<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SALEM COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4832 77-0363592
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
4880 SANTA ROSA ROAD
SUITE 300
CAMARILLO, CALIFORNIA 93012
(805) 987-0400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S AND CO-REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
JONATHAN L. BLOCK, ESQ.
SALEM COMMUNICATIONS CORPORATION
4880 SANTA ROSA ROAD
SUITE 300
CAMARILLO, CALIFORNIA 93012
(805) 987-0400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
THOMAS D. MAGILL, ESQ. PETER J. LOUGHRAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP DEBEVOISE & PLIMPTON
4 PARK PLAZA, SUITE 1400 875 THIRD AVENUE
IRVINE, CALIFORNIA 92614 NEW YORK, NEW YORK 10022
(949) 451-3800 (212) 909-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
============================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Class A common stock, $.01 par value........................ $200,000,000 $55,600
============================================================================================================
</TABLE>
(1) Includes shares that the underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's Class A
common stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Class A common stock (the
"International Prospectus"). The International Prospectus will be identical to
the U.S. Prospectus except that it will have a different front cover page,
underwriting section and back cover page. The U.S. Prospectus is included herein
and is followed by the alternate pages to be used in the International
Prospectus. The front cover page, underwriting section and back cover page for
the International Prospectus included herein have all been labeled "Alternate
Page for International Prospectus."
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1999
PROSPECTUS
SHARES
LOGO SALEM COMMUNICATIONS CORPORATION
CLASS A COMMON STOCK
----------------------
This is Salem's initial public offering. We are offering
shares of Class A common stock and the selling stockholders of
Salem are offering shares of Class A common stock. The U.S.
underwriters are offering shares in the United States and Canada
and the international managers are offering shares outside the
United States and Canada.
We expect the public offering price to be between $ and
$ per share. After pricing of this offering, we expect that the Class A
common stock will trade on The New York Stock Exchange under the symbol "SLC."
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Salem........................ $ $
Proceeds, before expenses, to Selling Stockholders......... $ $
</TABLE>
The U.S. underwriters may also purchase from the selling stockholders up to
an additional shares of Class A common stock at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus to cover over-allotments. The international managers may
similarly purchase up to an aggregate of additional shares of
Class A common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of Class A common stock will be ready for delivery in New York,
New York on or about , 1999.
----------------------
Joint Lead Managers and Joint Bookrunners
BT ALEX. BROWN ING BARING FURMAN SELZ LLC
----------------------
SALOMON SMITH BARNEY
----------------------
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 4
GATEFOLD: Map of the United States depicting states in which Salem's radio
stations and network operations are located. A listing of Salem's radio stations
and network operations is also presented.
INSIDE BACK COVER: A depiction of the names and logos of Salem's non-radio
businesses, OnePlace, Ltd., CCM Communications, Inc. and NavPress Software, Inc.
<PAGE> 5
TABLE OF CONTENTS
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<CAPTION>
PAGE
----
<S> <C>
Summary......................... 1
Risk Factors.................... 8
Forward-Looking Statements...... 12
Use of Proceeds................. 13
Dividend Policy................. 13
Capitalization.................. 14
Dilution........................ 15
Selected Consolidated Financial
Information................... 16
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 19
Business........................ 29
Management...................... 51
Transactions Involving Officers,
Directors and Principal
Stockholders.................. 58
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Security Ownership of Selling
Stockholders, Beneficial
Owners and Management......... 61
Description of Capital Stock.... 62
Shares Eligible for Future
Sale.......................... 67
Certain U.S. Federal Tax
Considerations for Non-U.S.
Holders of Class A Common
Stock......................... 68
Underwriting.................... 71
Legal Matters................... 76
Experts......................... 76
Additional Information.......... 76
Index to Consolidated Financial
Statements.................... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
-------------------------
We are a Delaware corporation. Our principal executive offices are located
at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012, and our telephone
number is (805) 987-0400. In this prospectus, "Salem," "we," "us" and "our"
refer to Salem Communications Corporation and its subsidiaries (but not to the
underwriters listed in this prospectus), unless the context otherwise requires.
i
<PAGE> 6
SUMMARY
In addition to this summary of the more detailed information appearing
elsewhere in this prospectus, you should read the entire prospectus carefully,
including the risk factors and consolidated financial statements and related
notes. All information in this prospectus assumes the underwriters will not
exercise their over-allotment options, unless otherwise stated.
SALEM
We are the largest U.S. radio broadcasting company providing programming
targeted at audiences interested in religious and family issues. Our core
business is the ownership and operation of radio stations in large metropolitan
markets. After we complete our pending transactions, we will own 48 radio
stations, including 34 stations which broadcast to 19 of the top 25 markets. We
also operate Salem Radio Network(R), a national radio network offering
syndicated talk, news and music programming to approximately 1,100 affiliated
radio stations.
Our primary strategy has been, and will continue to be, to acquire and
operate radio stations in large metropolitan markets. We either acquire general
format radio stations and reformat them or acquire radio stations already
broadcasting in a religious and family issues format. Traditionally, we have
programmed acquired 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 radio stations. We have expanded our acquisition strategy in
recent years by acquiring additional radio stations in markets in which we
already have a presence. We program these radio stations to feature news/talk
and religious music formats that complement our primary format. Salem Radio
Network(R) supports our strategy by enabling us to offer a variety of program
content on newly acquired radio stations in both new and existing markets.
Our founders, Salem's 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 nine
years with Salem.
Our financial results demonstrate management's successful implementation of
our acquisition and operating strategies:
- Our net revenue increased 14.7% from 1997 to 1998 and grew at a compound
annual rate of 19.2% from 1994 to 1998.
- Our broadcast cash flow increased 25.1% from 1997 to 1998 and grew at a
compound annual rate of 21.2% from 1994 to 1998.
- On a same station and network basis, our net revenue improved 11.6% from
1997 to 1998 and our broadcast cash flow increased 21.7% from 1997 to
1998.
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 similar to those
of our targeted radio audience. We plan to use these businesses, together with
our radio stations and national radio network, to attract and retain a larger
audience and customer base.
1
<PAGE> 7
OUR AUDIENCE
We are committed to serving our target audience, the segment of the
population interested in religious and family issues. We believe this audience
is large and will continue to expand.
- Religious formats constitute the third largest radio format in the U.S.
after country and news/talk/business/sports formats, as of November 1998
(The M Street Journal).
- Over the last ten years, the number of radio stations identified as
having primarily a religious format has increased by 79% to 1,785 (The M
Street Journal).
- From 1997 to 1998, listeners to religious format radio increased by 1.3
million adults to 27.9 million weekly listeners (Religion & Media
Monthly).
- The Christian retail industry had $3 billion in sales in 1998 (Christian
Booksellers Association).
- Sales of Christian music grew an average of 22% each year from 1991 to
1997 (Variety).
GROWTH AND OPERATING STRATEGIES
Continue to Focus on Targeted Audience. We attribute our success largely to
a consistent emphasis on reaching the audience interested in religious and
family issues. We have demonstrated a long-term commitment to this audience by
operating radio stations with formats directed to our listeners' specific needs
and interests. This consistent focus and commitment builds loyalty and trust
from our listening audience, block program purchasers and advertisers.
Pursue Strategic Radio Acquisitions in Large Markets. We intend to pursue
acquisitions of radio stations in both new and existing markets, particularly in
large metropolitan areas. Because we believe our presence in large markets makes
us attractive to national block programmers and national advertisers, we will
continue to pursue acquisitions of radio stations in selected top 50 markets
where we currently do not have a presence. In addition, we will explore
opportunities to acquire additional radio stations in our current markets, which
we will program with news/talk and religious music formats. Through our
acquisition strategy, we reach a greater number and broader range of listeners.
This enables us to increase audience response for block program customers and
expand our advertising revenue base. In addition, our ownership of multiple
radio stations in the same market enables us to achieve cost savings by
consolidating operations.
Emphasize Compelling Program Content. As more listening, reading and
viewing options become available to consumers, compelling program content will
be a prerequisite for expanding our listening audience and increasing audience
response to block programmers and advertisers. We continually look for new block
program producers. We provide advice to both prospective and existing block
program customers on program content and structure, staffing, engineering and
programming delivery options. Our national radio network will continue to
compete aggressively for talk show talent that will be attractive to affiliates,
expand and refine our music formats, and develop compelling news and public
affairs features. In addition, our newly acquired Internet and magazine
businesses will develop creative content offerings.
2
<PAGE> 8
Build Station Identity. We seek to build local station identity for each of
our radio stations in order to retain and increase its listening audience,
expand its base of advertisers and provide increased audience response to our
block program customers. We emphasize the development of a radio station's
identity to allow each radio station to better compete against general format
radio stations through improvement of production quality and technical
facilities and the development of local on-air personalities.
Integrate Media Assets. We began to develop integrated media assets to
complement the distribution capabilities of our radio stations when we created
our radio network. Our ability to control both content and distribution enables
us to expand and better serve our listening audience, as well as our advertising
and block program customers. We plan to continue to implement this strategy and
apply it to our newly acquired magazine, Internet and software businesses. We
will also opportunistically pursue acquisitions of new media and other
businesses that serve our audience. We intend to develop cross-promotion and
cross-selling programs on each of our radio, magazine and Internet media to
attract new audiences for our radio stations, new readers for our magazines and
new customers for our Internet products and services.
RECENT DEVELOPMENTS
RADIO
In April 1999, we entered into a letter of intent to purchase WLSY-FM and
WRVI-FM, Louisville, Kentucky, for a combined purchase price of $5.0 million.
In April 1999, we entered into an agreement to purchase KGME-AM, Phoenix,
Arizona, for $5.0 million.
In April 1999, we exercised an option to acquire ownership of KKOL-AM,
Seattle, Washington, for $1.4 million from a corporation owned by our principal
stockholders. We currently operate KKOL-AM.
In October 1998, we purchased KTEK-AM, Houston, Texas, and KYCR-AM,
Minneapolis, Minnesota, for a combined purchase price of $2.6 million, retained
the stations' religious talk formats and consolidated their operations with our
other Houston and Minneapolis radio stations, respectively.
In August 1998, we purchased KIEV-AM, Los Angeles, California, for $33.2
million, retained its news/talk format and added programming from our network.
The operations of KIEV-AM have been consolidated with our other Los Angeles
radio stations.
In August 1998, we purchased KKMO-AM, Seattle-Tacoma, Washington, for
$500,000, reformatted the station to a religious talk format and consolidated
the station's operations with our other Seattle radio stations.
In August 1998, we entered into an agreement with XM Satellite Radio, Inc.
to develop, produce, supply and market on an exclusive basis religious and
family issues audio programming which will be distributed by a subscriber-based
satellite digital audio radio service. XM Satellite Radio, Inc., one of two
Federal Communications Commission licensees for this service, will have the
capability of providing up to 100 channels of audio programming. XM Satellite
Radio expects its service to commence in 2000. 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.
3
<PAGE> 9
NEW MEDIA
In April 1999, we will purchase the assets of NavPress Software, Inc. for
$550,000. NavPress, based in Austin, Texas, is a developer and supplier of
electronic Bible and Christian reference books and Bible study software
applications, including its best known products, WORDsearch(TM) and
LESSONmaker(TM).
In January 1999, we purchased the assets of OnePlace, LLC for $6.2 million.
OnePlace(TM), based in Greensboro, North Carolina, provides Internet e-commerce,
search engines, consumer profiling and other information technologies to the
Christian products industry. OnePlace(TM) also creates information databases and
publishes software applications, including management software for churches and
GuardiaNet(TM), an Internet-based Web filtering system.
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 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. CCM also publishes Christian
Research Report, the leading trade publication providing rating information to
contemporary Christian music formatted radio stations, and CCM Update, a trade
publication providing rating information to contemporary Christian music
producers and retailers. With the combination of these CCM publications, we are
uniquely positioned to track contemporary Christian music audience trends.
4
<PAGE> 10
THE OFFERING
Class A common stock offered
by:
Salem........................ shares
Selling stockholders......... shares
Total........................ shares
Common stock outstanding after
the offering:
Class A common stock......... shares
Class B common stock......... shares
Over-allotment options......... shares
Use of proceeds................ We intend to use the estimated net proceeds to
Salem of $ million as follows:
- $54.75 million to redeem a portion of our
senior subordinated notes (including a $4.75
million redemption premium),
- $ million to repay all indebtedness
outstanding under our credit facility, and
- $ million for general corporate
purposes, including acquisitions and working
capital requirements.
We will not receive any proceeds from the sale
by the selling stockholders of shares of Class
A common stock.
Voting rights.................. - Holders of Class A common stock are entitled
to one vote per share and holders of Class B
common stock are entitled to ten votes per
share, except for specified related party
transactions. See "Description of Capital
Stock -- Common Stock."
- Holders of Class A common stock and Class B
common stock vote together as a single class
on all matters submitted to a vote of
stockholders, except that holders of Class A
common stock vote separately for two
independent directors.
- Our existing stockholders hold all of the
shares of Class B common stock and, after
this offering, will own shares having
approximately % of the combined votes of
Salem's Class A and Class B common stock.
Risk Factors................... See "Risk Factors" for a discussion of factors
you should carefully consider before deciding
to invest in the shares of Class A common
stock.
Proposed New York Stock
Exchange symbol.............. "SLC"
5
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
You should read the following summary financial information together with
Salem's consolidated financial statements and related notes, "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. Our financial results are not comparable from period to period
because of our acquisition and disposition of radio stations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND 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 and network 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 corporation
shareholders(1)................................... 977 2,057 2,038 1,780 --
Depreciation and amortization....................... 7,633 7,884 8,394 12,803 14,058
-------- -------- -------- -------- --------
Total 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..................................... 230 319 523 230 291
Gain (loss) on disposal of assets................... (482) (7) 16,064 4,285 236
Interest expense.................................... (3,668) (6,646) (7,361) (12,706) (15,941)
Other 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 loss(2)................................. -- (394) -- (1,185) --
-------- -------- -------- -------- --------
Net income (loss)..................................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581)
======== ======== ======== ======== ========
Pro forma net income (loss)(1)........................ $ 848 $ 1,024 $ 12,838 $ (770) $ (1,581)
======== ======== ======== ======== ========
Basic and diluted income (loss) per share before
extraordinary item.................................. $ 2.80 $ 2.11 $ 52.05 $ (4.87) $ (6.45)
======== ======== ======== ======== ========
Basic and diluted net income (loss) per share(3)...... $ 2.80 $ 0.50 $ 52.05 $ (9.71) $ (6.45)
======== ======== ======== ======== ========
Pro forma basic and diluted income (loss) per share
before extraordinary item........................... $ 3.46 $ 5.79 $ 52.40 $ 1.70 $ (6.45)
======== ======== ======== ======== ========
Pro forma basic and diluted net income (loss) per
share............................................... $ 3.46 $ 4.18 $ 52.40 $ (3.14) $ (6.45)
======== ======== ======== ======== ========
Basic and diluted weighted average shares
outstanding(3)...................................... 245,016 245,016 245,016 245,016 245,016
======== ======== ======== ======== ========
OTHER DATA:
Broadcast cash flow(4)................................ $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365
Broadcast cash flow margin(5)......................... 42.5% 42.9% 43.3% 41.7% 45.4%
EBITDA(4)............................................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970
After-tax cash flow(4)................................ 8,770 9,306 11,594 10,647 12,335
Cash flows related to:
Operating activities................................ $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015
Investing activities................................ (18,806) (27,681) (18,923) (26,326) (31,762)
Financing activities................................ 11,827 19,227 9,383 18,695 21,019
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(6):
Interest expense......................................
Net income............................................
Basic and diluted net income per share(7).............
Basic and diluted weighted average shares
outstanding(7)......................................
After-tax cash flow(4)................................
Basic and diluted after-tax cash flow per
share(4)(7).........................................
</TABLE>
(footnotes on following page)
6
<PAGE> 12
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,917
Total assets................................................ 207,750
Long-term debt.............................................. 178,610
Stockholders' equity........................................ 9,101
</TABLE>
(1) Tax reimbursements to S corporation shareholders represent the income tax
liabilities of our principal stockholders created by the income of New
Inspiration and Golden Gate, which were both S corporations prior to our
August 1997 reorganization. Pro forma net income (loss) excludes tax
reimbursements to S corporation shareholders and includes a pro forma tax
provision at an estimated combined federal and state income tax rate of 40%
as if the reorganization had occurred at the beginning of each period
presented. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, pretax income of New
Inspiration and Golden Gate is included in our computation of the income tax
provision included in our consolidated statements of operations. See
"Selected Consolidated Financial Information" and notes 1 and 6 to our
consolidated financial statements.
(2) The extraordinary loss in each of 1995 and 1997 relates to the write-off of
deferred financing costs and termination fees related to the repayment of
long-term debt. See note 4 to our consolidated financial statements.
(3) See note 1 to our consolidated financial statements.
(4) We define broadcast cash flow as net operating income before depreciation
and amortization and corporate expenses. We define EBITDA as net operating
income before depreciation and amortization. We define after-tax cash flow
as income (loss) before extraordinary item minus gain (loss) on disposal of
assets (net of income tax) plus depreciation and amortization. For periods
prior to 1998, broadcast cash flow and EBITDA are calculated using net
operating income before tax reimbursements to S corporation shareholders.
For periods prior to 1998, after-tax cash flow excludes tax reimbursements
to S corporation shareholders and includes a pro forma tax provision at an
estimated combined federal and state income tax rate of 40% as if the
reorganization had occurred at the beginning of each period presented.
Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance calculated in accordance with generally accepted
accounting principles, we believe that they are useful to an investor in
evaluating Salem because they are measures widely used in the radio
broadcast industry to evaluate a radio company's operating performance.
However, you should not consider broadcast cash flow, EBITDA and after-tax
cash flow in isolation or as substitutes for net income, cash flows from
operating activities and other statement of operations or cash flows data
prepared in accordance with generally accepted accounting principles as a
measure of liquidity or profitability. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
(5) Broadcast cash flow margin is broadcast cash flow as a percentage of net
revenue.
(6) The adjusted data give effect to the offering and the application of a
portion of the net proceeds of the offering to redeem $50 million in
principal amount of our senior subordinated notes (plus a $4.8 million
redemption premium) and to repay all amounts outstanding under our credit
facility ($36.8 million as of March 31, 1999) as if this application of net
proceeds had occurred as of January 1, 1998. This results in a reduction in
interest expense of $6.0 million for 1998. See "Use of Proceeds." We will
record the redemption premium and a portion of unamortized bond issue costs
as an extraordinary loss on the early extinguishment of debt in the period
when the senior subordinated notes are redeemed. The extraordinary loss is
not included in the adjusted data since it will be a non-recurring charge.
(7) Based on the weighted average number of shares of Class A common stock and
Class B common stock outstanding for all periods presented, including the
number of shares of Class A common stock to be issued and sold by Salem in
the offering, assuming the offering had occurred as of January 1, 1998.
7
<PAGE> 13
RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following factors in evaluating Salem and our business
before purchasing shares of Class A common stock.
OUR RESULTS DEPEND SIGNIFICANTLY UPON THE SUCCESS OF THE RELIGIOUS AND FAMILY
ISSUES FORMAT
We are committed to a broadcasting format emphasizing religious and family
issues. Our results of operations therefore depend significantly upon:
- the success of religious and family issues formats,
- the continued positive listener response to our block program and
advertising customers,
- the financial success of the organizations purchasing block program time
and advertising on our radio stations, and
- the financial success of affiliated radio stations that feature
programming from Salem Radio Network(R).
We may not pursue potentially more profitable business opportunities
outside of our religious and family issues format. For example, we may not
switch to other formats in response to changing audience preferences.
OUR STRATEGY TO GROW THROUGH ACQUISITIONS INVOLVES NUMEROUS RISKS
We intend to continue our acquisition strategy by acquiring radio stations
in new and existing markets, as well as by expanding into other media and
acquiring businesses that share our commitment to serving our targeted audience.
Our acquisition strategy involves numerous risks:
- We may be unable to generate cash flow from reformatted radio stations as
effectively as we have in the past or in amounts sufficient to offset
associated acquisition costs.
- Our management may be unable to manage a larger organization or may be
unable to effectively assimilate newly acquired radio stations into our
organization.
- We may be unable to identify attractive radio station acquisition
opportunities, or may be forced to pay higher prices, due to increased
competition with other buyers in the rapidly consolidating radio
broadcasting industry. General format broadcast companies may be able to
outbid us because they may have greater financial resources or can
justify paying higher prices for radio stations broadcasting in their
desired format or otherwise meeting their acquisition strategies.
- We may be unable to obtain additional financing on terms that are both
acceptable to our management and in compliance with covenants in our
credit facility or senior subordinated notes.
- Our core group of national block program customers, which have
historically accounted for a substantial portion of our revenue, may not
be willing to support our further expansion into new markets due in part
to:
- their high initial costs required to create a listener base in a new
market capable of generating revenue sufficient to cover programming
costs, and
8
<PAGE> 14
- their pre-existing relationships with other radio stations in these
markets.
- We may not be able to acquire new media and other businesses that we
identify as important to our strategy, and may be unable to successfully
integrate acquisitions of these businesses into our organization.
Our inability to successfully implement our acquisition strategy could have
a material adverse effect on our business and results of operations.
THE HIGHLY COMPETITIVE NATURE OF THE RADIO BROADCAST INDUSTRY COULD NEGATIVELY
IMPACT OUR BUSINESS
The radio broadcasting industry, including the religious format segment of
this industry, is highly competitive. The financial success of each of our radio
stations that features talk programming is dependent, to a significant degree,
upon our ability to generate revenue from the sale of block program time to
national and local religious organizations. We compete for this program revenue
with a number of commercial and non-commercial radio stations. Due to the
significant competition for this block programming, we cannot be sure that we
will be able to maintain or increase our current block programming revenue.
In the advertising market, we compete for revenue with other commercial
religious format and general format radio stations, as well as with other media,
including broadcast and cable television, newspapers, magazines, direct mail and
billboard advertising. Due to this significant competition, we cannot be sure
that we will be able to maintain or increase our current advertising revenue.
In addition to the competition faced by our radio stations, Salem Radio
Network(R) faces competition from other providers of radio program content,
including commercial radio networks that offer news and talk programming to
religious format radio stations and non-commercial networks that offer religious
music formats. Our network also competes with other radio networks and
individual radio stations for the services of talk show personalities.
Competition from existing and new radio networks may limit the growth and
profitability of our network.
INDUSTRY COMPETITION MAY INCREASE DUE TO NEW TECHNOLOGIES AND SERVICES
Radio broadcasting is subject to competition from new media technologies
and services that are being developed or introduced. These include delivery of
audio programming by cable television, satellite, 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. We
cannot predict the effect that any of this new technology may have on our
business or the radio broadcasting industry.
