Attached files

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EX-32.2 - EX-32.2 - SPANISH BROADCASTING SYSTEM INCsbsaa-ex322_9.htm
EX-32.1 - EX-32.1 - SPANISH BROADCASTING SYSTEM INCsbsaa-ex321_6.htm
EX-31.2 - EX-31.2 - SPANISH BROADCASTING SYSTEM INCsbsaa-ex312_8.htm
EX-31.1 - EX-31.1 - SPANISH BROADCASTING SYSTEM INCsbsaa-ex311_7.htm
EX-10.1 - EX-10.1 - SPANISH BROADCASTING SYSTEM INCsbsaa-ex101_481.htm

Y BC 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number 000-27823

 

 

 

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-3827791

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7007 NW 77th Ave.

Miami, Florida 33166

(Address of principal executive offices) (Zip Code)

 

(305) 441-6901

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

  

Non-accelerated filer

 

 (Do not check if a smaller reporting company)

  

Smaller reporting company

  

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 17, 2017, 4,166,991 shares of Class A common stock, par value $0.0001 per share, 2,340,353 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 760,000 shares of Class A common stock, were outstanding.

 

 

 

 

 

 

 


 

SPANISH BROADCASTING SYSTEM, INC.

INDEX

 

 

 

 

2


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Spanish Broadcasting System, Inc. intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and includes this statement for purposes of such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, our recapitalization plan, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements.   These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified in our Annual Report on Form 10-K for the year ended December 31, 2016, and those described from time to time in our future reports filed with the SEC. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. These risks and uncertainties include the following factors:

 

 

The failure to repay our Notes;  

 

Risks relating to the existence of the Voting Rights Triggering Event;  

 

The maturity of our Notes and our obligations under our Series B preferred stock adversely affects our financial condition and raises substantial doubt about our ability to continue as a going concern;

 

Our ability to repurchase all of the Notes and our Series B preferred stock upon a change in control;  

 

Our ability to generate sufficient cash from operations or the sale of assets to repay our Notes and our liabilities under our Series B preferred stock, which may force us to take other actions to satisfy our obligations under our Notes and Series B preferred stock;  

 

Our high leverage and substantial level of indebtedness;  

 

Restrictions on our current and future operations pursuant to the terms of the Indenture governing the Notes and the terms of the Series B preferred stock;  

 

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 may be adversely affected;

 

Our industry is highly competitive, and 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 large portion of our net revenue and operating income that currently comes from our New York, Los Angeles and Miami markets;

 

Possible cancellations, reductions, delays and seasonality in advertising could adversely affect our net revenues;  

 

Our inability to pursue and successfully execute our expansion strategy which may impact our growth;  

 

Our cost-cutting measures may impact our ability to pursue our expansion strategy;

 

The success of our radio stations depends on the popularity and appeal of our content, which is difficult to predict;  

 

The success of our television operation depends upon our ability  to attract viewers and advertisers to our broadcast television operation;  

 

The loss of distribution agreements could materially adversely affect our results of operations;

 

The failure or destruction of satellites and transmitter facilities that we depend upon to distribute our programming could materially adversely affect our business and results of operation;    

 

Our ability to respond to rapidly changing technology, services and standards which characterize our industry in order to remain competitive;  

3


 

Our ability to retain key employees, on-air talent and program hosts;  

 

Impairment of our goodwill and other intangible assets deemed to have indefinite useful lives can cause our net income or net loss to fluctuate significantly;

 

Piracy of our programming and other content, including digital and internet piracy, may decrease revenue received from the exploitation of our programming and other content and adversely affect our business and profitability;

 

Damage to our brands or reputation;  

 

Our business may be adversely affected by legal or governmental proceedings brought by or on behalf of our employees;  

 

Raúl Alarcón, the Chairman of our Board of Directors, Chief Executive Officer and President, has majority voting control of our common stock and 100% voting control of our Series C preferred stock and this control may discourage or influence certain types of transactions or strategic initiatives;

 

Changes in government regulation; and

 

Other risk factors discussed under “Item 1A. Risk Factors.”

