| SPANISH BROADCASTING SYSTEM INC Item 1A Risk Factors You should carefully consider the risks and uncertainties described below and the other information in this report |
| Additional risks and uncertainties that we are not aware of or that we currently deem immaterial also may impair our business |
| If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected and the trading price of our common stock could decline |
| Our substantial amount of debt could adversely affect our financial health |
| Our consolidated debt is substantial and we are highly leveraged, which could adversely affect our financial condition, limit our ability to grow and compete and prevent us from fulfilling our obligations relating to our 20 _________________________________________________________________ [74]Table of Contents registered 103/4prca Series B cumulative exchangeable redeemable preferred stock, par value $ |
| 01 per share and liquidation preference of dlra1cmam000 per share, or the Series B preferred stock, and, if issued, our registered 103/4prca subordinated exchange notes due 2013, or the Exchange Notes |
| As of December 31, 2005, our ratio of total debt to last twelve months Consolidated EBITDA, as defined in our credit agreement governing our first lien credit facility term loan due 2012, or the First Lien Credit Facility, was 8dtta1 to 1dtta0 |
| Our substantial level of debt could have several important consequences to the holders of our securities, including the following: • a significant portion of our net cash flow from operations will be dedicated to servicing our debt obligations and will not be available for operations, future business opportunities or other purposes; • our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes will be limited; • our substantial debt could make us more vulnerable to downturns in our business or in the general economy and increases in interest rates, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; • our substantial debt could place us at a disadvantage compared to our competitors who have less debt; and • it may be more difficult for us to satisfy our obligations relating to our Series B preferred stock and our Exchange Notes, if issued (for example, we may not be able to pay cash dividends and interest, respectively, or repurchase our Series B preferred stock when and if we are required to do so) |
| Our ability to satisfy all of our debt obligations depends upon our future operating performance |
| Our operating performance will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control |
| We believe that our operating cash flow will be sufficient to meet our operating expenses and to service our debt requirements as they become due |
| However, if we are unable to pay our debts, whether upon acceleration of our debt or in the ordinary course of business, we will be forced to pursue alternative strategies such as selling assets, restructuring our debt, or seeking additional equity capital |
| We cannot assure you that we can successfully complete any of these alternative strategies on satisfactory terms or that the approval of the FCC could be obtained on a timely basis, or at all, for the transfer of any of the stations’ licenses in connection with a proposed sale of assets |
| We will require a significant amount of cash to service our debt and to make cash dividend payments under our Series B Preferred Stock |
| Our ability to generate cash depends on many factors, some of which are beyond our control |
| For the year ended December 31, 2005, we had net cash interest expense of dlra33dtta2 million |
| Our net cash interest expense will increase when and if we exchange our Series B preferred stock for the Exchange Notes |
| If we acquire additional stations in the future, depending on the financing used to fund these acquisitions, our interest expense may increase as well |
| In addition, we have recently paid and will be required to pay dividends in cash on our Series B preferred stock after October 15, 2008 |
| During 2005, we paid dividends in cash to holders of the Series B preferred stock in an amount equal to dlra2dtta4 million |
| Our ability to make payments on and to refinance our debt, pay dividends in cash on our Series B preferred stock, repurchase our Series B preferred stock when, and if, we are required to do so and to fund necessary or desired capital expenditures and any future acquisitions, will depend on our ability to generate and maintain cash in the future |
| Our ability to satisfy our obligations, including making the payments described above, and to reduce our total indebtedness will depend upon our future operating performance and on economic, financial, competitive, legislative, regulatory and other factors, many of which may be beyond our control |
| Based on our current level of operations, we believe that our cash flow from operations, cash on hand and available borrowings under our First Lien Credit Facility will be adequate to meet our liquidity needs for the near future barring any unforeseen circumstances |
| We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our First Lien Credit Facility or otherwise in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs |
| We cannot assure you that we will be able to 21 _________________________________________________________________ [75]Table of Contents refinance any of our debt, including our First Lien Credit Facility and the Exchange Notes, if issued, on commercially reasonable terms or at all |
| Any acceleration of our debt or event of default would harm our business and financial condition |
