an additional opportunity to grow our revenue. We believe that
advertisers will spend more dollars on Spanish-language advertising due to
improved research that more accurately accounts for the Spanish-language
audience and an increased awareness of the buying power of the Hispanic
consumer.
. Increase In Market Cross-Selling and Cross-Promotion. Our uniquely
diversified asset portfolio provides us with a competitive advantage. We
are one of the only Hispanic media companies that has the ability to
provide advertisers with attractive media packages which combine
television, radio, outdoor advertising and publishing in targeting the
Hispanic consumer. In addition, by leveraging our assets in the same
market, we create revenue synergies from cross-promotion and cost
synergies from sharing cost infrastructures. In 2001, we began the process
of combining our television and radio operations to create synergies and
achieve cost savings and are continuing that process in 2002. Currently,
we operate some combination of television, radio, outdoor advertising and
publishing in 13 markets.
. Successfully Execute Our Business Plan Through Our Strong Management
Expertise. We believe that we have one of the most experienced management
teams in the industry. We are led by our co-founder, Chairman and Chief
Executive Officer, Walter Ulloa, our co-founder, President and Chief
Operating Officer, Philip Wilkinson, and our Executive Vice President and
Chief Financial Officer, Jeanette Tully. Messrs. Ulloa and Wilkinson and
Ms. Tully, and our strong management team, have an average of more than 20
years of media experience and together own approximately 24% of our common
stock.
. Target Other Attractive Hispanic Markets and Fill-In Acquisitions. We
believe that our knowledge of, and experience with, the Hispanic
marketplace will enable us to continue to focus on acquisitions in the
television and radio markets. We believe that our management expertise
allows us to turn developmental properties into leading media assets
within their market in a relatively short period of time. For example,
during the middle of 2001, we launched a television station in each of
Santa Barbara, California and Midland-Odessa, Texas, both of which
represented new markets for us. Since their launch, both stations have
been ranked #1 in prime time among viewers 18-34 years of age, beating all
English-language networks including ABC, NBC, CBS and Fox.
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RECENT SIGNIFICANT DEVELOPMENTS
. Launch of Univision's Telefutura Network. On January 14, 2002, we
launched Univision's Telefutura network in 12 markets where we currently
operate Univision-affiliated television stations, thereby creating
duopolies in those markets. Telefutura is a 24 hour general interest
Spanish-language broadcast network that offers Hispanics a new choice in
Spanish-language entertainment. We believe that by counter-programming
traditional Spanish-language broadcast networks, Telefutura will appeal to
Hispanics who currently watch English-language programming, thereby
expanding the Spanish television viewing audience. In addition, the
ability to leverage our existing Univision-affiliated television stations
in the same markets has allowed us to launch Telefutura with minimal
incremental costs.
. Conversion of $37.5 Million Note Payable into Common Stock. In February
2002, we retired a $37.5 million note held by Berlwood Two, Ltd., as
assignee, with approximately 3.6 million shares of our Class A common
stock.
. Acquisition of KXPK-FM, Denver, Colorado. On May 1, 2002, we acquired
certain of the assets of KXPK-FM in Denver, Colorado for approximately
$47.5 million in cash, plus acquisition costs. Currently, we own two FM
radio stations and one AM radio station, as well as the Univision- and
Telefutura-affiliated television stations, serving Denver.
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PENDING SIGNIFICANT TRANSACTIONS
. Acquisition of KTCY-FM, Dallas, Texas. On June 5, 2002, we entered into a
definitive agreement to acquire substantially all of the assets of KTCY-FM
in Dallas, Texas, for approximately $35 million in cash. Concurrently with
the execution of this agreement, we began operating this station under a
time brokerage agreement.
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Our corporate headquarters are located at:
Entravision Communications Corporation
2425 Olympic Boulevard
Suite 6000 West
Santa Monica, California 90404
(310) 447-3870
We operate a number of websites, including www.entravision.com. The
information contained on our websites is not a part of this prospectus.
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THE EXCHANGE OFFER
Background of the
Outstanding Notes......... On March 18, 2002, we issued $225 million
aggregate principal amount of our 8 1/8% Senior
Subordinated Notes due 2009 (the "Outstanding
Notes") to UBS Warburg LLC, Credit Suisse First
Boston Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Fleet Securities, Inc.,
Scotia Capital (USA) Inc., BNY Capital Markets,
Inc. and TD Securities (USA) Inc. (collectively,
the "Initial Purchasers") in transactions not
registered under the Securities Act in reliance
on exemptions from registration under the
Securities Act. The Initial Purchasers then sold
the Outstanding Notes to qualified institutional
buyers in reliance on Rule 144A under the
Securities Act ("Rule 144A") and outside the U.S.
to persons in reliance on Regulation S under the
Securities Act ("Regulation S"). Because they
have been sold in reliance on exemptions from
registration, the Outstanding Notes are subject
to transfer restrictions. In connection with the
issuance of the Outstanding Notes, we entered
into an Exchange and Registration Rights
Agreement (the "Registration Rights Agreement")
with the Initial Purchasers in which we agreed to
deliver to you this prospectus and to use our
reasonable best efforts to complete the Exchange
Offer or to file and cause to become effective a
registration statement covering the resale of the
Outstanding Notes.
The Exchange Offer.......... We are offering to issue up to $225 million
aggregate principal amount of new 8 1/8% Senior
Subordinated Notes due 2009 (the "Exchange
Notes") in exchange for an identical aggregate
principal amount of Outstanding Notes (the
"Exchange Offer"). Outstanding Notes may be
exchanged only in $1,000 increments. The terms of
the Exchange Notes are identical in all material
respects to the terms of the Outstanding Notes,
except that the Exchange Notes have been
registered under the Securities Act. Because we
have registered the Exchange Notes, the Exchange
Notes will not be subject to transfer
restrictions.
Resale of Exchange Notes.... We will issue the Exchange Notes promptly after
the expiration of the Exchange Offer. We believe
that you may offer, sell or otherwise transfer
the Exchange Notes you receive in the Exchange
Offer without compliance with the registration
and prospectus delivery provisions of the
Securities Act provided that:
. you acquire the Exchange Notes you receive in
the Exchange Offer in the ordinary course of
your business;
. you are not engaging in and do not intend to
engage in a distribution of the Exchange Notes;
. you have no arrangement or understanding with
any person to participate in the distribution
of the Exchange Notes issued to you in the
Exchange Offer; and
. you are not an "affiliate" of ours, as that
term is defined in Rule 405 under the
Securities Act.
5
Our belief is based upon interpretations by the
staff of the Commission's Division of Corporation
Finance (the "Staff"), as set forth in no-action
letters to third parties unrelated to us. The
Staff has not considered the Exchange Offer in
the context of a no-action letter and we cannot
assure you that the Staff would make a similar
determination with respect to the Exchange Offer.
If you do not meet the conditions described
above, you may incur liability under the
Securities Act if you transfer any Exchange Note
without delivering a prospectus meeting the
requirements of the Securities Act. We do not
assume or indemnify you against that liability.
Each broker-dealer issued Exchange Notes in the
Exchange Offer for its own account in exchange
for Outstanding Notes acquired by the
broker-dealer as a result of market-making or
other trading activities must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of the Exchange Notes issued in
the Exchange Offer. A broker-dealer may use this
prospectus for an offer to resell, a resale or
other retransfer of the Exchange Notes issued to
it in the Exchange Offer. See "Plan of
Distribution."
Expiration Date............. 5:00 p.m., New York City time, on August 12,
2002, unless we extend the Exchange Offer (the
"Expiration Date"). It is possible that we will
extend the Exchange Offer until all Outstanding
Notes are tendered. You may withdraw Outstanding
Notes you tendered at any time before 5:00 p.m.,
New York City time, on the Expiration Date. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Withdrawal Rights........... You may withdraw Outstanding Notes you tendered
by furnishing a notice of withdrawal to the
Exchange Agent or by complying with the
applicable procedures of The Depository Trust
Company's ("DTC") Automated Tender Offer Program
("ATOP") system at any time before 5:00 p.m., New
York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Accrued Interest on the
Exchange Notes and the
Outstanding Notes......... The Exchange Notes will bear interest from the
most recent date to which interest has been paid
on the Outstanding Notes or, if no interest has
been paid on the Outstanding Notes, from March
18, 2002.
Conditions to the Exchange
Offer..................... The Exchange Offer is subject only to the
following conditions:
. it does not violate applicable law or any
applicable interpretation of the staff of the
Commission;
. no action or proceeding shall have been
instituted or threatened in any court or by
any governmental agency which might materially
impair our ability to proceed with the
Exchange Offer, and no material adverse
development shall have occurred in any
existing action or proceeding with respect to
us; and
. all governmental approvals shall have been
obtained, which we deem necessary for the
consummation of the Exchange Offer.
6
Representations and
Warranties................ By participating in the Exchange Offer, you
represent to us that, among other things:
. any Exchange Notes to be received will be
acquired in the ordinary course of business;
. you have no arrangement or understanding with
any person to participate in the distribution
(within the meaning of the Securities Act) of
the Exchange Notes in violation of the
provisions of the Securities Act or, if you
are an affiliate, you will comply with the
registration and prospectus delivery
requirements of the Securities Act to the
extent applicable;
. if you are not a broker-dealer, you are not
engaged in, and do not intend to engage in, a
distribution of Exchange Notes;
. if you are a broker-dealer that will receive
Exchange Notes for your own account in
exchange for Outstanding Notes that were
acquired as a result of market-making or other
trading activities, you will deliver a
prospectus in connection with any resale of
such Exchange Notes; and
. you have full power and authority to transfer
the Outstanding Notes in exchange for the
Exchange Notes, and that we will acquire good
and unencumbered title thereto free and clear
of any liens, restrictions, charges or
encumbrances and not subject to any adverse
claims.
Procedures for Tendering
Outstanding Notes Held in
the Form of Book-Entry
Interests................. The Outstanding Notes were issued as global
securities in fully registered form without
coupons. Beneficial interests in the Outstanding
Notes that are held by direct or indirect
participants in DTC are shown on, and transfers
of the Outstanding Notes can be made only
through, records maintained in book-entry form by
DTC with respect to its participants.
If you are a holder of an Outstanding Note held
in the form of a book-entry interest and you wish
to tender your Outstanding Note for exchange
pursuant to the Exchange Offer, you must send the
Exchange Agent either:
. a properly completed and validly executed
letter of transmittal ("Letter of
Transmittal"); or
. a computer-generated message transmitted by
means of DTC's ATOP system that, when received
by the Exchange Agent, will form a part of a
confirmation of book-entry transfer in which
you acknowledge and agree to be bound by the
terms of the Letter of Transmittal.
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The Exchange Agent must also receive prior to the
expiration of the Exchange Offer either:
. a timely confirmation of book-entry transfer
of your Outstanding Notes into the Exchange
Agent's account at DTC; or
. the documents necessary for compliance with
the guaranteed delivery procedures described
below.
For more information, see "The Exchange
Offer--Procedures for Tendering."
Procedures for Tendering
Certificated Outstanding
Notes..................... If you are a holder of book-entry interests in
the Outstanding Notes, you are entitled to
receive, in limited circumstances, in exchange
for your book-entry interests, certificated notes
that are in equal principal amounts to your
book-entry interests. See "Description of the
8 1/8% Senior Subordinated Notes due
2009--Book-Entry, Delivery and Form." No
certificated notes are issued and outstanding as
of the date of this prospectus. If you acquire
certificated Outstanding Notes before the
expiration of the Exchange Offer, you must tender
your certificated Outstanding Notes in accordance
with the procedures described in this prospectus.
See "The Exchange Offer--Outstanding Notes Held
in Certificated Form."
Tenders by Beneficial Owners If you are a beneficial owner whose Outstanding
Notes are registered in the name of a broker,
dealer, commercial bank, trust or other nominee
and wish to tender those Outstanding Notes in the
Exchange Offer, please contact the registered
holder as soon as possible and instruct them to
tender on your behalf and comply with the
instructions in this prospectus.
Guaranteed Delivery
Procedures................ If you are unable to comply with the procedures
for tendering, you may tender your Outstanding
Notes according to the guaranteed delivery
procedures described in this prospectus. See "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes............ If the conditions described under the heading
"The Exchange Offer--Conditions" are satisfied,
we will accept for exchange any and all
Outstanding Notes that are properly tendered
before the Expiration Date. If we close the
Exchange Offer, the Exchange Notes will be
delivered promptly following the Expiration Date.
Otherwise, we will promptly return any
Outstanding Notes tendered.
Federal Income Tax
Considerations............ See "Certain U.S. Federal Income Tax
Considerations" for a discussion of U.S. federal
income tax considerations you should consider
before tendering Outstanding Notes in the
Exchange Offer.
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Consequences of Failure
to Exchange............... If you do not participate in the Exchange Offer,
upon completion of the Exchange Offer, the
liquidity of the market for your Outstanding
Notes could be adversely affected. See "The
Exchange Offer--Participation in the Exchange
Offer; Untendered Notes."
Exchange Agent.............. Union Bank of California, N.A. is serving as
Exchange Agent for the Exchange Offer. The
address of the Exchange Agent is listed under the
heading "The Exchange Offer--Exchange Agent."
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THE EXCHANGE NOTES
The form and terms of the Exchange Notes to be issued in the Exchange Offer
are the same as the form and terms of the Outstanding Notes, except that the
Exchange Notes will be registered under the Securities Act and, accordingly,
will not bear legends restricting their transfer. The Exchange Notes issued in
the Exchange Offer will evidence the same debt as the Outstanding Notes, and
both the Outstanding Notes and the Exchange Notes are governed by the same
Indenture.
Issuer...................... Entravision Communications Corporation.
Securities Offered.......... $225 million aggregate principal amount of 8 1/8%
Senior Subordinated Notes due 2009.
Maturity.................... March 15, 2009.
Interest.................... The Exchange Notes will bear interest at the rate
of 8 1/8% per year, payable semi-annually, in
arrears, on March 15 and September 15 of each
year, commencing on September 15, 2002.
Guarantees.................. The Exchange Notes will be unconditionally
guaranteed on a senior subordinated basis by each
of our existing and future domestic Restricted
Subsidiaries, other than our special purpose
license subsidiaries.
Ranking..................... The Exchange Notes and the related guarantees are
general unsecured senior subordinated
obligations. Accordingly, they will rank:
. behind all of our and our guarantors' future
senior debt;
. equally with all of our and our guarantors'
future unsecured senior subordinated
obligations that do not expressly provide that
they are subordinated to the Exchange Notes;
and
. ahead of any of our and our guarantors' future
debt that expressly provides that it is
subordinated to the Exchange Notes.
Upon completion of this offering, the Exchange
Notes and the guarantees will be subordinated to
approximately $35 million of senior debt. None of
our debt having an equal ranking with the
Exchange Notes and the related guarantees, or
which is subordinate to the Exchange Notes and
the related guarantees, is outstanding as of the
date of this prospectus.
Optional Redemption......... On or after March 15, 2006, we may redeem some or
all of the Exchange Notes at any time at the
redemption prices listed under the heading
"Description of the 8 1/8% Senior Subordinated
Notes due 2009--Optional Redemption."
Prior to March 15, 2005, we may redeem up to 35%
of the Exchange Notes with the proceeds of
qualified equity offerings at the redemption
price listed under the heading "Description of
the 8 1/8% Senior Subordinated Notes due
2009--Optional Redemption."
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Mandatory Offer to Repurchase If we sell certain assets or experience specific
types of changes in control, we must offer to
repurchase the Exchange Notes at the prices
listed under the heading "Description of the
8 1/8% Senior Subordinated Notes due
2009--Repurchase at the Option of Holders."
Certain Covenants........... The Indenture governing the Exchange Notes will,
among other things, limit our ability and the
ability of our subsidiaries to:
. incur or guarantee additional indebtedness;
. pay dividends or distributions on, or redeem
or repurchase, capital stock;
. make investments;
. issue or sell capital stock of subsidiaries;
. engage in transactions with affiliates;
. incur liens;
. transfer or sell assets; and
. consolidate, merge or transfer all or
substantially all of our assets.
For more information, see "Description of the
8 1/8% Senior Subordinated Notes due 2009."
Use of Proceeds............. We will not receive any proceeds upon the
completion of the Exchange Offer. See "Use of
Proceeds."
Exchange Offer;
Registration Rights....... On March 12, 2002, we and our subsidiary
guarantors entered into a Registration Rights
Agreement with the Initial Purchasers pursuant to
which we have agreed to use our reasonable best
efforts to:
. file a registration statement within 90 days
after the issue date of the Outstanding Notes
enabling the holders of the Outstanding Notes
to exchange the Outstanding Notes for
registered notes with identical terms;
. cause the registration statement to become
effective within 150 days after the issue date
of the Outstanding Notes;
. consummate the Exchange Offer within 30
business days after the effective date of the
registration statement for the Exchange Notes;
and
. file a shelf registration for the resale of
the Outstanding Notes if we cannot effect an
Exchange Offer and in certain other
circumstances.
If we do not comply with certain of our
obligations under the Registration Rights
Agreement, we have agreed to pay Liquidated
Damages. See "Description of the 8 1/8% Senior
Subordinated Notes due 2009--Registration Rights;
Liquidated Damages."
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Absence of Established
Market for the Notes...... We do not intend to apply for the Exchange Notes
to be listed on any securities exchange or to
arrange for any quotation system to quote them.
The Initial Purchasers have advised us that they
intend to make a market for the Exchange Notes,
but they are not obligated to do so. The Initial
Purchasers may discontinue any market making in
the Exchange Notes or any new notes issued in
exchange for the Outstanding Notes at any time in
their sole discretion. Accordingly, we cannot
assure you that a liquid market will develop for
the Outstanding Notes or any Exchange Notes
issued in exchange for the Outstanding Notes.
RISK FACTORS
This investment involves risks. Before you invest in the Notes, you should
carefully consider the matters set forth under the heading "Risk Factors" and
all other information contained in this prospectus.
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SUMMARY HISTORICAL FINANCIAL DATA
The following table contains summary historical financial data derived from
our audited financial statements for each of the fiscal years for the three
year period ended December 31, 2001 and the unaudited financial statements for
the three month periods ended March 31, 2002 and 2001. The summary financial
data set forth in the following table should be read in conjunction with our
audited financial statements and the related notes incorporated herein by
reference.
Three Month
Period Ended
Year Ended December 31, March 31,
------------------------------- ------------------
2001 2000 1999 2002 2001
-------- ----------- -------- -------- --------
(dollars in thousands)
Statement of Operations Data:
Net revenue:
Television.......................................... $ 91,902 $ 82,417 $ 56,846 $ 24,021 $ 19,829
Radio............................................... 65,479 43,338 2,153 14,788 12,976
Outdoor and publishing.............................. 51,527 28,266 -- 10,319 11,149
-------- ----------- -------- -------- --------
Total net revenue...................................... 208,908 154,021 58,999 49,128 43,954
Operating, selling, general and administrative
expenses (excluding non-cash stock-based
compensation)........................................ 142,832 97,587 36,052 36,905 33,132
Corporate expenses..................................... 15,636 12,741 5,809 3,715 3,540
Non-cash stock-based compensation(1)................... 3,243 5,822 29,143 981 959
Depreciation and amortization.......................... 120,017 69,238 15,982 6,616 30,587
-------- ----------- -------- -------- --------
Operating income (loss)............................. (72,820) (31,367) (27,987) 911 (24,264)
Interest expense, net.................................. (20,978) (23,916) (9,591) (6,597) (6,164)
Non-cash interest expense relating to related-party
beneficial conversion options(2)..................... -- (39,677) (2,500) -- --
Other income........................................... 4,977 -- -- -- --
Income tax benefit..................................... 22,999 2,934 121 1,100 10,881
Equity in net income (loss) of nonconsolidated
affiliates........................................... 27 (214) -- (18) --
-------- ----------- -------- -------- --------
Net loss before cumulative effect of a change in
accounting principle.............................. (65,795) (92,240) (39,957) (4,604) (19,547)
Cumulative effect of a change in accounting
principle, net of taxes of $13,420(3)................ -- -- -- (46,171) --
-------- ----------- -------- -------- --------
Net loss............................................ (65,795) (92,240) (39,957) (50,775) (19,547)
Accretion of preferred stock redemption value.......... 10,117 2,449 -- 2,449 1,421
-------- ----------- -------- -------- --------
Net loss applicable to common stock.................... $(75,912) $ (94,689) $(39,957) $(53,224) $(20,968)
======== =========== ======== ======== ========
Net loss per share, basic and diluted.................. $ (0.66) $ (0.27) $ (0.45) $ (0.18)
======== =========== ======== ========
Proforma net loss applicable to common stock(4)........ $ (88,785) $(37,579)
=========== ========
Proforma net loss per share, basic and diluted(4)...... $ (1.34) $ (1.16)
=========== ========
Other Financial Data:
Broadcast cash flow(5)................................. $ 66,076 $ 56,434 $ 22,947 $ 12,223 $ 10,822
EBITDA(5).............................................. 50,440 43,693 17,138 8,508 7,282
Cash interest expense.................................. 20,946 29,526 9,690 3,947 6,498
Capital expenditures................................... 28,941 23,675 12,825 5,904 8,274
Cash flows from (used in) operating activities......... 11,998 10,608 6,128 9,586 (1,228)
Cash flows used in investing activities................ (63,733) (1,002,300) (59,063) (31,003) (30,378)
Cash flows from financing activities................... 1,524 1,058,559 51,631 21,669 1,066
13
As of December 31, As of March 31,
------------------------------ ---------------------
2001 2000 1999 2002 2001
---------- ---------- -------- ---------- ----------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents............... $ 19,013 $ 69,224 $ 2,357 $ 19,265 $ 138,684
Intangible assets, including goodwill... 1,268,351 1,255,386 152,387 1,232,940 1,251,731
Total assets............................ 1,535,517 1,560,493 205,017 1,497,645 1,515,915
Total long-term debt, including current
portion............................... 252,769 254,947 167,306 241,213 255,023
Total stockholders' equity.............. 987,395 1,055,377 28,011 977,877 1,036,551
--------
(1) Non-cash stock-based compensation consists primarily of compensation
expense relating to stock awards granted to our employees and consultants
and vesting of the intrinsic value of unvested options exchanged in our
acquisition of Z-Spanish Media Corporation in 2000.
(2) Represents non-cash interest expense charges related to the estimated
intrinsic value of the conversion options contained in our convertible
subordinated note to Univision.
(3) The cumulative effect of a change in accounting principles relates to our
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets". See "Selected Historical Financial
Data" for information regarding the effects of our adoption of SFAS No. 142.
(4) Pro forma net loss applicable to common stock and pro forma basic and
diluted loss per share give effect to our conversion from a limited
liability company to a corporation for federal and state income tax
purposes and assume that we were subject to corporate income taxes at an
effective combined federal and state income tax rate of 40% before the
effect of amortization of non-tax deductible goodwill, non-cash stock-based
compensation and non-cash interest expense for each period presented.
(5) Broadcast cash flow means net revenue less operating, selling, general and
administrative expenses. EBITDA means broadcast cash flow less corporate
expenses. Although broadcast cash flow and EBITDA are not measures of
performance as determined in accordance with accounting principles
generally accepted in the U.S., we believe that they are comparable to the
data provided by other companies in the broadcast industry, and are useful
to an investor as a measure of performance and comparison in our industry.
However, broadcast cash flow and EBITDA should not be construed as an
alternative to operating income as an indicator of operating performance or
to cash flows from operating activities (as determined in accordance with
accounting principles generally accepted in the U.S.) as a measure of
liquidity. Moreover, the way in which we calculate broadcast cash flow and
EBITDA may differ from that of companies reporting similarly named measures.
14
RISK FACTORS
Investing in our securities involves a significant degree of risk. You
should carefully consider the following risk factors and all the other
information contained in this prospectus or incorporated by reference before
investing in our securities. If any of the following risks actually occurs, our
business, financial condition and results of operations could suffer, in which
case the trading price of our securities may decline.
References in the following section to the "Notes" refer to both the
Outstanding Notes and the Exchange Notes, unless specifically stated otherwise.
Risks Related To Our Business
We have a history of losses that if continued into the future could adversely
affect the market price of our securities and our ability to raise capital.
We had net losses of approximately $19.5 million and $50.8 million for the
three month periods ended March 31, 2001 and 2002, respectively, and
approximately $40 million, $92.2 million and $65.8 million for the years ended
December 31, 1999, 2000 and 2001, respectively. In addition, we had pro forma
net losses of $37.6 million and $86.3 million for the years ended December 31,
1999 and 2000, respectively, and net losses applicable to common stock of $21
million and $53.2 million for the three month periods ended March 31, 2001 and
2002, respectively, and approximately $94.7 million and $75.9 million for the
years ended December 31, 2000 and 2001, respectively. We believe that losses
may continue while we pursue our acquisition strategy. If we cannot generate
profits in the future, it could adversely affect the market price of our
securities, which in turn could adversely affect our ability to raise
additional equity capital or to incur additional debt.
Cancellations or reductions of advertising could adversely affect our results
of operations.
In the competitive broadcasting industry, the success of each of our
television and radio stations is primarily dependent upon its share of the
overall advertising revenue within its market. Although we believe that each of
our stations can compete effectively in its broadcast area, we cannot be sure
that any of our stations can maintain or increase its current audience ratings
or market share, or that advertisers will not decrease the amount they spend on
advertising.
Shifts in population, demographics, audience tastes and other factors beyond
our control could cause us to lose market share. Our stations also compete for
audiences and advertising revenue directly with other television and radio
stations, and some of the owners of those competing stations have greater
resources than we do. If a competing station converts to a format similar to
that of one of our stations, or if one of our competitors strengthens its
operations, our stations could suffer a reduction in ratings and advertising
revenue.
Additionally, we believe that advertising is a discretionary business
expense, meaning that spending on advertising may decline during an economic
recession or downturn. Consequently, a recession or downturn in the U.S.
economy or the economy of an individual geographic market in which we own or
operate stations could adversely affect our advertising revenue and, therefore,
our results of operations.
We do not obtain long-term commitments from our advertisers, and advertisers
may cancel, reduce or postpone orders without penalty. Cancellations,
reductions or delays in purchases of advertising could adversely affect our
revenue, especially if we are unable to replace such purchases. Our expense
levels are based, in part, on expected future revenue and are relatively fixed
once set. Therefore, unforeseen fluctuations in advertising sales could
adversely impact our operating results.
15
Our growth depends on successfully executing our acquisition strategy.
One of our strategies is to supplement our internal growth by acquiring
media properties that complement or augment our existing markets. This growth
has placed, and may continue to place, significant demands on our management,
working capital and financial resources. We may be unable to identify or
complete acquisitions for many reasons, including:
. competition among buyers;
. the need for regulatory approvals, including Federal Communications
Commission ("FCC") and antitrust approvals;
. the high valuations of media properties; and
. we may be required to raise additional financing and our ability to do so
is limited by the terms of our debt instruments, which may prevent future
acquisitions and have a material adverse effect on our ability to grow
through acquisitions.
In addition, we experienced significant growth during 2001, primarily due to
our acquisitions. Therefore, we do not expect to experience the same rate of
growth in 2002.
If we cannot successfully integrate our recent and future acquisitions, it
could decrease our revenue and/or increase our costs.
To integrate our recent and future acquisitions, we may need to:
. integrate and improve operations and systems and the management of a
station or group of stations;
. retain key management and personnel of acquired properties;
. successfully merge corporate cultures and business processes;
. realize sales efficiencies and cost reduction benefits; and
. operate successfully in markets in which we may have little or no prior
experience.
Future acquisitions by us could result in the following consequences:
. dilutive issuances of equity securities;
. incurrence of debt and contingent liabilities;
. impairment of goodwill and other intangibles;
. other acquisition-related expenses; and
. acquired stations may not increase our broadcast cash flow or yield other
anticipated benefits.
In addition, after we have completed an acquisition, our management must be
able to assume significantly greater responsibilities, and this in turn may
cause them to divert their attention from our existing operations. We believe
that these challenges are more pronounced when we enter new markets rather than
expand further in existing markets. If we are unable to completely integrate
into our business the operations of the properties that we have recently
acquired or that we may acquire in the future, our revenue could decrease
and/or our costs could increase. In addition, in the event that the operations
of a new station do not meet our expectations, we may restructure or write-off
the value of some portion of the assets of the new station.
If we cannot raise required capital we may have to curtail existing
operations and our future growth through acquisitions.
