<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 333-41733
SALEM COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0121400
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4880 SANTA ROSA ROAD, SUITE 300
CAMARILLO, CALIFORNIA 93012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Aggregate market value of voting and non-voting common stock held by
non-affiliates of the registrant as of March 31, 1999: $0.00
As of March 31, 1999 there were 81,627 shares of common stock of Salem
Communications Corporation outstanding.
================================================================================
<PAGE> 2
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE "ACT") BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
We have no obligation to deliver, and have not delivered, to our
security holders any annual reports covering the last fiscal year or proxy
soliciting material to our security holders with respect to any annual or other
meeting of security holders.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 11
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters......................................... 12
Item 6. Selected Consolidated Financial Information ................ 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A Quantitative and Qualitative Disclosures About Market Risk.. 21
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 22
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 28
Item 13. Certain Relationships and Related Transactions.............. 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 32
Signatures.................................................. 38
Financial Statements........................................ F-1
Schedule II -- Valuation and Qualifying Accounts............ S-1
Index to Exhibits........................................... E-1
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS.
From time to time, in both written reports and oral statements, we make
"forward-looking statements" within the meaning of Federal and state securities
laws. Disclosures that use words such as we "believe," "anticipate," "expect,"
"may" or "plan" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect our current expectations
and are based upon data available to us at the time of the statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from expectations. Any such forward-looking
statements, whether made in this report or elsewhere, should be considered in
context with the various disclosures made by us about our business. These
projections or forward-looking statements fall under the safe harbors of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended.
All metropolitan statistical area ("MSA") rank information used in this
report is from the Fall 1998 Radio Market Survey Schedule & Population Rankings
published by The Arbitron Company. According to the Radio Market Survey, the
population estimates used were based upon 1990 U.S. Bureau Census estimates
updated and projected to January, 1999 by Market Statistics, based on the data
from Sales & Marketing Management's 1997 Survey of Buying Power. Information
regarding the number of radio stations in the United States featuring religious
talk and music formats, the number of stations featuring religious formats, the
size of the listening audience for religious programming and the number of
stations owned and/or operated in the top 25 radio markets by competitors of the
company have been obtained from the 1999 Broadcasting & Cable Yearbook, The M
Street Journal (November 18, 1998), Religion & Media Quarterly (July 1997) and
the 1998 Directory of Religious Media.
GENERAL
Salem is the largest U.S. radio broadcasting company, measured by number
of stations and audience coverage, providing programming targeted at audiences
interested in religious and family issues. Our core business, developed over the
last 25 years, is the ownership and operation of radio stations in large
metropolitan markets. We own or operate 45 radio stations, including 33 stations
which broadcast to 19 of the top 25 markets in terms of audience size. Our
competitor with the next highest presence in the top 25 markets owns and/or
operates 16 stations in 8 of such major markets. We also operate Salem Radio
Network(R), a national radio network offering syndicated talk, news and music
programming to over 1,100 affiliated radio stations.
Traditionally, we have programmed radio stations with our primary
format, talk programming with religious and family themes. This format generally
features nationally syndicated and local programs produced by organizations that
purchase block program time on our stations. We also program some of our radio
stations with news/talk and music formats that complement our primary format.
Our founders, our current CEO and chairman, are career radio
broadcasters who have owned and operated radio stations with religious and
family issues formats for the last 25 years. As Salem has grown, we have
recruited managers with strong radio backgrounds and a commitment to our format.
Our senior managers have an average of 25 years of industry experience and 9
years with Salem. Our management has a track record of successfully identifying,
acquiring and operating new radio stations.
We continue to seek new ways to expand and integrate our distribution
and content capabilities. We recently acquired magazine, Internet and software
businesses that direct their content to persons with interests that are similar
to those of our targeted radio audience. We will continue to opportunistically
pursue acquisitions of new media and other businesses that serve our audience.
We plan to use these businesses, together with our radio stations and network,
to attract and retain a larger audience and customer base.
4
<PAGE> 5
We were incorporated in California in 1986 in connection with a
combination of most of the radio station holdings of our principal shareholders,
Edward G. Atsinger III and Stuart W. Epperson. Each of the principal
shareholders owned 50% of our outstanding common stock. New Inspiration
Broadcasting Company, Inc., the licensee of KKLA-FM, Los Angeles, and Golden
Gate Broadcasting Company, Inc., the licensee of KFAX-AM, San Francisco, were
owned by the principal shareholders and Mr. Epperson's wife, Nancy A. Epperson.
New Inspiration and Golden Gate were both "S corporations," as that term is
defined in the Internal Revenue Code of 1986, as amended. In August 1997, we,
New Inspiration and Golden Gate effected a reorganization pursuant to which
New Inspiration and Golden Gate became our wholly owned subsidiaries.
The S corporation status of New Inspiration and Golden Gate was
terminated in the reorganization. As a result of the reorganization our
outstanding common stock is owned by Mr. Atsinger (50%), Mr. Epperson (36.8%)
and Mrs. Epperson (13.2%). See "Securities Ownership of Certain Beneficial
Owners and Management."
DEVELOPMENT OF THE BUSINESS
In 1998, we completed the purchase of the following radio stations:
<TABLE>
<CAPTION>
PURCHASE
DATE MARKET STATION MSA RANK(1) PRICE
---- ------ ------- ----------- -----------
<S> <C> <C> <C> <C>
August 1998 Los Angeles, CA KIEV-AM 2 33,210,000
August 1998 Seattle-Tacoma, WA KKMO-AM 14 500,000
October 1998 Houston, TX KTEK-AM 10 2,561,000(2)
Minneapolis, MN KYCR-AM 18
</TABLE>
- -------------------------
(1) "MSA" means metropolitan statistical area.
(2) Combined purchase price for KTEK-AM and KYCR-AM acquisitions.
5
<PAGE> 6
RADIO STATIONS
We own and operate 45 radio stations in 27 markets. The following table
sets forth information about each of Salem's stations in order of market
size:
<TABLE>
<CAPTION>
MSA
MARKET(1) RANK(2) STATION CALL LETTERS YEAR ACQUIRED
--------- ------- -------------------- -------------
<S> <C> <C> <C>
New York, NY(3)................ 1 WMCA-AM; WWDJ-AM 1989; 1994
Los Angeles, CA................ 2 KKLA-FM; KLTX-AM; 1985; 1986;
KIEV-AM 1998
Chicago, IL.................... 3 WYLL-FM 1990
San Francisco, CA.............. 4 KFAX-AM 1984
Philadelphia, PA............... 5 WFIL-AM; WZZD-AM 1993; 1994
Dallas-Ft. Worth, TX........... 7 KWRD-FM 1996
Boston, MA..................... 8 WEZE-AM 1997
Washington, D.C................ 9 WAVA-FM 1992
Houston-Galveston, TX.......... 10 KKHT-FM; KENR-AM; 1995; 1995;
KTEK-AM 1998
Seattle-Tacoma, WA............. 14 KGNW-AM; KLFE-AM; 1985; 1994;(4);
KKOL-AM; KKMO-AM 1998
Phoenix, AZ.................... 15 KPXQ-AM 1996
San Diego, CA.................. 16 KPRZ-AM 1986
Minneapolis-St. Paul, MN....... 18 KKMS-AM; KYCR-AM 1996; 1998
Baltimore, MD.................. 20 WITH-AM(5) 1997
Pittsburgh, PA................. 21 WORD-FM; WPIT-AM 1989; 1993
Denver-Boulder, CO............. 23 KRKS-FM; KRKS-AM; 1993; 1994;
KNUS-AM 1996
Cleveland, OH.................. 24 WHK-AM; WCCD-AM 1997
Portland, OR................... 25 KPDQ-FM; KPDQ-AM 1986; 1986
Cincinnati, OH................. 26 WTSJ-AM 1997
Sacramento, CA................. 28 KFIA-AM; KTKZ-AM 1995; 1997
Riverside-San Bernardino, CA... 29 KKLA-AM(6) 1986
Columbus, OH................... 33 WRFD-AM 1982
San Antonio, TX................ 34 KSLR-AM 1994
Akron, OH...................... 68 WHLO-AM 1997
Colorado Springs, CO........... 93 KGFT-FM; KBIQ-FM; 1996; 1996;
KPRZ-FM 1996
Oxnard, CA..................... 106 KDAR-FM 1974
Canton, OH..................... 123 WHK-FM(7) 1997
</TABLE>
- -------------------------
(1) Actual city of license may differ from metropolitan market served.
(2) "MSA" means metropolitan statistical area.
(3) This market includes the Nassau-Suffolk, NY Metro market which independently
has a MSA rank of 17.
(4) The company operates the station, which is licensed to a corporation owned
by the principal shareholders of the company, under the terms of a local
marketing agreement. The principal shareholders and the company are parties
to an Option to Purchase Agreement whereunder the company has been granted
an option to purchase KKOL-AM from the principal shareholders at any time on
or before December 31, 1999.
(5) The station is simulcast with WAVA-FM, Washington, D.C.
(6) The station is simulcast with KKLA-FM, Los Angeles.
(7) The station is simulcast with WHK-AM, Cleveland.
6
<PAGE> 7
Program Revenue. For the year ended December 31, 1998, we derived 35.5% and
14.7% of our gross revenue, or $30.3 million and $12.6 million, respectively,
from the sale of nationally syndicated and local block program time. We derive
nationally syndicated program revenue from a programming customer base
consisting primarily of geographically diverse, well-established non-profit
religious and educational organizations that purchase time on stations in a
large number of markets in the United States. Nationally syndicated program
producers typically purchase 13, 26 or 52 minute blocks on a Monday through
Friday basis and may offer supplemental programming for weekend release. We
obtain local program revenue from community organizations and churches that
typically purchase time primarily for weekend release and from local speakers
who purchase daily releases. We have been successful in assisting quality local
programs to expand into national syndication.
Advertising Revenue. For the year ended December 31, 1998, we derived 30.6%
of our gross revenue, or $26.1 million from the sale of local spot advertising
and 5.2% of our gross revenue, or $4.5 million from the sale of national spot
advertising.
Operations. Each of the radio markets in which we have a presence has a
general manager who is responsible for day-to-day operations, local spot
advertising sales and, where applicable, local program sales for all of our
stations in the market. We pay our general managers a base salary plus a
percentage of the respective station's net operating income. For each station we
also have a staff of full and part-time engineering, programming and sales
personnel. We pay our sales staff on a commission basis.
We have decentralized our operations in response to the rapid growth we
have experienced in recent years. Our operations vice presidents, some of whom
are also station general managers, oversee several markets on a regional basis.
Our operations vice presidents are experienced radio broadcasters with expertise
in sales, programming and production. We will continue to rely on this strategy
of decentralization and encourage operations vice presidents to apply innovative
techniques to the operations they oversee which, if successful, can be
implemented in our other stations.
Our corporate headquarters personnel oversee the placement and rate
negotiation for all nationally syndicated programs. Centralized oversight of
this component of company revenue is necessary because our key program customers
purchase time in many of our markets. Corporate headquarters personnel also are
responsible for centralized reporting and financial functions, benefits
administration, engineering oversight and other support functions designed to
provide resources to local management.
Satellite Radio. In August 1998 we expanded our reach by entering into an
exclusive agreement with XM Satellite Radio, Inc. to develop, produce, supply
and market religious and family issues audio programming which will be
distributed by a subscriber-based satellite digital audio radio service. XM
Satellite Radio, Inc. is one of two FCC licensees for this service (which is
expected to commence in the year 2000) and it will have the capability of
providing up to 100 channels of audio programming. We have agreed to provide
religious and family issues talk programming on one channel and youth and adult
religious music programming on two additional channels.
We believe that the listening audiences for our radio stations, which
provide the financial support for program producers purchasing time on these
stations, are responsive to affinity advertisers that promote products targeted
to audiences interested in religious and family issues and are receptive to
direct response appeals such as those offered through infomercials. All of our
stations have affinity advertising customers in their respective markets. Local
church groups and many community organizations such as rescue missions and
family crisis support services can often effectively reach their natural
constituencies by advertising on religious format stations. Significant
advertising is also purchased by local and nationally affiliated religious
bookstores, publishers specializing in inspirational and religious literature
and other businesses that desire to specifically target audiences interested in
religious and family issues. We also generate spot advertising revenue from
general market retailers, including automobile dealers and grocery store chains,
in many of our stations' markets.
7
<PAGE> 8
SALEM RADIO NETWORK(R)
In 1993, we established Salem Radio Network(R) in connection with our
acquisition of certain assets of the former CBN Radio Network. Establishment of
Salem Radio Network(R) was a part of our overall business strategy to develop a
national network of affiliated radio stations anchored by our owned and operated
radio stations in major markets. Salem Radio Network(R) which is headquartered
in Dallas, develops, produces and syndicates a broad range of programming
specifically targeted to religious and family issues talk and music stations as
well as general market news/talk stations. Currently, we have rights to six
full-time satellite channels and all Salem Radio Network(R) product is delivered
to affiliates via satellite.
As of January 31, 1999, Salem Radio Network(R) had approximately 1,100
affiliate stations, including our owned and operated stations, that broadcast
one or more of the offered programming options. These programming options
feature talk shows, news and music. Network operations also include commission
revenue of Salem Radio Representatives from unaffiliated customers and an
allocation of operating expenses estimated to relate to such commissions. Salem
Radio Representatives, a wholly owned subsidiary of Salem, sells all national
commercial advertising placed on Salem Radio Network's commercial affiliate
radio stations. Salem Radio Network's gross revenue for the year ended December
31, 1998 was $6.1 million. Salem Radio Network(R) incurred a net operating loss
of $392,000 for the year ended December 31, 1998.
Salem Radio Representatives. The company established Salem Radio
Representatives in 1992 as a sales representation company specializing in
placing national advertising on religious format radio stations. Salem Radio
Network(R) has an exclusive relationship with Salem Radio Representatives, for
the sale of available Salem Radio Network(R) spot advertising. Salem Radio
Representatives receives a commission on all Salem Radio Network(R) sales. Salem
Radio Representatives also contracts with individual radio stations to sell air
time to national advertisers desiring to include selected company stations in
national buys covering multiple markets.
8
<PAGE> 9
NEW MEDIA
Internet. In January 1999, we purchased the assets of OnePlace, LLC for
$6.2 million. OnePlace, based in Greensboro, North Carolina, provides Internet
e-commerce, consumer profiling and other information technologies to the
Christian products industry. In addition, OnePlace(TM) publishes a variety of
content and software, including church management software and GuardiaNet(TM),
an Internet based web screening software.
Magazines. In January 1999, we purchased CCM Communications, Inc. for $1.9
million. CCM, based in Nashville, Tennessee, has published magazines since 1978
which follow the contemporary Christian music industry. CCM's flagship
publication, CCM Magazine, is a monthly music magazine offering interviews with
artists, issue-oriented features, album reviews and concert schedules. Through
CCM's recent acquisition of the Christian Research Report, the leading trade
publication providing rating information to contemporary Christian music
formatted radio stations, and its continued publication of CCM Update, the
leading trade publication providing rating information to contemporary Christian
music producers and retailers, we are uniquely positioned to track contemporary
Christian music audience trends.
Software Publishing. In January 1999, we agreed to purchase the assets of
NavPress Software, based in Austin, Texas, for $550,000. NavPress is a developer
and supplier of electronic Bible and Christian reference books and Bible study
software applications, including its best known products WORDsearch and
LESSONmaker. Included within the company's product lines are Bible translations,
commentaries, dictionaries, maps and illustrations, and classic Christian works.
9
<PAGE> 10
COMPETITION
Radio. The radio broadcasting industry, including the religious and family
issues format segment of this industry, is a highly competitive business. The
financial success of each of our radio stations that features talk programming
is dependent, to a significant degree, upon its ability to generate revenue from
the sale of block program time to national and local religious and educational
organizations. We compete for this program revenue with a number of different
commercial and noncommercial radio station licensees. While no group owner in
the United States specializing in the religious format approaches Salem in size
of potential listening audience and presence in major markets, religious format
stations exist and enjoy varying degrees of prominence and success in all
markets. We own and operate 33 radio stations, which broadcast to 19 of the top
25 radio markets in terms of audience size. Our competitor with the next highest
presence in the top 25 markets owns and/or operates only 16 stations in 8 of
such major markets.
We also compete for revenue in the spot advertising market with other
commercial religious format and general format radio station licensees. We
compete in the spot advertising market with other media as well, including
broadcast television, cable television, newspapers, magazines, direct mail
and billboard advertising.
Competition may also come from new media technologies and services that are
being developed or introduced. These include delivery of audio programming by
cable television and satellite systems, digital audio radio services, the
Internet, personal communications services and the proposed authorization by
the FCC of a new service of low powered, limited coverage FM radio stations.
Digital audio broadcasting may deliver multiformat digital radio services by
satellite to national and regional audiences. The quality of programming
delivered by digital audio broadcasting would be equivalent to
compact disc.
The delivery of live and stored audio programming through the Internet has
also created new competition. In addition, the anticipated commencement of
satellite delivered digital audio radio services, which are intended to deliver
multiple audio programming formats to local and national audiences, may create
additional competition. We have attempted to address these existing and
potential competitive threats through our recent Internet acquisition and
through our exclusive arrangement to provide religious and family issues talk
and music formats on one of the two FCC licensees of satellite digital audio
radio services.
Network. Salem Radio Network(R) competes with other commercial radio
networks that offer news and talk programming to religious and general format
stations and two noncommercial networks that offer religious music formats.
Salem Radio Network(R) also competes with other radio networks for the services
of talk show personalities.
New Media. Our magazines compete for readers and advertisers with other
publications that follow the religious music industry and publications that
address issues of interest to church leadership. Our Internet business competes
with other companies that deliver on-line audio programming and with web sites
that offer content and e-commerce capabilities targeted to persons interested in
religious and family issues.
EMPLOYEES
At March 1, 1999, Salem employed 569 full-time and 235 part-time employees.
None of Salem's employees are covered by collective bargaining agreements, and
we consider our relations with our employees to be good.
10
<PAGE> 11
ITEM 2. PROPERTIES.
The types of properties required to support our radio stations include
offices, studios and tower and antenna sites. A station's studios are generally
housed with its office in a downtown or business district. We generally select
our tower and antenna sites to provide maximum market coverage. Salem Radio
Network(R) operations are supported by offices and studios from which its
programming originates or is relayed from a remote point of origination. The
operations of our new media businesses are supported by office facilities.
Our stations' studios and offices, Salem Radio Network's operations, the
operations of our new media businesses and our corporate headquarters are
located in leased facilities. Salem Radio Network(R) leases satellite
transponders used for delivery of its programming. We either own or lease our
radio station tower and antenna sites. We do not anticipate difficulties in
renewing those leases that expire within the next several years or in obtaining
other lease arrangements, if necessary.
We lease certain property from the principal shareholders or trusts and
partnerships created for the benefit of the principal shareholders and their
families. See "Certain Relationships and Related Transactions -- Leases from
Principal Shareholders." All such leases have cost of living adjustments. Based
upon our management's assessment and analysis of local market conditions for
comparable properties, we believe such leases do not have terms that vary
materially from those that would have been available from unaffiliated parties.
No one property is material to our overall operations. We believe that our
properties are in good condition and suitable for our operations; however, we
continually evaluate opportunities to upgrade our properties. We own
substantially all of our equipment, consisting principally of transmitting
antennae, transmitters, studio equipment and general office equipment.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various routine legal proceedings, incident to the
ordinary course of our business. We believe that the outcome of all pending
legal proceedings in the aggregate will not have a material adverse effect on
our consolidated financial condition or our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 10, 1999, the security holders of the company gave their
unanimous written consent to re-elect as directors of the company, the
following five individuals: Edward G. Atsinger III, Stuart W. Epperson, Eric H.
Halvorson, Richard A. Riddle, Roland S. Hinz.
No other matters have been submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the period covered by
this report.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(a) There is no established public trading market for the company's
common stock.
(b) HOLDERS. As of March 31, 1999, there are three holders of the
company's common stock.
(c) DIVIDENDS. No cash dividends were declared for any class of common
equity in the last two fiscal years. See "Management's Discussion and Analysis
of Financial Condition and Operating Results" for description of limitations
on the company's ability to declare dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.
The selected consolidated financial information should be read in
conjunction with the company's consolidated financial statements.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(dollars in thousands
except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue ............................. $ 38,575 $ 48,168 $ 59,010 $ 67,912 $ 77,891
Operating expenses:
Station operating expenses ............ 22,179 27,527 33,463 39,626 42,526
Corporate expenses .................... 3,292 3,799 4,663 6,210 7,395
Tax reimbursements to S
corporations ........................ 977 2,057 2,038 1,780 --
Depreciation and amortization ......... 7,633 7,884 8,394 12,803 14,058
-------- -------- -------- -------- --------
Operating expenses ...................... 34,081 41,267 48,558 60,419 63,979
-------- -------- -------- -------- --------
Net operating income .................. 4,494 6,901 10,452 7,493 13,912
Other income (expense:
Interest income/expense, net .......... (3,438) (6,327) (6,838) (12,476) (15,650)
Gain (loss) on disposal of assets ..... (482) (7) 16,064 4,285 236
Other income (expense) ................ (135) (255) (270) (389) (422)
-------- -------- -------- -------- --------
Total other income (expense) ............ (4,055) (6,589) 8,956 (8,580) (15,836)
Income (loss) before income taxes and
extraordinary item ..................... 439 312 19,408 (1,087) (1,924)
Provision (benefit) for income taxes .... (247) (204) 6,655 106 (343)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item . 686 516 12,753 (1,193) (1,581)
Extraordinary gain (loss) (1) ........... -- (394) -- (1,185) --
-------- -------- -------- -------- --------
Net income (loss) ....................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581)
======== ======== ======== ======== ========
Pro forma net income (loss) (2) ......... $ 848 $ 1,024 $ 12,838 $ (770) $ (1,581)
======== ======== ======== ======== ========
Other Data:
Cash flows provided by operating
activities ............................. $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015
Cash flows used in investing activities . $(18,806) $(27,681) $(18,923) $(26,326) $(31,762)
Cash flows provided by financing
activities ............................. $ 11,827 $ 19,227 $ 9,383 $ 18,695 $ 21,019
Broadcast cash flow (3) ................. $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365
Broadcast cash flow margin (4) .......... 42.5% 42.9% 43.3% 41.7% 45.4%
EBITDA (3) .............................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970
Capital expenditures .................... $ 2,441 $ 3,040 $ 6,982 $ 7,521 $ 7,360
Purchase of radio stations .............. $ 14,935 $ 24,550 $ 59,621 $ 19,436 $ 33,682
Earnings to fixed charges ratio (5) ..... 1.1x 1.0x 3.2x .9x .9x
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ....... $ 1,780 $ 1,007 $ 1,962 $ 1,645 $ 1,917
Working capital ................. 1852 1,088 8,258 9,843 11,539
Intangible assets, net .......... 46,748 61,923 106,781 120,083 141,776
Total assets .................... 82,041 104,817 159,185 184,813 207,750
Long-term debt (including current
portion) ....................... 60,656 81,020 121,790 154,500 178,610
Shareholders' equity ............ 13,160 13,282 20,354 10,682 9,101
</TABLE>
- ---------------
(1) The extraordinary loss in 1995 and 1997 relates to the write-off of loan and
related fees related to the repayment of long-term debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 of the Notes to Consolidated Financial Statements.
(2) The company's consolidated financial data for the periods presented include
the results of operations, assets and liabilities of New Inspiration and
Golden Gate, which were both S corporations under common ownership and
control with the company prior to the reorganization. The S corporation
status of New Inspiration and Golden Gate was terminated in the
reorganization. Federal and state income taxes (except for a 1.5% state
franchise tax) are not provided for New Inspiration and Golden Gate in the
consolidated statements of operations of the company for the periods
presented because the tax attributes of S corporations are passed through to
their shareholders. Prior to the reorganization, New Inspiration and Golden
Gate reimbursed the S corporation shareholders for their individual income
tax liabilities on the earnings of the S corporations. These tax
reimbursements to S corporation shareholders are reflected as an operating
expense in the company's consolidated financial statements.
In August 1997, the company, New Inspiration and Golden Gate effected the
reorganization pursuant to which the S corporations became wholly owned by
the company. To give effect to the reorganization, including the termination
of the S corporation status of New Inspiration and Golden Gate, pro forma
net income excludes the tax reimbursements to S corporation shareholders
(because such amounts would not have been paid had New Inspiration and
Golden Gate been subject to income taxes) and includes a pro forma tax
provision at an estimated combined federal and state income tax rate of
approximately 40% (to reflect an estimated income tax provision (benefit) of
the company) as if the reorganization had occurred at the beginning of each
period presented in the company's consolidated financial data. See
"Business--General."
The following table reflects the pro forma adjustments to historical net
income:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Pro Forma Information
Income (loss) before income taxes and
extraordinary item as reported above ... $ 439 $ 312 $19,408 $(1,087) $(1,924)
Add back tax reimbursements to S
corporation shareholders ............... 977 2,057 2,038 1,780 --
------- ------- ------- ------- -------
Pro forma income (loss before income
taxes and extraordinary item ........... 1,416 2,369 21,446 693 (1,924)
Pro forma income tax provision (benefit) 568 951 8,608 278 (343)
------- ------- ------- ------- -------
Pro forma income (loss) before
extraordinary item ..................... 848 1,418 12,838 415 (1,581)
Extraordinary gain (loss) ............... -- (394) -- (1,185) --
------- ------- ------- ------- -------
Pro forma net income (loss) ............. $ 848 $ 1,024 $12,838 $ (770) $(1,581)
======= ======= ======= ======= =======
</TABLE>
- ---------------
(3) "Broadcast cash flow" consists of net operating income before tax
reimbursements to S corporation shareholders, depreciation and amortization
and corporate expenses. "EBITDA" consists of net operating income before tax
reimbursements to S corporation shareholders and depreciation and
amortization. Although broadcast cash flow and EBITDA are not measures of
performance calculated in accordance with GAAP, management believes that
they are useful to an investor in evaluating the company because they are
measures widely used in the broadcast industry to evaluate a radio company's
operating performance. However, broadcast cash flow and EBITDA should not be
considered in isolation or as substitutes for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP as a measure of liquidity or profitability.
Moreover, broadcast cash flow and EBITDA are not measures of performance
calculated in accordance with GAAP, these measures are not necessarily
comparable to similarly titled measures employed by other companies.
(4) Broadcast cash flow margin is broadcast cash flow as a percentage of net
revenue.
(5) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income from operations before income taxes plus fixed charges,
and "fixed charges" consist of interest expense plus an allocation of a
portion of rent expense representing interest. For the years ended December
31, 1995, 1997 and 1998, the company's earnings were inadequate to cover
fixed charges; the coverage deficiency for the years ended December 31,
1995, 1997 and 1998 was $313,000, $1.0 million and $1.9 million,
respectively.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and notes included elsewhere in this report. Our
consolidated financial statements are not directly comparable from period to
period due to our acquisition activity.
The principal sources of our revenue are:
- the sale of block program time, both to national and local program
producers,
- the sale of broadcast time on our radio stations for advertising,
both to national and local advertisers, and
- the sale of broadcast time for advertising on Salem Radio
Network(R).
The following table shows gross revenue and the percentage of gross revenue
for each revenue source.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Block program time:
National................... $26,610 40.8% $27,664 37.0% $30,337 35.5%
Local...................... 10,869 16.7 11,392 15.2 12,558 14.7
------- ----- ------- ----- ------- -----
37,479 57.5 39,056 52.5 42,895 50.2
Advertising:
National................... 4,088 6.3 3,621 4.8 4,458 5.2
Local...................... 17,416 26.7 21,143 28.3 26,106 30.6
------- ----- ------- ----- ------- -----
21,504 33.0 24,764 33.1 30,564 35.8
Infomercials(1).............. 3,819 5.1 4,121 4.8
Salem Radio Network.......... 5,270 8.1 6,186 8.3 6,053 7.1
Other........................ 888 1.4 1,005 1.3 1,778 2.1
------- ----- ------- ----- ------- -----
Gross revenue................ 65,141 100.0% 74,830 100.0% 85,411 100.0%
===== ===== =====
Less agency commissions...... 6,131 6,918 7,520
------- ------- -------
Net revenue.................. $59,010 $67,912 $77,891
======= ======= =======
</TABLE>
- ---------------
(1) Prior to 1997, classification of revenue (i.e., national program, national
advertising, local program or local advertising) from infomercials was
determined at the discretion of local station general managers. In 1997, we
began including revenue from infomercials in a separate category in order
to establish uniformity of classification of revenue.
Our revenue is affected primarily by the program rates our radio stations
charge and by the advertising rates our radio stations and Salem Radio
Network(R) charge. Correspondingly, the rates for block program time are based
upon our stations' ability to attract audiences that will support the program
producers through contributions and purchases of their products. Advertising
rates are based upon the demand for on-air inventory, which in turn is based on
our stations' and Salem Radio Network's ability to produce results for its
advertisers. Each of our stations and Salem Radio Network(R) have a general
pre-determined level of on-air inventory that they make available for block
programs and advertising, which may vary at different times of the day. In
recent years we have begun to place greater emphasis on the development of local
spot sales in all of our
13
<PAGE> 14
markets. We encourage general managers and sales managers to create more spot
inventory for sale. Additional spot inventory can be created in a variety of
ways, such as removing programming which generates marginal audience response
and adjusting the start time of programs to add inventory in more desirable
dayparts. Our quarterly revenue varies throughout the year, as is typical in the
radio broadcasting industry. Quarterly revenue from the sale of block program
time does not tend to vary, however, since program rates are generally set
annually.