| If there were an event of default under our or our subsidiaries’ indebtedness, including the First Lien Credit Facility and our existing debt instruments, the holders of the affected indebtedness could elect to declare all of that indebtedness to be due and payable immediately, which in turn could cause some or all of our or our subsidiaries’ other indebtedness to become due and payable |
| We cannot assure you that we or our subsidiaries would have sufficient funds available, or that we or our subsidiaries would have access to sufficient capital from other sources, to repay the accelerated debt |
| Even if we or our subsidiaries could obtain additional financing, we cannot assure you that the terms would be favorable to us |
| Under the terms of our First Lien Credit Facility and our existing debt instruments, if the amounts outstanding under our indebtedness were accelerated, our lenders would have the right to foreclose on their liens on substantially all of our and our subsidiaries’ assets (with the exception of our FCC licenses held by certain of our subsidiaries, because a grant of a security interest therein would be prohibited by law, and certain general intangibles and fixed assets under particular limited circumstances) and on the stock of our subsidiaries |
| As a result, any event of default under our material debt instruments could have a material adverse effect on our business and financial condition |
| Despite our current significant level of debt, we and our subsidiaries may still be able to incur substantially more debt, which, if increased, could further intensify the risks associated with our substantial leverage |
| We and our subsidiaries may be able to incur substantial additional indebtedness in the future |
| Although the terms of our First Lien Credit Facility and debt instruments restrict our ability to incur additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial |
| If we or our subsidiaries incur additional debt, the related risks described above that we and our subsidiaries face could intensify |
| The terms of our existing debt and our preferred stock impose or will impose restrictions on us that may adversely affect our business |
| The terms of our Series B preferred stock, our Series C preferred stock, par value $ |
| 01 per share, (together with the Series B preferred stock, the Preferred Stock), our First Lien Credit Facility, and, if issued, the Exchange Notes, contain covenants that, among other things, limit our ability to: • incur additional debt, incur contingent obligations and issue additional preferred stock; • redeem or repurchase securities ranking junior to our Series B preferred stock; • create liens; • pay dividends, distributions or make other specified restricted payments, and restrict the ability of certain of our subsidiaries to pay dividends or make other payments to us; • sell assets; • make certain capital expenditures, investments and acquisitions; • change or add lines of business; • enter into certain transactions with affiliates; • enter into sale and leaseback transactions; • sell capital stock of our subsidiaries; and • merge or consolidate with any other person, company or other entity or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets |
| 22 _________________________________________________________________ [76]Table of Contents The terms of the First Lien Credit Facility also require us to satisfy certain financial condition tests |
| These covenants could materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in our best interest |
| Our ability to comply with these covenants may be affected by our future operating performance and economic, financial, competitive, legislative, regulatory and other factors, many of which may be beyond our control |
| If one or more of these events occur, we cannot assure you that we will be able to comply with the covenants |
| A breach of any of these covenants could result in a default under one or more of our debt instruments |
| If an event of default occurs under the First Lien Credit Facility, the lenders and/or the noteholders could elect to declare all amounts of debt outstanding, together with accrued interest, to be immediately due and payable |
| In addition, there are change of control provisions in the First Lien Credit Facility, the certificates of designations governing our Series B preferred stock and the indentures that will govern our Exchange Notes, if issued, each of which would cause an acceleration of the applicable indebtedness and/or require us to make an offer to repurchase all of the applicable notes and/or Series B preferred stock in the event that we experience a change of control |
| We may not have the funds or the ability to raise the funds necessary to repurchase our Series B preferred stock if holders exercise their repurchase right, or to finance the change of control offer required by our Series B preferred stock and the indenture that would govern our Exchange Notes, if issued |
| On October 15, 2013, each holder of Series B preferred stock will have the right to require us to redeem all or a portion of the Series B preferred stock at a purchase price of 100prca of the liquidation preference thereof, plus all accumulated and unpaid dividends to the date of repurchase |
| In addition, if we experience certain kinds of changes of control as described in the certificate of designation creating the Series B preferred stock, subject to certain restrictions in our debt instruments we will be required to make an offer to purchase the Series B preferred stock for cash at a purchase price of 101prca of the liquidation preference thereof, plus accumulated dividends |
| The source of funds for any such repurchases would be our available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person or entity |