We may require significant additional capital for future acquisitions and
general working capital needs. If our cash flow and existing working capital
are not sufficient to fund future acquisitions and our general working
16
capital requirements and debt service, we will have to raise additional funds
by selling equity, refinancing some or all of our existing debt or selling
assets or subsidiaries. None of these alternatives for raising additional funds
may be available on acceptable terms to us or in amounts sufficient for us to
meet our requirements. Our failure to obtain any required new financing may
prevent future acquisitions and have a material adverse effect on our ability
to grow through acquisitions.
Our substantial level of debt could limit our ability to grow and compete.
As of the date of this prospectus, we had approximately $35 million
outstanding under our bank credit facility. We expect to obtain a portion of
our required capital through debt financing that bears or is likely to bear
interest at a variable rate, subjecting us to interest rate risk. A significant
portion of our cash flow from operations will be dedicated to servicing our
debt obligations and our ability to obtain additional financing may be limited.
We may not have sufficient future cash flow to meet our debt payments, or we
may not be able to refinance any of our debt at maturity. We have pledged
substantially all of our assets to our lenders as collateral. Our lenders could
proceed against the collateral granted to them to repay outstanding
indebtedness if we are unable to meet our debt service obligations. If the
amounts outstanding under our bank credit facility are accelerated, our assets
may not be sufficient to repay in full the money owed to such lenders.
Univision has significant influence over our business.
Univision, as the holder of all of our Class C common stock, has significant
influence over material decisions relating to our business, including the right
to elect two of our directors, and the right to approve material decisions
involving our company, including any merger, consolidation or other business
combination, any dissolution of our company and any transfer of the FCC
licenses for any of our Univision-affiliated television stations. Univision's
ownership interest may have the effect of delaying, deterring or preventing a
change in control of our company and may make some transactions more difficult
or impossible to complete without its support.
Our television ratings and revenue could decline significantly if our
relationship with Univision or if Univision's success changes in an adverse
manner.
If our relationship with Univision changes in an adverse manner, or if
Univision's success diminishes, it could have a material adverse effect on our
ability to generate television advertising revenue on which our television
business depends. Univision's ratings might decline or Univision might not
continue to provide programming, marketing, available advertising time and
other support to its affiliates on the same basis as currently provided.
Additionally, by aligning ourselves closely with Univision, we might forego
other opportunities that could diversify our television programming and avoid
dependence on Univision's television networks. Univision's relationships with
Grupo Televisa, S.A. de C.V. and Corporacion Venezolana de Television, C.A., or
Venevision, are important to Univision's, and consequently our, continued
success.
Our ongoing success is dependent upon the continued availability of certain
key employees.
We are dependent in our operations on the continued availability of the
services of our employees, many of whom are individually key to our current and
future success, and the availability of new employees to implement our
company's growth plans. In particular, we are dependent upon the services of
Walter Ulloa, our Chairman and Chief Executive Officer, and Philip Wilkinson,
our President and Chief Operating Officer. In August 2000, we entered into
five-year employment agreements with Messrs. Ulloa and Wilkinson. The market
for skilled employees is highly competitive, especially for employees in
technical fields. While our compensation programs are intended to attract and
retain the employees required for us to be successful, there can be no
assurance that we will be able to retain the services of all of our key
employees or a sufficient number to execute our plans, nor can there be any
assurances that we will be able to continue to attract new employees as
required.
17
Our officers and directors and stockholders affiliated with them own a large
percentage of our voting stock.
As of the date of this prospectus, Messrs. Ulloa and Wilkinson, and Paul
Zevnik, our Secretary, own all of the shares of our Class B common stock, and
have approximately 75% of the combined voting power of our outstanding shares
of common stock. The holders of our Class B common stock are entitled to ten
votes per share on any matter subject to a vote of the stockholders.
Accordingly, Messrs. Ulloa, Wilkinson and Zevnik have the ability to elect each
of the remaining members of our board of directors, other than the two members
of our board of directors appointed by Univision, and have control of all
aspects of our business and future direction. Messrs. Ulloa, Wilkinson and
Zevnik have agreed contractually to elect themselves and a representative of
TSG Capital Fund III, L.P. as directors of our company. This control may
discourage certain types of transactions involving an actual or potential
change of control of our company, such as a merger or sale of our company.
Consequently, our directors and executive officers, acting in concert, have
the ability to significantly affect the election of our directors and have a
significant effect on the outcome of corporate actions requiring stockholder
approval. Such concentration may also have the effect of delaying or preventing
a change of control of our company.
Risks associated with terrorism.
In the event of a terrorist attack on our facilities and properties, we do
not believe that we would be vulnerable to significant or prolonged disruptions
in our ability to broadcast or provide other media services. We do not believe
that, but we do not know whether, our network television programming would be
vulnerable to significant or prolonged disruptions in the event of a terrorist
attack. The effect of any resulting decline in our revenue cannot be determined.
Risks Related to the Television, Radio, Outdoor Advertising and Publishing
Industries
Our television and radio stations could be adversely affected by changes in
the advertising market or a recession in the broader U.S. economy.
Revenue generated by our television and radio stations depends upon the sale
of advertising and is, therefore, subject to various factors that influence the
advertising market for the broadcasting industry as a whole, including:
. changes in the financial condition of advertisers, which may reduce their
advertising budgets;
. changes in the tax laws applicable to advertisers; and
. changes in the laws governing political advertising.
We cannot predict which, if any, of these or other factors might have a
significant impact on the advertising revenue of the broadcasting industry in
the future, nor can we predict what specific impact, if any, the occurrence of
these or other events might have on our operations. Generally, advertising
expenditures tend to decline during an economic recession or downturn.
Consequently, our television and radio station revenue is likely to be
adversely affected by a recession or downturn in the U.S. economy or other
events or circumstances that adversely affect advertising activity. Our
operating results in individual geographic markets also could be adversely
affected by local and regional economic downturns. Seasonal revenue
fluctuations are common in the broadcasting industry and result primarily from
fluctuations in advertising expenditures by local retailers and candidates for
political office. Campaign finance reform legislation may restrict the amounts
of money that we earn from political campaign and issue advertising.
18
If we are unable to maintain our FCC license for any station, we would have
to cease operations at that station.
The success of our television and radio operations depends, in part, on
acquiring and maintaining broadcast licenses issued by the FCC, which are
typically issued for a maximum term of eight years and are subject to renewal.
Our FCC licenses are next subject to renewal at various times between October
1, 2004 and December 1, 2006. Renewal applications submitted by us may not be
approved, and the FCC may impose conditions or qualifications that could
restrict our television and radio operations. In addition, third parties may
challenge our renewal applications. If the FCC were to issue an order denying a
license renewal application or revoking a license, we would be required to
cease operating the broadcast station covered by the license. This could have a
material adverse effect on our operations.
Our failure to maintain our FCC broadcast licenses could cause a default
under our bank credit facility and cause an acceleration of our indebtedness.
Our bank credit facility requires us to maintain our FCC licenses. If the
FCC were to revoke any of our material licenses, our lenders could declare all
amounts outstanding under the bank credit facility to be immediately due and
payable. If our indebtedness is accelerated, we may not have sufficient funds
to pay the amounts owed.
Displacement of any of our low-power television stations could cause our
ratings and revenue for any such station to decrease.
A significant portion of our television stations are licensed by the FCC for
low-power service only. Our low-power television stations operate with far less
power and coverage than our full-service stations. The FCC rules under which we
operate provide that low-power television stations are treated as a secondary
service. In the event that our stations would cause interference to full-power
stations, we are required to eliminate the interference or terminate service.
As a result of the FCC's initiation of digital television service and actions
by Congress to reclaim broadcast spectrum, channels 52-69 previously used for
broadcasting will be cleared and put up for auction generally to wireless
services or assignment to public safety services. The result is that in a few
urban markets where we operate, including Washington, D.C. and San Diego, there
are a limited number of alternative channels to which our low-power television
stations can migrate as they are displaced by full-power broadcasters and
non-broadcast services. If we are unable to move our signals to replacement
channels, we may be unable to maintain the same level of service, which could
harm our ratings and advertising revenue or, in the worst case, cause us to
discontinue operations at those low-power television stations.
We may have difficulty meeting certain FCC deadlines to comply with the
required conversion to digital television and such conversion may not result
in commercial benefit to us unless there is sufficient consumer demand.
The FCC required U.S. full-service television stations to begin broadcasting
a digital television ("DTV") signal by May 1, 2002. The FCC has allocated an
additional television channel to most such station owners so that each
full-service television station can broadcast a DTV signal on the additional
channel while continuing to broadcast an analog signal on the station's
original channel. As part of the transition from analog to DTV, full-service
television station owners may be required to stop broadcasting analog signals
and relinquish their analog channels to the FCC by 2006 if the market
penetration of DTV receivers reaches certain levels by that time. We expect
that the cost to construct DTV facilities and broadcast both digital and analog
signals for our full-service television stations between 2002 and 2006 will not
be significant.
Our full-service television stations did not meet the May 1, 2002 deadline
to begin broadcasting a DTV signal. In certain cases, the inability to meet the
deadline resulted from the FCC having not yet granted construction permits
authorizing us to build the facilities necessary to operate on our allocated
DTV channels. Certain of our other full-service television stations have
received construction permits from the FCC, but
19
were not able to finish construction and begin broadcasting DTV signals before
the May 1, 2002 deadline. The FCC has granted us extensions of time beyond May
1, 2002 to complete construction of DTV facilities for our full-service
television stations that have received construction permits. We intend to
comply with the FCC's DTV requirements during this extension period by
constructing lower-power facilities as permitted by the FCC's rules described
in the next paragraph.
The FCC recently released rules which allow us to initially satisfy the
obligation to begin broadcasting a DTV signal by broadcasting a signal that
serves, at least, each full-service television station's applicable community
of license. In most instances, this new rule will permit us to temporarily
install DTV facilities of a lower-power level, which will not require the
initial degree of capital investment we had anticipated to meet the
requirements of our stations' DTV authorizations. Our initial cost of
converting the qualifying television stations to DTV, therefore, will be
considerably lower than it would have been if we were required to initially
operate at the full signal strength provided for by our DTV authorizations.
We intend to explore the most effective use of digital broadcast technology
for each of our stations. We cannot assure you, however, that we will derive
commercial benefits from the development of our digital broadcasting capacity.
Although we believe that proposed alternative and supplemental uses of our
analog and digital spectrum will continue to grow in number, the viability and
success of each proposed alternative or supplemental use of spectrum involves a
number of contingencies and uncertainties. We cannot predict what future
actions the FCC or Congress may take with respect to regulatory control of
these activities or what effect these actions would have on us. There may not
be sufficient consumer demand for DTV services to recover our investment in DTV
facilities.
Changes in the rules and regulations of the FCC could result in increased
competition for our broadcast stations that could lead to increased
competition in our markets.
Recent and prospective actions by the FCC could cause us to face increased
competition in the future. The changes include:
. relaxation of restrictions on the participation by regional telephone
operating companies in cable television and other direct-to-home audio and
video technologies;
. the establishment of a Class A television service for low-power stations
that makes such stations primary stations and gives them protection
against full-service stations;
. procedures for licensing low-power FM radio stations that will be designed
to serve small localized areas and niche audiences;
. permission for direct broadcast satellite television to provide the
programming of traditional over-the-air stations, including local and
out-of-market network stations; and
. elimination or revision of restrictions on cross-ownership (i.e. ownership
of both television and radio stations in combination with newspapers
and/or cable television systems in the same market) and caps on the number
of stations or market share that a particular company may own or control,
locally or nationally.
Current FCC rules limit any company from owning interests in multiple
broadcast television stations that collectively reach more than 35% of total
U.S. television households (the "Ownership Cap Rule"). In an opinion issued on
February 19, 2002, the U.S. Court of Appeals for the District of Columbia
determined that the FCC had failed to provide adequate justification for
keeping the Ownership Cap Rule. The FCC must reconsider that action, either
justifying the Ownership Cap Rule's continued existence or modifying the rule.
If the Ownership Cap Rule is terminated or modified, our competitors might
combine with other station groups and become more efficient in their operations
and their ability to attract advertisers.
20
Also, on April 2, 2002, another panel of the U.S. Court of Appeals for the
District of Columbia ruled that the FCC's rules allowing any company's
ownership of two television stations only in their local markets that have
eight or more other independent "voices," in order to support the FCC's goal of
encouraging diversity of access to the public through the media, was not
supported by sufficient factual data to show that such a goal was being
achieved. It is now up to the FCC to reconsider that decision as well, again by
either justifying such rule's continued existence or modifying the rule. The
FCC had previously established a Media Ownership Working Group in order to
establish solid factual and analytical bases for the FCC's ownership rules. It
is difficult to determine at this time how the recommendations of this group
and subsequent changes in such rules might help or hinder our plans to expand
our ownership of stations in the future.
Because our full-service television stations rely on "must carry" rights to
obtain cable carriage, new laws or regulations that eliminate or limit the
scope of our cable carriage rights could have a material adverse impact on
our television operations.
Pursuant to the "must carry" provisions of the Cable Television Consumer
Protection and Competition Act of 1992 (the "Cable Act"), a broadcaster may
demand carriage on a specific channel on cable systems within its market.
However, the future of those "must carry" rights is uncertain, especially as
they relate to the extent of carriage of DTV stations. The current FCC rules
relate only to the carriage of analog television signals. It is not certain
what, if any, "must carry" rights television stations will have after they make
the transition to DTV. New laws or regulations that eliminate or limit the
scope of our cable carriage rights could have a material adverse impact on our
television operations.
Our low-power television stations do not have cable "must carry" rights. In
seven markets where we currently hold only a low-power license we may face
future uncertainty with respect to the availability of cable carriage for our
stations in those markets. With the exception of the San Angelo, Texas market,
all of our low-power stations reach a substantial portion of the Hispanic cable
households in their respective markets with their over-the-air broadcasts.
Under the Cable Act, each broadcast station is required to elect, every
three years, to exercise the right to either require cable television system
operators in their local market to carry their signals, which we refer to as
"must carry" rights, or to prohibit cable carriage or condition it upon payment
of a fee or other consideration. By electing the "must carry" rights, a
broadcaster can demand carriage on a specified channel on cable systems within
its market. These "must carry" rights are not absolute, and under some
circumstances, a cable system may decline to carry a given station. Our
television stations elected "must carry" on local cable systems for the three
year election period which commenced January 1, 2000. The required election
date for the next three year election period commencing January 1, 2003 will be
October 1, 2002. If the law were changed to eliminate or materially alter "must
carry" rights, our business could be adversely affected.
The FCC is developing rules to govern the obligations of cable television
systems to carry local television stations during and following the transition
from analog to DTV broadcasting. We cannot predict what final rules the FCC
ultimately will adopt or what effect those rules will have on our business.
The policies of direct broadcast satellite companies may make it more
difficult for their customers to receive our local broadcast station signals.
The Satellite Home Viewer Improvement Act of 1999 ("SHVIA") allows direct
broadcast satellite ("DBS") television companies (currently DirecTV and
EchoStar/Dish Network) for the first time to transmit local broadcast
television station signals back to their subscribers in local markets. In
exchange for this privilege, however, SHVIA requires that in television markets
in which a DBS company elects to pick-up and retransmit any local broadcast
station signals, the DBS provider must also offer to its subscribers signals
from all other qualified local broadcast television stations in that market.
This is known as the "carry one/carry all" rule. Our broadcast television
stations in markets for which DBS operators have elected to carry local
stations have sought
21
to qualify for carriage under this rule, which we expect will increase our
viewership in those markets. The two DBS operators and a satellite broadcasting
trade association have instituted litigation challenging the constitutionality
of SHVIA's carry one/carry all requirements. In June 2001 a federal district
court upheld the constitutionality of the federal law, which decision was
upheld on appeal. We cannot predict the final outcome of such litigation
challenging the constitutionality of the carry one/carry all rule. A problem
has also arisen in the manner in which one of the DBS operators has implemented
the carry one/carry all rule. In order to get signals from all local stations,
including the signals from our stations, EchoStar/Dish Network subscribers were
being required to install a second receiving dish to receive all of the local
stations in some markets. This was an inconvenience for the typical DBS
subscriber and, as a result, limited the size of the viewership for our
stations available only on the "second dish" under the carry one/carry all
rule. The FCC has determined that EchoStar/Dish Network cannot require use of a
second dish for carriage of local signals. EchoStar/Dish Network must implement
alternative methods of complying with its SHVIA obligations. EchoStar/Dish
Network has petitioned the FCC for reconsideration of this decision, and other
parties have asked for review as to whether EchoStar/Dish Network was entitled
to comply by any means other than by placing all television stations on the
same dish. At this time, we cannot predict the outcome of this dispute or its
effect on our stations' ability to reach viewers who subscribe to EchoStar/Dish
Network services.
We may have difficulty obtaining regulatory approval for acquisitions in our
existing markets and, potentially, new markets.
An important part of our growth strategy is the acquisition of additional
television and radio stations. The agencies responsible for enforcing the
federal antitrust laws, the Federal Trade Commission ("FTC") and the Department
of Justice, may investigate certain acquisitions. After the passage of the
Telecommunications Act of 1996, the Department of Justice became more
aggressive in reviewing proposed acquisitions of radio stations. The Department
of Justice has, on several occasions, negotiated settlements, without
initiating litigation, with broadcasters seeking to increase their ownership of
radio stations in specific markets, in which the broadcasters have been
required to divest one or more stations in order to complete a transaction. The
Department of Justice has, in certain cases, examined television and radio
ownership concentrations where a transaction would result in a single entity
controlling more than 40% of the advertising revenue in a particular market or
where, after the transaction, two companies would control more than 70% of the
advertising revenue in a particular market. The Department of Justice has also
in certain cases examined whether a combination would result in undue
concentration in a particular format or in formats appealing to particular
audience demographics.
We cannot predict the outcome of any specific Department of Justice or FTC
investigation. Any decision by the Department of Justice or FTC to challenge a
proposed acquisition could affect our ability to consummate an acquisition or
to consummate it on the proposed terms. There can be no assurance that the FTC
or Department of Justice will not seek to bar us from acquiring additional
television or radio stations in any market where our existing stations already
have a significant market share.
Similarly, the FCC staff has adopted procedures to review proposed
broadcasting transactions even if the proposed acquisition otherwise complies
with the FCC's ownership limitations. In particular, the FCC may invite public
comment on proposed transactions that the FCC believes, based on its initial
analysis, may present ownership concentration concerns in a particular local
radio market. The FCC has delayed its approval of numerous proposed television
or radio station purchases by various parties because of market concentration
concerns, and generally will not approve acquisitions when the FTC or
Department of Justice has expressed concentration concerns even if the
acquisition complies with the FCC's numerical station limits. Moreover, in
recent years the FCC has followed a policy of giving specific public notice of
its intention to conduct additional ownership concentration analysis, and
soliciting public comment on "the issue of concentration and its effect on
competition and diversity," with respect to certain applications for consent to
radio station acquisitions based on advertising revenue shares or other
criteria. The FCC has recently expressed their desire to eliminate delays in
the staff's review of transactions that might involve concentration of market
share but are otherwise consistent with the radio ownership limits set forth in
the Communications Act of 1934. It is uncertain at this time what effect this
will have on the FCC's review of future television or radio station sale
applications.
22
Additionally, the FCC has recently solicited public comment on a variety of
possible changes in the methodology by which it defines a television or radio
"market" and counts stations for purposes of determining compliance with local
ownership restrictions. If adopted, any such changes could limit our ability to
make future acquisitions of radio stations. Moreover, in the same proceeding,
the FCC has announced a policy of deferring, until the rulemaking is completed,
certain pending and future television or radio sale applications which raise
"concerns" about how the FCC counts the number of stations a company may own in
a market. This policy may delay future acquisitions for which we must seek FCC
approval.
If regulation of outdoor advertising increases, we could suffer decreased
revenue from our outdoor operations.
Our outdoor operations are significantly impacted by federal, state and
local government regulation of the outdoor advertising business. These
regulations impose restrictions on, among other things, the location, size and
spacing of billboards. If we are required to remove our existing billboards, or
are unable to construct new billboards or reconstruct damaged billboards, our
outdoor business could be harmed. In addition, we may not receive compensation
for billboards that we may be required to remove in the future.
Additional regulations may be imposed on outdoor advertising in the future.
Legislation regulating the content of billboard advertisements has been
introduced and passed in Congress from time to time in the past. Additional
regulations or changes in the current laws regulating and affecting outdoor
advertising at the federal, state or local level may harm the results of our
outdoor operations.
We must respond to the rapid changes in technology, services and standards
which characterize our industry in order to remain competitive.
The television and radio broadcasting industry is subject to technological
change, evolving industry standards and the emergence of new media
technologies. We cannot assure you that we will have the resources to acquire
new technologies or to introduce new services that could compete with these new
technologies. Several new media technologies are being developed, including the
following:
. audio programming by cable television systems, direct broadcast satellite
systems, Internet content providers and Internet based audio radio
services;
. satellite digital audio radio service with numerous channels and sound
quality equivalent to that of compact discs;
. In-Band On-Channel(TM) digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services;
. low power FM radio, which could result in additional FM radio broadcast
outlets that are designed to serve local interests;
. streaming video programming delivered via the Internet;
. video-on-demand programming offered by cable television companies; and
. digital video recorders with hard-drive storage capacity that offer
time-shifting of programming and the capability of deleting advertisements
when playing back the recorded programs.
We cannot assure you that we will have the resources to acquire new
technologies or to introduce new services that could compete with other new
technologies. We cannot predict the effect, if any, that competition arising
from new technologies or regulatory change may have on the television or radio
broadcasting industry or on our company.
23
Strikes, work stoppages and slowdowns by our employees could disrupt our
publishing operations.
Our publishing business depends to a significant degree on our ability to
avoid strikes and other work stoppages by our employees. The Newspaper and Mail
Deliverers' Union of New York and Vicinity and the Newspaper Guild of New York
represent our publishing employees. Our collective bargaining agreement with
the Newspaper and Mail Deliverers' Union of New York and Vicinity expires on
March 30, 2004. Our collective bargaining agreement with the Newspaper Guild of
New York expires on June 30, 2002. We have had preliminary discussions with the
union and we anticipate that negotiations will commence in the near future.
Future collective bargaining agreements may not be negotiated without service
interruptions, and the results of these negotiations may result in decreased
revenue in our publishing operations.
Risks Related to the Notes
Our substantial indebtedness could adversely affect our financial position
and prevent us from fulfilling our obligations under our bank credit facility
and the Notes.
Our substantial indebtedness could have important consequences to our
business. For example, it could:
. limit our ability to borrow additional amounts for working capital,
capital expenditures, acquisitions, debt service requirements, execution
of our growth strategy or other purposes;
. require us to dedicate a substantial portion of our cash flow to pay
principal and interest on our debt, which will reduce the funds available
for working capital, capital expenditures, acquisitions and other general
corporate purposes;
. limit our flexibility in planning for and reacting to changes in our
business and our industry that could make us more vulnerable to adverse
changes in general economic, industry and competitive conditions and
adverse changes in government regulation; and
. place us at a disadvantage compared to our competitors that have less debt.
Any of the above listed factors could materially adversely affect us.
If the holders of our Series A mandatorily redeemable convertible preferred
stock exercise their option to redeem such preferred stock on or after April
19, 2006, we may not have sufficient funds to do so and we may be in default
under the terms of our bank credit facility and/or the Notes.
The holders of a majority of our Series A mandatorily redeemable convertible
preferred stock have the right on or after April 19, 2006 to require us to
redeem any and all of their preferred stock at the original issue price plus
accrued dividends. On April 19, 2006 such redemption price would be
approximately $143.5 million, and would continue to accrue a dividend of 8.5%
per year. If we have sufficient funds under Delaware law to pay but are
prevented from redeeming their preferred stock because of restrictions in the
Indenture and/or the bank credit facility, we would be in violation of the
terms of the Series A mandatorily redeemable convertible preferred stock. In
such event, we may be in default under our bank credit facility and the holders
of the Series A mandatorily redeemable convertible preferred stock may be able
to obtain a judgment against us. Any such judgment may be found to be pari
passu with the claims of the holders of the Notes. In the event a judgment is
obtained and remains unpaid, or the preferred stock is paid in violation of our
bank credit facility or the Indenture, we would be in default under our bank
credit facility and the Notes and we could be obligated to repay the
obligations under our bank credit facility, if accelerated, and the Notes, if
accelerated. We may not have sufficient funds at that time to pay all of our
obligations in such event.
24
To service our indebtedness, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our control.
Our ability to pay the principal of and interest on the Notes, to service
our other debt and to finance indebtedness when necessary depends on our
financial and operating performance, each of which is subject to prevailing
economic conditions and to financial, business, legislative and regulatory
factors and other factors beyond our control.
There can be no assurance that we will generate sufficient cash flow from
operations or that we will be able to obtain sufficient funding to satisfy all
of our obligations, including the Notes. If we are unable to pay our debts, we
will be required to pursue one or more alternative strategies, such as selling
assets, refinancing or restructuring our indebtedness or selling additional
debt or equity securities. In addition, the ability to borrow funds under our
bank credit facility in the future will depend on our meeting the financial
covenants in the agreements governing this facility, including a minimum
interest coverage test and a maximum leverage ratio test. There can be no
assurance that our business will generate cash flow from operations or that
future borrowings will be available to us under our bank credit facility, in an
amount sufficient to enable us to pay our debt or to fund other liquidity
needs. As a result, we may need to refinance all or a portion of our debt on or
before maturity. However, there can be no assurance that any alternative
strategies will be feasible at the time or prove adequate. Also, some
alternative strategies will require the consent of our lenders before we engage
in those strategies.
Subordination--Your right to receive payment on the Notes and the guarantees
is junior to all of our and the guarantors' senior debt.
The Notes will be general unsecured obligations, junior in right of payment
to all of our existing and future senior debt and that of each guarantor,
including obligations under our bank credit facility. The Notes will not be
secured by any of our or the guarantors' assets, and as such will be
effectively subordinated to any secured debt that we or the guarantors have now
including all of the borrowings under our bank credit facility, or may incur in
the future to the extent of the value of the assets securing that debt.
In the event that Entravision or a guarantor is declared bankrupt, becomes
insolvent or is liquidated or reorganized, any debt that ranks ahead of the
Notes and the guarantees will be entitled to be paid in full from our assets or
the assets of the guarantors, as applicable, before any payment may be made
with respect to the Notes or the affected guarantees. In any of the foregoing
events, we cannot assure you that we would have sufficient assets to pay
amounts due on the Notes. As a result, holders of the Notes may receive less,
proportionally, than the holders of debt senior to the Notes and the
guarantees. The subordination provisions of the Indenture governing the Notes
also provide that we can make no payment to you during the continuance of
payment defaults on our senior debt, and payments to you may be suspended for a
period of up to 179 days if a nonpayment default exists under our senior debt.
Upon completion of this offering, the Notes and the guarantees are ranked
junior to approximately $35 million of our senior debt. In addition, the
Indenture governing the Notes and the Credit Agreement permits subject to
specified limitations, the incurrence of additional debt, some or all of which
may be senior debt.
The Indenture for the Notes and the Credit Agreement contain various
covenants that limit our management's discretion in the operations of our
business.
The Indenture governing the Notes and the Credit Agreement contains various
provisions that limit our ability to:
. incur additional debt and issue preferred stock;
25
. pay dividends and make other distributions;
. make investments and other restricted payments;
. create liens;
. sell assets; and
. enter into certain transactions with affiliates.
These restrictions on our management's ability to operate our business in
accordance with its discretion could have a material adverse effect on our
business.
In addition, our bank credit facility requires that we maintain specific
financial ratios. Events beyond our control could affect our ability to meet
those financial ratios, and there can be no assurance that we will meet them.
If we default under any financing agreements, our lenders could:
. elect to declare all amounts borrowed to be immediately due and payable,
together with accrued and unpaid interest; and/or
. terminate their commitments, if any, to make further extensions of credit.
Our bank facility and the Indenture under which we issued the Notes also
require us to maintain specific financial ratios. A breach of any of the
covenants contained in our bank credit facility or the Indenture could allow
our lenders to declare all amounts outstanding to be immediately due and
payable.
If we are unable to pay our obligations to our senior secured lenders, they
could proceed against any or all of the collateral securing our indebtedness to
them. The collateral under our bank credit facility consists of substantially
all of our existing assets. In addition, a breach of certain of these
restrictions or covenants, or an acceleration by our senior secured lenders of
our obligations to them, would cause a default under the Notes. We may not
have, or be able to obtain, sufficient funds to make accelerated payments,
including payments on the Notes, or to repay the Notes in full after we pay our
senior secured lenders to the extent of their collateral.