We do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

 

 

 

4


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements—Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

 

March 31,

 

 

December 31,

 

Assets

2017

 

 

2016

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

30,191

 

 

$

23,835

 

Receivables:

 

 

 

 

 

 

 

Trade

 

27,162

 

 

 

32,952

 

Barter

 

255

 

 

 

270

 

 

 

27,417

 

 

 

33,222

 

Less allowance for doubtful accounts

 

860

 

 

 

745

 

Net receivables

 

26,557

 

 

 

32,477

 

Prepaid expenses and other current assets

 

7,275

 

 

 

6,597

 

Total current assets

 

64,023

 

 

 

62,909

 

Property and equipment, net of accumulated depreciation of $62,672 in 2017 and $61,735 in 2016

 

25,533

 

 

 

26,406

 

FCC broadcasting licenses

 

322,197

 

 

 

323,961

 

Goodwill

 

32,806

 

 

 

32,806

 

Other intangible assets, net of accumulated amortization of $1,140 in 2017 and $1,116 in 2016

 

1,408

 

 

 

1,432

 

Assets held for sale

 

3,141

 

 

 

1,377

 

Deferred tax assets

 

1,573

 

 

 

1,615

 

Other assets

 

449

 

 

 

384

 

Total assets

$

451,130

 

 

$

450,890

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

14,220

 

 

$

12,733

 

Accrued interest

 

15,862

 

 

 

7,290

 

Unearned revenue

 

754

 

 

 

1,325

 

Other liabilities

 

3

 

 

 

4

 

Current portion of 12.5% senior secured notes due 2017, net of unamortized discount of $91 in 2017 and $629 in

   2016 and net of deferred financing costs of $285 in 2017 and $1,138 in 2016.

 

274,624

 

 

 

273,233

 

Current portion of other long-term debt

 

 

 

 

4,616

 

10 3/4% Series B cumulative exchangeable redeemable preferred stock outstanding and dividends

   outstanding, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares: 90,549

   shares issued and outstanding at March 31, 2017 and December 31, 2016 and $67,732 and $65,299

   of dividends payable as of March 31, 2017 and December 31, 2016, respectively.

 

158,281

 

 

 

155,848

 

Total current liabilities

 

463,744

 

 

 

455,049

 

Other liabilities, less current portion

 

3,108

 

 

 

2,955

 

Derivative instruments

 

 

 

 

17

 

Deferred income taxes

 

109,144

 

 

 

106,986

 

Total liabilities

 

575,996

 

 

 

565,007

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares;

     380,000 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

4

 

 

 

4

 

Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,166,991 shares

     issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

 

 

 

 

Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares

     issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

 

 

 

 

Additional paid-in capital

 

526,078

 

 

 

525,999

 

Accumulated other comprehensive loss, net

 

(92

)

 

 

(102

)

Accumulated deficit

 

(650,856

)

 

 

(640,018

)

Total stockholders’ deficit

 

(124,866

)

 

 

(114,117

)

Total liabilities and stockholders’ deficit

$

451,130

 

 

$

450,890

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

and Comprehensive Loss

(In thousands, except per share data)

 

 

Three-Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

Net revenue

$

31,350

 

 

$

31,613

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Engineering and programming

 

8,617

 

 

 

8,162

 

 

Selling, general and administrative

 

14,487

 

 

 

15,455

 

 

Corporate expenses

 

2,444

 

 

 

2,993

 

 

Depreciation and amortization

 

1,132

 

 

 

1,250

 

 

Total operating expenses

 

26,680

 

 

 

27,860

 

 

(Gain) loss on the disposal of assets

 

(1

)

 

 

(3

)

 

Recapitalization costs

 

826

 

 

 

 

 

Operating income

 

3,845

 

 

 

3,756

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

Interest expense, net

 

(9,987

)

 

 

(10,036

)

 

Dividends on Series B preferred stock classified as interest expense

 

(2,433

)

 

 

(2,433

)

 

Loss before income taxes

 

(8,575

)

 

 

(8,713

)

 

Income tax expense

 

2,263

 

 

 

2,603

 

 

Net loss

$

(10,838

)

 

$

(11,316

)

 

Basic and Diluted net loss per common share

$

(1.49

)

 

$

(1.56

)

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and Diluted

 

7,267

 

 

 

7,267

 

 

Net loss

$

(10,838

)

 

$

(11,316

)

 

Other comprehensive income, net of taxes

 

10

 

 

 

45

 

 

Total comprehensive loss

$

(10,828

)

 

$

(11,271

)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.  