| We cannot assure you that we will have sufficient funds available to us on favorable terms, or at all, to repurchase all tendered Series B preferred stock or Exchange Notes, if issued, pursuant to these requirements |
| Our failure to offer to repurchase or to repurchase Series B preferred stock or Exchange Notes tendered, as the case may be, will result in a voting rights triggering event under the certificate of designation governing our Series B preferred stock or a default under the indenture that would govern our Exchange Notes, if issued, as the case may be |
| Such events could lead to a cross-default under our First Lien Credit Facility and under the terms of our other existing debt |
| In addition, our First Lien Credit Facilities would either prohibit or effectively prohibit us from making any such required repurchases |
| Prior to repurchasing our Series B preferred stock or Exchange Notes, if issued, on a change of control event, we must either repay outstanding debt under our First Lien Credit Facility or obtain the consent of the lenders under such facility |
| If we do not obtain the required consents or repay our outstanding debt under our First Lien Credit Facility, we would remain effectively prohibited from offering to repurchase our Series B preferred stock or Exchange Notes, if issued |
| We may not have the funds or the ability to obtain additional financing for working capital, capital expenditures, any business strategy or other general corporate purposes |
| On February 17, 2006, we repaid and terminated our dlra100 million Second Lien Credit Facility |
| As a result, although we believe we have sufficient cash available to fund our operations and to support our acquisition business strategy, we may need additional financing due to future developments or changes in our business plan |
| We must rely on cash from operations and our dlra25dtta0 million revolving loan facility to support our capital expenditures and acquisition business strategy |
| In addition, our actual funding requirements could vary materially from our current estimates |
| If additional financing is needed, we may not be able to raise sufficient funds on favorable terms or at all |
| If we fail to obtain any necessary financing on a timely basis, a number of adverse effects could occur |
| 23 _________________________________________________________________ [77]Table of Contents We have experienced net losses in the past and, to the extent that we experience net losses in the future, our ability to raise capital and the market price of our common stock may be adversely affected |
| We may not achieve sustained profitability |
| Failure to achieve sustained profitability may adversely affect the market price of our common stock, which in turn may adversely affect our ability to raise additional equity capital and to incur additional debt |
| Our inability to obtain financing in adequate amounts and on acceptable terms necessary to operate our business, repay our debt obligations or finance our proposed acquisitions could negatively impact our financial position and results of operations |
| We experienced a net loss for the fiscal years ended December 31, 2005 and 2003 |
| Net income generated in fiscal year ended 2004 was directly attributed to gains realized from the sale of assets |
| Our interest expense will increase if we incur any additional indebtedness under our First Lien Credit Facility |
| If we acquire additional broadcast stations in the future, depending on the financing used to fund these acquisitions, interest expense may increase as well |
| We compete for advertising revenue with other broadcast stations, as well as other media, many operators of which have greater resources than we do |
| The success of our stations is primarily dependent upon their share of overall advertising revenues within their markets, especially in New York, Los Angeles and Miami |
| In addition, both radio and television broadcasting are highly competitive businesses |
| Our broadcast stations compete in their respective markets for audiences and advertising revenues with other broadcast stations of all formats, as well as with other media, such as newspapers, magazines, television, satellite radio, cable services, outdoor advertising, the Internet and direct mail |
| As a result of this competition, our stations’ audience ratings, market shares and advertising revenues may decline and any adverse change in a particular market could have a material adverse effect on the revenue of our broadcast stations located in that market and on the financial condition of our business as a whole |
| Although we believe that each of our broadcast stations is able to compete effectively in its respective market, we cannot assure you that any station will be able to maintain or increase its current audience ratings and advertising revenues |
| Specifically, radio stations can change formats quickly |
| Any other radio station currently broadcasting could shift its format to duplicate the format of, or develop a format which is more popular than, any of our stations |
| If a station converts its programming to a format similar to that of one of our stations, or if one of our competitors strengthens its operations, the ratings and station operating income of our station in that market could be adversely affected |
| In addition, other radio companies which are larger and have more resources may also enter markets in which we operate |
| Cancellations or reductions in advertising could adversely affect our net revenues |
| We do not generally obtain long-term commitments from our advertisers |
| As a result, our advertisers may cancel, reduce or postpone orders without penalty |