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to void guarantees, subordinate claims in respect of
the Notes and require our Noteholders to return payments received from
guarantors.
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided, or claims in respect of the Notes
or a guarantee could be subordinated to all of our other debts or all other
debts of a guarantor if, among other things, we or the guarantor was insolvent
or rendered insolvent by reason of such incurrence, or we or the guarantor were
engaged in a business or transaction for which our or the guarantors' remaining
assets constituted unreasonably small capital, or we or the guarantor intended
to incur or believed that we or it would incur, debts beyond our or its ability
to pay those debts as they mature. In addition, any payment by us or that
guarantor in accordance with its guarantee could be voided and required to be
returned to us or the guarantor, or to a fund for the benefit of our creditors
or the creditors of the guarantors.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if the sum of its debts, including contingent liabilities,
were greater than the fair saleable value of all of its assets, or if the
present fair saleable value of its assets were less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature, or if it could not
pay its debts as they become due.
26
On the basis of historical financial information, recent operating history
and other factors, we believe that we and each guarantor, after giving effect
to its guarantee of the Notes, will not be insolvent, will not have
unreasonably small capital for the business in which we and they are engaged
and will not have incurred debts beyond our or their ability to pay the debts
as they mature. We cannot assure you, however, as to what standard a court
would apply in making these determinations or that a court would agree with our
conclusions.
You cannot be sure that an active trading market will develop for the Notes.
There is no established trading market for the Notes. Although the Initial
Purchasers of the Notes have informed us that they currently intend to make a
market in the Notes, the Initial Purchasers have no obligation to do so and may
discontinue making a market at any time without notice.
We do not intend to apply for listing of the Notes on any securities
exchange.
The liquidity of any market for the Notes will depend upon the number of
holders of the Notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the Notes and other
factors. A liquid trading market may not develop for the Notes.
The trading price of the Notes may be volatile.
The trading price of the Notes could be subject to significant fluctuation
in response to, among other factors, variations in operating results,
developments in industries in which we do business, general economic
conditions, changes in securities analysts' recommendations regarding our
securities and changes in the market for noninvestment grade securities
generally. This volatility may adversely affect the market price of the Notes.
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the Indenture for the Notes and meet
other obligations in certain other agreements to which we are a party.
If a change of control occurs, you will have the right to require us to
repurchase any or all of your Notes at a price equal to 101% of the principal
amount thereof, together with any interest we owe you. A change of control may
result in an event of default under our bank credit facility and may cause the
acceleration of the bank credit facility, in which case we will be required to
repay the bank credit facility before we will be able to purchase any of the
Notes. We cannot assure you that we would be able to repay amounts outstanding
under the bank credit facility or obtain necessary consents under the facility
to purchase the Notes. Any requirement to offer to purchase any Notes may
result in our having to refinance our outstanding indebtedness, which we may
not be able to do. In addition, even if we were able to refinance this
indebtedness, the financing may be on terms unfavorable to us. If we fail to
repurchase the Notes tendered for purchase upon the occurrence of a change of
control, the failure will be an event of default under the Indenture governing
the Notes. In addition, the change of control covenant does not cover all
corporate reorganizations, mergers or similar transactions and may not provide
you with protection in a highly leveraged transaction.
In addition, in the event of a change of control, we are required to make
certain payments to holders of shares of our Series A mandatorily redeemable
convertible preferred stock.
Your Outstanding Notes will not be accepted for exchange if you fail to
follow the Exchange Offer procedures.
We will issue new notes under this Exchange Offer only after a timely
receipt of your Outstanding Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, if you want
to tender your Outstanding Notes, please allow sufficient time to ensure timely
delivery. If we do not receive your Outstanding Notes, Letter of Transmittal
and all other required documents by the Expiration Date of the Exchange Offer,
we will not accept your Outstanding Notes for exchange. We are under no duty to
give
27
notification of defects or irregularities with respect to the tenders of
Outstanding Notes for exchange. If there are defects or irregularities with
respect to your tender of Outstanding Notes, we will not accept your
Outstanding Notes for exchange.
If you do not exchange your Outstanding Notes, your Outstanding Notes will
continue to be subject to the existing transfer restrictions and you may be
unable to sell your Outstanding Notes.
We did not register the Outstanding Notes under the Securities Act, nor do
we intend to do so following the Exchange Offer. Outstanding Notes that are not
tendered will therefore continue to be subject to the existing transfer
restrictions and may be transferred only in limited circumstances under the
securities laws. If you do not exchange your Outstanding Notes, you will lose
your right to have your Outstanding Notes registered under the federal
securities laws. As a result, if you hold Outstanding Notes after the Exchange
Offer, you may be unable to sell your Outstanding Notes.
If you fail to exchange your Outstanding Notes, they will continue to be
restricted securities and may become less liquid.
Outstanding Notes that you do not tender or we do not accept will, following
the Exchange Offer, continue to be restricted securities. You may not offer or
sell untendered Outstanding Notes except in reliance on an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. We will issue the Exchange Notes in exchange for the
Outstanding Notes pursuant to the Exchange Offer only following the
satisfaction of procedures and conditions described elsewhere in this
prospectus. These procedures and conditions include timely receipt by the
Exchange Agent of the Outstanding Notes and of a properly completed and validly
executed Letter of Transmittal.
Because we anticipate that most holders of Outstanding Notes will elect to
exchange their notes, we expect that the liquidity of the market for any
Outstanding Notes remaining after the completion of the Exchange Offer may be
substantially limited. Any Outstanding Notes tendered and exchanged in the
Exchange Offer will reduce the aggregate principal amount of the Outstanding
Notes outstanding. Following the Exchange Offer, if you did not tender your
Outstanding Notes you generally will not have any further registration rights
and your Outstanding Notes will continue to be subject to transfer
restrictions. Accordingly, the liquidity of the market for any Outstanding
Notes could be adversely affected.
28
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
On March 18, 2002, we issued the Outstanding Notes to the Initial Purchasers
in transactions not registered under the Securities Act in reliance on
exemptions from registration under the Securities Act. The Initial Purchasers
then sold the Outstanding Notes to qualified institutional buyers in reliance
on Rule 144A and outside the U.S. to non-U.S. persons in reliance on Regulation
S. Because they have been sold pursuant to exemptions from registration, the
Outstanding Notes are subject to transfer restrictions.
In connection with the issuance of the Outstanding Notes, we entered into a
Registration Rights Agreement with the Initial Purchasers pursuant to which we
have agreed with the Initial Purchasers that we would:
. file a registration statement within 90 days after the issue date of the
Outstanding Notes enabling the holders of the Outstanding Notes to
exchange the Outstanding Notes for registered notes with identical terms;
. cause the registration statement to become effective within 150 days after
the issue date of the Outstanding Notes;
. consummate the Exchange Offer within 30 business days after the effective
date of the registration statement for the Exchange Notes; and
. file a shelf registration for the resale of the Outstanding Notes if we
cannot effect an Exchange Offer and in certain other circumstances.
Our failure to comply with these agreements would result in liquidated
damages being due on the Outstanding Notes. A copy of the Registration Rights
Agreement has been filed as an exhibit to our Quarterly Report on Form 10-Q
(SEC File No. 001-15997), filed with the Commission on May 14, 2002.
Based on existing interpretations of the Securities Act by the Staff of the
Commission described in several no-action letters to third parties unrelated to
us, and subject to the following sentence, we believe that the Exchange Notes
issued in the Exchange Offer may be offered for resale, resold and otherwise
transferred by their holders, other than broker-dealers or our "affiliates," as
that term is defined in Rule 405 under the Securities Act, without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any holder of Outstanding Notes who is an affiliate of
ours, who is not acquiring the Exchange Notes in the ordinary course of such
holder's business or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes:
. will not be able to rely on the interpretations by the Staff of the
Commission described in the above-mentioned no-action letters;
. will not be able to tender Outstanding Notes in the Exchange Offer; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the
Outstanding Notes unless the sale or transfer is made under an exemption
from these requirements.
We do not intend to seek our own no-action letter, and there is no assurance
that the Staff of the Commission would make a similar determination regarding
the Exchange Notes as it has in these no-action letters to third parties.
As a result of the filing and effectiveness of the Registration Statement of
which this prospectus is a part, we will not be required to pay an increased
interest rate on the Outstanding Notes. Following the closing of the Exchange
Offer, holders of Outstanding Notes not tendered will not have any further
registration rights except in limited circumstances requiring the filing of a
shelf registration statement, and the Outstanding Notes will
29
continue to be subject to restrictions on transfer. Accordingly, the liquidity
of the market for the Outstanding Notes will be adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions stated in this prospectus and
in the Letter of Transmittal, we will accept all Outstanding Notes properly
tendered and not withdrawn before 5:00 p.m., New York City time, on the
Expiration Date. After authentication of the Exchange Notes by the trustee or
an authenticating agent, we will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of Outstanding Notes
accepted in the Exchange Offer.
By tendering your Outstanding Notes for Exchange Notes in the Exchange Offer
and signing or agreeing to be bound by the Letter of Transmittal, you will
represent to us that:
. any Exchange Notes to be received by you will be acquired in the ordinary
course of your business;
. you have no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the
Exchange Notes in violation of the provisions of the Securities Act or, if
you are an affiliate, you will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable;
. if you are not a broker-dealer, you are not engaged in, and do not intend
to engage in, a distribution of Exchange Notes;
. if you are a broker-dealer that will receive Exchange Notes for your own
account in exchange for Outstanding Notes that were acquired as a result
of market-making or other trading activities, you will deliver a
prospectus in connection with any resale of such Exchange Notes; and
. you have full power and authority to transfer the Outstanding Notes in
exchange for the Exchange Notes and that we will acquire good and
unencumbered title thereto free and clear of any liens, restrictions,
charges or encumbrances and not subject to any adverse claims.
Broker-dealers that are receiving Exchange Notes for their own account must
have acquired the Outstanding Notes as a result of market-making or other
trading activities in order to participate in the Exchange Offer. Each
broker-dealer that receives Exchange Notes for its own account under the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of the Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
admitting that it is an "underwriter" within the meaning of the Securities Act.
We will be required to allow broker-dealers to use this prospectus following
the Exchange Offer in connection with the resale of Exchange Notes received in
exchange for Outstanding Notes acquired by broker-dealers for their own account
as a result of market-making or other trading activities. If required by
applicable securities laws, we will, upon request, make this prospectus
available to any broker-dealer for use in connection with a resale of Exchange
Notes for a period of 180 days after the consummation of the Exchange Offer.
See "Plan of Distribution."
The Exchange Notes will evidence the same debt as the Outstanding Notes and
will be issued under and entitled to the benefits of the same Indenture. The
form and terms of the Exchange Notes are identical in all material respects to
the form and terms of the Outstanding Notes except that:
. the Exchange Notes will be issued in a transaction registered under the
Securities Act; and
. the Exchange Notes will not be subject to transfer restrictions.
As of the date of this prospectus, $225 million aggregate principal amount
of the Outstanding Notes was outstanding. In connection with the issuance of
the Outstanding Notes, we arranged for the Outstanding Notes to be issued and
transferable in book-entry form through the facilities of DTC, acting as
depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through DTC.
30
This prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Outstanding Notes as of
the close of business on July 11, 2002. We intend to conduct the Exchange Offer
as required by the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission under the Exchange Act,
including Rule 14e-1 under the Exchange Act ("Rule 14e-1"), to the extent
applicable.
Rule 14e-1 describes unlawful tender practices under the Exchange Act. This
section requires us, among other things:
. to hold our Exchange Offer open for 20 business days;
. to give 10 days notice of any change in the terms of this Exchange Offer;
and
. to issue a press release in the event of an extension of the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered, and holders of the Outstanding
Notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. We shall be considered to have accepted Outstanding Notes tendered
according to the procedures in this prospectus when, as and if we have given
oral or written notice of acceptance to the Exchange Agent. See "--Exchange
Agent." The Exchange Agent will act as agent for the tendering holders of
Outstanding Notes for the purpose of receiving Exchange Notes from us and
delivering them to those holders.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender or the occurrence of other events described in this
prospectus, certificates for these unaccepted Outstanding Notes will be
returned, at our cost, to the tendering holder of the Outstanding Notes or, in
the case of Outstanding Notes tendered by book-entry transfer, into the
holder's account at DTC according to the procedures described below, as
promptly as practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes related to the exchange of
Outstanding Notes in the Exchange Offer. We will pay all charges and expenses,
other than applicable taxes, in connection with the Exchange Offer. See
"--Solicitation of Tenders, Fees and Expenses."
Neither we nor our Board of Directors makes any recommendation to holders of
Outstanding Notes as to whether or not to tender all or any portion of their
Outstanding Notes pursuant to the Exchange Offer. Moreover, we have not
authorized anyone to make any such recommendation. Holders of Outstanding Notes
must make their own decision whether to tender in the Exchange Offer and, if
so, the amount of Outstanding Notes to tender after reading this prospectus and
the Letter of Transmittal and consulting with their advisors, if any, based on
their own financial position and requirements.
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 12, 2002, unless we, in our sole and absolute discretion, extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
We expressly reserve the right, in our sole and absolute discretion:
. to delay acceptance of any Outstanding Notes or to terminate the Exchange
Offer and to refuse to accept Outstanding Notes not previously accepted,
if any of the conditions described below under the heading "--Conditions"
shall have occurred and shall not have been waived by us;
. to extend the Expiration Date of the Exchange Offer;
31
. to amend the terms of the Exchange Offer in any manner;
. to purchase or make offers for any Outstanding Notes that remain
outstanding after the Expiration Date; and
. to the extent permitted by applicable law, to purchase Outstanding Notes
in the open market, in privately negotiated transactions or otherwise.
. The terms of the purchases or offers described in the fourth and fifth
clauses above may differ from the terms of the Exchange Offer.
Any delay in acceptance, termination, extension or amendment will be
followed as promptly as practicable by oral or written notice to the Exchange
Agent and by a public announcement. If the Exchange Offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform the holders
of the Outstanding Notes of the amendment.
We may elect to extend the Exchange Offer solely because some of the holders
of the Outstanding Notes do not tender on a timely basis, in order to give them
the ability to participate and avoid the significant reduction in liquidity
associated with holding an unexchanged Outstanding Note.
Interest on the Exchange Notes
The holder of each Outstanding Note accepted for exchange will receive an
Exchange Note in the amount equal to the surrendered Outstanding Note.
Accordingly, registered holders of Exchange Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which
interest has been paid on the Outstanding Notes or, if no interest has been
paid on the Outstanding Notes, from March 18, 2002. Holders of Exchange Notes
will not receive any payment in respect of accrued interest on Outstanding
Notes otherwise payable on any interest payment date, the record date for which
occurs on or after the consummation of the Exchange Offer.
Procedures for Tendering
Only a holder may tender its Outstanding Notes in the Exchange Offer. Any
beneficial owner whose Outstanding Notes are registered in the name of its
broker, dealer, commercial bank, trust company or other nominee or are held in
book-entry form and who wishes to tender should contact the registered holder
promptly and instruct the registered holder to tender on his behalf. If the
beneficial owner wishes to tender on its own behalf, the beneficial owner must,
before completing and executing the Letter of Transmittal and delivering its
Outstanding Notes, either make appropriate arrangements to register ownership
of the Outstanding Notes in the beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
The tender by a holder will constitute an agreement between the holder, us
and the Exchange Agent according to the terms and subject to the conditions
described in this prospectus and in the Letter of Transmittal.
A holder who desires to tender Outstanding Notes and who cannot comply with
the procedures described in the prospectus for tender on a timely basis, or
whose Outstanding Notes are not immediately available, must comply with the
procedures for guaranteed delivery described below under the heading
"--Guaranteed Delivery Procedures."
The method of delivery of Outstanding Notes and the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holders. Delivery of such documents will be deemed made only when
actually received by the Exchange Agent or deemed received under the ATOP
procedures described below under the heading "--Tender of Outstanding Notes
Using DTC's Automated Tender Offer
32
Program (ATOP)." In all cases, sufficient time should be allowed to assure
delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Outstanding Notes should be sent to us. Holders may also request
that their respective brokers, dealers, commercial banks, trust companies or
nominees effect the tender for holders in each case as described in this
prospectus and in the Letter of Transmittal.
Outstanding Notes Held in Certificated Form
For a holder to validly tender Outstanding Notes held in physical form, the
Exchange Agent must receive, before 5:00 p.m., New York city time, on the
Expiration Date, at its address set forth in this prospectus:
. a properly completed and validly executed Letter of Transmittal, or a
manually signed facsimile thereof, together with any signature guarantees
and any other documents required by the instructions to the Letter of
Transmittal; and
. certificates for tendered Outstanding Notes.
Outstanding Notes Held in Book-Entry Form
We understand that the Exchange Agent will make a request promptly after the
date of the prospectus to establish accounts for the Outstanding Notes at DTC
for the purpose of facilitating the Exchange Offer, and subject to their
establishment, any financial institution that is a participant in DTC may make
book-entry delivery of Outstanding Notes by causing DTC to transfer the
Outstanding Notes into the Exchange Agent's account for the Outstanding Notes
using DTC's procedures for transfer.
If you desire to transfer Outstanding Notes held in book-entry form with
DTC, the Exchange Agent must receive, before 5:00 p.m., New York City time, on
the Expiration Date, at its address listed in this prospectus, a confirmation
of book-entry transfer of the Outstanding Notes into the Exchange Agent's
account at DTC, which is referred to in this prospectus as a "book-entry
confirmation," and:
. a properly completed and validly executed Letter of Transmittal, or
manually signed facsimile thereof, together with any signature guarantees
and other documents required by the instructions in the Letter of
Transmittal; or
. an agent's message transmitted pursuant to DTC's ATOP.
Tender of Outstanding Notes Using DTC's Automated Tender Offer Program (ATOP)
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Outstanding Notes held in book-entry form to the
Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC will
then send a book-entry confirmation, including an agent's message, to the
Exchange Agent.
The term "agent's message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering Outstanding Notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that we may enforce such agreement
against such participant. If you use ATOP procedures to tender Outstanding
Notes you will not be required to deliver a Letter of Transmittal to the
Exchange Agent, but you will be bound by its terms just as if you had signed it.
33
Signatures
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the U.S.
or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Exchange Act, unless the Outstanding Notes tendered with the Letter of
Transmittal are tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal; or
. for the account of an institution eligible to guarantee signatures.
If the Letter of Transmittal is signed by a person other than the registered
holder or DTC participant who is listed as the owner, the Outstanding Notes
must be endorsed or accompanied by appropriate bond powers that authorize the
person to tender the Outstanding Notes on behalf of the registered holder or
DTC participant who is listed as the owner, in either case signed as the name
of the registered holder(s) who appears on the Outstanding Notes or the DTC
participant who is listed as the owner, with the signature on the Outstanding
Notes or bond powers guaranteed by an eligible guarantor institution. If the
Letter of Transmittal or any Outstanding Notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing, and unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the Letter of Transmittal.
If you tender your Outstanding Notes through ATOP, signatures and signature
guarantees are not required.
Determination of Validity
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered Outstanding Notes will be
determined by us in our sole and absolute discretion. This determination will
be final and binding. We reserve the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes our acceptance
of which would, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any irregularities or conditions of tender as to
particular Outstanding Notes. Our interpretation of the terms and conditions of
the Exchange Offer, including the instructions in the Letter of Transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within the time we shall determine. Although we intend to notify holders of
defects or irregularities related to tenders of Outstanding Notes, neither we,
the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities related to tenders of Outstanding
Notes nor shall we, or any of them, incur liability for failure to give
notification. Tenders of Outstanding Notes will not be considered to have been
made until the irregularities have been cured or waived. Any Outstanding Notes
received by the Exchange Agent that we determine are not properly tendered or
the tender of which is otherwise rejected by us and as to which the defects or
irregularities have not been cured or waived by us will be returned by the
Exchange Agent to the tendering holder unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Outstanding Notes and:
. whose Outstanding Notes are not immediately available;
. who cannot complete the procedure for book-entry transfer on a timely
basis;
. who cannot deliver their Outstanding Notes, the Letter of Transmittal or
any other required documents to the Exchange Agent before the Expiration
Date; or
. who cannot complete a tender of Outstanding Notes held in book-entry form
using DTC's ATOP procedures on a timely basis
34
may effect a tender if they tender through an eligible institution described
above under the heading "--Signatures," or, if they tender using ATOP's
guaranteed delivery procedures.
A tender of Outstanding Notes made by or through an eligible institution
will be accepted if:
. before 5:00 p.m., New York City time, on the Expiration Date, the Exchange
Agent receives from an eligible institution a properly completed and
validly executed notice of guaranteed delivery, by facsimile transmittal,
mail or hand delivery, that: (1) sets forth the name and address of the
holder, the registration or certificate number or numbers of the holder's
Outstanding Notes and the principal amount of the Outstanding Notes
tendered; (2) states that the tender is being made; and (3) guarantees
that, within five business days after the Expiration Date, a properly
completed and validly executed Letter of Transmittal or facsimile,
together with a certificate(s) representing the Outstanding Notes to be
tendered in proper form for transfer, or a confirmation of book-entry
transfer into the Exchange Agent's account at DTC of Outstanding Notes
delivered electronically, and any other documents required by the Letter
of Transmittal will be deposited by the eligible institution with the
Exchange Agent; and
. the properly completed and validly executed Letter of Transmittal or a
manually signed facsimile thereof, together with the certificate(s)
representing all tendered Outstanding Notes in proper form for transfer,
or a book-entry confirmation, and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
A tender made through DTC's ATOP system will be accepted if:
. before 5:00 p.m., New York City time, on the Expiration Date, the Exchange
Agent receives an agent's message from DTC stating that DTC has received
an express acknowledgment from the participant in DTC tendering the
Outstanding Notes that they have received and agree to be bound by the
notice of guaranteed delivery; and
. the Exchange Agent receives, within three New York Stock Exchange trading
days after the Expiration Date, either: (1) a book-entry confirmation,
including an agent's message, transmitted via DTC's ATOP procedures; or
(2) a properly completed and validly executed Letter of Transmittal or a
manually signed facsimile thereof, together with the certificate(s)
representing all tendered Outstanding Notes in proper form for transfer,
or a book-entry confirmation, and all other documents required by the
Letter of Transmittal.
Upon request to the Exchange Agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of Outstanding
Notes may be withdrawn at any time before 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Outstanding Notes in the Exchange
Offer:
. a written or facsimile transmission of a notice of withdrawal must be
received by the Exchange Agent at its address listed below before 5:00
p.m., New York City time, on the Expiration Date; or
. you must comply with the appropriate procedures of DTC's ATOP system.
Any notice of withdrawal must:
. specify the name of the person having deposited the Outstanding Notes to
be withdrawn;
. identify the Outstanding Notes to be withdrawn, including the registration
or certificate number or numbers and principal amount of the Outstanding
Notes or, in the case of Outstanding Notes transferred by book-entry
transfer, the name and number of the account at the book-entry facility to
be credited;
35
. be signed by the same person and in the same manner as the original
signature on the Letter of Transmittal by which the Outstanding Notes were
tendered, including any required signature guarantee, or be accompanied by
documents of transfer sufficient to permit the trustee for the Outstanding
Notes to register the transfer of the Outstanding Notes into the name of
the person withdrawing the tender; and
. specify the name in which any of these Outstanding Notes are to be
registered, if different from that of the person who deposited the
Outstanding Notes to be withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of the withdrawal notices will be determined by us, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be judged not to have been tendered according to the
procedures in this prospectus for purposes of the Exchange Offer, and no
Exchange Notes will be issued in exchange for those Outstanding Notes unless
the Outstanding Notes so withdrawn are validly retendered. Any Outstanding
Notes that have been tendered but are not accepted for exchange will be
returned to the holder of the Outstanding Notes without cost to the holder or,
in the case of Outstanding Notes tendered by book-entry transfer, into the
holder's account at DTC according to the procedures described above. This
return or crediting will take place as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures
described above under the heading "--Procedures for Tendering" at any time
before 5:00 p.m., New York City time, on the Expiration Date.
Conditions
The Exchange Offer is subject only to the following conditions:
. it does not violate applicable law or any applicable interpretation of the
staff of the Commission;
. no action or proceeding shall have been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the Exchange Offer, and no material adverse
development shall have occurred in any existing action or proceeding with
respect to us; and
. all government approvals shall have been obtained, which we deem necessary
for the consummation of the Exchange Offer.
Exchange Agent
Union Bank of California, N.A., the trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. In this capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis
of our directions. Requests for assistance and requests for additional copies
of this prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent. You should send certificates for Outstanding Notes, Letters of
Transmittal and any other required documents to the Exchange Agent addressed as
follows:
By Overnight Delivery or Registered or By Hand:
-------------------------------------- --------
Certified Mail:
---------------
Union Bank of California, N.A. Union Bank of California, N.A.
120 South San Pedro Street 120 South San Pedro Street
Suite 400 Suite 400
Los Angeles, CA 90012 Los Angeles, CA 90012
Facsimile Transmission Number
-----------------------------
(for Eligible Institutions Only):
---------------------------------
(213) 972-5694
Confirm Receipt of Facsimile by Telephone:
------------------------------------------
(213) 972-5674
Delivery of the Letter of Transmittal to an address other than as listed
above or transmission of instructions via facsimile other than as described
above does not constitute a valid delivery of the Letter of Transmittal.
36
Solicitation of Tenders, Fees and Expenses
We will bear the expenses of requesting that holders of Outstanding Notes
tender those notes for Exchange Notes. The principal solicitation under the
Exchange Offer is being made by mail. Additional solicitations may be made by
our officers and regular employees and our affiliates in person, by telegraph,
telephone or telecopier.
We have not retained any dealer manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. However, we will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket costs and expenses in
connection with the Exchange Offer and will indemnify the Exchange Agent for
all losses and claims incurred by it as a result of the Exchange Offer. We may
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Outstanding Notes and in handling or forwarding tenders for
exchange.
We will pay the expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and trustee and
accounting and legal fees and printing costs.
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register Exchange Notes in the name of,
or request that Outstanding Notes not tendered or not accepted in the Exchange
Offer be returned to, a person other than you, in which event you will be
responsible for the payment of any applicable transfer tax.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will recognize no gain or loss for accounting
purposes upon the closing of the Exchange Offer. We will amortize the expenses
of the Exchange Offer over the term of the Exchange Notes under accounting
principles generally accepted in the U.S.
Participation in the Exchange Offer; Untendered Notes
Participation in the Exchange Offer is voluntary. Holders of the Outstanding
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
Outstanding Notes tendered under the terms of, this Exchange Offer, we will
have fulfilled a covenant contained in the terms of the Registration Rights
Agreement with the Initial Purchasers. Holders of the Outstanding Notes who do
not tender in the Exchange Offer will continue to hold their Outstanding Notes
and will be entitled to all the rights, and subject to the limitations,
applicable to the Outstanding Notes under the Indenture. Holders of Outstanding
Notes will no longer be entitled to any rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effect as a
result of the making of this Exchange Offer. All untendered Outstanding Notes
will continue to be subject to the restrictions on transfer described in the
Indenture. To the extent that Outstanding Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered Outstanding Notes could
be adversely affected. This is because there will probably be many fewer
Outstanding Notes that remain outstanding following the Exchange Offer,
significantly reducing the liquidity of any untendered Outstanding Notes.
We may in the future seek to acquire any untendered Outstanding Notes in the
open market or through privately negotiated transactions, through subsequent
Exchange Offers or otherwise. We intend to make any acquisitions of Outstanding
Notes following the applicable requirements of the Exchange Act, and the rules
and regulations of the Commission under the Exchange Act, including Rule 14e-1,
to the extent applicable. We have no present plan to acquire any Outstanding
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Outstanding Notes that are not tendered in
the Exchange Offer.
37
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange
Notes as described in this prospectus. We will receive in exchange Outstanding
Notes in like principal amount. The Outstanding Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the Exchange Notes will not result in any change
in our indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges for each of the periods
indicated are set forth below:
Three Month
Fiscal Year Ended Period Ended
December 31, March 31,
------------------------ ------------
2001 2000 1999 1998 1997 2002 2001
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges (a) (a) (a) (a) (a) (a) (a)
--------
(a) Earnings were inadequate to cover fixed charges for the three month periods
ended March 31, 2002 and 2001, and for each of the five years in the period
ended December 31, 2001. Additional earnings would have been required to
cover fixed charges for the three month periods ended March 31, 2002 and
2001 in the amount of (in thousands) $8,147 and $31,947, respectively, and
for each of the five years in the period ended December 31, 2001, in the
amount of (in thousands) 2001 $99,186; 2000 $97,530; 1999 $40,116; 1998
$3,492; and 1997 $4,695.