 

 

6


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit

for the Three-Months Ended March 31, 2017

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C convertible preferred stock

 

 

Class A common stock

 

 

Class B common stock

 

 

Additional

 

 

Accumulated other

 

 

 

 

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Number of

 

 

 

 

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders'

 

 

 

shares

 

 

Par value

 

 

shares

 

 

Par value

 

 

shares

 

 

Par value

 

 

capital

 

 

loss, net

 

 

deficit

 

 

deficit

 

Balance at December 31, 2016

 

 

380,000

 

 

$

4

 

 

 

4,166,991

 

 

$

 

 

 

2,340,353

 

 

$

 

 

$

525,999

 

 

$

(102

)

 

$

(640,018

)

 

$

(114,117

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,838

)

 

 

(10,838

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

79

 

Unrealized gain on derivative instrument

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Balance at March 31, 2017

 

 

380,000

 

 

$

4

 

 

 

4,166,991

 

 

$

 

 

 

2,340,353

 

 

$

 

 

$

526,078

 

 

$

(92

)

 

$

(650,856

)

 

$

(124,866

)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

7


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

Three-Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(10,838

)

 

$

(11,316

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Dividends on Series B preferred stock classified as interest expense

 

2,433

 

 

 

2,433

 

(Gain) loss on the disposal of assets

 

(1

)

 

 

(3

)

Stock-based compensation

 

79

 

 

 

383

 

Depreciation and amortization

 

1,132

 

 

 

1,250

 

Net barter (income) loss

 

(99

)

 

 

(76

)

Provision for trade doubtful accounts

 

98

 

 

 

3

 

Amortization of deferred financing costs

 

853

 

 

 

847

 

Amortization of original issued discount

 

538

 

 

 

471

 

Deferred income taxes

 

2,207

 

 

 

2,218

 

Unearned revenue-barter

 

(457

)

 

 

139

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

5,627

 

 

 

5,800

 

Prepaid expenses and other current assets

 

(498

)

 

 

(1,328

)

Other assets

 

(65

)

 

 

35

 

Accounts payable and accrued expenses

 

1,448

 

 

 

965

 

Accrued interest

 

8,572

 

 

 

8,642

 

Other liabilities

 

152

 

 

 

50

 

Net cash provided by operating activities

 

11,181

 

 

 

10,513

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(276

)

 

 

(577

)

Proceeds from the sale of property and equipment

 

67

 

 

 

 

Cash payment related to station exchange

 

 

 

 

(1,897

)

Net cash used in investing activities

 

(209

)

 

 

(2,474

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of other debt

 

(4,616

)

 

 

(77

)

Net cash used in financing activities

 

(4,616

)

 

 

(77

)

Net increase in cash and cash equivalents

 

6,356

 

 

 

7,962

 

Cash and cash equivalents at beginning of period

 

23,835

 

 

 

19,443

 

Cash and cash equivalents at end of period

$

30,191

 

 

$

27,405

 

Supplemental cash flows information:

 

 

 

 

 

 

 

Interest paid

$

5

 

 

$

79

 

Income tax paid

$

14

 

 

$

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Nonmonetary asset exchange

$

 

 

$

2,794

 

Unrealized gain on derivative instruments

$

10

 

 

$

45

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

8


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the Company, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of March 31, 2017 and December 31, 2016 and for the three-month periods ended March 31, 2017 and 2016 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for the fiscal year ended December 31, 2016, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and recurring nature, necessary for a fair presentation of the results of the interim periods. Additionally, we evaluated subsequent events after the balance sheet date of March 31, 2017 through the financial statements issuance date. The results of operations for the three-months ended March 31, 2017 are not necessarily indicative of the results for the entire year ending December 31, 2017, or for any other future interim or annual periods.

 

Our consolidated financial statements have been prepared assuming we will continue as a going-concern, and do not include any adjustments that might result if we were unable to do so, and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2017 and December 31, 2016, we had a working capital deficit due primarily to the classification of our 10¾ %Series B Cumulative Exchangeable Redeemable Preferred Stock (the “Series B preferred stock”) as a current liability and the classification of our 12.5% Senior Secured Notes due 2017 (the “Notes”) as a current liability. Under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient funds legally available to be able to redeem or repurchase the Series B preferred stock and its accumulated unpaid dividends. If we are successful in repaying or refinancing our Notes, and are able to generate legally available funds under Delaware law, we may be required to pay all or a portion of the accumulated preferred dividends and redeem all or a portion of the Series B preferred stock, to extent of the funds legally available.