DECLINES IN THE LOS ANGELES OR NEW YORK MARKETS COULD NEGATIVELY IMPACT OUR
BUSINESS
Broadcast cash flow from our radio stations in Los Angeles and New York,
our two largest markets, accounted for 21% and 17%, respectively, of our
broadcast cash flow in 1998. A significant decline in broadcast cash flow from
radio stations in these two markets could have a material adverse effect on our
financial results. Adverse economic events or conditions that affect the Los
Angeles or New York markets could have a material adverse
9
<PAGE> 15
effect on our financial results by, for example, causing customers in these
markets to reduce their expenditures for advertising.
LOSS OF KEY EXECUTIVES COULD NEGATIVELY IMPACT OUR BUSINESS
Our business is dependent upon the performance and continued efforts of
certain key individuals, particularly Edward G. Atsinger III, our President and
Chief Executive Officer; Stuart W. Epperson, our Chairman of the Board; and Eric
H. Halvorson, our Chief Operating Officer, Executive Vice President and General
Counsel. The loss of the services of any of Messrs. Atsinger, Epperson or
Halvorson could have a material adverse effect upon Salem. We have entered into
employment agreements with each of Messrs. Atsinger, Epperson and Halvorson.
Messrs. Atsinger and Epperson's agreements expire in July 2000; Mr. Halvorson's
agreement expires in December 2003. Mr. Epperson has radio interests outside of
Salem that will continue to impose demands on his time. See "Transactions
Involving Officers, Directors and Principal Stockholders -- Radio Stations Owned
By the Eppersons."
WE HAVE A HISTORY OF NET LOSSES AND MAY EXPERIENCE FUTURE LOSSES
During 1997 and 1998, we incurred net losses of $2.4 million and $1.6
million, respectively. The losses resulted primarily from interest expense and
depreciation and amortization expense associated with acquisitions, as well as
ongoing expenses related to the process of reformatting radio stations. We may
continue to experience losses while we pursue our acquisition strategy and
proceed through the process of reformatting acquired radio stations. We cannot
be sure that our newly acquired Internet, magazine and software businesses will
be profitable.
GOVERNMENT REGULATION OF THE BROADCASTING INDUSTRY MAY NEGATIVELY IMPACT OUR
BUSINESS
Our operations are subject to extensive and changing governmental
regulations and policies and actions of federal regulatory bodies, including the
Department of Justice, the Federal Trade Commission and the Federal
Communications Commission. We operate each of our radio stations pursuant to one
or more FCC broadcasting licenses. As each license expires, we apply for renewal
of the license. However, we cannot be sure that any of our licenses will be
renewed, and renewal is subject to challenge by third-parties or to rejection by
the FCC. The Communications Act of 1934 and FCC rules and policies require FCC
approval for transfers of control of, and assignments of, FCC licenses. Were a
complaint to be filed against Salem or other FCC licensees involved in a
transaction with us, the FCC could delay the grant of, or refuse to grant, its
consent to an assignment or transfer of control of licenses.
Further, the FTC and the DOJ evaluate transactions to determine whether
those transactions should be challenged under federal antitrust laws. We are
aware that the FTC and the DOJ have been increasingly active in their review of
radio station acquisitions. This is particularly the case when a radio broadcast
company proposes to acquire additional stations in its existing markets. We
cannot be sure that the DOJ or the FTC will not seek to prohibit or require the
restructuring of our future acquisitions.
WE DO NOT INTEND TO PAY CASH DIVIDENDS
We do not expect to declare or pay any cash dividends in the near future.
We are a holding company and derive substantially all of our operating income
from our subsidiaries.
10
<PAGE> 16
Should we change our policy of not paying dividends, our sole source of cash
from which to make dividend payments will be dividends paid or payments made to
us by our subsidiaries, which may be restricted in their ability to pay cash to
Salem. Our ability to pay dividends is also restricted by our credit facility
and senior subordinated notes.
EXISTING STOCKHOLDERS HAVE THE ABILITY TO CONTROL MATTERS ON WHICH SALEM'S
STOCKHOLDERS MAY VOTE
Upon completion of the offering, Edward G. Atsinger III, Stuart W. Epperson
and Nancy A. Epperson will own or control approximately % of the combined
votes of the Class A and Class B common stock. If the over-allotment options are
exercised in full, they will own or control approximately % of the combined
votes of the Class A and Class B common stock. Accordingly, Messrs. Atsinger and
Epperson and Mrs. Epperson will control the vote on all matters submitted to a
vote of the holders of Salem's common stock, except with respect to the election
of two independent directors. See "Description of Capital Stock -- Common
Stock." Control by Messrs. Atsinger and Epperson and Mrs. Epperson may have the
effect of preventing or discouraging transactions involving an actual or
potential change of control of Salem. This may include transactions in which the
holders of Class A common stock might otherwise receive a premium for their
shares over then-current market prices.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND APPLICABLE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL
Provisions of our certificate of incorporation, our bylaws and Delaware and
federal law may have the effect of discouraging a third party from making an
acquisition proposal for Salem. This may inhibit a transaction in which the
holders of Class A common stock might otherwise receive a premium for their
shares over then-current market prices. Such provisions include:
- Salem's certificate of incorporation and bylaws: require advance notice
for stockholder proposals and director nominations to be considered at a
meeting of stockholders; prohibit stockholders from calling special
meetings; prohibit stockholder actions by written consent instead of at a
meeting; and authorize the board of directors to issue preferred stock
and to determine the terms of this preferred stock without stockholder
approval.
- A provision of Delaware corporation law could prohibit us from engaging
in a business transaction with any interested stockholder, as defined in
the Delaware corporation law, for three years.
- The Communications Act and FCC rules require the prior consent of the FCC
to any change of control of Salem and restrict ownership by non-U.S.
persons.
SALES OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK COULD DEPRESS ITS MARKET
PRICE
Sales of a substantial number of shares of Class A common stock in the
public market following this offering, or the perception that these sales could
occur, could depress the market price for the Class A common stock by
introducing a large number of sellers or potential sellers to the market.
Following the offering, we will have outstanding shares of Class
A common stock and shares of Class B common stock. The
shares of Class A common stock sold in the offering will be
freely transferable without restriction under the Securities Act by persons
other than our affiliates. The remaining shares of Class A common
stock and all
11
<PAGE> 17
shares of Class B common stock are held by affiliates of Salem and are subject
to restrictions on public sale under the Securities Act. Salem, its directors
and executive officers, and all existing stockholders are subject to "lock-up"
agreements under which they have agreed not to sell or otherwise dispose of any
shares of Salem common stock for a period of 180 days after the date of this
prospectus without the prior written consent of BT Alex. Brown Incorporated and
ING Baring Furman Selz LLC. Because of these restrictions, on the date of this
prospectus, no shares other than those shares of Class A common stock offered by
this prospectus will be eligible for sale. When the lock-up period expires,
substantially all of the shares held by our affiliates will be eligible for sale
in the public market, subject to compliance with the manner-of-sale, volume and
other limitations of Rule 144.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial offering price is expected to be substantially higher than the
net tangible book value of each share of outstanding common stock. Purchasers of
Class A common stock in the offering will experience immediate and substantial
dilution. The dilution will be $ per share in the net tangible book value of
Class A common stock from the expected initial public offering price.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "intend," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative of such terms or other comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our and the radio broadcast industry's actual
results, levels of activity, performance, achievements and prospects to be
materially different from those expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors include those
identified under "Risk Factors" in this prospectus.
We are under no duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
12
<PAGE> 18
USE OF PROCEEDS
We will receive net proceeds of $ from the sale of shares of Class
A common stock in the offering, based on an assumed initial public offering
price of $ per share (the midpoint of the range set forth on the cover page
of this prospectus) and after deducting underwriting discounts and estimated
offering expenses. We will not receive any proceeds from the sale of Class A
common stock by the selling stockholders. We expect to use the net proceeds of
this offering to:
<TABLE>
<S> <C>
- Redeem a portion of our 9 1/2% senior subordinated
notes due 2007 30 days following the offering
(including a $4.75 million redemption premium)....... $54,750,000
- Repay all indebtedness outstanding under our credit
facility............................................. $
- Provide for general corporate purposes, including
acquisitions and working capital requirements........ $
</TABLE>
We will use $ million of the net proceeds of the offering to fund the
acquisitions of KGME-AM, WLSY-FM and WRVI-FM. See "Summary -- Recent
Developments." We regularly evaluate potential acquisition candidates. No other
acquisitions are currently considered to be pending or probable.
Indebtedness under our credit facility accrues interest at variable rates
and must be repaid in full by August 2004. At March 31, 1999, the interest rate
on credit facility borrowings was 8%.
Pending the application of the net proceeds, we will temporarily invest the
net proceeds of the offering in short-term interest bearing investments.
DIVIDEND POLICY
We intend to retain future earnings for use in our business and do not
anticipate declaring or paying any dividends on shares of Class A or Class B
common stock in the foreseeable future. Further, our board of directors will
make any determination to declare and pay dividends in light of our earnings,
financial position, capital requirements, agreements for our outstanding debt
and such other factors as the board of directors deems relevant.
Our sole source of cash from which to make dividend payments will be
dividends paid to us or payments made to us by our subsidiaries. The ability of
our subsidiaries to make these payments may be restricted by applicable state
laws or terms of agreements to which they are or may become party.
13
<PAGE> 19
CAPITALIZATION
The following table sets forth cash and cash equivalents and capitalization
of Salem (i) as of December 31, 1998 and (ii) as adjusted to give effect to the
sale of the shares of Class A common stock offered by this prospectus and the
application of the estimated net proceeds to Salem.
The information in the table should be read in conjunction with the more
detailed consolidated financial statements and related notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $ 1,917 $
======== ========
Long-term debt:
Capital lease obligations.............................. $ 2,810 $
Unsecured note to stockholder(1)....................... 1,800
Senior subordinated notes.............................. 150,000
Credit facility(2)..................................... 24,000
-------- --------
Total long-term debt........................... 178,610
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding 163,344
shares, actual; shares, as adjusted(3).... 2
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 81,672
shares, actual; shares, as adjusted....... 1
Additional paid-in capital............................. 5,829
Retained earnings...................................... 3,269
-------- --------
Total stockholders' equity..................... 9,101
-------- --------
Total capitalization................................... $187,711 $
======== ========
</TABLE>
- -------------------------
(1) We repaid this note in full in April 1999.
(2) As of March 31, 1999, $36.8 million was outstanding under our credit
facility. Subject to completion of this offering, we are amending our credit
facility to increase our borrowing capacity from $75 million to $150
million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(3) Excludes shares of Class A common stock reserved for grants under
Salem's 1999 stock incentive plan.
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<PAGE> 20
DILUTION
Our net tangible book value (deficit) as of December 31, 1998 was $(137.3)
million or $ per share of common stock. Net tangible book value (deficit)
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding. Salem's net tangible book value, on a pro forma basis, as adjusted
for the sale of shares of Class A common stock in the offering by
Salem and the application of the net proceeds from the sale, and after deducting
underwriting discounts and estimated offering expenses, would have been $
million or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $
Net tangible book value (deficit) per share before the
offering............................................ $
Increase per share attributable to new investors......
------
Net tangible book value per share after the
offering............................................
------
Dilution per share to new investors................... $
======
</TABLE>
The following table summarizes, after giving effect to the offering, the
differences between existing stockholders and new investors with respect to the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid, based on an assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... % % $
New investors.............
------- --- ---------- ---
Total................... 100% 100%
======= === ========== ===
</TABLE>
15
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Salem's selected historical statement of operations and balance sheet data
presented below as of and for the years ended December 31, 1994, 1995, 1996,
1997 and 1998 are derived from the consolidated financial statements of Salem,
which have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial statements as of December 31, 1997 and 1998 and for each
of the years in the three-year period ended December 31, 1998, and the
independent auditors' report thereon, are included elsewhere in this prospectus.
Salem's financial results are not comparable from period to period because of
our acquisition and disposition of radio stations. The selected consolidated
financial information below should be read in conjunction with, and is qualified
by reference to, our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND 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 and network 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 corporation shareholders(1)....... 977 2,057 2,038 1,780 --
Depreciation and amortization............................. 7,633 7,884 8,394 12,803 14,058
-------- -------- -------- -------- --------
Total 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........................................... 230 319 523 230 291
Gain (loss) on disposal of assets......................... (482) (7) 16,064 4,285 236
Interest expense.......................................... (3,668) (6,646) (7,361) (12,706) (15,941)
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 loss(2)....................................... -- (394) -- (1,185) --
-------- -------- -------- -------- --------
Net income (loss)........................................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581)
======== ======== ======== ======== ========
Pro forma net income (loss)(1).............................. $ 848 $ 1,024 $ 12,838 $ (770) $ (1,581)
======== ======== ======== ======== ========
Basic and diluted income (loss) per share before
extraordinary item........................................ $ 2.80 $ 2.11 $ 52.05 $ (4.87) $ (6.45)
======== ======== ======== ======== ========
Basic and diluted net income (loss) per share(3)............ $ 2.80 $ 0.50 $ 52.05 $ (9.71) $ (6.45)
======== ======== ======== ======== ========
Pro forma basic and diluted income (loss) per share before
extraordinary item........................................ $ 3.46 $ 5.79 $ 52.40 $ 1.70 $ (6.45)
======== ======== ======== ======== ========
Pro forma basic and diluted net income (loss) per share..... $ 3.46 $ 4.18 $ 52.40 $ (3.14) $ (6.45)
======== ======== ======== ======== ========
Basic and diluted weighted average shares outstanding(3).... 245,016 245,016 245,016 245,016 245,016
======== ======== ======== ======== ========
OTHER DATA:
Broadcast cash flow(4)...................................... $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365
Broadcast cash flow margin(5)............................... 42.5% 42.9% 43.3% 41.7% 45.4%
EBITDA(4)................................................... $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970
After-tax cash flow(4)...................................... 8,770 9,306 11,594 10,647 12,335
Cash flows related to:
Operating activities...................................... $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015
Investing activities...................................... (18,806) (27,681) (18,923) (26,326) (31,762)
Financing activities...................................... 11,827 19,227 9,383 18,695 21,019
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(6):
Interest expense............................................
Net income..................................................
Basic and diluted net income per share(7)...................
Basic and diluted weighted average shares outstanding(7)....
After-tax cash flow(4)......................................
Basic and diluted after-tax cash flow per share(4)(7).......
</TABLE>
(footnotes on following page)
16
<PAGE> 22
<TABLE>
<CAPTION>
AS OF 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
Total assets........................ 82,041 104,817 159,185 184,813 207,750
Long-term debt...................... 60,656 81,020 121,790 154,500 178,610
Stockholders' equity................ 13,160 13,282 20,534 10,682 9,101
</TABLE>
- -------------------------
(1) Tax reimbursements to S corporation shareholders represent the income tax
liabilities of our principal stockholders created by the income of New
Inspiration and Golden Gate, which were both S corporations prior to our
August 1997 reorganization. Pro forma net income (loss) excludes tax
reimbursements to S corporation shareholders and includes a pro forma tax
provision at an estimated combined federal and state income tax rate of 40%
as if the reorganization had occurred at the beginning of each period
presented. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, pretax income of New
Inspiration and Golden Gate is included in our computation of the income tax
provision included in our consolidated statements of operations. See notes 1
and 6 to our consolidated financial statements.
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 provision (benefit) for
income taxes.................... 568 951 8,608 278 (343)
------ ------ ------- ------- -------
Pro forma income (loss) before
extraordinary item.............. 848 1,418 12,838 415 (1,581)
Extraordinary loss................ -- (394) -- (1,185) --
------ ------ ------- ------- -------
Pro forma net income (loss)....... $ 848 $1,024 $12,838 $ (770) $(1,581)
====== ====== ======= ======= =======
</TABLE>
(2) The extraordinary loss in each of 1995 and 1997 relates to the write-off of
deferred financing costs and termination fees related to the repayment of
long-term debt. See note 4 to our consolidated financial statements.
(3) See note 1 to our consolidated financial statements.
(4) We define broadcast cash flow as net operating income before depreciation
and amortization and corporate expenses. We define EBITDA as net operating
income before depreciation and amortization. We define after-tax cash flow
as income (loss) before extraordinary item minus gain (loss) on disposal of
assets (net of income tax) plus depreciation and amortization. For periods
prior to 1998, broadcast cash flow and EBITDA are calculated using net
operating income before tax reimbursements to S corporation shareholders.
For periods prior to 1998, after-tax cash flow excludes reimbursements to S
corporation shareholders and includes a pro forma tax provision at an
estimated combined federal and state income tax rate of 40% as if the
reorganization had occurred at the beginning of each period presented.
(footnotes continued on following page)
17
<PAGE> 23
Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance calculated in accordance with generally accepted
accounting principles, we believe that they are useful to an investor in
evaluating Salem because they are measures widely used in the radio
broadcast industry to evaluate a radio company's operating performance.
However, you should not consider broadcast cash flow, EBITDA and after-tax
cash flow in isolation or as substitutes for net income, cash flows from
operating activities and other statement of operations or cash flows data
prepared in accordance with generally accepted accounting principles as a
measure of liquidity or profitability. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
(5) Broadcast cash flow margin is broadcast cash flow as a percentage of net
revenue.
(6) The adjusted data give effect to the offering and the application of a
portion of the net proceeds of the offering to redeem $50 million in
principal amount of our senior subordinated notes (plus a $4.8 million
redemption premium) and to repay all amounts outstanding under our credit
facility ($36.8 million as of March 31, 1999) as if this application of net
proceeds had occurred as of January 1, 1998. This results in a reduction in
interest expense of $6.0 million for 1998. See "Use of Proceeds." We will
record the redemption premium and a portion of unamortized bond issue costs
as an extraordinary loss on the early extinguishment of debt in the period
when the senior subordinated notes are redeemed. The extraordinary loss is
not included in the adjusted data since it will be a non-recurring charge.
See "Use of Proceeds."
(7) Based on the weighted average number of shares of Class A common stock and
Class B common stock outstanding for all periods presented, including the
number of shares of Class A common stock to be issued and sold by Salem in
the offering, assuming the offering had occurred as of January 1, 1998.
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
Our consolidated financial statements are not directly comparable from period to
period because of our acquisition and disposition of radio stations. See note 2
to our consolidated financial statements.
OVERVIEW
The principal sources of our revenue are:
- the sale of block program time, both to national and local program
producers,
- the sale of advertising time on our radio stations, both to national
and local advertisers, and
- the sale of advertising time on our national radio network.
The following table shows gross revenue, percentage of gross revenue for
each revenue source and net revenue.
<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 52.2 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 (as 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 network charge. 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
advertising time, which in turn is based on our stations' and network's ability
to produce results for its advertisers. We do not subscribe to traditional
audience measuring services. Instead, we market ourselves to advertisers based
upon the
19
<PAGE> 25
responsiveness of our audience. See "Business -- Radio Stations." Each of our
radio stations and our network have a general pre-determined level of time that
they make available for block programs and/or 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 advertising in all of our markets. We encourage general managers and
sales managers to increase advertising revenue. We can create additional
advertising revenue in a variety of ways, such as removing block programming
that generates marginal audience response, adjusting the start time of programs
to add advertising in more desirable time slots and increasing advertising
rates.
As is typical in the radio broadcasting industry, our second and fourth
quarter advertising revenue generally exceeds our first and third quarter
advertising revenue. 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 a transition period experienced by radio
stations we have acquired that previously operated with formats other than a
religious and family issues format. This transition period, which usually lasts
less than a year, is when we develop the radio station's program customer and
listener base. During this period, these stations typically generate negative or
insignificant cash flow.
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 the
sale of our advertising time for cash, 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 most of our
advertising time for cash. In 1998, we sold 92% of our advertising time for
cash. In addition, it is our general policy not to preempt advertising paid for
in cash with advertising 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 (for example, 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 radio stations and existing and future borrowings.
Our consolidated statements of operations for periods prior to 1998 have
included an operating expense called "tax reimbursements to S corporation
shareholders." These amounts represent the income tax liabilities of our
principal stockholders created by the income of New Inspiration and Golden Gate,
which were both S corporations prior to our August 1997 reorganization. We
consider the nature of this operating expense to be essentially equivalent to an
income tax provision. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, 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
statements of operations.
The performance of a radio broadcasting company, such as Salem, is
customarily measured by the ability of its stations to generate broadcast cash
flow, EBITDA and after-tax cash flow. We define broadcast cash flow as net
operating income before depreciation and amortization and corporate expenses. We
define EBITDA as net operating income before depreciation and amortization. We
define after-tax cash flow as income (loss)
20
<PAGE> 26
before extraordinary item minus gain (loss) on disposal of assets (net of income
tax) plus depreciation and amortization. For periods prior to 1998, broadcast
cash flow and EBITDA are calculated using net operating income before tax
reimbursements to S corporation shareholders. For periods prior to 1998,
after-tax cash flow is calculated as if New Inspiration and Golden Gate were C
corporations for each of these periods. This means that after-tax cash flow
excludes tax reimbursements to S corporation shareholders and includes a pro
forma tax provision at an estimated combined federal and state income tax rate
of 40% as if the reorganization had occurred at the beginning of each period
presented.
Although broadcast cash flow, EBITDA and after-tax cash flow 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, EBITDA and
after-tax cash flow are useful because they are generally recognized by the
radio broadcasting industry as measures of performance and are used by analysts
who report on the performance of broadcast companies. These measures are not
necessarily comparable to similarly titled measures employed by other companies.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Net Revenue. Net revenue increased $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 $2.2 million of the
increase. For stations and network formats owned and/or operated over the
comparable period in 1998 and 1997, net revenue improved $7.8 million or 11.6%
to $75.2 million in 1998 from $67.4 million in 1997. The improvement was
primarily due to an increase in revenue at the radio stations we acquired in
1996 that previously operated with formats other than a religious and family
issues format, increases in program rates and, to a lesser extent, to increases
in advertising time 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 52.2% in 1997 to 50.2% in 1998.
This change in our revenue mix is primarily due to our efforts to develop more
local advertising sales in all of our markets.
Station and Network Operating Expenses. Station and network operating
expenses increased $2.9 million or 7.3% to $42.5 million in 1998 from $39.6
million in 1997. The inclusion of expenses from the acquisitions of radio
stations and expenses incurred for local marketing agreements entered into
during 1998 and 1997 accounted for $1.2 million of the increase in station and
network operating expenses. For stations and network formats owned and/or
operated over the comparable periods in 1998 and 1997, station and network
operating expenses increased $1.7 million or 4.3% to $41.0 million in 1998 from
$39.3 million in 1997, primarily due to incremental selling and production
expenses incurred to produce the increased revenue in the period. 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.