| Cancellations, reductions or delays in purchases of advertising could adversely affect our net revenues, especially if we are unable to replace these purchases |
| Our expense levels are based, in part, on expected future net revenues and are relatively fixed once set |
| Therefore, unforeseen decreases in advertising sales could have a material adverse impact on our net revenues and operating income |
| A large portion of our net revenue and operating income currently comes from our New York, Los Angeles and Miami markets |
| Our New York, Los Angeles and Miami markets accounted for more than 70prca of our revenue for the fiscal year ended December 31, 2005 |
| Therefore, any volatility in our revenues or operating income attributable to stations in these markets could have a significant adverse effect on our consolidated net revenues or operating income |
| A significant decline in net revenue or operating income from our stations in any of these markets could have a material adverse effect on our financial position and results of operations |
| 24 _________________________________________________________________ [78]Table of Contents We may be unable to effectively integrate our acquisition of our television operation |
| The integration of our acquisition of our television operation involves numerous risks |
| Our television operation may prove unprofitable and may fail to generate anticipated cash flows |
| Additionally, we may have difficulties in the integration of its operations and systems |
| We cannot assure you that we will be able to successfully integrate any operations, or systems that might be acquired in the future |
| In addition, in the event that the operations of a new business do not meet expectations, we may restructure or write off the value of some or all of the assets of the new business |
| Because our television operation is in its start-up stages, we cannot assure you that we will be successful in the television broadcast industry |
| The success of our television operation depends upon our ability to attract viewers and advertisers to our broadcast television operation |
| We cannot assure you that we will be able to attract viewers and advertisers to our broadcast television operation |
| If we cannot attract viewers, our television operations may suffer from a low rating, which in turn may deter potential advertisers |
| The inability to successfully attract viewers and advertisers may adversely affect our revenue and operating results for our television operation |
| Television programming is a highly competitive business |
| Television stations compete in their respective markets for audiences and advertising revenues with other stations and larger, more established networks |
| As a result of this competition, our rating share may not grow and an adverse change in the South Florida market could have a material adverse impact on the revenue of our television operation |
| Our industry is subject to rapid technological changes and if we are unable to match or surpass such change, will result in a loss of competitive advantage and market opportunity |
| The success of the television operation is largely dependent on certain factors, such as the extent of distribution of the developed programming, the ability to attract viewers, advertisers and acquire programming, and the market and advertiser acceptance to our programming |
| We cannot assure you that we will be successful in our initiative or that such initiatives will generate revenues or ultimately be profitable |
| Because our full-power television station relies 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 operation |
| Under the Cable Act, each broadcast station is required to elect, every three years, to exercise the right either to require cable television system operators in its local market to carry its signal, or to prohibit cable carriage or condition it upon payment of a fee or other consideration |
| Under these “must carry” provisions of the Cable Act, a broadcaster may demand carriage on a specific channel on cable systems within its market |
| These “must carry” rights are not absolute, and under some circumstances, a cable system may be entitled not to carry a given station |
| Our television station elected “must carry” on local cable systems for the three-year election period that commenced January 1, 2006 and has obtained the carriage it requested |
| The required election date for the next three-year election period commencing January 1, 2009 will be October 1, 2008 |
| Under current FCC rules, once we have relinquished our analog spectrum, cable systems will be required to carry our digital signals |
| The FCC’s current rules require cable operators to carry only one channel of digital signal from each of our stations, despite the capability of digital broadcasters to broadcast multiple program streams within one station’s digital allotment |
| The FCC has not yet set any rules for how direct broadcast satellite, or DBS, operators must handle digital station carriage, but we do not expect that they will be materially different from the obligations imposed on cable television systems |
| 25 _________________________________________________________________ [79]Table of Contents Our growth depends on successfully executing our acquisition strategy |
| We have pursued, and will continue to pursue, the acquisition of stations, and other related media outlets, primarily in the largest US Hispanic markets, as a growth strategy |
| We cannot assure you that our acquisition strategy will be successful |