Our cash flow is affected by the transition period experienced by stations
we have acquired that previously operated with formats other than the religious
and family issues formats. During the transition period when we develop the
station's program customer and listener base, such stations typically do not
generate significant cash flow from operations.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to exchange advertising time for goods or services (such as other
media advertising, travel or lodging), in lieu of cash. In order to preserve
most of its on-air inventory for cash advertising, we generally enter into trade
agreements only if the goods or services bartered to us will be used in our
business. We have minimized our use of trade agreements and have generally sold
over 90% of our advertising time for cash. In addition, it is our general policy
not to preempt advertising spots paid for in cash with advertising spots paid
for in trade.
The primary operating expenses incurred in the ownership and operation of
our radio stations include employee salaries and commissions, and facility
expenses (e.g., rent and utilities). In addition to these expenses our network
incurs programming costs and lease expenses for satellite communication
facilities. We also incur and will continue to incur significant depreciation,
amortization and interest expense as a result of completed and future
acquisitions of stations, and due to existing borrowings and future borrowings,
including outstanding senior subordinated notes and borrowings under our Credit
Agreement.
The performance of a radio group, such as us, is customarily measured by
the ability of its stations to generate Broadcast Cash Flow and EBITDA.
Broadcast Cash Flow is defined as net operating income before tax reimbursements
to S corporation shareholders, depreciation and amortization and corporate
expenses. EBITDA is defined as net operating income before tax reimbursements to
S corporation shareholders and depreciation and amortization. Although Broadcast
Cash Flow and EBITDA are not measures of performance calculated in accordance
with generally accepted accounting principles, and should be viewed as a
supplement to and not a substitute for our results of operations presented on
the basis of generally accepted accounting principles, we believe that Broadcast
Cash Flow and EBITDA are useful because they are generally recognized by the
radio broadcasting industry as a measure of performance and are used by analysts
who report on the performance of broadcast companies.
Our consolidated statements of operations have included an operating
expense called "tax reimbursements to S corporation shareholders." These amounts
represent the income tax liability of our shareholders created by the income of
New Inspiration and Golden Gate, which prior to the Reorganization were each S
corporations. We consider the nature of this operating expense to be essentially
equivalent to an income tax provision and have excluded this expense from the
calculation of Broadcast Cash Flow and EBITDA for periods prior to August 13,
1997. Commencing August 13, 1997, pretax income of New Inspiration and Golden
Gate is included in our consolidated income tax return and in our computation of
the income tax provision included in our consolidated statement of operations.
14
<PAGE> 15
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenue. Net revenue increased approximately $10.0 million or 14.7% to
$77.9 million in 1998 from $67.9 million in 1997. The inclusion of revenue from
the acquisitions of radio stations and revenue generated from local marketing
agreements entered into during 1998 and 1997 provided approximately $2.2 million
of the increase. For stations owned and operated over the comparable period in
1998 and 1997, net revenue improved approximately $7.8 million or 11.6% to $75.2
million in 1998 from $67.4 million in 1997 due primarily to an increase in
revenue at the stations we acquired in 1996 that previously operated with
formats other than religious and family issues formats, program rate increases
and to a lesser extent to increases in on-air inventory and improved selling
efforts at both the national and local level. Revenue from advertising as a
percentage of our gross revenue increased from 33.1% in 1997 to 35.8% in 1998.
Revenue from block program time as a percentage of our gross revenue decreased
from 52.5% in 1997 to 50.2% in 1998. This change in our revenue mix is primarily
due to our efforts to develop more local spot sales in all of our markets.
Station Operating Expenses. Station operating expenses increased
approximately $2.9 million or 7.3% to $42.5 million in 1998 from $39.6 million
in 1997. Approximately $1.2 million of such increase was due to the inclusion of
expenses from the acquisitions of radio stations and expenses incurred for local
marketing agreements entered into during 1998 and 1997. For stations owned
and/or operated over the comparable periods in 1998 and 1997, station operating
expenses increased approximately $1.7 million or 4.3% to $41.0 million in 1998
from $39.3 million in 1997 primarily due to selling and production expenses
incurred to produce the increased revenue in the periods, as described above.
This increase was offset in part by a one-time credit of $453,000 that we
recorded in 1998. The credit related to music licensing fees and represented the
proceeds of a settlement between us and the two largest performance rights
organizations.
Broadcast Cash Flow. Broadcast Cash Flow increased approximately $7.1
million or 25.1% to $35.4 million in 1998 from $28.3 million in 1997. As a
percentage of net revenue, Broadcast Cash Flow increased to 45.4% in 1998 from
41.7% in 1997. The increase is primarily attributable to the one-time credit for
music licensing fees and the improved performance of stations and networks
acquired in 1996 and 1997 that previously operated with formats other than
religious and family issues formats. These acquired and reformatted stations
typically produce lower margins during the early phase of the transition period
from a non-religious format to a religious and family issues format. Broadcast
Cash Flow margins improve as we implement scheduled program rate increases
and increase spot advertising revenue on our stations.
Corporate Expenses. Corporate expenses increased approximately $1.2 million
or 19.4% to $7.4 million in 1998 from $6.2 million in 1997, primarily due to
bonuses totaling $538,000 paid to our president and to our chairman of the board
in 1998, and additional personnel and overhead costs associated with station
acquisitions in 1998.
EBITDA. EBITDA increased approximately $5.9 million or 26.7% to $28.0
million in 1998 from $22.1 million in 1997. As a percentage of net revenue,
EBITDA increased to 35.9% in 1998 from 32.5% in 1997. The increase is primarily
attributable to the one-time credit for music licensing fees and the improved
performance of stations and networks acquired in 1996 and 1997 that previously
operated with formats other than religious and family issues formats.
15
<PAGE> 16
Tax Reimbursements to S Corporation Shareholders. There were no tax
reimbursements to S corporation shareholders for 1998 because of the
reorganization of the predecessor to the company which took place in August
1997, compared to $1.8 million in tax reimbursements to S corporation
shareholders for 1997. New Inspiration and Golden Gate became wholly-owned
subsidiaries of the predecessor to the company in August 1997 pursuant to a
reorganization. The S corporation status of New Inspiration and Golden Gate was
terminated in the reorganization.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $1.3 million or 10.2% to $14.1 million in 1998 from
$12.8 million in 1997, primarily due to radio station and network acquisitions
consummated during 1998 and 1997.
Other Income (Expense). Interest income was essentially unchanged for the
year ended December 31, 1998 compared to 1997. Gain (loss) on disposal of assets
decreased $4.1 million from $4.3 million in 1997 to $.2 million in 1998. The
gain in 1997 was primarily due to the sale of WPZE-AM, Boston. Interest expense
increased approximately $3.2 million or 25.2% to $15.9 million in 1998 from
$12.7 million in 1997, primarily due to interest expense associated with
additional borrowings to fund acquisitions consummated during 1998 and 1997.
Other expense was essentially unchanged for the year ended December 31, 1998
compared to 1997.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
as a percentage of income (loss) before income taxes and extraordinary item
(i.e., effective tax rate) was (17.8)% for 1998 and 9.8% for 1997. The effective
tax rate in 1998 differs from the federal statutory income tax rate of 34.0%
because of the effect of state income taxes and certain expenses that are not
deductible for tax purposes. The effective tax rate in 1997 differs from the
federal statutory income tax rate of 34.0% because of the effect of state income
taxes, the establishment of a deferred tax liability and provision of
approximately $609,000 resulting from the reorganization, offset by the
inclusion of income from New Inspiration and Golden Gate, which were S
corporations (and therefore, not subject to federal income taxes) prior to the
reorganization in August 1997.
Net Loss. We recognized a net loss of approximately $1.6 million in 1998,
compared to a net loss of approximately $2.4 million in 1997. Included in the
net loss for 1997 is a $1.2 million extraordinary loss for the write off of
deferred financing costs and termination fees related to the repayment of our
prior credit agreement which we repaid in full upon issuance of the old notes on
September 25, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenue. Net revenue increased approximately $8.9 million or 15.1% to
$67.9 million in 1997 from $59.0 million in 1996. The inclusion of revenue from
the acquisitions of radio stations and revenue generated from local marketing
agreements entered into during 1997 and 1996 provided approximately $6.4 million
of the increase. For stations owned and operated over the comparable period in
1997 and 1996, net revenue improved approximately $2.5 million or 4.4% to $58.7
million in 1997 from $56.2 million in 1996 due primarily to program rate
increases and to a lesser extent to increases in on-air inventory and improved
selling efforts at both the national and local level. Revenue from advertising
as a percentage of our gross revenue was essentially unchanged from 1996 to
1997. Revenue from block program time as a percentage of our gross revenue
decreased from 57.5% in 1996 to 52.5% in 1997. Revenue from informercials was
5.1% of gross revenue in 1997. Prior to 1997, classification of revenue (i.e.,
national program, national advertising, local program or local advertising) from
infomercials was determined at the
16
<PAGE> 17
discretion of local station general managers. This change in our revenue mix is
primarily due to our efforts to develop more local spot sales in all of our
markets, and to the separate reporting of revenue from infomercials beginning in
1997.
Station Operating Expenses. Station operating expenses increased
approximately $6.1 million or 18.2% to $39.6 million in 1997 from $33.5 million
in 1996. Approximately $5.2 million of such increase was due to the inclusion of
expenses from the acquisitions of radio stations and expenses incurred for local
marketing agreements entered into during 1997 and 1996. For stations owned
and/or operated over the comparable periods in 1997 and 1996, station operating
expenses increased approximately $0.9 million or 3% to $30.9 million in 1997
from $30.0 million in 1996 primarily due to selling and production expenses
incurred to produce the increased revenue in the periods, as described above.
Broadcast Cash Flow. Broadcast Cash Flow increased approximately $2.8
million or 11.0% to $28.3 million in 1997 from $25.5 million in 1996. As a
percentage of net revenue, Broadcast Cash Flow decreased to 41.7% in 1997 from
43.2% in 1996. The decrease is primarily attributable to lower margins achieved
during the transition period of the stations and networks acquired in 1996 and
1997 that previously operated with formats other than religious and family
issues formats.
Corporate Expenses. Corporate expenses increased approximately $1.5 million
or 31.9% to $6.2 million in 1997 from $4.7 million in 1996, primarily due to
additional personnel and overhead costs associated with station acquisitions in
1997 (approximately $896,000 of the increase), bonuses paid to corporate
officers in 1997 (approximately $155,000 of the increase), the write-off of
costs incurred for potential station acquisitions which were abandoned
(approximately $172,000 of the increase), and expenses incurred for officers'
life insurance (approximately $277,000 of the increase), in 1997.
EBITDA. EBITDA increased approximately $1.3 million or 6.3% to $22.1
million in 1997 from $20.8 million in 1996. As a percentage of net revenue,
EBITDA decreased to 32.5% in 1997 from 35.3% in 1996. The decrease is primarily
attributable to lower margins achieved during the transition period of the
stations and networks acquired in 1996 and 1997 that previously operated with
formats other than religious and family issues formats, and to increased
corporate expenses in 1997 as compared to 1996.
Tax Reimbursements to S Corporation Shareholders. Tax reimbursements to S
corporation shareholders decreased approximately $0.2 million or 10.0% to $1.8
million in 1997 from $2.0 million in 1996, primarily due to decreased taxable
income of the S corporations as a result of the termination of the S corporation
status of New Inspiration and Golden Gate in August 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $4.4 million or 52.4% to $12.8 million in 1997 from $8.4
million in 1996, primarily due to radio station and network acquisitions
consummated during 1997 and 1996.
Other Income (Expense). Interest income decreased $293,000 to $230,000 in
1997 from $523,000 in 1996, primarily due to interest income earned in 1996 on a
$14.0 million deposit from the sale of KDBX-FM, Portland. Gain (loss) on
disposal of assets decreased $11.8 million from $16.1 million in 1996 to $4.3
million in 1997. The gain in 1997 was primarily due to the sale of WPZE-AM,
Boston. The gain in 1996 was primarily due to the sale of KDBX-FM, Portland and
KDFX-AM, Dallas. Interest expense increased approximately $5.3 million or 71.6%
to $12.7 million in 1997 from $7.4 million in 1996, primarily due to interest
expense associated with additional borrowings to fund acquisitions
17
<PAGE> 18
consummated during 1997 and 1996. Other expense was essentially unchanged for
the year ended December 31, 1997 compared to 1996.
Provision (Benefit) for Income Taxes. Income tax provision (benefit) as a
percentage of income (loss) before income taxes and extraordinary item (i.e.,
effective tax rate) was 9.8% for 1997 and 34.3% for 1996. The effective tax rate
in 1997 differs from the federal statutory income tax rate of 34.0% because of
the effect of state income taxes, the establishment of a deferred tax liability
and provision of approximately $609,000 resulting from the reorganization offset
by the inclusion of income from New Inspiration and Golden Gate, which were S
corporations (and, therefore, not subject to federal income taxes) prior to the
reorganization in August 1997. The effective tax rate in 1996 differs from the
federal statutory income tax rate of 34.0% because of the effect of state income
taxes, the effect of gains realized on the sale of radio stations in 1997,
offset by the inclusion of income from New Inspiration and Golden Gate, which
were S corporations (and, therefore, not subject to federal income taxes) prior
to the reorganization in August 1997.
Net Income (Loss). We recognized a net (loss) of approximately $2.4 million
in 1997, compared to net income of $12.8 million in 1996. Included in the net
loss for 1997 is a $1.2 million extraordinary loss for the write off of deferred
financing costs and termination fees related to the repayment of our prior
credit agreement which we repaid in full upon issuance of the old notes on
September 25, 1997.
LIQUIDITY AND CAPITAL RESOURCES
In the past, we principally financed acquisitions of radio stations through
borrowings, including borrowings under credit agreements with banks, and, to a
lesser extent, from cash flow from operations and selected asset dispositions.
In September 1997, we issued and privately placed $150 million principal amount
of 9 1/2% Senior Subordinated Notes due 2007. In March 1998, we consummated an
offer for all outstanding notes, which were subject to certain restrictions on
transfer, in exchange for notes registered pursuant to the Securities Act of
1933, as amended and thus not subject to such transfer restrictions. Pursuant to
the exchange offer, the $150 million in principal amount of new notes were
issued and a like amount of the old notes were canceled. Reference in this
report to the notes includes both the new notes and the old notes. In September
1997, we used the net proceeds from the sale of the notes to repay substantially
all of our outstanding indebtedness under a line of credit agreement, at which
time such facility was canceled and we entered into the current credit
agreement.
We anticipate funding future acquisitions from operating cash flow and
borrowings, including borrowings under the credit agreement. At December 31,
1998, $24.0 million was outstanding under our credit agreement. The maximum
amount that we may borrow under our credit agreement is limited by our debt to
cash flow ratio, adjusted for recent radio station acquisitions as defined in
the credit agreement (the "Adjusted Debt to Cash Flow Ratio"). At December 31,
1998, the maximum Adjusted Debt to Cash Flow Ratio allowed under the credit
agreement was 6.75 to 1. Our ability to borrow for the purpose of acquiring a
radio station is further limited by the credit agreement in that we may not
borrow for an acquisition if the Adjusted Debt to Cash Flow Ratio is greater
than 6.00 to 1. At December 31, 1998, the Adjusted Debt to Cash Flow Ratio was
5.99 to 1, resulting in total borrowing availability (i.e., in addition to
amounts already outstanding) of approximately $22.6 million, $483,000 of which
can currently be used for radio station acquisitions. In addition to debt
service requirements under the credit agreement, we are required to pay $14.3
million per annum in interest on the Notes.
18
<PAGE> 19
We fund expenditures for operations, administrative expenses and debt
service from operating cash flow.
We believe that cash flow from operations and borrowings under the credit
agreement should be sufficient to permit us to meet our financial obligations
and to fund our operations for at least the next twelve months.
The credit agreement contains certain additional restrictive covenants
customary for credit facilities of the size, type and purpose contemplated
which, among other things, and with certain exceptions, limits our ability to
enter into affiliate transactions, pay dividends, consolidate, merge or effect
certain asset sales, make certain investments or loans and change the nature of
our business. The credit agreement also requires us to satisfy certain financial
covenants, which covenants will require the maintenance of specified financial
ratios and compliance with certain financial tests, including ratios for maximum
leverage as described above (not greater than 6.75 to 1 at December 31, 1998),
minimum interest coverage (not less than 1.25 to 1 at December 31, 1998),
minimum debt service coverage (a static ratio of not less than 1.1 to 1) and
minimum fixed charge coverage (a static ratio of not less than 1.1 to 1).
We also have revolving credit facilities with Messrs. Atsinger and
Epperson, totaling $5 million. At December 31, 1998, $1.8 million was
outstanding under the agreement with Mr. Atsinger. Amounts borrowed under these
facilities are payable upon demand and bear interest at a floating rate that is
at all times at least 1% lower than the rate for base rate borrowings under our
credit agreement. We will borrow under our credit agreement when Mr. Atsinger
demands repayment.
In January 1999, we purchased the assets of OnePlace, LLC, for $6.2
million, and all the outstanding shares of stock of CCM Communications, Inc.,
for $1.9 million. OnePlace is engaged in the business of applying Internet
e-commerce, consumer profiling and other information technologies in the
Christian products industry. CCM Communications publishes magazines which follow
the contemporary Christian music industry. The purchases were financed primarily
by an additional borrowing. We amended our credit agreement to allow for such a
borrowing, increasing the maximum permitted leverage ratio to not greater than
7.00 to 1 through June 29, 1999. After the borrowing for these acquisitions the
Adjusted Debt to Cash Flow Ratio was 6.22 to 1, resulting in total borrowing
availability of approximately $23.3 million, none of which can currently be used
for radio station acquisitions.
In January 1999, we also agreed to purchase the assets of NavPress
Software, Inc., for $550,000. NavPress Software develops and supplies electronic
Bible and Christian reference books and Bible study software applications.
Net cash provided by operations increased to $11.0 million for the year
ended December 31, 1998, compared to $7.3 million in 1997 due primarily to
increased net operating income in 1998. Net cash provided by operations
decreased to $7.3 million for the year ended December 31, 1997, compared to
$10.5 million in 1996 due primarily to decreased net operating income in 1997.
Net cash used in investing activities increased to $31.8 million for the
year ended December 31, 1998, compared to $26.3 million for 1997 primarily due
primarily to radio station acquisitions (four stations purchased for $33.7
million in 1998 compared to eight stations purchased for $19.4 million in 1997).
Net cash used in investing activities increased to $26.3 million for the year
ended December 31, 1997, compared to $18.9 million for 1996 primarily due to the
proceeds of the sales of KDBX-FM, Portland and KDFX-AM, Dallas offsetting the
cash used in investing activities in 1996.
19
<PAGE> 20
Net cash provided by financing activities was $21.0 million for the year
ended December 31, 1998, and $18.7 million for 1997, and $9.4 million for 1996,
primarily due to increased long-term debt borrowings in 1997 and 1998.
YEAR 2000 COMPUTER SYSTEM COMPLIANCE
The term "year 2000 issue" (the year 2000 referred to as "Y2K") is a
general term used to describe the various problems that may result from the
improper processing of dates and date-sensitive calculations by computers and
other machinery as the year 2000 is approached and reached. These problems
generally arise from the fact that most of the world's computer hardware and
software have historically used only two digits (instead of four) to identify
the year in a date, often meaning that the computer will fail to distinguish
dates in the "2000's" from dates in the "1900's." These problems may also arise
from other sources as well, such as the use of special codes and conventions in
software that make use of the date field. In early 1998 we began implementing
the assessment phase of our plan to address the Y2K issue in each broadcast area
and have substantially completed a Y2K assessment phase of our computer,
broadcast and environmental systems, redundant power systems and other critical
systems including: (i) digital audio systems, (ii) traffic scheduling and
billing systems, (iii) accounting and financial reporting systems, and (iv)
local area networking infrastructure. As part of the assessment phase, we
initiated formal communication with all of our key business partners to identify
their exposure to the Y2K issue. This assessment will target potential external
risks related to the Y2K issue and is still in progress, but is expected to be
completed by the end of the second quarter of 1999. Key business partners
include local and national programmers and advertisers, suppliers of
communication services, financial institutions and suppliers of utilities.
Amounts related to the assessment phase are primarily internal costs, are
expensed as incurred, and have not been material to date and are not expected to
be material through completion of the phase. The remediation phase is the next
step in our plan to address the Y2K issue. Activities during this phase are in
progress and include, if necessary, the actual repair, replacement, or upgrade
of our systems based on the findings of the assessment phase. Systems which are
Y2K ready include local area networks, digital audio systems, and traffic
scheduling and billing systems. We have implemented a new accounting and
financial reporting system which is Y2K ready. Costs related to this new system
(approximately $200,000) will be included in capital expenditures. The final
plan phase, the testing phase, will include the actual testing of the enhanced
and upgraded systems. This process will include internal and external user
review confirmation, as well as unit testing and integration testing with other
system interfaces. The testing schedule is being developed and will begin during
the second quarter of 1999 and is expected to be completed by the end of the
third quarter. Based on test results and assessment of outside risks,
contingency plans will be developed as determined necessary. We would expect to
complete such plans in the fourth quarter of 1999. We anticipate minimal
business disruption from both external and internal factors. However, possible
risks include, but are not limited to, loss of power and communication links
which are not subject to our control. We believe that our Y2K compliance issues
from all phases of our plan will be resolved on a timely basis and that any
related costs will not have a material impact on our operations, cash flows, or
financial condition of future periods.
20
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Derivative Instruments. We do not invest, and during the year ended
December 31, 1998 did not invest, in market risk sensitive instruments.
Market Risk. Our market risk exposure with respect to financial
instruments is to changes in the "prime rate" in the United States. We may
borrow up to $75 million under a revolving credit facility. At December 31,
1998, we had borrowed $24 million. Amounts outstanding under the revolving
credit facility bear interest at a base rate, at Salem's option, of the bank's
prime rate or LIBOR. For purposes of determining the interest rate in 1998 the
prime rate spread ranged from 0% to 1.75%, and the LIBOR spread ranged from 1%
to 3%. At December 31, 1998, the interest rate on amounts outstanding under the
revolving credit facility was 8.25%. In January 1999, the revolving credit
facility was amended to change certain required loan ratio terms and to amend
the interest rate spreads. As of January 1, 1999, the interest rate spread
ranges from 0% to 2.25%, and the LIBOR spread ranges from 1% to 3.5%. At
December 31, 1998, a hypothetical 100 basis point increase in the prime rate
would result in additional interest expense of $240,000 on an annualized basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item
are set forth at the end of this Annual Report on Form 10-K beginning on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers, directors and key employees of Salem Communications
Corporation and its subsidiaries and their ages and positions with the company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward G. Atsinger III......... 59 President, Chief Executive Officer and Director
Stuart W. Epperson............. 62 Chairman of the Board
Eric H. Halvorson.............. 49 Executive Vice President, Chief Operating
Officer, General Counsel and Director
Greg R. Anderson............... 52 President, Salem Radio Network
Dirk Gastaldo.................. 43 Vice President and Chief Financial Officer
Kenneth L. Gaines.............. 60 Vice President - Operations
Dave Armstrong................. 53 Vice President - Operations and General
Manager/KKLA-FM/AM, KLTX-AM and KIEV-AM
Joe D. Davis................... 55 Vice President - Operations and General
Manager/WMCA-AM and WWDJ-AM
Kenneth W. Sasso............... 52 Vice President - Operations and General
Manager/KGFT-FM, KPRZ-FM and KBIQ-FM
David Ruleman.................. 52 Vice President - Operations and General
Manager/WAVA-FM/AM
W. Douglas Young............... 48 Chief Executive Officer, OnePlace, Ltd.
John W. Styll.................. 47 President, CCM Communications, Inc.
Richard A. Riddle.............. 54 Director
Roland S. Hinz................. 60 Director
</TABLE>
All directors hold office until the next annual meeting of shareholders
following their election, or until their successors are elected and qualified.
Officers are elected annually by the board of directors and serve at the
discretion of the board.
Mr. Atsinger has been President, Chief Executive Officer and a director of
Salem since its inception. He has been engaged in the ownership and operation of
radio stations since 1969 and is a member of the board of directors of the
National Religious Broadcasters.
Mr. Epperson has been Chairman of Salem since its inception. Mr. Epperson
has been engaged in the ownership and operation of radio stations since 1961. In
addition, he is a member of the board of directors of the National Religious
Broadcasters. Mr. Epperson is married to Nancy A. Epperson who is Mr. Atsinger's
sister.
Mr. Halvorson has been Chief Operating Officer of Salem since 1995,
Executive Vice President of the company since 1991 and a director of the company
since 1988. From 1991 to the present, Mr. Halvorson has also served as the
General Counsel of the company. Mr. Halvorson was the managing partner of the
law firm of Godfrey & Kahn, S.C.-Green Bay from 1988 until 1991. From 1985 to
1988, he was Vice President and General Counsel of the company. From 1976 until
1985, he was an associate and then a partner of Godfrey & Kahn, S.C.-Milwaukee.
Mr. Halvorson was a Certified Public Accountant with Arthur Andersen & Co. from
1971 to 1973.
22
<PAGE> 23
Mr. Anderson has been President of Salem Radio Network(R) since 1994. From
1993 to 1994, Mr. Anderson was the Vice President-General Manager of the
Network. Mr. Anderson was employed by Multimedia, Inc. from 1980 to 1993. After
serving as program director and general manager at Multimedia stations in
Greenville, Shreveport and Milwaukee, he was named Vice President, Operations,
of the Multimedia radio division in 1987 and was subsequently appointed as
Executive Vice President and group head of Multimedia's radio division.
Mr. Gastaldo has been Chief Financial Officer of Salem since 1993, and a
Vice President of the company since 1992. From 1992 to 1993, Mr. Gastaldo was
Vice President-Administration of the company, and from 1989 to 1991 he was
Manager-Internal Audit of the company. He was a Certified Public Accountant with
Ernst & Young from 1978 to 1989.
Mr. Gaines has been Vice President-Operations of Salem since 1994. Prior to
that time, he served as General Manager of KKLA-FM from 1992 to 1994 and General
Manager of WYLL-FM from 1990 to 1992. Mr. Gaines has been involved in the
management of radio stations since 1964. He served as Executive Vice President
of Commonwealth Communications from 1988 to 1990, Vice President of Penn
Communications from 1985 to 1988, Executive Vice President of Broadstreet
Communications from 1974 to 1985 and Vice President and General Manager of
Metromedia from 1964 to 1974.
Mr. Armstrong has been Vice President-Operations of Salem since 1996 and
General Manager of KKLA-FM/AM since 1994. He has also supervised operations of
KLTX-AM since January 1997 and of KIEV-AM since August 1998. Mr. Armstrong has
28 years of radio broadcast experience and has been general manager of stations
in Santa Ana and Orange, California.
Mr. Davis has been Vice President-Operations of Salem since 1996 and
General Manager of WMCA-AM since 1989. He has also been the General Manager of
WWDJ-AM since 1994. He has previously served as Vice President and Executive
Director of Christian Fund for the Disabled as well as President of Practice
Resources, Inc., Davis Eaton Corporation and Vintage Specialty Advertising
company.
Mr. Sasso has been Vice President-Operations of Salem since 1996 and
General Manager of the company's Colorado Springs stations from 1994 to present.
He also served as General Manager of the company's Denver stations from 1995 to
1996. Mr. Sasso is the former owner of eight radio stations in Florida,
Mississippi and Louisiana which were sold in 1989. From 1969 to 1979 he served
in various radio management capacities for King Broadcasting and The American
Broadcasting Companies.
Mr. Ruleman has been Vice President - Operations of Salem since January,
1999 and General Manager of WAVA-AM/FM since 1992. He was General Manager of
KPRZ-AM from 1986 to 1992. From 1973 to 1986, Mr. Ruleman served as Vice
President of Palomar Broadcasting Corporation, a group owner of radio stations
in Southern California.
Mr. Young has been Chief Executive Officer of OnePlace, Ltd. since January,
1999, Chief Executive Officer and a stockholder of its predecessor corporation,
OnePlace, LLC since August, 1998. From 1997 to 1998 Mr. Young served as Chief
Executive Officer of Landmark Community Interests, an Internet-based technology
company controlled by Landmark Communications, Inc. He served as President of
networkMCI Digital Imaging, the web site development and electronic commerce
implementation division of MCI Telecommunications, from 1995 to 1997. Prior to
1995 Mr. Young founded and developed
23
<PAGE> 24
several technology companies including Image Technology, Inc., and Advanced
MediaGraphics Center, both of which companies were sold to MCI
Telecommunications.
Mr. Styll founded Praise Productions, the predecessor of CCM
Communications, Inc., in 1978 and has served as the President of CCM
Communications, Inc. since its incorporation in 1979. He served as President of
the Gospel Music Association from 1991 to 1994 and as President of the Christian
Music Trade Association from 1996 to 1998. Mr. Styll is a member of the National
Academy of Recording Arts and Sciences.