As discussed in Note 8, the Notes matured on April 15, 2017. Cash from operations or the sale of assets were not sufficient to repay the Notes when they became due. We are working with a team of financial and legal advisors in evaluating all options available to us in executing a comprehensive recapitalization plan. These options, include, but are not limited to, selling certain non-core assets (whose net proceeds would be used to repay a portion of outstanding Notes), new financings (including debt, equity-linked securities and equity offerings), an exchange offer with the holders of our Notes (the “Noteholders”), with or without exit consents to amend the terms of the indenture under which the Notes were issued (the “Indenture”), use of cash on hand and a combination of these options. We have been pursuing the sale of certain non-core assets, including certain of our television stations and real estate assets. We expect to use the net proceeds of these asset sales to repay a portion of the Notes and, thereby deleverage our balance sheet. In connection with our recapitalization plan, we continue conversations with representatives of the Noteholders and the holders of the Series B preferred stock regarding these matters. However, we cannot assure you that we will be successful in our recapitalization efforts. We did not repay the Notes at their maturity, as a result of which there was an event of default under the Indenture on April 17, 2017 (April 17, 2017 being the payment date following the Saturday, April 15, 2017 maturity date). In addition, as of the date of the filing of our Quarterly Report on Form 10-Q for the three months ended March 31, 2017, we are in default under the Future Guarantors covenant of the Indenture (though we have delivered documentation to the Trustee to have the subsidiary become an additional guarantor of the Notes). On April 17, 2017, we made the interest payment due on the Notes. The Notes will continue to earn interest at the current rate of 12.5% per year after the maturity date but we are not required to pay any default interest under the Indenture. As further described in Note 12, the Company on May 8, 2017 entered into a forbearance agreement with an ad hoc group of more than 75.1% of the Notes. Pursuant to the Forbearance Agreement (as described below), the Supporting Holders (as described below) agreed to forbear from exercising any of their rights and remedies under the Indenture under which the Notes were issued, with respect to certain defaults from the effective date of the Forbearance Agreement until the earliest to occur of (a) the occurrence of any Event of Termination (as defined in the Forbearance Agreement) and (b) May 31, 2017 at 12:01 a.m. New York City time. In the event the Forbearance Agreement expires or is not extended, one or more Noteholders may seek to exercise various remedies against us, including foreclosing on our assets that constitute collateral under the Indenture. As of May 17, 2017, the Company has made all of the payments required to be made under the Forbearance Agreement.  The interest payment that is accruing for the period from May 16, 2017 through June 15, 2017 is due on June 15, 2017.    

In the event we are unsuccessful in these efforts and one or more Noteholders seek to exercise remedies against us or our assets, we may be required to seek protection under Chapter 11 of the U.S. Bankruptcy Code, among other things, in order to maximize the

9


value of our company for all of our constituents. While we believe that a Chapter 11 filing may create an avenue to successfully execute on our strategy, such a filing may also have several negative consequences to our business, including the costs and negative publicity that surrounds such a filing, reduced advertising revenue due to the uncertainty surrounding the filing, the potential need to sell assets (including the equity of our subsidiaries that own our FCC licenses) under distressed circumstances and the risk that we are unable to execute on a successful plan of reorganization.

The promissory note relating to the acquisition of the Miami studio building was paid on January 3, 2017.

Management is responsible for evaluating whether there is substantial doubt about the organization’s ability to continue as a going concern and to provide related footnote disclosures, in accordance with the going concern accounting standard adopted in 2016. Our inability to obtain financing in adequate amounts and on acceptable terms necessary to operate our business, repay our Notes, redeem or refinance our Series B preferred stock or finance future acquisitions negatively impacts our business, financial condition, results of operations and cash flows and raises substantial doubt about our ability to continue as a going concern. The financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.

 

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. ASU 2017-04 is required to be applied prospectively and will be effective for annual or interim impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted. We have evaluated the impact and determined that applying this new standard will not have a material impact on our financial position, results of operations and disclosures.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805). This new standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective prospectively for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Upon adoption, we will evaluate the accounting implications for any acquisitions we may enter into.

In October 2016, the FASB issued ASU No. 2016-16, – Income Taxes (Topic 740). This new standard improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The update is effective retrospectively for annual periods beginning after December 15, 2017 and in interim periods in that reporting period, with early adoption permitted. The Company is currently evaluating the effect the update will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statements of Cash Flows (Topic 230).  This new standard’s objective is to clarify how companies present and classify certain cash receipts and cash payments in the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230) which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  This update is effective on a retrospective basis for annual and interim periods beginning after December 15, 2017 with early adoption permitted.  We are currently evaluating the impact, if any, that this new standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This new standard’s objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this accounting standard update, effective January 1, 2017, and determined that there was no material impact on the consolidated financial statements.  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This new standard requires organizations that lease assets to recognize on the balance sheet the lease assets and lease liabilities for the rights and obligations created by those leases and disclose key information about the leasing agreements.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of an interim or annual reporting period and must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  We are currently evaluating the impact that this new standard will have on our financial position and related disclosures and expect the impact on our assets and liabilities will be material due to the addition of right-of-use assets and lease liabilities; however the impact cannot currently be quantified.