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<PAGE> 27
Broadcast Cash Flow. Broadcast cash flow increased $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 improved performance of radio stations
acquired in 1996 and 1997 that previously operated with formats other than a
religious and family issues format and the one-time credit for music licensing
fees. Acquired and reformatted radio stations typically produce low margins
during the first few years following conversion 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 advertising revenue on
our stations. For stations and network formats owned and/or operated over the
comparable period in 1998 and 1997, broadcast cash flow improved $6.1 million or
21.7% to $34.2 million in 1998 from $28.1 million in 1997.
Corporate Expenses. Corporate expenses increased $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 radio station
acquisitions in 1998.
EBITDA. EBITDA increased $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
improved performance of radio stations acquired in 1996 and 1997 that previously
operated with formats other than a religious and family issues format and the
one-time credit for music licensing fees.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.3 million or 10.2% to $14.1 million in 1998 from $12.8 million in
1997, primarily due to radio station acquisitions consummated during 1998 and
1997.
Other Income (Expense). Interest income was essentially unchanged for 1998
compared to 1997. Gain on disposal of assets decreased $4.1 million from $4.3
million in 1997 to $236,000 in 1998. The gain in 1997 was primarily due to the
sale of WPZE-AM, Boston. Interest expense increased $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 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
(that is, the 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% primarily 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% primarily because of the
effect of state income taxes and the establishment of a deferred tax liability
of $609,000 resulting from our August 1997 reorganization. These effects were
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.
Net Loss. We recognized a net loss of $1.6 million in 1998, compared to a
net loss of $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
22
<PAGE> 28
of our prior credit facility which we repaid in full upon issuance of our senior
subordinated notes in September 1997.
After-Tax Cash Flow. After-tax cash flow increased $1.7 million or 16.0% to
$12.3 million in 1998 from $10.6 million in 1997. The increase is primarily
attributable to improved net operating income.
1997 COMPARED TO 1996
Net Revenue. Net revenue increased $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 $6.4 million of the
increase. For stations and network formats owned and/or operated over the
comparable period in 1997 and 1996, net revenue improved $2.5 million or 4.4% to
$58.7 million in 1997 from $56.2 million in 1996 due primarily to increases in
program rates and, to a lesser extent, to increases in advertising time and
improved selling efforts at both the national and local level. While revenue
from advertising as a percentage of our gross revenue was essentially unchanged
from 1996 to 1997, revenue from local advertising as a percentage of our gross
revenue increased from 26.7% in 1996 to 28.3% in 1997. Revenue from block
program time as a percentage of our gross revenue decreased from 57.5% in 1996
to 52.2% in 1997. Revenue from informercials was 5.1% of gross revenue in 1997.
Prior to 1997, classification of revenue (as national program, national
advertising, local program or local advertising) from infomercials was
determined at the discretion of local station general managers. The change in
our revenue mix is primarily due to our efforts to develop more local
advertising sales in all of our markets and to the effects of separate reporting
of revenue from infomercials beginning in 1997.
Station and Network Operating Expenses. Station and network operating
expenses increased $6.1 million or 18.2% to $39.6 million in 1997 from $33.5
million in 1996. The inclusion of expenses from the acquisitions of radio
stations and expenses incurred for local marketing agreements entered into
during 1997 and 1996 accounted for $5.2 million of the increase in station and
network operating expenses. For stations and network formats owned and/or
operated over the comparable periods in 1997 and 1996, station and network
operating expenses increased $900,000 or 3.0% to $30.9 million in 1997 from
$30.0 million in 1996, primarily due to incremental selling and production
expenses incurred to produce the increased revenue in the period.
Broadcast Cash Flow. Broadcast cash flow increased $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 43.3% in 1996. The
decrease is primarily attributable to lower margins achieved by recently
acquired and reformatted radio stations. For stations and network formats owned
and/or operated over the comparable period in 1997 and 1996, broadcast cash flow
improved $1.6 million or 6.1% to $27.8 million in 1997 from $26.2 million in
1996.
Corporate Expenses. Corporate expenses increased $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 radio station acquisitions in 1997
($1.0 million), bonuses paid to corporate officers in 1997 ($85,000), the
write-off of costs incurred for potential station acquisitions which were
abandoned ($172,000), and expenses incurred for officers' life insurance
($277,000), in 1997.
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<PAGE> 29
EBITDA. EBITDA increased $1.2 million or 5.7% to $22.1 million in 1997 from
$20.9 million in 1996. As a percentage of net revenue, EBITDA decreased to 32.5%
in 1997 from 35.4% in 1996. The decrease was primarily attributable to lower
margins achieved by recently acquired and reformatted stations and to increased
corporate expenses in 1997 as compared to 1996.
Tax Reimbursements to S Corporation Shareholders. Tax reimbursements to S
corporation shareholders decreased $200,000 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 $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 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 $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 consummated during 1997 and
1996. Other expense was essentially unchanged for 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 (that is,
the 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%
primarily because of the effect of state income taxes and the establishment of a
deferred tax liability of $609,000 resulting from our August 1997
reorganization. These effects were 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. The effective tax
rate in 1996 differs from the federal statutory income tax rate of 34.0%
primarily because of the effect of state income taxes and the effect of gains
realized on the sale of radio stations in 1997. These effects were 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.
Net Income (Loss). We recognized a net loss of $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 facility which we repaid in full in September 1997.
After-Tax Cash Flow. After-tax cash flow decreased $1.0 million or 8.6% to
$10.6 million in 1997 from $11.6 million in 1996. The decrease is primarily
attributable to increased interest expense in 1997.
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<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed acquisitions of radio stations through
borrowings, including borrowings under bank credit facilities and, to a lesser
extent, from operating cash flow and selected asset dispositions. We anticipate
funding future acquisitions from the net proceeds of the offering, borrowings
under our credit facility and operating cash flow. We have historically funded,
and will continue to fund, expenditures for operations, administrative expenses,
capital expenditures and debt service required by our credit facility and senior
subordinated notes from operating cash flow.
We believe that the net proceeds of the offering, cash flow from operations
and borrowings under our credit facility will be sufficient to permit us to meet
our financial obligations and to fund acquisitions and operations for at least
the next twelve months.
At March 31, 1999, we had $36.8 million outstanding under our credit
facility. We will repay all amounts outstanding under our credit facility with a
portion of the net proceeds of the offering. Subject to the completion of the
offering, we will enter into an amendment to our credit facility principally to
increase our borrowing capacity from $75 million to $150 million, to lower the
borrowing rates and to modify current financial ratio tests to provide us with
additional borrowing flexibility. We have received a commitment letter from The
Bank of New York in respect of the amended credit facility. The amended credit
facility will mature on June 30, 2006. Aggregate commitments under the amended
credit facility will begin to decrease commencing March 31, 2001.
Amounts outstanding under our existing credit facility bear interest (and
will bear interest under our amended credit facility) at a base rate, at our
option, of the bank's prime rate or LIBOR, plus a spread. 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%. Under the amended credit
facility, the prime rate spread will range from 0% to 1%, and the LIBOR spread
will range from 0.875% to 2.25%.
The maximum amount that we may borrow under our amended credit facility
will be limited by our debt to cash flow ratio, adjusted for recent radio
station acquisitions (the "Adjusted Debt to Cash Flow Ratio"). The maximum
Adjusted Debt to Cash Flow Ratio allowed under our existing credit facility is
7.00 to 1 at March 31, 1999, but decreases to 5.25 to 1 by December 31, 1999 and
to 4.50 to 1 by December 31, 2000. The maximum Adjusted Debt to Cash Flow Ratio
allowed under our amended credit facility will be 6.00 to 1 through December,
31, 2000. Thereafter, the maximum ratio will decline periodically until January
1, 2004, at which point it will remain at 4.00 to 1 through June 2006. At March
31, 1999, after giving effect to the offering and the application of the net
proceeds, the Adjusted Debt to Cash Flow Ratio would have been to 1,
resulting in total borrowing availability of approximately $ million.
Our amended credit facility will contain additional restrictive covenants
customary for credit facilities of the size, type and purpose contemplated
which, with specified exceptions, limits our ability to enter into affiliate
transactions, pay dividends, consolidate, merge or effect certain asset sales,
make specified investments, acquisitions and loans and change the nature of our
business. The credit facility will also require us to satisfy specified
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 6.00 to 1 as of the
closing of the offering), minimum interest coverage (not less than 1.75 to 1 as
of the closing of the offering), minimum debt
25
<PAGE> 31
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). The credit facility
is guaranteed by all of our subsidiaries and is secured by pledges of all of our
and our subsidiaries' assets and all of the capital stock of our subsidiaries.
In September 1997, we issued $150 million principal amount of 9 1/2% senior
subordinated notes due 2007. We used the net proceeds from the sale of the notes
to repay substantially all indebtedness outstanding under our prior credit
facility. We will redeem $50 million in principal amount of the senior
subordinated notes with a portion of the net proceeds of the offering. After
giving effect to this redemption, we will be required to pay $9.5 million per
year in interest on the senior subordinated notes. The indenture for the senior
subordinated notes contains restrictive covenants that, among others, limit the
incurrence of debt by us and our subsidiaries, the payment of dividends, the use
of proceeds of specified asset sales and transactions with affiliates. The
senior subordinated notes are guaranteed by all of our subsidiaries.
As a result of the partial redemption of our senior subordinated notes, we
will record a non-cash charge of $1.5 million (as of March 31, 1999) for the
write-off of unamortized bond issue costs. This is in addition to the $4.8
million redemption premium that we will pay in connection with this partial
redemption.
Net cash provided by operations increased to $11.0 million in 1998,
compared to $7.3 million in 1997, primarily due to increased net operating
income in 1998. Net cash provided by operations decreased to $7.3 million in
1997, compared to $10.5 million in 1996, primarily due to decreased net
operating income in 1997.
Net cash used in investing activities increased to $31.8 million in 1998,
compared to $26.3 million in 1997, primarily due 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 in 1997, compared to $18.9 million in 1996, primarily
due to the proceeds of the sales of KDBX-FM, Portland, Oregon, and KDFX-AM,
Dallas, Texas, offsetting the cash used in investing activities in 1996.
Net cash provided by financing activities was $21.0 million in 1998, $18.7
million in 1997 and $9.4 million in 1996. The increases in 1997 and 1998 were
primarily due to increased long-term debt borrowings.
In 1998, we purchased radio stations KIEV-AM, Los Angeles, California,
KTEK-AM, Houston, Texas, KYCR-AM, Minneapolis, Minnesota, and KKMO-AM, Tacoma,
Washington, in separate transactions for a total of $36.3 million. We financed
these purchases primarily by borrowings under our credit facility. In 1998, we
sold radio stations KAVC-FM, Lancaster, California, and KTSL-FM, Spokane,
Washington, for a total of $2.9 million.
In January 1999, we purchased the assets of OnePlace, LLC and CCM
Communications, Inc., in separate transactions for a total of $8.1 million. We
financed these purchases primarily by borrowings under our credit facility.
In April 1999, we agreed to purchase radio station KGME-AM, Phoenix,
Arizona and signed a letter of intent to purchase radio stations WLSY-FM and
WRVI-FM, Louisville, Kentucky, in separate transactions for a total of $10
million. We anticipate these purchases will close in July 1999. We will use a
portion of the net proceeds of the offering to fund these purchases.
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<PAGE> 32
In April 1999, we exercised an option to purchase KKOL-AM, Seattle-Tacoma,
Washington, for $1.4 million from a corporation owned by our principal
stockholders. We anticipate this acquisition will close in April 1999. We will
finance this acquisition primarily by a borrowing under our credit facility.
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 is targeting 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 of 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
27
<PAGE> 33
will not have a material impact on our operations, cash flows or financial
condition of future periods.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We do not invest, and during 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 our credit facility and, upon amendment of the credit facility in
connection with the offering, we will be able to borrow up to $150 million. At
December 31, 1998, we had borrowed $24 million under our credit facility.
Amounts outstanding under the credit facility bear interest at a base rate, at
Salem's option, of the bank's prime rate or LIBOR, plus a spread. 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 credit facility was 8.25%. In
January 1999, the 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.
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<PAGE> 34
BUSINESS
OVERVIEW
We are 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 is the ownership
and operation of radio stations in large metropolitan markets. After we complete
our pending transactions, we will own 48 radio stations, including 34 stations
which broadcast to 19 of the top 25 markets in terms of audience size. We also
operate Salem Radio Network(R), a national radio network offering syndicated
talk, news and music programming to approximately 1,100 affiliated radio
stations.
Our primary strategy has been, and will continue to be, to acquire and
operate radio stations in large metropolitan markets. We either acquire general
format radio stations and reformat them or acquire radio stations already
broadcasting in a religious and family issues format. Traditionally, we have
programmed acquired 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 radio stations. We have expanded our acquisition strategy in
recent years by acquiring additional radio stations in markets in which we
already have a presence. We program these radio stations to feature news/talk
and religious music formats that complement our primary format. Salem Radio
Network(R) supports our strategy by enabling us to offer a variety of program
content on newly acquired stations in both new and existing markets.
Our founders, Salem's 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 nine
years with Salem.
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 plan to use these businesses,
together with our radio stations and national radio network, to attract and
retain a larger audience and customer base.
Salem was incorporated in Delaware in 1993 and remained inactive until
March 1999 when it merged with Salem Communications Corporation, a California
corporation, which prior to that time had conducted our operations. Salem
Communications Corporation-California was formed in 1986 in connection with a
combination of most of the radio station holdings of Edward G. Atsinger III and
Stuart W. Epperson. Initially, Messrs. Atsinger and Epperson each owned
fifty-percent of Salem Communications Corporation-California. 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 stockholders 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, Salem
Communications Corporation-California, New Inspiration and Golden Gate effected
a reorganization pursuant to which New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem Communications Corporation-California. The S
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corporation status of each of New Inspiration and Golden Gate was terminated in
the reorganization.
TARGET AUDIENCE AND RADIO FORMAT OVERVIEW
We are committed to serving our target audience, the segment of the
population interested in religious and family issues. We believe this audience
is large and will continue to expand.
- Religious formats, featured on commercial and non-commercial radio
stations, constitute the third largest radio format in the U.S. after
country and news/talk/business/sports formats, as of November 1998 (The M
Street Journal).
- Over the past ten years, the number of radio stations identified as
having primarily a religious format has increased by 79% to 1,785 (The M
Street Journal).
- From 1997 to 1998, listeners to religious format radio increased by 1.3
million adults to 27.9 million weekly listeners. In the same period, more
than 120 radio stations with religious formats began broadcasting,
although, as a result of this increase, the average number of weekly
listeners declined on a per station basis (Religion & Media Monthly).
- The Christian retail industry, which includes books, Bibles, curriculum
material, apparel, music, videos, gifts and greeting cards, had sales of
$3 billion in 1998 (Christian Booksellers Association).
- Sales of Christian music grew an average of 22% each year from 1991 to
1997 (Variety).
- Wal Mart, the nation's largest music retailer, now devotes more than 20%
of its music selling space to Christian music (Gospel Music Association).
While a variety of music formats, including Southern Gospel, Black Gospel,
Praise and Worship and Contemporary Christian, are offered on religious format
stations, the largest single category of religious format is Christian talk and
teaching. Religious talk and music formats can be found on both commercial and
non-commercial stations. Commercial radio stations account for approximately
two-thirds of stations with religious formats. The balance of these stations
broadcast from the non-commercial educational band (88.1MHz - 91.9MHz) and are
licensed to non-profit organizations.
Commercial stations that specialize in religious talk programming generate
the majority of their revenue from the sale of block program time to national
and local program producers. Commercial stations that feature religious music
formats generate nearly all of their revenue from the sale of advertising time
to local and national advertisers and national network advertisers.
Non-commercial stations typically obtain revenue through tax-deductible
contributions from listeners, the sale of block program time to national and
local program producers and grants or sponsorships of specific programming that
allow the sponsor's name to be featured. Sale of advertising time is prohibited
on non-commercial stations.
GROWTH AND OPERATING STRATEGIES
CONTINUE TO FOCUS ON TARGETED AUDIENCE. We attribute our success largely to
a consistent emphasis on reaching the audience interested in religious and
family issues. We have demonstrated a long-term commitment to this audience by
operating radio stations
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with formats directed to our listeners' specific needs and interests. This
consistent focus and commitment builds loyalty and trust from our listening
audience, block program purchasers and advertisers.
PURSUE STRATEGIC RADIO ACQUISITIONS IN LARGE MARKETS. We intend to pursue
acquisitions of radio stations in both new and existing markets, particularly in
large metropolitan areas. In 1997 and 1998, we spent $61.7 million to purchase
12 radio stations. Because we believe our presence in large markets makes us
attractive to national block programmers and national advertisers, we will
continue to pursue acquisitions of radio stations in selected top 50 markets
where we currently do not have a presence. In addition, we will explore
opportunities to acquire additional radio stations in our current markets, which
we will program with news/talk and religious music formats. Through our
acquisition strategy, we reach a greater number and broader range of listeners.
This enables us to increase audience response for block program customers and
expand our advertising revenue base.
Ownership of two or more radio stations in a single market provides
operational efficiencies, such as the use of one general manager, sales staff
and broadcast facility. In addition, we use talk and music product from the
Salem Radio Network(R) to program additional stations in a market. We believe
religious music formats have become increasingly popular and are complementary
to our religious and family issues talk format. Three separate religious music
formats are produced by our network and are available for use by our radio
stations on a full-time basis or in selected time slots.
Our strategy also includes the acquisition of upgraded facilities in
existing markets that provide broader signal coverage than our existing radio
stations. Our strategy of acquiring upgraded facilities has been an area of
emphasis for our senior management for many years and has been successfully
demonstrated in such markets as Seattle, New York, Boston and Dallas. We believe
our acquisition strategy will better serve block programmers and advertisers,
increase the size of our audience and increase our cash flow.
EMPHASIZE COMPELLING PROGRAM CONTENT. As more listening, reading and
viewing options become available to consumers, compelling program content will
be a prerequisite for expanding our listening audience and increasing audience
response to block programmers and advertisers.
We continually look for new block program producers. We provide advice to
both prospective and existing block program customers on program content and
structure, staffing, engineering and programming delivery options. Station
managers are encouraged to evaluate local talk programs with a view toward
expansion of promising programs into national syndication. We continue to
emphasize this important development area with the goal of maintaining a backlog
of quality programs available for placement in new markets and existing markets
where we may add additional stations.
We are committed to expanding Salem Radio Network(R) by adding to its menu
of product offerings and by actively promoting these products to our network
affiliates. We believe that by continually increasing the quality and variety of
our network's product we will add to its affiliate base, thereby providing more
audience reach that will attract more national advertising customers. Our
national radio network will continue to compete aggressively for talk show
talent that will be attractive to affiliates, expand and refine our music
formats, and develop compelling news and public affairs features. For example,
unused network advertising time can be used to promote potential or existing
program
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producers and thereby generate revenue for the program producer that will enable
it to purchase block program time on our radio stations. In addition, our newly
acquired Internet and magazine businesses will develop creative content
offerings.
BUILD STATION IDENTITY. We seek to build local station identity for each of
our radio stations in order to retain and increase its listening audience,
expand its base of advertisers and provide increased audience response to our
block program customers. We assist local personnel and coordinate development of
increased production quality through our director of programming located at our
corporate headquarters. We are committed to the ongoing evaluation and
improvement of our technical facilities, including power increases, tower/
antenna relocations and investment in state of the art equipment. We also
emphasize the development of local on-air personalities to allow each radio
station to better compete against general format radio stations. We encourage
station employees with responsibility for programming to share their ideas for
building identity with other Salem stations.
INTEGRATE MEDIA ASSETS. We began to develop integrated media assets to
complement the distribution capabilities of our radio stations when we created
our radio network. Our ability to control both content and distribution enables
us to expand and better serve our listening audience, as well as our advertising
and block program customers. We are exploring ways to better serve our customers
and listening audience by using the combined resources of our radio stations and
our network. We plan to continue to implement this strategy and apply it to our
newly acquired magazine, Internet and software businesses. We will also
opportunistically pursue acquisitions of new media and other businesses that
serve our audience. We intend to develop cross-promotion and cross-selling
programs on each of our radio, magazine and Internet media to attract new
audiences for our radio stations, new readers for our magazines and new
customers for our Internet products and services.
RADIO STATIONS
After completing our pending transactions, we will own 48 radio stations in
28 markets. The following table sets forth information about each of Salem's
stations in order of market size:
<TABLE>
<CAPTION>
MSA YEAR
MARKET(1) RANK(2) STATION CALL LETTERS ACQUIRED
--------- ------- -------------------- --------
<S> <C> <C> <C>
New York, NY(3).......................... 1 WMCA-AM 1989
WWDJ-AM 1994
Los Angeles, CA.......................... 2 KKLA-FM 1985
KLTX-AM 1986
KIEV-AM 1998
Chicago, IL.............................. 3 WYLL-FM 1990
San Francisco, CA........................ 4 KFAX-AM 1984
Philadelphia, PA......................... 5 WFIL-AM 1993
WZZD-AM 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 1995
KENR-AM 1995
KTEK-AM 1998
</TABLE>
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<TABLE>
<CAPTION>
MSA YEAR
MARKET(1) RANK(2) STATION CALL LETTERS ACQUIRED
--------- ------- -------------------- --------
<S> <C> <C> <C>
Seattle-Tacoma, WA....................... 14 KGNW-AM 1985
KLFE-AM 1994
KKOL-AM (4)
KKMO-AM 1998
Phoenix, AZ.............................. 15 KPXQ-AM 1996
KGME-AM (5)
San Diego, CA............................ 16 KPRZ-AM 1986
Minneapolis-St. Paul, MN................. 18 KKMS-AM 1996
KYCR-AM 1998
Baltimore, MD............................ 20 WITH-AM(6) 1997
Pittsburgh, PA........................... 21 WORD-FM 1989
WPIT-AM 1993
Denver-Boulder, CO....................... 23 KRKS-FM 1993
KRKS-AM 1994
KNUS-AM 1996
Cleveland, OH............................ 24 WHK-AM 1997
WCCD-AM 1997
Portland, OR............................. 25 KPDQ-FM 1986
KPDQ-AM 1986
Cincinnati, OH........................... 26 WTSJ-AM 1997
Sacramento, CA........................... 28 KFIA-AM 1995
KTKZ-AM 1997
Riverside-San Bernardino, CA............. 29 KKLA-AM(7) 1986
Columbus, OH............................. 33 WRFD-AM 1982
San Antonio, TX.......................... 34 KSLR-AM 1994
Louisville, KY........................... 53 WLSY-FM (8)
WRVI-FM (8)
Akron, OH................................ 68 WHLO-AM 1997
Colorado Springs, CO..................... 93 KGFT-FM 1996
KBIQ-FM 1996
KPRZ-FM 1996
Oxnard, CA............................... 106 KDAR-FM 1974
Canton, OH............................... 123 WHK-FM(9) 1997
</TABLE>
- -------------------------
(1) Actual city of license may differ from metropolitan market served.