Mr. Riddle has been a director of Salem since September, 1997. Mr. Riddle
is an independent businessman specializing in providing financial assistance and
consulting to manufacturing companies. Since 1991 he has been the President of
Richray Industries, a holding company for various manufacturing companies. He
was President and majority stockholder of I. L. Walker company from 1988 to 1997
when the company was sold. He also was Chief Operating Officer and majority
stockholder of Richter Manufacturing from 1970 to 1987.
Mr. Hinz has been a Director of Salem since September, 1997. Mr. Hinz has
been the owner and President of Hi-Torque Publishing company, a publisher of
magazines covering the motorcycling and biking industries, since 1981. He is
active in a number of non-profit organizations and serves as Chairman of the
Fund Development Committee of English Language Institute China. Mr. Hinz also
serves on the boards of directors of Gordon Conwell Theological Seminary,
Association for Community Education, Inc., Truth for Life, and Lake Avenue
Congregational Church.
24
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the company for
1998, 1997 and 1996 to the company's Chief Executive Officer and the four
highest paid executive officers of the company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
- ---------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward G. Atsinger III.... 1996 $400,000 $350,000(1) $ 996,372(2) $ --
President, Chief 1997 400,000 -- 890,192(2) --
Executive Officer 1998 400,000 250,000 -- --
and Director
Stuart W. Epperson........ 1996 400,000 350,000(1) 1,012,319(2) --
Chairman of the Board 1997 400,000 -- 890,192(2) --
1998 400,000 288,000 -- --
Eric H. Halvorson......... 1996 255,000 85,000 -- 909(3)
Executive Vice President 1997 270,000 85,000 -- 63,525(4)
Chief Operating Officer 1998 285,000 87,500 -- 570(3)
and Director
Dave Armstrong............ 1996 149,019 15,000 -- 585(3)
Vice President- 1997 163,683 -- -- 19(3)
Operations 1998 175,658 38,000 -- 876(3)
Joe D. Davis.............. 1996 159,026 -- -- 950(3)
Vice President- 1997 163,524 -- -- 950(3)
Operations 1998 172,362 20,000 -- 1,000(3)
</TABLE>
- -------------------------
(1) Distributions of net income from New Inspiration and Golden Gate (in an
amount equal to the amount above that necessary to meet individual tax
liabilities, discussed in footnote 2 to this table, that had previously been
taxed, but not distributed, to the S corporation shareholders. See
the company's Consolidated Statements of Shareholders' Equity included
elsewhere in this report.
(2) Tax reimbursement payments made to satisfy individual federal and state
income tax liabilities generated by New Inspiration and Golden Gate as a
result of their S corporation status. See the company's Consolidated
Statements of Shareholders' Equity included elsewhere in this report.
(3) Represents employer matching contributions to individuals' 401(k) accounts.
(4) Includes cancellation of $25,000 indebtedness owed to the company by Mr.
Halvorson plus accrued interest of $7,420 and a distribution to Mr.
Halvorson of $30,155, an amount equal to the tax liability incurred by Mr.
Halvorson as a result of cancellation of this debt.
COMPENSATION OF DIRECTORS
Officers of Salem who also serve as directors do not receive compensation
for their services as directors other than the compensation they receive as
officers of Salem. Directors of Salem who are not also officers or employees of
Salem were paid a one-time fee of $7,500 in 1998 and receive $2,500 per quarter
for their services as directors of Salem. Directors of Salem are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at board meetings.
25
<PAGE> 26
EMPLOYMENT AGREEMENTS
Edward G. Atsinger III entered into an employment agreement with Salem
effective as of August 1, 1997, pursuant to which he will serve as President and
Chief Executive Officer of the company for an annual salary of $400,000 and an
annual bonus determined at the discretion of the board of directors, for an
initial period of three years. The employment agreement with Mr. Atsinger
provides Salem with a right of first refusal on corporate opportunities, which
includes acquisitions of radio stations in any market in which Salem is
interested, and includes a noncompete provision for a period of two years from
the cessation of Mr. Atsinger's employment with the company and a nondisclosure
provision which is effective for the term of the employment agreement and
indefinitely thereafter. In addition to the requirements of his employment
agreement, since the inception of the company Mr. Atsinger has been obligated
under applicable state law to first present corporate opportunities to Salem
before pursuing any such opportunity himself. Under the terms of his employment
agreement, Mr. Atsinger is also entitled to participate in any benefit plans
provided by Salem to its employees. If Mr. Atsinger is terminated without cause
by Salem, he is entitled to severance payments equal to his salary for the
greater of six months and the remainder of the term of his agreement. In
addition, subject to certain exceptions, if Salem declines to renew Mr.
Atsinger's agreement after the initial period, he is entitled to severance
payments equal to his salary for three months.
Stuart W. Epperson entered into an employment agreement with Salem
effective as of August 1, 1997, pursuant to which he will serve as Chairman of
the company for an annual salary of $400,000 and an annual bonus determined at
the discretion of the board of directors, for an initial period of three years.
The employment agreement with Mr. Epperson provides Salem with a right of first
refusal on corporate opportunities, which might include acquisitions of radio
stations in any market in which Salem is interested, and includes a noncompete
provision for a period of two years from the cessation of Mr. Epperson's
employment with the company and a nondisclosure provision which is effective for
the term of the employment agreement and indefinitely thereafter. In addition to
the requirements of his employment agreement, since the inception of Salem Mr.
Epperson has been obligated under applicable state law to first present
corporate opportunities to Salem before pursuing any such opportunity himself.
Under the terms of his employment agreement, Mr. Epperson is also entitled to
participate in any benefit plans provided by Salem to its employees. If Mr.
Epperson is terminated without cause by Salem, he is entitled to severance
payments equal to his salary for the greater of six months and the remainder of
the term of his agreement. In addition, subject to certain exceptions, if Salem
declines to renew Mr. Epperson's agreement after the initial period, he is
entitled to severance payments equal to his salary for three months.
Eric H. Halvorson entered into an employment agreement with Salem effective
as of November 1991, pursuant to which he serves as Executive Vice President of
Salem at an annual salary starting at $175,000, with annual increases of $11,000
to $14,000, for a period of seven years. The agreement was subsequently amended
in April 1996 to extend the term for one additional year and increase the base
salary to $255,000, $270,000 and $285,000 for 1996, 1997 and 1998, respectively,
and was again amended in July 1997 to extend the term through December 2003 at a
base salary of $300,000 for each year after 1998. The employment agreement
provides that Mr. Halvorson may participate in any benefit plans provided by
Salem to its employees. If Mr. Halvorson is terminated without cause by Salem,
he is entitled to severance payments equal to his salary for the remaining
26
<PAGE> 27
term of his agreement. Mr. Halvorson also entered into a deferred compensation
agreement with Salem effective as of November 1991, pursuant to which Mr.
Halvorson will receive (i) 50% of the average of his three highest years of
compensation, payable for a period of ten consecutive years, if he remains
employed by Salem until age 60, or (ii) a discounted amount, based upon the
compensation he would have received if he had remained employed until age 60, if
his employment terminates for any reason after the term of the employment
agreement or before he reaches age 60 by reason of death, disability or
termination by Salem without cause.
Greg R. Anderson entered into an employment agreement with Salem Radio
Network(R) effective as of October 1994, pursuant to which he serves as
President of Salem Radio Network(R) for a period of three years at an annual
salary of $120,000, $126,000 and $132,300 for each year during the term of the
agreement, respectively. The agreement was subsequently amended in December 1995
to increase Mr. Anderson's base salary to $162,300 and was amended again in
August 1997 to extend the term for three additional years. Mr. Anderson is also
entitled to participate in any benefit plans provided by Salem Radio Network(R)
to its employees and is entitled to receive 6 months severance payment upon
termination by Salem at any time before the end of the term of the employment
agreement.
401(K) PLAN
The company adopted a 401(k) savings plan in 1993 for the purpose of
providing, at the option of the employee, retirement benefits to full-time
employees of the company and its subsidiaries. Contributions to the 401(k)
savings plan are made by the employee and, on a voluntary basis, by the company.
The company currently matches 10% of the employee's contributions to the 401(k)
savings plan which do not exceed 10% of the employee's annual compensation. The
company made a contribution of $87,000 to the 401(k) savings plan during the
year ended December 31, 1998.
27
<PAGE> 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the
beneficial ownership of all of Salem's common stock. In addition, the table
below provides the total economic interest and voting power of all shareholders.
The address of the individuals listed below is 4880 Santa Rosa Road,
Suite 300, Camarillo, California 93012.
<TABLE>
<CAPTION>
CLASS A CLASS B PERCENT OF
COMMON STOCK COMMON STOCK VOTES OF
------------------- ---------------- ALL CLASSES OF
NAME OF BENEFICIAL OWNER(1) NUMBER % NUMBER % COMMON STOCK
- --------------------------- ------- ------ ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Edward G. Atsinger III(2) 81,672 50.00% 40,836 50.00% 50.00%
Stuart W. Epperson(3) 60,184 36.80% 30,092 36.80% 36.80%
Nancy A. Epperson 21,488 13.20% 10,744 13.20% 13.20%
</TABLE>
- -------------------------
(1) Stuart W. Epperson and Nancy A. Epperson are husband and wife.
(2) Edward G. Atsinger III is the President, Chief Executive Officer and a
director of the company.
(3) Stuart W. Epperson is the Chairman of the Board of the company.
28
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN LOAN TRANSACTIONS
In December 1997, the company borrowed $2.0 million from Mr. Atsinger
pursuant to a promissory note with a revolving principal amount of up to $2.5
million. The outstanding balance on the note as of December 31, 1998 was $1.8
million. The note is a demand note which bears interest at a floating rate that
is currently 8%. During the term of the note, the interest rate will at all
times be 1% lower than the rate for base rate borrowings under the company's
revolving credit facility. The company will borrow under the revolving credit
facility when Mr. Atsinger demands repayment. The note is outstanding as of the
date hereof.
In January 1998, the company borrowed $1.5 million from Mr. Epperson
pursuant to a promissory note with a revolving principal amount of up to $2.5
million. In May 1998, the company repaid $1.5 million and there was no
outstanding balance on the note as of December 31, 1998. The note is a demand
note which bears interest at floating rate that is currently 8%. During the term
of the note, the interest rate will at all times be 1% lower than the rate for
base rate borrowings under the company's revolving credit facility. The company
will borrow under the revolving credit facility when Mr. Epperson demands
repayment. The note is outstanding as of the date hereof.
In 1997, the company purchased split-dollar life insurance policies for its
then-sole shareholders, Messrs. Atsinger and Epperson. Mr. Epperson selected a
policy in the amount of $20 million while Mr. Atsinger selected a policy in the
amount of $40 million, resulting in a premium difference of $94,000 between the
two policies, which difference was paid to Mr. Epperson in cash in the form of
an interest-free loan. The loan will be called upon payment by Mr. Atsinger
of $94,000 to the company.
LEASES WITH PRINCIPAL SHAREHOLDERS
The company leases the studios and tower and antenna sites described in the
table below from Messrs. Atsinger and Epperson or trusts and partnerships
created for the benefit of Messrs. Atsinger and Epperson and their families. All
such leases have cost of living adjustments. Based upon management's assessment
and analysis of local market conditions for comparable properties, the company
believes that such leases do not have terms that vary materially from those that
would have been available from unaffiliated parties.
<TABLE>
<CAPTION>
Station Call Current Expiration
Market Letters Faculties Leased Annual Rental Date (1)
- ------------------------- ------------ ---------------- ------------- ----------
Leases with both Messrs. Atsinger and Epperson:
- -----------------------------------------------
<S> <C> <C> <C> <C>
Los Angeles, CA KKLA-AM Antenna/Tower/Studios $ 46,260 2002
KLTX-AM Antenna/Tower 140,172 2002
Chicago, IL WYLL-FM Antenna/Tower 42,048 2002
San Francisco, CA KFAX-AM Antenna/Tower 145,680 2003
Philadelphia, PA WFIL-AM/ Antenna/Tower/Studios 112,044 2004
WZZD-AM
Houston-Galveston, TX KKHT-FM Antenna/Tower 150,000 2008
KENR-AM Antenna/Tower 32,184 2005
KTEK-AM Antenna/Tower 16,800 2009
Seattle-Tacoma, WA KGNW-AM Antenna/Tower 36,444 2002
KLFE-AM Antenna/Tower 26,484 2004
KKOL-AM Antenna/Tower 36,000 2007
Minneapolis-St. Paul, MN KKMS-AM Antenna/Tower/Studios 135,120 2006
Pittsburgh, PA WORD-FM Antenna/Tower 27,156 2003
Denver-Boulder, CO KNUS-AM Antenna/Tower 18,816 2006
Cleveland, OH WHK-AM Antenna/Tower 34,080 2008
Portland, OR KPDQ-AM/FM Studios 61,680 2002
Antenna/Tower 14,016 2002
Cincinnati, OH WTSJ-AM Antenna/Tower/Studios 24,096 2007
Sacramento, CA KFIA-AM Antenna/Tower 80,916 2006
San Antonio, TX KSLR-AM Antenna/Tower 34,730 2007
Akron, OH WHLO-AM Antenna/Tower 12,162 2007
Canton, OH WHK-FM Antenna/Tower 12,162 2007
------------
$ 1,239,050
------------
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
Leases with Mr. Atsinger:
- -------------------------
<S> <C> <C> <C> <C>
San Diego, CA KPRZ-FM Antenna/Tower 46,812 2002
-----------
$ 1,285,862
</TABLE>
- ---------------
(1) The expiration date reported for certain facilities represents the
expiration date assuming exercise of lease term extensions at the company's
option.
Rental expense paid by the company to Messrs. Atsinger and Epperson or
trusts or partnerships created for the benefit of their families for 1998
amounted to approximately $1,050,000. Rental expense paid by the
company to Mr. Atsinger or trusts created for the benefit of his family for 1998
amounted to approximately $60,000.
MANAGEMENT SERVICES CONTRACT
The company provides management services for Sonsinger, Inc. which is the
licensee of KKOL-AM, Seattle. Messrs. Atsinger and Epperson are the owners of
100% of the outstanding shares of Sonsinger. Messrs. Atsinger and Epperson and
the company are parties to an Option to Purchase Agreement whereunder the
company has been granted an option to purchase KKOL-AM from Messrs. Atsinger and
Epperson at any time on or before December 31, 1999 at a price equal to the
lower of the cost of the station to Messrs. Atsinger and Epperson, $1.4 million,
and its fair market value as determined by an independent appraisal. Pursuant to
a local marketing agreement with Sonsinger, entered into June 13, 1997, the
company programs KKOL-AM and sells all the airtime. The company retains all of
the revenue and incurs all of the expenses related to the operation of KKOL-AM
and incurred approximately $164,000 in local marketing fees under this agreement
in 1998.
30
<PAGE> 31
TOWER CONSTRUCTION CONTRACT
In October 1997, in order to reduce the indebtedness under the revolving
credit facility, the company assigned its contract with a tower construction
company to build a broadcast tower in Houston to Messrs. Atsinger and Epperson,
subject to the principal shareholders obtaining financing. Messrs. Atsinger and
Epperson reimbursed the company for its costs and expenses of $3.7 million on
December 31, 1997. The antenna for the company's station in Houston, KKHT-FM,is
located on the tower and the company pays rent at an annual rate of $150,000 to
Messrs. Atsinger and Epperson.
RADIO STATIONS OWNED BY THE EPPERSONS
Mrs. Epperson has personally acquired four radio stations in the
Norfolk-Virginia Beach-Newport News, Virginia market. Additionally, Mr. Epperson
has personally acquired certain radio stations in the Greensboro-Winston-Salem,
North Carolina market. These Virginia and North Carolina markets are not
currently served by stations owned and operated by the company. Acquisitions in
such markets are not part of the company's current business and acquisition
strategies.
TRANSPORTATION SERVICES SUPPLIED BY PRINCIPAL
From time to time, Salem rents an airplane and a helicopter from Atsinger
Aviation LLC, which is owned by Mr. Atsinger. As approved by the independent
members of Salem's board of directors, Salem rents these aircraft on an hourly
basis at below-market rates and uses them for general corporate needs. In 1998,
the company paid $69,180 to Atsinger Aviation for airplane rental; no amounts
were paid for helicopter rental in 1998.
31
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
---------------------
The financial statements required to be filed hereunder are set
forth at the end of this Report beginning on page F-1.
2. Exhibits.
---------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
3.01+ Articles of Incorporation of Salem.
3.02+ Bylaws of Salem
4.01+ Indenture between Salem Communications Corporation, a
California corporation, certain named guarantors and
The Bank of New York, as Trustee, dated as of September
25, 1997, relating to the 9 1/2% Series A and Series B
Senior Subordinated Notes due 2007.
4.02+ Form of 9 1/2% Senior Subordinated Note (filed as part of
Exhibit 4.01).
4.03+ Form of Note Guarantee (filed as part of Exhibit 4.01).
4.04+ Credit Agreement, dated as of September 25, 1997, among
Salem, the several Lenders from time to time parties
thereto, and The Bank of New York, as administrative
agent for the Lenders (incorporated by reference to Exhibit
4.07 of the previously filed Registration Statement on
Form S-4).
4.05+ Borrower Security Agreement, dated as of September 25,
1997, by and between Salem and The Bank of New York, as
Administrative Agent of the Lenders (incorporated by
reference to Exhibit 4.08 of the previously filed
Registration Statement on Form S-4).
4.06+ Subsidiary Guaranty and Security Agreement dated as of
September 25, 1997, by and between Salem, certain named
guarantors, and The Bank of New York, as Administrative
Agent (incorporated by reference to Exhibit 4.09 of the
previously filed Registration Statement on Form S-4).
4.07++ Amendment No. 1 and Consent No. 1, dated as of August
5, 1998, to the Credit Agreement, dated as of September
25, 1997, by and among Salem, The Bank of New York, as
Administrative Agent for the Lenders, Bank of America
NT&SA, as documentation agent, and the several Lenders
(incorporated by reference to Exhibit 10.02 of
previously filed Current Report on Form 8-K).
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
4.08 Amendment No. 2 and Consent No. 2, dated as of January
22, 1999, to the Credit Agreement, dated as of
September 25, 1997, by and among Salem, The Bank of New
York, as Administrative Agent for the Lenders, Bank of
America NT&SA, as documentation agent, and the Lenders.
10.01+ Employment Agreement, dated as of August 1, 1997,
between Salem and Edward G. Atsinger III.
10.02+ Employment Agreement, dated as of August 1, 1997,
between Salem and Stuart W. Epperson.
10.03.01+ Employment Contract, dated November 7, 1991, between
Salem and Eric H. Halvorson.
10.03.02+ First Amendment to Employment Contract, dated April 22,
1996, between Salem and Eric H. Halvorson.
10.03.03+ Second Amendment to Employment Contract, dated July 8,
1997, between Salem and Eric H. Halvorson.
10.03.04+ Deferred Compensation Agreement, dated November 7,
1991, between Salem and Eric H. Halvorson.
10.04.01+ Employment Agreement, dated February 9, 1995, between
Salem Radio Network Incorporated and Greg R. Anderson.
10.04.02+ Letter Agreement dated December 22, 1995, by
Inspiration Media of Texas, Inc. re compensation of
Greg R. Anderson under Employment Agreement with Salem
Radio Network Incorporated.
10.04.03+ First Amendment to Employment Agreement, dated August
1, 1997 between Salem Radio Network Incorporated and
Greg R. Anderson.
10.05.01+ Antenna/tower lease between Caron Broadcasting, Inc.
(WHLO-AM/Akron, Ohio) and Messrs. Atsinger and Epperson
expiring 2007.
10.05.02+ Antenna/tower/studio lease between Caron Broadcasting,
Inc. (WTSJ-AM/Cincinnati, Ohio) and Messrs. Atsinger
and Epperson expiring 2007.
10.05.03+ Antenna/tower lease between Caron Broadcasting, Inc.
(WHK-FM/Canton, Ohio) and Messrs. Atsinger and Epperson
expiring 2007.
10.05.04+ Antenna/tower/studio lease between Common Ground
Broadcasting, Inc.(KKMS-AM/Eagan, Minnesota) and
Messrs. Atsinger and Epperson expiring in 2006.
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.05.05+ Antenna/tower lease between Common Ground Broadcasting,
Inc. (WHK-AM/Cleveland, Ohio) and Messrs. Atsinger and
Epperson expiring 2008.
10.05.06+ Antenna/tower lease (KFAX-FM/Hayward, California) and
Salem Broadcasting Company, a partnership consisting of
Messrs. Atsinger and Epperson, expiring in 2003.
10.05.07+ Antenna/tower/studio lease between Inland Radio, Inc.
(KKLA-AM/San Bernardino, California) and Messrs.
Atsinger and Epperson expiring 2002.
10.05.08+ Antenna/tower lease between Inspiration Media, Inc.
(KGNW-AM/Seattle, Washington) and Messrs. Atsinger and
Epperson expiring in 2002.
10.05.09+ Antenna/tower lease between Inspiration Media, Inc.
(KLFE-AM/Seattle, Washington) and The Atsinger Family
Trust and Stuart W. Epperson Revocable Living Trust
expiring in 2004.
10.05.11.01+ Antenna/tower/studio lease between Pennsylvania Media
Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia,
Pennsylvania) and Messrs. Atsinger and Epperson, as
assigned from WEAZ-FM Radio, Inc., expiring 2004.
10.05.11.02+ Antenna/tower/studio lease between Pennsylvania Media
Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia,
Pennsylvania) and The Atsinger Family Trust and Stuart
W. Epperson Revocable Living Trust expiring 2004.
10.05.12+ Antenna/tower lease between Radio 1210, Inc. (KPRZ-AM/
Olivenhain, California) and The Atsinger Family Trust
expiring in 2002.
10.05.13+ Antenna/tower lease between Salem Media Corporation
(WYLL-FM/Arlington Heights, Illinois) and Messrs.
Atsinger and Epperson expiring in 2002.
10.05.14+ Antenna/turner/studio leases between Salem Media
Corporation (KLTX-AM/Long Beach and Paramount,
California) and Messrs. Atsinger and Epperson expiring
in 2002.
10.05.15+ Antenna/tower lease between Salem Media of Colorado,
Inc. (KNUS-AM/Denver-Bolder, Colorado) and Messrs.
Atsinger and Epperson expiring 2006.
10.05.16+ Antenna/tower lease between Salem Media of Ohio, Inc.
(WRFD-AM/Columbus, Ohio) and Messrs. Atsinger and
Epperson expiring 2002.
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.05.17.01+ Studio Lease between Salem Media of Oregon, Inc.
(KPDQ-AM/FM/Portland, Oregon) and Edward G. Atsinger
III, Mona J. Atsinger, Stuart W. Epperson, and Nancy K.
Epperson expiring 2002.
10.05.17.02+ Antenna/tower lease between Salem Media of Oregon, Inc.
(KPDQ-AM/FM/Raleigh Hills, Oregon and Messrs. Atsinger
and Epperson expiring 2002.
10.05.18+ Antenna/tower lease between Salem Media of Pennsylvania,
Inc. (WORD-FM/WPIT-AM/ Pittsburgh, Pennsylvania) and The
Atsinger Family Trust and Stuart W. Epperson Revocable
Living Trust expiring 2003.
10.05.19+ Antenna/tower lease between Salem Media of Texas, Inc.
(KSLR-AM/San Antonio, Texas) and Epperson-Atsinger 1983
Family Trust expiring 2007.
10.05.20+ Antenna/tower lease between South Texas Broadcasting,
Inc. (KENR-AM/Houston-Galveston, Texas) and Atsinger
Family Trust and Stuart W. Epperson Revocable Living
Trust expiring 2005.
10.05.21+ Antenna/tower lease between Vista Broadcasting, Inc.
(KFIA-AM/Sacramento, California) and The Atsinger
Family Trust and Stuart W. Epperson Revocable Living
Trust expiring 2006.
10.05.22 Antenna/tower lease between South Texas Broadcasting,
Inc. (KKHT-FM/Houston-Galveston, Texas) and Sonsinger
Boradcasting Company of Houston, LP expiring 2008.
10.05.23 Antenna/tower lease between Inspiration Media of Texas,
Inc. (KTEK-AM/Alvin, Texas) and The Atsinger Family Trust
and The Stuart W. Epperson Revocable Living Trust expiring
2009.
10.06.01+ Asset Purchase Agreement dated as of June 5, 1996 by
and between Radio 94 of Phoenix Limited Partnership and
Salem Media of Arizona, Inc. (KOOL-AM, Phoenix,
Arizona).
10.06.02+ Asset Purchase Agreement dated as of September 3, 1996
by and between Caron Broadcasting, Inc. and Mortenson
Broadcasting Company of Canton, LLC and Mortenson
Broadcasting Company of Akron, LLC (WTOF-FM, Canton,
Ohio and WHLO-AM, Akron, Ohio).
10.06.03.01+ Asset Purchase Agreement dated March 28, 1996 by and
between American Radio Assistance Corporation and
Common Ground Broadcasting, Inc. (KDBX-FM, Banks,
Oregon).
10.06.03.02+ First Amendment to Asset Purchase Agreement dated as of
July 22, 1996 by and between American Radio Systems
Corporation and Common Ground Broadcasting, Inc.
(KDBX-FM, Banks, Oregon).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.06.04.01+ Asset Purchase Agreement dated as of April 23, 1996 by
and between OmniAmerica Group and WHK License
Partnership and Inspiration Media of Ohio, Inc.
(WHK-AM, Cleveland, Ohio).
10.06.04.02+ First Amendment to the Asset Purchase Agreement dated
as of July 23, 1996 by and between OmniAmerica Group
and WHK License Partnership and Inspiration Media of
Ohio, Inc. (WHK-AM, Cleveland, Ohio).
10.06.04.03+ Second Amendment to Asset Purchase Agreement dated as
of August 12, 1996 by and between OmniAmerica Group and
WHK License Partnership and Inspiration Media of Ohio,
Inc. (WHK-AM, Cleveland, Ohio).
10.06.05+ Asset Purchase Agreement dated as of September 30, 1996
by and between Infinity Broadcasting Corporation of
Dallas and Inspiration Media of Texas, Inc. (KEWS,
Arlington, Texas; KDFX, Dallas, Texas).
10.06.06.01+ Asset Purchase Agreement dated as of December 4, 1996
by and between Backbay Broadcasters, Inc. and New
England Continental Media, Inc. (WBNW-AM, Boston,
Massachusetts).
10.06.06.02+ First Amendment to the Asset Purchase Agreement dated
as of February, 1997 by and between Backbay
Broadcasters, Inc. and New England Continental Media,
Inc. (WBNW-AM, Boston, Massachusetts).
10.06.07+ Asset Purchase Agreement dated June 2, 1997 by and
between New England Continental Media, Inc. and
Hibernia Communications, Inc. (WPZE-AM, Boston,
Massachusetts).
10.06.08+ Option to Purchase dated as of August 18, 1997 by and
between Sonsinger, Inc. and Inspiration Media, Inc.
(KKOL-AM, Seattle, Washington).
10.06.09++ Asset Purchase Agreement dated as of April 13, 1998 by
and between New Inspiration Broadcasting Company and
First Scientific Equity Devices Trust (KIEV-AM,
Glendale, California) (incorporated by reference to
Exhibit 2.01 of the previously filed Current Report on
Form 8-K).
10.07.01+ Tower Purchase Agreement dated August 22, 1997 by and
between Salem and Sonsinger Broadcasting Company of
Houston, L.P.
10.07.02+ Amendment to the Tower Purchase Agreement dated
November 10, 1997 by and between Salem and Sonsinger
Broadcasting Company of Houston, L.P.
10.07.03+ Promissory Note dated November 11, 1997 made by
Sonsinger Broadcasting Company of Houston, L.P. payable
to Salem.
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.07.04+ Promissory Note dated December 24, 1997 made by Salem
payable to Edward G. Atsinger III.
10.07.05+ Promissory Note dated December 24, 1997 made by Salem
payable to Stuart W. Epperson.
10.08.01+ Local Programming and Marketing Agreement dated June
13, 1997 between Sonsinger, Inc. and Inspiration Media,
Inc.
12.01 Statement regarding computation of ratio of earnings
to fixed charges.
21.01 Subsidiaries of Salem.
27.01 Financial Data Schedule
</TABLE>
- -----------------
+ Incorporated by reference to the exhibit of the same number, unless
otherwise noted, of Salem's Registration Statement on Form S-4
(No. 333-41733), as amended, as declared effective by the Securities
and Exchange Commission on February 9, 1998.
++ Incorporated by reference to Salem's Current Report on Form 8-K, filed
with the Securities and Exchange Commission on September 4, 1998.
(b) Reports on Form 8-K.
