Spanish Broadcasting System (SBSAQ) Risk Analysis

The terms of the Indenture and the Certificate of Designations for the Series B preferred stock contain restrictive covenants that impose significant restrictions on us and may limit, or prevent, our ability to engage in acts that may be in our long-term best interest, including restrictions or prohibitions on our ability to: - incur or guarantee additional indebtedness, including indebtedness to refinance the Notes;- pay dividends or make other distributions, repurchase or redeem our capital stock and make certain restricted investments and make other restricted payments;- sell assets;- incur liens;- enter into transactions with affiliates;- enter into sale and leaseback transactions;- alter the businesses we conduct;- enter into agreements restricting our subsidiaries' ability to pay dividends, make loans and sell assets to the Company and other restricted subsidiaries;- enter into change of control transactions;- manage our FCC licenses and broadcast license subsidiaries; and - consolidate, merge or sell all or substantially all of our assets. As a result of these restrictions, we are: - limited in how we conduct our business;- unable to satisfy our current obligations;- unable to raise additional debt or equity financing; and - unable to compete effectively or to take advantage of new business opportunities, including acquisition opportunities. These restrictions negatively affect our ability to grow in accordance with our plans, which could have an adverse effect on our business, financial condition, results of operations and cash flow.

In light of the foreign ownership issue we summarize above under Part I, Item I, "Business-Our Continued Recapitalization and Restructuring Efforts-Foreign Ownership Issue" and Part I, Item I, "Federal Regulation of Radio and Television Broadcasting-Foreign Ownership," under the Communications Act, FCC regulations and our Charter, we face several risks.  As a general matter and because of this foreign ownership issue, we have taken the following steps: - As a publicly traded company we review Commission filings by third parties regarding the ownership of our securities, though we are dependent in this regard on timely disclosures by third parties and may not be able to determine with certainty the exact amount of our stock that is held by foreign persons or entities at any given time. - On November 28, 2017, we notified the purported holders of our Series B preferred stock that we had suspended all of their rights, effective immediately, other than their right to transfer such shares to a citizen of the United States, due to the potential violation of Section 310 of the Communications Act and our Charter resulting from the ownership of a majority of our outstanding Series B preferred stock by foreign persons. - We filed Current Reports on Form 8-K on November 28, 2017 and March 26, 2018 with the Commission to publicize and explain the foreign ownership issue and the suspension of rights, among other things. - In order to comply with the FCC's rules establishing procedures to remediate inadvertent noncompliance with the foreign ownership rules, and upon the advice of FCC staff, we also filed a petition for declaratory ruling on December 4, 2017 which we summarize above under "Federal Regulation of Radio and Television Broadcasting – Foreign Ownership." This petition is currently in abeyance pending resolution of the Series B Preferred Stock Litigation. - On April 27, 2018, we issued Notices of Ineffective Purported Purchase of Series B Preferred Stock to four investors notifying them that their claimed ownership of our outstanding Series B preferred stock shall, after the date of these notices, be treated as void and non-existent, unless and until these investors can demonstrate facts to the contrary supported by relevant documentation, because they attempted to acquire these shares in transactions that, if given effect, would have violated the limitations in our Charter regarding foreign ownership, as summarized under Part I, Item 1, "Business-Our Continued Recapitalization and Restructuring Efforts-Foreign Ownership Issue."  As of the date of this Annual Report, these investors have not provided us with any facts or provided any documentation that would support a different legal conclusion. We took these actions in order to safeguard our most important assets, our FCC broadcast licenses, which would otherwise potentially be at risk if we failed to take appropriate measures to remain in compliance with the Communications Act. On December 6, 2018, we received a letter from the Enforcement Bureau of the Investigations and Hearings Division (the "Bureau") of the FCC advising us that we were under investigation for potential violations of Section 310(b) of the Communications Act, related to excess foreign ownership of broadcast stations.  As part of its investigation, the Bureau requested of the company detailed information and supporting documentation about the identities of the Series B preferred stockholders, the potential for a foreign ownership violation, the dates that the Company became aware of the situation, and the steps the Company took to address the situation.  We timely filed our response to the Bureau's letter of inquiry on February 8, 2019. As of the date of this Annual Report, we have not received a response or any additional inquiries from the Bureau regarding this investigation. A failure to comply with applicable restrictions on ownership by foreign persons could result in an order to divest the non-compliant ownership, fines, denial of license renewal and/or spectrum license revocation proceedings, any of which would likely have a material adverse effect on our business, financial condition and results of operations.  An FCC ruling denying the relief we requested in our petition for a declaratory ruling could require that we initiate legal proceedings to enforce the protective provisions set forth in our Charter to comply with the foreign ownership provisions of our Charter and the Communications Act, which may take many forms.  Further, the FCC could impose a monetary penalty against us and other significant enforcement penalties if the FCC concludes that we were not in compliance with the Communications Act.  Any of these would likely have a material adverse effect on our business, financial condition and results of operations.

Raúl Alarcón, Chairman of our Board of Directors, Chief Executive Officer and President, beneficially owns shares of common stock representing approximately 85% of the combined voting power of our outstanding shares of common stock as of December 31, 2019. Such combined voting power includes Mr. Alarcón's voting control over 380,000 shares of Series C preferred stock (convertible into 760,000 shares of Class A common stock) pursuant to his capacity as trustee for the AAA Trust. As a result, Mr. Alarcón generally has the ability to control the outcome of all matters requiring stockholder approval, including the election of our entire Board of Directors, mergers and acquisitions and sales of all or substantially all of our assets, and our recapitalization strategy. Mr. Alarcón's voting power may allow him to have a greater influence on our corporate strategy than other equity holders. We cannot assure you that Mr. Alarcón will maintain all or any portion of his ownership or that he would continue as an officer or director if he sells a significant part of his stock. Further, the disposition by Mr. Alarcón of a sufficient number of shares could result in a change in control of our company, which could trigger a variety of federal, state and local regulatory consent requirements and potentially limit our utilization of NOLs for income tax purposes, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows and the secondary market prices of our securities.

As the trading price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction. Securities and Exchange Commission regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of our common stock in the secondary market because few brokers or dealers are likely to undertake these compliance activities. Purchasers of our common stock may find it difficult to resell the shares in the secondary market.