10


In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement. The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost.  The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact, if any; however, we do not expect this update to have a material impact on our financial position and results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  In July 2015, the FASB postponed the effective date of this standard.  The standard is now effective for the first interim period within annual reporting periods beginning after December 15, 2017.  In May 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations, licenses, and determining if a company is the principal or agent in a revenue arrangement. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, which is intended to make minor corrections and to improve and clarify the implementation guidance of Topic 606. The Company currently expects to adopt the new revenue standard in its first quarter of 2018 and continues to evaluate the method of adoption and the impact of the provisions on our financial position and results of operations, if any.  The company has since implemented an evaluation tool to assist it in clearly determining the risks, materiality and complexities associated with its multiple revenue streams. Based on the Company’s on-going review, we continue to not expect this update to have a material impact on our financial position or results of operations; however, our initial assessment is subject to change.

 

 

2. Stockholders’ Deficit

(a) Series C Convertible Preferred Stock

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio Media Corporation (formerly known as Infinity Media Corporation, “CBS Radio”), an indirect wholly-owned subsidiary of CBS Corporation, Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS, pursuant to which SBS acquired the FCC license of Infinity SF (the “CBS Radio Merger”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the “Series C preferred stock”). Each share of Series C preferred stock is convertible at the option of the holder into two fully paid and non-assessable shares of the Class A common stock. The shares of Series C preferred stock issued at the closing of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain adjustments. In connection with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the SEC, providing for the registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.  

In connection with the issuance of the Series C preferred stock, we entered into a Stockholder Agreement, dated October 5, 2004, with CBS Radio and Mr. Alarcón. Pursuant to the terms of the Stockholder Agreement, CBS Radio was given a right of first negotiation with respect to any radio station that we control in the New York and Miami markets after the date of such agreement. The negotiation right is required to stay open for a period of ten (10) business days. In addition, CBS Radio was also given a right to match any offer received by us with respect to any Miami radio station. Such matching right expired one year after the date of the Stockholder Agreement.

We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B common stock, and each other class or series of our capital stock created after December 23, 2004. The Series C preferred stock holders have the same voting rights and powers as our Class A common stock on an as-converted basis, subject to certain adjustments. The Certificate of Designations for the Series C preferred stock does not contain a voting rights triggering event provision like the one found in the Certificate of Designations for the Series B preferred stock. Each holder of Series C preferred stock (i) has preemptive rights to purchase its pro rata share of any equity securities we may offer, subject to certain conditions, and (ii) may, at their option, convert each share of Series C preferred stock into two (2) shares of Class A common stock, subject to certain adjustments.

The terms of the Certificate of Designations for our Series C preferred stock limits our ability to (i) enter into transactions with affiliates and certain merger transactions and (ii) create or adopt any shareholders rights plan.

On August 8, 2016 CBS Radio entered into a Stock Purchase Agreement with the Company, AAA Trust and Mr. Alarcón (the “Stock Purchase Agreement”) to sell and assign its rights related to its 380,000 shares of Series C preferred stock to the AAA Trust for $3.8 million.  AAA Trust is a Florida trust, of which Mr. Alarcón is the trustee.  Pursuant to the Stock Purchase Agreement, CBS

11


Radio has agreed to assign the rights under the registration rights agreement and Stockholder Agreement to AAA Trust, which now holds such registration rights.  The parties closed on the Stock Purchase Agreement on August 18, 2016.

(b) Class A and B Common Stock

The rights of the Class A common stockholders and Class B common stockholders are identical except with respect to their voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically upon a transfer of the Class B common stock to a person or entity which is not a permitted transferee (as described in our Certificate of Incorporation). Holders of each class of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. Neither the holders of the Class A common stock nor the holders of the Class B common stock have preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our Series B preferred stock. The Series B preferred stock has a liquidation preference of $1,000 per share and is on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

(c) 2006 Omnibus Equity Compensation Plan

In July 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants of Class A common stock can be made to participants in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) stock appreciation rights, (iv) stock units, (v) stock awards, (vi) dividend equivalents, and (vii) other stock-based awards. The Omnibus Plan authorizes up to 350,000 shares of our Class A common stock for issuance, subject to adjustment in certain circumstances. The Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock units, stock awards and other stock-based awards that may be granted, other than dividend equivalents, to any individual during any calendar year is 100,000 shares, subject to adjustments. The Omnibus Plan expired on July 17, 2016 and no further options can be granted under this plan.