--------------------
On September 4, 1998, the company filed a Current Report on Form 8-K,
reporting Item 2, in connection with the acquisition of the assets of
radio station KIEV-AM, Glendale, California.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SALEM COMMUNICATIONS CORPORATION
March 31, 1999 By: /s/ Edward G. Atsinger III
-------------------------------------
Edward G. Atsinger III
President and Chief Executive Officer
March 31, 1999 By: /s/ Dirk Gastaldo
-------------------------------------
Dirk Gastaldo
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edward G. Atsinger III President and Chief Executive Officer
- --------------------------------------- (Principal Executive Officer) March 31, 1999
Edward G. Atsinger III
/s/ Dirk Gastaldo Vice President and Chief Financial
- --------------------------------------- Officer March 31, 1999
Dirk Gastaldo (Principal Financial Officer)
/s/ Eileen E. Hill Vice President--Accounting & Taxation
- --------------------------------------- (Principal Accounting Officer) March 31, 1999
Eileen E. Hill
/s/ Edward G. Atsinger III Director
- --------------------------------------- March 31, 1999
Edward G. Atsinger III
/s/ Stuart W. Epperson Director
- --------------------------------------- March 31, 1999
Stuart W. Epperson
/s/ Eric H. Halvorson Director
- --------------------------------------- March 31, 1999
Eric H. Halvorson
Director
_______________________________________ March 31, 1999
Richard A. Riddle
Director
_______________________________________ March 31, 1999
Roland S. Hinz
</TABLE>
38
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1997 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Salem Communications Corporation
We have audited the accompanying consolidated balance sheets of Salem
Communications Corporation as of December 31, 1997 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Salem
Communications Corporation at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, California
March 24, 1999
F-2
<PAGE> 41
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,645 $ 1,917
Accounts receivable (less allowance for doubtful accounts
of $1,249 in 1997 and $862 in 1998).................... 12,227 14,289
Other receivables......................................... 81 67
Prepaid expenses.......................................... 640 658
Prepaid income taxes...................................... 48 --
Deferred income taxes..................................... 2,254 2,443
-------- --------
Total current assets........................................ 16,895 19,374
Property, plant and equipment, net.......................... 36,638 40,749
Intangible assets:
Broadcast licenses........................................ 138,837 167,870
Noncompetition agreements................................. 14,593 14,593
Customer lists and contracts.............................. 4,094 4,094
Favorable and assigned leases............................. 1,800 1,800
Goodwill.................................................. 5,999 6,689
Other intangible assets................................... 972 2,567
-------- --------
166,295 197,613
Less accumulated amortization............................. 46,212 55,837
-------- --------
Intangible assets, net...................................... 120,083 141,776
Notes receivable from shareholders.......................... 94 94
Bond issue costs............................................ 4,907 4,657
Other assets................................................ 6,196 1,100
-------- --------
Total assets................................................ $184,813 $207,750
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,050 $ 1,676
Accrued expenses.......................................... 476 489
Accrued compensation and related.......................... 1,381 1,613
Accrued interest.......................................... 3,804 3,968
Income taxes.............................................. 341 89
-------- --------
Total current liabilities................................... 7,052 7,835
Long-term debt.............................................. 154,500 178,610
Deferred income taxes....................................... 12,122 11,581
Other liabilities........................................... 457 623
Shareholders' equity:
Common stock, no par value; authorized 100,000 shares;
issued and outstanding 81,672 shares................... 5,832 5,832
Retained earnings......................................... 4,850 3,269
-------- --------
Total shareholders' equity.................................. 10,682 9,101
-------- --------
Total liabilities and shareholders' equity.................. $184,813 $207,750
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 42
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Gross broadcasting revenue..................... $65,141 $ 74,830 $ 85,411
Less agency commissions........................ 6,131 6,918 7,520
------- -------- --------
Net broadcasting revenue....................... 59,010 67,912 77,891
Operating expenses:
Station operating expenses................... 33,463 39,626 42,526
Corporate expenses (including $800 in
shareholder salaries in 1996 and 1997 and
$1,338 in shareholder salaries and bonuses
in 1998 )................................. 4,663 6,210 7,395
Tax reimbursements to S corporation
shareholders.............................. 2,038 1,780 --
Depreciation and amortization................ 8,394 12,803 14,058
------- -------- --------
Operating expenses........................... 48,558 60,419 63,979
------- -------- --------
Operating income............................... 10,452 7,493 13,912
Other income (expense):
Interest income.............................. 523 230 291
Gain (loss) on disposal of assets............ 16,064 4,285 236
Interest expense............................. (7,361) (12,706) (15,941)
Other expense................................ (270) (389) (422)
------- -------- --------
Income (loss) before income taxes and
extraordinary item........................... 19,408 (1,087) (1,924)
Provision (benefit) for income taxes........... 6,655 106 (343)
------- -------- --------
Income (loss) before extraordinary item........ 12,753 (1,193) (1,581)
Extraordinary loss on early extinguishment of
debt (net of income tax benefit of $659 in
1997)........................................ -- (1,185) --
------- -------- --------
Net income (loss).............................. $12,753 $ (2,378) $ (1,581)
======= ======== ========
Pro forma information (unaudited):
Income (loss) before income taxes and
extraordinary item as reported above......... $19,408 $ (1,087) $ (1,924)
Add back tax reimbursements to S Corporation
shareholders................................. 2,038 1,780 --
------- -------- --------
Pro forma income (loss) before income taxes and
extraordinary item........................... 21,446 693 (1,924)
Pro forma provision (benefit) for income
taxes........................................ 8,608 278 (343)
------- -------- --------
Pro forma income (loss) before extraordinary
item......................................... 12,838 415 (1,581)
Extraordinary loss............................. -- (1,185) --
------- -------- --------
Pro forma net income (loss).................... $12,838 $ (770) $ (1,581)
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 43
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- -------
<S> <C> <C> <C>
Shareholders' equity, January 1, 1996............ $5,832 $ 7,450 $13,282
Net income....................................... 12,753 12,753
Shareholder distributions........................ -- (5,501) (5,501)
------ ------- -------
Shareholders' equity, December 31, 1996.......... 5,832 14,702 20,534
Net loss......................................... -- (2,378) (2,378)
Shareholder distributions........................ -- (7,474) (7,474)
------ ------- -------
Shareholders' equity, December 31, 1997.......... 5,832 4,850 10,682
Net loss......................................... -- (1,581) (1,581)
------ ------- -------
Shareholders' equity, December 31, 1998.......... $5,832 $ 3,269 $ 9,101
====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 44
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 12,753 $ (2,378) $ (1,581)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 8,394 12,803 14,058
Amortization of bank loan fees.......................... 109 175 42
Amortization of bond issue costs........................ -- 126 531
Deferred income taxes................................... 6,133 (1,022) (730)
(Gain) loss on sale of assets........................... (16,064) (4,285) (236)
Loss on early extinguishment of debt.................... -- 1,844 --
Changes in operating assets and liabilities:
Accounts receivable................................... (1,370) (1,572) (2,048)
Prepaid expenses and other current assets............. (111) (473) (18)
Accounts payable and accrued expenses................. 258 1,844 1,035
Other liabilities..................................... 270 78 166
Income taxes.......................................... 123 174 (204)
-------- --------- --------
Net cash provided by operating activities................. 10,495 7,314 11,015
INVESTING ACTIVITIES
Capital expenditures.................................... (6,982) (7,521) (7,360)
Purchases of radio stations............................. (21,160) (19,436) (33,682)
Deposits on radio station acquisitions.................. (6,314) (4,907) 4,907
Proceeds from disposal of property, plant and equipment
and intangible assets................................. 15,867 5,120 4,226
Other assets............................................ (334) 418 147
-------- --------- --------
Net cash used in investing activities..................... (18,923) (26,326) (31,762)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and note
payable to shareholder................................ 23,800 222,710 40,500
Payments of long-term debt and note payable to
shareholder........................................... (15,430) (190,100) (19,000)
Payments of bank loan fees.............................. -- (1,025) --
Payments of costs related to debt refinancing........... -- (417) --
Payments of bond issue costs............................ -- (5,033) (281)
Repayments (additions) of shareholder notes and
repayment of accrued interest receivable--net......... 4,614 (66) (200)
Proceeds from shareholder notes payable................. 1,900 100 --
Distributions to shareholders........................... (5,501) (7,474) --
-------- --------- --------
Net cash provided by financing activities................. 9,383 18,695 21,019
-------- --------- --------
Net (decrease) increase in cash and cash equivalents...... 955 (317) 272
Cash and cash equivalents at beginning of year.......... 1,007 1,962 1,645
-------- --------- --------
Cash and cash equivalents at end of year.................. $ 1,962 $ 1,645 $ 1,917
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 6,158 $ 9,523 $ 14,965
Income taxes.......................................... 400 295 591
Noncash transactions:
Acquisition of radio station (KWRD-FM in 1996, KIEV-AM
in 1998)
Fair market value of assets acquired.................. $ 40,100 $ -- $ 33,210
Debt to seller........................................ (30,500) -- (2,810)
Fair market value of assets exchanged................. (8,000) -- --
-------- --------- --------
Cash paid (reflected in deposits on radio station
acquisitions)........................................... $ 1,600 $ -- $ 30,400
======== ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 45
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reorganization
The accompanying consolidated financial statements of Salem Communications
Corporation (Salem or the Company) include the Company and its wholly-owned
subsidiaries. Prior to the reorganization described below (the Reorganization)
the financial statements had been presented on a combined basis and included
Salem, New Inspiration Broadcasting Company, Inc. (New Inspiration), Golden Gate
Broadcasting Company, Inc. (Golden Gate) and Beltway Media Partners (Beltway),
and all of these entities were under common control. New Inspiration and Golden
Gate were S corporations for income tax purposes. Salem, New Inspiration and
Golden Gate were the partners of Beltway. The combined financial statements were
entitled Salem Broadcasting Entities. Pursuant to the Reorganization the
financial statements have been renamed and the disclosure of common stock
information has been retroactively restated for all periods presented as if the
Reorganization had been completed as of the beginning of the earliest period
presented. All significant intercompany balances and transactions have been
eliminated.
The Company is a holding company with substantially no assets, operations
or cash flows other than its investments in subsidiaries. All of the Company's
subsidiaries are Guarantors of the 9 1/2% Senior Subordinated Notes due 2007
(the Notes) discussed in Note 4. The Guarantors (i) are wholly owned
subsidiaries of the Company, (ii) comprise all the Company's direct and indirect
subsidiaries and (iii) have fully and unconditionally guaranteed on a joint and
several basis, the Notes. The Company has not presented separate financial
statements and other disclosures concerning the Guarantors because management
has determined that such information is not material to investors.
In August 1997, the Company, New Inspiration and Golden Gate effected the
Reorganization pursuant to which New Inspiration and Golden Gate became
wholly-owned subsidiaries of the Company, with Beltway remaining a partnership.
The Company accounted for the Reorganization as a combination of entities under
common control, which is a method similar to a pooling of interests. In October
1998, the Company, New Inspiration and Golden Gate contributed their partnership
interests in Beltway to Salem Media of Virginia, Inc. (SMV), thereby dissolving
Beltway. SMV is an indirectly wholly-owned subsidiary of the Company.
The S Corporation status of New Inspiration and Golden Gate was terminated
in the Reorganization. Prior to the Reorganization, New Inspiration and Golden
Gate distributed cash and promissory notes to their respective shareholders in
the aggregate amount of $8.5 million. Of such amount, $1.8 million, equal to the
estimated federal and state income tax liability of the S corporation
shareholders on the earnings of New Inspiration and Golden Gate, was paid by New
Inspiration and Golden Gate in cash. The balance, $6.7 million representing the
balance of the net income of New Inspiration and Golden Gate that had previously
been taxed, but not distributed to the shareholders, was paid in the form of
promissory notes. In September 1997, the Company financed the repayment of these
promissory notes by an additional borrowing.
F-7
<PAGE> 46
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Description of Business
Salem is a domestic U.S. radio broadcast company which focuses on talk and
music programming targeted at audiences interested in religious and family
issues. Salem operated 45 and 43 radio stations across the United States at
December 31, 1998 and 1997, respectively. The Company also owns and operates
Salem Radio Network (SRN), SRN News Network (SNN), Salem Music Network (SMN) and
Salem Radio Representatives (SRR). SRN, SNN and SMN are radio networks which
produce and distribute talk, news and music programming to Salem's radio
stations and other independent radio station affiliates. SRR sells commercial
air time to national advertisers for Salem's radio stations and networks, and
for independent radio station affiliates.
The significant accounting policies of Salem are summarized below and
conform with generally accepted accounting principles and reflect practices
appropriate to the radio broadcasting industry.
Segments
The Company operates in one reportable segment.
Revenue Recognition
Revenue from radio programs and commercial advertising is recognized when
broadcast. Salem's customers principally include not-for-profit charitable
organizations and commercial advertisers.
Advertising by the radio stations exchanged for goods and services is
recorded as the advertising is broadcast and is valued at the fair market value
of goods or services received or to be received. The value of the goods and
services received in such barter transactions is charged to expense when used.
Barter revenue for the years ended December 31, 1996, 1997 and 1998, was
approximately $1,498,000, $1,743,000 and $2,510,000, respectively. Barter
expenses were approximately the same.
Cash Equivalents
Salem considers all highly liquid debt instruments with a maturity of three
months or less when purchased to be cash equivalents. The recorded amount for
cash and cash equivalents approximates the fair market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings......................................... 40 years
Office furnishings and equipment.................. 5 - 10 years
Antennae, towers and transmitting equipment....... 20 years
Studio and production equipment................... 10 years
Record and tape libraries......................... 20 years
Automobiles....................................... 5 years
Leasehold improvements............................ 15 years
</TABLE>
F-8
<PAGE> 47
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying value of property, plant and equipment is evaluated
periodically in relation to the operating performance and anticipated future
cash flows of the underlying radio stations and businesses for indicators of
impairment. When indicators of impairment are present and the undiscounted cash
flows estimated to be generated from these assets are less than the carrying
value of these assets an adjustment to reduce the carrying value (if necessary)
to the fair market value of the assets is recorded. No adjustments to the
carrying amounts of property, plant and equipment have been made during the
years ended December 31, 1996, 1997 and 1998.
Intangible Assets
Intangible assets acquired in conjunction with the acquisition of various
radio stations are being amortized over the following estimated useful lives
using the straight-line method:
<TABLE>
<S> <C>
Broadcast licenses............................ 10 - 25 years
Noncompetition agreements..................... 3 - 5 years
Customer lists and contracts.................. 10 years
Favorable and assigned leases................. Life of the lease
Goodwill...................................... 15 - 40 years
Other......................................... 5 - 10 years
</TABLE>
The carrying value of intangibles is evaluated periodically in relation to
the operating performance and anticipated future cash flows of the underlying
radio stations and businesses for indicators of impairment. When indicators of
impairment are present and the undiscounted cash flows estimated to be generated
from these assets are less than the carrying amounts of these assets, an
adjustment to reduce the carrying value (if necessary) to the fair market value
of these assets is recorded. No adjustments to the carrying amounts of
intangible assets have been made during the year ended December 31, 1996, 1997
and 1998.
Bond Issue Costs
Bond issue costs are being amortized over the term of the Notes as an
adjustment to interest expense.
Tax Reimbursements to S Corporation Shareholders
"Tax reimbursements to S Corporation shareholders" represents additional
salary payments made in the amount necessary to satisfy individual federal and
state income tax liabilities of the S Corporation shareholders on the earnings
of New Inspiration and Golden Gate prior to the Reorganization.
Income Taxes
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." SFAS No. 109 prescribes the liability
method of
F-9
<PAGE> 48
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
providing for deferred income taxes. Deferred income taxes arise from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
Federal and state income taxes (except for 1.5% state franchise tax) have
not been provided through August 12, 1997 for New Inspiration and Golden Gate
because they were S Corporations and income tax attributes of S Corporations are
passed through to their shareholders.
Concentrations of Business and Credit Risks
The majority of the Company's operations are conducted in several locations
across the country. The Company's credit risk is spread across a large number of
customers, none of which accounted for a significant volume of revenue or
outstanding receivables. The Company does not normally require collateral on
credit sales; however, credit histories are reviewed before extending
substantial credit to any customer. The Company establishes an allowance for
doubtful accounts based on customers' payment history and perceived credit
risks. Bad debts have been within management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to the prior year financial statements
to conform to the current year presentation.
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS
Pro forma information to present operating results as if the acquisitions
discussed below had occurred at the beginning of the year acquired is not
presented because the Company, generally, changes the programming format of the
radio stations such that the source and nature of revenue and operating expenses
are significantly different than they were prior to the acquisition and,
accordingly, historical and pro forma financial information is not considered
meaningful by management. Pro forma and historical financial information of
radio stations acquired where the format was not changed is not significant to
the consolidated financial position or operating results of the Company.
F-10
<PAGE> 49
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 1998, the Company purchased the assets
(principally intangibles) of the following radio stations:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
August 21, 1998.......... KKMO-AM Tacoma, WA $ 500
August 26, 1998.......... KIEV-AM Los Angeles, CA 33,210
October 30, 1998......... KYCR-AM Golden Valley, MN 500
October 30, 1998......... KTEK-AM Alvin, TX 2,061
-------
$36,271
=======
</TABLE>
The purchase price has been allocated to the assets acquired as follows:
<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 4,507
Broadcast licenses............................... 29,627
Goodwill and other intangibles................... 2,137
-------
$36,271
=======
</TABLE>
In 1998, the Company sold the assets (principally intangibles) of radio
stations KTSL-FM (Spokane, WA) for $1.3 million and KAVC-FM (Lancaster, CA) for
$1.6 million.
During the year ended December 31, 1997, the Company purchased the assets
(principally intangibles) of the following radio stations:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
January 21, 1997.................... WHK-AM Cleveland, OH $ 6,220
February 20, 1997................... WHK-FM Canton, OH 5,903
February 20, 1997................... WHLO-AM Akron, OH 1,995
February 28, 1997................... WEZE-AM Boston, MA 7,030
April 2, 1997....................... KTKZ-AM Sacramento, CA 1,385
July 18, 1997....................... WITH-AM Baltimore, MD 1,114
July 18, 1997....................... WTSJ-AM Cincinnati, OH 1,114
October 24, 1997.................... WCCD-AM Parma, OH 700
-------
$25,461
=======
</TABLE>
F-11
<PAGE> 50
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The purchase price has been allocated to the assets acquired as follows:
<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 3,634
Broadcast licenses and other intangibles......... 21,827
-------
$25,461
=======
</TABLE>
In November 1997, the Company sold the assets (principally intangibles) of
radio station WPZE-AM (Boston, MA) for $5 million. Proceeds from the sale
(included in other assets as a deposit at December 31, 1997) were initially
being held by a qualified intermediary under a like-kind exchange agreement to
preserve the Company's ability to effect a tax-deferred exchange. The Company
did not effect a tax-deferred exchange and received the proceeds from the sale
in 1998.
During the year ended December 31, 1996, the Company purchased the assets
(principally intangibles) (and in the case of KBIQ-FM, all of the outstanding
shares of common stock) of the following radio stations:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
February 1, 1996... KTSL-FM Spokane, WA $ 900
February 1, 1996... KLTE-FM Kirksville, MO 550
February 1, 1996... KPRZ-FM Colorado Springs, CO 1,400
March 1, 1996...... KGFT-FM Colorado Springs, CO 3,000
March 15, 1996..... KNUS-AM Denver, CO 1,100
October 5, 1996.... KPXQ-AM Phoenix, AZ 6,500
October 25, 1996... KBIQ-FM Colorado Springs, CO 2,825
December 6, 1996... KKMS-AM Minneapolis, MN 1,894
December 30,
1996............. KWRD-FM Dallas, TX 40,100
April 3, 1996...... Standard News Network Washington, D.C --
August 1, 1996..... The Word in Music Colorado Springs, CO 120
August 23, 1996.... Morningstar Radio Network Nashville, TN 1,232
-------
$59,621
=======
</TABLE>
The purchase price has been allocated to the assets acquired as follows:
<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 3,767
Broadcast licenses............................... 53,116
Goodwill and other intangibles................... 2,738
-------
$59,621
=======
</TABLE>
F-12
<PAGE> 51
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1996, the Company sold the assets (principally intangibles) of radio
stations WTJY-FM (Johnstown, Ohio), for $1.5 million, KLTE-FM (Kirksville,
Missouri), for $550,000 and KDBX-FM (Banks, Oregon), for $14 million. In
addition, KDFX-AM (Dallas, Texas), was exchanged as part of the purchase price
of KWRD-FM. The Company received approximately $8 million of value of KDFX-AM
towards the total purchase price of KWRD-FM of $40.1 million, resulting in a
gain recognized of approximately $4.0 million.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................... $ 325 $ 1,440
Buildings.......................................... 1,477 1,417
Office furnishings and equipment................... 8,902 9,775
Antennae, towers and transmitting equipment........ 25,652 25,665
Studio and production equipment.................... 14,033 14,817
Record and tape libraries.......................... 442 511
Automobiles........................................ 68 69
Leasehold improvements............................. 3,684 3,797
Construction-in-progress........................... 4,054 8,767
------- -------
58,637 66,258
Less accumulated depreciation...................... 21,999 25,509
------- -------
$36,638 $40,749
======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit with banks................ $ 2,500 $ 24,000
9 1/2% Senior Subordinated Notes due 2007.......... 150,000 150,000
Obligation to acquire KIEV-AM property............. -- 2,810
Unsecured note payable to shareholder with interest
at 9% in 1997 and 8 1/4% in 1998................. 2,000 1,800
-------- --------
$154,500 $178,610
======== ========
</TABLE>
Since the note payable to banks and revolving line of credit carry floating
interest rates, the carrying amount approximates their fair market value. The
Notes were issued in September 1997 at par. At December 31, 1998, their fair
market value was approximately $156.8 million.
F-13
<PAGE> 52
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revolving Line of Credit with Banks
In September 1997, Salem entered into a new credit agreement with five
banks (the Credit Agreement) to provide for borrowing capacity of up to $75
million under a revolving line of credit (reduced to $72.3 million as of
December 31, 1998). The maximum amount that the Company may borrow under the
Credit Agreement is limited by the Company's debt to cash flow ratio, adjusted
for recent radio station acquisitions as defined in the Credit Agreement (the
Adjusted Debt to Cash Flow Ratio). At December 31, 1998, the maximum Adjusted
Debt to Cash Flow Ratio allowed under the Credit Agreement was 6.75 to 1.00. The
Company's ability to borrow for the purpose of acquiring a radio station is
further limited by the Credit Agreement in that the Company may not borrow for
an acquisition if the Adjusted Debt to Cash Flow Ratio is greater than 6.00 to
1.00. At December 31, 1998, the Adjusted Debt to Cash Flow Ratio was 5.99 to
1.00, resulting in total borrowing availability (i.e., in addition to amounts
already outstanding) of approximately $22.6 million, approximately $483,000 of
which can currently be used for radio station acquisitions. The note evidencing
the indebtedness bears interest at a fluctuating base rate plus a spread that
was determined by Salem's Adjusted Debt to Cash Flow Ratio. At Salem's option,
the base rate is either a bank's prime rate or LIBOR. For purposes of
determining the interest rate the prime rate spread ranges from 0% to 1.75%, and
the LIBOR spread ranges from 1% to 3%. At December 31, 1998, the interest rate
on amounts outstanding under the Credit Agreement was 8.25%. Interest is payable
quarterly. Commencing March 31, 1999, the commitment under the Credit Agreement
reduces by $2.5 million quarterly through December 31, 2003, and by $6.25
million quarterly through June 30, 2004. The Credit Agreement expires August 31,
2004. The classification of the amounts due under the revolving line of credit
in the accompanying balance sheet at December 31, 1998 is based on the terms of
the Credit Agreement.
In January 1999, the Credit Agreement was amended to increase the maximum
Adjusted Debt to Cash Flow Ratio to 7.00 to 1.00 through June 29, 1999. The
interest rate spreads were also amended. The prime rate spread ranges from 0% to
2.25%, and the LIBOR spread ranges from 1% to 3.5%.
The Credit Agreement with the banks (a) provides for restrictions on
additional borrowings and leases; (b) prohibits Salem, without prior approval
from the banks, from paying dividends, liquidating, merging, consolidating or
selling its assets or business, and (c) requires Salem to maintain certain
financial ratios and other covenants. Salem has pledged all of its assets as
collateral under the Credit Agreement. Additionally, all the Company's stock
holdings in its subsidiaries are pledged as collateral.
In September 1997, in connection with the issuance of the Notes and the
Credit Agreement the Company repaid all amounts due under its previous revolving
line of credit with the banks. The Company wrote off certain deferred financing
costs and terminated all of its interest rate swap and cap agreements associated
with the line of credit (see Note 5). The write-off and termination fees of
$1,185,000, net of a $659,000 income tax benefit, was recorded as an
extraordinary item in the accompanying statement of operations for the year
ended December 31, 1997.
F-14
<PAGE> 53
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 1/2% Senior Subordinated Notes due 2007
The Notes bear interest at 9 1/2% per annum, with interest payment dates on
April 1 and October 1, commencing April 1, 1998. Principal is due on the
maturity date, October 1, 2007. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after October 1, 2002, at the
redemption prices specified in the indenture. The Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by the Guarantors (the Company's subsidiaries). The Notes are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior indebtedness, including the Company's obligations
under the Credit Agreement. The indenture limits the incurrence of additional
indebtedness by the Company, the payment of dividends, the use of proceeds of
certain asset sales, and contains certain other restrictive covenants affecting
the Company. In March 1998, the Company consummated an exchange offer for the
original notes (Original Notes) which were issued in September 1997. The
exchange offer commenced when the Company's registration statement under the
Securities Act of 1933 was declared effective. The Notes are identical in all
material respects to the Original Notes except that the Notes do not contain
terms with respect to transfer restrictions. The Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by the Guarantors. The Notes are in general freely transferable without
further registration under the Securities Act of 1933.
Other Debt
In August 1998, in connection with the Company's acquisition of KIEV-AM,
the Company agreed to lease the real property on which the station's towers and
transmitter are located for $10,000 per month. The Company also agreed to
purchase the property for $3 million in February 2000. The Company recorded this
transaction in a manner similar to a capital lease. The amount recorded as a
long-term obligation at December 31, 1998, represents the present value of the
future commitments under the lease and purchase contract, discounted at 8.5%.
At December 31, 1998 and 1997, the Company owed $1.8 million and $2
million, respectively, to one of its shareholders. Interest is payable monthly.
The note is payable upon demand by the shareholder. The Company intends to
refinance the borrowing if demanded by the shareholder with the proceeds from a
borrowing under the Credit Agreement. Accordingly, the amount is reflected as
long-term debt in the accompanying balance sheet at December 31, 1998,
consistent with the terms of the Credit Agreement.
F-15
<PAGE> 54
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements
outstanding at December 31, 1998, for each of the next five years and thereafter
are as follows:
<TABLE>
<S> <C>
1999......................................... $ --
2000......................................... 2,810
2001......................................... --
2002......................................... --
2003......................................... 3,500
Thereafter................................... 172,300
--------
$178,610
========
</TABLE>
5. INTEREST RATE CAP AND SWAP AGREEMENTS
In 1996 and 1997 Salem had entered into interest rate swap and cap
agreements to reduce the impact of changes in interest rates on its
floating-rate long-term debt. In September 1997, in connection with the issuance
of the Notes and the Credit Agreement the Company terminated all of its interest
rate swap and cap agreements for aggregate fees of $417,000. The Company wrote
off these costs (unamortized swap fee of $201,000 and the swap termination fee
of $417,000) in September 1997. This write-off, net of income tax benefit, was
included in the extraordinary loss in the accompanying statement of operations
for the year ended December 31, 1997 (see Note 4).
6. INCOME TAXES
As discussed in Note 1, prior to the Reorganization, New Inspiration and
Golden Gate were S Corporations for income tax purposes. Accordingly, any
federal and state income tax liability on net income of the S Corporations has
been the liability of shareholders of the S Corporations. The S Corporation
status of New Inspiration and Golden Gate was terminated in the Reorganization,
which was effective August 13, 1997, and the income of New Inspiration and
Golden Gate will thereafter be subject to federal and state income taxes. The
accompanying consolidated statements of operations include an unaudited pro
forma income tax adjustment, using an estimated combined effective tax rate of
approximately 40%, to reflect the estimated income tax expense of the Company as
if New Inspiration and Golden Gate had been subject to federal and state income
taxes for the periods presented. In connection with the Reorganization, which
resulted in the termination of the S Corporation status of New Inspiration and
Golden Gate, the Company recorded a deferred tax liability and provision of
approximately $609,000 in December 1997.
F-16
<PAGE> 55
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The consolidated provision (benefit) for income taxes for Salem consisted
of the following at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 189 $ (149) $ --
State........................................ 333 618 387
------ ------- -----
522 469 387
Deferred:
Federal...................................... 5,737 (1,162) (467)
State........................................ 396 140 (263)
------ ------- -----
6,133 (1,022) (730)
Current tax benefit reflected in net
extraordinary loss........................... -- (659) --
------ ------- -----
Income tax provision (benefit)................. $6,655 $ 106 $(343)
====== ======= =====
</TABLE>
The consolidated deferred tax asset and liability consisted of the
following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Financial statement accruals not currently
deductible...................................... $ 610 $ 665
Net operating loss, AMT credit and other
carryforwards................................... 2,224 2,367
State taxes........................................ 197 122
------- -------
Total deferred tax assets............................ 3,031 3,154
Valuation allowance for deferred tax assets.......... (95) (95)
------- -------
Net deferred tax assets.............................. 2,936 3,059
Deferred tax liabilities:
Excess of net book value of property, plant and
equipment for financial reporting purposes over
tax basis....................................... 3,806 4,263
Excess of net book value of intangible assets for
financial reporting purposes over tax basis..... 8,118 7,305
Other.............................................. 880 629
------- -------
Total deferred tax liabilities....................... 12,804 12,197
------- -------
Net deferred tax liabilities......................... $ 9,868 $ 9,138
======= =======
</TABLE>
F-17
<PAGE> 56
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before income taxes, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 34% (34)% (34)%
State income taxes, net........................... 3 49 4
Nondeductible expenses............................ -- 5 7
Exclusion of income taxes of S corporations and
the Partnership................................. (7) (76) --
Change in taxable entity (S corporation to C
corporation).................................... -- 56 --
Other, net........................................ 4 10 5
-- --- ---
34% 10% (18)%
== === ===
</TABLE>
The S Corporations had book income (loss) before income taxes of $3,800,000
and $2,400,000 in 1996 and 1997, respectively. These amounts include the S
Corporations' 85% ownership interest in Beltway.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,800,000 which expire in years
2010 through 2018 and for state income tax purposes of approximately $4,600,000
which expire in years 1999 through 2013. The Company has federal alternative
minimum tax credit carryforwards of approximately $147,000. For financial
reporting purposes, a valuation allowance of $95,000 has been provided in 1998
and 1997 to offset a portion of the deferred tax assets related to the state net
operating loss carryforwards.