(2) "MSA" means metropolitan statistical area. We have obtained all metropolitan
statistical area rank information used in this prospectus 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 1, 1999 by Market Statistics, based on the data from Sales &
Marketing Management's 1997 Survey of Buying Power.
(3) This market includes the Nassau-Suffolk, NY Metro market which independently
has a MSA rank of 17.
(4) On April 1, 1999, we exercised an option to acquire ownership of KKOL-AM for
$1.4 million from a corporation owned by our principal stockholders. FCC
approval of the acquisition is pending. We currently operate KKOL-AM.
(5) A contract to acquire this radio station for $5.0 million has been signed
and FCC approval of the acquisition is pending.
(6) The station is simulcast with WAVA-FM, Washington, D.C.
(7) The station is simulcast with KKLA-FM, Los Angeles.
(8) A letter of intent to acquire these two radio stations for $5.0 million has
been signed and FCC approval of the acquisitions is pending.
(9) The station is simulcast with WHK-AM, Cleveland.
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PROGRAM REVENUE. In 1998, we derived 35.5% and 14.7% of our gross revenue
from the sale of nationally syndicated and local block program time,
respectively. We derive nationally syndicated program revenue from a program
customer base consisting primarily of geographically diverse, well-established
non-profit religious and educational organizations that purchase time on radio
stations in a large number of markets in the United States. We believe that
sales of block program time lessen our exposure to swings in general economic
activity and thus make our revenue stream less volatile. 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.
Purchasers of block program time derive their income from two primary
sources: listener contributions and product sales. Product sales include sales
of inspirational material such as printed literature and periodicals, audio and
video tapes and other miscellaneous items. Revenue from listener contributions
and product sales is used in part to pay for the air time purchased from us. The
nationally syndicated program producers carefully track the source of their
donations and product sales and use this information to measure the return on
their air time investment at each radio station. Because program customers
derive their income primarily from various forms of listener support, and given
the time period usually required for a program to obtain and develop an
audience, our management believes that program customers have generally found it
to be in their best interest to retain a specific time slot on a long-term basis
notwithstanding customers' short-term financial results or economic conditions.
Our radio stations have enjoyed long-standing relationships with key
customers. Focus on the Family and Insight for Living, recognized as two of the
leading daily radio programs featured on religious and family issues talk format
stations, have been ongoing customers of ours since 1977. We attribute this
continuity to our commitment to our religious and family issues talk format and
maintaining our presence in the markets we serve. As is typical in the radio
industry, contracts may generally be canceled by either the station or the
program producer on one month's notice. We typically negotiate our rate
increases on an annual basis.
ADVERTISING REVENUE. In 1998, we derived 30.6% and 5.2% of our gross
revenue from the sale of local and national advertising, respectively.
We believe that the listening audiences for our radio stations are
responsive to advertisers that promote products and services targeted to
audiences interested in religious and family issues and are receptive to direct
response appeals such as those offered through infomercials. Local church groups
and many community organizations such as rescue missions and family crisis
support services can often effectively reach their constituencies by advertising
on religious and family issues talk format radio 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 advertising revenue from general
market retailers, including automobile dealers and grocery store chains, in many
of our stations' markets. Our management believes that general market retailers
are increasingly willing to use niche radio formats for advertising.
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In recent years, we have begun to place greater emphasis on the development
of local advertising sales in all of our markets. We encourage general managers
and sales managers to create more advertising time for sale. They can create
additional advertising time in a variety of ways, such as removing programming
that generates marginal audience response, adjusting the start time of programs
to add advertising time in more desirable time slots and increasing advertising
rates.
We do not subscribe to traditional audience measuring services used by
general format radio stations. Rather, we sell advertising based upon the proven
success of our existing advertising customers. A majority of advertisers on our
radio stations are "direct-response" advertisers (that is, advertisers that
solicit some type of response, typically the calling of a toll-free telephone
number to purchase a product or service advertised). The typical advertiser on
our radio station measures the effectiveness of its advertising on our stations
in terms of:
- the number of inquiries to the advertiser in which the caller reports
having heard the advertiser's commercial on one of our radio stations;
- the volume of new customers for the advertiser given a designated inquiry
level (for example, the advertiser may require that it experience a
conversion rate of four new customers for every 10 inquiries); and
- the revenue attributable to sales that are identified as generated by the
advertiser's commercial aired on our radio stations.
The sales staff of our radio stations obtains information regarding advertisers'
level of satisfaction with the results generated by commercials aired on our
radio stations. Our sales staff communicates this information, as well as
information regarding the volume of existing advertisers' repeat advertising on
our radio stations, to prospective advertisers in marketing our radio stations.
Our radio stations also receive revenue from national advertisers desiring
to include selected Salem radio stations in national buys covering multiple
markets. These national advertising buys are placed through Salem Radio
Representatives, which receives a commission based on the gross dollar amount of
all orders generated. We regularly run infomercials on our radio stations,
generally on weekends. In reviewing proposed purchases of air time by
advertisers and infomercial producers, we consider the suitability of the
content of the advertising and infomercials for our stations' audiences.
OPERATIONS. In each of the radio markets in which we have a radio station,
we have a general manager who is responsible for day-to-day operations, local
advertising sales and local program sales. We pay our general managers a base
salary plus a percentage of the radio station's net operating income. Each
general manager has 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 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.
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Our corporate headquarters personnel oversee the placement and rate
negotiation for all nationally syndicated programs. Centralized oversight of
this component of our 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 entered into an agreement with XM
Satellite Radio, Inc. to develop, produce, supply and market, on an exclusive
basis, religious and family issues audio programming which will be distributed
by a subscriber-based satellite digital audio radio service. XM Satellite Radio,
Inc., one of two FCC licensees for this service, will have the capability of
providing up to 100 channels of audio programming. XM Satellite Radio expects
its service to commence in 2000. 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.
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 radio stations in
major markets. Salem Radio Network(R), headquartered in Dallas, Texas, 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 of our network's product is delivered to affiliates by
satellite.
As of January 31, 1999, our network had approximately 1,100 affiliate radio
stations, including our owned radio stations, that broadcast one or more of the
offered programming options. A majority of our affiliate radio stations are
commercial stations. Our programming options include talk shows, news and music.
Network operations also include commission revenue of Salem Radio
Representatives, a wholly-owned subsidiary of Salem. Salem Radio Representatives
sells all national commercial advertising placed on our network's commercial
affiliate radio stations. Our network's gross revenue for 1998 was $6.1 million.
Salem Radio Network(R) incurred a net operating loss of $392,000 for 1998.
TALK PROGRAMMING. Salem Radio Network(R) offers talk programming designed
to attract listeners to affiliate radio stations by addressing current national
issues from a religious and family issues perspective. Our network currently
produces 20 daily and weekly long-form and short-form programs including The
Michael Medved Show, The David Gold Show, Tim Kimmel Live!, Janet Parshall's
America and The Cal Thomas Commentary. As of January 31, 1999, 493 affiliate
radio stations carried some form of Salem Radio Network(R) talk programming.
Station affiliations for talk programming are non-exclusive, allowing a
radio station to select specific network programs it wishes to carry. Commercial
affiliates are required to air five minutes of network advertisements during
each hour of network programming carried. Because they are unable to clear
commercial advertisements, non-commercial radio stations that carry our talk
programming pay a monthly access fee.
NEWS. Salem Radio Network(R) began the production and distribution of news
in 1996 with the purchase of StandardNews. The name was subsequently changed to
SRN News
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and the news product was repositioned to offer affiliates a family-focused news
service. The service is delivered three times each hour and provides coverage of
national and international news. SRN News operates from its fully-digital
headquarters located in the Washington, D.C. area. SRN News has fully-equipped
broadcast facilities at the White House, United States House of Representatives
and United States Senate that are staffed by full-time correspondents. As of
January 31, 1999, Salem Radio Network(R) provided SRN News to 597 affiliate
radio stations, compared with the 167 affiliates existing at the time the news
service was acquired in 1996.
Commercial radio stations that affiliate with SRN News are required to air
12 minutes of network advertisements between the hours of 6 AM and 11 PM daily.
Noncommercial radio stations that affiliate with SRN News pay a monthly access
fee.
MUSIC. Salem Radio Network(R) offers three syndicated religious music
formats. The Morningstar format, which originates from studios in Nashville,
features adult contemporary Christian music targeted to the mainstream 25-to-54
year old audience. Salem Radio Network(R) also offers a contemporary Christian
music format, The Word in Music, targeted to a younger audience, and a more
traditional praise and worship format, The Word in Praise. Both of these formats
originate from two of Salem's Colorado Springs radio stations. All music formats
are available to affiliate radio stations on a 24-hour basis or in selected time
slots. As of January 31, 1999, Morningstar, The Word in Music and The Word in
Praise had 118, 21 and seven affiliate radio stations, respectively.
Each music network requires commercial affiliates to air a minimum number
of minutes per hour for network advertisements. In addition, fixed monthly
affiliation fees are charged to both commercial and non-commercial radio
stations which affiliate with the Morningstar format and non-commercial radio
stations which affiliate with The Word in Music and The Word in Praise. In
addition to these three 24-hour music formats, Salem Radio Network(R) provides
weekly music programs, including CCM Countdown with Gary Chapman, CCM Radio
Magazine, Christian Pirate Radio Countdown, Let Us Worship and Rock Alive, to
228 affiliate radio stations.
SALEM RADIO REPRESENTATIVES. We established Salem Radio Representatives in
1992 as a sales representation company specializing in placing national
advertising on religious and family issues format radio stations. Salem Radio
Network(R) and Salem owned radio stations have agreements with Salem Radio
Representatives for the sale of available advertising time. Salem Radio
Representatives also contracts with radio stations not owned by Salem to sell
air time to national advertisers. See "-- Radio Stations -- Advertising
Revenue." Salem Radio Representatives administrative offices are located in
Dallas, Texas, and its 11 commissioned sales personnel are located in field
offices in Washington, D.C., Chicago, Nashville, Dallas, Seattle, St. Louis and
Los Angeles.
NEW MEDIA
INTERNET. In January 1999, we purchased the assets of OnePlace, LLC for
$6.2 million. OnePlace(TM), based in Greensboro, North Carolina, is organized
into two primary business units. The first, known as the Christian Marketplace,
utilizes OnePlace's proprietary databases and digital imaging technologies to
develop, market and sell products and services. The second, known as Technology
Licensing, develops and licenses OnePlace's e-commerce, search engines and
imaging applications.
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The Christian Marketplace business unit generates revenue from (i) the
direct sales of products and services to consumers, families, churches,
denominational houses and publishers and (ii) the Innovative Church Marketing
Group which provides business-to-business applications for religious bookstores
and vendors of products targeted to the religious market. The direct sales
division includes numerous offerings.
- SermonSearch is a subscription based online database of sermons submitted
by pastors and noted church leaders that is used by youth leaders,
ministers and teachers who research and prepare sermons or lessons.
- CCIS-Membership software is designed to maintain and track church
membership, contributions, pledges, attendance and activities.
- GuardiaNet(TM) is a consumer profiling, security and filtering
application that allows customers to create a safe environment for
families by defining access rights uniquely for each family member.
- OnePlace.com is an online community designed to offer access to church
and consumer products and provide other information and resources in a
family friendly Internet community. We plan to generate revenue from
OnePlace.com through advertising, e-commerce and subscription services.
- The ChristianSuperstore.net is an online e-commerce "superstore" of more
than 31,000 consumer Christian products, including books, music, Bibles,
gift items, software and other products.
- The music superstore division of OnePlace(TM), accessible through
OnePlace.com and ChristianSuperstore.net, is an online e-commerce site of
Christian music. We complement the sale of music CDs with artist and
concert information from CCM Magazine and streaming of audio samples,
including samples from The CCM Countdown with Gary Chapman.
- OnePlace Search, located within OnePlace.com, is a "yellow pages" guide
to Christian resources that include Web pages listings for churches,
retail stores, retail bookstores, Christian counselors and other
institutions.
The Innovative Church Marketing Group provides business-to-business
products and services for vendors, publishers, distributors and retailers of
Christian products. The division's services include the digital creation,
storage and transmission of pictures, art work and audio and video streams that
enable both print and electronic catalogs of products to be produced
efficiently. The division also serves the institutional church market through
the delivery of approximately 280,000 print catalogs annually, in addition to e-
commerce versions of the same catalogs.
The Technology Licensing business unit licenses OnePlace's technologies to
general market companies. These technologies include digital imaging software,
search engines, e-commerce and subscription commerce applications and filtering
security software for libraries and other institutions. As part of the
technology licensing effort, OnePlace(TM) also generates revenue from building
Web sites for organizations that incorporate OnePlace's technologies.
OnePlace(TM) currently generates substantially all of its revenue from
SermonSearch, CCIS-Membership software and its Innovative Church Marketing
Group.
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SOFTWARE PUBLISHING. In April 1999, OnePlace(TM) will purchase the assets
of NavPress Software, Inc., 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(TM) and LESSONmaker(TM). NavPress Software product lines include
Bible translations, commentaries, dictionaries, maps and illustrations, and
classic Christian works.
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 Christian music industry and, more recently, has added
publications aimed at church staff. The products of CCM include the following:
- CCM Magazine, CCM's flagship publication for over 20 years, is published
monthly and follows the Contemporary Christian music format through
interviews with artists, feature articles, album reviews and concert
schedules.
- Worship Leader, published bi-monthly and owned in partnership with The
Corinthian Group, is a resource magazine for planning worship services
and features columns by recognized authorities on worship and "how-to"
articles and models designed to expand understanding of current trends
and issues affecting worship.
- Youthworker, published bi-monthly, is a professional journal for
Christian youthworkers who desire to keep current with leadership and
youth trends and issues.
- The CCM Update, a weekly newsletter directed to Christian music
retailers, radio stations and record company executives, features
industry news, radio and sales charts and reviews.
- Christian Research Report, a weekly publication directed exclusively to
Christian radio, includes national airplay charts and music research.
- CCM New Music Guide, published quarterly, provides listings of upcoming
releases from major record labels and national product distributors and
offers reviews of Contemporary Christian releases scheduled for the
coming quarter.
- The CCM Radio division produces The CCM Countdown with Gary Chapman, a
three-hour weekly program featuring the top 30 Adult Contemporary songs
as compiled by The CCM Update, and The CCM Radio Magazine, a one-hour
weekly program based on the editorial content of CCM Magazine. The
programs are delivered by satellite on the Salem Radio Network(R).
- CCM Online maintains CCM's Web site that contains content from the
magazines, listings of where CCM Radio programs are aired, concert
schedules and links to artist-related Web sites.
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 non-commercial radio station
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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 34 radio stations which
broadcast to 19 of the top 25 radio markets in terms of audience size. Our
closest commercial competitor in the top 25 radio markets owns 16 commercial
radio stations which broadcast to eight of these major markets. Our closest
non-commercial competitor in the top 25 radio markets owns five radio stations
which broadcast to four of these major markets.
We also compete for revenue in the advertising market with other commercial
religious format and general format radio station licensees. We compete in the
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
currently being developed or introduced. These include delivery of audio
programming by cable television, satellite, 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. We have attempted to address these
competitive threats, in part, through our acquisition of OnePlace(TM) and
through our arrangement with XM Satellite Radio to provide religious and family
issues talk and music formats on its proposed satellite digital audio radio
service.
NETWORK. Salem Radio Network(R) competes with other commercial radio
networks that offer news and talk programming to religious and general format
radio stations and two non-commercial networks that offer religious music
formats. Our network 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 online audio programming, companies with Web
sites targeted to persons interested in religious and family issues and
e-commerce companies, such as Amazon.com, whose product offerings include
religious books and music.
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. We have employment
agreements with Edward G. Atsinger III, Stuart W. Epperson and Eric Halvorson.
In certain of our larger markets, we employ key managers and on-air talent
who do not have employment contracts. While the loss of any of these individuals
could have a material adverse effect upon the operations of the applicable radio
station, we do not believe that any such loss would have a material adverse
effect on our financial condition or results of operations taken as a whole.
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PROPERTIES AND FACILITIES
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. Our network
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 radio stations' studios and offices, our network's operations, the
operations of our new media businesses and our corporate headquarters are
located in leased facilities. Our network 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 stockholders or trusts and
partnerships created for the benefit of the principal stockholders and their
families. See "Transactions Involving Officers, Directors and Principal
Stockholders." 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.
LITIGATION
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.
FEDERAL REGULATION OF RADIO BROADCASTING
INTRODUCTION. The ownership, operation and sale of broadcast stations,
including those licensed to Salem, are subject to the jurisdiction of the FCC,
which acts under authority derived from The Communications Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Communications Act"). The Communications Act was amended by the
Telecommunications Act of 1996 (the "Telecommunications Act") to make changes in
several broadcast laws. Among other things, the FCC assigns frequency bands for
broadcasting; determines whether to approve changes in ownership or control of
station licenses; regulates transmission facilities, including power employed,
antenna and tower heights, and location of transmission facilities; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; and has the power to
impose penalties for violations of its rules under the Communications Act.
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The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures, the grant of "short" (less
than the maximum) license renewal terms or, for particularly egregious
violations, the denial of a license renewal application, the revocation of a
license or the denial of FCC consent to acquire additional broadcast properties.
For further information concerning the nature and extent of federal regulation
of broadcast stations you should refer to the Communications Act, FCC rules and
the public notices and rulings of the FCC.
LICENSE GRANT AND RENEWAL. Radio broadcast licenses are granted for maximum
terms of eight years. Licenses may be renewed through an application to the FCC.
Prior to the Telecommunications Act, during certain periods when a renewal
application was pending, competing applicants could file for the radio frequency
being used by the renewal applicant. The Telecommunications Act prohibits the
FCC from considering such competing applications if the FCC finds that the
station has served the public interest, convenience and necessity, that there
have been no serious violations by the licensee of the Communications Act or the
rules and regulations of the FCC, and that there have been no other violations
by the licensee of the Communications Act or the rules and regulations of the
FCC that, when taken together, would constitute a pattern of abuse.
Petitions to deny license renewals can be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold hearings on renewal applications if the FCC
is unable to determine that renewal of a license would serve the public
interest, convenience and necessity, or if a petition to deny raises a
"substantial and material question of fact" as to whether the grant of the
renewal application would be prima facie inconsistent with the public interest,
convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicant's license is
restricted. We are not currently aware of any facts that would prevent the
timely renewal of our licenses to operate our radio stations, although there can
be no assurance that our licenses will be renewed.
The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designated to render primary and secondary service over an
extended area; Class B stations, which operate on an unlimited time basis and
are designed to render service only over a primary service area; and Class D
stations, which operate either during daytime hours only, during limited times
only or on an unlimited time basis with low nighttime power. A regional channel
is one on which Class B and Class D AM stations may operate and serve primarily
a principal center of population and the rural areas contiguous to it. A local
channel is one on which AM stations operate on an unlimited time basis and serve
primarily a community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed to
render service only over a primary service area that may be reduced as a
consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend in part upon the
geographic zone in which the transmitter of the FM station is located. In
general, commercial FM stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1 and C.
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The following table sets forth in order of market size the market, call
letters, FCC license classification, antenna height above average terrain
(HAAT), power and frequency of each of the stations owned or operated by Salem
and the date on which each station's FCC license expires. None of our FCC
licenses expires prior to October 1, 2003.
<TABLE>
<CAPTION>
HAAT POWER EXPIRATION
STATION FCC IN IN DATE OF
MARKET CALL LETTERS(1) CLASS METERS KILOWATTS(2) FREQUENCY LICENSE
------ --------------- ----- ------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
New York, NY(3)......... WMCA-AM B NA 5.0/5.0 570 kHz 6/1/2006
WWDJ-AM B NA 5.0/5.0 970 kHz 6/1/2006
Los Angeles, CA......... KKLA-FM B 878 10.5 99.5 MHz 12/1/2005
KIEV-AM B NA 20/3 870 kHz 12/1/2005
KLTX-AM B NA 5.0/3.6 1390 kHz 12/1/2005
Chicago, IL............. WYLL-FM B 91(4) 50 106.7 MHz 12/1/2004
San Francisco, CA....... KFAX-AM B NA 50 1100 kHz 12/1/2005
Philadelphia, PA........ WFIL-AM B NA 5.0/5.0 560 kHz 8/1/2006
WZZD-AM B NA 50.0/10.0 990 kHz 8/1/2006
Dallas-Ft. Worth, TX.... KWRD-FM C 460 100 94.9 MHz 8/1/2005
Boston, MA.............. WEZE-AM B NA 5.0/5.0 590 kHz 4/1/2006
Washington, D.C. ....... WAVA-FM B 165 41 105.1 MHz 10/1/2003
Houston-Galveston, TX... KENR-AM B NA 10.0/5.0 1070 kHz 8/1/2005
KKHT-FM C 579 100 106.9 MHz 8/1/2005
KTEK-AM D NA 2.7/2.067(5) 1110 kHz 8/1/2005
Seattle-Tacoma, WA...... KGNW-AM B NA 50.0/5.0 820 kHz 2/1/2006
KLFE-AM B NA 5.0/5.0 1590 kHz 2/1/2006
KKOL-AM(6) B NA 5.0/5.0 1300 kHz 2/1/2006
KKMO-AM B NA 5.0/5.0 1360 kHz 2/1/2006
Phoenix, AZ............. KPXQ-AM B NA 5.0/5.0 960 kHz 10/1/2005
San Diego, CA........... KPRZ-AM B NA 20.0/5.0 1210 kHz 12/1/2005
Minneapolis-St Paul,
MN.................... KKMS-AM B NA 5.0/5.0 980 kHz 4/1/2005
KYCR-AM B NA 3.8/0.230 1570 kHz 4/1/2005
Baltimore, MD........... WITH-AM C NA 1.0/1.0 1230 kHz 10/1/2003
Pittsburgh, PA.......... WORD-FM B 154 48 101.5 MHz 8/1/2006
WPIT-AM D NA 5.0/0.024 730 kHz 8/1/2006
Denver-Boulder, CO...... KNUS-AM B NA 5.0/5.0 710 kHz 4/1/2005
KRKS-AM B NA 5.0/0.39 990 kHz 4/1/2005
KRKS-FM(7) C 300 100 94.7 MHz 4/1/2005
Cleveland, OH........... WCCD-AM D NA 0.5 1000 kHz 10/1/2004
WHK-AM B NA 5.0/5.0 1420 kHz 10/1/2004
Portland, OR............ KPDQ-AM B NA 1.0/0.51 800 kHz 2/1/2006
KPDQ-FM(7) C 387 100 93.7 MHz 2/1/2006
Cincinnati, OH.......... WTSJ-AM B NA 1.0/0.28 1050 kHz 10/1/2004
Sacramento, CA.......... KFIA-AM B NA 25.0/1.0 710 kHz 12/1/2005
KTKZ-AM B NA 5.0/5.0 1380 kHz 12/1/2005
Riverside-San
Bernardino, CA........ KKLA-AM C NA 1.0/1.0 1240 kHz 12/1/2005
Columbus, OH............ WRFD-AM D NA 23/6.1(5) 880 kHz 10/1/2004
San Antonio, TX......... KSLR-AM B NA 5.0/4.3 630 kHz 8/1/2005
Akron, OH............... WHLO-AM B NA 5.0/0.50 640 kHz 10/1/2004
Colorado Springs, CO.... KBIQ-FM C 695 72 102.7MHz 4/1/2005
KGFT-FM C 676 78 100.7MHz 4/1/2005
KPRZ-FM(8) C3 614 0.51 96.1 MHz 4/1/2005
Oxnard, CA.............. KDAR-FM B1 393 1.5 98.3 MHz 12/1/2005
Canton, OH.............. WHK-FM(9) B 175 36 98.1 MHz 10/1/2004
</TABLE>
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- -------------------------
(1) Actual city of license may be different form the metropolitan market
served.