Earnings available for fixed charges equals loss before income taxes, plus
fixed charges and amortization of capitalized interest, less the accretion
of preferred stock redemption value and capitalized interest. Fixed charges
consist of interest expense (including amortization of debt costs relating
to our indebtedness), non-cash interest expense, approximately one-third of
rent expense as representative of the interest portion of rentals,
capitalized interest, and the accretion of our preferred stock's redemption
value.
38
SELECTED HISTORICAL FINANCIAL DATA
The following table contains our selected historical financial data. The
selected historical financial data have been derived from our audited
consolidated financial statements for each of the fiscal years for the five
year period ended December 31, 2001, which have been audited by McGladrey &
Pullen, LLP, independent public accountants, and the unaudited financial
statements for the three month periods ended March 31, 2002 and 2001. The
"Selected Historical Financial Data" should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited financial statements and related notes incorporated
herein by reference.
Year Ended December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ----------- ----------- -----------
(dollars in thousands)
Statement of Operations Data:
Net revenue........................................ $ 208,908 $ 154,021 $ 58,999 $ 44,820 $ 30,456
------------ ------------ ----------- ----------- -----------
Expenses:
Direct operating................................... 100,347 60,987 24,441 15,794 9,184
Selling, general and administrative (excluding
non-cash stock-based compensation)................ 42,485 36,600 11,611 8,877 5,845
Corporate.......................................... 15,636 12,741 5,809 3,963 3,899
Non-cash stock-based compensation (1).............. 3,243 5,822 29,143 500 900
Depreciation and amortization...................... 120,017 69,238 15,982 10,934 10,216
------------ ------------ ----------- ----------- -----------
Total expenses..................................... 281,728 185,388 86,986 40,068 30,044
------------ ------------ ----------- ----------- -----------
Operating income (loss)............................ (72,820) (31,367) (27,987) 4,752 412
Interest expense, net.............................. (20,978) (23,916) (9,591) (8,244) (5,107)
Non-cash interest expense relating to related party
beneficial conversion options (2)................. -- (39,677) (2,500) -- --
Gain on sale of media properties................... 4,977 -- -- -- --
------------ ------------ ----------- ----------- -----------
Loss before income taxes........................... (88,821) (94,960) (40,078) (3,492) (4,695)
Income tax (expense) benefit (3)................... 22,999 2,934 121 (210) 7,531
------------ ------------ ----------- ----------- -----------
Net income (loss) before equity in earnings of
nonconsolidated affiliates........................ (65,822) (92,026) (39,957) (3,702) 2,836
Equity in income (loss) of nonconsolidated
affiliates........................................ 27 (214) -- -- --
------------ ------------ ----------- ----------- -----------
Net income (loss) before cumulative effect of a
change in accounting principle.................... (65,795) (92,240) (39,957) (3,702) 2,836
Cumulative effect of a change in accounting
principle, net of taxes of $13,420(4)............. -- -- -- -- --
------------ ------------ ----------- ----------- -----------
Net income (loss).................................. (65,795) (92,240) $ (39,957) $ (3,702) $ 2,836
=========== =========== ===========
Accretion of preferred stock redemption value...... 10,117 2,449
------------ ------------
Net loss applicable to common stock................ $ (75,912) $ (94,689)
============ ============
Net loss per share, basic and diluted.............. $ (0.66) $ (0.27)
============ ============
Weighted average common shares outstanding,
basic and diluted................................. 115,223,005 115,287,988
============ ============
Pro forma: (5)
Provision for income tax benefit................ 5,904 2,499 322 643
------------ ----------- ----------- -----------
Net loss applicable to common stock............. $ (88,785) $ (37,579) $ (3,170) $ (4,052)
============ =========== =========== ===========
Per share data:
Net loss per share, basic and diluted........... $ (1.34) $ (1.16) $ (0.10) $ (0.12)
============ =========== =========== ===========
Weighted average common shares
outstanding, basic and diluted................. 66,451,637 32,402,378 32,894,802 32,972,425
============ =========== =========== ===========
Loss per L.L.C. membership unit (6)................ $ (31.04) $ (19.12) $ (0.07) $ (1.19)
============ =========== =========== ===========
Three Month Period
Ended March 31,
--------------------------
2002 2001
------------ ------------
(dollars in thousands)
Statement of Operations Data:
Net revenue........................................ $ 49,128 $ 43,954
------------ ------------
Expenses:
Direct operating................................... 25,766 22,993
Selling, general and administrative (excluding
non-cash stock-based compensation)................ 11,139 10,139
Corporate.......................................... 3,715 3,540
Non-cash stock-based compensation (1).............. 981 959
Depreciation and amortization...................... 6,616 30,587
------------ ------------
Total expenses..................................... 48,217 68,218
------------ ------------
Operating income (loss)............................ 911 (24,264)
Interest expense, net.............................. (6,597) (6,164)
Non-cash interest expense relating to related party
beneficial conversion options (2)................. -- --
Gain on sale of media properties................... -- --
------------ ------------
Loss before income taxes........................... (5,686) (30,428)
Income tax (expense) benefit (3)................... 1,100 10,881
------------ ------------
Net income (loss) before equity in earnings of
nonconsolidated affiliates........................ (4,586) (19,547)
Equity in income (loss) of nonconsolidated
affiliates........................................ (18) --
------------ ------------
Net income (loss) before cumulative effect of a
change in accounting principle.................... (4,604) (19,547)
Cumulative effect of a change in accounting
principle, net of taxes of $13,420(4)............. (46,171) --
------------ ------------
Net income (loss).................................. (50,775) (19,547)
Accretion of preferred stock redemption value...... 2,449 1,421
------------ ------------
Net loss applicable to common stock................ $ (53,224) $ (20,968)
============ ============
Net loss per share, basic and diluted.............. $ (0.45) $ (0.18)
============ ============
Weighted average common shares outstanding,
basic and diluted................................. 117,653,254 114,806,925
=========== ===========
Pro forma: (5)
Provision for income tax benefit................
Net loss applicable to common stock.............
Per share data:
Net loss per share, basic and diluted...........
Weighted average common shares
outstanding, basic and diluted.................
Loss per L.L.C. membership unit (6)................
39
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
- ---------- ----------- -------- -------- --------
(dollars in thousands)
Other Financial Data:
Broadcast cash flow (7).............................. $ 66,076 $ 56,434 $ 22,947 $ 20,149 $ 15,427
EBITDA (7)........................................... 50,440 43,693 17,138 16,186 11,528
Cash flows from (used in) operating activities....... 11,998 10,608 6,128 7,658 6,509
Cash flows used in investing activities.............. (63,733) (1,002,300) (59,063) (25,586) (61,908)
Cash flows from financing activities................. 1,524 1,058,559 51,631 19,339 54,763
Capital expenditures................................. 28,941 23,675 12,825 3,094 2,366
Three Month Period
Ended March 31,
----------------------
2002 2001
- ---------- ----------
(dollars in thousands)
Other Financial Data:
Broadcast cash flow (7).............................. $ 12,223 $ 10,822
EBITDA (7)........................................... 8,508 7,282
Cash flows from (used in) operating activities....... 9,586 (1,228)
Cash flows used in investing activities.............. (31,003) (30,378)
Cash flows from financing activities................. 21,669 1,066
Capital expenditures................................. 5,904 8,274
As of December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
---------- ----------- -------- -------- --------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents............................ $ 19,013 $ 69,224 $ 2,357 $ 3,661 $ 2,250
Total assets......................................... 1,535,517 1,560,493 205,017 131,291 111,953
Long-term debt, including current portion............ 252,769 254,947 167,306 99,737 74,656
Series A mandatorily redeemable convertible preferred
stock............................................... 90,720 80,603 -- -- --
Total equity......................................... 987,395 1,055,377 28,011 24,871 32,057
As of March 31,
----------------------
2002 2001
---------- ----------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents............................ $ 19,265 $ 38,684
Total assets......................................... 1,497,645 1,515,915
Long-term debt, including current portion............ 241,213 255,023
Series A mandatorily redeemable convertible preferred
stock............................................... 93,169 82,024
Total equity......................................... 977,877 1,036,551
Goodwill and Other Intangible Assets-Adoption of SFAS No. 142:
See Note 4 to Notes to our financial statements included in our Quarterly
Report on Form 10-Q for the three month period ended March 31, 2002 regarding
the effects of our adoption of SFAS No. 142.
A reconciliation of previously reported net loss applicable to common stock
and basic and diluted loss per share to the amounts adjusted for the exclusion
of the amortization of goodwill and our indefinite life intangible assets, net
of the related income tax, follows:
Three Month Period
Year Ended December 31, Ended March 31,
---------------------------- ------------------
2001 2000 1999 2002 2001
-------- -------- -------- -------- --------
(dollars in thousands, except per share data)
Reported net loss applicable to common stock (8)..................... $(75,912) $(88,785) $(37,579) $(53,224) $(20,968)
Add back:
Goodwill amortization............................................ 18,658 8,556 1,017 -- 2,815
Other identified indefinite life intangible asset amortization... 39,322 21,254 4,529 -- 10,967
-------- -------- -------- -------- --------
Adjusted net loss applicable to common stock......................... $(17,932) $(58,975) $(32,033) $(53,224) $ (7,186)
======== ======== ======== ======== ========
Basic and diluted loss per share:
Reported net loss applicable to common stock (8)..................... $ (0.66) $ (1.34) $ (1.16) $ (0.45) $ (0.18)
Add back:
Goodwill amortization............................................ 0.16 0.13 0.03 -- 0.02
Other identified indefinite life intangible asset amortization... 0.34 0.32 0.14 -- 0.10
-------- -------- -------- -------- --------
Adjusted net loss applicable to common stock......................... $ (0.16) $ (0.89) $ (0.99) $ (0.45) $ (0.06)
======== ======== ======== ======== ========
--------
(footnotes on next page)
40
--------
(footnotes from preceding page)
(1) Non-cash stock-based compensation consists primarily of compensation
expense relating to stock awards granted to our employees and consultants
and vesting of the intrinsic value of unvested options exchanged in our
acquisition of Z-Spanish Media Corporation in 2000.
(2) Non-cash interest expense charges related to the estimated intrinsic value
of the conversion options contained in our subordinated note to Univision
in the amount of $2.5 million in 1999 and $31.6 million in 2000, and the
conversion option feature in our convertible subordinated note in the
amount of $8.1 million in 2000.
(3) Included in the 1997 income tax expense is a $7.8 million tax benefit that
resulted from the reversal of previously recorded deferred tax liabilities
that were established in our acquisition of television station KNVO-TV,
upon its conversion from a C-corporation to an S-corporation. Included in
the 2000 income tax benefit is a charge of $10.5 million relating to the
effect of change in tax status, which resulted from the recording of a net
deferred tax liability upon our reorganization from a limited liability
company to a C-corporation, effective with our IPO.
(4) The cumulative effect of a change in accounting principles relates to our
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets".
(5) Pro forma net loss applicable to common stock and pro forma basic and
diluted net loss per share give effect to our reorganization from a limited
liability company to a C-corporation for federal and state income tax
purposes and assume that we were subject to corporate income taxes at an
effective combined federal and state income tax rate of 40% before the
effect of amortization of non-tax deductible goodwill, non-cash stock-based
compensation and non-cash interest expense for each of the three years in
the period ended December 31, 1999. The December 31, 2000 statement of
operations reflects operations and the related income tax benefit as a
C-corporation for the period subsequent to our reorganization. Pro forma
income tax expense is presented for the period from January 1, 2000 through
the August 2, 2000 reorganization on the same basis as the preceding years.
(6) Loss per membership unit is computed as net loss of our predecessor divided
by the number of membership units as of the last day of each reporting
period. For 2000, loss per membership unit is for the period from January
1, 2000 through the August 2, 2000 reorganization.
(7) Broadcast cash flow means net revenue less operating, selling, general and
administrative expenses. EBITDA means broadcast cash flow less corporate
expenses. Although broadcast cash flow and EBITDA are not measures of
performance as determined in accordance with accounting principles
generally accepted in the U.S., we believe that they are comparable to the
data provided by other companies in the broadcast industry, and are useful
to an investor as a measure of performance and comparison in our industry.
However, broadcast cash flow and EBITDA should not be construed as a
alternative to operating income as an indicator of operating performance or
to cash flows from operating activities (as determined in accordance with
accounting principles generally accepted in the U.S.) as a measure of
liquidity. Moreover, the way in which we calculate broadcast cash flow and
EBITDA may differ from that of companies reporting similarly named measures.
(8) Reported net loss applicable to common stock for the years ended December
31, 2000 and 1999, used to reflect our adoption of SFAS No. 142, is
adjusted to reflect the pro forma effect to our reorganization from a
limited liability company to a C-corporation, as described in Note 5 above.
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our consolidated results of operations and cash
flows for the three month periods ended March 31, 2002 and 2001, should be read
in conjunction with our consolidated financial statements and the related notes
included in our Quarterly Report on Form 10-Q for the three month period ended
March 31, 2002, and such discussion is as of the end of such period, unless
otherwise indicated.
Overview
We generate revenue from sales of national and local advertising time on
television and radio stations and advertising on our billboards and in our
publication. Advertising rates are, in large part, based on each media's
ability to attract audiences in demographic groups targeted by advertisers. We
recognize advertising revenue when commercials are broadcast and outdoor
advertising services and publishing services are provided. We incur commissions
from agencies on local, regional and national advertising. Our revenue reflects
deductions from gross revenue for commissions to these agencies. Univision
currently owns approximately 31% of our common stock.
We operate in four reportable segments based upon the types of advertising
medium which consist of television broadcasting, radio broadcasting, outdoor
advertising and newspaper publishing. We own and/or operate 38 primary
television stations that are located primarily in the southwestern U.S. We own
and/or operate 54 radio stations (39 FM and 15 AM) located primarily in
Arizona, California, Colorado, Illinois, Nevada, New Mexico and Texas. Our
outdoor advertising segment consists substantially of approximately 11,200
owned billboards in Los Angeles and New York. Our newspaper publishing
operation consists of a publication in New York.
Our primary expenses are employee compensation, including commissions paid
to our sales staff and our national representative firms, marketing, promotion
and selling, technical, local programming, engineering and general and
administrative. Our local programming costs for television consist of costs
related to producing local newscasts in most of our markets.
Prior to our initial public offering, which was completed on August 2, 2000,
we were organized as a Delaware limited liability company and had historically
not had material income tax expense or benefit reflected in our statement of
operations as the majority of our subsidiaries have been non-taxpaying
entities. Federal and state income taxes attributable to income during such
periods were incurred and paid directly by the members of our predecessor.
However, we are now a taxpaying entity. We anticipate that our future effective
income tax rate will vary from 40% due to a portion of our purchase price for
the Latin Communications Group Inc. and Z-Spanish Media Corporation
acquisitions being allocated to non-tax deductible goodwill.
In 2001, we began the process of combining television and radio operations
to create synergies and achieve cost savings and are continuing that process in
2002.
As a result of the businesses and other assets we acquired in recent years,
approximately 83% of our total assets and 126% of our net assets are
intangible. We review our tangible long-lived assets, intangibles related to
those assets and goodwill periodically to determine potential impairment. To
date, we have determined that no impairment of long-lived tangible assets and
intangible assets, other than goodwill, exists. See further discussion below
under the heading "Application of Critical Accounting Policies" on accounting
for goodwill and other intangible assets
42
and also Note 4 to Notes to our Consolidated Financial Statements for the three
month period ended March 31, 2002, regarding the effects of our adoption of
SFAS No. 142.
Loss per share for the three month period ended March 31, 2001 as adjusted
to reflect the adoption of SFAS No. 142 as if it had been adopted in 2001 would
have been ($0.05) per share. Pro forma loss per share for the three month
period ended March 31, 2002, as adjusted to reverse the effect of the
impairment charge recorded as a result of the adoption of SFAS No. 142 would
have been ($0.06) per share.
On March 18, 2002, we issued $225 million of the Outstanding Notes and
subsequently amended our bank credit facility.
On May 1, 2002, we acquired substantially all of the assets of radio station
KXPK-FM in Denver, Colorado, for approximately $47.7 million in cash. On June
5, 2002, we entered into a definitive agreement to acquire substantially all of
the assets of KTCY-FM, in Dallas, Texas, for approximately $35 million in cash.
Concurrently with the execution of this agreement, we began operating this
station under a time brokerage agreement.
Application of Critical Accounting Policies
Critical accounting policies are defined as those that are the most
important to the portrayal of our financial condition and results. Critical
accounting policies require management's subjective judgment, and may
potentially result in materially different results under different assumptions
and conditions. The following are our critical accounting policies.
Goodwill and Other Intangible Assets
Effective January 1, 2002 we adopted the provisions of SFAS No. 142 and
determined each of our operating segments to be a reporting unit. Upon
adoption, we assigned all of our assets and liabilities to our reporting
units and ceased amortizing goodwill and our indefinite life intangible
assets. We believe that our broadcast licenses, television network
affiliation agreements, time brokerage agreements and radio network are
indefinite life intangible assets.
In performing our transitional goodwill impairment test we recorded a
goodwill impairment charge related to our outdoor operating segment of
approximately $46.2 million, net of taxes of $13.4 million, as the
cumulative effect of a change in accounting principle. While we have
completed our assessment using our internally developed models for
determining fair value, we are in the process of obtaining a valuation by an
independent appraisal firm. This external appraisal could result in an
additional impairment charge and that charge could be material.
We believe that the accounting estimates related to fair value and
goodwill and other intangible asset impairment is a "critical accounting
estimate" because: (1) goodwill and other intangible assets are our most
significant assets; and (2) the impact that recognizing an impairment would
have on the assets reported on our balance sheet as well as our net loss
could be material. The assumptions about future cash flows on the assets
under evaluation are critical. Our assumptions about future revenue and cash
flows require significant judgement because of the effects of September
11/th/, the current state of the economy and the fluctuation of actual
revenue. Additionally, some stations under evaluation have had limited cash
flow due to planned conversion of format or station power. The assumptions
about cash flows after conversion reflect our estimates of how these
stations are expected to perform based on similar stations and markets and
possible proceeds from the sale of the assets. If the expected cash flows
are not realized, impairment losses may be recorded in the future. We have
discussed the development and selection of these critical accounting
estimates with the Audit Committee of our Board of Directors, and the Audit
Committee has reviewed our related disclosure in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
43
We develop our future revenue estimates based on projected rating
increases, planned timing of signal strength increases, planned timing of
promotional events, customer commitments, and available unsold inventory.
Our estimates of future cash flows and EBITDA assume that our revenue will
grow at rates consistent with historical rates.
Allowance for Doubtful Accounts
We evaluate the collectibility of our trade accounts receivable based on
a number of factors. In circumstances where we are aware of a specific
customer's inability to meet its financial obligations to us, a specific
reserve for bad debts is estimated and recorded which reduces the recognized
receivable to the estimated amount we believe will ultimately be collected.
In addition to specific customer identification of potential bad debts, bad
debt charges are recorded based on our recent past loss history and an
overall assessment of past due trade accounts receivable amounts outstanding.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on
accelerated and straight-line methods over the estimated useful lives of
such assets. Changes in circumstances such as technological advances,
changes to our business model or changes in our capital strategy could
result in the actual useful lives differing from our estimates. In those
cases where we determine that the useful life of property and equipment
should be shortened, we would depreciate the net book value in excess of the
estimated salvage value over its revised remaining useful life. Factors such
as changes in the planned use of equipment or mandated regulatory
requirements could result in shortened useful lives.
We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any such asset may not be
recoverable. The estimate of future cash flow is based upon, among other
things, certain assumptions about expected future operating performance. Our
estimate of undiscounted cash flow may differ from actual cash flow due to,
among other things, technological changes, economic conditions, changes to
our business model or changes in our operating performance. If the sum of
the projected undiscounted cash flows (excluding interest) is less than the
carrying value of the asset, the asset will be written down to its estimated
fair value.
Deferred Tax Assets
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when it is determined to be more likely than not that
some portion or all of the deferred tax assets will not be realized. We have
considered future taxable income and prudent and feasible tax planning
strategies in assessing the need for a valuation allowance. In the event we
determine we would not be able to realize all or part of our deferred tax
assets in the future, an adjustment to the carrying value of the deferred
tax assets would be charged to income in the period in which such
determination was made.
Additional Information
For additional information on our significant accounting policies, see
Note 1 to Notes to our Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2001.
44
Three Month Period Ended March 31, 2002
Compared to the Three Month Period Ended March 31, 2001
The following table sets forth selected data from our operating results for
the three month periods ended March 31, 2002 and 2001 (dollars in thousands):
Three Month Period
Ended March 31,
------------------
2002 2001 % Change
-------- -------- --------
Statement of Operations Data:
Net revenue............................................................ $ 49,128 $ 43,954 12%
Direct operating expenses.............................................. 25,766 22,993 12%
Selling, general and administrative expenses........................... 11,139 10,139 10%
Corporate expenses..................................................... 3,715 3,540 5%
Depreciation and amortization.......................................... 6,616 30,587 (78)%
Non-cash stock-based compensation...................................... 981 959 2%
-------- --------
Operating income (loss)................................................ 911 (24,264) *
Interest expense, net.................................................. 6,597 6,164 7%
-------- --------
Loss before income taxes............................................... (5,686) (30,428) (81)%
Income tax benefit..................................................... 1,100 10,881 (90)%
-------- --------
Net loss before equity in earnings of nonconsolidated affiliates....... (4,586) (19,547) (77)%
Equity in net loss of nonconsolidated affiliates....................... (18) -- *
-------- --------
Net loss before cumulative effect of a change in accounting principle.. (4,604) (19,547) (76)%
Cumulative effect of a change in accounting principle, net of taxes of
$13,420.............................................................. (46,171) -- *
-------- --------
Net loss............................................................... $(50,775) $(19,547)
======== ========
Other Data:
Broadcast cash flow.................................................... $ 12,223 $ 10,822 13%
EBITDA................................................................. 8,508 7,282 17%
Cash flows provided by (used in) operating activities.................. 9,586 (1,228) *
Cash flows used in investing activities................................ (31,003) (30,378) 2%
Cash flows provided by financing activities............................ 21,669 1,066 *
Capital expenditures................................................... 5,904 8,274 (29)%
--------
* not meaningful
Broadcast cash flow means operating income (loss) before corporate expenses,
depreciation and amortization and non-cash stock-based compensation. We have
presented broadcast cash flow, which we believe is comparable to the data
provided by other companies in the broadcast industry, because such data is
commonly used as a measure of performance in our industry. However, broadcast
cash flow should not be construed as an alternative to operating income (as
determined in accordance with accounting principles generally accepted in the
U.S.) as an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with accounting principles generally
accepted in the U.S.) as a measure of liquidity.
EBITDA means broadcast cash flow less corporate expenses and is commonly
used in the broadcast industry to analyze and compare broadcast companies on
the basis of operating performance, leverage and liquidity. EBITDA, as
presented above, may not be comparable to similarly titled measures of other
companies unless such measures are calculated in substantially the same
fashion. EBITDA should not be construed as an alternative to operating income
(as determined in accordance with accounting principles generally accepted in
the U.S.) as an indicator of operating performance or to cash flows from
operating activities (as determined in accordance with accounting principles
generally accepted in the U.S.) as a measure of liquidity.
45
Consolidated Operations
Net Revenue. Net revenue increased to $49.1 million for the three month
period ended March 31, 2002 from $44 million for the three month period ended
March 31, 2001, an increase of $5.1 million. This increase was primarily
attributable to the net revenue increase in the television and radio stations
that we owned or operated during the entire three month periods ended March 31,
2002 and 2001. On a same station basis for broadcast properties we owned or
operated for the three month periods ended March 31, 2002 and 2001, there was
an increase of $5 million, or 15%. This increase was primarily attributable to
increased advertising sold (referred to as "inventory" in the broadcasting
industry) and increased rates for that inventory.
Direct Operating Expenses. Direct operating expenses increased to $25.8
million for the three month period ended March 31, 2002 from $23 million for
the three month period ended March 31, 2001, an increase of $2.8 million. On a
same station basis, for the properties we owned or operated during the entire
three month periods ended March 31, 2002 and 2001, direct operating expenses
increased $2.1 million or 9%. This increase was primarily attributable to
increases in commissions and national representation fees associated with the
increase in net revenue and increase in the cost of rating services. The
increase was also partially attributable to a full three months of operations
of our 2001 acquisitions and our Telefutura affiliates, which together
accounted for $0.7 million of the increase. As a percentage of net revenue,
direct operating expenses remained constant at 52% for the three month periods
ended March 31, 2002 and 2001. The decrease in direct operating expense as a
percentage of net revenue from the properties we owned or operated during the
entire three month periods ended March 31, 2002 and 2001 was offset by the
increase in direct expenses for the 2001 acquisitions and our Telefutura
affiliates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.1 million for the three month period
ended March 31, 2002 from $10.1 million for the three month period ended March
31, 2001, an increase of $1 million. On a same station basis, for the
properties we owned or operated during the entire three month periods ended
March 31, 2002 and 2001, selling, general and administrative expenses increased
$0.6 million or 6%. This increase was primarily attributable to increases in
marketing, promotion and insurance costs. The increase was also partially
attributable to a full three months of operations of our 2001 acquisitions,
which accounted for approximately $0.4 million of the increase. As a percentage
of net revenue, selling, general and administrative expenses remained constant
at 23% for the three month periods ended March 31, 2002 and 2001. The decrease
in selling, general and administrative expense as a percentage of net revenue
from the properties we owned or operated during the entire three month periods
ended March 31, 2002 and 2001, was offset by the increase in selling, general
and administrative expenses for the 2001 acquisitions and our Telefutura
affiliates.
Depreciation and Amortization. Depreciation and amortization decreased to
$6.6 million for the three month period ended March 31, 2002 from $30.6 million
for the three month period ended March 31, 2001, a decrease of $24 million.
This decrease was primarily due to the adoption of SFAS No. 142, which resulted
in a decrease of approximately $22.2 million of amortization expense. The
decrease was also partially attributable to no amortization expense of
intangibles that were completely amortized in 2001. These decreases were
partially offset by increased depreciation as a result of additional assets
from our 2001 acquisitions and our Telefutura affiliates.
Corporate Expenses. Corporate expenses increased to $3.7 million for the
three month period ended March 31, 2002 from $3.5 million for the three month
period ended March 31, 2001, an increase of $0.2 million. The increase was
primarily attributable to increased insurance costs.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation was $1
million for the three month periods ended March 31, 2002 and 2001. Non-cash
stock-based compensation consists primarily of compensation expense relating to
stock awards granted to our employees and consultants. We expect to continue to
make stock-based awards to our employees and consultants in the future.
46
Operating Income (Loss). As a result of the above factors, we had operating
income of $0.9 million for the three month period ended March 31, 2002 compared
to an operating loss of $24.3 million for the three month period ended March
31, 2001, an increase of $25.2 million. The increase was primarily due to the
decrease in amortization expense as a result of adopting SFAS No. 142.
Interest Expense, Net. Net interest expense increased to $6.6 million for
the three month period ended March 31, 2002 from $6.2 million for the three
month period ended March 31, 2001, an increase of $0.4 million. The increase
was primarily a result of an increase in interest expense of approximately $2.7
million relating to the write-off of deferred debt costs as a result of the
repayment of the outstanding balances under our bank credit facility with the
proceeds of our Outstanding Notes issued on March 18, 2002. This increase was
offset primarily by lower interest rates and our reduced debt due to the
retirement of a $37.5 million note payable with the issuance of approximately
3.6 million shares of Class A common stock and a cash payment of approximately
$0.3 million.
Net Loss. Net loss increased to $50.8 million for the three month period
ended March 31, 2002 from $19.5 million for the three month period ended March
31, 2001, an increase of $31.3 million. This increase was primarily the result
of a write-down relating to our outdoor segment in accordance with SFAS No. 142
in the amount of $46.2 million net of taxes of $13.4 million, offset by a
reduction in our amortization expense in the amount of $22.2 million.