7. COMMITMENTS AND CONTINGENCIES
Salem leases various land, offices, studios and other equipment under
operating leases that expire over the next 10 years. The majority of these
leases are subject to escalation clauses and may be renewed for successive
periods ranging from one to five years on terms similar to current agreements
and except for specified increases in lease payments. Rental expense included in
operating expense under all lease agreements was $3,800,000, $4,800,000 and
$4,800,000 in 1996, 1997, and 1998 respectively.
F-18
<PAGE> 57
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
1999...................................... $1,102 $ 3,895 $ 4,997
2000...................................... 1,102 3,421 4,523
2001...................................... 1,102 2,696 3,798
2002...................................... 747 2,165 2,912
2003...................................... 690 1,961 2,651
Thereafter................................ 1,100 10,440 11,540
------ ------- -------
$5,843 $24,578 $30,421
====== ======= =======
</TABLE>
The Company is involved in certain legal actions and claims arising in the
normal course of business. It is the opinion of management that such litigation
and claims will be resolved without material effect on the Company's
consolidated financial position, operations and cash flows.
The Company has a deferred compensation agreement with one of its officers,
which provides for retirement payments to the officer for a period of ten
consecutive years, if he remains employed by the Company until age 60. The
retirement payments are based on a formula defined in the agreement. The
estimated obligation under the deferred compensation agreement is being provided
for over the service period. At December 31, 1997 and 1998, a liability of
approximately $370,000 and $432,000 respectively, is included in other
liabilities in the accompanying balance sheet for the amounts earned under this
agreement.
8. RELATED PARTY TRANSACTIONS
In December 1997, the Company borrowed $2 million from a shareholder
pursuant to a promissory note with a revolving principal amount of up to $2.5
million. The outstanding balance on the note as of December 31, 1998 and 1997
was $1.8 million and $2 million, respectively (see Note 4). The note is a demand
note which bears interest at a floating rate (8 1/4% at December 31, 1998).
During the term of the note, the interest rate will at all times be 1% lower
than the rate for base rate borrowings under the Company's Credit Agreement. The
Company will borrow under the Credit Agreement when the shareholder demands
repayment.
In January 1998, the Company borrowed $1.5 million from another shareholder
pursuant to another promissory note with a revolving principal amount of up to
$2.5 million. The Company repaid all amounts outstanding in May 1998. There were
no amounts outstanding at December 31, 1998 and 1997. The note is a demand note
which bears interest at a floating rate. During the term of the note, the
interest rate will at all times be 1% lower than the rate for base rate
borrowings under the Company's Credit Agreement. The Company will borrow under
the Credit Agreement when the shareholder demands repayment of any amounts
outstanding.
F-19
<PAGE> 58
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A shareholder's trust owns real estate on which certain assets of two radio
stations are located. Salem, in the ordinary course of its business, entered
into two separate lease agreements with this trust. Rental expense included in
operating expense for 1996, 1997 and 1998 amounted to $57,000, $57,000 and
$60,000, respectively.
Land and buildings occupied by various Salem radio stations are leased from
the shareholders of Salem. Rental expense under these leases included in
operating expense for 1996, 1997 and 1998 amounted to $800,000, $1,000,000 and
$1,000,000, respectively.
In October 1997, the Company assigned its contract with a tower
construction company to build a broadcast tower in Houston to the principal
shareholders subject to the principal shareholders obtaining financing. The
principal shareholders obtained such financing on December 31, 1997 and
reimbursed the Company for its costs and expenses under the contract, which
amounted to approximately $3.7 million.
At December 31, 1995, notes receivable from shareholders totaled
approximately $3,400,000. The notes bore interest at the Applicable Federal Rate
and were payable upon demand. In December 1996, New Inspiration and Golden Gate
distributed $5.5 million to the shareholders, of which $4.8 million was used by
the shareholders to repay the notes receivable and accrued interest.
In June 1997, the Company entered into a local marketing agreement (LMA)
with a corporation, Sonsinger, Inc. (Sonsinger), owned by two of Salem's
shareholders for radio station KKOL-AM. The shareholders and the Company are
parties to an Option to Purchase Agreement whereunder the Company has been
granted an option to purchase KKOL-AM from the shareholders at any time on or
before December 31, 1999 at a price equal to the lower of the cost of the
station to the shareholders, $1.4 million, and its fair market value as
determined by an independent appraisal. Under the LMA, Salem programs KKOL-AM
and sells all the airtime. Salem retains all of the revenue and incurs all of
the expenses related to the operation of KKOL-AM and incurred approximately
$64,000 and $164,000 in 1997 and 1998, respectively in LMA fees to Sonsinger.
From time to time, the Company rents an airplane and a helicopter from a
company which is owned by one of the principal shareholders. As approved by the
independent members of the Company's board of directors, the Company rents these
aircraft on an hourly basis at below-market rates and uses them for general
corporate needs. Total rental expense for these aircraft for 1996, 1997 and 1998
amounted to approximately $38,000, $60,000 and $69,000, respectively.
9. DEFINED CONTRIBUTION PLAN
In 1993, the Company established a 401(k) defined contribution plan (the
Plan), which covers all eligible employees (as defined in the Plan).
Participants are allowed to make nonforfeitable contributions up to 15% of their
annual salary, but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The Company currently matches 10%
of the amounts contributed by each participant but does not match participants'
contributions in excess of 10% of their compensation per pay period. Effective
January 1, 1999 the Company matches 25% of the amounts contributed by each
participant but does not match participants' contributions in excess of 6% of
their
F-20
<PAGE> 59
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
compensation per pay period. The Company contributed and expensed $48,000,
$80,000 and $87,000 to the Plan in 1996, 1997 and 1998 respectively.
10. SUBSEQUENT EVENTS
In January 1999, the Company purchased the assets of OnePlace, LLC
(OnePlace), for $6.2 million, and all the outstanding shares of stock of CCM
Communications, Inc. (CCM), for $1.9 million. OnePlace is engaged in the
business of applying Internet e-commerce, consumer profiling and other
information technologies in the Christian products industry. CCM publishes
magazines which follow the contemporary Christian music industry. The purchases
were financed primarily by an additional borrowing. The Company amended its
Credit Agreement with the banks to allow for such a borrowing (see Note 4).
In January 1999, the Company also agreed to purchase the assets of NavPress
Software, Inc. (NavPress), for $550,000. NavPress develops and supplies
electronic Bible and Christian reference books and Bible study software
applications.
F-21
<PAGE> 60
SALEM COMMUNICATIONS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Deductions
------------------------ -------------------------
Balance at Charged to Charged to Balance at
Beginning of cost and other Bad debt End of
Description Period expenses accounts write-offs Period
- ------------------------------ ------------ ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996 ... $ 704 $ 1,067 $- $ (766) $ 1,005
Allowance for doubtful accounts
Year Ended December 31, 1997 ... 1,005 1,283 - (1,039) 1,249
Allowance for doubtful accounts
Year Ended December 31, 1998 ... 1,249 2,087 - (2,474) 862
Allowance for doubtful accounts
</TABLE>
S-1
<PAGE> 61
SALEM COMMUNICATIONS CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<S> <C> <C>
4.08 Amendment No. 2 and Consent No. 2, dated as of January
22, 1999, to the Credit Agreement, dated as of
September 25, 1997, by and among Salem, The Bank of New
York, as Administrative Agent for the Lenders, Bank of
America NT&SA, as documentation agent, and the Lenders.
10.05.22 Antenna/tower lease between South Texas Broadcasting,
Inc. (KKHT-FM/Houston-Galveston, Texas) and Sonsinger
Broadcasting Company of Houston, LP expiring 2008.
10.05.23 Antenna/tower lease between Inspiration Media of Texas,
Inc. (KTEK-AM/Alvin, Texas) and The Atsinger Family Trust
and The Stuart W. Epperson Revocable Living Trust expiring
2009.
12.01 Statement regarding computation of ratio of earnings
to fixed charges.
21.01 Subsidiaries of Salem.
27.01 Financial Data Schedule
</TABLE>
E-1
<PAGE> 1
EXHIBIT 4.08
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
AMENDMENT NO. 2 AND CONSENT NO. 2 (this "Amendment"), dated as of
January 22, 1999, to the Credit Agreement, dated as of September 25, 1997, by
and among SALEM COMMUNICATIONS CORPORATION, a California corporation (the
"Borrower"), THE BANK OF NEW YORK, as administrative agent for the Lenders
thereunder (in such capacity, the "Administrative Agent"), BANK OF AMERICA
NT&SA, as documentation agent, and the Lenders party thereto, as amended by
Amendment No. 1 and Consent No. 1, dated as of August 5, 1998 (the "Credit
Agreement").
RECITALS
I. Except as otherwise provided herein, capitalized terms used herein
which are not defined herein shall have the meanings set forth in the Credit
Agreement.
II. The Borrower has requested the consent of the Administrative Agent
for the acquisition by (i) OnePlace, Ltd. (a wholly-owned Subsidiary) of
substantially all of the assets of OnePlace, LLC for $6,000,000 plus 50% of the
investment banking fee up to a maximum of $150,000 (the "OnePlace Acquisition"),
(ii) the Borrower of 100% of the outstanding stock of CCM Communications, Inc.
for $2,000,000 (the "CCM Acquisition") and (iii) a newly created wholly-owned
Subsidiary ("Newco NavPress") of substantially all of the assets of NavPress
Software Inc. for approximately $550,000 (the "NavPress Acquisition").
III. The Borrower has requested that, in connection with such
Acquisitions, the leverage covenant be amended.
In consideration of the covenants, conditions and agreements hereinafter
set forth, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and pursuant to Section 11.1 of the
Credit Agreement, the Borrower and the Administrative Agent agree as follows:
1. Notwithstanding anything to the contrary contained in the first
paragraph of Section 8.3 of the Credit Agreement, the Administrative Agent
consents to the following:
(a) the OnePlace Acquisition, provided that (i) the consideration
therefor given by the Borrower and the Subsidiaries in the aggregate shall in no
event exceed $6,000,000 plus 50% of the investment banking fee up to a maximum
of $150,000, and (ii) in all other respects, the OnePlace Acquisition is
consummated in accordance with the terms of the Loan Documents including,
without limitation, the last paragraph of Section 8.3, and OnePlace, Ltd. shall
become a party to the Subsidiary Guaranty and execute and deliver all documents
(including, without limitation, UCC
<PAGE> 2
financing statements) that the Administrative Agent shall reasonably require in
connection therewith;
(b) the CCM Acquisition, provided that (i) the consideration
therefor given by the Borrower and the Subsidiaries in the aggregate shall in no
event exceed $2,000,000, and (ii) in all other respects, the CCM Acquisition is
consummated in accordance with the terms of the Loan Documents including,
without limitation, the last paragraph of Section 8.3; and
(c) the NavPress Acquisition provided that (i) the consideration
therefor given by the Borrower and the Subsidiaries in the aggregate shall in no
event exceed approximately $550,000, and (ii) in all other respects, the
NavPress Acquisition is consummated in accordance with the terms of the Loan
Documents including, without limitation, the last paragraph of Section 8.3, and
Newco NavPress shall become a party to the Subsidiary Guaranty and execute and
deliver all documents (including, without limitation, UCC financing statements)
that the Administrative Agent shall reasonably require in connection therewith.
2. Section 1.1 of the Credit Agreement is amended by amending and
restating in its entirety the definition of "Amendment Effective Date" to read
as follows:
"Amendment No. 1 Effective Date": the "Amendment Effective Date" as
defined in Amendment No. 1 and Consent No. 1, dated as of August 5,
1998.
3. Section 1.1 of the Credit Agreement is amended by amending and
restating in its entirety paragraph (a) of the definition of "Applicable Margin"
to read as follows:
(a) subject to paragraph (b) of this definition, at all times during the
applicable periods set forth below, (i) with respect to the unpaid
principal amount of the ABR Loans, the percentage set forth below under
the heading "Alternate Base Rate Margin" next to the applicable period
and (ii) with respect to the unpaid principal amount of the Eurodollar
Loans, the percentage set forth below under the heading "Eurodollar Rate
Margin" next to the applicable period:
<TABLE>
<CAPTION>
Alternate Base Eurodollar
Period Rate Margin Rate Margin
------ -------------- -----------
<S> <C> <C>
when the Total Leverage Ratio is
equal to or greater than 6.50:1.00 2.250% 3.500%
when the Total Leverage Ratio is
equal to or greater than 6.00:1.00
but less than 6.50:1.00 1.750% 3.000%
when the Total Leverage Ratio is
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C> <C>
equal to or greater than 5.50:1.00
but less than 6.00:1.00 1.250% 2.500%
when the Total Leverage Ratio is
equal to or greater than 5.00:1.00
but less than 5.50:1.00 1.000% 2.250%
when the Total Leverage Ratio is
equal to or greater than 4.50:1.00
but less than 5.00:1.00 0.500% 1.750%
when the Total Leverage Ratio is
equal to or greater than 4.00:1.00
but less than 4.50:1.00 0.250% 1.500%
when the Total Leverage Ratio is
equal to or greater than 3.50:1.00
but less than 4.00:1.00 0.000% 1.250%
when the Total Leverage Ratio is less
than 3.50:1.00 0.000% 1.000%
</TABLE>
4. Section 1.1 of the Credit Agreement is amended by adding the
following new definitions of "Amendment No. 2 Effective Date" and "Newco
NavPress"):
"Amendment No. 2 Effective Date": the "Amendment Effective Date" as
defined in Amendment No. 2 and Consent No. 2, dated as of January 22,
1999.
"Newco NavPress": the wholly-owned Subsidiary created to acquire
substantially all of the assets of NavPress Software Inc.
5. Section 6.1 of the Credit Agreement is amended and restated in its
entirety to read as follows:
6.1 Total Leverage Ratio.
Maintain at all times a Total Leverage Ratio not greater than the
applicable ratio set forth below opposite the applicable period set
forth below:
<TABLE>
<CAPTION>
Periods Ratio
------- -----
<S> <C>
Effective Date through June 29, 1998 7.00:1.00
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
June 30, 1998 to but excluding
Amendment No. 1 Effective Date 6.25:1.00
Amendment No. 1 Effective Date to but
excluding Amendment No. 2 Effective Date 6.75:1.00
Amendment No. 2 Effective Date
through June 29, 1999 7.00:1.00
June 30, 1999 through September 29, 1999 6.75:1.00
September 30, 1999 through
December 30, 1999 6.00:1.00
</TABLE>
6. Section 6.3 of the Credit Agreement is amended to change each
reference to "Amendment Effective Date" contained therein to "Amendment No. 1
Effective Date".
7. Section 8.1 of the Credit Agreement is amended to amend and restate
clause (iv) thereof in its entirety to read as follows:
(iv) intercompany Indebtedness between the Borrower and its
Subsidiaries, provided that intercompany Indebtedness of the following
Subsidiaries: OnePlace, Ltd., CCM Communications, Inc. and Newco
NavPress to the Borrower (excluding intercompany Indebtedness incurred
by OnePlace, Ltd. to finance the purchase price of substantially all of
the assets of OnePlace, LLC and intercompany Indebtedness incurred by
Newco NavPress to finance the purchase price of substantially all of the
assets of NavPress Software Inc.) shall not at any time exceed
$1,000,000 in the aggregate for all such Subsidiaries; and
8. Sections 1 - 7 of this Amendment shall not become effective until the
date (the "Amendment Effective Date") that the Administrative Agent shall have
received (i) this Amendment executed by the Required Lenders, the Borrower and
the Subsidiary Guarantors and (ii) a certificate of the Secretary or Assistant
Secretary of each of the Borrower and the Subsidiary Guarantors attaching a true
and complete copy of the resolutions of its Board of Directors or other action
(in form and substance reasonably satisfactory to the Administrative Agent)
authorizing this Amendment and setting forth the incumbency of its officer(s)
authorized to execute and deliver this Amendment (including signature
specimens).
9. In all other respects the Credit Agreement and other Loan Documents
shall remain in full force and effect.
-4-
<PAGE> 5
10. In order to induce the Administrative Agent to execute this
Amendment and the Lenders to consent hereto, the Borrower and the Subsidiary
Guarantors each (a) certifies that, immediately before and after giving effect
to this Amendment, all representations and warranties contained in the Loan
Documents to which it is a party shall be true and correct in all respects, (b)
certifies that, immediately before and after giving effect to this Amendment, no
Default or Event of Default shall exist under the Loan Documents, and (c) agrees
to pay the reasonable fees and disbursements of counsel to the Administrative
Agent incurred in connection with the preparation, negotiation and closing of
this Amendment.
11. Each of the Borrower and the Subsidiary Guarantors (a) reaffirms and
admits the validity, enforceability and continuation of all Loan Documents to
which it is a party, and its obligations thereunder, and (b) agrees and admits
that as of the date hereof it has no valid defenses to or offsets against any of
its obligations to the Administrative Agent, the Documentation Agent, the Issuer
or any of the Lenders under the Loan Documents to which it is a party.
12. This Amendment may be executed in any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same document. It shall not be necessary in making proof
of this Amendment to produce or account for more than one counterpart signed by
the party to be changed.
13. This Amendment shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York, without regard to
principles of conflict of laws.
-5-
<PAGE> 6
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
The parties have caused this Amendment to be duly executed as of the
date first written above.
SALEM COMMUNICATIONS CORPORATION
By: /s/ DIRK GASTALDO
-----------------------------
Name: Dirk Gastaldo
Title: VP/CFO
THE BANK OF NEW YORK
As Administrative Agent
By:
Name:
Title:
-6-
<PAGE> 7
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
The parties have caused this Amendment to be duly executed as of the
date first written above.
SALEM COMMUNICATIONS CORPORATION
By:
Name:
Title:
THE BANK OF NEW YORK
As Administrative Agent
By: /s/ STEPHEN M. NETTLER
-------------------------------
Name: Stephen M. Nettler
Title: Assistant Vice President
-7-
<PAGE> 8
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
ATEP RADIO, INC.
BISON MEDIA, INC.
CARON BROADCASTING, INC.
COMMON GROUND BROADCASTING, INC.
GOLDEN GATE BROADCASTING COMPANY, INC.
INLAND RADIO, INC.
INSPIRATION MEDIA OF TEXAS, INC.
INSPIRATION MEDIA, INC.
NEW ENGLAND CONTINENTAL MEDIA, INC.
NEW INSPIRATION BROADCASTING
COMPANY, INC.
PENNSYLVANIA MEDIA ASSOCIATES, INC.
RADIO 1210, INC.
SALEM COMMUNICATIONS CORPORATION,
A DELAWARE CORPORATION
SALEM MEDIA CORPORATION
SALEM MEDIA OF CALIFORNIA, INC.
SALEM MEDIA OF COLORADO, INC.
SALEM MEDIA OF OHIO, INC.
SALEM MEDIA OF OREGON, INC.
SALEM MEDIA OF PENNSYLVANIA, INC.
SALEM MEDIA OF VIRGINIA, INC.
SALEM MEDIA OF TEXAS, INC.
SALEM MUSIC NETWORK, INC.
SALEM RADIO NETWORK INCORPORATED
SALEM RADIO REPRESENTATIVES, INC.
SOUTH TEXAS BROADCASTING, INC.
SRN NEWS NETWORK, INC.
VISTA BROADCASTING, INC.
By: /s/ ERIC H. HALVORSON
------------------------------------
Name: Eric H. Halvorson
Title: Vice President
-8-
<PAGE> 9
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
THE BANK OF NEW YORK
By: /s/ STEPHEN M. NETTLER
--------------------------------
Name: Stephen M. Nettler
Title: Assistant Vice President
-9-
<PAGE> 10
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
BANK OF AMERICA NT & SA
By: /s/ JOHN J. SULLIVAN
--------------------------------
Name: John J. Sullivan
Title: Vice President
-10-
<PAGE> 11
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
BANKBOSTON, N.A.
By: /s/ JENNIFER BURAS
--------------------------------
Name: Jennifer Buras
Title: Director
-11-
<PAGE> 12
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
FLEET BANK, NA.
By: /s/ WILLIAM WEISS
--------------------------------
Name: William Weiss
Title: Assistant Vice President
-12-
<PAGE> 13
SALEM COMMUNICATIONS CORPORATION
AMENDMENT NO. 2 AND CONSENT NO. 2
UNION BANK OF CALIFORNIA, N.A
By: /s/ LENA M. BRYANT
--------------------------------
Name: Lena M. Bryant
Title: Assistant Vice President
-13-
<PAGE> 1
EXHIBIT 10.05.22
TOWER LEASE AGREEMENT - SPLENDORA, TEXAS
This agreement is entered into on this 1st day of June, 1998, between SOUTH
TEXAS BROADCASTING, INC. (KKHT-FM) ("LESSEE"), and Sonsinger Broadcasting
Company of Houston, LP. ( "Lessor").
ARTICLE I
DEFINITIONS
The terms listed below when spelled with initial capital letters have the
following meanings in this agreement:
1.1 ADJUSTMENT DATE shall mean the first day of February following the
first anniversary of the Commencement Date and each subsequent first day of
February this Agreement remains in effect.
1.2 AGREEMENT means this Tower Lease Agreement, including the schedules
and any other executed attachments and/or addenda all of which are made part of
this Agreement.
1.3 ANTENNA means the device identified as "Antenna" on Schedule 5.1
consisting of a Commercial FM Broadcast Main and Auxiliary Antenna, also a STL
antenna as identified in Schedule 5.1 The Antennas must be designed so as to
reduce, to the fullest extent possible, any wind loading on the Tower, as
hereinafter defined.
1.4 ANTENNA LOCATION means the location or locations for the placement
of the Antenna as set forth in Section 5.1 hereof.
1.5 ARTICLE or ARTICLES means one or more of the articles of this
Agreement.
1.6 CABLE ROUTE means the locations designed from time to time by
Lessor for placement of Lessee's cabling on Lessor's Property, as hereinafter
defined.
1.7 CABLING means the coaxial, waveguide, wire or other cabling or
transmission lines of Lessee not to exceed one such line for each antenna on the
Tower.
1.8 COMMENCEMENT DATE means 12:01 AM on the date specified in this
Agreement as the Commencement Date of the Initial Term, as hereinafter defined.
1.9 EQUIPMENT means any device, equipment, structure, buildings,
material and apparatus used or useful in the operation of a Commercial FM
Broadcast Radio Transmitting Station and associated equipment approved by Lessor
for use on Lessor's Property. Notwithstanding anything in this Agreement to the
contrary, the Equipment shall be paid for, furnished and installed by Lessee.
1.10 EQUIPMENT SPACE means the area provided for the Transmitters and
associated broadcast transmission equipment as designated in Schedule 5.2 by
Lessor for the limited purpose of constructing, installation, maintenance,
operation, repair or removal of the equipment. Notwithstanding anything in this
Agreement to the contrary, any item to be constructed or installed at the
Equipment Space pursuant to this Agreement shall be paid for, constructed and
maintained by Lessee.
1.11 EXPIRATION DATE means 11:59 PM on the date specified in this
Agreement as the date on which the Initial Term or any extended term of this
Agreement expires.
1.12 FACILITIES and FACILITY refer collectively or individually to any
and all Equipment, Cabling, Antenna and/or buildings or other structures
required to be constructed pursuant to Section 5.2 hereof, as the context may
indicate.
1.13 INITIAL TERM means the period from the Commencement Date to the
date set forth in Section 3.3.
1.14 LEASED SPACE refers collectively or individually to any or every
Equipment Space, Cable Route, and/or Antenna Location, as the context may
indicate.
1.15 LESSEE'S EMPLOYEES means any employee, officer, or partner of
Lessee; any agent, contractor, or subcontractor of Lessee, and any employee,
officer, or partner of such agent, contractor, or subcontractor; and any person
placed on the Authorized Entry List, as set forth in Section 8.2, at the request
of Lessee.
1.16 LESSOR'S PROPERTY means the land, buildings, towers, fixtures, and
other improvements comprising the Lessor's premises in which the Leased Space is
located.
1.17 MONTHLY RENT shall have the meaning as defined in Section 4.2(c)
hereof.
1.18 RENT means the consideration paid by Lessor to Lessee pursuant to
this Agreement.
<PAGE> 2
1.19 SCHEDULE or SCHEDULES means one or more schedules attached to this
Agreement.
1.20 INTENTIONALLY REMOVED
1.21 SECTION or SECTIONS means one or more of the sections of this
Agreement.
1.22 TOWER means the antenna tower located upon Lessor's Property in
Splendora, Texas.
ARTICLE II
SCOPE OF THE AGREEMENT
2.1 LEASE. This Agreement sets forth the terms and conditions under
which Lessor agrees to lease space to Lessee. Lessee agrees to use the Leased
Space and related rights only in accordance with the terms and conditions of
this Agreement; to comply with all applicable governmental regulations and
requirements of law pertaining to Lessee's activities in or around Lessor's
Property; to pay all fees, charges, costs and expenses in accordance with this
Agreement promptly when due; to keep the Facilities properly maintained; and to
comply in all respects with each of the obligations, duties, rules, conditions,
and requirements applicable to Lessee under this Agreement.
2.2 NO OTHER USE. Lessee will use the Leased Space solely for operating
the Antenna and Equipment for it's Commercial Broadcast Tramsmitter site, only
for the purpose and benefit of South Texas Broadcasting Inc. Lessee will not
make any other use of the Leased Space and related rights provided under this
Agreement. Lessee shall not use Lessor's Property or any portion thereof,
including the Equipment Space, for purpose of maintaining the studios , offices
, off premises storage of Lessee.
2.3 NO OTHER RIGHTS. Only the Leased Space and related rights described
in this Agreement are provided under this Agreement. Lessor does not provide any
service or product under this Agreement.
ARTICLE III
TERM OF THE AGREEMENT; TERMINATION; RENEWALS
3.1 COMMENCEMENT DATE. The Commencement Date shall be the date when
Lessee begins construction or when Lessee commences with any part of the
installation on Lessor's property.
3.2 COMMENCEMENT CERTIFICATION. When the Commencement Date has been
determined, such date shall be evidenced by a Certificate, in form and substance
similar to Exhibit A, executed and acknowledged by Lessor and Lessee and
delivered by each to the other.
3.3 EXPIRATION DATE. The Expiration Date of this Agreement shall be the
day preceding the Tenth (10th) year anniversary of the Commencement Date, except
that if such date is not the last day of a calendar month, the Expiration Date
of this Agreement shall be the last day of the month in which the Tenth (10th)
anniversary of the Commencement Date falls. If the term has been extended as
provided in Section 3.4, the Expiration Date shall be the last day of the term
as so extended.
3.4 LEASE OPTION. Lessee shall have the option, if Lessee is not at the
time in default under this Agreement, to extend the term of this Agreement for
one (1) period of five (5) years each (the "Extension Term"), on the same terms,
covenants and conditions herein contained. The word "Term" as used in this
Agreement shall be deemed to include the Extension Term when and if the
Agreement is extended. The option to extend the Term shall automatically be
deemed to have been exercised unless Lessee shall deliver to Lessor written
notice of Lessee's election not to extend as provided herein on or before one
hundred eighty (180) days prior to the Expiration Date.
3.5 TERMINATION BY LAW. Lessor shall have the right to terminate this
Agreement, upon notice to Lessee, and shut down and/or remove Lessee's Antenna,
Cabling and Equipment if:
(a) This Agreement is required to be terminated by ruling or
regulation of the Federal Communications Commission ("FCC") or the Federal
Aviation Administration ("FAA") or by reason of any violation of the
Communications Act of 1934, as amended, arising out of Lessee's use of the
Leased Premises; or
(b) A final determination, not subject to appeal, of any
local, state or federal governmental body that Lessee's Facilities or the
placement and/or operation of Lessee's Facilities is in violation of any laws,
rules or regulations of any local state or federal agencies including, without
limitation, any land use provisions and/or any zoning and/or planning code.; or
(c) A final determination, not subject to appeal, that
Lessee's Facilities fail to meet in any material respect the requirements
imposed by law or the rules and regulations of local, state and federal agencies
and Lessee shall have failed to cure said matters within ten (10) days of such
final determination and written notice thereof.