(2) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during nighttime broadcasting hours, which
results in reducing the radio station's coverage during those hours of
operation. Both power ratings are shown, where applicable.
(3) This market includes the Nassau-Suffolk, NY Metro market which
independently has a MSA rank of 17.
(4) The FCC has issued a construction permit to Salem which allows the antenna
for this station to be increased to 129m HAAT.
(5) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during critical hours, the two-hour periods
immediately following sunrise and preceding sunset. Both daytime power
ratings are shown. KTEK-AM and WRFD-AM do not operate during nighttime
hours.
(6) On April 1, 1999, we exercised an option to acquire ownership of KKOL-AM
for $1.4 million from a corporation owned by our principal stockholders.
FCC approval of the acquisition is pending. We currently operate KKOL-AM.
(7) The FCC has issued a notice of proposed rulemaking that contemplates adding
a new class of FM station known as C0. For further information, see
"-- Proposed Changes" below.
(8) The FCC has issued a construction permit to Salem which allows the license
for this station to be changed to class C2, the antenna to be increased to
670m HAAT, the power to be increased to 1.7kW.
(9) The FCC has issued a construction permit to Salem which allows the antenna
for this station to be increased to 268m HAAT and the power to be changed
to 15.5kW. Construction has been completed pursuant to the permit and the
station is now operating with its new antenna facility. An application to
license the new facility is pending before the FCC.
OWNERSHIP MATTERS. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast license without the
prior approval of the FCC. In determining whether to assign, transfer, grant or
renew a broadcast license, the FCC considers a number of factors pertaining to
the licensee, including compliance with various rules limiting common ownership
of media properties, the "character" of the licensee and those persons holding
"attributable" interests therein, and compliance with the Communications Act's
limitation on alien ownership, as well as compliance with other FCC policies,
including equal employment opportunity requirements.
Once a station purchase agreement has been signed, an application for FCC
consent to assignment of license or transfer of control (depending upon whether
the underlying transaction is an asset purchase or stock acquisition) is filed
with the FCC. Approximately 10 to 15 days after this filing, the FCC publishes a
notice assigning a file number to the application and advising that the
application has been "accepted for filing." This begins a 30-day statutory
public notice period during which third parties have the opportunity to file
formal petitions to deny the proposed transaction. Informal objections to the
transaction may be filed at any time prior to the grant of an application.
During this 30-day period, the FCC staff generally begins its review of the
application and may request additional information from the applicants in
response to any questions the staff may have.
Assuming that no petitions are filed during the public notice period and
that the proposed transaction poses no issues requiring higher level consent,
the FCC staff often grants the application by delegated authority approximately
10 days after the end of the public notice period. If there is a back log of
applications or the transaction proposes an issue requiring higher level
consent, the 10-day period can extend to 30 days or more. The parties to the
application are legally authorized to close on the transaction at any time after
the application is granted. At this point, however, the grant is not a "final
order."
Public notice of the FCC staff grant of an application is usually issued
within seven days of the date on which the application is granted. For a period
of 30 days
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following the date of this public notice interested parties may file petitions
seeking staff reconsideration or full FCC review of the staff action. In
addition, for a period of 40 days following the date of the public notice, the
FCC, on its own, can review and reconsider the grant. If the FCC itself adopts
an order granting an application or adopts an order affirming the staff grant of
an application, judicial review of the FCC action may be sought in the United
States Court of Appeals for the District of Columbia within 30 days of the
public notice of the FCC's action. In the event the court affirms the FCC's
action, further judicial review may be sought by seeking rehearing en banc from
the Court of Appeals or by certiorari from the United States Supreme Court.
Assuming that no petitions are filed by third parties and no action staying
or reversing the grant is made by the FCC, then the grant will become a final
order by operation of law at the close of business on the 40th day following the
public notice of the grant. Upon a grant becoming a final order, counsel is able
to deliver an opinion that the grant is no longer subject to administrative or
judicial review, although such actions can nevertheless be set aside in rare
circumstances (for example, fraud on the agency by a party to the application).
The FCC will not issue an unconditional assignment or transfer grant if an
application for renewal of license for the station is pending. Thus, the
foregoing timetables will be altered in the event an application for assignment
or transfer is filed while a license renewal application is pending.
Under the Communications Act, a broadcast license may not be granted to or
held by a corporation that has more than one-fifth of its capital stock owned or
voted by aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations. Under the Communications Act, a
broadcast license also may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by aliens or their
representatives, by foreign governments or their representatives, or by non-U.S.
corporations. These restrictions apply in modified form to other forms of
business organizations, including partnerships. We therefore may be restricted
from having more than one-fourth of our stock owned or voted by aliens, foreign
governments or non-U.S. corporations.
The Communications Act and FCC rules also generally restrict the common
ownership, operation or control of radio broadcast stations serving the same
local market, of a radio broadcast station and a television broadcast station
serving the same local market, and of a radio broadcast station and a daily
newspaper serving the same local market. Under these "cross-ownership" rules,
absent waivers, we would not be permitted to acquire any daily newspaper or
television broadcast station (other than low power television) in a local market
where we then owned any radio broadcast station. The FCC's rules provide for the
liberal grant of a waiver of the rule prohibiting common ownership of radio and
television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied. The Telecommunications Act extends
this waiver policy to stations in the top 50 television markets, although the
FCC has not yet implemented this change.
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In response to the Telecommunications Act, the FCC amended its multiple
ownership rules to eliminate the national limits on ownership of AM and FM
stations. The FCC's broadcast multiple ownership rules restrict the number of
radio stations one person or entity may own, operate or control on a local
level. These limits, as specified in the Telecommunications Act, are:
- in a market with 45 or more commercial radio stations, an entity may own
up to eight commercial radio stations, not more than five of which are in
the same service (FM or AM);
- in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than
four of which are in the same service;
- in a market with between 15 and 29 (inclusive) commercial radio stations,
an entity may own up to six commercial radio stations, not more than four
of which are in the same service;
- in a market with 14 or fewer commercial radio stations, an entity may own
up to five commercial radio stations, not more than three of which are in
the same service, except that an entity may not own more than 50% of the
stations in such market.
None of these multiple ownership rules requires any change in our current
ownership of radio broadcast stations; however, these rules will limit the
number of additional stations that we may acquire in the future in certain of
our markets.
Because of these multiple and cross-ownership rules, a purchaser of voting
stock of the company that acquires an "attributable" interest in the company may
violate the FCC's rule if it also has an attributable interest in other
television or radio stations, or in daily newspapers, depending on the number
and location of those radio or television stations or daily newspapers. Such a
purchaser also may be restricted in the other companies in which it may invest,
to the extent that these investments give rise to an attributable interest. If
an attributable stockholder of the company violates any of these ownership
rules, the company may be unable to obtain from the FCC one or more
authorizations needed to conduct its radio station business and may be unable to
obtain FCC consents for certain future acquisitions.
The FCC generally applies its television/radio/newspaper cross-ownership
rules and its broadcast multiple ownership rules by considering the
"attributable," or cognizable interests held by a person or entity. A person or
entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or stockholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as an "owner" of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.
With respect to a corporation, officers and directors and persons or
entities that directly or indirectly can vote 5% or more of the corporation's
stock (10% or more of such stock in the case of insurance companies, investment
companies, bank trust departments which act as "passive investors" that hold
such stock for investment purposes only)
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generally are attributed with an ownership interest in whatever radio stations,
television stations and daily newspapers the corporation owns.
With respect to a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is "materially
involved" in the media-related activities of the partnership. Debt instruments,
nonvoting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
"materially involved" in the media-related activities of the partnership, and
minority (under 5%) voting stock, generally do not subject their holders to
attribution.
The FCC has issued a notice of proposed rulemaking that contemplates
tightening attribution standards where parties have multiple nonattributable
interests in and relationships with stations that would be prohibited by the
FCC's cross-ownership rules, if the interest/relationships were attributable.
The proposed rule contemplates that this change in attribution will apply only
to persons holding debt or equity interests that exceed certain benchmarks. For
further information, see "-- Proposed Changes" below.
In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including nonvoting stock, voting stock and
limited partnership interests) and significant employment positions. This policy
may limit the permissible investments a purchaser of the company's voting stock
may make or hold.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." The FCC has gradually relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. Licensees continue to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but such complaints may be
filed and considered at any time.
Stations also must pay regulatory and application fees and follow various
FCC rules that regulate, among other things, political advertising, the
broadcast of obscene or indecent programming, sponsorship identification and
technical operations (including limits on radio frequency radiation) and equal
employment opportunity requirements. The broadcast of contests and lotteries is
regulated by FCC rules.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
LOCAL MARKETING AGREEMENTS. Over the past five years, a number of radio
stations, including certain of our stations, have entered into "time brokerage
agreements" of the type which are commonly referred to as "local marketing
agreements." These LMAs take various forms. Separately-owned and licensed
stations may agree to function cooperatively in terms of programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each station maintains independent control over the programming and
other
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operations of its own station. The FCC has held that such agreements do not
violate the Communications Act as long as the licensee of the station that is
being substantially programmed by another entity maintains complete
responsibility for, and control over, operations of its broadcast stations and
otherwise ensures compliance with applicable FCC rules and policies.
A station that brokers substantial time on another station in its market or
engages in an LMA with a station in the same market will be considered to have
an attributable ownership interest in the brokered station for purposes of the
FCC's ownership rules. As a result, a broadcast station may not enter into an
LMA that allows it to program more than 15% of the broadcast time, on a weekly
basis, of another local station that it could not own under the FCC's local
multiple ownership rules. FCC rules also prohibit the broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (that is, AM-AM or FM-FM) where the two stations serve
substantially the same geographic area, whether the licensee owns the stations
or owns one and programs the other through an LMA arrangement.
PROPOSED CHANGES. In December, 1994, the FCC initiated a proceeding to
solicit comment on whether it should revise its radio ownership "attribution"
rules by among other proposals:
- raising the basic benchmark for attributing ownership in a corporate
licensee from 5% to 10% of the licensee's voting stock;
- increasing from 10% to 20% of the licensee's voting stock the attribution
benchmark for "passive investors" in corporate licensees; and
- restricting the availability of the attribution exemption when a single
party controls more than 50% of the voting stock.
At this time, no decision has been made by the FCC in these matters. We can make
no determination as to what effect, if any, this proposed rulemaking will have
on Salem.
The Congress and the FCC from time to time have under consideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of the company's radio stations,
result in the loss of audience share and revenue for the company's radio
stations, and affect the ability of the company to acquire additional radio
stations or finance such acquisitions. Such matters include:
- proposals to impose spectrum use or other fees on FCC licensees;
- the FCC's equal employment opportunity rules and matters relating to
political broadcasting;
- technical and frequency allocation matters;
- changes in the FCC's cross interest policies;
- changes in multiple ownership and cross-ownership rules;
- changes to broadcast technical requirements;
- proposals to allow telephone or cable television companies to deliver
audio and video programming to the home through existing phone lines;
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- proposals to limit the tax deductibility of advertising expenses by
advertisers; and
- proposals to auction the right to use the radio broadcast spectrum to the
highest bidder, instead of granting FCC licenses and subsequent license
renewals without such bidding.
The Balanced Budget Act of 1997, enacted August 5, 1997, requires the FCC
to resolve mutually-exclusive requests for use of the commercial radio broadcast
spectrum by auction under most circumstances. The Balanced Budget Act of 1997
requires the use of auctions to resolve mutually-exclusive requests for new
radio stations or major changes in the facilities of existing stations filed
after June 30, 1997 where the stations propose to use the commercial radio
broadcast spectrum. The FCC may use auctions to resolve such mutually-exclusive
requests filed before July 1, 1997, which remain pending after a mandated period
ending February 1, 1998, in which the applicants may enter into settlement
agreements to resolve the mutual exclusivity of their applications.
On November 25, 1997, the FCC adopted a notice of proposed rulemaking
seeking to implement its statutory auction authority. In connection with the
November 25, 1997 notice of proposed rulemaking, the FCC has imposed a temporary
freeze on the filing of most requests for new commercial broadcast radio
stations or for major changes of existing commercial broadcast facilities until
it completes the adoption of auction rules and procedures. On August 6, 1998,
the FCC adopted a First Report and Order amending certain of its rules and
enacting new rules to implement its auction authority, and delegated authority
to the Chief of the Mass Media Bureau to prescribe procedures and mechanisms for
the conduct of broadcast service auctions under the new and amended rules.
Petitions for reconsideration of that First Report and Order were filed and
considered by the FCC. On April 15, 1999, the FCC acted on those petitions by
generally reaffirming the auction rules adopted August 6, 1998, which among
other provisions award bidding credits to owners of no or very few mass media
outlets. The Chief of the Mass Media Bureau has not yet acted on the delegation
to prescribe procedures and mechanisms for the conduct of broadcast service
auctions. The FCC's proceeding to adopt auction rules for the broadcast services
is not completed. Still under consideration is a further refinement of the rule
under which bidding credits will be awarded. The freeze imposed in connection
with the November 25, 1997 notice remains in effect. On March 30, 1999, the FCC
adopted an order in a separate proceeding which, among other actions, amended
the definition of a major change application for existing AM radio stations,
potentially lessening the impact of the freeze on licenses of commercial AM
radio stations.
We cannot predict whether any proposed changes will be adopted or what
other matters might be considered in the future, nor can we judge in advance
what impact, if any, the implementation of any of these proposals or changes
might have on our business.
The FCC, on April 2, 1997, awarded two licenses for the provision of
satellite digital radio services. Under rules adopted for this service,
licensees must begin construction of their space stations within one year, begin
operating within four years, and be operating their entire system within six
years. We cannot predict whether the service will be subscription or advertiser
supported. Digital technology also may be used in the future by terrestrial
radio broadcast stations either on existing or alternate broadcasting
frequencies, and the FCC has stated that it will consider making changes to its
rules to permit AM and FM radio stations to offer digital sound following
industry analysis of technical standards. In addition, the FCC has authorized an
additional 100 kHz of bandwidth for the AM band and on March 17, 1997, adopted
an allotment plan for the expanded band that identified
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<PAGE> 55
the 88 AM radio stations selected to move into the band. At the end of a
five-year transition period, those licensees will be required to return to the
FCC either the license for their existing AM band station or the license for the
expanded AM band station. Salem has received two expanded band authorizations,
one for KBJD-AM, paired with KRKS-AM, Denver-Boulder, Colorado, and one for
KAZJ-AM, paired with KLFE-AM, Seattle-Tacoma, Washington.
The FCC has issued a notice of proposed rulemaking that contemplates adding
a new class of FM station known as C0. If the proposed rule is adopted and if a
station's facilities place it in the C0 class, it may be precluded from
increasing its antenna height and power combination above the limits set for C0
classification. Some of Salem's FM stations which are now Class C stations may
become Class C0 stations dependent upon the outcome of that rulemaking
proceeding. The FCC has proposed to adopt a three-year transition period, should
it adopt the new C0 classification, during which a station subject to the new
classification could apply for and obtain a construction permit to increase the
antenna height to a level at which it could retain Class C status.
The foregoing summary of certain provisions of the Communications Act and
of specific FCC rules and policies does not purport to be comprehensive. For
further information concerning the nature and extent of federal regulation of
radio broadcast stations you should refer to the Communications Act, the FCC's
rules and the public notices and rulings of the FCC.
FEDERAL ANTITRUST CONSIDERATIONS. The FTC and the DOJ, which evaluate
transactions to determine whether those transactions should be challenged under
the federal antitrust laws, have been increasingly active recently in their
review of radio station acquisitions, particularly where an operator proposes to
acquire additional stations in its existing markets.
For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Improvements Act ("HSR Act") and the rules promulgated thereunder require the
parties to file Notification and Report Forms with the FTC and the DOJ and to
observe specified waiting period requirements before consummating the
acquisition. At any time before or after the consummation of a proposed
acquisition, the FTC or the DOJ could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the acquisition or seeking divestiture of the business acquired or other
assets of the company. Acquisitions that are not required to be reported under
the HSR Act may be investigated by the FTC or the DOJ under the antitrust laws
before or after consummation. In addition, private parties may under certain
circumstances bring legal action to challenge an acquisition under the antitrust
laws.
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that LMAs and other similar agreements
customarily entered into in connection with radio station transfers prior to the
expiration of the waiting period under the HSR Act could violate the HSR Act.
Although we do not believe that our acquisition strategy as a whole will be
adversely affected in any material respect by antitrust review, we cannot be
sure that this will be the case.
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<PAGE> 56
MANAGEMENT
EXECUTIVE AND OTHER KEY OFFICERS AND DIRECTORS
The executive officers, directors and key employees of Salem and its
subsidiaries and their ages and positions with Salem 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.............. 50 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 and WITH-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 stockholders
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 since 1991 and a director since 1988. From 1991 to the
present, Mr. Halvorson has also served as the General Counsel of Salem. 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 Salem. 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.
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<PAGE> 57
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 since 1992. From 1992 to 1993, Mr. Gastaldo was Vice
President-Administration of Salem, and from 1989 to 1991 he was
Manager - Internal Audit. 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 radio
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 Salem's Colorado Springs radio stations from 1994 to present.
He also served as General Manager of Salem's Denver radio stations from 1994 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-FM since 1992 and WITH-AM since 1997. 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, and was Chief Executive Officer and a shareholder 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
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<PAGE> 58
Mr. Young founded and developed 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 1987 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.
COMMITTEES OF THE BOARD OF DIRECTORS
Salem has formed an Audit Committee and a Compensation Committee of its
board of directors, and all of the directors serving on the Audit Committee and
the Compensation Committee are directors who are not employees of Salem.
The Audit Committee consists of Messrs. Riddle and Hinz. The Audit
Committee will review the results and scope of the audit performed by Salem's
independent accountants and establish standards for review of Salem's compliance
with applicable accounting and regulatory standards. The Compensation Committee
consists of Messrs. Riddle and Hinz. The Compensation Committee will make
decisions or recommendations to the board of directors concerning salaries,
incentive compensation and severance benefits for officers and senior employees
of Salem.
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<PAGE> 59
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by Salem for 1998,
1997 and 1996 to its Chief Executive Officer and four highest paid executive
officers.
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.... 1998 $400,000 $250,000 $ -- $ --
President, Chief 1997 400,000 -- 890,192(2) --
Executive Officer 1996 400,000 350,000(1) 996,372(2) --
and Director
Stuart W. Epperson........ 1998 400,000 288,000 -- --
Chairman of the Board 1997 400,000 -- 890,192(2) --
1996 400,000 350,000(1) 1,012,319(2) --
Eric H. Halvorson......... 1998 285,000 87,500 -- 570(3)
Executive Vice President, 1997 270,000 85,000 -- 63,525(4)
Chief Operating Officer 1996 255,000 85,000 -- 909(3)
and Director
Dave Armstrong............ 1998 175,658 38,000 -- 876(3)
Vice President- 1997 163,683 -- -- 19(3)
Operations 1996 149,019 15,000 -- 585(3)
Joe D. Davis.............. 1998 172,362 20,000 -- 1,000(3)
Vice President- 1997 163,524 -- -- 950(3)
Operations 1996 159,026 -- -- 950(3)
</TABLE>
- -------------------------
(1) Represents 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
"Business -- General" and note 1 to our consolidated financial statements
included elsewhere in this prospectus.
(2) Represents 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 "Business -- General" and note 1
to our consolidated financial statements included elsewhere in this
prospectus.
(3) Represents employer matching contributions to individuals' 401(k) accounts.
(4) Includes employer matching contributions to Mr. Halvorson's 401(k) account
and cancellation of $25,000 indebtedness owed to Salem 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.
1999 STOCK INCENTIVE PLAN
On , 1999, we adopted the 1999 stock incentive plan designed
to provide incentives relating to equity ownership to plan participants
including present and future directors, officers, employees, consultants and
advisors of Salem and our subsidiaries as may be selected in the sole discretion
of the board of directors or a board committee that
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<PAGE> 60
the board may appoint to administer the plan. The plan provides for the granting
of awards to participants as the board of directors, or such administrative
board committee it may designate, deems to be consistent with the purposes of
the plan. Awards under the plan may include any one or more of the following:
stock options, performance awards, restricted stock, stock appreciation rights,
stock payments, dividend equivalents, stock bonuses, stock sales, phantom stock
and other stock-based benefits. An aggregate of shares of Class A
common stock have been reserved for issuance under the plan. The plan affords
Salem latitude in tailoring incentive compensation for the retention of key
personnel, to support corporate and business objectives, and to anticipate and
respond to a changing business environment and competitive compensation
practices.
The board of directors, or the board committee it has appointed, has
exclusive discretion to select the plan participants, to determine the type,
size and terms of each award, to modify the terms of awards, to determine when
awards will be granted and paid, and to make all other determinations which it
deems necessary or desirable in the interpretation and administration of the
plan. The plan terminates ten years from its effective date as adopted by the
board of Salem. The board or the appointed committee has the ability to
administer and amend the plan without stockholder approval except as required by
law or the plan.
In general, a participant's rights and interest under the plan are not
transferable and only a recipient of an award may exercise such awards. The
assignability and transferability of awards are further subject to limitations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Internal Revenue Code of 1986, as amended.
Stock Options. Options awardable under the plan, which include
non-qualified stock options and incentive stock options, are rights to purchase
a specified number of shares of Class A common stock at a price fixed by the
board or appointed committee as of the date the option is granted. The option
price may not be less than the fair market value of the underlying shares of
Class A common stock. Each stock option will become exercisable, as a whole or
in part, on the date or dates specified by the board or the appointed committee
and will expire on a date determined by the board or the appointed committee,
but not later than 10 years after the date the stock option is granted. The
options will be subject to earlier termination as provided in the plan or the
award document. Upon termination of a participant's employment with Salem,
options that are not exercisable will be forfeited immediately and options that
are exercisable may be subject to a shortened exercise period determined by the
board or appointed committee, as set forth in the agreement establishing the
award or as agreed to by the participant. Payment of the option price must be
made in full at the time of exercise in such form (including, but not limited
to, cash or Class A common stock of Salem) as the board or appointed committee
may determine.