Broadcast Cash Flow. Broadcast cash flow increased to $12.2 million for the
three month period ended March 31, 2002 from $10.8 million for the three month
period ended March 31, 2001, an increase of $1.4 million. As a percentage of
net revenue, broadcast cash flow remained constant at 25% for the three month
periods ended March 31, 2002 and 2001. On a same station basis, for the
properties we owned or operated during the entire three month periods ended
March 31, 2002 and 2001, broadcast cash flow increased $1.5 million or 14%. As
a percentage of net revenue for properties we owned or operated during the
entire three month periods ended March 31, 2002 and 2001, broadcast cash flow
increased to 26% for the three month period ended March 31, 2002 from 25% for
the three month period ended March 31, 2001.
EBITDA. EBITDA increased to $8.5 million for the three month period ended
March 31, 2002 from $7.3 million for the three month period ended March 31,
2001, an increase of $1.2 million. As a percentage of net revenue, EBITDA
remained constant at 17% for the three month periods ended March 31, 2002 and
2001. On a same station basis, for the properties we owned or operated during
the entire three month periods ended March 31, 2002 and 2001, EBITDA increased
$1.3 million or 18%. As a percentage of net revenue for properties we owned or
operated during the entire three month periods ended March 31, 2002 and 2001,
EBITDA increased to 18% for the three month period ended March 31, 2002 from
17% for the three month period ended March 31, 2001. The increase in EBITDA as
a percentage of revenue was primarily due to the increase of net revenue
partially offset by the increase of direct operating and selling, general and
administrative expenses.
Segment Operations
Television
Net Revenue. Net revenue in our television segment increased to $24 million
for the three month period ended March 31, 2002 from $19.8 million for the
three month period ended March 31, 2001, an increase of $4.2 million. This
increase was partially attributable to a full three months of operations of our
2001 acquisitions, which accounted for $1.1 million of the increase, and our
Telefutura affiliates in markets where we currently operate a Univision
station, which accounted for $0.2 million of the increase. On a same station
basis, for the stations we owned or operated during the entire three month
periods ended March 31, 2002 and 2001, net revenue increased $2.9 million. This
increase was attributable to a combination of an increase in rates and
inventory sold.
47
Direct Operating Expenses. Direct operating expenses in our television
segment increased to $11 million for the three month period ended March 31,
2002 from $9 million for the three month period ended March 31, 2001, an
increase of $2 million. This increase was partially attributable to a full
three months of operations of our 2001 acquisitions, which accounted for $0.5
million of the increase, and our Telefutura affiliates, which accounted for
$0.3 million of the increase. On a same station basis, for the stations we
owned or operated during the entire three month periods ended March 31, 2002
and 2001, direct operating expenses increased $1.2 million. This increase was
primarily attributable to an increase in commissions and national
representation fees associated with the increase in net revenue and an increase
in the cost of rating services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our television segment increased to $5.1 million for
the three month period ended March 31, 2002 from $4.4 million for the three
month period ended March 31, 2001, an increase of $0.7 million. This increase
was primarily attributable to a full three months of operations of our 2001
acquisitions, which accounted for $0.5 million of the increase. On a same
station basis, for the stations we owned or operated during the entire three
month periods ended March 31, 2002 and 2001, selling, general and
administrative expenses increased $0.2 million. This increase was primarily
attributable to increased insurance costs.
Radio
Net Revenue. Net revenue in our radio segment increased to $14.8 million
for the three month period ended March 31, 2002 from $13 million for the three
month period ended March 31, 2001, an increase of $1.8 million. On a same
station basis, for the stations we owned or operated during the entire three
month periods ended March 31, 2002 and 2001, net revenue increased $2.1
million. This increase was primarily attributable to increased ratings and
sales incentive programs. The increase was partially offset by a reduction in
net revenue as a result of stations that were sold in 2001.
Direct Operating Expenses. Direct operating expenses in our radio segment
increased to $6.5 million for the three month period ended March 31, 2002 from
$5.9 million for the three month period ended March 31, 2001, an increase of
$0.6 million. On a same station basis, for the stations we owned or operated
during the entire three month periods ended March 31, 2002 and 2001, direct
operating expenses increased $0.8 million. This increase was primarily
attributable to an increase in commissions associated with the increase in net
revenue. The increase was partially offset by the reduction in direct operating
expenses as a result of stations that were sold in 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our radio segment increased to $4.3 million for the
three month period ended March 31, 2002 from $3.9 million for the three month
period ended March 31, 2001, an increase of $0.4 million. On a same station
basis, for the stations we owned or operated during the entire three month
periods ended March 31, 2002 and 2001, selling, general and administrative
expenses increased $0.4 million. This increase was primarily attributable to
increases in marketing and promotion expenses in two large markets.
Outdoor
Net Revenue. Net revenue in our outdoor segment decreased to $5.7 million
for the three month period ended March 31, 2002 from $6.5 million for the three
month period ended March 31, 2001, a decrease of $0.8 million. This decrease
was primarily attributable to a decline in the average monthly rate of boards
sold, partially offset by an increase in overall billboard occupancy during the
period.
Direct Operating Expenses. Direct operating expenses in our outdoor segment
remained constant at $4.7 million for the three month period ended March 31,
2002 compared to the three month period ended March 31, 2001.
48
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our outdoor segment remained constant at $0.9
million for the three month period ended March 31, 2002 compared to the three
month period ended March 31, 2001.
Publishing
Net Revenue. Net revenue in our publishing segment decreased to $4.6
million for the three month period ended March 31, 2002 from $4.7 million for
the three month period ended March 31, 2001, a decrease of $0.1 million.
Direct Operating Expenses. Direct operating expenses in our publishing
segment increased to $3.5 million for the three month period ended March 31,
2002 from $3.4 million for the three month period ended March 31, 2001, an
increase of $0.1 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our publishing segment decreased to $0.8 million for
the three month period ended March 31, 2002 from $0.9 million for the three
month period ended March 31, 2001, a decrease of $0.1 million.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and
available borrowings under our bank credit facility. We have a $400 million
credit facility which is comprised of a $250 million revolver, and a
$150 million uncommitted loan facility expiring in 2007. Our bank credit
facility is secured by substantially all of our assets as well as the pledge of
the stock of several of our subsidiaries including our special purpose
subsidiaries formed to hold our FCC licenses. The revolving facility bears
interest at LIBOR (1.88% at March 31, 2002) plus a margin ranging from 0.875%
to 3.25% based on our leverage. In addition, we pay a quarterly loan commitment
fee ranging from 0.25% to 0.75% per annum, which is levied upon the unused
portion of the amount available. As of March 31, 2002, there was no amount
outstanding under our bank credit facility, as described below. As of the date
of this prospectus, we had approximately $35 million outstanding under our bank
credit facility.
Our bank credit facility contains a mandatory prepayment clause in the event
that we liquidate any assets if the proceeds are not utilized to acquire assets
of the same type within 180 days, receive insurance or condemnation proceeds
which are not fully utilized toward the replacement of such assets or have
excess cash flow (as defined in our Credit Agreement), 50% of which excess cash
flow shall be used to reduce our outstanding loan balance.
Our bank credit facility contains certain financial covenants relating to
maximum total debt ratio, minimum total interest coverage ratio and a fixed
charge coverage ratio. The covenants become increasingly restrictive in the
later years of our bank credit facility. Our bank credit facility also contains
restrictions on the incurrence of additional debt, the payment of dividends,
acquisitions and the sale of assets over a certain limit. Additionally, we are
required to enter into interest rate agreements if our leverage exceeds certain
limits (as defined in our Credit Agreement).
Our bank credit facility requires us to maintain our FCC licenses for our
broadcast properties and contains other operating covenants, including
restrictions on our ability to incur additional indebtedness and pay dividends.
Acquisitions having an aggregate maximum consideration during the term of
our Credit Agreement of greater than $25 million but less than or equal to $100
million are conditioned on delivery to the agent bank of a covenant compliance
certificate showing (i) pro forma calculations assuming such acquisition had
been consummated and (ii) revised projections for those acquisitions. For
acquisitions having an aggregate maximum
49
consideration during the term of the Credit Agreement in excess of $100
million, majority lender consent of the bank group is required. In addition,
subject to delivery of a covenant compliance certificate, we have received
pre-approval for certain identified potential acquisitions, in the aggregate
amount of $100 million. Of this amount, $47.5 million was used to acquire
KXPK-FM, in Denver, Colorado. As of the date of this prospectus, we have not
entered into definitive agreements for any such additional acquisitions and we
can give no assurance that any such acquisitions will be consummated. We can
draw on our revolving credit facility without prior approval for working
capital needs and acquisitions less than $25 million.
On February 8, 2002, we retired a $37.5 million note payable with the
issuance of approximately 3.6 million shares of our Class A common stock and
approximately $0.3 million in cash.
On March 18, 2002, we issued the Outstanding Notes, which bear interest at
8 1/8% per year, payable semi-annually on March 15 and September 15 of each
year, commencing on September 15, 2002. The net proceeds from the Outstanding
Notes were used to pay all indebtedness outstanding under our bank credit
facility and for general corporate purposes.
In connection with the issuance of the Outstanding Notes, we amended our
bank credit facility as follows:
. to incorporate certain restrictions and covenants from the Indenture
governing the Notes into our bank credit facility;
. to provide that in the event that we have excess cash flow at the end of
any of our fiscal years ending on or after December 31, 2003, we are
required to prepay the loans with 50% of our excess cash flow with respect
to such fiscal year (but only if our ratio of total debt to operating cash
flow, together with that of our subsidiaries on a consolidated basis, is
4.5 to 1 or greater);
. to provide that for the revolving loans, the maximum margin above LIBOR is
3.25% with respect to LIBOR loans and 2.25% above base rate with respect
to base rate loans;
. to pre-approve approximately $100 million of certain identified
acquisitions;
. to reset and increase the amount available for future acquisitions to $100
million, in addition to the pre-approved acquisitions; and
. to permit the establishment of a new venture into which we may contribute
certain media assets in exchange for an equity interest in such venture.
Net cash flow provided by operating activities was approximately $9.6
million for the three month period ended March 31, 2002, from cash used of
approximately $1.2 million for the three month period ended March 31, 2001.
Net cash flow used in investing activities was approximately $31 million for
the three month period ended March 31, 2002, compared to $30.4 million for
three month period ended March 31, 2001. During the three month period ended
March 31, 2002, we acquired media properties for a total of approximately
$19.4 million, consisting primarily of a television station in El Paso, Texas
for approximately $18 million, made a deposit for radio station KXPK-FM in
Denver, Colorado for $5.9 million and made capital expenditures of
approximately $5.7 million.
Net cash flow from financing activities was approximately $21.7 million for
the three month period ended March 31, 2002 compared to $1.1 million for the
three month period ended March 31, 2001. During the three month period ended
March 31, 2002, we received net proceeds from the sale of our Notes of $218.7
million and used a portion of those proceeds to repay our indebtedness under
our bank credit facility in the amount of $199.1 million. Additionally, we
received net proceeds from the exercise of stock options and from shares issued
under the 2001 Employee Stock Purchase Plan (the "Purchase Plan") in the amount
of approximately $2.1 million.
50
During the remainder of 2002, we anticipate our maintenance capital
expenditures will be approximately $6.1 million, and our digital television
capital expenditures will be approximately $5.5 million. We anticipate paying
for these capital expenditures out of net cash flow from operating activities.
The amount of these capital expenditures may change based on future changes in
business plans, our financial condition and general economic conditions.
We currently anticipate that funds generated from operations and available
borrowings under our credit facility will be sufficient to meet our anticipated
cash requirements for the foreseeable future.
We continually review, and are currently reviewing, opportunities to acquire
additional television and radio stations as well as other opportunities
targeting the Hispanic market in the U.S. We expect to finance any future
acquisitions through funds generated from operations and borrowings under our
credit facility and through additional debt and equity financing. Any
additional financing, if needed, might not be available to us on reasonable
terms or at all. Failure to raise capital when needed could seriously harm our
business and our acquisition strategy. If additional funds were raised through
the issuance of equity securities, the percentage of ownership of our
stockholders would be reduced. Furthermore, these equity securities might have
rights, preferences or privileges senior to our Class A common stock.
On March 19, 2001, our Board of Directors approved a stock repurchase
program. We are authorized to repurchase up to $35 million of our outstanding
Class A common stock from time to time in open market transactions at
prevailing market prices, block trades and private repurchases. The extent and
timing of any repurchases will depend on market conditions and other factors.
We intend to finance stock repurchases, if and when made, with our available
cash on hand and cash provided by operations. No shares of Class A common stock
have been repurchased under the stock repurchase program.
On April 4, 2001, our Board of Directors adopted the Purchase Plan. The
Purchase Plan was approved by our stockholders on May 10, 2001 at our 2001
Annual Meeting of Stockholders. Subject to adjustments in our capital
structure, as defined in the Purchase Plan, the maximum number of shares of
Class A common stock that will be made available for sale under the Purchase
Plan is 600,000, plus an annual increase of up to 600,000 shares on the first
day of each of the next ten calendar years, beginning January 1, 2002. All of
our employees are eligible to participate in the Purchase Plan, provided that
they have completed six months of continuous service as an employee as of an
offering date. The first offering period under the Purchase Plan commenced on
August 15, 2001 and concluded on February 14, 2002. As of March 31, 2002,
approximately 45,000 shares were purchased under the Purchase Plan.
On May 9, 2002, we filed a registration statement with the Commission to
register up to $500 million of equity and debt securities, which we may offer
from time to time. That registration statement was declared effective by the
Commission on May 24, 2002. We have not issued any securities covered by that
registration statement.
51
DESCRIPTION OF THE 8 1/8% SENIOR SUBORDINATED NOTES DUE 2009
General
We will issue the Exchange Notes under the Indenture dated as of March 1,
2002 by and among the Company, the Guarantors and Union Bank of California,
N.A., as trustee (the "Trustee"). This is the same Indenture under which the
Outstanding Notes were issued. The terms of the Exchange Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "TIA"). The Exchange Notes are
subject to all such terms, and Holders of Exchange Notes are referred to the
Indenture and the TIA for a statement thereof.
The following summaries of certain provisions of the Indenture and the
Registration Rights Agreement are summaries only, do not purport to be complete
and are qualified in their entirety by reference to all of the provisions of
the Indenture and the Registration Rights Agreement. Copies of the form of
Indenture are available as set forth under the heading "Where You Can Find More
Information."
The definitions of certain terms used in the following summary are set forth
below under the heading "--Certain Definitions." For purposes of this section,
references to "ECC" or "we," "our," or "us" include only Entravision
Communications Corporation and its successors in accordance with the terms of
the Indenture and, except pursuant to the terms of the Guarantees, not our
subsidiaries.
Exchange Notes Versus Outstanding Notes
The Exchange Notes are substantially identical to the Outstanding Notes,
except that the transfer restrictions, registration rights and special
redemption provisions do not apply to the Exchange Notes.
The following description is a summary of the material provisions of the
Indenture, and references to the "Notes" refer to both the Outstanding Notes
and the Exchange Notes, unless specifically stated otherwise. The following
description does not restate the Indenture in its entirety. We urge you to read
the Indenture because it, and not this description, defines your rights as a
Holder of the Notes.
Brief Description of the Notes and the Guarantees
The Notes
The Notes:
. are general unsecured obligations of ECC;
. are subordinated in right of payment to all existing and future Senior
Debt of ECC;
. are pari passu in right of payment with any future senior subordinated
Indebtedness of ECC; and
. are unconditionally guaranteed by the Guarantors.
The Guarantees
The Notes are guaranteed by all of ECC's Domestic Subsidiaries. The Domestic
Subsidiaries do not include the Special Purpose License Subsidiaries.
Each guarantee of the Notes:
. is a general unsecured obligation of the Guarantor;
. is subordinated in right of payment to all existing and future Senior Debt
of that Guarantor; and
. is pari passu in right of payment with any future senior subordinated
Indebtedness of that Guarantor.
52
As of the date of this prospectus, ECC and the Guarantors had total Senior
Debt of approximately $35 million. As indicated above and as discussed in
detail below under the heading "Subordination," payments on the Notes and under
these guarantees are subordinated to the payment of Senior Debt. The Indenture
permits us and the Guarantors to incur additional Senior Debt.
As of the date of the Indenture, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
heading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we are permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries are not subject to
many of the restrictive covenants in the Indenture. Our Unrestricted
Subsidiaries have not guaranteed the Notes.
Principal, Maturity and Interest
The Indenture permits ECC to issue Notes with a maximum aggregate principal
amount of $300 million, of which $225 million were issued to the Initial
Purchasers. ECC may issue additional Notes from time to time. Any offering of
additional Notes is subject to the covenant described below under the heading
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock." The Notes and any additional Notes subsequently issued under the
Indenture will be treated as a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. ECC will issue Notes in denominations of $1,000 and
integral multiples of $1,000. The Notes will mature on March 15, 2009.
Interest on the Notes accrues at the rate of 8 1/8% per annum and is payable
semi-annually in arrears on March 15 and September 15, commencing on September
15, 2002. ECC will make each interest payment to the Holders of record on the
immediately preceding March 1 and September 1.
Interest on the Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to ECC, ECC will pay all
principal, interest and premium and Liquidated Damages, if any, on that
Holder's Notes in accordance with those instructions. All other payments on
Notes will be made at the office or agency of the paying agent and registrar
within the City of Los Angeles and State of California unless ECC elects to
make interest payments by check mailed to the Holders at their address set
forth in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee or its affiliated paying agent is initially acting as paying
agent and registrar. ECC may change the paying agent or registrar without prior
notice to the Holders of the Notes, and ECC or any of its Subsidiaries may act
as paying agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The registrar and the Trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of Notes.
Holders are required to pay all taxes due on transfer. ECC is not required to
transfer or exchange any Note selected for redemption. Also, ECC is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes is to be redeemed.
53
Subsidiary Guarantees
The Notes are guaranteed by each of ECC's current and future Domestic
Subsidiaries. The Domestic Subsidiaries do not include the Special Purpose
License Subsidiaries. These Subsidiary Guarantees are joint and several
obligations of the Guarantors. Each Subsidiary Guarantee is subordinated to the
prior payment in full of all Senior Debt of that Guarantor. The obligations of
each Guarantor under its Subsidiary Guarantee are limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Fraudulent Conveyance Matters."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than ECC or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor under the Indenture, its Subsidiary
Guarantee and the Registration Rights Agreement pursuant to a supplemental
Indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of merger
or consolidation) to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of ECC, if the sale or other disposition
complies with the "Asset Sale" provisions of the Indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Subsidiary of ECC, if the sale complies with the "Asset Sale"
provisions of the Indenture;
(3) if ECC designates any Restricted Subsidiary that is a Guarantor as an
Unrestricted Subsidiary in accordance with the applicable provisions of the
Indenture;
(4) in connection with any transaction whereby a Guarantor is no longer a
Restricted Subsidiary immediately after giving effect to such transaction if
the transaction complies with the "Asset Sale" provisions of the Indenture; or
(5) upon the discharge or release of all guarantees of such Guarantor, and
all pledges of property or assets of such Guarantor securing all other
Indebtedness of ECC and its Restricted Subsidiaries.
See below under the heading "Repurchase at the Option of Holders--Asset
Sales."
Subordination
The payment of principal, interest and premium and Liquidated Damages, if
any, on the Notes is subordinated to the prior payment in full in cash of all
Senior Debt of ECC, including Senior Debt incurred after the date of the
Indenture.
The holders of Senior Debt are entitled to receive payment in full in cash
of all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt whether or not a claim for such interest would be
allowed in such
54
proceeding) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes or on account of any purchase or redemption or other
acquisition on any Note (except that Holders of Notes may receive and retain
Permitted Junior Securities and payments made from the trust described below
under the heading "Legal Defeasance and Covenant Defeasance" so long as, on the
date or dates the respective amounts were paid into trust, such payments were
made without violating the subordination provisions described herein), in the
event of any distribution to creditors of ECC:
(1) in a liquidation or dissolution of ECC;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to ECC or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of ECC's assets and liabilities.
To the extent any payment of Senior Debt (whether by or on behalf of ECC, as
proceeds of security or enforcement of any right of setoff or otherwise) is
declared to be fraudulent or preferential, set aside or required to be paid to
any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
Neither ECC nor any Guarantor may make any payment in respect of the Notes
or on account of any purchase or redemption or other acquisition of any Note
(except in Permitted Junior Securities or from the trust described below under
the heading "Legal Defeasance and Covenant Defeasance" so long as, on the date
or dates the respective amounts were paid into trust, such payments were made
without violating the subordination provisions described herein) if:
(1) a default in the payment of the principal of, or premium, if any, or
interest on, or any fees or other amounts relating to Designated Senior Debt
occurs and is continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from ECC or the holders of any Designated Senior
Debt.
Payments on the Notes (including any missed payments) may and will be
resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in the case of a nonpayment default, upon the earlier of the date on
which such nonpayment default is cured or waived, 179 days after the date on
which the applicable Payment Blockage Notice is received, or the date on which
the Trustee receives notice from or on behalf of the holders of Designated
Senior Debt to terminate the applicable Payment Blockage Notice, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee will be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default has been cured or
waived for a period of not less than 90 days.
If the Trustee or any Holder of the Notes receives a payment in respect of
the Notes (except in Permitted Junior Securities or from the trust described
below under the heading "Legal Defeasance and Covenant
55
Defeasance" so long as, on the date or dates the respective amounts were paid
into trust, such payments were made without violating the subordination
provisions described herein) when the payment is prohibited by these
subordination provisions, the Trustee or Holder, as the case may be, will hold
the payment in trust for the benefit of the holders of Senior Debt. Upon the
proper written request of the holders of Senior Debt, the Trustee or the
Holder, as the case may be, will deliver the amounts in trust to the holders of
Senior Debt or their proper representative.
ECC must promptly notify holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of ECC, Holders of Notes may
recover less ratably than creditors of ECC who are holders of Senior Debt. See
"Risk Factors--Subordination."
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by ECC or any Holder or by the failure of ECC or any Holder to comply with
the Indenture.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time from time to time, without the consent
of or notice to the Trustee, without incurring responsibility to the Trustee or
the Holders of the Notes and without impairing or releasing the subordination
provisions of the Indenture or the obligations under the Indenture of the
Holders of the Notes to the holders of the Senior Debt, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner, Senior Debt, or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any manner for the
payment or collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against ECC and any other Person.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the Indenture the principal
amount of which is $25 million or more (or otherwise available under a
committed facility) and that has been designated by ECC or a Guarantor as
"Designated Senior Debt."
"Permitted Junior Securities" means:
(1) Equity Interests in ECC or, subject to the provisions of the Credit
Agreement, any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to substantially the same extent
as, or to a greater extent than, the Notes and the Subsidiary Guarantees are
subordinated to Senior Debt under the Indenture.
"Senior Debt" means:
(1) all Indebtedness of ECC or any Guarantor outstanding under the Credit
Facility and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of ECC or any Guarantor permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or any Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
56
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
ECC;
(2) any intercompany Indebtedness of ECC or any of its Restricted
Subsidiaries to ECC or any of its Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
Indenture.
Optional Redemption
At any time prior to March 15, 2005, ECC may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes issued under the
Indenture at a redemption price of 108.125% of the principal amount, plus
accrued and unpaid interest and Liquidated Damages (as defined below under the
heading "Registration Rights; Liquidated Damages"), if any, to the redemption
date, with the net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of Notes issued under
the Indenture remains outstanding immediately after the occurrence of such
redemption (excluding Notes held by ECC and its Subsidiaries); and
(2) the redemption occurs within 180 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the Notes will not be redeemable
at ECC's option prior to March 15, 2006.
On or after March 15, 2006, ECC may redeem all or a part of the Notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, on the Notes redeemed, to the
applicable redemption date, if redeemed during the twelve month period
beginning on March 15 of the years indicated below:
Year Percentage
------------------------ ----------
2006..................... 104.063%
2007..................... 102.031%
2008..................... 100.000%
Mandatory Redemption
ECC is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of Notes will have the right to
require ECC to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's Notes pursuant to a Change of Control
Offer on the terms set forth in the Indenture. In the Change of Control Offer,
ECC will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of Notes repurchased plus accrued and unpaid
interest and Liquidated Damages, if any, on the Notes repurchased, to the date
of purchase. Within 10 business days following any Change of Control, ECC will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the Change
of Control Payment Date specified in the notice, which date will be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the Indenture and described
57
in such notice. ECC will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change
of Control provisions of the Indenture, ECC will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the Indenture by virtue
of such conflict.
On the Change of Control Payment Date, ECC will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes properly
accepted together with an officers' certificate stating the aggregate principal
amount of Notes or portions of Notes being purchased by ECC.
The paying agent will promptly mail to each Holder of Notes properly
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, ECC
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. ECC will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The provisions described above that require ECC to make a Change of Control
Offer following a Change of Control will be applicable whether or not any other
provisions of the Indenture are applicable. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit the Holders of the Notes to require that ECC repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction.
ECC will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by ECC and purchases all
Notes properly tendered and not withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of ECC and its Subsidiaries
taken as a whole. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of Notes to
require ECC to repurchase its Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of ECC and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
(A) ECC will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) ECC (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed of;
58
(2) the fair market value is determined by ECC's Board of Directors or
Special Committee thereof and evidenced by a resolution of the Board of
Directors or Special Committee thereof set forth in an officers' certificate
delivered to the Trustee; provided that with respect to assets which are
purchased as part of a larger acquisition and are sold concurrently or within
one year of such acquisition, the Board of Directors or Special Committee
thereof may, in determining fair market value, take into account the sales
price of such assets, as well as the consideration in the overall transaction;
and
(3) at least 75% of the consideration received in the Asset Sale by ECC or
such Restricted Subsidiary is in the form of cash or Cash Equivalents except to
the extent ECC is undertaking a Permitted Asset Swap. For purposes of this
provision and the next paragraph, each of the following will be deemed to be
cash:
(a) any liabilities, as shown on ECC's or such Restricted Subsidiary's
most recent balance sheet, of ECC or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any Subsidiary Guarantee) that are assumed by the transferee
of any such assets pursuant to a customary novation agreement that releases
ECC or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by ECC or any
such Restricted Subsidiary from such transferee that are converted by ECC or
such Restricted Subsidiary within 90 days into cash or Cash Equivalents, to
the extent of the cash or Cash Equivalents received in that conversion.
The 75% limitation referred to in clause (3) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the preceding provision, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Sale complied with the aforementioned 75% limitation.
Notwithstanding the foregoing, ECC, a Guarantor or any Restricted Subsidiary
will be permitted to consummate an Asset Sale without complying with the
foregoing if:
(x) ECC, such Guarantor or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or other property sold, issued or otherwise
disposed of;
(y) the fair market value is determined by ECC's Board of Directors or
Special Committee thereof and evidenced by a resolution of the Board of
Directors or Special Committee thereof set forth in an officers' certificate
delivered to the Trustee; and
(z) (i) at least 75% of the consideration for such Asset Sale
constitutes a controlling interest in a Permitted Business, assets used or
useful in a Permitted Business and/or cash, or (ii) 100% of the
consideration for such Asset Sale constitutes at least a 25% economic and
voting interest in a Person engaged in a Permitted Business, provided, that
such assets did not contribute more than $3 million in broadcast cash flow
over the four most recent quarters and provided further that this exception
in subsection (z)(ii) may not be used more than once;
provided that any cash (other than any amount deemed cash under clause (3)(a)
of the preceding paragraph) received by ECC, such Guarantor or such Restricted
Subsidiary in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Proceeds subject to the provisions of the
next paragraph.
(B) Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, ECC, such Guarantor or such Restricted Subsidiary may apply those Net
Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
59
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make capital expenditures that are used or useful in a Permitted
Business; or
(4) to acquire other assets that are used or useful in a Permitted Business.
Pending the final application of any Net Proceeds, ECC may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, ECC will make an Asset
Sale Offer to all Holders of Notes and all holders of other Indebtedness that
is pari passu with the Notes containing provisions similar to those set forth
in the Indenture with respect to offers to purchase or redeem with the proceeds
of sales of assets to purchase the maximum principal amount of Notes and such
other pari passu Indebtedness that may be purchased out of the Excess Proceeds.
The offer price in any Asset Sale Offer will be equal to 100% of principal
amount plus accrued and unpaid interest and Liquidated Damages, if any, to the
date of purchase, and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, ECC may use those Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and other pari passu Indebtedness tendered into such
Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will select
the Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds
will be reset at zero.
(C) ECC will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent
those laws and regulations are applicable in connection with each repurchase of
Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of the
Indenture, ECC will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Asset Sale
provisions of the Indenture by virtue of such conflict.