2
<PAGE> 3
ARTICLE IV
FEES AND CHARGES; BILLING
4.1 PAYMENT OF RENT. Lessee agrees to pay rent to Lessor, without
notice or demand, from the Commencement Date through the Expiration Date, or
such earlier date as this Agreement is terminated as provided herein, at:
Sonsinger Broadcasting of Houston LP
4880 Santa Rosa Road, Suite 300
Camarillo, California 93012
Attention: Accounting
805-987-0400
or to such other person or place as Lessor may designate from time to
time by notice to Lessee.
4.2 RENT.
(a) Beginning with the Commencement Date, and continuing to
the first Adjustment Date, the base rent shall be the sum of $ 150,000.00 per
annum, payable in equal monthly installments of $12,500.00 in advance of the
first day of each month (and thereafter on each and every Adjustment Date the
monthly rent shall be computed according to Section 4.2(b)); provided, however,
that the installment of the base rent payable for the first full month of the
term shall be due and payable on the full execution and delivery of this
Agreement. If the Commencement Date and/or Expiration Date occur on a day other
than the first day of a calendar month, rent shall be prorated for the month in
which the Commencement Date and/or Expiration Date occurs.
(b) During the one (1) year period beginning with each
Adjustment Date, the monthly rent payable by Lessee shall reflect an adjustment,
as herein provided, for the change, if any, from the year in which the
Commencement Date falls, in the Consumer Price Index for All Urban Consumers
[Base Year 1982-84=100] ("CPI") as measured in February and published by the
United States Department of Labor, Bureau of Labor Statistics; i.e., during the
one (1) year period beginning with the Adjustment Date, the monthly rent shall
be the product obtained by multiplying the Base Rent times a fraction, the
numerator of which shall be the CPI for February of the year such Adjustment
Date falls and the denominator of which shall be the CPI for February of the
year in which the Commencement Date falls. Notwithstanding the results of the
foregoing calculation, the annual base rent payable by Lessee hereunder shall
not in any event be less than 105% of the annual base rent payable during the
immediately preceding one (1) year period. In the event that the Bureau of Labor
Statistics shall change the base period for the CPI, the new index number shall
be substituted for the old index number in making the above computation. In the
event the Bureau of Labor Statistics ceases publishing the CPI, or materially
changes the method of its computation, Lessor and Lessee shall accept comparable
statistics on the purchasing power of the consumer dollar as published at the
time of said discontinuation or change by a responsible financial periodical of
recognized authority to be chosen by Lessor subject to reasonable consent of
Lessee.
(c) As used herein, "Monthly Rent" shall refer to the rent to
be paid by Lessee pursuant to this Section 4.2.
4.3 ADDITIONAL RENT. Lessee shall pay or reimburse Lessor within ten
(10) days after receipt of a statement from Lessor for all taxes, including
without limitation, real estate taxes, personal property taxes, ad valorem taxes
and special assessments, levied against Lessor which are attributable to Lessee,
or its assigns, as a result of the Facilities, buildings or structures placed or
operated on Lessor's Property by Lessee or services offered by Lessee on
Lessor's Property (but excluding any taxes attributable to Lessor's Property),
which statement shall include, at the request of Lessee, such documentation as
is reasonably necessary to substantiate said amounts. In addition, Lessee shall
pay or reimburse Lessor within ten (10) days after receipt of a statement for
any state or local tax of any kind (except income taxes) arising from or
attributable to this Agreement.
4.4 NO NOTICE. From and after the Commencement Date, Lessee will pay to
Lessor the Monthly Rent. Said installments are due and payable in advance,
without notice or demand. Although Lessor may, for its own convenience, issue
bills to Lessee, any failure of Lessor to issue a timely bill will not relieve
Lessee of its obligation to pay Monthly Rent without notice or demand.
4.5 NO SET-OFF. Except as otherwise provided in this Agreement, Lessee
will pay all Rent, fees, costs, and expenses without deduction or set-off of any
kind.
4.6 INTENTIONALLY REMOVED
3
<PAGE> 4
ARTICLE V
GRANT OF LEASED SPACE AND EQUIPMENT SPACE
5.1 ANTENNA LOCATION. Lessor, in consideration of the rents to be paid
and the covenants contained herein, hereby leases to Lessee the Antenna Location
as generally depicted on Schedule 5.1 for the limited purpose of installing,
maintaining, operating, or repairing the Antenna in accordance with this
Agreement, and to pass through portions of the Lessor's Property designated by
Lessor for ingress to and egress from the Antenna Location. All site work for
the use of the Antenna Location shall be performed by Lessee and at the expense
of Lessee.
5.2 EQUIPMENT SPACE. Lessor, in further consideration of the rents to
be paid and covenants contained herein, hereby grants to Lessee the Equipment
Space as reasonably determined by Lessor, for the limited purpose of installing,
maintaining, operating, repairing, or removing the Equipment in accordance with
this Agreement; and to pass through portions of the Lessor's Property designated
by Lessor for ingress to and egress from the Equipment Space. All site work for
the use of the Equipment Space shall be performed by Lessee and at the expense
of Lessee. In the event Lessor determines, in its sole and absolute discretion
and which determination shall be specified in advance of the Commencement Date,
that Lessee's Equipment shall not reside in the buildings and other structures
on Lessor's property currently designed to house such equipment, Lessee, at
Lessee's sole cost and expense, shall be required to construct such buildings or
structures on that portion of Lessor's property designated by Lessor, at its
sole and absolute discretion and as generally depicted on Schedule 5.2, and
Lessee shall house its Equipment in such buildings or structures.
Notwithstanding anything in this Agreement to the contrary, in the event Lessee
is required by Lessor to construct a permanent building or other permanent
structure on Lessor's Property, at the expiration of the term of this Agreement,
the permanent building and other permanent structures shall, at the sole
election of Lessor, become the property of Lessor.
5.3 CABLE ROUTE. Lessor, in further consideration of the rents to be
paid and the covenants herein contained, hereby leases to Lessee the Cable Route
as reasonably determined by Lessor, for the limited purpose of installing,
maintaining or repairing the Cabling in accordance with this Agreement; and to
pass through portions of the Lessor's Property designated by Lessor for ingress
to and egress from the Cable Route. All site work for the use of the Cable Route
shall be performed by Lessee and at the expense of Lessee.
ARTICLE VI
INSTALLATIONS OF FACILITIES
6.1 SPECIFICATIONS. Lessor shall prepare specifications for Lessee's
delivery of the Facilities to Lessor's property and Lessee's installation of the
Facilities in the Leased Space. All such specifications shall be based upon
information contained in the Schedules hereto and engineering data furnished by
Lessee and may include the requirement of Lessee to provide, at Lessee's
expense, the purchase and installation of such equipment for protecting Lessor's
or its tenants' property.
6.2 PRIOR APPROVAL. Prior to the initiation by Lessee of the delivery,
installation, replacement, modification or removal of Facilities, Lessee must
obtain the prior written approval of Lessor to Lessee's proposed scheduling of
work and Lessee's choice of vendors and contractors. Lessor, at its sole
discretion and election, may condition said approval on obtaining additional
information and/or requiring schedule changes and substitution of vendors and
contractors. Lessor's approval of any act or action of Lessee or Lessee's
Employees pursuant to this Agreement shall not be considered an endorsement,
representation, or warranty regarding the viability of said scheduling, and/or
the ability of said vendor or contractor to perform the work intended by Lessee.
Lessee shall deliver, construct and install the Facilities in strict conformity
with the specifications, schedules, and choice of vendors and contractors
approved by Lessor.
6.3 DELIVERY & INSTALLATION OF FACILITIES. Lessee shall furnish,
construct and install all Facilities. Physical delivery of the Facilities to
Lessor's property and all installation work performed by Lessee shall be
performed in accordance with the specifications and approvals furnished pursuant
to this Article.
6.4 LESSEE'S RESPONSIBILITIES. Notwithstanding anything in this
Agreement to the contrary, Lessee has the sole responsibility for any product
liability claims, product warranty claims, delays and service outages of Lessee
that may result from defective Facilities, improper scheduling, improper
installation, or any other matter, irrespective of the cause.
4
<PAGE> 5
ARTICLE VII
USE OF LEASED SPACE
7.1 FACILITIES. Lessee may bring the Facilities into the Leased Space
at Lessee's own risk and expense. Equipment shall be confined to the Equipment
Space, Cabling shall be confined to the Cabled Route, and the Antenna shall be
confined to the Antenna Location.
7.2 OTHER MATERIALS. In addition to the Facilities, Lessee may bring
into the Leased Space, at Lessee's own risk and expense (a) any materials and
apparatus specially identified in written engineering specifications approved in
writing by Lessor, and (b) small tools and portable test equipment as needed to
perform Lessee's obligations under this Agreement. Lessee's rights under this
Section 7.2 are subject to the conditions that all such materials, apparatus,
tools, and test equipment will remain at all times in the care, custody, and
control of Lessee's Employees.
7.3 NEGATIVE COVENANTS. Lessee may not bring into the Leased Space any
material, apparatus, facilities, tools, or equipment other than those identified
in this Agreement unless Lessee first obtains written permission from Lessor.
Without limiting the foregoing, Lessee is specifically informed that the
following are not permitted within the Leased Space or in or upon the Lessor's
Property: wet cell batteries, explosives, flammable liquids or gases, alcohol,
controlled substances, weapons, toxic materials, hazardous waste, pollutants,
contaminants, asbestos and asbestos related products, polychlorinated biphenyl's
(PCB's), petroleum, crude oil or any fraction or distillate thereof, and any
similar equipment and/or materials. Lessee shall not use or permit Lessor's
Property to be used by any dangerous, toxic, noxious, offensive, or unlawful
purposes.
7.4 EMERGENCY NUMBER. During the term of this Agreement and any
extension thereof, Lessor and Lessee shall provide the other with a telephone
number which, if called, will ring at a location that is staffed by their
respective agents 24 hours each and every day, 7 days a week and every week.
Lessee and Lessor shall notify each other promptly in the event of any change in
such telephone number.
7.5 NON-EXCLUSIVE USE.
(a) Lessee understands that Lessee's use of Lessor's Property
is non-exclusive and, subject to Lessee's right to use the Leased Space, Lessor
reserves the right to lease Lessor's Property, and any portion thereof, to any
person or entity, and Lessor shall have the right to retain all amounts received
therefrom. Lessee agrees that it shall cooperate with Lessor and Lessor's other
tenants in the use of Lessor's Property.
(b) In the event Lessor, in its sole and absolute discretion,
determines that Lessor's Property has an immediate shortage of required space
for future tenants, Lessor shall have the exclusive right to cause the
Facilities to be made available to such future tenants ("Multiple Use");
provided that in the event Lessor shall cause the Multiple Use to occur (i)
Lessee shall not be required to incur any cost or expense associated with the
Multiple Use, and (ii) the Multiple Use shall be compatible with and not
unreasonably interfere with Lessee's use of the Tower pursuant to this
Agreement.
7.6 LESSEE'S COOPERATION. In the event it is necessary for Lessee to
reduce, limit or cease its use of its Facilities or the Leased Premises so that
Lessor, or any other tenant of Lessor may install, maintain, repair, remove or
otherwise work upon their facilities in compliance with then current OSHA, FCC
and ANSI standards, including such standards relating to radio frequency
radiation, or such other and further health and safety standards imposed by any
federal, state or local authority, Lessee agrees to cooperate with the party
seeking to conduct said installation, maintenance, repairs, removal or work and
temporarily reduce, limit or cease its use of its Facilities or the Leased
Premises; provided said party takes all reasonable steps to minimize the amount
of time Lessee shall so operate and said party shall take all reasonable steps
to schedule such installation, maintenance, repairs, removal or work at a time
convenient to Lessee. Notwithstanding the foregoing, Lessee shall not be
entitled to any abatement in rent or any other amount, fees or damages for its
compliance with this Section.
ARTICLE VIII
RIGHT OF ENTRY
8.1 ACCESS. Lessee shall have reasonable access to the Leased Space;
provided access to the Leased Space shall be regulated pursuant to the rules and
regulations described in Section 23.5 and access to Tower may be limited based
upon the reasonable discretion of Lessor.
8.2 AUTHORIZED PERSONNEL. All persons, contractors and/or engineers
installing, maintaining, repairing, removing or otherwise working on the
Facilities shall be approved in advance by Lessor, which approval shall not be
unreasonably withheld. A list ("Authorized Entry List") of those persons,
contractors and/or engineers approved by Lessor shall be maintained by Lessor.
Prior to the Commencement Date, Lessee will submit to Lessor a proposed
"Authorized Entry List". Lessor may request additional information from Lessee
before granting its approval, which approval may not be unreasonably withheld.
Lessee will promptly give notice to Lessor, both orally and in writing, of the
name of any person who ceases to be one of Lessee's employees or agents or whom
Lessee wishes to remove from the "Authorized Entry List".
5
<PAGE> 6
8.3 QUALIFIED PERSONNEL. Lessee represents and warrants that on the
date hereof and each and every date prior to the last act to be performed by
Lessee pursuant to this Agreement, including Section 9.2 hereof, Lessee's
Employees and any other person(s) installing, maintaining, repairing, removing
or otherwise working on the Facilities or otherwise on Lessor's Property at the
request or direction of Lessee shall be a technician qualified to perform said
duties and have been trained in compliance with then current OSHA, FCC and ANSI
standards, including such standards relating to radio frequency radiation.
ARTICLE IX
PROTECTION OF SERVICE AND PROPERTY
9.1 CONTINUITY OF USE. The continuity of the use and services of the
Tower by Lessor and other tenants of Lessor is of paramount importance. Lessee
and Lessee's Employees will at all times exercise the highest degree of care to
prevent damages to the Lessor's Property and to all other real and personal
property of Lessor, its customers and other tenants of Lessor's Property. Lessee
and Lessee's Employees will perform any work and use the Facilities in a manner
that will protect all other persons, structures, equipment, utilities, and/or
work areas of any kind against injury, damage or interruption of service. Lessee
and Lessee's Employees will not use any Facilities, equipment, tools or methods
which, in the sole judgment of Lessor, might endanger or interfere with the
services of Lessor, its customers or other tenants of Lessor's Property. Lessor
reserves the right to take any action needed to cease or prevent any harm to the
personnel, property and/or services of Lessor or its customers or any other
tenants of Lessor's Property.
9.2 LESSEE'S OBLIGATION TO RESTORE. Notwithstanding anything in this
Agreement to the contrary, if in the performance of any work, act or operation,
Lessee or Lessee's Employees disturb the property, equipment, broadcast pattern
or services of Lessor, its customers, , or other tenants of Lessor's property,
including, without limitation, such action as would require, pursuant to the
FCC, Lessor, its customers, or other tenants of Lessor's Property to perform a
partial or full proof of performance of their broadcast pattern, Lessee will
restore such property, equipment or broadcast pattern to its former condition
including, without limitation, conducting and performing such partial or full
proof of performance as may be required by the FCC, all at Lessee's expense. If
Lessee does not promptly restore to its former condition any property, equipment
or broadcasting pattern that was disturbed by Lessee or Lessee's Employees,
Lessor may restore such property to its former condition at Lessee's sole
expense; and the amount expended by Lessor pursuant to this Section 9.2 shall be
deemed reasonably incurred and immediately due and shall be repaid by Lessee,
together with interest at the rate of 18 percent per annum, upon demand of
Lessor. Notwithstanding any provision in this Agreement to the contrary, the
provisions of this Section 9.2 shall survive the termination of the Agreement
for 24 months.
9.3 INTERFERENCE WITH A BROADCASTING ACTIVITY.
(a) Lessee shall conduct its broadcasting activities in
accordance with all FCC regulations and sound engineering practices and shall
cooperate to the fullest extent with other tenants and Lessor so as to
anticipate and prevent any interference with any and all tenants installed prior
to the installation of the Facilities of Lessee or any alteration thereto. In
the event the use of Lessee's Facilities results in interference with, or signal
diminution of any equipment of any tenant installed prior to the installation of
the Facilities of Lessee or any alteration thereto and the equipment receiving
such interference is operating in accordance with manufacturer's specifications,
good engineering practice and the rules of the FCC, Lessee shall, upon notice
from Lessor, take all necessary steps to correct and eliminate the interference
and/or signal diminution within a reasonable length of time, but in no event
more than twenty-four (24) hours after having been given such notice by Lessor,
unless otherwise agreed to in writing. If the interference and/or signal
diminution is not eliminated within such twenty-four (24) hour period, Lessee
shall reduce power to a level resulting in the cessation of such interference,
or if that is unavailing, shall cease using the Facility causing the
interference and/or signal diminution, except for tests of short duration under
terms acceptable to Lessor in order to eliminate the problem, and Lessee will
not resume operation using full power of such equipment until the problem is
eliminated. Failure of Lessee to comply with the terms of this Section 9.3(a)
shall constitute a material breach of this Agreement.
(b) Lessee shall comply with any conditions which the FCC
and/or any other governmental authority may impose with respect to the
installation and/or operation of Lessee's Facilities which Lessee may install
on/or adjacent to the Tower and Equipment Space pursuant to this Agreement, and
shall pay for all legal, engineering and other expenses incident thereto.
(c) Lessor will neither make nor allow changes or
installations to be made on the Tower which will impair or interfere in any way
with Lessee's signals or broadcast operations. In the event such interference to
Lessee's signals or operations does occur, Lessor shall be so notified and shall
take immediate steps to correct such interference; provided nothing herein shall
require Lessor to correct or require to correct any interference caused by the
facilities of the Lessor or , any other tenant on the tower prior to the
installation of Lessee's Facilities or such matter which pre-dated the
installation of Lessee's Facilities, unless such interference is caused by a
defect or malfunction in the facilities or the operation thereof is not in
accordance with FCC authorizations. Failure of Lessor to comply with the term of
this Section 9.3(c) within thirty (30) days of notice, shall constitute a
material breach of this Agreement.
(d) Lessee shall also bear the full cost of purchase and
installation of any necessary filter devices as may be necessary to reduce
intermodulation products caused by the co-location of the Lessee'and other
pre-existing tenant's facilities and which are attributable to Lessee's
Facilities.
6
<PAGE> 7
(e) Lessor shall require in all future agreements to lease
space on the Tower, provisions substantially similar to those contained in
Article IX hereof. Notwithstanding the foregoing, any costs, fees or expenses,
including, without limitation, attorneys fees and a reasonable fee for any time
expended by Lessor's engineers, incurred by Lessor in enforcing said provisions
due to (i) interference caused by Lessee's Facilities or their operation or (ii)
at the request or demand of Lessee, shall be paid by Lessee within ten (10) days
after its receipt of written notice of said amounts; provided Lessor shall
assign its rights to collect said amounts from the interfering party if
different from Lessee.
9.4 QUIET ENJOYMENT. Except as otherwise set forth in this Agreement,
Lessor shall not alter, make adjustments to, relocate or otherwise modify or
tamper with Lessee's Facilities.
ARTICLE X
INSPECTION
10.1 WORK IN PROGRESS. Lessor, its employees and agents may inspect and
observe any work while in progress or after completion to ascertain whether the
work is in accordance with the specifications and requirements of this
Agreement. Lessor may require Lessee to correct any faulty work. However,
inspection or observation by Lessor or by its agents of work performed by Lessee
or Lessee's Employees will not relieve Lessee of full responsibility for the
proper performance of the work.
10.2 TIME. Lessor, its agent and its designees (including without
limitation building inspectors, fire marshals, and other officials) may inspect
the Leased Space and the Facilities at any time. At Lessee's request, Lessee's
Employees on the Authorized Entry List may accompany Lessor during such
inspections except when, in the sole judgment of Lessor, safety or service
considerations require otherwise.
ARTICLE XI
UTILITIES
11.1 LESSEE RESPONSIBILITY. Lessee shall be responsible, at Lessee's
sole cost, for obtaining, using and paying for all utility services to the
Leased Premises for Lessee's use including, without limitation, electricity, air
conditioning, heat, water, sewer, telephone, waste disposal and gas
(collectively referred to herein as "Utilities"). Lessor may, in its sole and
absolute discretion, provide said services to Lessee at Lessor's actual cost in
which event Lessee's use shall be separately metered and paid by Lessee to
Lessor within ten (10) days of Lessee's receipt of an invoice indicating the
amount due .
11.2 INTERRUPTION. Under no circumstances shall Lessor be liable for
any interruption or failure in the supply of any Utilities to the Leased Space,
nor shall Lessee have any right to an abatement in rent or offset to rent in the
event of any interruption or failure in the supply of any Utilities to the
Leased Space.
ARTICLE XII
OWNERSHIP OF FACILITIES
12.1 RISK OF LOSS. Except as otherwise provided in this Agreement, all
Facilities shall be owned by Lessee, and Lessee shall bear all risk of loss
and/or damage to the Facilities.
12.2 OWNERSHIP. Any and all Facilities on Lessor's Property, except
utility service and any building or structure installed by Lessee (which, at the
expiration of the term of this Agreement, shall, at the sole election and
discretion of Lessor, be the property of Lessor), shall remain the personal
property of Lessee notwithstanding the fact that it may be affixed or attached
to the realty or Lessor's Property, and shall, subject to all terms and
conditions of this Agreement, during the Agreement, any extension thereof or
upon the termination thereof belong to and be removable by Lessee. All other
machinery, equipment, buildings, structures and trade fixtures attached to
Lessor's Property, shall, upon termination of this agreement, be deemed fixtures
and, at the sole election of Lessor, become the property of Lessor.
7
<PAGE> 8
ARTICLE XIII
MAINTENANCE AND REPAIR
13.1 FACILITIES. Lessee will, at its own risk and expense, maintain and
repair, including replacement if necessary (collectively referred to as
"Maintenance"), the Antenna, Equipment, Cabling, buildings, structures and any
other items or things placed on Lessor's Property by Lessee pursuant to this
Agreement. All Maintenance shall be performed in a manner suitable to Lessor so
as not to conflict with the use of Lessor's Property by Lessor, or any other
tenant of Lessor. All Maintenance shall be provided by qualified technicians,
authorized to enter Lessor's Property pursuant to Section 7.2.
13.2 ADDITIONAL REMEDY. In the event Lessee shall fail to make the
Maintenance required by Section 13.1 hereof within ten (10) days written notice
by Lessor (or, if required, such longer period of time if Lessee notifies Lessor
that such maintenance has commenced within ten (10) days and Lessee diligently
attempts to complete such Maintenance) or shall fail to perform any of its
duties pursuant to Article IX hereafter within 24 hours after notice from
Lessor, Lessor shall have the right to make such Maintenance or to perform such
duty for the account of Lessee, and any expense, charge or cost incurred by
Lessor shall be paid by Lessee to Lessor within ten (10) business days of its
receipt of invoice from Lessor. This Section 13.2 shall be construed as an
additional remedy granted to Lessor and not in limitation of any other rights
and remedies which Lessor has or may have in such circumstances.
13.3 LESSOR'S PROPERTY. Except as otherwise provided herein and repairs
occasioned by the negligence of the Lessee or Lessee's Employees or
representatives, Lessee shall not be responsible for repairs and or maintenance
of Lessor's Property. Without limiting the foregoing, the parties agree that
Lessor shall be responsible for maintaining the Tower in accordance with the
requirements of the FCC and the Federal Aviation Administration.
ARTICLE XIV
NO ALTERATIONS
Except as specifically set forth in this Agreement, Lessee may not make
any alterations, additions and/or improvements to any part of the Lessor's
Property, the Leased Space, the Antenna, Equipment, and/or Cabling without the
prior written consent of the Lessor, which consent shall be given in Lessor's
sole discretion and election.
ARTICLE XV
REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS
15.1 LESSOR'S REPRESENTATIONS AND WARRANTIES. Lessor represents and
warrants that:
(a) The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary actions on the part of Lessor and shall not
constitute a breach or violation under any agreement to which Lessor is a party.
(b) To the best of Lessor's knowledge, there are no violations
of any federal, state, county or municipal law, ordinance, order, regulations or
requirement with respect to the Leased Space, and as of the date of this
Agreement, no notice of any kind relating thereto (which would adversely affect
the transactions contemplated by this Agreement) has been issued by public
authorities having jurisdiction over the Leased Space.
(c) There is no action, suit or proceeding pending or, to
Lessor's knowledge, threatened against or affecting the Leased Space or any
portion thereof and Lessor has not received notice, written or otherwise, of any
litigation affecting or concerning the Leased Space relating to or arising out
of its ownership, management, use or operation.
(d) Lessor's Property is and will remain in material
compliance at all times during the Initial Term and any Extension Term with all
federal, state, county, municipal, local, administrative and other governmental
laws, statutes, ordinances, codes, rules, regulations and orders pertaining
thereto, including, without limitation, to the extent applicable, all zoning
laws and building codes, all environmental laws and all regulations of the FAA
and the FCC.
15.2 LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that:
(a) The Facilities and the operation thereof do not and will
result in exposure of workers or the general public to levels of radio frequency
radiation in excess of the "Radio Frequency Protection Guides" recommended in
"American National Standard Safety Levels With Respect to Human Exposure to
Radio Frequency Electromagnetic Fields, 300 KHz to 100 GHz," issued by the
American National Standards Institute ("Acceptable Radio Frequency Radiation
Standards").
8
<PAGE> 9
(b) The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary actions on the part of Lessee and shall not
constitute a breach or violation under any agreement to which Lessee is a party.
This Agreement constitutes a valid and binding agreement and obligation of
Lessee, enforceable in accordance with its terms.
(c) Lessee will conduct its activities on Lessor's Property in
compliance with all applicable laws, including, without limitation, all OSHA,
FCC, and FAA rules and regulations, environmental laws, and any rule or law
applicable to the construction or operation of Lessee's Facilities.
(d) The Leased Space is and will remain in material compliance
at all times during the Term and any Extension Term with all federal, state,
county, municipal, local, administrative and other governmental laws, statutes,
ordinances, codes, rules, regulations and orders pertaining thereto, including,
without limitation, to the extent applicable, all zoning laws and building codes
and all regulations of the FAA and the FCC.
(e) No agent, broker or other person, entity or firm acting on
behalf of or under the authority of Lessee or any affiliate of Lessee is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, in connection with the transactions contemplated by
this Agreement.
ARTICLE XVI
EVENTS OF DEFAULT
16.1 DEFAULT OF LESSEE. Any of the following events shall constitute an
"event of default" on the part of Lessee:
(a) The failure of Lessee to pay any amount due hereunder, and
continuation of such failure for more than five (5) days after Lessee's receipt
of written notice thereof from Lessor; provided however that Lessor shall not be
required to provide such written notice to Lessee more than twice in any twelve
(12) month period prior to declaring such failure to pay an event of default; or
(b) The failure of Lessee to comply with the provisions of
Article IX hereof.
(c) The failure of Lessee to fulfill any other obligation
hereunder or the inaccuracy of any representation or warranty and the
continuation of such failure or inaccuracy for more than ten (10) days after
notice by Lessor, provided, however, that if the nature of Lessee's failure is
such that more than ten (10) days is required for its cure, then Lessee shall
not be deemed to be in default if Lessee has commenced such cure within the ten
(10) day period, demonstrates to Lessor's reasonable satisfaction that such
default is curable and thereafter diligently prosecutes such cure to completion.
16.2 TERMINATION OF DEFAULT BY LESSEE. If an event of default on the
part of Lessee shall occur at any time, Lessor, at its election, may give Lessee
a notice of termination specifying a day not less than thirty (30) days
thereafter on which the term of this Agreement shall end. If such notice is
given, the Agreement shall expire on the day so specified as fully and
completely as if that day were the day herein originally fixed for such
expiration, and Lessee shall then quit and surrender the Leased Space to Lessor.
If the Agreement is terminated pursuant to this Section, Lessee shall remain
liable to Lessor for the payment of rent for the remainder of the lease term and
without prejudice to any other right or remedy which Lessor may have hereunder
or by law and which shall, at the sole election and discretion of Lessor, become
immediately due and payable. Notwithstanding the foregoing, Lessor shall attempt
to mitigate any damages it may suffer as a result of the default of this
Agreement by Lessee. Notwithstanding any waiver of any prior breach or event of
default hereunder, Lessor may re-enter the Leased Space either by reasonable
force or otherwise, or dispossess Lessee, any legal representative of Lessee or
other occupant of the Leased Space by appropriate suit, action or proceeding and
remove its effects and hold the Leased Space as if this Agreement had not been
made. Notwithstanding anything in this Agreement to the contrary, and in
addition to any other remedies Lessor may have, if an event of default shall
occur, Lessor, at its election, may stop providing Utilities to Lessee's
Facilities and/or the Leased Space and Lessee specifically waives any and all
claims for damages against Lessor arising from a loss Utilities to the Leased
Space.
16.3 DEFAULT OF LESSOR. The failure of Lessor to comply with any of its
obligations under the terms of this Agreement, and continuation of such failure
to cure for more than ten (10) days after notice by Lessee, shall constitute a
default on the part of Lessor; provided however that if the nature of Lessor's
default is such that more than ten (10) days is required for its cure, then
Lessor shall not be deemed to be in default if Lessor has commenced such cure
within the ten (10) day period, demonstrates to Lessee's reasonable satisfaction
that such default is curable and thereafter diligently prosecutes such cure to
completion.
16.4 TERMINATION BY DEFAULT OF LESSOR. If an event of default on the
part of Lessor shall occur at any time, Lessee, at its election, may give Lessor
a notice of termination specifying a day not less than thirty (30) days
thereafter on which the term of this Agreement shall end. If such notice is
given, the Agreement shall expire on the day so specified as fully and
completely as if that day were the day herein originally fixed for such
expiration, and Lessee shall then quit and surrender the Leased Space to Lessor
and have no further obligation to Lessor hereunder.