(d) Stock Options and Nonvested Share Activity

Stock options have only been granted to employees or directors. Our stock options have various vesting schedules and are subject to the employees’ continuing service. A summary of the status of our stock options, as March 31, 2017 and December 31, 2016, and changes during the quarter ended March 31, 2017, is presented below (in thousands, except per share data and contractual life):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Aggregate

 

 

Remaining

 

 

 

 

 

 

Exercise

 

 

Intrinsic

 

 

Contractual

 

 

Shares

 

 

Price

 

 

Value

 

 

Life (Years)

 

Outstanding at December 31, 2016

 

408

 

 

$

4.32

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

408

 

 

$

4.32

 

 

$

-

 

 

 

7.9

 

Exercisable at March 31, 2017

 

238

 

 

$

5.21

 

 

$

-

 

 

 

6.7

 

 

The following table summarizes information about our stock options outstanding and exercisable at March 31, 2017 (in thousands, except per share data and contractual life):

 

 

Outstanding

 

 

 

 

 

 

Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Vested

 

 

Unvested

 

 

Exercise

 

 

Contractual

 

 

Number

 

 

Exercise

 

Range of Exercise Prices

Options

 

 

Options

 

 

Price

 

 

Life (Years)

 

 

Exercisable

 

 

Price

 

$1.03 - 2.99

 

45

 

 

 

50

 

 

$

2.68

 

 

 

9.1

 

 

 

45

 

 

$

2.33

 

$3.00 - 4.99

 

153

 

 

 

120

 

 

 

3.21

 

 

 

8.4

 

 

 

153

 

 

 

3.30

 

$5.00 - 9.99

 

20

 

 

 

-

 

 

 

7.50

 

 

 

3.1

 

 

 

20

 

 

 

7.50

 

$10.00 - 49.99

 

20

 

 

 

-

 

 

 

24.03

 

 

 

1.2

 

 

 

20

 

 

 

24.03

 

 

 

238

 

 

 

170

 

 

$

4.32

 

 

 

7.9

 

 

 

238

 

 

$

5.21

 

 

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As of March 31, 2017, there was $0.1 million of total unrecognized compensation costs related to nonvested stock-based compensation arrangements granted under all of our plans.  The cost is expected to be recognized over a weighted average period of approximately 0.9 years.

 

(e) Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss is comprised of accumulated gains and losses on a derivative instrument (interest rate swap) that qualifies for cash flow hedge treatment. Our total comprehensive loss consists of our net loss and a gain on our interest rate swap for the respective periods. The gain on the interest rate swap is shown net of taxes; however, there is no tax effect as a result of a full deferred tax asset valuation allowance related to the interest rate swap. The interest rate swap expired on January 3, 2017.

For the three-months ended March 31, 2017 and 2016, we reclassified from other comprehensive loss to interest expense less than $0.1 million and $0.1 million, respectively.  During the three-months ended March 31, 2017 and 2016, we recognized in other comprehensive income, net of taxes, an unrealized gain on derivative instrument of approximately $10 thousand and $45 thousand, respectively.  

 

 

3. Basic and Diluted Net Loss Per Common Share

Basic net loss per common share was computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock and convertible preferred stock outstanding for each period presented, using the “if converted” method. Diluted net loss per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share for the three-month periods ended March 31, 2017 and 2016 (in thousands):

 

 

Three-Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

Basic weighted average shares outstanding

 

7,267

 

 

 

7,267

 

 

Effect of dilutive equity instruments

 

 

 

 

 

 

Dilutive weighted average shares outstanding

 

7,267

 

 

 

7,267

 

 

Options to purchase shares of common stock and other

   stock-based awards outstanding which are not included in the

   calculation of diluted net income per share because their

   impact is anti-dilutive

 

401

 

 

 

433

 

 

 


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4. Operating Segments

We have two reportable segments: radio and television.

The following summary table presents separate financial data for each of our operating segments (in thousands):  

 

 

Three-Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

Net revenue:

 

 

 

 

 

 

 

 

Radio

$

28,224

 

 

$

28,525

 

 

Television

 

3,126

 

 

 

3,088

 

 

Consolidated

$

31,350

 

 

$

31,613

 

 

Engineering and programming expenses:

 

 

 

 

 

 

 

 

Radio

$

6,199

 

 

$

6,032

 

 

Television

 

2,418

 

 

 

2,130

 

 

Consolidated

$

8,617

 

 

$

8,162

 

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

Radio

$

13,136

 

 

$

13,476

 

 

Television

 

1,351

 

 

 

1,979

 

 

Consolidated

$

14,487

 

 

$

15,455

 

 

Corporate expenses:

$

2,444

 

 

$

2,993

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

Radio

$

476

 

 

$

488

 

 

Television

 

559

 

 

 

663

 

 

Corporate

 

97

 

 

 

99

 

 

Consolidated

$

1,132

 

 

$

1,250

 

 

(Gain) loss on the disposal of assets, net:

 

 

 

 

 

 

 

 

Radio

$

 

 

$

(3

)

 