| Our acquisition strategy is subject to a number of risks, including, but not limited to: • the limits on our ability to acquire additional stations due to our substantial level of debt; • the need to raise additional financing, which may be limited by the terms of our debt instruments and market conditions; • the failure to increase our station operating income or yield other anticipated benefits despite newly acquired stations; • the need for required regulatory approvals, including FCC and antitrust approvals; • the challenges of managing any rapid growth; and • the difficulties of programming newly acquired stations to attract listenership or viewership |
| In addition, we may finance acquisitions with the issuance of, or through sales of, our common stock in the public market which could adversely affect our stock price, due to dilution, and our ability to raise funds necessary to grow our business through additional stock offerings |
| Although we intend to pursue additional strategic acquisitions, our ability to do so is significantly restricted by the terms of the First Lien Credit Facility, the certificates of designations governing our Preferred Stock, the indenture that will govern the Exchange Notes, if issued, and our ability to raise additional funds |
| Additionally, our competitors who may have greater resources than we do may have an advantage over us in pursuing and completing strategic acquisitions |
| Loss of any of our key personnel could adversely affect our business |
| Our business depends upon the efforts, abilities and expertise of our executive officers and other key employees, including on-air talent, and our ability to hire and retain qualified personnel |
| The loss of any of these executive officers and key employees, particularly Raul Alarcon, Jr, our Chairman of the Board of Directors, Chief Executive Officer and President, could have a material adverse effect on our business |
| We do not maintain key man life insurance on any of our personnel |
| Raul Alarcon, Jr, our Chairman of the Board of Directors, Chief Executive Officer and President, has majority voting control and this control may discourage or influence certain types of transactions, including an actual or potential change of control such as a merger or sale |
| Raul Alarcon, Jr, our Chairman of the Board of Directors, Chief Executive Officer and President, owns shares of common stock having approximately 80prca of the combined voting power of our outstanding shares of common stock, as of the date of this annual report on Form 10-K Accordingly, Mr |
| Alarcon, Jr |
| has the ability to elect all of our directors and can effectively control our policies and affairs |
| This control may delay, defer or discourage certain types of transactions involving an actual or potential change of control such as a merger or sale |
| We must be able to respond to rapidly changing technology, services and standards which characterize our industry in order to remain competitive |
| The FCC has implemented new technologies in the broadcast industry, including satellite, and is considering introducing terrestrial delivery of digital audio broadcasting, and the standardization of available technologies which significantly enhance the sound quality of AM and FM broadcasts |
| We cannot predict the effect new technology of this nature will have on our financial condition and results of operations |
| Several new media technologies are being developed, including the following: • cable television operators offer a service commonly referred to as “cable radio” which provides cable television subscribers with several high-quality channels of music, news and other information; 26 _________________________________________________________________ [80]Table of Contents • the Internet offers new, diverse and evolving forms of video and audio program distribution; • direct satellite broadcast television companies are supplying subscribers with several high quality music channels; • the introduction of satellite digital audio radio technology has resulted in new satellite radio services with multi-channel programming and sound quality equivalent to that of compact discs; • the introduction of in-band on-channel digital radio could provide multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and • the provision of video programming to cellular telephones, digital handheld devices and gaming consoles |
| Our business depends on maintaining our FCC licenses, which we may be unable to maintain |
| The domestic broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the FCC for the issuance, renewal, transfer and assignment of broadcasting station operating licenses and limits the number of broadcasting properties we may acquire |
| Federal regulations may create significant new opportunities for broadcasting companies but also create uncertainties as to how these regulations will be interpreted and enforced by the courts |
| Our success depends in part on acquiring and maintaining broadcast licenses issued by the FCC, which are typically issued for a maximum term of eight years and are subject to renewal |
| Our FCC licenses are subject to renewal at various times |
| While we believe that the FCC will approve applications for renewal of our existing broadcasting licenses when made, we cannot guarantee that pending or future renewal applications submitted by us will be approved, or that renewals will not include conditions or qualifications that could adversely affect our operations |
| Although we may apply to renew our FCC licenses, interested third parties may challenge our renewal applications |
| In addition, if we or any of our significant stockholders, officers, or directors violate the FCC’s rules and regulations or the Communications Act, or are convicted of a felony or anti-trust violations, the FCC may commence a proceeding to impose sanctions upon us |