Performance Awards. Performance awards are awards payable in cash, Class A
common stock or a combination of both, and vest and become payable over a period
of time upon attainment of performance criteria established by the board or the
appointed committee. Each performance award will expire on a date determined by
the board or appointed committee and is subject to earlier termination as
provided in the plan.
Restricted Stock. Restricted stock awards are grants or sales of Class A
common stock that are nontransferable and subject to a substantial risk of
forfeiture until specific conditions are met. The board or appointed committee
determines the purchase price (if any) to be paid for the restricted stock, the
terms of payment, the restrictions upon the restricted stock, and when such
restrictions will lapse. Subject to any restrictions imposed
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<PAGE> 61
upon the restricted stock, the recipient will have all rights of a stockholder
with respect to the restricted stock granted or sold to such recipient,
including, without limitation, the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto. Unless the
board or the appointed committee determines otherwise, upon a participant's
termination of employment, Salem will repurchase grants of restricted stock that
remain subject to restrictions on the date of such termination at the purchase
price paid by the recipient, if any.
Stock Appreciation Rights. Stock appreciation rights are rights to receive
payments measured with reference to the amount by which the fair market value of
a specified number of shares of Class A common stock appreciates from a
specified date, such as the date of grant, to the date of exercise. The board or
the appointed committee has full discretion to determine the form in which
payment of a stock appreciation right will be made and to consent to or
disapprove the election of a recipient to receive cash in full or partial
settlement of a stock appreciation right. In addition, the board or the
appointed committee may, at the time a stock appreciation right is granted,
impose such conditions on the exercise of the stock appreciation right as may be
required to comply with requirements of the Exchange Act.
Stock Payments. Stock payments are payments in shares of Class A common
stock that are made to replace all or any portion of a participant's non-base
salary compensation that would otherwise become payable to the participant in
cash.
Dividend Equivalents. Dividend equivalents are payments made to a
participant who holds stock options, stock appreciation rights or other award in
which the payments are equivalent to the amount of dividends payable to such
participant with respect to the shares of common stock underlying such other
award. Dividend equivalents may be paid in cash, Class A common stock or another
award, and the amount of dividend equivalents paid other than in cash will be
determined by the board or the appointed committee by application of such
formula as the board or the appointed committee may deem appropriate to
translate the cash value of dividends paid to the alternative form of payment of
the dividend equivalent.
Stock Bonuses. Stock bonuses are awards of restricted or unrestricted
shares of Class A common stock as bonuses for services rendered or for any other
valid consideration on such terms and conditions as the board or the appointed
committee may determine.
Stock Sales. Stock sales are sales of Class A common stock on such terms
and conditions as the board or the appointed committee may determine.
Phantom Stock. Phantom stock grants are grants of cash bonuses measured by
the fair market value of a specified number of shares of Class A common stock on
a specified date or measured by the excess of such fair market value over a
specified minimum, which may, but need not, include dividend equivalents.
Other Stock-Based Benefits. The board or appointed committee may grant to
eligible persons other stock-based benefits not otherwise described above that
(i) by their terms might involve the issuance or sale of Class A common stock or
(ii) involve a benefit that is measured, as a whole or in part, by the value,
appreciation, dividend yield or other features attributable to a specified
number of shares of Class A common stock.
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In the event of a reorganization not involving a change of control in which
holders of shares of Class A common stock are entitled to receive any
securities, cash or other consideration for their shares of Class A common
stock, each award outstanding under the plan shall become exercisable, in
accordance with the plan, for the kind and amount of securities, cash and/or
other consideration receivable by a holder of the same number of shares of Class
A common stock upon such reorganization. Any adjustments to the consideration
will be made in the sole discretion of the board or appointed committee at it
deems appropriate to give effect to the reorganization.
In the event of a reorganization that involves a change of control, as of
the effective time of the reorganization, the plan and any then outstanding
awards, whether or not vested, shall automatically terminate unless otherwise
provided in writing in connection with such reorganization or by the board. If
the plan and the awards terminate by reason of a change in control
reorganization as described in the preceding sentence, then any recipient
holding outstanding awards shall have the right, at such time immediately prior
to the consummation of the reorganization as the board shall designate, to
exercise the recipient's awards to the full extent not theretofore exercised,
including any installments which have not yet become vested.
EMPLOYMENT AGREEMENTS
Edward G. Atsinger III and Stuart W. Epperson entered into employment
agreements with Salem effective as of August 1, 1997, pursuant to which Mr.
Atsinger will serve as President and Chief Executive Officer of Salem and Mr.
Epperson will serve as chairman of Salem, each with 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. Messrs. Atsinger's and Epperson's employment
agreements provide that, in the event of a termination of employment by Salem
without cause (or a constructive termination by Salem) during the initial term
of employment, Salem will pay a severance benefit in the form of salary
continuation payments for the longer of six months or the remainder of the
initial term, plus accrued bonus through the date of termination. Following the
initial term of employment, a termination of employment by Salem without cause
(or a constructive termination by Salem) or a failure by Salem to renew the
initial or any subsequent term of employment for an additional annual term would
entitle Messrs. Atsinger and Epperson to three months of severance plus accrued
bonus through the date of termination.
Additionally, the employment agreements with Messrs. Atsinger and Epperson
provide 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 employment with Salem and a nondisclosure provision which is
effective for the term of the employment agreement and indefinitely thereafter.
Eric H. Halvorson is a party to an employment agreement with Salem pursuant
to which he serves as Executive Vice President of Salem at an annual salary of
$300,000, with a term of employment through December 2003. If Mr. Halvorson is
terminated without cause by Salem, he is entitled to severance payments equal to
his salary for the remaining 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
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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.
401(k) PLAN
Salem 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
Salem 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 25% of the employee's contributions to the 401(k) savings plan which do
not exceed 6% of the employee's annual compensation. Salem made a contribution
of $87,000 to the 401(k) savings plan during 1998.
TRANSACTIONS INVOLVING OFFICERS,
DIRECTORS AND PRINCIPAL STOCKHOLDERS
LOAN TRANSACTIONS
In December 1997, Salem 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 and the
note was repaid in full and cancelled in April 1999. The note bore interest at a
floating rate that was last set at 8%.
In January 1998, Salem 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, Salem repaid $1.5 million and there was no outstanding balance on the
note as of December 31, 1998. The note was cancelled in April 1999. The note
bore interest at floating rate that was last set at 8%.
In 1997, Salem purchased split-dollar life insurance policies for Messrs.
Atsinger and Epperson. Mr. Epperson selected a one-year policy in the amount of
$20 million while Mr. Atsinger selected a one-year 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 Salem. In 1998, Salem purchased one-year split-dollar life insurance
policies in the amount of $20 million for each of Messrs. Atsinger and Epperson.
LEASES WITH PRINCIPAL STOCKHOLDERS
Salem 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
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for comparable properties, we believe 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 FACILITIES LEASED ANNUAL RENTAL DATE(1)
------ ------------ --------------------- ------------- ----------
<S> <C> <C> <C> <C>
LEASES WITH BOTH MESSRS. ATSINGER
AND EPPERSON:
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
----------
LEASE WITH MR. ATSINGER:
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 Salem's
option.
Rental expense paid by Salem 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 Salem solely to Mr. Atsinger or
trusts created for the benefit of his family for 1998 amounted to approximately
$60,000.
KKOL-AM
Messrs. Atsinger and Epperson own Sonsinger, Inc., which is the licensee of
KKOL-AM, Seattle, Washington. Pursuant to a local marketing agreement with
Sonsinger entered into on June 13, 1997, Salem programs KKOL-AM and sells all
the airtime. We retain all of the revenue (approximately $82,000 for 1998) and
incur all of the expenses related to our operation of KKOL-AM and incurred
approximately $164,000 in local marketing fees under the agreement in 1998. On
April 1, 1999, we exercised our option to acquire KKOL-AM for $1.4 million from
Sonsinger. FCC approval of the acquisition is pending.
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<PAGE> 65
TOWER CONSTRUCTION CONTRACT
In August 1997, in order to reduce the indebtedness under our credit
facility, we assigned our contract with a tower construction company to build a
broadcast tower in Houston to a corporation owned by Messrs. Atsinger and
Epperson. Messrs. Atsinger and Epperson reimbursed us for our costs and expenses
of $3.7 million on December 31, 1997. The antenna for our station in Houston,
KKHT-FM, is located on the tower and we pay rent to Messrs. Atsinger and
Epperson at an annual rate of $150,000.
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 Salem's radio stations. Acquisitions in these markets are
not part of our current business and acquisition strategies. Under his
employment agreement, Mr. Epperson is required to offer Salem a right of first
refusal on opportunities related to Salem's business.
TRANSPORTATION SERVICES SUPPLIED BY PRINCIPAL STOCKHOLDER
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,
Salem paid $69,180 to Atsinger Aviation for airplane rental; no amounts were
paid for helicopter rental in 1998.
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<PAGE> 66
SECURITY OWNERSHIP OF SELLING STOCKHOLDERS,
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of Salem's common stock by (i) 5% stockholders, (ii) each of the
directors who beneficially owns shares, (iii) Salem's Chief Executive Officer
and each of its four highest paid executive officers who beneficially owns
shares and (iv) all directors and officers as a group.
Individually and through family trusts, Edward G. Atsinger III and Stuart
W. Epperson, our CEO and chairman, are the selling stockholders and have granted
the underwriters an option to acquire up to an additional shares of Class
A common stock. See "Underwriting."
The address of the individuals listed below is 4880 Santa Rosa Road, Suite
300, Camarillo, California 93012.
<TABLE>
<CAPTION>
PERCENT OF VOTE OF
CLASS A COMMON STOCK ALL CLASSES OF
--------------------------------------- COMMON
CLASS B STOCK
BEFORE AFTER COMMON --------------------
OFFERING SHARES OFFERING STOCK
------------- BEING ------------- ------------ BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER % OFFERED NUMBER % NUMBER % OFFERING OFFERING
------------------------ ------- --- ------- ------- --- ------ --- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Edward G. Atsinger III(1) 50% 50% 50%
Stuart W. Epperson(2)(3) 50% 50% 50%
Nancy A. Epperson(2) 50% 50% 50%
All directors and officers
as a group (12 persons) 100% 100% 100%
</TABLE>
- -------------------------
(1) These shares of Class A and Class B common stock are held by family trusts
of which Mr. Atsinger is trustee.
(2) Stuart W. Epperson and Nancy A. Epperson are husband and wife.
(3) Includes shares of Class A common stock held by a family trust of
which Mr. Epperson is trustee.
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<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
Salem's authorized capital stock consists of 80,000,000 shares of Class A
common stock, $.01 par value, 20,000,000 shares of Class B common stock, $.01
par value, and 10,000,000 shares of preferred stock, $.01 par value. Together,
the Class A common stock and the Class B common stock comprise all of the
authorized common stock.
COMMON STOCK
Upon completion of this offering, there will be shares of
Class A common stock ( shares if the underwriters' over-allotment options
are exercised in full) and shares of Class B common stock
outstanding. All of the outstanding Class B common stock is beneficially owned
by Edward G. Atsinger III, Stuart W. Epperson and Nancy A. Epperson.
Voting. Holders of Class A common stock are entitled to one vote for each
share held of record, and holders of Class B common stock are entitled to 10
votes for each share held of record, except that:
- in the case of a proposed acquisition of a company where any director,
officer, holder of 10% or more of any class of common stock or any of
their affiliates has an interest in the company, the assets to be
acquired or in the proceeds from the transaction, holders of both classes
of common stock are entitled to one vote for each share held of record;
and
- in the case of a proposed going private transaction involving Salem or
Edward G. Atsinger III, Stuart W. Epperson or Nancy A. Epperson or any of
their affiliates, holders of both classes of common stock are entitled to
one vote for each share held of record.
The Class A common stock and the Class B common stock vote together as a
single class on all matters submitted to a vote of stockholders, including the
election of directors by proxy, except as required by law and except as follows.
Beginning with Salem's first annual meeting following the offering, the holders
of Class A common stock will vote as a separate class for two independent
directors, in addition to voting together with holders of Class B common stock
for the remaining directors. Shares of common stock do not have cumulative
voting rights with respect to the election of directors.
For purposes of the election of independent directors by the holders of
Class A common stock, an independent director is a person who is not an officer,
employee, affiliate, agent, principal stockholder, consultant, or partner of
Salem or its subsidiaries, and who does not otherwise have a relationship which,
in the opinion of the board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. Prior
to the first annual meeting following this offering, these directors will be
appointed by the board of directors.
As a result of this offering, excluding any over-allotment shares, the
percentage of the voting power of the outstanding common stock controlled by
Messrs. Atsinger and Epperson and Mrs. Epperson will decline from 100% to %
( % if the underwriters' over-allotment options are exercised in full); but
they will continue to control all actions to be taken by the stockholders,
including the election of all directors to the board of directors other than the
two independent directors to be elected by the holders of Class A common stock.
See "Security Ownership of Selling Stockholders, Beneficial Owners and
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<PAGE> 68
Management" and "Risk Factors -- Existing Stockholders Have the Ability to
Control Matters on Which Salem's Existing Stockholders May Vote."
Dividends. Holders of the common stock are entitled to receive, as when and
if declared by the board of directors from time to time, such dividends and
other distributions in cash, stock or property from Salem's assets or fund
legally available for such purposes subject to any dividend preferences that may
be attributable to preferred stock that may be authorized. Each share of Class A
common stock and Class B common stock is equal in respect of dividends and other
distributions in cash, stock or property, including distributions upon
liquidation of Salem and consideration to be received upon a merger or
consolidation of Salem or a sale of all or substantially all of the Salem's
assets, except that in the case of stock dividends, only shares of Class A
common stock will be distributed with respect to the Class A common stock and
only shares of Class B common stock will be distributed with respect to Class B
common stock. In no event will either Class A common stock or Class B common
stock be split, divided or combined unless the other class is proportionately
split, divided or combined.
Conversion. The shares of Class A common stock are not convertible into any
other series or class of securities. Each share of Class B common stock,
however, is freely convertible into one share of Class A common stock at the
option of the Class B stockholder. Shares of Class B common stock may not be
transferred to third parties. Except for transfers to certain family members and
for estate planning purposes, any such attempt to transfer Class B common stock
will result in the automatic conversion of such shares into Class A common
shares. All conversions of Class B common stock are subject to any necessary FCC
approval.
Liquidation. Upon liquidation, dissolution or winding up of Salem, the
holders of the common stock are entitled to share ratably in all assets
available for distribution after payment in full of creditors and holders of the
preferred stock of Salem, if any.
The Class A common stock will be listed, subject to notification, on The
New York Stock Exchange under the symbol "SLC."
PREFERRED STOCK
The board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and the board of directors currently
has no plans to issue a new series of preferred stock. The board of directors
may, without stockholder approval, issue preferred stock with dividend rates,
redemption prices, preferences on liquidation or dissolution, conversion rights,
voting rights and any other preferences, which rights and preferences could
adversely affect the voting power of the holders of common stock. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions or other corporate purposes, could have the effects of
making it more difficult for a third party to acquire, or could discourage or
delay a third party from acquiring, a majority of our outstanding stock and of
decreasing the amount of earnings or assets available for distribution to the
holders of common stock.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Advance Notice. Salem's bylaws provide that advance notice of all director
nominations or other business matters proposed to be brought before an annual
meeting of
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<PAGE> 69
stockholders be delivered to our secretary at our corporate office not later
than 90 nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting. This provision may make it more difficult for
stockholders to nominate or elect directors or take action opposed by the board.
Special Meetings. Our bylaws provide that special meetings of the
stockholders may be called only by the board of directors, the chairman of the
board of directors or the president. This provision may make it more difficult
for stockholders to take action opposed by the board.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that stockholders can take action only at an annual or special meeting
of stockholders duly called in accordance with Salem's bylaws. Accordingly,
stockholders of Salem will not be able to take action by written consent in lieu
of a meeting. This provision may have the effect of deterring hostile takeovers
or delaying changes in control or management of Salem.
Indemnification of Directors and Officers. Salem's certificate of
incorporation and bylaws provide a right to indemnification to the fullest
extent permitted by law for expenses, attorney's fees, damages, punitive
damages, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by any person whether or not the indemnified liability
arises or arose from any threatened, pending or completed proceeding by or in
Salem's right by reason of the fact that such person is or was serving as a
director or officer at Salem's request, as a director, officer, partner,
venturer, proprietor, employee, agent, or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Salem's certificate of incorporation and bylaws provide for the advancement of
expenses to an indemnified party upon receipt of an undertaking by the party to
repay those amounts if it is finally determined that the indemnified party is
not entitled to indemnification.
Salem's bylaws authorize it to take steps to ensure that all persons
entitled to the indemnification are properly indemnified, including, if the
board of directors so determines, purchasing and maintaining insurance.
CERTAIN PROVISIONS OF DELAWARE LAW
Salem is a Delaware corporation and is subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction by which that person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
prior did own, 15% or more of Salem's voting stock.
FOREIGN OWNERSHIP RESTRICTIONS
Salem's certificate of incorporation includes provisions designed to ensure
that control and management of Salem remains with citizens of the United States
and/or corporations
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<PAGE> 70
formed under the laws of the United States or any of the states of the United
States, as required by the Communications Act.
These provisions include restrictions on transfers to and holdings of
Salem's capital stock by an "Alien." For the purposes of these restrictions, an
Alien is (i) a person who is a citizen of a country other than the United
States; (ii) any entity organized under the laws of a government other than the
government of the United States or any state, territory, or possession of the
United States; (iii) a government other than the government of the United States
or of any state, territory, or possession of the United States; or (iv) a
representative of, or an individual or entity controlled by, any of the
foregoing.
Specifically, Salem's foreign ownership restrictions provide:
- Salem shall not issue to an Alien any shares of its capital stock if such
issuance would result in the total number of shares of such capital stock
held or voted by Aliens (or for or by the account of Aliens) to exceed
25% of (A) the total number of all shares of such capital stock
outstanding at any time and from time to time or (B) the total voting
power of all shares of such capital stock outstanding and entitled to
vote at any time and from time to time. Salem shall not permit the
transfer on its books of any capital stock to any Alien that would result
in the total number of shares of such capital stock held or voted by
Aliens (or for or by the account of Aliens) exceeding such 25% limits.
- No Alien or Aliens, individually or collectively, shall be entitled to
vote or direct or control the vote of more than 25% of (i) the total
number of all shares of capital stock of Salem outstanding at any time
and from time to time or (ii) the total voting power of all shares of
capital stock of Salem outstanding and entitled to vote at any time and
from time to time. Issuance or transfer of Salem's capital stock in
violation of this provision is prohibited.
Salem's board of directors shall have all powers necessary to implement
these provisions of Salem's certificate of incorporation and to ensure
compliance with the alien ownership restrictions (the "Alien Ownership
Restrictions") of the Communications Act, including, without limitation, the
power to prohibit the transfer of any shares of capital stock of Salem to any
Alien and to take or cause to be taken such action as it deems appropriate to
implement such prohibition, including placing a legend regarding restrictions on
foreign ownership of the capital stock on certificates representing such capital
stock.
In addition, any shares of Salem's capital stock determined by the board of
directors to be owned beneficially by an Alien or Aliens shall always be subject
to redemption by Salem by action of the board of directors or any other
applicable provision of law, to the extent necessary, in the judgment of the
board of directors, to comply with the Alien Ownership Restrictions. The terms
and conditions of such redemption are as follows:
- the redemption price shall be equal to the lower of (i) the fair market
value of the shares to be redeemed, as determined by the board of
directors in good faith, and (ii) such Alien's purchase price for such
shares;
- the redemption price may be paid in cash, securities or any combination
thereof;
- if less than all the shares held by Aliens are to be redeemed, the shares
to be redeemed shall be selected in any manner determined by the board of
directors to be fair and equitable;
- at least 10 days' prior written notice of the redemption date shall be
given to the holders of record of the shares selected to be redeemed
(unless waived in writing by
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<PAGE> 71
any such holder), provided that the redemption date may be the date on
which written notice shall be given to holders if the cash or securities
necessary to effect the redemption shall have been deposited in trust for
the benefit of such holders and subject to immediate withdrawal by them
upon surrender of the stock certificates for their shares to be redeemed
duly endorsed in blank or accompanied by duly executed proper instruments
of transfer;
- from and after the redemption date, the shares to be redeemed shall cease
to be regarded as outstanding and any and all rights of the holders in
respect of the shares to be redeemed or attaching to such shares of
whatever nature (including without limitation any rights to vote or
participate in dividends declared on capital stock of the same class or
series as such shares) shall cease and terminate, and the holders thereof
thereafter shall be entitled only to receive the cash or securities
payable upon redemption; and
- such other terms and conditions as the board of directors shall
determine.
LIMITATION OF LIABILITY
Salem's certificate of incorporation provides that none of the directors
shall be personally liable to Salem or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except for liability:
- for any breach of such person a duty of loyalty;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law; and
- for any transaction resulting in receipt by such person of an improper
personal benefit.
TRANSFER AGENT
The transfer agent and registrar for the Class A common stock is The Bank
of New York.
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
SHARES OUTSTANDING AND FREELY TRADEABLE AFTER OFFERING
Upon completion of this offering, Salem will have approximately shares of
Class A common stock and shares of Class B common stock outstanding (assuming
that the underwriters do not exercise their over-allotment options). Shares of
Class B common stock are convertible at the option of the holder into an equal
number of Class A common stock. The shares of Class A common stock to be sold
by Salem in this offering and all shares sold by the selling stockholders will
be freely tradeable without restriction or limitation under the Securities Act,
except for any such shares held by "affiliates" of Salem, as such term is
defined under Rule 144 of the Securities Act. Shares of Class A and Class B
common stock held by affiliates of Salem may be sold only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. Salem's directors, executive officers and its
existing stockholders have agreed not to sell, directly or indirectly, any
shares owned by them for a period of 180 days after the date of this prospectus
without the prior written consent of BT Alex. Brown Incorporated and ING Baring
Furman Selz LLC. See "Underwriting." Upon the expiration of this 180 day lock-up
period, substantially all of these shares will become eligible for sale subject
to the restrictions of Rule 144.