Television

 

(1

)

 

 

 

 

Corporate

 

 

 

 

 

 

Consolidated

$

(1

)

 

$

(3

)

 

Recapitalization costs:

 

 

 

 

 

 

 

 

Radio

$

 

 

$

 

 

Television

 

 

 

 

 

 

Corporate

 

826

 

 

 

 

 

Consolidated

$

826

 

 

$

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

Radio

$

8,413

 

 

$

8,532

 

 

Television

 

(1,201

)

 

 

(1,684

)

 

Corporate

 

(3,367

)

 

 

(3,092

)

 

Consolidated

$

3,845

 

 

$

3,756

 

 

Capital expenditures:

 

 

 

 

 

 

 

 

Radio

$

202

 

 

$

382

 

 

Television

 

23

 

 

 

94

 

 

Corporate

 

51

 

 

 

101

 

 

Consolidated

$

276

 

 

$

577

 

 

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Total Assets:

 

 

 

 

 

 

 

Radio

$

392,838

 

 

$

391,817

 

Television

 

55,562

 

 

 

56,554

 

Corporate

 

2,730

 

 

 

2,519

 

Consolidated

$

451,130

 

 

$

450,890

 

 

 

 

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5. Income Taxes

We are calculating our effective income tax rate using a year-to-date income tax calculation, due to the full valuation allowance on the Company’s deferred tax assets, other than the net operating loss carryforwards of our U.S. Licensing companies and the U.S. AMT tax credits. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or the entire deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. Due to the continued pre-tax operating losses reported through Q1 2017, management has not changed its valuation allowance position as of March 31, 2017, from December 31, 2016.

Our income tax expense differs from the statutory federal tax rate of 35% and related statutory state tax rates primarily due to the tax amortization on certain indefinite-lived intangible assets that do not have any valuation allowance and the continued losses that cannot be realized due to the full valuation allowance.

We file federal, state and local income tax returns in the United States and Puerto Rico. The tax years that remain subject to assessment of additional liabilities by the United States federal tax authorities are 2013 through 2016.   The tax years that remain subject to assessment of additional liabilities by state, local, and Puerto Rico tax authorities are 2012 through 2016.  

From time to time, we continue to be subject to state income tax audits, including an active audit by a State tax authority (the “State”) for the income tax years from December 31, 2010 through 2013.  The audit is in the preliminary stages; however, based on the company’s history of audits with the state, we do not anticipate any material tax impact, and thus have not set up a reserve.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements as of March 31, 2017 and December 31, 2016.

 

 

6. Commitments and Contingencies

We are subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated. In our opinion, we do not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. Should we fail to prevail in any of these legal matters or should all of these legal matters be resolved against us in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Local Tax Assessment

 

The company has received an audit assessment (the “Assessment”) wherein it was proposed that the Company underpaid a local tax for the tax periods between June 1, 2005 and May 31, 2015 totaling $1,439,452 in underpaid tax, applicable interest and penalties.  The Company disagrees with the assessment and related calculations but is developing a settlement strategy to discuss and pursue with the taxing jurisdiction with the hope of avoiding a lengthy litigation process. While we are uncertain as to whether the jurisdiction will accept this offer, an accrual of $391,000, based upon our current best estimate of probable loss, was charged to operations in 2016. However, if the settlement offer is not accepted by the jurisdiction, the amount of the ultimate loss to the Company, if any, may equal the entire amount of the Assessment sought by the taxing jurisdiction.

Gutierrez-Ortiz Lawsuit

We are a defendant in Aida Ivette Gutiérrez Ortiz et al. v. Municipio Autónomo de Bayamón, et al., a lawsuit involving the death of a man who was shot and killed at a concert co-promoted by us. Plaintiffs allege that we were negligent because we did not provide the necessary security to prevent the entry of firearms in the concert venue or its surrounding areas. Plaintiffs also allege we did not provide the necessary measures to control the venue and allege that we were negligent because we failed to provide the necessary medical assistance to aid the victim. Plaintiffs are seeking an estimated $3.5 million as indemnity. We intend to defend our self vigorously against this claim. At this stage, an estimate of loss cannot be made, however, we believe we have good defenses and it is not probable that the outcome of the litigation will result in a material loss or liability to us.