The agreements governing ECC's outstanding Senior Debt may prohibit ECC from
purchasing any notes, and may also provide that certain change of control or
asset sale events with respect to ECC would constitute a default under these
agreements. Any future credit agreements or other agreements relating to Senior
Debt to which ECC becomes a party may contain similar restrictions and
provisions. In the event a Change of Control or Asset Sale occurs at a time
when ECC is prohibited from purchasing Notes, ECC could seek the consent of its
senior lenders to the purchase of Notes or could attempt to refinance the
borrowings that contain such prohibition. If ECC does not obtain such a consent
or repay such borrowings, ECC will remain prohibited from purchasing Notes. In
such case, ECC's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
such Senior Debt. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
Selection and Notice
If less than all of the Notes are to be redeemed or purchased in an offer to
purchase at any time, the Trustee will select Notes for redemption or purchase
as follows:
(1) if the Notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities exchange
on which the Notes are listed; or
(2) if the Notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee deems fair and
appropriate.
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No Notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior
to a redemption date if the notice is issued in connection with a defeasance of
the Notes or a satisfaction and discharge of the Indenture. Notices of
redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount of that
Note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original Note will be issued in the name of the
Holder of Notes upon cancellation of the original Note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
Certain Covenants
Restricted Payments
ECC will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of ECC's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving ECC or any of its Restricted Subsidiaries) or to the
direct or indirect holders of ECC's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
ECC and other than dividends or distributions payable to ECC or a Restricted
Subsidiary of ECC);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
ECC) any Equity Interests of ECC or any direct or indirect parent of ECC (other
than any such Equity Interests owned by ECC or a Restricted Subsidiary);
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes or the Subsidiary Guarantees, except a payment of interest or
principal at the Stated Maturity thereof (except for payments into a trust
within one year of the stated maturity of any such Subordinated Indebtedness
which payments effect a defeasance or discharge of such Indebtedness); or
(4) make any Restricted Investment (all such payments and other actions set
forth in these clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence of such Restricted Payment;
(2) ECC would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio test
set forth in the first paragraph of the covenant described below under the
heading "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by ECC and its Restricted Subsidiaries after the
date of the Indenture (excluding Restricted Payments permitted by clauses (2),
(3), (7) and (8) of the next succeeding paragraph) is less than the sum,
without duplication of:
(a) (i) 100% of the aggregate Consolidated Cash Flow of ECC (or, in the
event such Consolidated Cash Flow shall be a deficit, minus 100% of such
deficit) accrued for the period beginning on the first day of the current
quarter of the date on which the Notes are sold and ending on the last day
of ECC's most recent calendar month for which financial information is
available to ECC ending prior to the date of such
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proposed Restricted Payment, taken as one accounting period, less (ii) 1.4
times Consolidated Interest Expense for the same period, plus
(b) 100% of the aggregate net proceeds (including the fair market value
of property other than cash or Cash Equivalents) received by ECC since the
first day of the current quarter of the date on which the Notes are sold
from the issue or sale of Equity Interests of ECC (other than Disqualified
Stock), or of Disqualified Stock or debt securities of ECC that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Restricted
Subsidiary and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus
(c) to the extent that any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary after the date of the Indenture, the fair market value
of such Subsidiary as of the date of such redesignation, plus
(d) the aggregate amount returned in cash with respect to Investments
(other than Permitted Investments) made after the issue date whether through
interest payments, principal payments, dividends or other distributions, plus
(e) the net cash proceeds received by ECC or any of its Restricted
Subsidiaries from the disposition, retirement or redemption of all or any
portion of such Investments referred to in clause (4) above (other than to a
Restricted Subsidiary).
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the dividend payment
would have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of ECC or any Guarantor or of any Equity
Interests of ECC in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of ECC)
of, Equity Interests of ECC (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition will be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of ECC or any Guarantor with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness;
(4) loans to members of management of ECC or any Restricted Subsidiary, the
proceeds of which are used for a concurrent purchase of Equity Interests of ECC
or a capital contribution to ECC, in an aggregate amount not in excess of $2
million (provided that the proceeds from such purchase of Equity Interests or
capital contribution shall be excluded from the calculation of amounts under
clause (3) above), provided that such loans shall be included in the
calculation of the amount of Restricted Payments from and after such time;
(5) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of ECC or any Restricted Subsidiary of ECC or the
payment of a dividend to any Restricted Subsidiary of ECC to effect the
repurchase, redemption, acquisition or retirement of ECC or its Restricted
Subsidiary's Equity Interests, that are held by any member or former member of
ECC's (or any of the Restricted Subsidiaries') management, or by any of their
respective directors, employees or consultants; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests may not exceed $1 million in any calendar year, provided that the
amount of any such repurchase or redemption shall be included in the
calculation of the amount of Restricted Payments from and after such time;
(6) payment of the dividends on Disqualified Stock the incurrence of which
was permitted by the Indenture;
(7) repurchases of Equity Interests deemed to occur upon the exercise of
stock options;
(8) the retirement of any shares of Disqualified Stock of ECC by conversion
into, or by exchange for, shares of Disqualified Stock of ECC, or out of the
net cash proceeds of the substantially concurrent sale (other
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than to a Restricted Subsidiary of ECC) of other shares of Disqualified Stock
of ECC, provided that the Disqualified Stock of ECC that replaces the retired
shares of Disqualified Stock of ECC shall not require the direct or indirect
payment of the liquidation preference earlier in time than the final stated
maturity of the retired shares of Disqualified Stock of ECC; and
(9) redemption of the Existing Preferred Stock in accordance with the terms
thereof, provided that either (i) after giving pro forma effect to such
redemption, the Leverage Ratio is 4.00 to 1.00 or lower, or (ii) such
redemption is funded with the net cash proceeds of one or more Equity Offerings
(so long as such redemption occurs within 180 days of the date of the closing
of such Equity Offering).
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by ECC or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors or Special Committee
thereof whose resolution with respect thereto will be delivered to the Trustee.
The Board of Directors' or Special Committee's determination must be based upon
an opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if the fair market value exceeds $10 million.
Incurrence of Indebtedness and Issuance of Preferred Stock
ECC and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly, or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and ECC will not issue any Disqualified Stock and will not
permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that ECC or any Guarantor may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock or preferred stock if
ECC's Leverage Ratio at the time of incurrence of such Indebtedness or the
issuance of such Disqualified Stock or such preferred stock, as the case may
be, after giving pro forma effect to such incurrence or issuance as of such
date and to the use of the proceeds therefrom as if the same had occurred at
the beginning of the most recently ended four full fiscal quarters of ECC for
which internal financial statements are available, would have been no greater
than 7.1 to 1.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by ECC and any Restricted Subsidiary of Indebtedness and
letters of credit under Credit Facilities in an aggregate principal amount at
any one time outstanding under this clause (1) (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
ECC and its Subsidiaries thereunder) not to exceed $250 million, less the
aggregate amount applied by ECC and the Restricted Subsidiaries to permanently
reduce the availability of Indebtedness under the Credit Facility pursuant to
the covenant described above under the heading "Repurchase at the Option of
Holders--Asset Sales";
(2) the incurrence by ECC and its Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by ECC and the Guarantors of Indebtedness represented by
the Notes and the related Subsidiary Guarantees to be issued on the date of the
Indenture;
(4) the incurrence by ECC or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment whether through the direct purchase of assets or
at least a majority of the Voting Stock of any person owning such assets, in an
aggregate principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant to
this clause (4), not to exceed $10 million at any time outstanding;
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(5) the incurrence by ECC or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be incurred
under the first paragraph of this covenant or clauses (2), (3), (4), (5), (10)
or (12) of this paragraph;
(6) the incurrence by ECC or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among ECC and any of its Wholly Owned
Subsidiaries; provided, however, that (i) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than ECC or a Subsidiary of ECC and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either ECC or a
Restricted Subsidiary of ECC will be deemed, in each case, to constitute an
incurrence of such Indebtedness by ECC or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the incurrence by ECC or any of its Restricted Subsidiaries of Hedging
Obligations (i) that are incurred for the purpose of fixing or hedging (x)
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Indenture to be outstanding or (y) currency
exchange rate risk in ordinary course of business, or (ii) that are incurred
for the purpose of swapping fixed interest rates for floating interest rates in
notional amounts not to exceed $100 million in the aggregate; provided that in
the case of agreements related to currency exchange rate risk, such agreements
are related to business transactions of ECC or its Restricted Subsidiaries
entered into in the ordinary course of business or in the case of agreements
related to currency exchange rate risk, agreements related to investment rate
risk and interest rate swap agreements, such agreements are entered into for
bona fide hedging purposes or bona fide business purposes, in the case of
interest rate swaps, of ECC or its Restricted Subsidiaries (as determined in
good faith by the Board of Directors or senior management of ECC) and
substantially correspond in terms of notional amount, duration, currencies and
interest rates, as applicable, to Indebtedness of ECC or its Restricted
Subsidiaries incurred without violation of the Indenture;
(8) the guarantee by ECC of Indebtedness of any Restricted Subsidiary of
ECC that was permitted to be incurred by another provision of this covenant;
(9) the guarantee by any Restricted Subsidiary of Indebtedness of ECC or
any Guarantor that was permitted to be incurred by another provision of this
covenant;
(10) Indebtedness incurred by ECC or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit issued
in the ordinary course of business, including without limitation letters of
credit in respect to workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such letters
of credit or the incurrence of such Indebtedness, such obligations are
reimbursed within 30 days following such drawing or incurrence;
(11) Obligations in respect of performance and surety bonds and completion
guarantees provided by ECC or any of its Restricted Subsidiaries in the
ordinary course of business;
(12) Acquisition Debt of ECC or any Restricted Subsidiary if (w) such
Acquisition Debt is incurred within 270 days after the date on which the
related definitive acquisition agreement or LMA, as the case may be, was
entered into by ECC or such Restricted Subsidiary, (x) the aggregate principal
amount of such Acquisition Debt is no greater than the aggregate principal
amount of Acquisition Debt set forth in a notice from ECC to the Trustee (an
"Incurrence Notice") within ten days after the date on which the related
definitive acquisition agreement or LMA, as the case may be, was entered into
by ECC or such Restricted Subsidiary, which notice shall be executed on ECC's
behalf by the chief financial officer of ECC in such capacity and shall
describe in reasonable detail the acquisition or LMA, as the case may be, which
such Acquisition Debt will be incurred to finance, (y) after giving pro forma
effect to the acquisition or LMA, as the case may be, described in such
Incurrence Notice, ECC or such Restricted Subsidiary could have incurred such
Acquisition Debt under the Indenture, including compliance with the first
paragraph of this covenant, as of the date upon which ECC delivers such
Incurrence Notice to the Trustee and (z) such Acquisition Debt is utilized
solely to finance the acquisition or LMA, as the case may be, described in such
Incurrence Notice and any other pending acquisitions
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and/or LMAs previously described in one or more Incurrence Notices (including
to repay or refinance indebtedness or other obligations incurred in connection
with such acquisition or LMA, as the case may be, and to pay related fees and
expenses);
(13) the incurrence by ECC's Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of ECC that
was not permitted by this clause (13); and
(14) the incurrence by ECC or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (14), not to exceed $20 million.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (14) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, ECC will be
permitted to classify such item of Indebtedness on the date of its incurrence,
or later reclassify all or a portion of such item of Indebtedness, in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount and the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant. Indebtedness under Credit Facilities outstanding on the date on which
the Outstanding Notes were first issued and authenticated under the Indenture
will be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt.
No Senior Subordinated Debt
ECC will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Debt of ECC and senior in any respect in right of payment to the
Notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to the Senior Debt of such Guarantor and senior in any respect in right
of payment to such Guarantor's Subsidiary Guarantee.
Liens
ECC will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien of any kind
securing Indebtedness, or trade payables on any asset now owned or hereafter
acquired, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
ECC will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
ECC or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to ECC or any of its Restricted Subsidiaries;
(2) make loans or advances to ECC or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to ECC or any of its
Restricted Subsidiaries.
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However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as in
effect on the date of the Indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of those agreements, provided that the amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in those
agreements on the date of the Indenture;
(2) the Indenture, the Notes and the Subsidiary Guarantees;
(3) applicable law, rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by ECC or any of its Restricted Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness or Capital Stock
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose restrictions
only on that property of the nature described in clause (3) of the preceding
paragraph;
(7) contracts for the sale of assets, including without limitation any
agreement for the sale or other disposition of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale or other
disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenant described above under the heading "Liens" that
limit the right of the debtor to dispose of the assets subject to such Liens;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course of
business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
ECC may not, directly or indirectly: (1) consolidate or merge with or into
another Person (whether or not ECC is the surviving corporation); or (2) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
the properties or assets of ECC and its Restricted Subsidiaries taken as a
whole, in one or more related transactions, to another Person; unless:
(1) either: (a) ECC is the surviving corporation; or (b) the Person formed
by or surviving any such consolidation or merger (if other than ECC) or to
which such sale, assignment, transfer, conveyance or other disposition has been
made is a corporation organized or existing under the laws of the U.S., any
state of the U.S. or the District of Columbia;
66
(2) the Person formed by or surviving any such consolidation or merger (if
other than ECC) or the Person to which such sale, assignment, transfer,
conveyance or other disposition has been made assumes all the obligations of
ECC under the Notes, the Indenture and the Registration Rights Agreement
pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) ECC or the Person formed by or surviving any such consolidation or
merger (if other than ECC), or to which such sale, assignment, transfer,
conveyance or other disposition has been made (a) will, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in the first
paragraph of the covenant described above under the heading "--Incurrence of
Indebtedness and Issuance of Preferred Stock," or (b) would have a lower
Leverage Ratio immediately after the transaction, after giving pro forma effect
to the transaction as if the transaction had occurred at the beginning of the
applicable four quarter period, than ECC's Leverage Ratio immediately prior to
the transaction.
The preceding clause (4) will not prohibit: (a) a merger between ECC and one
of ECC's Wholly Owned Restricted Subsidiaries; or (b) a merger between ECC and
one of ECC's Affiliates incorporated solely for the purpose of reincorporating
in another state of the U.S.
In addition, ECC may not, directly or indirectly, lease all or substantially
all of its properties or assets, in one or more related transactions, to any
other Person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of
assets between or among ECC and any of its Wholly Owned Restricted Subsidiaries.
Transactions with Affiliates
ECC will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to ECC
or the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction by ECC or such Restricted Subsidiary with an
unrelated Person; and
(2) ECC delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1
million, a resolution of the Board of Directors set forth in an officers'
certificate certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $10
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by ECC or any of its Subsidiaries
in the ordinary course of business and consistent with the past practice of ECC
or such Subsidiary;
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(2) transactions between or among ECC and/or its Restricted Subsidiaries;
(3) loans, advances, payment of reasonable fees, indemnification of
directors, or similar arrangements to officers, directors, employees and
consultants who are not otherwise Affiliates of ECC;
(4) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of ECC;
(5) transactions under any contract or agreement in effect on the date of
the Indenture as the same may be amended, modified or replaced from time to
time so long as any amendment, modification, or replacement is no less
favorable to ECC and its Restricted Subsidiaries than the contract or agreement
as in effect on the date of the Indenture;
(6) services provided to any Unrestricted Subsidiary of ECC in the ordinary
course of business, which the Board of Directors has determined, pursuant to a
resolution thereof, that such services are provided on terms at least as
favorable to ECC and its Restricted Subsidiaries as those that would have been
obtained in a comparable transaction with an unrelated Person;
(7) Permitted Investments and Restricted Payments that are permitted by the
provisions of the Indenture described above under the heading "--Restricted
Payments"; and
(8) (a) additional affiliation agreements and/or joint sales agreements
with Univision relating to the Univision network or Telefutura network, and (b)
any purchase or sale by Univision of ECC's Capital Stock.
Additional Subsidiary Guarantees
If ECC or any of its Subsidiaries acquires or creates another Domestic
Subsidiary after the date of the Indenture, excluding all Subsidiaries that
have been properly designated as Unrestricted Subsidiaries in accordance with
the Indenture for so long as they continue to constitute Unrestricted
Subsidiaries, then that newly acquired or created Domestic Subsidiary will
become a Guarantor and execute a supplemental Indenture and deliver an opinion
of counsel satisfactory to the Trustee within ten business days of the date on
which it was acquired or created.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors or Special Committee thereof may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if that designation
would not cause a Default. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all outstanding
Investments owned by ECC and the Restricted Subsidiaries in the Subsidiary
properly designated will be deemed to be an Investment made as of the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of the covenant described above under the heading
"--Restricted Payments" or Permitted Investments, as determined by ECC. That
designation will only be permitted if the Investment would be permitted at that
time and if the Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors or Special Committee thereof
may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if
the redesignation would not cause a Default.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
ECC will not, and will not permit any of its Subsidiaries to, transfer,
convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly
Owned Restricted Subsidiary of ECC to any Person (other than ECC or a Wholly
Owned Restricted Subsidiary of ECC), unless:
(1) as a result of such transfer, conveyance, sale, lease or other
disposition or issuance such Restricted Subsidiary no longer constitutes a
Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described above
under the heading "Repurchase at the Option of Holders--Asset Sales."
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In addition, ECC will not permit any Wholly Owned Restricted Subsidiary of
ECC to issue any of its Equity Interests (other than, if necessary, shares of
its Capital Stock constituting directors' qualifying shares) to any Person
other than to ECC or a Wholly Owned Restricted Subsidiary of ECC.
Payments for Consent
ECC will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any Holder of Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid and is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission so long as any Notes are
outstanding, ECC will furnish to the Holders of Notes, within the time periods
specified in the Commission's rules and regulations (or if no longer required
within the time period last required by the time periods specified in the
Commission's rules and regulations):
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if ECC
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report on the annual financial statements by
ECC's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if ECC were required to file such reports.
If ECC or any Guarantor has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph will include, either on the face of the
financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, a
reasonably detailed summary of financial condition and results of operations of
the Unrestricted Subsidiaries containing line items substantially consistent
with those contained in the summary section of this prospectus.
In addition, following the consummation of the Exchange Offer contemplated
by the Registration Rights Agreement, whether or not required by the
Commission, ECC will file a copy of all of the information and reports referred
to in clauses (1) and (2) above with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, ECC has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes whether or not prohibited by the
subordination provisions of the Indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the Notes, whether or not prohibited by the subordination provisions of the
Indenture;
(3) (i) failure by ECC or any of its Restricted Subsidiaries to comply with
the provisions described above under the headings "Repurchase at the Option of
Holders--Change of Control" or "Certain Covenants--Merger,
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Consolidation or Sale of Assets" or (ii) failure by ECC to comply with any of
the covenants under the Indenture in connection with any payment with respect
to the preferred stock, or a judgment against ECC requiring ECC to make a
payment with respect to the preferred stock;
(4) failure by ECC or any of its Restricted Subsidiaries for 30 days after
notice from the Trustee or holders of at least 25% in principal amount of the
Notes to comply with the provisions described above under the headings
"Repurchase at the Option of Holders--Asset Sales," "Certain
Covenants--Restricted Payments" or "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock";
(5) failure by ECC or any of its Restricted Subsidiaries for 60 days after
notice from the Trustee or holders of 25% in principal amount of the Notes to
comply with any of the other agreements in the Indenture;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by ECC or any of its Restricted Subsidiaries (or the payment
of which is guaranteed by ECC or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date of the
Indenture, if that default:
(a) is caused by a failure to pay principal of such Indebtedness at the
final stated maturity thereof (a "Payment Default"), or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so accelerated,
aggregates $5 million or more;
(7) failure by ECC or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5 million not covered by insurance, which
judgments are not paid, discharged or stayed for a period of 60 days;
(8) except as permitted by the Indenture, any Guarantee of a Significant
Subsidiary shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Significant Subsidiary that is a Guarantor, or any Person acting on behalf of
any such Guarantor, shall deny or disaffirm its obligations under its
Guarantee; and
(9) certain events of bankruptcy or insolvency described in the Indenture
with respect to ECC or any of its Restricted Subsidiaries.
In the event of a declaration of acceleration of the Notes because an Event
of Default has occurred and is continuing as a result of the acceleration of
any Indebtedness described in clause (6) of the preceding paragraph, the
declaration of acceleration of the Notes shall be automatically annulled if the
holders of any Indebtedness described in clause (6) of the preceding paragraph
have rescinded the declaration of acceleration in respect of the Indebtedness
within 30 days of the date of the declaration and if:
(1) the annulment of the acceleration of Notes would not conflict with any
judgment or decree of a court of competent jurisdiction; and
(2) all existing Events of Default, except nonpayment of principal or
interest on the Notes that became due solely because of the acceleration of the
Notes, have been cured or waived.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to ECC, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all Notes outstanding will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the Notes then outstanding may declare all
the Notes to be due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the Notes then outstanding may direct
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the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Notes notice of any continuing Default or Event of Default
if it determines that withholding notice is in their interest, except a Default
or Event of Default relating to the payment of principal or interest or
Liquidated Damages.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of ECC with the intention
of avoiding payment of the premium that ECC would have had to pay if ECC then
had elected to redeem the Notes pursuant to the optional redemption provisions
of the Indenture, an equivalent premium will also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
If an Event of Default occurs prior to, by reason of any willful action (or
inaction) taken (or not taken) or on behalf of ECC with the intention of
avoiding the prohibition on redemption of the Notes prior to March 15, 2006,
then the premium specified in the Indenture will also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
ECC is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, ECC is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of ECC, any
Subsidiary of ECC, or any Guarantor, as such, will have any liability for any
obligations of ECC or the Guarantors under the Notes, the Indenture, the
Subsidiary Guarantees, or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
ECC may, at its option and at any time elect to have all of its obligations
discharged with respect to the Outstanding Notes and all obligations of the
Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of Outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages, if
any, on such Notes when such payments are due from the trust referred to below;
(2) ECC's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
ECC's and the Guarantors' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, ECC may, at its option and at any time, elect to have the
obligations of ECC and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment,
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bankruptcy, receivership, rehabilitation and insolvency events) described above
under the heading "Events of Default and Remedies" will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) ECC must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, or interest and premium and Liquidated Damages, if any,
on the Outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and ECC must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, ECC has delivered to the Trustee an
opinion of counsel reasonably acceptable to the Trustee confirming that (a) ECC
has received from, or there has been published by, the Internal Revenue Service
a ruling or (b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel will confirm that, the Holders of the
Outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, ECC has delivered to the Trustee an
opinion of counsel reasonably acceptable to the Trustee confirming that the
Holders of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default has occurred and is continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which ECC or any of its Restricted
Subsidiaries is a party or by which ECC or any of its Restricted Subsidiaries
is bound;
(6) ECC must deliver to the Trustee an officers' certificate stating that
the deposit was not made by ECC with the intent of preferring the Holders of
Notes over the other creditors of ECC with the intent of defeating, hindering,
delaying or defrauding creditors of ECC or others; and
(7) ECC must deliver to the Trustee an officers' certificate and an opinion
of counsel, which opinion may be subject to customary assumptions and
exclusions, each stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
The Credit Agreement restricts ECC's ability to effect a Legal Defeasance or
a Covenant Defeasance.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Indenture,
the Subsidiary Guarantees or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or Exchange Offer for, the
Notes), and any existing default or compliance with any provision of the
Indenture, the Subsidiary Guarantees or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the then
Outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or Exchange Offer for, the
Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the heading
"Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest,
including default interest, on any Note, except that with the consent of 75% in
principal amount of the Notes then outstanding, any interest payment may be
postponed for a period not to exceed three years;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments of
principal of, or interest or premium or Liquidated Damages, if any, on, the
Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the heading
"Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
In addition, (x) any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
Holders of the Notes, (y) the release of any Guarantor from any of its
obligations under its Subsidiary Guarantee or the Indenture or (z) postponement
of any interest payment for a period not to exceed three years, except in
accordance with the terms of the Indenture, will require the consent of the
Holders of at least 75% in aggregate principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes,
ECC, the Guarantors and the Trustee may amend or supplement the Indenture or
the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes, or to alter certain provisions relating to the Notes in a
manner that does not materially adversely affect any Holder;
(3) to provide for the assumption of ECC's obligations to Holders of Notes
in the case of a merger or consolidation or sale of all or substantially all of
ECC's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder;
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA;
(6) to provide for the issuance of additional Notes in accordance with the
limitations set forth in the Indenture as of its date; or
(7) to allow any Guarantor to execute a supplemental Indenture and/or a
Guarantee with respect to the Notes.
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Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated, except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose payment
money has been deposited in trust and thereafter repaid to ECC, have been
delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise or will become due and payable within one
year and ECC or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust solely for the benefit of
the Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable Government Securities,
in amounts as will be sufficient without consideration of any reinvestment
of interest, to pay and discharge the entire indebtedness on the Notes not
delivered to the Trustee for cancellation for principal, premium and
Liquidated Damages, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the deposit
will not result in a breach or violation of, or constitute a default under, any
other instrument to which ECC or any Guarantor is a party or by which ECC or
any Guarantor is bound;
(3) ECC or any Guarantor has paid or caused to be paid all sums payable by
it under the Indenture; and
(4) ECC has delivered irrevocable instructions to the Trustee under the
Indenture to apply the deposited money toward the payment of the Notes at
maturity or the redemption date, as the case may be.
In addition, ECC must deliver an officers' certificate and an opinion of
counsel, which may be subject to customary assumptions and exclusions, to the
Trustee stating that all conditions precedent to satisfaction and discharge
have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of ECC or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days and apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then Outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is continuing, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder has offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Entravision
Communications Corporation, 2425 Olympic Boulevard, Suite 6000 West, Santa
Monica, California 90404, Attention: Assistant Corporate Secretary, or by
sending an email message to mrowles@entravision.com.
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Book-Entry, Delivery and Form
The Outstanding Notes were offered and sold to qualified institutional
buyers in reliance on Rule 144A ("Rule 144A Notes"). Outstanding Notes also
were offered and sold in offshore transactions in reliance on Regulation S
("Regulation S Notes"). Except as set forth below, Notes will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess of $1,000. The Outstanding Notes were issued only
against payment in immediately available funds.
Rule 144A Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Rule 144A Global Notes").
Regulation S Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Regulation S Temporary Global
Notes"). The Rule 144A Global Notes and the Regulation S Temporary Global Notes
were deposited upon issuance with the Trustee as custodian for The Depository
Trust Company ("DTC"), in New York, New York, and registered in the name of DTC
or its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below. Through and including the 40th day after
the later of the commencement of the offering to the Initial Purchasers and the
closing of the offering (such period through and including such 40th day, the
"Restricted Period"), beneficial interests in the Regulation S Temporary Global
Notes are permitted to be held only through the Euroclear System ("Euroclear")
and Clearstream Banking, S.A. ("Clearstream") (as indirect participants in
DTC), unless transferred to a person that takes delivery through a Rule 144A
Global Note in accordance with the certification requirements described below.
Within a reasonable time period after the expiration of the Restricted Period,
the Regulation S Temporary Global Notes will be exchanged for one or more
permanent Notes in registered, global form without interest coupons
(collectively, the "Regulation S Permanent Global Notes" and, together with the
Regulation S Temporary Global Notes, the "Regulation S Global Notes" (the
Regulation S Global Notes and Rule 144A Global Notes, collectively being the
"Global Notes")) upon delivery to DTC of certification of compliance with the
transfer restrictions applicable to the Notes and pursuant to Regulation S as
provided in the Indenture. Beneficial interests in the Rule 144A Global Notes
may not be exchanged for beneficial interests in the Regulation S Global Notes
at any time except in the limited circumstances described below. See below
under the heading "Exchanges between Regulation S Notes and Rule 144A Notes."
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circumstances described below.
See below under the heading "Exchange of Global Notes for Certificated Notes."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Notes will not be entitled to receive physical delivery
of Notes in certificated form.