RULE 144
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year, including an affiliate of Salem, would be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of 1%
of the then-outstanding shares of common stock and the average weekly trading
volume in the common stock during the four calendar weeks immediately preceding
the date on which the notice of sale is filed with the Commission, provided
certain manner of sale and notice requirements and requirements as to the
availability of current public information about Salem are satisfied. A holder
of "restricted securities" who is not deemed an affiliate of the issuer and who
has beneficially owned shares for a least two years would be entitled to sell
shares under Rule 144(k) without regard to these limitations. Affiliates of
Salem must comply with the restrictions and requirements of Rule 144, other than
the one-year holding period requirement, in order to publicly sell shares of
common stock. As defined in Rule 144, an "affiliate" of an issuer is a person
who, directly or indirectly, through the use of one or more intermediaries
controls, or is controlled by, or is under common control with, such issuer.
EFFECT OF SUBSTANTIAL SALES ON MARKET PRICE OF COMMON STOCK
Salem is unable to estimate the number of shares that may be sold in the
future by its existing stockholders or the effect, if any, that such sales will
have on the market price of the Class A common stock prevailing from time to
time. Sales of substantial amounts of Class A common stock, or the prospect of
such sales, could adversely affect the market price of the Class A common stock.
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<PAGE> 73
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A common stock
by a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder"
is a person or entity that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of Class A common stock, including the consequences under
the laws of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Class A common stock generally will be subject to withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, Salem ordinarily will presume
that dividends paid on or before December 31, 1999 to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.
Under United States Treasury Regulations issued on October 6, 1997, which
are applicable to dividends paid after December 31, 1999 (the "New
Regulations"), to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder will generally be required to provide an Internal Revenue
Service Form W-8 certifying such Non-U.S. Holder's entitlement to benefits under
a treaty. The New Regulations also provide special rules to determine whether,
for purposes of determining the applicability of a tax treaty, dividends paid to
a Non-U.S. Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with Salem. Instead, the effectively connected dividends
will be subject to regular U.S. income tax in the same manner as if the Non-U.S.
Holder were a U.S. resident. A non-U.S. corporation receiving effectively
connected dividends may also be subject to an additional "branch profits tax"
that is imposed, under certain circumstances, at a rate of 30% (or such lower
rate as may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Under the New Regulations, Form W-8 will replace Form 4224.
Generally, Salem must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other
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<PAGE> 74
agreements, the U.S. Internal Revenue Service may make its reports available to
tax authorities in the recipient's country of residence.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information.
Under current United States federal income tax law, backup withholding
imposed at a rate of 31% generally will not apply to dividends paid on or before
December 31, 1999 to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. Person). Under the New
Regulations, however, a Non-U.S. Holder will be subject to backup withholding
unless applicable certification requirements are met.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Class A common
stock unless (i) the gain is effectively connected with a trade or business of
such holder in the United States, (ii) in the case of certain Non-U.S. Holders
who are non-resident alien individuals and hold the Class A common stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the disposition, (iii) the Non-U.S. Holder is
subject to a tax pursuant to the provisions of the Code regarding the taxation
of U.S. expatriates, or (iv) Salem is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. Salem is not, and does not anticipate becoming, a U.S.
real property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
CLASS A COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Class A common stock effected by or through a U.S. office of a
broker unless the disposing holder certifies as to its non-U.S. status or
otherwise establishes an exemption. Generally, U.S. information reporting and
backup withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the United States by or through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or (iv) in
the case of payments made after December 31, 1999, a foreign partnership with
certain connections to the United States, unless such broker has documentary
evidence in its files of the holder's non-U.S. status and has no actual
knowledge to the contrary or unless the holder establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
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FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Class A common stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
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UNDERWRITING
We intend to offer our Class A common stock in the United States and Canada
through a number of U.S. underwriters and elsewhere through international
managers. BT Alex. Brown Incorporated, ING Baring Furman Selz LLC and Salomon
Smith Barney Inc. are acting as U.S. representatives of each of the U.S.
underwriters named below. Subject to the terms and conditions set forth in a
U.S. purchase agreement among Salem, the selling stockholders and the U.S.
underwriters, and concurrently with the sale of shares of Class A
common stock to the international managers, we and the selling stockholders have
agreed to sell to the U.S. underwriters, and each of the U.S. underwriters
severally and not jointly has agreed to purchase from Salem and the selling
stockholders, the number of shares of Class A common stock set forth opposite
its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
ING Baring Furman Selz LLC..................................
Salomon Smith Barney Inc....................................
-------
Total...............................................
=======
</TABLE>
We and the selling stockholders have also entered into an international
purchase agreement with certain international managers outside the United States
and Canada for whom BT Alex. Brown International, ING Barings Limited as agent
for ING Bank N.V., London Branch, and Salomon Brothers International Limited are
acting as lead managers. Subject to the terms and conditions set forth in the
international purchase agreement, and concurrently with the sale of
shares of Class A common stock to the U.S. underwriters pursuant
to the U.S. purchase agreement, we and the selling stockholders have agreed to
sell to the international managers, and the international managers severally
have agreed to purchase from us and the selling stockholders, an aggregate of
shares of Class A common stock. The initial public offering price
per share of Class A common stock and the total underwriting discount per share
are identical under the U.S. purchase agreement and the international purchase
agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all of the shares of Class A common stock being
sold under the terms of each such agreement if any of the shares of Class A
common stock being sold under the terms of that agreement are purchased. In the
event of a default by an underwriter, the U.S. purchase agreement and the
international purchase agreement provide that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreements may be terminated. The closings with respect to the sale of
shares of Class A common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another.
We and the selling stockholders have agreed to indemnify the U.S.
underwriters and the international managers against certain liabilities,
including certain liabilities under the
71
<PAGE> 77
Securities Act, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect of those liabilities.
The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us and the selling stockholders that the
U.S. underwriters propose initially to offer the shares of Class A common stock
to the public at the initial public offering price set forth on the cover page
of this prospectus, and to certain dealers at such price less a concession not
in excess of $ per share of Class A common stock. The U.S. underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of Class A common stock on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the U.S.
underwriters and the international managers and the proceeds before expenses to
us and the selling stockholders. This information is presented assuming either
no exercise or full exercise by the U.S. underwriters and the international
managers of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............... $ $ $
Underwriting discount............... $ $ $
Proceeds, before expenses, to
Salem............................. $ $ $
Proceeds, before expenses, to the
selling stockholders.............. $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our Class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our Class A common stock will not offer to sell or sell shares of our
Class A common stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or non-
Canadian persons, and the international managers and any dealer to whom they
sell shares of Class A common stock will not offer to sell or sell shares of
Class A common stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, except in the case of
transactions under the terms of the intersyndicate agreement.
72
<PAGE> 78
OVER-ALLOTMENT OPTIONS
The selling stockholders have granted an option to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional shares of our Class A common stock at the
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The U.S. underwriters may exercise this option solely to
cover over-allotments, if any, made on the sale of our Class A common stock
offered hereby. To the extent that the U.S. underwriters exercise this option,
each U.S. underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of our Class A common stock proportionate
to such U.S. underwriter's initial amount reflected in the foregoing table.
The selling stockholders also have granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of additional shares of Class A common stock
to cover over-allotments, if any, on terms similar to those granted to the U.S.
underwriters.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, distributors, dealers, business
associates and related persons. The number of shares of our Class A common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
LOCK-UP
We and our executive officers and directors and all existing stockholders
have agreed, subject to certain exceptions, without the prior written consent of
BT Alex. Brown Incorporated and ING Baring Furman Selz LLC on behalf of the
underwriters for a period of 180 days after the date of this prospectus, not to
directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock, whether now owned
or later acquired by the person executing the agreement or with respect
to which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
with respect to any shares of our common stock or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
73
<PAGE> 79
NEW YORK STOCK EXCHANGE LISTING
We expect our Class A common stock to be approved for listing on The New
York Stock Exchange under the symbol "SLC." In order to meet the requirement for
listing of our Class A common stock on that exchange, the U.S. underwriters and
the international managers have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial owners.
Before this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined through
negotiations among us, the selling stockholders and the U.S. representatives and
the lead managers. The factors considered in determining the initial public
offering price, in addition to prevailing market conditions, are the valuation
multiples of publicly traded companies that the U.S. representatives and the
lead managers believe to be comparable to us, certain of our financial
information, our history, our prospects, the industry in which we compete, and
an assessment of our management, its past and present operations, the prospects
for, and timing of, our future revenue, the present state of our development,
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours. There can be
no assurance that an active trading market will develop for our Class A common
stock or that our Class A common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the our Class A common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our Class A common
stock. As an exception to these rules, the U.S. representatives are permitted to
engage in transactions that stabilize the price of our Class A common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of our Class A common stock.
If the underwriters create a short position in our Class A common stock in
connection with the offering, that is, if they sell more shares of our Class A
common stock than are set forth on the cover page of this prospectus, the U.S.
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares of our Class A common stock in the open market to reduce the
underwriters' short position or to stabilize the price of our Class A common
stock, they may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price
74
<PAGE> 80
of our Class A common stock to the extent that it discourages resales of our
Class A common stock.
Neither Salem nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither Salem nor any of the underwriters makes any representation that the U.S.
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
ING Baring Furman Selz LLC and Salomon Smith Barney Inc. have engaged in
investment banking transactions with Salem for which they have received
customary compensation, and may do so in the future.
75
<PAGE> 81
LEGAL MATTERS
The validity of our Class A common stock offered hereby will be passed upon
for us by Gibson, Dunn & Crutcher LLP, Orange County, California. Debevoise &
Plimpton, New York, New York has acted as counsel to the underwriters in
connection with certain legal matters related to this offering.
EXPERTS
The consolidated financial statements of Salem at December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998,
included in this prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included in this prospectus, and
are included in reliance upon their report given upon the authority of that firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission, a registration statement on Form S-1
under the Securities Act of 1933 with respect to the Class A common stock
offered by this prospectus. This prospectus does not contain all of the
information included in the registration statement and the exhibits and
schedules included in the registration statement, certain portions of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to Salem and our Class A common stock offered hereby,
reference is made to the registration statement, including the exhibits and the
financial statements, notes and schedules filed as part of the registration
statement. Statements contained in this prospectus regarding the contents of any
contract or other document referred to in the prospectus or registration
statement are not necessarily complete. In each instance, reference is made to
the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, and file reports, and other information with the Securities and
Exchange Commission. Such reports and other information, as well as the
registration statement, exhibits and schedules, may be inspected, without
charge, or copied, at prescribed rates, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington D. C. 20549, as well as at the following regional offices:
Seven World Trade Center, New York, New York 10048, and Citicorp Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. In
addition, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.
76
<PAGE> 82
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 Stockholders' 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> 83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
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, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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.
ERNST & YOUNG LLP
Woodland Hills, California
March 24, 1999, except for
Note 10, as to which
the date is March 31, 1999
F-2
<PAGE> 84
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<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 STOCKHOLDERS' 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
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding 163,344
shares................................................. 2 2
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 81,672
shares................................................. 1 1
Additional paid-in capital................................ 5,829 5,829
Retained earnings......................................... 4,850 3,269
-------- --------
Total stockholders' equity.................................. 10,682 9,101
-------- --------
Total liabilities and stockholders' equity.................. $184,813 $207,750
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 85
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<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 and network operating expenses.................... 33,463 39,626 42,526
Corporate expenses (including $800 in stockholder salaries
in 1996 and 1997 and $1,338 in stockholder 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)
======== ======== ========
Basic and diluted income (loss) per share before
extraordinary item........................................ $ 52.05 $ (4.87) $ (6.45)
Extraordinary loss.......................................... -- (4.84) --
-------- -------- --------
Basic and diluted net income (loss) per share............... $ 52.05 $ (9.71) $ (6.45)
-------- -------- --------
Basic and diluted weighted average shares outstanding....... 245,016 245,016 245,016
======== ======== ========
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)
======== ======== ========
Pro forma basic and diluted income (loss) per share before
extraordinary item........................................ $ 52.40 $ 1.70 $ (6.45)
Extraordinary loss.......................................... -- (4.84) --
-------- -------- --------
Pro forma basic and diluted net income (loss) per share..... $ 52.40 $ (3.14) $ (6.45)
======== ======== ========
Basic and diluted weighted average shares outstanding....... 245,016 245,016 245,016
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 86
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
--------------- -------------- ADDITIONAL RETAINED
SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL EARNINGS TOTAL
------- ------ ------ ------ --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1996............. 163,344 $ 2 81,672 $ 1 $5,829 $ 7,450 $13,282
Net income.................... -- -- -- -- -- 12,753 12,753
Stockholder distributions..... -- -- -- -- -- (5,501) (5,501)
------- --- ------ --- ------ ------- -------
Stockholders' equity,
December 31, 1996........... 163,344 2 81,672 1 5,829 14,702 20,534
Net loss...................... -- -- -- -- -- (2,378) (2,378)
Stockholder distributions..... -- -- -- -- -- (7,474) (7,474)
------- --- ------ --- ------ ------- -------
Stockholders' equity,
December 31, 1997........... 163,344 2 81,672 1 5,829 4,850 10,682
Net loss...................... -- -- -- -- -- (1,581) (1,581)
------- --- ------ --- ------ ------- -------
Stockholders' equity,
December 31, 1998........... 163,344 $ 2 81,672 $ 1 $5,829 $ 3,269 $ 9,101
======= === ====== === ====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 87
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) 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 stockholder................................ 23,800 222,710 40,500
Payments of long-term debt and note payable to
stockholder........................................... (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 stockholder notes and
repayment of accrued interest receivable--net......... 4,614 (66) (200)
Proceeds from stockholder notes payable................. 1,900 100 --
Distributions to stockholders........................... (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> 88
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),
since 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> 89
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> 90
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> 91
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 these S
Corporations were passed through to their shareholders.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common stock shares outstanding. Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common stock shares and common stock share
equivalents outstanding. There were no common stock share equivalents
outstanding in any of the periods presented and, as such, basic and diluted net
income (loss) per share are the same.
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $ 12,753 $ (2,378) $ (1,581)
Denominator:
Weighted average shares......................... 245,016 245,016 245,016
-------- -------- --------
Basic and diluted net income (loss) per share..... $ 52.05 $ (9.71) $ (6.45)
======== ======== ========
</TABLE>
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.
F-10
<PAGE> 92
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 aggregate 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.
F-11
<PAGE> 93
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
The aggregate 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.
F-12
<PAGE> 94
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 aggregate 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>
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.
F-13
<PAGE> 95
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 stockholder 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 stockholder 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.
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
F-14
<PAGE> 96
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 (including applicable redemption premium) 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
F-15
<PAGE> 97
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 stockholders. Interest is payable monthly.
The note is payable upon demand by the stockholder. The Company intends to
refinance the borrowing if demanded by the stockholder 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.
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
F-16
<PAGE> 98
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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>
F-17
<PAGE> 99
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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
F-18
<PAGE> 100
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 sheets for the amounts earned under this
agreement.
8. RELATED PARTY TRANSACTIONS
In December 1997, the Company borrowed $2 million from a stockholder
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
F-19
<PAGE> 101
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
stockholder demands repayment.
In January 1998, the Company borrowed $1.5 million from another stockholder
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 stockholder demands repayment of any amounts
outstanding.
A stockholder'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 stockholders 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 August 1997, the Company assigned its contract with a tower construction
company to build a broadcast tower in Houston, Texas to a corporation owned by
the principal stockholders subject to the principal stockholders obtaining
financing. The principal stockholders 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 stockholders 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 stockholders, of which $4.8 million was used by
the stockholders 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
stockholders for radio station KKOL-AM. The stockholders 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 stockholders at any time on or
before December 31, 1999 at a price equal to the lower of the cost of the
station to the stockholders, $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 stockholders. As approved by the
independent members of the Company's board of directors, the Company rents these
aircraft on an
F-20
<PAGE> 102
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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. STOCKHOLDERS' EQUITY
On March 31, 1999, the Company changed its domicile from California to
Delaware (the Reincorporation). In conjunction with the Reincorporation, the
Company's capital structure was changed to authorize 80,000,000 shares of Class
A common stock, $0.01 par value, 20,000,000 shares of Class B common stock,
$0.01 par value, and 10,000,000 shares of preferred stock, $0.01 par value. In
the Reincorporation, the previously outstanding 81,672 shares of common stock
were converted into 163,344 shares of Class A common stock and 81,672 shares of
Class B common stock. All references in the accompanying consolidated financial
statements to the number of shares of Common Stock have been retroactively
adjusted to reflect the new capital structure.
Holders of Class A common stock are entitled to one vote per share and
holders of Class B common stock are entitled to ten votes per share, except for
specified related party transactions. Holders of Class A common stock and Class
B common stock vote together as a single class on all matters submitted to a
vote of stockholders, except that holders of Class A common stock vote
separately for two independent directors.
11. SUBSEQUENT EVENTS (UNAUDITED)
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).
F-21
<PAGE> 103
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In January 1999, OnePlace 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.
In April 1999, the Company exercised an option to acquire ownership of
KKOL-AM for $1.4 million, entered into a letter of intent to purchase WLSY-FM
and WRVI-FM for a combined purchase price of $5.0 million, and has signed a
letter of intent to purchase KGME-AM for $5.0 million. KKOL-AM, in Seattle,
Washington, is owned by a corporation owned by the Company's principal
stockholders. WLSY-FM and WRVI-FM are both located in Louisville, Kentucky.
KGME-AM is located in Phoenix, Arizona.
In April 1999, the $1.8 million note payable to one of the Company's
stockholders, reflected as long-term debt in the accompanying balance sheet at
December 31, 1998, was repaid in full and canceled.
In April 1999, the Company's Board of Directors approved a plan to file an
initial public offering with the Securities and Exchange Commission.
F-22
<PAGE> 104
================================================================================
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
[SALEM LOGO]
CLASS A COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers and Joint Bookrunners
BT ALEX. BROWN ING BARING FURMAN SELZ LLC
----------------------
SALOMON SMITH BARNEY
, 1999
================================================================================
<PAGE> 105
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1999
PROSPECTUS
SHARES
LOGO SALEM COMMUNICATIONS CORPORATION
CLASS A COMMON STOCK
----------------------
This is Salem's initial public offering. We are offering
shares of Class A common stock and the selling stockholders of
Salem are offering shares of Class A common stock. The
international managers are offering shares outside the United
States and Canada and the U.S. underwriters are offering shares
in the United States and Canada.
We expect the public offering price to be between $ and
$ per share. After pricing of this offering, we expect that the Class A
common stock will trade on The New York Stock Exchange under the symbol "SLC."
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Salem........................ $ $
Proceeds, before expenses, to Selling Stockholders......... $ $
</TABLE>
The international managers may also purchase from the selling stockholders
up to an additional shares of Class A common stock at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus to cover over-allotments. The U.S. underwriters may similarly
purchase up to an aggregate of additional shares of Class A
common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of Class A common stock will be ready for delivery in New York,
New York on or about , 1999.
----------------------
Joint Lead Managers and Joint Bookrunners
BT ALEX. BROWN INTERNATIONAL ING BARINGS
----------------------
SALOMON SMITH BARNEY INTERNATIONAL
----------------------
THE DATE OF THIS PROSPECTUS IS , 1999.
X-1
<PAGE> 106
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary......................... 1
Risk Factors.................... 8
Forward-Looking Statements...... 12
Use of Proceeds................. 13
Dividend Policy................. 13
Capitalization.................. 14
Dilution........................ 15
Selected Consolidated Financial
Information................... 16
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 19
Business........................ 29
Management...................... 51
Transactions Involving Officers,
Directors and Principal
Stockholders.................. 58
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Security Ownership of Selling
Stockholders, Beneficial
Owners and Management......... 61
Description of Capital Stock.... 62
Shares Eligible for Future
Sale.......................... 67
Certain U.S. Federal Tax
Considerations for Non-U.S.
Holders of Class A Common
Stock......................... 68
Underwriting.................... 71
Legal Matters................... 77
Experts......................... 77
Additional Information.......... 77
Index to Consolidated Financial
Statements.................... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
-------------------------
We are a Delaware corporation. Our principal executive offices are located
at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012, and our telephone
number is (805) 987-0400. In this prospectus, "Salem," "we," "us" and "our"
refer to Salem Communication Corporation and its subsidiaries (but not to the
underwriters listed in this prospectus), unless the context otherwise requires.
X-2
<PAGE> 107
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
We intend to offer our Class A common stock outside the United States and
Canada through a number of international managers and in the United States and
Canada through U.S. underwriters. BT Alex. Brown International, a division of
Bankers Trust International PLC, ING Barings Limited as agent for ING Bank N.V.,
London Branch, and Salomon Brothers International Limited are acting as lead
managers of each of the international managers named below. Subject to the terms
and conditions set forth in an international purchase agreement among Salem, the
selling stockholders and the international managers, and concurrently with the
sale of shares of Class A common stock to the U.S. underwriters,
we and the selling stockholders have agreed to sell to the international
managers, and each of the international managers severally and not jointly has
agreed to purchase from Salem and the selling stockholders, the number of shares
of Class A common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
---------------------- ---------
<S> <C>
BT Alex. Brown International, a division of Bankers Trust
International PLC.........................................
ING Barings Limited as agent for ING Bank N.V., London
Branch....................................................
Salomon Brothers International Limited......................
Total...............................................
-------
</TABLE>
We and the selling stockholders have also entered into a U.S. purchase
agreement with certain U.S. underwriters in the United States for whom BT Alex.
Brown Incorporated, ING Baring Furman Selz LLC and Salomon Smith Barney Inc. are
acting as U.S. representatives. Subject to the terms and conditions set forth in
the U.S. purchase agreement, and concurrently with the sale of
shares of Class A common stock to the international managers pursuant to the
international purchase agreement, we and the selling stockholders have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase from us and the selling stockholders, an aggregate of
shares of Class A common stock. The initial public offering price
per share of Class A common stock and the total underwriting discount per share
are identical under the international purchase agreement and the U.S. purchase
agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all of the shares of Class A common stock being
sold under the terms of each such agreement if any of the shares of Class A
common stock being sold under the terms of that agreement are purchased. In the
event of a default by an underwriter, the international purchase agreement and
the U.S. purchase agreement provide that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings with respect to the sale of shares of
Class A common stock to be purchased by the international managers and the U.S.
underwriters are conditioned upon one another.
We and the selling stockholders have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
certain liabilities under the Securities Act, or to contribute to payments the
international managers and the U.S. underwriters may be required to make in
respect of those liabilities.
X-3
<PAGE> 108
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised us and the selling stockholders that the
international managers propose initially to offer the shares of Class A common
stock to the public at the initial public offering price set forth on the cover
page of this prospectus, and to certain dealers at such price less a concession
not in excess of $ per share of Class A common stock. The international
managers may allow, and such dealers may reallow, a discount not in excess of
$ per share of Class A common stock on sales to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
international managers and the U.S. underwriters and the proceeds before
expenses to us and the selling stockholders. This information is presented
assuming either no exercise or full exercise by the international managers and
the U.S. underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............... $ $ $
Underwriting discount............... $ $ $
Proceeds, before expenses, to
Salem............................. $ $ $
Proceeds, before expenses, to the
selling stockholders.............. $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the international managers and
the U.S. underwriters are permitted to sell shares of our Class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the international managers and any dealer to whom they
sell shares of Class A common stock will not offer to sell or sell shares of
Class A common stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, and the U.S. underwriters
and any dealer to whom they sell shares of our Class A common stock will not
offer to sell or sell shares of our Class A common stock to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the terms of the intersyndicate agreement.