9
<PAGE> 10
ARTICLE XVII
INSURANCE
17.1 LESSEE'S INSURANCE. Lessee shall, at its sole expense, maintain
commercial public liability insurance against claims for personal injury, bodily
injury, wrongful death and property damage occurring on, in or about Lessor's
Property under policies and with companies reasonably acceptable to Lessor,
affording insurance protection to limits of not less than Three Million Dollars
($3,000,000.00) for combined single limit with respect to any one occurrence and
Five Million Dollars ($5,000,000.00) in the aggregate for all occurrences within
each policy year. Lessee shall also maintain "all risk" or special form policies
of property insurance covering the Facilities and any improvements of Lessee
located on the Lessor's Property for the full replacement cost. Lessor, its
managing agent, all mortgagees, and such other parties as Lessor may reasonably
designate shall be named as additional insureds on each such policy pertaining
to Lessor's Property and shall be furnished with a certificate thereof. Each
such policy of insurance shall, to the extent obtainable at no extra premium,
provide: (a) that any claim shall be payable notwithstanding any act, whether of
commission or omission, negligent or otherwise, of Lessor, of Lessee, of any
other tenant or of any agent, employee, representative, visitor or guest of any
of them, which act might otherwise result in the forfeiture of the insurance
afforded by such policy, and (b) that Lessor shall not be liable to the insurer
by reason of any payment by the insurer to Lessor, or any such other tenant. In
addition, each such policy shall provide an agreement by the insurer that the
policy will not be canceled or modified to reduce coverage as to risk, amount or
named insured without at least fifteen (15) days' prior written notice to
Lessee, Lessor, mortgagees, and all other named insureds.
17.2 WAIVER. Neither Lessor, nor their representatives, agents, or
employees shall be liable to Lessee or to anyone claiming through Lessee or to
any insurance company (by way of subrogation or otherwise) insuring Lessee for
any business interruption or for any loss or damage to any building, structure
or other tangible property, or injury to or death of persons occurring on or
about Lessor's Property, or in any manner growing out of or connected with
Lessee's use or occupation of the Lessor's Property, or the use or occupation of
the Lessor's Property by Lessee's agents, employees, representatives, visitors
or guests even though such business interruption, loss, damage, injury or death
might have been occasioned by the negligence of Lessor or their agents or
employees, to the extent that such business interruption, loss, damage, injury
or death is or could be covered by an "all risk" or special form policy of
property insurance, regardless of whether such insurance policies are actually
carried. Each insurance policy carried by Lessee hereto shall contain a clause
incorporating such waiver of subrogation and a clause to the effect that the
foregoing waiver shall not affect the right of the insured party to recover
under such policy.
17.3 LESSEE'S OBLIGATION TO REIMBURSE. Should Lessee store or maintain
any materials or equipment, or do any acts which result in an increase in the
rate or premium of any insurance coverage required to be provided by Lessor
pursuant to this Agreement, Lessee shall immediately reimburse Lessor for the
full amount of any such increase or shall remove them if Lessor so requires.
ARTICLE XVIII
INDEMNIFICATION
18.1 INDEMNIFICATION BY LESSEE. Lessee shall indemnify Lessor and its
agents, officers and employees and hold Lessor and its agents, officers and
employees harmless from and against all claims, actions, losses, damages,
liabilities and expense (including reasonable attorneys' fees) incurred by or
asserted against Lessor whether during or after the term of this Agreement,
including by reason of personal injury, loss of life, or damage to property,
caused by or resulting from, in whole or any material part: (i) any breach of
this Agreement by Lessee; (ii) Lessee's breach of any warranty contained in this
Agreement; (iii) any negligent or intentional act or omission of Lessee,
Lessee's Employees, agents, invitees or contractors, whether in, on, about or
with respect to the Leased Space or Lessor's Property; (iv) the use by Lessee of
any part of the Leased Space or Lessor's Property; (v) any work undertaken by or
at the request of Lessee on or about the Leased Space; (vi) any inspection,
observation or any action undertaken by Lessor pursuant to Article IX hereof;
(vii) the claim, existence or discovery of any hazardous substance on Lessor's
Property arising from Lessee's activities; (vii) any other activity undertaken
by or at the request of Lessee pursuant to or in connection with this Agreement;
or (ix) the presence of any individuals on the Leased Space or Lessor's Property
as a result of Lessee's request or this Agreement.
18.2 DEFENSE BY LESSEE. If Lessor so elects by notice to Lessee, Lessee
shall have the obligation of defending, at its sole cost and expense, by counsel
selected by Lessee and approved by Lessor (such approval not to be unreasonably
withheld), against any claim to which the foregoing indemnity may apply. Lessor
may assume, or require that such defense be assumed, by Lessor and counsel
selected by Lessor, at the cost and expense of Lessee if Lessor is for any
reason dissatisfied with the defense by Lessee, or believes that its interests
would be better served thereby. In any case where Lessee is defending any such
claim, Lessor may participate in the defense thereof by counsel selected by it,
but at Lessor's expense. Lessee shall not enter into any settlement of any claim
without the consent of Lessor, which consent shall not be unreasonably withheld.
10
<PAGE> 11
18.3 INDEMNIFICATION BY LESSOR. Lessor shall indemnify Lessee and hold
Lessee harmless from and against all claims, actions, losses, damages,
liabilities and expenses (including reasonable attorneys' fees) incurred by or
asserted against Lessee, whether during or after the term of this Agreement,
including by reason of personal injury, loss of life, or damage to property,
caused by or resulting from in whole or any material part, (i) any breach of
this Agreement by Lessor, (ii) Lessor's breach of any warranty contained in this
Agreement, and (iii) any willfully negligent act or omission of Lessor, its
employees, agents, invitees or contractors, whether in, on, about or with
respect to the Leased Space or Lessor's Property; provided, however, that Lessor
shall not be required to indemnify Lessee for any damages, injury, loss or
expense arising out of Lessee's or its agents', employees', invitees' or
contractors' negligent acts or omissions.
18.4 DEFENSE BY LESSOR. If Lessee so elects by notice to Lessor, Lessor
shall have the obligation of defending, at its sole cost and expense, by counsel
selected by Lessor and approved by Lessee (such approval not to be unreasonably
withheld), against any claim to which the foregoing indemnity may apply. Lessee
may assume, or require that such defense be assumed, by Lessee and counsel
selected by Lessee, at the cost and expense of Lessor if Lessee is for any
reason dissatisfied with the defense by Lessor, or believes that its interests
would be better served thereby. In any case where Lessor is defending any such
claim, Lessee may participate in the defense thereof by counsel selected by it,
but at Lessee's expense. Lessor shall not enter into any settlement of any claim
without the consent of Lessee, which consent shall not be unreasonably withheld.
ARTICLE XIX
RECONSTRUCTION OF DAMAGED PREMISES
19.1 REPAIR. Except as otherwise provided in this Agreement, if
Lessor's Property, or any portion thereof, is partially or totally destroyed by
fire or other casualty so as to become partially or totally unusable, Lessor may
repair or reconstruct the damage to Lessor's Property to the extent and in the
manner required to meet the then current needs of Lessor.
19.2 RENT ABATEMENT. This Agreement will remain in full force and
effect pending repair or replacement of the damaged or destroyed premises, but
the obligation of Lessee to pay the Monthly Rent will be abated during any
period in excess of five (5) business days that due to damage to or destruction
of the Lessor's Property (other than by the fault of Lessee) the Leased Space is
not capable of being used for Lessee's purposes as set forth herein. The monthly
installments will resume when the Leased Space is again capable of being used
for such purpose, irrespective of whether Lessee has resumed its use of the
Leased Space.
19.3 ELECTION NOT TO REPAIR. Notwithstanding anything to the contrary
in Sections 19.1 and 19.2, Lessor may, at its sole and absolute discretion,
elect not to repair or rebuild Lessor's Property, or any portion thereof. Lessor
will promptly notify Lessee within forty-five (45) days of the event causing the
damage or destruction, if such option is elected. If Lessee did not in any way
cause the fire or other casualty and if either (i) Lessor has elected not to
rebuild or repair Lessor's Property or (ii) reconstruction has not commenced
within one hundred eighty (180) days after the fire or other casualty, Lessee
may, by written notice to Lessor, terminate this Agreement provided said notice
is received by Lessor on or before two hundred twenty five (225) days after the
fire or other casualty and before the reconstruction has commenced.
ARTICLE XX
FORCE MAJEURE
20.1 FORCE MAJEURE. Except for Lessee's obligation to pay Rent, and
except as set forth in Article XIX above, neither party shall be held liable for
any delay or failure in performance of any part of this Agreement from any cause
beyond its control and without its fault or negligence, such as acts of God,
acts of civil or military authority, government regulations, strikes, labor
disputes, embargoes, epidemics, war, terrorist acts, riots, insurrections, fire,
explosions, earthquakes, nuclear accidents, floods, power blackouts or brownouts
or surges, volcanic action, other major environmental disturbances, unusually
severe weather conditions, inability to secure products or services of other
persons or transportation facilities, or act or omissions of transportation
common carriers (collectively referred to as "Force Majeure Conditions").
20.2 TERMINATION BY FORCE MAJEURE. If any such Force Majeure Condition
occurs and is the proximate cause of a delay or failure in performance of any
part of a party's obligations under this Agreement for more than ninety (90)
days, the other party may, by written notice given to the party whose
performance was delayed or who failed to perform, terminate this Agreement or
that part of this Agreement that is affected by such delay or failure to perform
11
<PAGE> 12
ARTICLE XXI
SAFETY
21.1 FACILITIES. Lessee is responsible for the safety of all
Facilities, buildings, structures and other materials brought by Lessee onto
Lessor's Property, and for the safety of all work performed by Lessee's
Employees in the delivery, provision, installation, operation, maintenance,
repair and removal of the Facilities, buildings, structures and any other
material brought by Lessee onto Lessor's Property. In discharging this
responsibility, Lessee shall comply (and shall cause Lessee's Employees to
comply) with the requirements of the Occupational Safety and Health Act of 1970,
as amended; and with any other federal, state, or local act or other
requirements of law affecting safety and health.
21.2 VIOLATIONS. Lessee shall be responsible for any violation by
Lessee or Lessee's Employees of any safety or health standard under this
Agreement. If any material furnished or any work performed by Lessee or Lessee's
Employees gives rise to a safety or health violation, Lessee will immediately
remedy such condition and will indemnify, defend, and hold Lessor it's
employees, agents, officers, representatives, affiliates, parent, subsidiaries
and their affiliated companies, and their employees, agents, officers and
representatives) harmless from any penalty, fine, or liability in connection
with such a violation.
ARTICLE XXII
PERMITS, LICENSES, APPROVALS
22.1 FCC PERMITS. Lessee will apply for and obtain, at its sole cost
and expense, FCC construction permits applicable to the installation of the
Facilities, and will meet all FCC license and other requirements and
restrictions. The FCC construction permit(s) must be approved before any
construction or installation activity begins. A completed copy of Lessee's FCC
application and License will be supplied to Lessor along with the executed
agreement.
22.2 FAA APPROVAL. Lessee will notify the FAA of any Tower
modifications and Antenna installations, that may be required by Lessee, and
will use reasonable efforts to obtain any FAA-required permits, license, or
approvals associated with Lessee's Facilities. Lessee will pay for all costs and
expenses it incurs in obtaining or attempting to obtain any permits, license, or
approvals.
22.3 OTHER PERMITS OR LICENSE. Lessee shall apply for and obtain, at
its sole cost and expense, any and all License, permits, variances or other
governmental approvals required to install, operate and maintain its Facilities
in the Leased Space; provided that Lessee shall not submit any such applications
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld.
12
<PAGE> 13
ARTICLE XXIII
MISCELLANEOUS PROVISIONS
23.1 SEVERABILITY. If any one or more of the provisions contained in
this Agreement is, for any reason, held to be unenforceable in any respect under
applicable state law or laws of the United States of America, such
unenforceability will not affect any other provision of this Agreement, but this
Agreement will then be construed in such a way as will achieve the intent of
such unenforceable provision or provisions to the extent permitted by law.
23.2 ASSIGNMENT BY LESSOR. Notwithstanding any of the provisions of
this Agreement, Lessor may assign, in whole or in part, Lessor's interest in
this Agreement. In the event Lessor assigns this Agreement to a successor owner
of the Leased Space, Lessor shall be and is hereby relieved of all liability
arising after the consummation of such assignment under any and all covenants
and obligations contained in or derived from this Agreement or arising out of
any act, occurrence or omission relating to the Leased Space occurring after the
consummation of such assignment, but only upon the condition that, as part of
such Assignment, Lessor will cause the Assignee to agree, in writing, to carry
out any and all of the covenants and obligations of Lessor under this Agreement
occurring after the consummation of Lessor's assignment of its interest in and
to this Agreement. In the event of an assignment of Lessor's interest in this
Agreement to a Lender, as hereinafter defined, or a designee of a Lender, (i)
the assignee shall have no obligation to Lessee hereunder other than, provided
Lessee is not in default hereof, the obligation of quiet enjoyment, (ii) all
amounts required to be paid to Lessor hereunder from Lessee shall be paid to the
assignee, and (iii) Lessee shall not assert against such assignee any claims,
defenses, setoffs or counterclaims that it might have had against Lessor.
23.3 ASSIGNMENT BY LESSEE. Lessee may not assign this Agreement without
the prior written consent of Lessor which consent shall not unreasonably be
withheld. Lessee may not sublet this Agreement, the Leased Space, or any portion
thereof without the prior written consent of Lessor, which consent shall be
given or withheld in Lessor's sole and absolute discretion. Under no
circumstance shall this Agreement be assigned by Lessee to any party which does
not agree in writing to be bound by all terms and conditions contained herein
and, notwithstanding Lessee's assignment of this Agreement, Lessee shall remain
liable for all obligations of Lessee pursuant to this Agreement until such time
as this Agreement is terminated.
23.4 CONDEMNATION. In the event Lessor's Property or any portion
thereof is taken pursuant to a condemnation proceeding or by eminent domain,
such that Lessor, or Lessee can no longer operate telecommunications equipment
on Lessor's property, this Agreement shall, at Lessor's sole and absolute
discretion, terminate without liability to either party and Lessee shall not be
entitled to any portion of any award arising out of such proceedings.
23.5 RULES AND REGULATIONS. From time to time, Lessor shall be entitled
to create and enforce rules and regulations governing the use of Lessor's
Property. Lessee agrees Lessee and Lessee's employees shall abide by said rules
and regulations. Lessor agrees that it shall not create or enforce any
unreasonable rules or regulations which would unduly prejudice Lessee's use of
the Leased Space, or which would prevent reasonable access to the Leased Space
by Lessee, as herein provided.
23.6 RESTORATION ON TERMINATION. Upon the termination of the Agreement
for any reason, Lessee will restore the Leased Space to its original condition,
normal wear and tear excepted, at Lessee's sole cost and expense. Any fixtures
including, without limitation, all Antenna, Cabling and Equipment, goods or
other property of Lessee not removed within ten (10) days after any quitting,
vacating or abandonment of the Leased Premises, or upon Lessee's eviction
therefrom, shall be considered abandoned, and Lessor shall have the right,
without notice to Lessee, to sell or otherwise dispose of same without having to
account to Lessee for any part of the proceeds of such sale.
23.7 NOTICES. All notices, demands, and requests required or permitted
to be given hereunder shall be in writing and sent certified mail, return
receipt requested.
To Lessee: South Texas Broadcasting Inc
KKHT-FM 6161 Savoy Ste 1200
Houston, Texas 77036
To Lessor Sonsinger Broadcasting of Houston LP
c/o Salem Communications Corporation
4880 Santa Rosa Road, Suite 300
Camarillo, CA 93012
Facsimile No: (805) 384-4505
Attn: Jonathan L. Block, Esq.
Either party hereto may change the place for notice to it by sending like
written notice to the other party hereto.
23.8 SUBORDINATION. Unless a Lender, as hereinafter defined, shall
otherwise elect as provided herein, Lessee's rights under this Agreement shall
be subject and subordinate to the operation and effect of any existing or future
Lien, as hereinafter defined, affecting Lessor's Property and to any extensions,
modifications or amendments of any such mortgage. Lessee's acknowledgment and
agreement of subordination provided for in this Section is self-operative and no
further instrument of subordination shall be required. However, within ten (10)
working days
13
<PAGE> 14
after request, Lessee shall execute a subordination, non-disturbance and
attornment agreement in form satisfactory to Lessor. If a Lender shall so elect
by notice to Lessee or by the recording of a unilateral declaration of
subordination, then this Agreement and Lessee's rights hereunder shall be
superior and prior in right to the Lien of which such Lender has the benefit,
with the same force and effect as if this Agreement had been executed, delivered
and recorded prior to the execution, delivery and recording of such Lien, as the
case may be, subject, nevertheless, to such conditions as may be set forth in
any such notice of declaration. The term "Lien" means any mortgage, deed of
trust or other security instrument constituting a lien upon all or any portion
of the Lessor's Property. The term "Lender" means a party having the benefit of
the Lien, whether as mortgagee, trustee, note holder or otherwise. Lessor shall
make a reasonable effort to obtain from any Lender an agreement that the Lender
shall not disturb Lessee's quiet possession in the event of foreclosure. If any
proceedings are brought for foreclosure, or in the event the exercise of the
power of sale under any mortgage or deed of trust made by the Lessor encumbering
the Leased Space, Lessee shall attorn to the purchaser upon any such foreclosure
or sale and recognize such purchaser as the Lessor under this Agreement.
23.9 BINDING EFFECT. The provisions of this Agreement shall apply to,
bind and inure to the benefit of Lessor and Lessee, their respective successors,
legal representatives or assigns.
23.10 ENTIRE AGREEMENT/MODIFICATIONS. This Agreement contains the
entire understanding and agreement between the parties. No representative, agent
or employee of Lessor has been authorized to make any representations or
promises with reference to the within agreement or to vary, alter or modify the
terms hereof. No additions, changes or modifications shall be binding unless
reduced to writing and signed by the parties.
23.11 RESOLUTION OF CLAIMS AND DISPUTES. Regardless of the place of
execution, this Agreement shall be deemed to be a contract made in Houston,
Texas and shall be interpreted as a contract to be performed wholly in the State
of Texas. The law of the State of Texas shall be applied without regard to the
principles of conflicts of laws. Lessee expressly waives any presumption or
rule, if any, which requires this Agreement to be construed against Lessor. Any
claims or disputes arising out of this Agreement shall be resolved only by
mediation or, if mediation does not resolve the claim or dispute within ten (10)
days of notice demanding mediation, by arbitration in accordance with the Rules
for Commercial Arbitration of the American Arbitration Association and any award
therefrom shall be rendered by the arbitrators as a judgment in any trial court
having jurisdiction in the City of Houston, Texas, or of any other court having
competent jurisdiction.
23.12 WAIVER. Failure of any party to complain of any act or omission
on the part of any other party in breach or default of this Agreement, no matter
how long the same may continue, shall not be deemed to be a waiver by said party
of any of its rights hereunder. No waiver by any party at any time, express or
implied, of any breach of any provision of this Agreement shall be deemed a
waiver of a breach of any other provision of this Agreement or a consent to any
subsequent breach of the same or other provisions.
23.13 ESTOPPEL. Either party shall at any time, upon ten (10) days'
prior written request from the other party, execute, acknowledge and deliver to
the requesting party a statement in writing (a) certifying this Agreement to be
unmodified and in full force and effect (or, if modified, stating the nature of
such modification), and the date to which the rent and other charges have been
paid in advance, if any uncured defaults hereunder on the part of the requesting
party, or specifying such defaults if they are claimed.
23.14 REASONABLENESS. Except as specifically set forth herein to the
contrary, any approval, consent or permission required to be given hereunder by
any party shall not be unreasonably withheld, delayed or conditioned.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
LESSOR: LESSEE:
SONSINGER BROADCASTING COMPANY OF SOUTH TEXAS BROADCASTING INC. KKHT-FM
HOUSTON, LLP
By Sonsinger Management, Inc.
its General Partner
By: /s/ ERIC H. HALVORSON By: /s/ ERIC H. HALVORSON
-------------------------------- --------------------------------
Eric H. Halvorson Eric H. Halvorson
Vice President Vice President
14
<PAGE> 15
EXHIBIT A
COMMENCEMENT DATE AGREEMENT
This Commencement Date Agreement is entered into on this 1st day of
June, 1998, between SOUTH TEXAS BROADCASTING, INC. KKHT-FM. ("Lessee"), and
SONSINGER BROADCASTING COMPANY OF HOUSTON, LP. ( "Lessor").
WHEREAS, Lessor and Lessee entered into a lease dated June 1, 1998 (the
"Lease"), setting forth the terms of occupancy and use by Lessee of a certain
tower on Lessor's Property, as defined in the Lease; and
WHEREAS, the Lease is for a term of ten (10) years with the
"Commencement Date" of the term being defined in Section 3.1 of the Lease; and
WHEREAS, it has been determined in accordance with the provisions of
Section 3.1 of the Lease that July 1, 1998 is the Commencement Date of the term
of the Lease; and
WHEREAS, the Lease provides that the parties shall execute a
confirmation of the actual Commencement Date of the term thereof, when such date
has been determined.
NOW, THEREFORE, the parties hereto confirm that the Commencement Date
of the term of the Lease is July 1, 1998.
This Agreement is executed by the parties for the purpose of providing
a record of the Commencement Date of the term of the Lease and commencement of
rental payments and does not modify, amend or alter any of the terms or
conditions of the Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
IN WITNESS WHEREOF, the parties have executed this Commencement Date
Agreement as of the day and year first above written.
LESSOR: LESSEE:
SONSINGER BROADCASTING COMPANY SOUTH TEXAS BROADCASTING, INC. KKHT-FM
By Sonsinger Management, Inc.,
its General Partner
By: /s/ ERIC H. HALVORSON By: /s/ ERIC H. HALVORSON
-------------------------------- --------------------------------
Eric H. Halvorson Eric H. Halvorson
Vice President Vice President
15
<PAGE> 1
EXHIBIT 10.05.23
LEASE AGREEMENT
This Agreement ("Agreement") is made as of the 30th day of October,
1998, by and between EDWARD G. ATSINGER III and MONA J. ATSINGER, not
individually but solely as Trustees of the ATSINGER FAMILY TRUST, and STUART W.
EPPERSON, not individually but solely as Trustee of the STUART W. EPPERSON
REVOCABLE LIVING TRUST, collectively referred to herein as "Lessor", and
INSPIRATION MEDIA OF TEXAS, INC. ("Lessee"), a Texas corporation.
WHEREAS, Lessor owns certain land (the "Land") and Lessee owns certain
improvements thereon (the "Improvements"), which Land and Improvements together
comprise certain parcels of real property located in the County of Brazoria,
State of Texas, more particularly described as set forth in Exhibit "A", which
is attached hereto and made a part hereof (the "Real Property"); and,
WHEREAS, Lessee uses said Real Property in operating its radio station
KTEK-AM, Alvin, Texas; and,
WHEREAS, the parties are desirous of making a mutually suitable and
satisfactory agreement whereby Lessor will lease to Lessee the Real Property
(constituting the "Leased Premises") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the following covenants, agreements,
conditions and representations, the parties hereto agree as follows:
SECTION 1
USE OF THE LEASED PREMISES
(a) Lessor, in consideration of the rents to be paid and covenants
herein contained, hereby leases to Lessee the Leased Premises.
(b) Lessee may use the Leased Premises for the operation of its radio
station, and, in connection therewith, for the installation, repair,
maintenance, operation, housing and removal of its Improvements and other
related broadcasting equipment (together comprising the "Installations"). Lessee
is fully familiar with the physical condition of the Land and has received the
same in good order and condition, and agrees that the Land complies in all
respects with all requirements of this Agreement. Lessee shall use the Land
exclusively for purposes associated with the operation of a radio station.
(c) Lessee shall have the right from time to time to substitute
Installations of similar kind and character for those hereinabove specified,
provided such changes shall be approved in advance by Lessor, and Lessor shall
not unreasonably delay or withhold its approval. In the event Lessee submits any
such changes for Lessor's approval and Lessor does not respond within thirty
(30) days after Lessor's receipt thereof, then such changes shall be deemed
approved by Lessor, so long as such changes otherwise comply with this
Agreement, five (5) days after Lessor's receipt of notice that it has not
responded.
<PAGE> 2
(d) Lessee shall have access to the Leased Premises twenty-four (24)
hours per day, seven (7) days per week, for the purpose of installing,
maintaining and repairing its Installations, provided that the contractors
performing such work are reasonably acceptable to Lessor.
(e) Lessor shall not be responsible for repairs or maintenance to the
Installations, except for repairs occasioned by the negligence of Lessor, its
agents, employees or contractors.
(f) During the Term (as hereinafter defined), Lessor and Lessee shall
each provide the other with a telephone number which, if called will ring at a
location that is staffed by their respective agents twenty-four (24) hours each
and every day, seven (7) days each and every week; and Lessor and Lessee shall
notify each other promptly in the event of any change in such telephone number.
(g) Lessee shall not use or permit the Leased Premises to be used by any
dangerous, toxic, noxious or offensive trade or business, or for any unlawful
purpose.
(h) Lessee shall not directly or indirectly create or permit to be
created or to remain, and will discharge any mortgage, lien, security interest,
encumbrance or charge on, pledge of or conditional sale or other title retention
agreement with respect to the Real Property or any part thereof or Lessee's
interest therein other than (i) this Agreement, (ii) any lien, including a
mortgage on the leasehold interest of Lessee, which may be approved by the
Lessor in writing, which approval shall not be unreasonably withheld, (iii)
liens for impositions not yet payable, or payable without the addition of any
fine, penalty, interest or cost for non-payment, or being contested as permitted
by Paragraph 3(d), below, and (iv) liens of mechanics, materialmen, suppliers or
vendors, or rights thereto, incurred in the ordinary course of business for sums
which under the terms of the related contracts are not at the time due, provided
that adequate provision for the payment thereof shall have been made.
SECTION 2
TERM AND RENT
(a) The term of this Lease (the "Term") shall commence on October 30,
1998 (the "Commencement Date"), and shall expire on October 30, 2008 (the
"Expiration Date"). If the Term has been extended as provided in subparagraph
(b), below, the Expiration Date shall be the last day of the Term as so
extended. (b) Lessee shall have the option, if Lessee is not at the time in
default under this Agreement, to extend the Term of this Agreement for up to two
(2) successive periods of five (5) years each (the "Extended Terms"), and,
except as set forth in subparagraph (c), below, on the same terms, covenants and
conditions herein contained. The word "Term" as used in this Agreement shall be
deemed to include the Extended Terms when and if the Agreement is extended. Each
option to extend the Term shall be exercised only by Lessee's delivery to Lessor
by United States mail on or before ninety (90) days prior to the commencement of
the renewal term of written notice of Lessee's election to extend as provided
herein.
-2-
<PAGE> 3
(c) Lessee agrees to pay rent to Lessor from the Commencement Date
through the Expiration Date, or such earlier date as this Agreement is
terminated as provided herein, at 4880 Santa Rosa Road, Suite 300, Camarillo, CA
93012, Attn: Accounting, or to such other person or place as Lessor may
designate from time to time by notice to Lessee, in the following amounts and in
the following manner:
(i) During the first year beginning with the Commencement Date
Lessee shall pay a base rent of SIXTEEN THOUSAND EIGHT HUNDRED AND NO/100
DOLLARS ($16,800) per annum, in equal monthly installments of ONE THOUSAND FOUR
HUNDRED AND NO/100 DOLLARS ($1,400.00) (the "Base Rent") in advance on the first
day of each month; and thereafter on each and every Adjustment Date (hereinafter
defined) the monthly rent shall be computed according to subparagraph (ii)
below.
(ii) The term "Adjustment Date" shall mean the first (1st)
through the ninth (9th) anniversaries of the Commencement Date. During the one
(1) year period beginning with each Adjustment Date, the monthly rent payable by
Lessee shall reflect an adjustment, as herein provided, for an increase, if any,
in the Consumer Price Index for All Urban Consumers, All Items, U.S. Cities
Average [Base Year 1982/84=100] ("CPI") published by the United States
Department of Labor, Bureau of Labor Statistics, as measured in February of each
year; i.e., during the one (1) year period beginning with the Adjustment Date,
the monthly rent shall be the product obtained by multiplying the Base Rent
times a fraction, the numerator of which shall be the CPI for February of the
year in which the Adjustment Date falls and the denominator of which shall be
the CPI for February of the year in which the Commencement Date falls.
Notwithstanding the results of the foregoing calculation, the monthly amount
payable by Lessee hereunder shall not in any event be less than the monthly
rental paid during the immediately preceding one (1) year period. In the event
that the Bureau of Labor Statistics shall change the base period for the CPI,
the new index number shall be substituted for the old index numbers in making
the above computation. In the event the Bureau of Labor Statistics ceases
publishing the CPI, or materially changes the method of its computation, Lessor
and Lessee shall accept comparable statistics on the purchasing power of the
consumer dollar as published at the time of said discontinuation or change by a
responsible financial periodical of recognized authority to be then chosen by
Lessor subject to reasonable consent of Lessee.