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) are subject to certain restrictions on transfer and bear a restrictive
legend. Regulation S Notes also bear a restrictive legend. In addition,
transfers of beneficial interests in the Global Notes are subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and Clearstream), which may
change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. ECC takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised ECC that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its
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Participants. The Participants include securities brokers and dealers
(including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised ECC that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership of these interests will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Rule 144A Global Notes who are Participants in DTC's system
may hold their interests therein directly through DTC. Investors in the Rule
144A Global Notes who are not Participants may hold their interests therein
indirectly through organizations (including Euroclear and Clearstream) which
are Participants in such system. Investors in the Regulation S Global Notes
must initially hold their interests therein through Euroclear or Clearstream,
if they are participants in such systems, or indirectly through organizations
that are participants in such systems. After the expiration of the Restricted
Period (but not earlier), investors may also hold interests in the Regulation S
Global Notes through Participants in the DTC system other than Euroclear and
Clearstream. Euroclear and Clearstream will hold interests in the Regulation S
Global Notes on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and
Clearstream Banking, societe anonyme. All interests in a Global Note, including
those held through Euroclear or Clearstream, may be subject to the procedures
and requirements of DTC. Those interests held through Euroclear or Clearstream
may also be subject to the procedures and requirements of such systems. The
laws of some states require that certain Persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such Persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, ECC and the Trustee will
treat the Persons in whose names the Notes, including the Global Notes, are
registered as the owners of the Notes for the purpose of receiving payments and
for all other purposes. Consequently, neither ECC, the Trustee nor any agent of
ECC or the Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to, or payments made on account of, the
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
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DTC has advised ECC that its current practice, upon receipt of any payment
in respect of securities such as the Notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of the
Notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or ECC. Neither ECC nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Notes, and ECC and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Subject to certain transfer restrictions, transfers between Participants in
DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds, and transfers between participants in Euroclear and
Clearstream will be effected in accordance with their respective rules and
operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or Clearstream participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised ECC that it will take any action permitted to be taken by a
Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Rule 144A Global Notes
and the Regulation S Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to continue to perform
such procedures, and may discontinue such procedures at any time. Neither ECC
nor the Trustee nor any of their respective agents will have any responsibility
for the performance by DTC, Euroclear or Clearstream or their respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies ECC that it is unwilling or unable to continue as
depositary for the Global Notes and ECC fails to appoint a successor depositary
or (b) has ceased to be a clearing agency registered under the Exchange Act;
(2) ECC, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default with
respect to the Notes.
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In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend,
unless such a legend is not required by applicable law.
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes.
Exchanges Between Regulation S Notes and Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if:
(1) such exchange occurs in connection with a transfer of the Notes
pursuant to Rule 144A; and
(2) the transferor first delivers to the Trustee a written certificate (in
the form provided in the Indenture) to the effect that the Notes are being
transferred to a Person:
(a) who the transferor reasonably believes to be a qualified
institutional buyer within the meaning of Rule 144A;
(b) purchasing for its own account or the account of a qualified
institutional buyer in a transaction meeting the requirements of Rule 144A;
and
(c) in accordance with all applicable securities laws of the states of
the U.S. and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
Person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144A (if available) and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Clearstream.
Transfers involving exchanges of beneficial interests between the Regulation
S Global Notes and the Rule 144A Global Notes will be effected in DTC by means
of an instruction originated by the Trustee through the DTC Deposit/Withdraw at
Custodian system. Accordingly, in connection with any such transfer,
appropriate adjustments will be made to reflect a decrease in the principal
amount of the Regulation S Global Note and a corresponding increase in the
principal amount of the Rule 144A Global Note or vice versa, as applicable. Any
beneficial interest in one of the Global Notes that is transferred to a Person
who takes delivery in the form of an interest in the other Global Note will,
upon transfer, cease to be an interest in such Global Note and will become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions and other procedures applicable to beneficial
interest in such other Global Note for so long as it remains such an interest.
The policies and practices of DTC may prohibit transfers of beneficial
interests in the Regulation S Global Note prior to the expiration of the
Restricted Period.
Payments; Certifications by Holders of the Regulation S Temporary Global Notes
A holder of a beneficial interest in the Regulation S Temporary Global Notes
must provide Euroclear or Clearstream, as the case may be, with a certificate
in the form required by the Indenture certifying that the beneficial owner of
the interest in the Regulation S Temporary Global Notes is either not a U.S.
Person (as
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defined below) or has purchased such interest in a transaction that is exempt
from the registration requirements under the Securities Act (the "Regulation S
Certificate"), and Euroclear or Clearstream, as the case may be, must provide
to the Trustee (or the paying agent if other than the Trustee) a certificate in
the form required by the Indenture, prior to any exchange of such beneficial
interest for a beneficial interest in the Regulation S Permanent Global Notes.
"U.S. Person" means
(1) any individual resident in the U.S.;
(2) any partnership or corporation organized or incorporated under the laws
of the U.S.;
(3) any estate of which an executor or administrator is a U.S. Person
(other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets);
(4) any trust of which any trustee is a U.S. Person (other than a trust of
which at least one trustee is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the
trust (and no settler if the trust is revocable) is a U.S. Person);
(5) any agency or branch of a foreign entity located in the U.S.;
(6) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person;
(7) any discretionary or similar account (other than an estate or trust)
held by a dealer of other fiduciary organized, incorporated or (if an
individual) resident in the U.S. (other than such an account held for the
benefit or account of a non-U.S. Person);
(8) any partnership or corporation organized or incorporated under the laws
of a foreign jurisdiction and formed by a U.S. Person principally for the
purpose of investing in securities not registered under the Securities Act
(unless it is organized or incorporated, and owned, by accredited investors
within the meaning of Rule 501(a) under the Securities Act who are not natural
persons, estates or trusts); provided, however, that the term "U.S. Person"
will not include:
(a) a branch or agency of a U.S. Person that is located and operating
outside the U.S. for valid business purposes as a locally regulated branch
or agency engaged in the banking or insurance business;
(b) any employee benefit plan established and administered in accordance
with the law, customary practices and documentation of a foreign country; and
(c) the international organizations set forth in Section 902(o)(7) of
Regulation S and any other similar international organizations, and their
agencies, affiliates and pension plans.
Same Day Settlement and Payment
ECC will make payments in respect of the Notes represented by the Global
Notes (including principal, premium, if any, interest and Liquidated Damages,
if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. ECC will make all payments of principal,
interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Notes represented by the Global Notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such Notes will, therefore, be required by DTC to be
settled in immediately available funds. ECC expects that secondary trading in
any Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be
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reported to the relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business day for
Euroclear and Clearstream) immediately following the settlement date of DTC.
DTC has advised ECC that cash received in Euroclear or Clearstream as a result
of sales of interests in a Global Note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
Registration Rights; Liquidated Damages
ECC, the Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement dated as of March 12, 2002. Pursuant to the Registration
Rights Agreement, ECC and the Guarantors agreed to file with the Commission
this Registration Statement (referred to in this section as the "Exchange Offer
Registration Statement") on the appropriate form and to comply with all
applicable tender offer rules and regulations under the Securities Act with
respect to the Exchange Offer as described below. Upon the effectiveness of the
Exchange Offer Registration Statement, ECC and the Guarantors will offer
Exchange Notes in exchange for the Outstanding Notes. The Exchange Notes will
be substantially identical to the Outstanding Notes except that they will have
been registered pursuant to an effective registration statement under the
Securities Act.
If:
(i) on or prior to the time the Exchange Offer is completed existing
Commission interpretations are changed such that the debt securities
received by holders of Notes (other than holders of restricted Notes) in the
Exchange Offer are not or would not be, upon receipt, transferable by each
such holder without restriction under the Securities Act;
(ii) the Exchange Offer has not been completed within 210 days following
the date on which the Outstanding Notes were initially issued; or
(iii) the Exchange Offer is not available to any holder of Outstanding
Notes,
ECC and the Guarantors shall, in lieu of (or, in the case of clause (iii),
in addition to) conducting the Exchange Offer contemplated by the Registration
Rights Agreement, file under the Securities Act as soon as practicable a
"shelf" registration statement providing for the registration of, and the sale
on a continuous or delayed basis by the holders of, all of the Notes, pursuant
to Rule 415 under the Securities Act or any similar rule that may be adopted by
the Commission (such filing, the "Shelf Registration" and such registration
statement, the "Shelf Registration Statement").
The Registration Rights Agreement provides that:
(i) ECC and the Guarantors agree to file, within 90 days after the date
on which the Outstanding Notes were initially issued, the Exchange Offer
Registration Statement;
(ii) ECC and the Guarantors agree to use their reasonable best efforts
to cause the Exchange Offer Registration Statement to become effective
within 150 days after the date on which the Outstanding Notes were initially
issued;
(iii) ECC and the Guarantors agree to use their reasonable best efforts
to commence and complete the Exchange Offer within 30 business days after
such Exchange Offer Registration Statement has become effective, hold the
Exchange Offer open for at least 20 business days and exchange Exchange
Notes for all Outstanding Notes that have been properly tendered and not
withdrawn on or prior to the expiration of the Exchange Offer; and
(iv) the holders of the Outstanding Notes will continue to have a right
to require registration of the Outstanding Notes so long as the Outstanding
Notes are not transferable by each such holder without restriction under the
Securities Act and the Exchange Act and without material restrictions under
the blue sky or securities laws.
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In the event that:
(i) ECC and the Guarantors have not filed the Exchange Offer
Registration Statement on or before the 90th day after the date on which the
Outstanding Notes were initially issued;
(ii) such Exchange Offer Registration Statement has not become effective
or been declared effective by the Commission on or before the 150th day
after the date on which the Outstanding Notes were initially issued;
(iii) the Exchange Offer has not been completed within 210 days
following the date on which the Outstanding Notes were initially issued; or
(iv) any Shelf Registration Statement required to be filed (a) is not
declared effective by the later of (1) 210 days following the date on which
the Outstanding Notes were initially issued, or (2) 90 days after such Shelf
Registration Statement is required to be filed; or (b) is declared effective
but thereafter ceases to be effective or usable, except as specifically
permitted under the Registration Rights Agreement;
then, as liquidated damages for such registration default (a "Registration
Default"), subject to the provisions of the Registration Rights Agreement,
liquidated damages ("Liquidated Damages"), in addition to the interest that
would otherwise accrue on the Notes, shall accrue on the Notes that are then
not transferable without restriction under the Securities Act, at an annual
rate of 0.25% for the first 90 days of the Registration Default period,
increasing by an additional 0.25% per annum with respect to each subsequent
120-day period up to a maximum amount of additional interest of 1.00% per
annum. Liquidated Damages on such Notes shall cease to accrue upon cure of all
Registration Defaults, and if there is a subsequent Registration Default after
cure, the rate of Liquidated Damages for such Registration Default will
initially be 0.25% regardless of the rate that was in effect in connection with
any prior Registration Default.
Any holder (other than certain specified holders) who wishes to exchange the
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
represent that (i) it is not an affiliate of ECC or the Guarantors or if it is
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii) the Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (iii) if the holder is not a broker-dealer, it is not engaged in, and
does not intend to engage in, a distribution of Exchange Notes, (iv) at the
time of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, and (v) the holder has the full power and authority to
transfer the Outstanding Notes in exchange for the Exchange Notes and that ECC
will acquire good and unencumbered title thereto free and clear of any liens,
restrictions, changes or encumbrances and not subject to any adverse claims. In
addition, in connection with any resales of Exchange Notes, any broker-dealer
who acquired the Exchange Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
ECC and the Guarantors are required to allow participating broker-dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such Exchange Notes.
In the event of a Shelf Registration, in addition to the information
required to be provided by each electing holder in its notice questionnaire,
ECC and the Guarantors may require such electing holder to furnish to them such
additional information regarding such electing holder and such electing
holder's intended method of distribution of Notes as they may reasonably
request. Each such electing holder agrees to notify ECC promptly of any
information required to be disclosed to make the information previously
furnished by such electing holder to ECC not misleading.
Each holder will be required to deliver information to be used in connection
with the Shelf Registration Statement, if any, in order to be entitled to be
named as a selling security holder in the Shelf Registration
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Statement. A holder that sells Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, and will
be subject to certain of the civil liability provisions under the Securities
Act in connection with such sales.
Based on existing interpretations of the Securities Act by the Staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, ECC believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the holders thereof (other than holders who are
broker-dealers) without further compliance with the registration and prospectus
delivery provisions of the Securities Act (subject to certain representations
required to be made by each holder of the Notes, as described above). However,
any purchaser of Notes (A) who is an affiliate of ECC or the Guarantors, (B)
who did not acquire the Exchange Notes to be received in the ordinary course of
business or (C) who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Notes, or any broker-dealer who purchased
Notes to resell pursuant to Rule 144A or any other available exemption under
the Securities Act (x) will not be able to rely on the interpretation of the
Staff set forth in the above-mentioned no-action letters, (y) will not be
entitled to tender its Outstanding Notes in the Exchange Offer and (z) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. ECC
does not intend to seek its own no-action letter, and there can be no assurance
that the Staff would make a similar determination with respect to the Exchange
Notes as it has in such no-action letters issued to other parties.
Under certain circumstances, we may delay the filing or the effectiveness of
the Exchange Offer or the Shelf Registration and shall not be required to
maintain its effectiveness or amend or supplement it for a period of up to 75
days during any twelve-month period. Any delay period will not alter our
obligation to pay Liquidated Damages with respect to a Registration Default.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person, whether
or not such Indebtedness is incurred in connection with, or in contemplation
of, such other Person merging with or into, or becoming a Subsidiary of, such
specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Acquisition Debt" means Indebtedness the proceeds of which are utilized
solely to (x) acquire all or substantially all of the assets or a majority of
the Voting Stock of an existing broadcasting business or station or (y) finance
an LMA (including to repay or refinance indebtedness or other obligations
incurred in connection with such acquisition or LMA, as the case may be, and to
pay related fees and expenses).
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided however, the existence of
Univision's rights under the Certificate of Incorporation or bylaws of ECC as
they exist on the date of the Indenture do not by themselves make Univision an
Affiliate if it would otherwise not be an Affiliate. For purposes of this
definition, "control," as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
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"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than in the ordinary course of business; provided that the sale,
conveyance or other disposition of all or substantially all of the assets of
ECC and its Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the heading "Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
heading "Certain Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of ECC's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of $1 million or less;
(2) a transfer of assets between or among ECC and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Subsidiary to ECC or to another
Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business;
(5) the sale and leaseback of any assets within 90 days of the acquisition
thereof;
(6) foreclosures on assets;
(7) the disposition of equipment no longer used or useful in the business
of such entity;
(8) the sale or other disposition of cash or Cash Equivalents;
(9) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the heading "Certain Covenants--Restricted
Payments";
(10) the licensing of intellectual property; and
(11) the sale of ECC's interest in Channel Fifty Seven, Inc., which owns
KTCD-LP Channel 46 television station in San Diego, California, to Telemundo
Network pursuant to the letter option agreement with Telemundo Network, as
amended, to the extent that the option thereunder is exercised for at least the
consideration set forth thereunder; provided that the cash Net Proceeds from
such sale are applied pursuant to the covenant described above under the
heading "Repurchase at the Option of the Holders--Asset Sales."
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the general partner of which is a
corporation, the board of directors of the general partner of the partnership;
and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
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"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means:
(1) U.S. dollars;
(2) securities issued or directly and fully guaranteed or insured by the
U.S. government or any agency or instrumentality of the U.S. government having
maturities of not more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case,
with any lender party to the Credit Facility or any domestic commercial bank
having capital and surplus in excess of $500 million and a Thomson Bank Watch
Rating of "B" or better;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or assets of ECC
and its Restricted Subsidiaries, taken as a whole to any "person" (as that term
is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a
Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
ECC;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties and Univision,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of the
Voting Stock of ECC, measured by voting power rather than number of shares;
(4) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that Univision becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock
of ECC, measured by voting power and the number of shares; or
(5) the first day on which a majority of the members of the Board of
Directors of ECC are not Continuing Directors.
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"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss, together
with any related provision for taxes, realized by such Person or any of its
Restricted Subsidiaries in connection with (a) an Asset Sale (including any
sale and leaseback transaction), or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries, to the
extent such losses were deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
obligations with respect to any sale and leaseback transaction, all fees,
including but not limited to agency fees, letter of credit fees, commitment
fees, commissions, discounts and other fees and charges incurred in respect of
Indebtedness and net of the effect of all payments made or received pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, net of interest income earned on cash
or cash equivalents for such period; plus
(4) depreciation, amortization (including non-cash employee and officer
equity compensation expenses, amortization of goodwill and other intangibles,
amortization of programming costs (net of program payments made or to be made)
and barter expenses, but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such Consolidated Net
Income; plus
(5) any extraordinary or non-recurring expenses of such Person and the
Restricted Subsidiaries for such period to the extent that such charges were
deducted in computing such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business; minus
(7) cash payments related to non-cash charges that increased Consolidated
Cash Flow in any prior period; minus
(8) barter revenues,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash
expenses of, a Restricted Subsidiary will be added to Consolidated Net Income
to compute our Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to us
by such Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication of:
(1) the consolidated interest expense of such Person and the Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments
85
associated with Capital Lease Obligations, imputed interest with respect to
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations);
(2) the consolidated interest expense of such Person and the Restricted
Subsidiaries that was capitalized during such period;
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of the Restricted Subsidiaries, or secured by
a Lien on assets of such Person or any of the Restricted Subsidiaries (whether
or not such guarantee or Lien is called upon); and
(4) the product of:
(a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Restricted Subsidiary) on any series of preferred
stock of such Person or any of the Restricted Subsidiaries, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income of any Unrestricted Subsidiary will be excluded, whether
or not distributed to the specified Person or a Restricted Subsidiary of the
Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(3) the Net Income, if any, of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition will
be excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of ECC who:
(1) was a member of or nominated to such Board of Directors on the date of
the Indenture; or
(2) was nominated for election by either (a) one or more of the Principals
or (b) the Board of Directors of ECC, a majority of whom were members of or
nominated to the Board of Directors on the date of the Indenture or whose
election or nomination for election was previously approved by one or more of
the Principals beneficially owning at least in the aggregate 25% of the Voting
Stock of ECC (determined by reference to voting power and not number of shares
held) or such directors.
"Credit Agreement" means that certain Credit Agreement, dated as of
September 26, 2000, as amended from time to time, by and among ECC, as
borrower, the several banks and other lenders from time to time parties of the
Credit Agreement, as lenders, Union Bank of California, N.A., as arranging
agent for the lenders, Union Bank of California, N.A., as co-lead arranger and
joint book manager, Credit Suisse First Boston, as co-lead arranger,
administrative agent and joint book manager, The Bank of Nova Scotia, as
syndication agent, and Fleet National Bank, as document agent, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as amended, modified, renewed, refunded,
replaced or refinanced from time to time (including any increase in principal
amount).
86
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time (including any increase in principal amount).
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the
date on which the Notes mature; provided that in no event shall Disqualified
Stock include Existing Preferred Stock (including accrued dividends thereon and
liquidation payment obligations). Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders of the Capital Stock have the right to require ECC to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale will
not constitute Disqualified Stock if the terms of such Capital Stock provide
that ECC may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the heading "Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any present and future Restricted Subsidiary of
ECC that was formed under the laws of the U.S. or any state of the U.S. or the
District of Columbia or that guarantees or otherwise provides direct credit
support for any Indebtedness of ECC, other than any Special Purpose License
Subsidiary.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of Capital Stock (other than
Disqualified Stock) of ECC or one of its Subsidiaries, the net proceeds of
which are contributed to ECC, in each case to any Person that is not an
Affiliate of ECC, which offering results in at least $25 million of net
aggregate proceeds to ECC.
"Existing Indebtedness" means Indebtedness of ECC and its Restricted
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture.
"Existing Preferred Stock" means 8 1/2% Series A mandatorily redeemable
convertible preferred stock of ECC pursuant to the Certificate of Designations
filed with the State of Delaware on August 4, 2000, as in effect on the date of
the Indenture.
"GAAP" means accounting principles generally accepted in the U.S., set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
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"Guarantors" means each of:
(1) ECC's Domestic Subsidiaries on the date of the Indenture; and
(2) any other subsidiary of ECC that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture,
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, (but with respect to swaps of fixed
interest rates to floating interest rates, the notional amount shall not exceed
$100 million in the aggregate) interest rate cap agreements and interest rate
collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or interest rates.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, Notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations (the amount of any such
obligations to be equal at any time to the termination value of such agreement
or arrangement giving rise to such obligation that would be payable by such
Person at such time),
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. Except, "Indebtedness"
of any Person shall include Indebtedness described in the preceding paragraph,
even if such items would not appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP, if:
(a) such Indebtedness is the obligation of a partnership or joint
venture that is not a Restricted Subsidiary;
(b) such Person or a Restricted Subsidiary of such Person is a general
partner of a partnership or joint venture that is not a Restricted
Subsidiary (a "General Partner"); and
(c) there is recourse, by contract or operation of law, with respect to
the payment of such Indebtedness to property or assets of such Person or a
Restricted Subsidiary of such Person, and then such Indebtedness shall be
included in an amount not to exceed:
(i) the lesser of (x) the net assets of the General Partner and (y)
the amount of such obligations to the extent that there is recourse, by
contract or operation of law, to the property or assets of such Person
or a Restricted Subsidiary of such Person; or
(ii) if less than the amount determined pursuant to clause (i)
immediately above, the actual amount of such Indebtedness that is
recourse to such Person or a Restricted Subsidiary of such Person, if
the Indebtedness is evidenced by a writing and is for a determinable
amount and the related interest expense shall be included in
Consolidated Interest Expense to the extent actually paid by ECC or its
Restricted Subsidiary.
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In addition, the term "Indebtedness" includes all Indebtedness of others
secured by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by the specified Person of any indebtedness
of any other Person; provided that Indebtedness shall not include the pledge of
the Capital Stock of an Unrestricted Subsidiary securing Non-Recourse Debt of
that Unrestricted Subsidiary; and, provided further, in no event shall the
Existing Preferred Stock (including all accrued dividends thereon and
liquidation payment obligations) be deemed Indebtedness.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any interest on
the Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If ECC or any
Subsidiary of ECC sells or otherwise disposes of any Equity Interests of any
direct or indirect Subsidiary of ECC such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of ECC, ECC will be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the heading "Certain
Covenants--Restricted Payments."
"Leverage Ratio" means the ratio of (i) the aggregate outstanding amount of
Indebtedness of each of ECC and the Restricted Subsidiaries as of the last day
of the most recently ended fiscal quarter for which financial statements are
internally available as of the date of calculation on a consolidated basis in
accordance with GAAP (subject to the terms described in the next paragraph)
plus the aggregate liquidation preference of all outstanding Disqualified Stock
of ECC and preferred stock of the Restricted Subsidiaries (except preferred
stock issued to ECC or a Restricted Subsidiary) as of the last day of such
fiscal quarter to (ii) the aggregate Consolidated Cash Flow of ECC for the last
four full fiscal quarters for which financial statements are internally
available ending on or prior to the date of determination (the "Reference
Period").
For purposes of this definition, the aggregate outstanding principal amount
of Indebtedness of ECC and the Restricted Subsidiaries and the aggregate
liquidation preference of all outstanding preferred stock of the Restricted
Subsidiaries for which such calculation is made shall be determined on a pro
forma basis as if the Indebtedness and preferred stock giving rise to the need
to perform such calculation had been incurred and issued and the proceeds
therefrom had been applied, and all other transactions in respect of which such
Indebtedness is being incurred or preferred stock is being issued had occurred,
on the first day of such Reference Period. In addition to the foregoing, for
purposes of this definition, the Leverage Ratio shall be calculated on a pro
forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and the Restricted Subsidiaries and the issuance of the preferred
stock of such Subsidiaries (and the application of the proceeds therefrom)
giving rise to the need to make such calculation and any incurrence (and the
application of the proceeds therefrom) or repayment of other Indebtedness or
preferred stock, at any time subsequent to the beginning of the Reference
Period and on or prior to the date of determination (including any such
incurrence or issuance which is the subject of an Incurrence Notice delivered
to the Trustee during such period pursuant to clause (12) of the definition of
Permitted Debt), as if such incurrence or issuance (and the application of the
proceeds thereof), or the repayment, as the case may be, occurred on the first
day of the Reference Period (except that, in making such computation, the
amount of Indebtedness under any revolving credit facility shall be computed
based upon the average balance of such Indebtedness at the end of each month
during such period) and (ii) any acquisition at any
89
time on or subsequent to the first day of the Reference Period and on or prior
to the date of determination (including any such incurrence or issuance which
is the subject of an Incurrence Notice delivered to the Trustee during such
period pursuant to clause (12) of the definition of Permitted Debt), as if such
acquisition (including the incurrence, assumption or liability for any such
Indebtedness and the issuance of such preferred stock and also including any
Consolidated Cash Flow associated with such acquisition) occurred on the first
day of the Reference Period, giving pro forma effect to any non-recurring
expenses, non-recurring costs and cost reductions within the first year after
such acquisition ECC reasonably anticipates in good faith, if ECC delivers to
the Trustee an officer's certificate executed by the chief financial or
accounting officer of ECC certifying to and describing and quantifying with
reasonable specificity such non-recurring expenses, non-recurring costs and
cost reductions. Furthermore, in calculating Consolidated Interest Expense for
purposes of the calculation of Consolidated Cash Flow, (a) interest on
Indebtedness determined on a fluctuating basis as of the date of determination
(including Indebtedness actually incurred on the date of the transaction giving
rise to the need to calculate the Leverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness as in effect on the
date of determination and (b), notwithstanding (a) above, interest determined
on a fluctuating basis, to the extent such interest is covered by Hedging
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"LMA" means a local marketing arrangement, joint sales agreement, time
brokerage agreement, shared services agreement, management agreement or similar
arrangement pursuant to which a Person, subject to customary preemption rights
and other limitations (i) obtains the right to sell a portion of the
advertising inventory of a radio or television broadcasting station of which a
third party is the licensee, (ii) obtains the right to exhibit programming and
sell advertising time during a portion of the air time of a radio or television
station or (iii) manages a portion of the operations of a radio or television
station.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset Sale;
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by ECC or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (i) the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, (ii) taxes paid or payable as a result
of the Asset Sale, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, (iii) amounts required
to be applied to the repayment of Indebtedness, other than Senior Debt secured
by a Lien on the asset or assets that were the subject of such Asset Sale and
(iv) any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither ECC, the Guarantors, nor any of the Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender; and
(2) no default with respect to which (including any rights that the holders
of the Indebtedness may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time, or both, any holder of any
other Indebtedness (other than the Notes) of ECC, the Guarantors, or any of the
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment of the Indebtedness to be accelerated or payable prior to its
stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness and in all cases whether direct or
indirect, absolute or contingent, now outstanding or hereafter created, assumed
or incurred and including, without limitation, interest accruing subsequent to
the filing of a petition in bankruptcy or the commencement of any insolvency,
reorganization or similar proceedings at the rate provided in the relevant
documentation, whether or not an allowed claim, and any obligation to redeem or
defease any of the foregoing.
"Permitted Asset Swap" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person (including Equity Interests of a
Restricted Subsidiary) for assets of another Person, which assets are useful to
the business of such aforementioned Person.
"Permitted Business" means any business engaged in by ECC or its Restricted
Subsidiaries as of the Closing Date or any business reasonably related,
ancillary or complementary thereto.
"Permitted Investments" means:
(1) any Investment in ECC or in a Restricted Subsidiary;
(2) any Investment in Cash Equivalents;
(3) any Investment by ECC or any Restricted Subsidiary in a Person, if as a
result of such Investment:
(a) such Person becomes a Restricted Subsidiary of ECC; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, ECC or a Restricted Subsidiary;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the heading "Repurchase at the Option
of Holders--Asset Sales";
(5) any acquisition of assets (including Investments in Unrestricted
Subsidiaries) solely in exchange for the issuance of Equity Interests (other
than Disqualified Stock) of ECC;
(6) notes and accounts receivable incurred in the ordinary course of
business and any Investments received in compromise of obligations of such
persons incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or insolvency
of any trade creditor or customer;
(7) Hedging Obligations;
(8) guarantees of loans to management incurred pursuant to clause (13) of
the definition of Permitted Debt;
(9) loans and advances to employees of ECC or any Restricted Subsidiary in
the ordinary course of business not in excess of $2 million in aggregate
principal amount at any time outstanding;
91
(10) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect
to subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (10) that are at the time outstanding not to
exceed $25 million; or
(11) Investments in connection with time brokerage and other similar
agreements with independently owned broadcast properties, not to exceed an
aggregate of $10 million.