| Examples of possible sanctions include the imposition of fines, the revocation of our broadcasting licenses, or the renewal of one or more of our broadcasting licenses for a term of fewer than eight years |
| If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the broadcast station covered by the license only after we had exhausted administrative and judicial review without success |
| Such an event would materially affect the carrying value of our intangible assets and would negatively impact our operating results |
| We currently account for our FCC licenses as an indefinite life asset, per SFAS Nodtta 142, “Goodwill and Other Intangible Assets” (SFAS Nodtta 142) |
| In the event we are no longer able to conclude that our FCC license have indefinite lives, as defined in SFAS Nodtta 142, we may be required to amortize such licenses |
| The amortization of our FCC licenses would affect our earnings (losses) and earnings (losses) per share |
| The broadcasting industry is subject to extensive and changing federal regulation |
| Among other things, the Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments |
| The filing of petitions or complaints against us or any FCC licensee from which we acquire a station could result in the FCC delaying the grant of, or refusing to grant or imposing conditions on its consent to the assignment or transfer of licenses |
| The Communications Act and FCC rules also impose limitations on non-US ownership and voting of our capital stock |
| Moreover, governmental regulations and policies may change over time and we cannot assure you that those changes would not have a material impact upon our business, financial position or results of operations |
| The FCC has begun more vigorous enforcement of its indecency rules against the broadcast industry, which could have a material adverse effect on our business |
| The FCC’s rules and regulations prohibit the broadcast of obscene material at any time and indecent material between the hours of 6:00 a |
| The FCC in the last few years has stepped up its enforcement activities as they apply to indecency and has recently indicated that it is enhancing its enforcement efforts relating to the regulation of indecency |
| The FCC has threatened on more than one occasion to initiate license revocation or 27 _________________________________________________________________ [81]Table of Contents license renewal proceedings against a broadcast licensee who commits a “serious” indecency violation |
| Broadcasters risk violating the prohibition on the broadcast of indecent material because of the vagueness of the FCC’s definition of indecent material, coupled with the spontaneity of live programming |
| The FCC has also expanded the breadth of indecency regulation to include material that could be considered “blasphemy” “personally reviling epithets”, “profanity” and vulgar or coarse words amounting to a nuisance |
| Legislation has been introduced in Congress that would significantly increase the penalties for broadcasting indecent programming and depending on the number of violations engaged in, would potentially subject us to license revocation, renewal or qualifications proceedings in the event that we broadcast indecent material |
| In addition, the FCC’s heightened focus on the indecency regulatory scheme, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations |
| We may in the future become subject to additional inquiries or proceedings related to our stations’ broadcast of indecent or obscene material |
| To the extent that these pending inquiries or other proceedings result in the imposition of fines, revocation of any of our station licenses or denials of license renewal applications, our results of operations and business could be materially adversely affected |
| We may face regulatory review for additional acquisitions and divestitures in our existing markets and, potentially, acquisitions in new markets |
| An important part of our growth strategy is the acquisition of additional broadcast stations |
| Acquisitions and divestitures of broadcast stations by us are subject not only to obtaining FCC consent, but also to possible review by the US Department of Justice, or the Justice Department, which has become more aggressive in reviewing proposed acquisitions of radio and television stations and station networks |
| In general, the Justice Department has more closely scrutinized radio broadcasting acquisitions that result in market shares in excess of 40prca of local radio advertising revenue |
| Similarly, the FCC reviews 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 broadcast transactions that the FCC believes, based on its initial analysis, may present ownership concentration concerns in a particular local broadcast market |
| The market price of our shares of Class A common stock may fluctuate significantly |
| Our Class A common stock has been publicly traded since November 1999 |
| The market price for our Class A common stock has been subject to fluctuations since the date of our initial public offering |
| The stock market has from time to time experienced price and volume fluctuations, which have often been unrelated to the operating performance of the affected companies |
| We believe that the principal factors that may cause price fluctuations in our shares of Class A common stock are: • fluctuations in our financial results; • general conditions or developments in the media broadcasting industry and other media, and the national economy; • significant sales of our common stock into the marketplace; • significant decreases in our stations’ audience ratings; • inability to implement our acquisition and operating strategy; • a shortfall in revenue, gross margin, earnings or other financial results from operations or changes in analysts’ expectations; and • developments in our relationships with our customers and suppliers |