 

 

 


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7. Fair Value Measurement Disclosures

Fair Value of Financial Instruments

Cash and cash equivalents, receivables, as well as accounts payable and accrued expenses, and other current liabilities, as reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of our other long-term debt instruments, approximate their carrying amounts as the interest rates approximate our current borrowing rate for similar debt instruments of comparable maturity, or have variable interest rates.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value of the senior secured notes are estimated using market quotes from a major financial institution taking into consideration the most recent activity and are considered Level 2 measurements within the fair value hierarchy.  The fair value of the Series B cumulative exchangeable redeemable preferred stock and the promissory notes payable were based upon either: (a) unobservable market quotes from a major financial institution taking into consideration the most recent activity or (b) discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

The fair value of the Series B Preferred Stock may be impacted by the potential monetization of non-core assets used to generate cash proceeds which the Company could use to repay, refinance and/or restructure its short term obligations, as well as its ability to be able to successfully recapitalize its balance sheet.

The estimated fair values of our financial instruments are as follows (in millions):

 

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

Fair Value

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

Description

Hierarchy

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

12.5% senior secured notes due 2017

Level 2

 

$

275.0

 

 

 

275.1

 

 

$

275.0

 

 

 

275.5

 

10 3/4% Series B cumulative exchangeable

     redeemable preferred stock

Level 3

 

 

158.3

 

 

 

49.0

 

 

 

155.8

 

 

 

60.5

 

Promissory note payable

Level 3

 

 

0.0

 

 

 

0.0

 

 

 

4.6

 

 

 

4.7

 

 

 

8. 12.5% Senior Secured Notes due 2017

On February 7, 2012 we closed our offering of $275 million in aggregate principal amount of our Notes, at an issue price of 97% of the principal amount. The Notes were offered solely by means of a private placement either to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act, or to certain persons outside the United States pursuant to Regulation S under the Securities Act. We used the net proceeds from the offering, together with some cash on hand, to repay and terminate the senior credit facility term loan, and to pay the transaction costs related to the offering. The Notes matured on April 15, 2017. Because we did not have sufficient cash on hand and did not generate sufficient cash from operations or asset sales, we did not repay the Notes at their maturity on April 17, 2017 (being the payment date following the Saturday, April 15, 2017 maturity date), as a result the Company was in default of the covenant to repay the Notes at their maturity (which constitutes an event of default under the Indenture). See Note 1 elsewhere in these notes to the financial statements for additional detail regarding our recapitalization efforts and our failure to repay the Notes at maturity.      

In addition, the Company was also in default of the security agreement covenant relating to deposit account control agreements and the related Indenture covenant regarding compliance with the security agreement due to the Company initiated transfer of cash balances from controlled accounts to non-controlled accounts. This default has subsequently been cured.  In addition, one of our limited liability companies had not become a guarantor when formed in 2013, as required by the Future Guarantor covenant of the Indenture and therefore we were in default of the Indenture from the formation of the limited liability company until we subsequently submitted documentation to the Trustee to have the limited liability company become an additional guarantor in April 2017.  We are required to amend the limited liability operating agreement to permit the trustee to more adequately perfect its security interest in the equity of the company.  We are in the process of making that amendment.  

On April 17, 2017 the Company timely made the interest payment due on the Notes. The Notes will continue to earn interest at the current rate of 12.5% per year after the maturity date. As further described in Note 12, on May 8, 2017, the Company entered into a forbearance agreement with an ad hoc group of more than 75.1% of the Notes. As of May 17, 2017, the Company had made all of the payments required to be made under the Forbearance Agreement.  The interest payment that is accruing for the period from May 16, 2017 through June 15, 2017 is due on June 15, 2017.  

16


Interest

The Notes accrue interest at a rate of 12.5% per year. Interest on the Notes is paid semi-annually on each April 15 and October 15 (the “Interest Payment Date”), commencing on April 15, 2012. After April 15, 2013, interest will accrue at a rate of 12.5% per annum on (i) the original amount of the Notes plus (ii) any Additional Interest (as defined below) payable but unpaid in any prior interest period, payable in cash on each Interest Payment Date. Further, beginning on the Interest Payment Date occurring on April 15, 2013, additional interest will be payable at a rate of 2.00% per annum (the “Additional Interest”) on (i) the original principal amount of the Notes plus (ii) any amount of Additional Interest payable but unpaid in any prior interest period, to be paid in cash, at our election, (x) on the applicable Interest Payment Date or (y) on the earliest of the maturity date of the Notes, any acceleration of the Notes and any redemption of the Notes; provided that no Additional Interest will be payable on any Interest Payment Date if, for the applicable fiscal period, either (a) we record positive consolidated station operating income for our television segment or (b) our secured leverage ratio on a consolidated basis is less than 4.75 to 1.00.

The measurement periods that determine if Additional Interest is applicable for the respective Interest Payment Dates are as follows:

(1)

Six-months ended December 31, 2012 or as of December 31, 2012

(2)

Last twelve months ended June 30, 2013 or as of June 30, 2013

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