"Permitted Liens" means:
(1) Liens of ECC and any Guarantor securing Indebtedness and other
Obligations under Credit Facilities that were securing Senior Debt that was
permitted by the terms of the Indenture to be incurred;
(2) Liens in favor of ECC or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with ECC or any Restricted Subsidiary of
ECC; provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with ECC or the Subsidiary;
(4) Liens on property existing at the time of acquisition of the property
by ECC or any Restricted Subsidiary of ECC, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the Indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as is required in conformity with GAAP
has been made therefor;
(9) Liens incurred in the ordinary course of business of ECC or any
Restricted Subsidiary with respect to obligations that do not exceed $5 million
at any one time outstanding;
(10) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
(11) Liens to secure Indebtedness that is pari passu in right of payment
with the Notes, provided that the Notes are equally and ratably secured thereby;
(12) Liens securing Permitted Refinancing Indebtedness where the liens
securing indebtedness being refinanced were permitted under the Indenture;
(13) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects incurred or imposed, as applicable, in
the ordinary course of business and consistent with industry practices;
(14) any interest or title of a lessor under any Capital Lease Obligation;
(15) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
letters of credit and products and proceeds thereof;
(16) Liens encumbering deposits made to secure statutory, regulatory,
contractual or warranty obligations, including rights of offset and set-off;
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(17) Liens securing Hedging Obligations which Hedging Obligations relate to
Indebtedness that is otherwise permitted under the Indenture;
(18) leases or subleases granted to others;
(19) Liens under licensing agreements;
(20) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(21) judgment Liens not giving rise to an Event of Default;
(22) Liens encumbering property of ECC or a Restricted Subsidiary
consisting of carriers, warehousemen, mechanics, materialmen, repairmen, and
landlords, and other Liens arising by operation of law and incurred in the
ordinary course of business for sums which are not overdue or which are being
contested in good faith by appropriate proceedings and (if so contested) for
which appropriate reserves with respect thereto have been established and
maintained on the books of ECC or a Restricted Subsidiary in accordance with
GAAP; and
(23) Liens encumbering property of ECC or a Restricted Subsidiary incurred
in the ordinary course of business in connection with workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits,
or to secure performance of bids, tenders, statutory obligations, leases, and
contracts (other than for Indebtedness) entered into in the ordinary course of
business of ECC or a Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of ECC or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of ECC or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes
on terms at least as favorable to the Holders of Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by ECC or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means Walter Ulloa, Philip Wilkinson and Paul Zevnik.
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of any one or more Principals and/or such
other Persons referred to in the immediately preceding clause (1).
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means all current and future Subsidiaries of ECC,
other than Unrestricted Subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Special Committee" means a special committee of the Board of Directors of
ECC, comprised of at least 6 members of the Board of Directors. A majority of
the members of such special committee will constitute a quorum, and approval
requires the majority vote of the entire committee.
"Special Purpose License Subsidiary" means any Subsidiary of ECC organized
for the purpose of holding any current or future FCC broadcast license. Each of
the following conditions will apply to any Special Purpose License Subsidiary:
(i) all of the equity interest in the Special Purpose Subsidiary will be held
by ECC, except that a Special Purpose License Subsidiary organized as a
partnership may have a nominal partnership interest held by a Guarantor; (ii)
no Special Purpose License Subsidiary will (A) engage in any business or
activity other than holding licenses for stations, (B) own, lease or operate
any property or incur or suffer to exist any indebtedness or other obligation
or contingent liability, except any obligation to the FCC required as a
condition to the granting or maintenance of the broadcast license held by such
Special Purpose License Subsidiary, (C) sell or otherwise transfer any asset
(including the FCC license held by it) other than to ECC for no consideration
or in an Asset Sale permitted under the Indenture, (D) take any action that
would permit a lien to be placed on any asset held by it (including the FCC
license held by it), (E) dissolve or liquidate in whole or in part or
(F) commence or permit or consent to the commencement of any actions in
bankruptcy or insolvency except in a consolidated proceeding with ECC.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees of the corporation, association or other
business entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of ECC that is designated by
the Board of Directors, or a Special Committee thereof, as an Unrestricted
Subsidiary pursuant to a resolution of the Board of Directors, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with ECC or any Restricted Subsidiary unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to ECC or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of ECC;
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(3) is a Person with respect to which neither ECC nor any of the Restricted
Subsidiaries has any direct or indirect obligation to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of ECC or any of the Restricted Subsidiaries.
Any designation of a Subsidiary of ECC as an Unrestricted Subsidiary will be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution, or Special Committee resolution, giving effect to such
designation and an officers' certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described above under the heading "Certain Covenants--Restricted Payments." If,
at any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it will thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary will be deemed to be incurred by a Restricted Subsidiary as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described above under the heading "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," ECC
will be in default of such covenant. The Board of Directors of ECC, or Special
Committee thereof, may at any time designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (1) such Indebtedness is permitted under the covenant described
above under the heading "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment;
by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
will at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
Bank Credit Facility
Our Credit Agreement provides for a bank credit facility under which we may
borrow up to $400 million from our bank group. The bank credit facility is
comprised of a $250 million revolver and $150 million uncommitted loan
facility. As of the date of this prospectus, there was approximately
$35 million outstanding under our bank credit facility. Draw downs of revolving
loans under the bank credit facility are subject to compliance with the terms
of the Credit Agreement, including but not limited to compliance with the
financial covenants contained in the Credit Agreement. Borrowings under the
bank credit facility may be LIBOR loans, base rate loans or a combination
thereof. The bank credit facility is secured by substantially all of our
assets, as well as by the pledge of the stock of several of our subsidiaries,
including our special purpose subsidiaries formed to hold our FCC licenses.
Our ability to borrow revolving funds under the bank credit facility will
terminate on December 31, 2007, at which time any outstanding principal
together with all accrued and unpaid interest thereon would become due and
payable. The revolving bank credit facility contains scheduled quarterly
reductions in the amount of credit that is available, ranging from a reduction
of $6.3 million to a reduction of $18.8 million, commencing September 30, 2002.
We are required to prepay any revolving credit loans (the "Loans") with 100%
of the net cash proceeds of certain asset sales (but only if the ratio of total
debt to operating cash flow of us and our subsidiaries, as of the date of such
asset sale, on a consolidated pro forma basis assuming the consummation of such
asset sale, is 4.5 to 1 or greater, and subject to a $35 million exclusion and
the right to reinvest such proceeds within specified time periods and under
certain conditions). In the event that we have excess cash flow at the end of
any of our fiscal years ending on or after December 31, 2003, we are required
to prepay the Loans with 50% of our excess cash flow with respect to such
fiscal year (but only if our ratio of total debt to operating cash flow,
together with that of our subsidiaries on a consolidated basis, is 4.5 to 1 or
greater). We are also required to prepay the Loans with 100% of the proceeds of
certain equity and debt issuances (but only if the equity or debt issuance
occurs when a default under the bank credit facility has occurred and is
continuing), and with 100% of the insurance proceeds received from the
destruction of or damage to certain of our assets (subject to a $1 million
exclusion, and only if the insurance proceeds are not used to repair or replace
the destroyed or damaged assets).
Acquisitions having an aggregate maximum consideration during the term of
our Credit Agreement of greater than $25 million but less than or equal to $100
million are conditioned on delivery to the agent bank of a covenant compliance
certificate showing (i) pro forma calculations assuming such acquisition had
been consummated and (ii) revised projections for those acquisitions. For
acquisitions having an aggregate maximum consideration during the term of the
Credit Agreement in excess of $100 million, majority lender consent of the bank
group is required. In addition, subject to delivery of a covenant compliance
certificate, we have received pre-approval for certain identified potential
acquisitions, in the aggregate amount of $100 million. Of this amount, $47.5
million was used to acquire KXPK-FM, in Denver, Colorado. As of the date of
this prospectus, we have not entered into definitive agreements for any such
additional acquisitions and we can give no assurance that any such additional
acquisitions will be consummated. We can draw on our revolving credit facility
without prior approval for working capital needs and acquisitions less than $25
million.
The interest rates on the borrowings under the bank credit facility are
based on the ratio of total debt to operating cash flow for us and our
subsidiaries on a consolidated basis. With respect to LIBOR loans, the
revolving facility bears interest at LIBOR (1.84% at May 31, 2002) plus a
margin ranging from 0.875% to 3.25% based on our leverage. With respect to base
rate loans, the revolving facility bears interest at the Base Rate (as defined
in the bank credit facility) plus a margin ranging from 0% to 2.25% based on
our leverage. In addition, we pay a quarterly loan commitment fee ranging from
0.25% to 0.75% per annum, which is levied upon the unused portion of the amount
available.
Our Credit Agreement contains customary and appropriate affirmative and
negative covenants including, but not limited to, financial covenants and other
covenants including limitations on other indebtedness, liens, fundamental
changes, dividends, sales of assets over a certain limit, investments, loans,
advances,
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transactions with affiliates and other provisions customary and appropriate for
financing of this type. The financial covenants include:
. a maximum ratio of total debt to operating cash flows (with the maximum
permissible ratio decreasing over time);
. a minimum interest coverage ratio (with the minimum permissible ratio
increasing over time); and
. a minimum fixed charge coverage ratio.
We are required by our Credit Agreement to enter into interest rate
agreements if our leverage exceeds certain limits as defined in the Credit
Agreement. In addition, the Credit Agreement requires us to maintain our FCC
licenses for our broadcast properties, and also contains certain other
operating covenants.
Our Credit Agreement contains the following customary events of default:
. failure to make payments when due;
. breaches of representations or warranties;
. defaults under any other agreements or instruments of indebtedness;
. noncompliance with covenants;
. voluntary or involuntary bankruptcy or liquidation proceedings;
. entrance of judgments in an aggregate amount exceeding a specified limit;
. impairment of security interests in collateral; and
. changes of control.
We received from our lenders a consent to the issuance of the Outstanding
Notes. In connection with such consent, we amended our bank credit facility to
incorporate into the bank credit facility certain covenants contained in the
Indenture in respect of the Notes to the extent requested by our lenders.
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DESCRIPTION OF SERIES A PREFERRED STOCK
Series A mandatorily redeemable convertible preferred stock
Dividends. The Series A preferred stock has dividends declared at the rate
of 8.5% per annum compounded annually. Such dividends accrue and are only
payable upon liquidation of Entravision or redemption of the Series A preferred
stock, payable in cash. Accrued but unpaid dividends are waived and forgiven
upon conversion of the Series A preferred stock into Class A common stock.
Liquidation Preference. The Series A preferred stock is senior to the
rights of each class of our common stock upon liquidation or distribution of
our assets in dissolution.
Voting Rights. The affirmative vote of a majority of the holders of the
Series A preferred stock is required to:
. issue any equity security that is senior to the Series A preferred stock;
. amend our restated certificate of incorporation or bylaws in a manner that
adversely affects the rights of the holders of the Series A preferred
stock; or
. enter into or engage in any transaction with an affiliate of Entravision
or its stockholders that is not at arms length.
Redemption. The Series A preferred stock is subject to redemption at the
original issue price plus accrued dividends at the option of the holder of the
Series A preferred stock for a period of 90 days beginning six years after its
issuance and must be redeemed in full ten years after its issuance, on April
19, 2010. The Series A preferred stock, with respect to which the holders
thereof do not elect to convert into our common stock, is also fully redeemable
at the original issue price plus accrued dividends upon a change in control of
Entravision. We have the right to redeem the Series A preferred stock at our
option at any time one year after its issuance, provided that the trading price
of our Class A common stock equals or exceeds 130% of the initial public
offering price of our Class A common stock for 15 consecutive trading days
immediately before such redemption.
Conversion. The Series A preferred stock is convertible into our Class A
common stock on a share-for-share basis at the option of the holder at any time.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the Exchange Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in the Exchange Offer, where
the Exchange Notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of one year after
the expiration of the Exchange Offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until such date all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus. We reserve the
right in our sole discretion to purchase or make offers for, or to offer
Exchange Notes for, any Outstanding Notes that remain outstanding after the
expiration of the Exchange Offer pursuant to this prospectus or otherwise and,
to the extent permitted by applicable law, purchase Outstanding Notes in the
open market, in privately negotiated transactions or otherwise.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers in the Exchange Offer
for their own account may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the Exchange Notes or a combination of those methods of resale,
at market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Any resale may be made directly
to purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any broker-dealer and/or the
purchasers of any of the Exchange Notes. Any broker-dealer that resells
Exchange Notes that were received by it in the Exchange Offer for its own
account and any broker or dealer that participates in a distribution of the
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on such a resale of the Exchange Notes and any
commissions or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the expiration of the Exchange Offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents in the Letter of Transmittal. We have agreed to pay certain expenses
incident to our performance of or compliance with the Registration Rights
Agreement, other than commissions or concessions of any brokers or dealers, and
will indemnify holders of the Outstanding Notes against certain liabilities,
including liabilities under the Securities Act.
The Initial Purchasers have, directly and indirectly, from time to time
provided certain investment banking and commercial banking and financial
advisory services to us, our affiliates and other companies in our industry,
for which they have received customary fees and commissions, and they expect to
provide these services to us and others in the future, for which they expect to
receive customary fees and commissions. In addition, affiliates of the Initial
Purchasers were participating lenders under our bank credit facility, and as
such, received a portion of the proceeds from the initial sale of the
Outstanding Notes that were used to repay amounts outstanding under that bank
credit facility. See "Description of Other Indebtedness."
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material U.S. federal income tax consequences
of the acquisition, ownership and disposition of the Outstanding Notes and
Exchange Notes (references to the "Notes" in this section refer to both the
Exchange Notes and Outstanding Notes, unless specifically otherwise indicated),
but does not purport to be a complete analysis of all the potential tax
considerations. This summary is limited to the tax consequences of those
persons who are original beneficial owners of the Notes, who purchase Notes at
their original issue price and who hold such Notes as capital assets within the
meaning of Section 1221 of the Code ("Holders"). This summary does not purport
to deal with all aspects of U.S. federal income taxation that might be relevant
to particular Holders in light of their particular investment circumstances or
status, nor does it address specific tax consequences that may be relevant to
particular persons (including, for example, financial institutions,
broker-dealers, insurance companies, tax-exempt organizations and persons that
have a functional currency other than the U.S. Dollar or persons in special
situations, such as those who have elected to mark securities to market, or
those who hold Notes as part of a straddle, hedge, conversion transaction, or
other integrated investment). In addition, this summary does not address U.S.
federal alternative minimum tax consequences or consequences under the tax laws
of any state, local or foreign jurisdiction. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department
regulations promulgated or proposed thereunder and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject
to change, possibly on a retroactive basis. We have not sought any ruling from
the Internal Revenue Service (the "IRS") with respect to the statements made
and the conclusions reached in this summary, and we cannot assure you that the
IRS will agree with such statements and conclusions.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS OF THE
NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL
INCOME AND OTHER TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING
OF THE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
As used herein, the term "U.S. Holder" means a Holder that is: (i) a citizen
or individual resident of the U.S.; (ii) a corporation or other entity taxable
as a corporation created or organized under the laws of the U.S. or any state
thereof or in the District of Columbia; (iii) an estate, the income of which is
subject to U.S. federal income tax regardless of the source; or (iv) a trust,
if a court within the U.S. is able to exercise primary supervision over the
trust's administration and one or more U.S. persons have the authority to
control all its substantial decisions or if a valid election to be treated as a
U.S. person is in effect with respect to such trust.
A "Non-U.S. Holder" is a Holder that is not a U.S. Holder.
An entity that is characterized as a partnership for U.S. federal tax
purposes is not subject to U.S. income tax on income or gains derived from the
Notes. However, a partner, member, shareholder or other equity owner of such an
entity may be subject to U.S. federal income tax on such income or gains under
rules for U.S. Holders or Non-U.S. Holders depending upon whether: (i) such
equity owner is a U.S. person or a non-U.S. person for U.S. federal tax
purposes; and (ii) such entity is or is not engaged in a U.S. trade or business
to which income or gains from the Notes is effectively connected.
U.S. Federal Income Taxation of U.S. Holders
Taxation of Interest Income
Except as may otherwise be set forth in an applicable pricing supplement, it
is anticipated that the Notes will not be issued with more than a deminimis
amount of original issue discount, if any. In such case, interest on the Notes
generally will be taxable to a U.S. Holder as ordinary income as it accrues or
is received in accordance with the U.S. Holder's method of accounting for U.S.
federal income tax purposes.
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A Registration Default with respect to the Notes will cause additional
amounts to accrue on the notes in the nature of interest in the manner
described under the heading "Description of the 8 1/8% Senior Subordinated
Notes due 2009--Registration Rights; Liquidated Damages." The company believes
that the likelihood of the change in the amount of interest on the Notes, as of
the date the Notes are issued, is remote. Accordingly, the company does not
intend to treat the possibility of such a change as affecting the yield to
maturity of any Note. Thus, such additional amounts will be includable in the
income of a U.S. Holder at the time it accrues or is received, in accordance
with such Holder's method of accounting for U.S. tax purposes. The company's
determination that there is a remote likelihood of paying additional amounts on
the Notes is binding on each U.S. Holder unless the holder explicitly discloses
that its determination is different from the company's determination. The
company's determination is not, however, binding on the IRS. Accordingly, it is
possible that the IRS may take a different position which if sustained could
affect the timing of the U.S. Holder's income with respect to such additional
amounts. Similarly, the company intends to take the position that the
occurrence of an event requiring it to repurchase the Notes at the election of
a Holder (see "Description of the 8 1/8% Senior Subordinated Notes due
2009--Repurchase at the Option of Holders") is, as of the date the Notes are
issued, remote, and likewise does not intend to treat the possibility of such
occurrence as affecting the timing or amount of taxation of interest on any
Note.
Disposition of Notes
Upon the sale, exchange, redemption or other disposition of a Note, a U.S.
Holder generally will recognize taxable gain or loss equal to the difference
between: (i) the sum of cash plus the fair market value of all other property
received on such disposition (except to the extent such cash or property is
attributable to accrued but unpaid interest, which is treated as interest as
described above); and (ii) such Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such Holder, less any principal payments received by such Holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the
time of such disposition, the U.S. Holder's holding period for the Note is more
than 12 months. The maximum federal long-term capital gain rate is 20% for
noncorporate U.S. Holders and 35% for corporate U.S. Holders. The deductibility
of capital losses by U.S. Holders is subject to limitations.
Exchange Offer
The exchange of Notes for registered notes in the Exchange Offer will not
constitute a taxable event for U.S. Holders. Consequently, a U.S. Holder will
not recognize gain upon receipt of a registered note in exchange for Notes in
the Exchange Offer, the U.S. Holder's basis in the registered note received in
the Exchange Offer will be the same as its basis in the corresponding Note
immediately before the exchange and the U.S. Holder's holding period in the
registered note will include its holding period in the original Note.
U.S. Federal Income Taxation of Non-U.S. Holders
Payments of Interest
Subject to the discussion of backup withholding below, payments of principal
and interest on the Notes by us or any of our agents to a Non-U.S. Holder
generally will not (under the so-called "Portfolio Interest Exemption") be
subject to U.S. federal withholding tax, provided that:
(1) the Non-U.S. Holder does not, directly or indirectly, actually or
constructively own 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote;
(2) the Non-U.S. Holder is not a controlled foreign corporation for U.S.
federal income tax purposes that is related to us (directly or indirectly)
through stock ownership;
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(3) the Non-U.S. Holder is not a bank receiving interest on an extension of
credit pursuant to a loan agreement entered into in the ordinary course of its
trade or business; and
(4) certain certification requirements are met. Very generally, these
certification requirements will be met if the beneficial owner of the Note
certifies on IRS Form W-8BEN or a substantially similar form that it is not a
U.S. person and provides its name and address, and either (A) the beneficial
owner files such form with the withholding agent, or (B) in the case of a Note
held through an entity treated as a foreign partnership for U.S. federal tax
purposes or held through an intermediary, the beneficial owner and such entity
or intermediary (as the case may be) satisfy certain certification requirements
set forth in the Treasury Regulations.
If a Non-U.S. Holder cannot satisfy the requirements of the Portfolio
Interest Exemption (as summarized above), payments of interest made to such
Non-U.S. Holder will be subject to a 30% withholding tax unless the beneficial
owner of the Note provides us or our agent, as the case may be, with a properly
executed IRS Form W-8BEN (or successor form) claiming an exemption from
withholding under the benefit of a tax treaty or IRS Form W-8ECI (or successor
form) stating that interest paid on the Note is not subject to withholding tax
because it is U.S. trade or business income to the beneficial owner.
The certification requirement described above also may require a Non-U.S.
Holder that provides an IRS form, or that claims the benefit of an income tax
treaty, to provide its U.S. taxpayer identification number. The applicable
regulations generally also require, in the case of a Note held by a foreign
partnership, that:
(1) the certification described above be provided by the partners and
(2) the partnership provide certain information, including a U.S. taxpayer
identification number.
Further, a look-through rule will apply in the case of tiered partnerships.
We suggest that you consult your tax advisor about the specific methods for
satisfying these requirements. A claim for exemption will not be valid if the
person receiving the applicable form has actual knowledge that the statements
on the form are false.
If interest on the Note is effectively connected with a U.S. trade or
business of the beneficial owner, the Non-U.S. Holder, although exempt from the
withholding tax described above, will nonetheless be subject to U.S. federal
income tax on such interest on a net income basis in the same manner as if it
were a U.S. Holder. In addition, if such Holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, subject to adjustments.
For this purpose, interest on a Note will be included in such foreign
corporation's earnings and profits.
Disposition of Notes
No withholding of U.S. federal income tax will be required with respect to
any gain or income realized by a Non-U.S. Holder upon the sale, exchange or
disposition of a Note.
A Non-U.S. Holder will not be subject to U.S. federal income tax on gain
realized on the sale, exchange, or other disposition of a Note unless: (i) the
Non-U.S. Holder is an individual who is present in the U.S. for a period or
periods aggregating 183 or more days in the taxable year of the disposition and
certain other conditions are met; (ii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates; or (iii) such gain or income is effectively connected with a U.S.
trade or business.
Exchange of Notes
The exchange of Notes for registered notes in the Exchange Offer will not
constitute a taxable event for a Non-U.S. Holder.
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Information Reporting and Backup Withholding
U.S. Holders
For each calendar year in which the Notes are outstanding, we are required
to provide the IRS with certain information, including the beneficial owner's
name, address and taxpayer identification number, the aggregate amount of
interest paid to that beneficial owner during the calendar year and the amount
of tax withheld, if any. This obligation, however, does not apply with respect
to certain payments to U.S. Holders, including corporations and tax-exempt
organizations, provided that they establish entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, we,
our agents or paying agents or a broker may be required to "backup" withhold a
tax upon each payment of interest and principal (and premium or Liquidated
Damages, if any) on the Notes. This backup withholding is not an additional tax
and may be credited against the U.S. Holder's U.S. federal income tax
liability, provided that the required information is furnished to the IRS.
Non-U.S. Holders
Under current Treasury Regulations, U.S. information reporting requirements
and backup withholding tax will not apply to payments on a Note to a Non-U.S.
Holder if the statement described above under the heading "U.S. Federal Income
Taxation of Non-U.S. Holders--Payments of Interest" is duly provided by such
Holder or the Holder otherwise establishes an exemption, provided that the
payor does not have actual knowledge that the Holder is a U.S. person or that
the conditions of any claimed exemption are not satisfied.
Generally, information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of a Note effected
outside the U.S. by a foreign office of a "broker" (as defined in applicable
Treasury Regulations), unless the broker is: (i) a U.S. person; (ii) a foreign
person that derives 50% or more of its gross income for certain periods from
activities that are effectively connected with the conduct of a trade or
business in the U.S.; (iii) a controlled foreign corporation for U.S. federal
income tax purposes; or (iv) a foreign partnership more than 50% of the capital
or profits of which is owned by one or more U.S. persons or which engages in a
U.S. trade or business. Payment of the proceeds of any such sale effected
outside the U.S. by a foreign office of any broker that is described in (i),
(ii), (iii), or (iv) of the preceding sentence may be subject to backup
withholding tax, and will be subject to information reporting requirements
unless such broker has documentary evidence in its records that the beneficial
owner is a Non-U.S. Holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
any such sale to or through the U.S. office of a broker is subject to
information reporting and backup withholding requirements, unless the
beneficial owner of the Note provides the statement described above under the
heading "U.S. Federal Income Taxation of Non-U.S. Holders--Payments of
Interest" or otherwise establishes an exemption.
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LEGAL MATTERS
The law firm of Foley & Lardner will pass upon certain legal matters
relating to the validity of the securities offered by this prospectus. A
partner of Foley & Lardner holds 14,450 shares of our Class A common stock and
was granted an option to purchase 50,000 shares of our Class A common stock.
EXPERTS
Our consolidated financial statements, appearing in our Annual Report on
Form 10-K for the year ended December 31, 2001, have been audited by McGladrey
& Pullen, LLP, independent auditors, as set forth in their report included
therein and incorporated in this prospectus by reference. The consolidated
financial statements are incorporated in this prospectus in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and, in
accordance with it, are required to file reports, proxy and information
statements, and other information with the Commission. Such reports, proxy and
information statements and other information can be inspected and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information about the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. We electronically
file reports, proxy and information statements, and other information with the
Commission. The Commission maintains an Internet website that contains our
electronically filed reports, proxy and information statements, and other
information at http://www.sec.gov.
The Commission allows us to "incorporate by reference" in this prospectus
certain information which we file with the Commission. This means we can
fulfill our obligations to provide you with certain important information by
referring you to other documents which we have filed with the Commission. The
information which is incorporated by reference is an important part of this
prospectus.
We are incorporating by reference in this prospectus the following documents
which we have filed, or may later file, with the Commission under the Exchange
Act. The information we file with the Commission later will automatically
update and supersede the present information.
(a) Our Annual Report on Form 10-K for the fiscal year ended December
31, 2001 (SEC File No. 001-15997), which includes audited financial
statements as of and for the fiscal year ended December 31, 2001.
(b) Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2002 (SEC File No. 001-15997).
(c) All other reports which we filed with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year
covered by the document referred to in (a) above.
(d) The description of our Class A common stock in our Registration
Statement on Form 8-A (SEC File No. 001-15997) filed with the Commission on
July 20, 2000 pursuant to Section 12 of the Exchange Act, which, in turn,
incorporated such description by reference to page 78 of our Preliminary
Prospectus dated April 20, 2000, filed with the Commission on April 21,
2000, as part of our Registration Statement on Form S-1 (SEC File No.
333-35336), and any amendments or reports filed to update the description.
All documents which we file under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this prospectus and the termination of the
offering shall be deemed to be incorporated by reference into this
104
prospectus. We will provide to each person to whom a prospectus is delivered,
including any beneficial owner, a copy of any or all of the information which
is incorporated by reference in this prospectus but which is not delivered with
this prospectus.
This prospectus is part of a Registration Statement on Form S-4 that has
been filed with the Commission. It does not include all of the information that
is in the Registration Statement and the additional documents filed as exhibits
with it. For more detailed information, you should read the exhibits themselves.
We will provide without charge to each person to whom this prospectus is
delivered, upon request, a copy of any or all of the documents described above
that have been or may be incorporated by reference in this prospectus other
than exhibits to those documents, unless the exhibits are specifically
incorporated by reference into the documents. Any such requests should be
directed to:
General Counsel
Entravision Communications Corporation
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, California 90404
(310) 447-3870
You should rely only on the information in this prospectus or any prospectus
supplement or incorporated by reference in either of them. We have not
authorized anyone else to provide you with different information. Offers of the
Registered Securities are being made only in states where the offers are
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents. If information in incorporated documents conflicts
with information in this prospectus, you should rely on the most recent
information. If information in an incorporated document conflicts with
information in another incorporated document, you should rely on the most
recent incorporated document.
We maintain a website at http://www.entravision.com.
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the securities covered by this prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by Entravision Communications Corporation or any underwriter. This
prospectus does not constitute an offer to sell, or a solicitation of any offer
to buy, securities in any jurisdiction to any person to whom, it is unlawful to
make such an offer or solicitation in such jurisdiction. Neither the delivery
of this prospectus nor any sale made under this prospectus shall, under any
circumstances, create any implication that the information contained in this
prospectus is correct as of any time after the date of the prospectus or that
there has been no change in the affairs of Entravision Communications
Corporation after the date of this prospectus.
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TABLE OF CONTENTS
Page
----
Forward-Looking Statements................... i
Summary...................................... 1
Risk Factors................................. 15
The Exchange Offer........................... 29
Use of Proceeds.............................. 38
Ratio of Earnings to Fixed Charges........... 38
Selected Historical Financial Data........... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 42
Description of the 8 1/8% Senior Subordinated
Notes due 2009............................. 52
Description of Other Indebtedness............ 96
Description of Series A Preferred Stock...... 98
Plan of Distribution......................... 99
Certain U.S. Federal Income Tax
Considerations............................. 100
Legal Matters................................ 104
Experts...................................... 104
Where You Can Find More Information.......... 104
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$225,000,000
[LOGO] Entravision (small)
Exchange Offer
for
8 1/8% Senior Subordinated Notes due 2009
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PROSPECTUS
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July 12, 2002
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