| We cannot assure you that the market price of our Class A common stock will not experience significant fluctuations in the future, including fluctuations that are adverse and unrelated to our operating performance |
| 28 _________________________________________________________________ [82]Table of Contents Current or future sales by existing stockholders could depress the market price of our Class A common stock |
| The market price of our Class A common stock could drop as a result of sales of a large number of shares of Class A common stock or Class B common stock (convertible into Class A common stock) by our existing stockholders or the perception that these sales may occur |
| These factors could make it more difficult for us to raise funds through future offerings of our Class A common stock |
| Pursuant to our amended asset purchase agreement for the purchase of the assets of radio station KXOL-FM, we granted warrants to the International Church of the FourSquare Gospel, or ICFG, effective from the date that ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM until the closing of the acquisition of KXOL-FM On each of March 31, 2003, April 30, 2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and September 30, 2003, we granted ICFG a warrant exercisable for 100cmam000 shares (an aggregate of 700cmam000 shares) of our Class A common stock at an exercise price of dlra6dtta14, dlra7dtta67, dlra7dtta55, dlra8dtta08, dlra8dtta17, dlra7dtta74 and dlra8dtta49 per share, respectively |
| The warrant issued on September 30, 2003 was the final warrant required to be issued due to the closing of the acquisition of KXOL-FM These warrants are exercisable for a period of thirty-six months after the date of issuance after which they will expire if not exercised |
| To date, none of the warrants issued to ICFG have been exercised |
| If these warrants are exercised, we cannot assure you that the market price of our Class A common stock would not be depressed |
| On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with Infinity, Infinity SF and SBS Bay Area, we issued to Infinity (i) an aggregate of 380cmam000 shares of our Series C preferred stock, each of which is convertible at the option of the holder into twenty fully paid and non-assessable shares of our Class A common stock; and (ii) a warrant to purchase an additional 190cmam000 shares of our Series C preferred stock, at an exercise price of dlra300dtta00 per share, or the Warrant |
| Upon conversion, each share of our Series C preferred stock held by a holder will convert into twenty fully paid and non-assessable shares of our Class A common stock, which shares will be exempt from registration requirements of the Securities Act, as a transaction not involving a public offering |
| The shares of our Series C preferred stock issued at the closing of the merger are convertible into 7cmam600cmam000 shares of our Class A common stock, subject to adjustment, and the Series C preferred stock issuable upon exercise of the Warrant are convertible into an additional 3cmam800cmam000 shares of our Class A common stock, subject to adjustment |
| This Warrant is exercisable for a period of forty-eight months from the date of issuance, after which it will expire if not exercised |
| To date, Infinity has not exercised the Warrant |
| If the shares of Series C preferred stock are converted or if the Warrant is exercised, we cannot assure you that this would not depress the market price of our Class A common stock |
| Our failure to comply with the Sarbanes-Oxley Act of 2002 could cause a loss of confidence in the reliability of our financial statements and could have a material adverse effect on our business and the price of our Class A common stock |
| We have undergone a comprehensive effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002 |
| Pursuant to Section 404, and the rules and regulations promulgated by the SEC to implement Section 404, we are required to furnish a report by our management to include in our annual report on Form 10-K regarding the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments |
| This effort included documenting and testing our internal controls |
| As of December 31, 2005, we did not identify any material weaknesses in our internal controls over financial reporting as defined by the Public Company Accounting Oversight Board |
| In future years, there can be no assurance that we will not have material weaknesses that would be required to be reported |
| If we are unable to assert that our internal controls over financial reporting are effective in any future period (or if our independent registered public accounting firm was unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse impact on our business and the price of our Class A common stock |
| 29 _________________________________________________________________ [83]Table of Contents Our operating results could be adversely affected by a national or regional recession |
| Our operating results could be adversely affected by a recession and/or downturn in the United States economy since advertising expenditures generally decrease as the economy slows down |
| In addition, our operating results in individual geographic markets could be adversely affected by local or regional economic downturns |
| Our operating results have been adversely affected by past recessions |