(d) Rent and all other sums payable to Lessor hereunder shall be paid
without notice, demand, counterclaim, set-off, deduction or defense and without
abatement, suspension, deferment, diminution or reduction. Except as expressly
provided herein, Lessee waives all rights now or hereafter conferred by statute
or otherwise to quit, terminate or surrender this Agreement or the Real Property
or any part thereof, or to any abatement, suspension, deferment, diminution or
reduction of rent or any other sum payable by Lessee hereunder.
SECTION 3
CHARGES AND UTILITIES
(a) Lessee, at its sole expense, shall keep the Real Property and the
adjoining streets and
-3-
<PAGE> 4
ways in good and clean order and condition and will promptly make all necessary
or appropriate repairs, replacements and renewals thereof, whether interior or
exterior, structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen. All repairs, replacements and renewals shall be equal in quality and
class to the original work. Lessee waives any right created by any law now or
hereafter in force to make repairs to the Real Property at Lessor's expense.
Lessee, at its sole expense, shall do or cause others to do every act necessary
or appropriate for the preservation and safety of the Real Property whether or
not the Lessor shall be required by any legal requirement to take such action or
be liable for failure to do so.
(b) If not at the time in default under this Agreement, Lessee, at its
sole expense, may make reasonable alterations of and additions to the
Improvements or any part thereof, provided that any alteration or addition (i)
shall not change the general character of the Improvements, or reduce the fair
market value thereof below their value immediately before such alteration or
addition, or impair their usefulness, (ii) is effected with due diligence, in a
good and workmanlike manner and in compliance with all legal requirements and
insurance requirements, (iii) is promptly and fully paid for by Lessee, (iv) is
made, in case the estimated cost of such alteration or addition exceeds Ten
Thousand Dollars ($10,000), under the supervision of an architect or engineer
satisfactory to Lessor and in accordance with plans, specifications and cost
estimates approved by Lessor, and (v) does not interfere with Lessor's rights of
use under this Agreement.
(c) Subject to subparagraph (d), below, relating to contests, Lessee
shall pay all taxes, assessments (including without limitation, all assessments
for public improvements or benefits, whether or not commenced or completed prior
to the date hereof and whether or not to be completed within the Term hereof),
ground rents, water, sewer or similar rents, rates and charges, excises, levies,
license fees, permit fees, inspection fees and other authorization fees and
other charges in each case, whether general or special, ordinary or
extraordinary, foreseen or unforeseen, of every character (including all
interest and penalties thereof), which at any time during or in respect of the
Term hereof may be assessed, levied, confirmed or imposed on or in respect of or
be a lien upon the Real Property or any part thereof or any rent therefrom or
any estate, right or interest therein, or any occupancy, use or possession of or
activity conducted on the Real Property or any part thereof, other than any
income or excess profits tax imposed upon the Lessor's general income or
revenues, but excluding any income or excess profits or franchise taxes of
Lessor determined on the basis of general income or revenue or any interest or
penalties in respect thereof. Lessee shall furnish to Lessor for inspection
within thirty (30) days after written request, official receipts of the
appropriate taxing authority or other proof satisfactory to Lessor evidencing
such payment. If by law any such amount may be paid in installments, Lessee
shall be obligated to pay only those installments as they become due from time
to time before any interest, penalty, fine or cost may be added thereto; and any
such amount relating to the fiscal period of the taxing authority, part of which
is included within the Term and a part of which extends beyond the Term shall,
if Lessee shall not be in default under this Agreement, be apportioned between
Lessee and Lessor as of the expiration of the Term of this Agreement.
(d) Lessee, at its sole expense, may contest, after prior written notice
to Lessor, by appropriate legal proceedings conducted in good faith and with due
diligence, the amount or
-4-
<PAGE> 5
validity or application, in whole or in part, of any tax, lien or other
imposition on the Real Property, provided that (i) Lessee shall first make all
contested payments, under protest if it desires, (ii) neither the Real Property
nor any part thereof or interest therein nor any such rents or other sums would
be in any danger of being sold, forfeited, lost or interfered with, and (iii)
Lessee shall have furnished such security, if any, as may be required in the
proceedings or reasonably requested by Lessor.
(e) Lessee shall pay or cause to be paid all charges for all public or
private utility services and all sprinkler systems and protective services at
any time rendered to or in connection with the Real Property or any part
thereof, will comply with all contracts relating to any such services, and will
do all other things required for the maintenance and continuance of all such
services.
SECTION 4
INSURANCE AND INDEMNIFICATION
(a) Lessee shall, at its sole cost and expense, during the Term hereof,
obtain or provide and keep in full force for the benefit of Lessor, as an
additional named insured (i) general public liability insurance, insuring Lessor
against any and all liability or claims or liability arising out of, occasioned
by or resulting from any accident or other occurrence in or about the Real
Property arising out of any act or omission of Lessee or any officer, employee,
agent or contractor of Lessee, for injuries to any person or persons, with
limits of not less than One Million Dollars ($1,000,000.00) for injuries to one
person, One Million Dollars ($1,000,000.00) for injuries to more than one
person, in any one accident or occurrence, and for loss or damage to the
property of any person or persons, for not less than One Million Dollars
($1,000,000.00); (ii) insurance with respect to the Improvements against loss or
damage by fire, lightning, windstorm, hail, explosion, riot, riot attending a
strike, civil commotion, aircraft, vehicles, smoke and other risks from time to
time included under "extended coverage" policies, in an amount equal to at least
One Hundred Percent (100%) of the full replacement value of the Improvements
and, in any event, in an amount sufficient to prevent Lessor or Lessee from
becoming a co-insurer of any partial loss under the applicable policies, which
shall be written on a replacement cost basis; (iii) appropriate workers'
compensation or other insurance against liability arising from claims of workers
in respect of and during the period of any work on or about the Real Property;
and (iv) insurance against such other hazards and in such amounts as is
customarily carried by owners and operators of similar properties, and as Lessor
may reasonably require for its protection. Lessee shall comply with such other
requirements as Lessor, or any mortgagee, may from time to time reasonably
request for the protection by insurance of their respective interests. The
policy or policies of insurance maintained by Lessee pursuant to this Paragraph
shall be of a company or companies authorized to do business in California and a
certificate thereof shall be delivered to Lessor, together with evidence of the
payment of the premiums therefor, not less than fifteen (15) days prior to the
commencement of the Term hereof or of the date when Lessee shall enter upon the
Leased Premises, whichever occurs sooner. At least fifteen (15) days prior to
the expiration or termination date of any policy, Lessee shall deliver a
certificate of a renewal or replacement policy with proof of the payment of the
premium therefor. Any such insurance
-5-
<PAGE> 6
required by this Paragraph may, at Lessee's option, be provided through a
blanket policy or policies.
(b) Lessee shall indemnify Lessor and hold Lessor harmless from and
against all claims, actions, losses, damages, liabilities and expenses
(including reasonable attorneys' fees) incurred by or asserted against Lessor,
whether during or after the Term of this Agreement, including by reason of
personal injury, loss of life, or damage to property, caused by or resulting
from in whole or any material part, (i) any breach of this Agreement by Lessee,
(ii) any negligent or intentional act or omission of Lessee, its employees,
agents, invitees or contractors, whether in, on, about or with respect to the
Leased Premises or otherwise, (iii) the use by Lessee of any part of the Leased
Premises, (iv) any work undertaken by or at the request of Lessee on or about
the Leased Premises, (v) any other activity undertaken by or at the request of
Lessee pursuant to or in connection with this Agreement, or (vi) the presence of
any individuals on the Leased Premises as a result of Lessee's request or this
Agreement; provided, however, that Lessee shall not be required to indemnify
Lessor for any damages, injury, loss or expense arising out of Lessor's or its
agents', employees', invitees' or contractors' negligent acts or omissions.
(c) If Lessor so elects by notice to Lessee, Lessee shall have the
obligation of defending, at its sole cost and expense, by counsel selected by
Lessee and approved by Lessor (such approval not to be unreasonably withheld),
against any claim to which the foregoing indemnity may apply. Lessor may assume,
or require that such defense be assumed, by Lessor and counsel selected by
Lessor, at the cost and expense of Lessee if Lessor is for any reason
dissatisfied with the defense by Lessee, or believes that its interests would be
better served thereby. In any case where Lessee is defending any such claim,
Lessor may participate in the defense thereof by counsel selected by it, but at
Lessor's expense. Lessee shall not enter into any settlement of any claim
without the consent of Lessor, which consent shall not be unreasonably withheld.
(d) Lessor shall indemnify Lessee and hold Lessee harmless from and
against all claims, actions, losses, damages, liabilities and expenses
(including reasonable attorneys' fees) incurred by or asserted against Lessee,
whether during or after the Term of this Agreement, including by reason of
personal injury, loss of life, or damage to property, caused by or resulting
from in whole or any material part, (i) any breach of this Agreement by Lessor,
(ii) any negligent or intentional act or omission of Lessor, its employees,
agents, invitees or contractors, whether in, on, about or with respect to the
Leased Premises or otherwise, (iii) the use by Lessor of any part of the Leased
Premises, (iv) any work undertaken by or at the request of Lessor on or about
the Leased Premises, (v) any other activity undertaken by or at the request of
Lessor pursuant to or in connection with this Agreement, or (vi) the presence of
any individuals on the Leased Premises as a result of Lessor's request or this
Agreement; provided, however, that Lessor shall not be required to indemnify
Lessee for any damages, injury, loss or expense arising out of Lessee's or its
agents', employees', invitees' or contractors' negligent acts or omissions.
(e) If Lessee so elects by notice to Lessor, Lessor shall have the
obligation of defending, at its sole cost and expense, by counsel selected by
Lessor and approved by Lessee (such approval not to be unreasonably withheld),
against any claim to which the foregoing indemnity may apply. Lessee may assume,
or require that such defense be assumed, by Lessee and counsel
-6-
<PAGE> 7
selected by Lessee, at the cost and expense of Lessor if Lessee is for any
reason dissatisfied with the defense by Lessor, or believes that its interests
would be better served thereby. In any case where Lessor is defending any such
claim, Lessee may participate in the defense thereof by counsel selected by it,
but at Lessee's expense. Lessor shall not enter into any settlement of any claim
without the consent of Lessee, which consent shall not be unreasonably withheld.
(f) Nothing in this Agreement shall be construed so as to authorize or
permit any insurer of Lessor or Lessee to be subrogated to any right of Lessor
or Lessee against the other. Each of Lessor and Lessee hereby releases the other
to the extent of its insurance coverage for any loss or damage caused by fire or
any of the extended coverage casualties, even if such fire or other casualty
shall be brought about by the fault or negligence of the other party or persons
for whose acts said party is liable.
SECTION 5
REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS
(a) Lessor represents and warrants that:
(i) The execution and performance of this Agreement shall not
constitute a breach or violation under any Agreement to which Lessor is a party.
(ii) To the best of Lessor's knowledge, there are no violations
of any federal, state, county or municipal law, ordinance, order, regulations or
requirement with respect to the Leased Premises, and as of the date of this
Agreement, no notice of any kind relating thereto (which would adversely affect
the transactions contemplated by this Agreement) has been issued by public
authorities having jurisdiction over the Leased Premises.
(iii) No person or party other than Lessor has a right to use the
Leased Premises for any purpose which would affect Lessee's right to use the
Leased Premises as contemplated hereunder.
(iv) Lessor has not received written notice of pending or
contemplated condemnation proceedings affecting the Leased Premises or any part
thereof.
(v) To the best of Lessor's knowledge, there is no action, suit
or proceeding pending or threatened against or affecting the Leased Premises or
any portion thereof and Lessor has not received notice written or otherwise of
any litigation affecting or concerning the Leased Premises relating to or
arising out of its ownership, management, use or operation. Lessor shall give to
Lessee prompt notice of institution of any such proceeding or litigation.
(vi) To the best of Lessor's knowledge, there are presently no
proceedings for overdue real estate taxes assessed against the Leased Premises
for any fiscal period.
(vii) Lessor shall promptly advise Lessee in writing of any
written notice received from any governmental authority to comply with the
terms, provisions and requirements
-7-
<PAGE> 8
of any local, state and federal laws, ordinances, directives, orders,
regulations and requirements which apply to any portion of the Leased Premises
or to any adjacent street or other public area or to the maintenance, operation
or use thereof.
(viii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary actions on the part of Lessor (none of which
actions have been modified or rescinded and all of which actions are in full
force and effect). This Agreement constitutes a valid and binding agreement and
obligation of Lessor, enforceable in accordance with its terms.
(ix) Subject to liens and encumbrances of record, Lessor owns
good and marketable title in fee simple to the Real Property on which the Leased
Premises are located, and Lessor acknowledges that Lessee is relying upon the
foregoing representation and warranty in entering into this Agreement and in
expending moneys in connection herewith. Lessor shall not encumber or permit any
encumbrances, liens or restrictions on Lessee's Installations, except with the
prior written approval of Lessee.
(b) Each party shall comply in all material respects with all local,
state and federal laws, statutes, ordinances, rules, regulations, orders and
decrees that it knows to be applicable in connection with its activities and
operations at the Leased Premises, and Lessor shall require the same
representation and warranty from all additional users of the facilities at the
Leased Premises.
(c) The parties agree that, during the Term of this Agreement neither
party shall intentionally do anything at the Leased Premises which will
interfere with or adversely affect the operations of the other party.
(d) In the event that during the Term of this Agreement there shall be
an actual condemnation or foreclosure and taking of all of the Leased Premises,
or a portion thereof such that it renders the premises unsuitable for
broadcasting, this Agreement may be terminated by written notice from either
party to the other and thereafter each of the parties shall be relieved of any
future liability to the other under this Agreement, except as to obligations
accrued and not yet discharged at the date of termination. Following any
condemnation or foreclosing order, Lessee may continue to use the property for
operations under the terms of this Agreement until Lessee finds and begins to
utilize new facilities or until prevented by the condemning or foreclosing
authority from utilizing the Leased Premises, whichever occurs first.
(e) Lessee represents and warrants that its Installations to be located
on or about the Leased Premises, together with the existence of the equipment of
Lessor, and the operation thereof do not and will not result in exposure of
workers or the general public to levels of radio frequency radiation in excess
of the "Radio Frequency Protection Guides" recommended in "American National
Standard Safety Levels With Respect to Human Exposure to Radio Frequency
Electromagnetic Fields, 300 KHz to 100 GHz," issued by the American National
Standards Institute ("Acceptable Radio Frequency Radiation Standards").
-8-
<PAGE> 9
(f) Lessee covenants that it will not at any time during the Term of
this Agreement, transmit, store, handle or dump toxic or hazardous wastes
anywhere at or around the Leased Premises.
(g) Lessee shall promptly advise Lessor in writing of any written notice
received from any governmental authority to comply with the terms, provisions
and requirements of any local, state and federal laws, ordinances, directives,
orders, regulations, and requirements which apply to any portion of the Leased
Premises or to any adjacent street or other public area or the maintenance,
operation or use thereof.
(h) Lessee represents and warrants that the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
actions on the part of Lessee (none of which actions have been modified or
rescinded and all of which actions are in full force and effect). This Agreement
constitutes a valid and binding agreement and obligation of Lessee, enforceable
in accordance with its terms.
(i) Lessee warrants unto Lessor that the Improvements (including the
radio tower(s) located on the Real Property) are and will remain in material
compliance at all times during the Term and any Extension Term with all federal,
state, county, municipal, local, administrative and other governmental laws,
statutes, ordinances, codes, rules, regulations and orders pertaining thereto,
including, without limitation, to the extent applicable, all zoning laws and
building codes and all regulations of the Federal Aviation Administration
("FAA") and the Federal Communications Commission ("FCC").
(j) In case of any material damage to or destruction of the Real
Property or any part thereof, Lessee shall promptly give written notice thereof
to Lessor and any mortgagee, generally describing the nature and extent of such
damage or destruction. In case of any damage to or destruction of the
Improvements or any parts thereof, Lessee, whether or not the insurance
proceeds, if any, on account of such damage or destruction shall be sufficient
for the purpose, at its sole expense, shall promptly commence and complete the
restoration, replacement or rebuilding of the Improvements as nearly as possible
to their value, condition and character immediately prior to such damage or
destruction.
(k) Lessee will execute, acknowledge and deliver to the Lessor, promptly
upon request, a certificate certifying that (i) this Agreement is unmodified and
in full force and effect (or, if there have been modifications, that the
Agreement is in full force and effect, as modified, and stating the
modifications), (ii) the dates, if any, to which rent and other sums payable
hereunder have been paid, and (iii) no notice has been received by Lessee of any
default which has not been cured, except as to defaults specified in said
certificate. Any such certificate may be relied upon by any prospective
purchaser or mortgagee of the Real Property or any part thereof.
(l) Lessor will execute, acknowledge and deliver to the Lessee or any
mortgagee, promptly upon request, a certificate certifying that (i) this
Agreement is unmodified and in full force and effect (or, if there have been
modifications, that the Agreement is in full force and
-9-
<PAGE> 10
effect, as modified, and stating the modifications), (ii) the dates, if any, to
which rent and other sums payable hereunder have been paid, and (iii) whether or
not, to the knowledge of Lessor, there are then existing any defaults under this
Agreement (and if so, specifying the same). Any such certificate may be relied
upon by any prospective purchaser transferee or mortgagee of Lessee's interest
under this Agreement.
SECTION 6
EVENTS OF DEFAULT
(a) Any of the following events shall constitute a default on the part
of Lessee:
(i) The failure of Lessee to pay rent or additional rent, and
continuation of such failure for more than ten (10) days after Lessee's receipt
of written notice thereof from Lessor; provided, however, that Lessor shall not
be required to provide such written notice to Lessee more than twice in any
twelve (12) month period prior to declaring such failure to pay an event of
default; or
(ii) The failure of Lessee to cure any other default under the
terms hereof, and continuation of such failure to cure for more than thirty (30)
days after notice by Lessor, provided, however, that if the nature of Lessee's
default is such that more than thirty (30) days is required for its cure, then
Lessee shall not be deemed to be in default if Lessee has commenced such cure
within the thirty (30) day period, demonstrates to Lessor's reasonable
satisfaction that such default is curable and thereafter diligently prosecutes
such cure to completion; or
(iii) Lessee is finally and without further right of appeal or
review, adjudicated a bankrupt or insolvent, or has a receiver appointed for all
or substantially all of its business or assets on the ground of its insolvency,
or has a trustee appointed for it after a petition has been filed for Lessee's
reorganization under the Bankruptcy Act of the United States, or any future law
of the United States having the same general purpose, or if Lessee shall make an
assignment for the benefit of its creditors, or if Lessee's interest hereunder
shall be levied upon or attached, which levy or attachment shall not be removed
within twenty (20) days from the date thereof.
(b) If an event of default on the part of Lessee shall occur at any
time, Lessor, at its election, may give Lessee a notice of termination
specifying a day not less than thirty (30) days thereafter on which the Term of
this Agreement shall end, unless such default shall be cured within said period,
or, if the default is such that more than thirty (30) days is required for its
cure, unless Lessee has commenced such cure within said period. If such notice
is given, the Agreement shall expire on the day so specified as fully and
completely as if that day were the day herein originally fixed for such
expiration, and Lessee shall then quit and surrender the Leased Premises to
Lessor, but Lessee shall remain liable for the payment of rent during the full
period which would otherwise constitute the balance of the Term of this
Agreement; and without prejudice to any other right or remedy which it may have
hereunder or by law, and notwithstanding any waiver of any prior breach of
condition or event of default hereunder, Lessor may re-enter the Leased Premises
either by reasonable force or otherwise, or dispossess
-10-
<PAGE> 11
Lessee, any legal representative of Lessee or other occupant of the Leased
Premises by appropriate suit, action or proceeding and remove its effects and
hold the Leased Premises as if this Agreement had not been made.
(c) The failure of Lessor to cure any default under the terms hereof,
and continuation of such failure to cure for more than thirty (30) days after
notice by Lessee, shall constitute a default on the part of Lessor; provided,
however, that if the nature of Lessor's default is such that more than thirty
(30) days is required for its cure, then Lessor shall not be deemed to be in
default if Lessor has commenced such cure within the thirty (30) day period,
demonstrates to Lessee's reasonable satisfaction that such default is curable
and thereafter diligently prosecutes such cure to completion.
(d) If an event of default on the part of Lessor shall occur at any
time, Lessee, at its election, may give Lessor a notice of termination
specifying a day not less than thirty (30) days thereafter on which the Term of
this Agreement shall end, unless such default shall be cured within said period,
or, if the default is such that more than thirty (30) days is required for its
cure, unless Lessor has commenced such cure within said period. If such notice
is given, the Agreement shall expire on the day so specified as fully and
completely as if that day were the day herein originally fixed for such
expiration, and Lessee shall then quit and surrender the Leased Premises to
Lessor, and Lessee shall not be liable for payment of rent for any period after
such expiration.
SECTION 7
ASSIGNMENT
Lessee shall not assign this Agreement nor sublet any portion of the
Leased Premises without the prior written consent of the Lessor, which consent
shall not be unreasonably withheld. Notwithstanding any assignment or sublease,
Lessee shall remain primarily liable under this Agreement.
SECTION 8
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
This Agreement shall not be a lien against the Leased Premises in
respect to any mortgages and security agreements placed or hereafter to be
placed by Lessor upon the Leased Premises. The recording of such mortgages and
security agreements shall have preference and precedence and be superior and
prior in lien to this Agreement, irrespective of the date of recording, and
Lessee agrees to execute any instruments, without cost, which may be deemed
necessary or desirable to further effect the subordination of this Agreement.
Lessor shall make a reasonable effort to obtain from any mortgagees or lenders
holding an interest in the nature of a mortgage in the Leased Premises an
agreement that the mortgagee or lender shall not disturb Lessee's quiet
possession in the event of foreclosure. If any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by the Lessor encumbering the Leased Premises,
Lessee shall attorn to the purchaser
-11-
<PAGE> 12
upon any such foreclosure or sale and recognize such purchaser as the Lessor
under this Lease.
SECTION 9
NON-LIABILITY OF LESSOR
Lessor shall not be liable for any damages or injury which may be
sustained by Lessee or any other person by reason of the failure, breakage,
leakage or obstruction of the water, sewer, plumbing, roof, drains, leaders,
electrical, air conditioning or any other equipment; or by reason of the
elements; or resulting from the carelessness, negligence or improper conduct of
Lessee, its agents, employees, contractors, invitees, assignees or successors;
or attributable to any interference with or the interruption of or failure of
any services, beyond the control of Lessor, to be supplied by Lessor.
SECTION 10
QUIET ENJOYMENT
(a) Lessor agrees that it shall not enforce any unreasonable rules or
regulations which would unduly prejudice the conduct of Lessee's business, or
which would prevent full and free access to the Leased Premises by Lessee, as
herein provided.
(b) Lessor reserves and shall at all times have the right to re-enter
the Real Property to inspect the same, to supply any service to be provided by
Lessor to Lessee hereunder, and to show the Real Property to prospective
purchasers, mortgagees, or lessees, to post notices of non-responsibility,
without abatement of rent, provided entrance to the Real Property shall not be
denied Lessee.
SECTION 11
SALE OF LEASED PREMISES BY LESSOR
Notwithstanding any of the provisions of this Lease, Lessor (a) may
assign, in whole or in part, Lessor's interest in this Lease and (b) may sell
all or part of the Real Property. In the event of any sale or exchange of the
Leased Premises by Lessor and assignment by Lessor of this Lease, Lessor shall
be and is hereby relieved of all liability under any and all of its covenants
and obligations contained in or derived from this Lease arising out of any act,
occurrence or omission relating to the Leased Premises occurring after the
consummation of such sale or exchange and assignment, but only upon the
condition that, as part of such sale or exchange, Lessor will cause the grantee
to agree in writing to assume to carry out any and all of the covenants and
obligations of Lessor under this Lease occurring after the consummation of
Lessor's assignment of its interest in and to this Lease.
-12-
<PAGE> 13
SECTION 12
BROKERAGE
The parties acknowledge and agree that this Agreement has not been
brought about as a result of the services of any real estate broker, firm or
corporation, and each indemnifies and saves the other harmless from any and all
claims from any person(s) claiming to have rendered real estate services in
connection with this Agreement.
SECTION 13
SURRENDER OF PREMISES
Upon the expiration of the Term hereof, Lessee shall surrender the
Leased Premises, and, at Lessor's option, all interest of the Lessee in and to
the Improvements (including the radio towers located on the Land), to Lessor in
good order and condition, reasonable wear and tear excepted. Any equipment,
fixtures, goods or other property of Lessee not removed within ten (10) days
after any quitting, vacating or abandonment of the Leased Premises, or upon
Lessee's eviction therefrom, shall be considered abandoned, and Lessor shall
have the right, without notice to Lessee, to sell or otherwise dispose of same
without having to account to Lessee for any part of the proceeds of such sale.
SECTION 14
NOTICES
All notices, demands, and requests required or permitted to be given
hereunder shall be in writing and sent certified mail, return receipt requested,
and if to Lessor, at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012, Attn:
Edward G. Atsinger III, and if Lessee, at 4880 Santa Rosa Road, Suite 300,
Camarillo, CA 93012, Attn: Accounting. Either party hereto may change the place
for notice to it by sending like written notice to the other party hereto.
SECTION 15
BINDING NATURE
The provisions of this Agreement shall apply to, bind and inure to the
benefit of Lessor and Lessee, their respective successors, legal representatives
or assigns. The terms of this Agreement and any disputes arising therefrom,
shall be governed by the laws of the State of Texas.
SECTION 16
ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement between
the parties.
No
-13-
<PAGE> 14
representative, agent or employee of Lessor has been authorized to make any
representations or promises with reference to the within agreement or to vary,
alter or modify the terms hereof. No additions, changes or modifications shall
be binding unless reduced to writing and signed by the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
LESSOR: LESSEE
ATSINGER FAMILY TRUST INSPIRATION MEDIA OF TEXAS, INC.
/S/ EDWARD G. ATSINGER, III /S/ ERIC H. HALVORSON
- ------------------------------------------ ---------------------------------
EDWARD G. ATSINGER, III ERIC H. HALVORSON
Trustee Vice-President
STUART W. EPPERSON REVOCABLE LIVING TRUST
/S/ STUART W. EPPERSON
- ------------------------------------------
STUART W. EPPERSON
Trustee
-14-
<PAGE> 1
EXHIBIT 12.01
SALEM COMMUNICATIONS CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations............... $ 439 $ 312 $19,408 $(1,087) $(1,924)
Interest expense...................... 3,668 6,646 7,361 12,706 15,941
Interest portion of rent expense...... 829 1,041 1,274 1,601 1,615
------ ------ ------- ------- -------
Earnings............................ $4,936 $7,999 $28,043 $13,220 $15,632
====== ====== ======= ======= =======
Interest expense...................... $3,668 $6,646 $ 7,361 $12,706 $15,941
Interest portion of rent expense...... 829 1,041 1,274 1,601 1,615
------ ------ ------- ------- -------
Fixed charges....................... $4,497 $7,687 $ 8,635 $14,307 $17,556
====== ====== ======= ======= =======
Ratio of earnings to fixed charges.... 1.1 1.0 3.2 0.9 0.9
====== ====== ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF SALEM COMMUNICATIONS CORPORATION,
A CALIFORNIA CORPORATION
ATEP Radio, Inc.
Bison Media, Inc.
Caron Broadcasting, Inc.
CCM Communications, Inc.
Common Ground Broadcasting, Inc.
Golden Gate Broadcasting Company, Inc.
Inland Radio, Inc.
Inspiration Media, Inc.
Inspiration Media of Texas, Inc.
Kingdom Direct, Inc.
New England Continental Media, Inc.
New Inspiration Broadcasting Company, Inc.
Oasis Radio, Inc.
OnePlace, Ltd.
Pennsylvania Media Associates, Inc.
Radio 1210, Inc.
Salem Communications Corporation (a Delaware corporation)
Salem Media of California, Inc.
Salem Media of Colorado, Inc.
Salem Media Corporation
Salem Media of Ohio, Inc.
Salem Media of Oregon, Inc.
Salem Media of Pennsylvania, Inc.
Salem Media of Texas, Inc.
Salem Media of Virginia, Inc.
Salem Music Network, Inc.
Salem Radio Network Incorporated
Salem Radio Representatives, Inc.
South Texas Broadcasting, Inc.
SRN News Network, Inc.
Vista Broadcasting, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,917
<SECURITIES> 0
<RECEIVABLES> 15,218
<ALLOWANCES> 862
<INVENTORY> 0
<CURRENT-ASSETS> 19,374
<PP&E> 66,258
<DEPRECIATION> 25,509
<TOTAL-ASSETS> 207,750
<CURRENT-LIABILITIES> 7,835
<BONDS> 178,610
0
0
<COMMON> 5,832
<OTHER-SE> 3,269
<TOTAL-LIABILITY-AND-EQUITY> 207,750
<SALES> 0
<TOTAL-REVENUES> 85,411
<CGS> 0
<TOTAL-COSTS> 69,412
<OTHER-EXPENSES> 422
<LOSS-PROVISION> 2,087
<INTEREST-EXPENSE> 15,941
<INCOME-PRETAX> (1,924)
<INCOME-TAX> (343)
<INCOME-CONTINUING> (1,581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,581)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