X-4
<PAGE> 109
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
OVER-ALLOTMENT OPTIONS
The selling stockholders have granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of additional shares of our Class A common
stock at the public offering price set forth on the cover page of this
prospectus, less the underwriting discount. The international managers may
exercise this option solely to cover over-allotments, if any, made on the sale
of our Class A common stock offered hereby. To the extent that the international
managers exercise this option, each international manager will be obligated,
subject to certain conditions, to purchase a number of additional shares of our
Class A common stock proportionate to such international manager's initial
amount reflected in the foregoing table.
The selling stockholders also have granted an option to the U.S.
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of additional shares of Class A
common stock to cover over-allotments, if any, on terms similar to those granted
to the international managers.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, distributors, dealers, business
associates and related persons. The number of shares of our Class A common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
LOCK-UP
We and our executive officers and directors and all existing stockholders
have agreed, subject to certain exceptions, without the prior written consent of
BT Alex. Brown Incorporated and ING Baring Furman Selz LLC on behalf of the
underwriters for a period of 180 days after the date of this prospectus, not to
directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock, whether now owned
or later acquired by the person executing the agreement or with respect
to which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
with respect to any shares of our common stock or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
X-5
<PAGE> 110
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
NEW YORK STOCK EXCHANGE LISTING
We expect our Class A common stock to be approved for listing on The New
York Stock Exchange under the symbol "SLC." In order to meet the requirements
for listing of our Class A common stock on that exchange, the international
managers and the U.S. underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.
Before this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined through
negotiations among us, the selling stockholders and the lead managers and U.S.
representatives. The factors considered in determining the initial public
offering price, in addition to prevailing market conditions, are the valuation
multiples of publicly traded companies that the lead managers and the U.S.
representatives believe to be comparable to us, certain of our financial
information, our history of, our prospects, the industry in which we compete,
and an assessment of our management, its past and present operations, the
prospects for, and timing of, our future revenue, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
Class A common stock or that our Class A common stock will trade in the public
market subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the our Class A common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS, PENALTY BIDS AND INTERNATIONAL OFFERING
RESTRICTIONS
Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our Class A common
stock. As an exception to these rules, the U.S. representatives are permitted to
engage in transactions that stabilize the price of our Class A common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of our Class A common stock.
If the underwriters create a short position in our Class A common stock in
connection with the offering, that is, if they sell more shares of our Class A
common stock than are set forth on the cover page of this prospectus, the U.S.
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares of our Class A common stock in the open market to reduce the
underwriters' short position or to stabilize the price of our Class A common
stock, they may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence
X-6
<PAGE> 111
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
of such purchases. The imposition of a penalty bid might also have an effect on
the price of our Class A common stock to the extent that it discourages resales
of our Class A common stock.
Neither Salem nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither Salem nor any of the underwriters makes any representation that the U.S.
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each international manager has agreed that (i) it has not offered or sold
and, prior to the expiration period of six months from the closing of the
offering, will not offer or sell any shares of Class A common stock to persons
in the United Kingdom, except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in circumstances which do
not constitute an offer to the public in the United Kingdom within the meaning
of the Public Offers of Securities Regulations 1995; (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Class A common stock in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of Class A common stock to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Class A
common stock, or the possession, circulation or distribution of this prospectus
or any other material relating to Salem or shares of Class A common stock in any
jurisdiction where action for the purpose is required. Accordingly, the shares
of Class A common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of Class A common stock may be distributed or
published, in or from any country or jurisdiction except in compliance with any
applicable rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page of this prospectus.
ING Baring Furman Selz LLC, an affiliate of ING Bank N.V., and Salomon
Smith Barney Inc., an affiliate of Salomon Brothers International Limited, have
engaged in investment banking transactions with Salem, for which they have
received customary compensation, and may do so in the future.
X-7
<PAGE> 112
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
================================================================================
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
[SALEM LOGO]
CLASS A COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers and Joint Bookrunners
BT ALEX. BROWN INTERNATIONAL ING BARINGS
----------------------
SALOMON SMITH BARNEY INTERNATIONAL
, 1999
================================================================================
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than the underwriting
discount, payable by Salem and the selling stockholders in connection with the
issuance and distribution of the Common Stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the NYSE listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $55,600
NASD filing fee............................................. 20,500
NYSE listing fee............................................ *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky qualification fees and expenses.................... *
Printing and engraving expenses............................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Salem is a Delaware corporation and, therefore, is subject to the Delaware
General Corporation Law. Subject to certain limitations, Section 145 of the
Delaware General Corporation Law provides in part that a corporation shall have
power to indemnify any person who was or is a party, or is threatened to be made
a party, to any proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
Salem's certificate of incorporation and bylaws contain provisions
whereunder Salem will indemnify each of its officers and directors (or their
heirs, executors or administrators, if applicable) and may indemnify any of its
employees or agents to the fullest extent permitted by Delaware law. The
indemnification provisions in Salem's certificate of incorporation and bylaws
may permit indemnification for liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Salem pursuant to
the foregoing provisions, or otherwise, it is Salem's understanding that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as
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<PAGE> 114
expressed in the Securities Act and is, therefore, unenforceable. Salem
maintains insurance on behalf of any person who is or was a director or officer
of Salem.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the sales during the past three years by
Salem, or its immediate predecessor Salem Communications Corporation-California,
securities that were not registered under the Securities Act:
(a) on August 13, 1997, Salem Communications Corporation-California
issued 13,336 shares of common stock to Edward G. Atsinger III, 10,744
shares of common stock to Nancy A. Epperson and 2,592 shares of common
stock to Stuart W. Epperson.
(b) on September 25, 1997, Salem Communications Corporation-California
issued and sold $150,000,000 aggregate principal amount of 9 1/2% Series A
Senior Subordinated Notes due 2007 to several qualified institutional
buyers; thereafter on March 19, 1998, Salem Communications-California
issued and exchanged $150,000,000 aggregate principal amount of 9 1/2%
Series B Senior Subordinated Notes due 2007 for all of the previously
issued 9 1/2% Series A Senior Subordinated Notes due 2007.
(c) on March 31, 1999, Salem Communications Corporation-California
merged with and into Salem, whereby Salem, a Delaware corporation, was the
surviving corporation and all previously issued and outstanding shares of
Salem Communications Corporation-California, were canceled in exchange for
two shares of Class A common stock and one share of Class B common stock in
Salem. Each of the previously issued shares of common stock of Salem
Communications Corporation-California held by Edward G. Atsinger III,
Stuart W. Epperson and Nancy A. Epperson, thus became shares of Class A and
Class B common stock of Salem.
The transactions set forth in paragraph (a) above were undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) thereof, as sales not involving a public offering.
The transactions set forth in paragraph (b) above were undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Rule 144A promulgated under the Securities Act and pursuant to an
effective registration statement for the consummated exchange offer. The
transaction set forth in paragraph (c) above was undertaken in reliance upon the
exception for change of domicile provided for in Rule 145(a)(2) promulgated
under the Securities Act. The purchasers of the securities described in
paragraphs (a) and (c) above acquired them for their own account and not with a
view to any distribution thereof to the public. The certificates evidencing the
outstanding securities described in paragraphs (a) and (c) bear legends stating
that the shares may not be offered, sold or transferred other than pursuant to
an effective registration statement under the Securities Act or an exemption
from such registration requirements. Salem believes that exemptions other than
those specified above may exist with respect to the transactions set forth
above.
II-2
<PAGE> 115
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
1.01* U.S. Purchase Agreement, among Salem, the selling
stockholders, and BT Alex. Brown Incorporated, ING Baring
Furman Selz LLC and Salomon Smith Barney Inc.
2.01** Agreement and Plan of Merger of Salem Communications
Corporation, a Delaware corporation, and Salem
Communications Corporation, a California corporation, dated
as of March 31, 1999.
3.01** Amended and Restated Certificate of Incorporation of Salem
Communications Corporation, a Delaware corporation.
3.02** Bylaws of Salem Communications Corporation, a Delaware
corporation.
4.01+ Indenture between Salem, 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.
4.03+ Form of Note Guarantee.
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
(No. 333-41733)).
4.05+ Borrower Security Agreement, dated as of September 25, 1997,
by and between Salem and The Bank of New York, as
Administrative Agent (incorporated by reference to Exhibit
4.08 of the previously filed Registration Statement on Form
S-4 (No. 333-41733)).
4.06+ Subsidiary Guaranty and Security Agreement dated as of
September 25, 1997, by and between Salem and The Bank of New
York, as Administrative Agent and the Guarantors named
therein (incorporated by reference to Exhibit 4.09 of the
previously filed Registration Statement on Form S-4 (No.
333-41733)).
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, Bank of America NT&SA, as
Documentation Agent, and the Lenders named therein
(incorporated by reference to Exhibit 10.02 of previously
filed Current Report on Form 8-K).
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, Bank of America NT&SA, as
Documentation Agent, and the Lenders named therein.
4.09* Specimen of Class A common stock certificate.
</TABLE>
II-3
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
4.10 Supplemental Indenture No. 1, dated as of March 31, 1999, to
the Indenture, dated as of September 25, 1997, by and among
Salem Communications Corporation, a California corporation,
Salem Communications Corporation, a Delaware corporation,
The Bank of New York, as Trustee, and the Guarantors named
therein.
4.11 Consent No. 3, dated as of March 31, 1999, to the Credit
Agreement, dated as of September 25, 1997, by and among
Salem Communications Corporation, The Bank of New York, as
Administrative Agent for the Lenders, Bank of America NT&SA,
as Documentation Agent, and the Lenders named therein.
4.12 Assumption Agreement, dated as of March 31, 1999, by and
between Salem Communications Corporation, a Delaware
corporation, and The Bank of New York, as Administrative
Agent.
4.13 Amendment No. 1 to the Grant of Security Interest
(Servicemarks) by Salem to The Bank of New York, as
Administrative Agent, under the Borrower Security Agreement,
dated as of September 25, 1997, with the Administrative
Agent.
5.01* Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding validity of the Class A common stock.
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 Reserved.
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.
10.05.05+ Antenna/tower lease between Common Ground Broadcasting, Inc.
(WHK-AM/Cleveland, Ohio) and Messrs. Atsinger and Epperson
expiring 2008.
</TABLE>
II-4
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
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.
</TABLE>
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<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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
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.
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).
10.06.07+ 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.
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.
10.09.01+ Evidence of Key man life insurance policy no. 2256440M
insuring Edward G. Atsinger III in the face amount of
$5,000,000.
10.09.02+ Evidence of Key man life insurance policy no. 2257474H
insuring Edward G. Atsinger III in the face amount of
$5,000,000.
10.09.03+ Evidence of Key man life insurance policy no. 2257476B
insuring Stuart W. Epperson in the face amount of
$5,000,000.
10.10* 1999 Stock Incentive Plan.
21.01 Subsidiaries of Salem.
</TABLE>
II-6
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
23.01 Consent of Ernst & Young LLP.
23.02* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.01).
24.01 Powers of Attorney (included on signature pages of
Registration Statement).
</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 the exhibit same number to Salem's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
September 4, 1998.
++ Incorporated by reference to the exhibit of the same number, unless
otherwise noted, of Salem's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1999.
** Incorporated by reference to the exhibit of the same number to Salem's
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on April 14, 1999.
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts
Other schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the consolidated
financial statements or the related notes.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in the denominations and registered in the names as required by the Underwriters
to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant undertakes:
(1) For purposes of determining any liability under the Securities
Act, as amended, the information omitted from the form of prospectus filed
as part of a registration statement in reliance upon Rule 430A and
contained in a form of
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<PAGE> 120
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-8
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Camarillo, California
on April 20, 1999.
SALEM COMMUNICATIONS CORPORATION
By: /s/ EDWARD G. ATSINGER III
-----------------------------------
Edward G. Atsinger III
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Eric H. Halvorson and Dirk Gastaldo, his true and
lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, including post-effective amendments, and any registration statement
related thereto filed pursuant to Rule 462(b) under the Securities Act, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all that said
attorneys-in-fact and agents, each acting alone, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on April 20, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ EDWARD G. ATSINGER III President and Chief Executive Officer
- -------------------------------------- (Principal Executive Officer)
Edward G. Atsinger III
/s/ DIRK GASTALDO Vice President -- Finance (Principal
- -------------------------------------- Financial Officer)
Dirk Gastaldo
/s/ EILEEN E. HILL Vice President -- Accounting &
- -------------------------------------- Taxation (Principal Accounting
Eileen E. Hill Officer)
/s/ EDWARD G. ATSINGER III Director
- --------------------------------------
Edward G. Atsinger III
/s/ STUART W. EPPERSON Director
- --------------------------------------
Stuart W. Epperson
</TABLE>
II-9
<PAGE> 122
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ ERIC H. HALVORSON Director
- --------------------------------------
Eric H. Halvorson
/s/ RICHARD A. RIDDLE Director
- --------------------------------------
Richard A. Riddle
Director
- --------------------------------------
Roland S. Hinz
</TABLE>
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<PAGE> 123
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
----------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts..... $ 704 $1,067 $ -- $ (766) $1,005
Year ended December 31, 1997
Allowance for doubtful accounts..... 1,005 1,283 -- (1,039) 1,249
Year ended December 31, 1998
Allowance for doubtful accounts..... 1,249 2,087 -- (2,474) 862
</TABLE>
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
- ------- ----------------------- ------
<S> <C> <C>
1.01* U.S. Purchase Agreement, among Salem, the selling
stockholders, and BT Alex. Brown Incorporated, ING Baring
Furman Selz LLC and Salomon Smith Barney Inc. ..............
4.09* Specimen of Class A common stock certificate................
4.10 Supplemental Indenture No. 1, dated as of March 31, 1999, to
the Indenture, dated as of September 25, 1997, by and among
Salem Communications Corporation, a California corporation,
Salem Communications Corporation, a Delaware corporation,
The Bank of New York, as Trustee, and the Guarantors named
therein.....................................................
4.11 Consent No. 3, dated as of March 31, 1999, to the Credit
Agreement, dated as of September 25, 1997, by and among
Salem Communications Corporation, The Bank of New York, as
Administrative Agent for the Lenders, Bank of America NT&SA,
as Documentation Agent, and the Lenders named therein.......
4.12 Assumption Agreement, dated as of March 31, 1999, by and
between Salem Communications Corporation, a Delaware
corporation, and The Bank of New York, as Administrative
Agent.......................................................
4.13 Amendment No. 1 to the Grant of Security Interest
(Servicemarks) by Salem to The Bank of New York, as
Administrative Agent, under the Borrower Security Agreement,
dated as of September 25, 1997, with the Administrative
Agent.......................................................
5.01* Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding validity of the Class A common stock..............
10.10* 1999 Stock Incentive Plan ..................................
21.01 Subsidiaries of Salem.......................................
23.01 Consent of Ernst & Young LLP................................
23.02* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.01).......................................................
24.01 Powers of Attorney (included on signature pages of
Registration Statement).....................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.10
SALEM COMMUNICATIONS CORPORATION a California corporation, as
Issuer SALEM COMMUNICATIONS CORPORATION, a Delaware corporation, as
Successor Issuer
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 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 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.,
as Guarantors
and
THE BANK OF NEW YORK, as Trustee
-----------
SUPPLEMENTAL INDENTURE NO. 1
Dated as of March 31, 1999
to
INDENTURE
Dated as of September 25, 1997
<PAGE> 2
THIS SUPPLEMENTAL INDENTURE NO. 1, dated as of March 31, 1999
(this "Supplemental Indenture No. 1"), is hereby entered into by and between
SALEM COMMUNICATIONS CORPORATION, a California corporation (the "Issuer"), SALEM
COMMUNICATIONS CORPORATION, a Delaware corporation, as successor to be the
Issuer (the "Successor Issuer"), the guarantors listed on the signature pages
hereto (collectively, the "Guarantors") and THE BANK OF NEW YORK, a New York
banking corporation, as indenture trustee (the "Trustee").
RECITALS
WHEREAS, the Issuer, the Successor Issuer, the Guarantors and the
Indenture Trustee have executed and delivered an Indenture, dated as of
September 25, 1997, providing for the issuance of 9.5% Senior Subordinated Notes
due 2007 in the aggregate principal amount of $150,000,000 (the "Indenture" and
together with this Supplemental Indenture No. 1, the "Supplemented Indenture");
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
March 31, 1999, between the Issuer and the Successor Issuer, Successor Issuer
will be merged with and into the Issuer (the "Merger"), with the Successor
Issuer as the surviving corporation; and
WHEREAS, Section 801 of the Indenture provides that upon any
merger (including the Merger) to which the Issuer is a party and in which the
Issuer is not the surviving corporation, the successor corporation shall deliver
to the Trustee a supplemental indenture containing specified terms; and
WHEREAS, Section 901 of the Indenture provides, among other
things, that without the consent of any Holders, the Issuer and the Guarantors,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more supplemental indentures to evidence the
succession of another person to the Issuer, and the assumption by any such
successor of the covenants of the Issuer and covenants in the Securities; and
WHEREAS, in accordance with Sections 801(a)(vii) and 903 of the
Indenture, the Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that the Merger and this Supplemental
Indenture No. 1 comply with and are permitted by the Indenture and that all
conditions precedent provided in the Indenture relating to the Merger have been
complied with; and
WHEREAS, the Board Resolution condition has been satisfied, as
evidenced by the unanimous written consent attached hereto as Exhibit A;
NOW, THEREFORE, each party hereto agrees as follows for the
benefit of the other party:
<PAGE> 3
ARTICLE I
Relation to Indenture; Definitions
SECTION 1.01. This Supplemental Indenture No. 1 constitutes an
integral part of the Indenture.
SECTION 1.02. For all purposes of this Supplemental Indenture No.
1, capitalized terms used herein without definition shall have the meanings
specified in the Indenture.
ARTICLE II
Assumption of Obligations
SECTION 2.01. The Successor Issuer hereby expressly assumes all
of the obligations, covenants and duties of the Issuer under the Securities and
the Indenture, and, as hereby amended and supplemented, the Indenture shall
remain in full force and effect.
SECTION 2.02. Each Guarantor hereby confirms that its Guarantee
shall apply to the obligations of the Successor Issuer under the Supplemented
Indenture and the Securities.
ARTICLE III
Miscellaneous
SECTION 3.01. This Supplemental Indenture No. 1 shall be
construed in connection with and as a part of the Indenture.
SECTION 3.02. The headings herein are for convenience only and
shall not affect the construction thereof.
SECTION 3.03. All covenants and agreements in this Supplemental
Indenture No. 1 by the Issuer shall bind its successors and assigns, whether so
expressed or not. All agreements of the Indenture Trustee in this Supplemental
Indenture No. 1 shall bind its successors, co-indenture trustees, if any, and
agents.
SECTION 3.04. In case any provision in this Supplemental
Indenture No. 1 shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 3.05. THIS SUPPLEMENTAL INDENTURE NO. 1 SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
2
<PAGE> 4
SECTION 3.06. This Supplemental Indenture No. 1 may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 3.07. The Trustee makes no representation as to the
validity or sufficiency of this Supplemental Indenture No. 1.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture No. 1 to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
<TABLE>
<S> <C>
SALEM COMMUNICATIONS CORPORATION,
a California corporation
as Issuer
Attest /s/ JONATHAN L. BLOCK By: /s/ EDWARD G. ATSINGER III
---------------------------------- ------------------------------------------
Jonathan L. Block Edward G. Atsinger III
Secretary President and Chief Executive Officer
SALEM COMMUNICATIONS CORPORATION,
a Delaware corporation
as Successor Issuer
Attest /s/ JONATHAN L. BLOCK By: /s/ EDWARD G. ATSINGER III
---------------------------------- ------------------------------------------
Jonathan L. Block Edward G. Atsinger III
Secretary President and Chief Executive Officer
THE BANK OF NEW YORK, a New York banking
corporation
as Trustee
By /s/ MICHELE L. RUSSO
-------------------------------------------
Name: Michele L. Russo
Title: Assistant Treasurer
</TABLE>
3
<PAGE> 5
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 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 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.
as Guarantors
Attest /s/ JONATHAN L. BLOCK By: /s/ EDWARD G. ATSINGER III
------------------------------- -------------------------------------
Jonathan L. Block Edward G. Atsinger III
Secretary President and Chief Executive Officer
4
<PAGE> 6
STATE OF CALIFORNIA )
COUNTY OF VENTURA )
CITY OF CAMARILLO )
On the 30th day of March, 1999, before me, Janice Crawford, Notary Public,
personally came Edward G. Atsinger III and Jonathan L. Block, personally known
to me, to be the persons whose names are subscribed to the within instrument as
President and Chief Executive Officer and Secretary, respectively, of Salem
Communications corporation (CA), ATEP Radio, Inc., Bison Media, Inc., Caron
Broadcasting, Inc., CCM Communications, Inc., Common Ground Broadcasting, Inc.,
Golden Gate Broadcasting Co., Inc., Inland Radio, Inc., Inspiration
Broadcasting, Inc., Kingdom Direct, Inc., Oasis Radio, Inc., OnePlace, Ltd.,
Pennsylvania Media Associates, Inc., Radio 1210, Inc., 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 Texas, Inc., Salem Media of Virginia, Inc., South Texas
Broadcasting, Inc., Vista Broadcasting, Inc., Salem Music Network, Inc., Salem
Radio Network, Incorporated, Salem Radio Representatives, Inc., SRN News
Network, Incorporated, NI Acquisition Corp., GG Acquisition Corp., Salem
Communications Corporation (DE), the corporations described in and which
executed the foregoing instrument; and that they signed their names thereto
pursuant to authority of the Boards of Directors of such corporations.
WITNESS my hand and official seal.
/s/ JANICE CRAWFORD [NOTARY PUBLIC SEAL]
- -----------------------------------
5
<PAGE> 7
EXHIBIT A
ACTION BY UNANIMOUS WRITTEN CONSENT OF
THE BOARD OF DIRECTORS
The undersigned, constituting all of the members of the Board of
Directors of the following corporations ("Corporation"), hereby take the
following actions by written consent:
<TABLE>
<S> <C>
ATEP Radio, Inc. Salem Communications Corporation, a Delaware
corporation
Bison Media, Inc. Salem Media Corporation
Caron Broadcasting, Inc. Salem Media of California, Inc.
CCM Communications, Inc. Salem Media of Colorado, Inc.
Common Ground Broadcasting, Inc. Salem Media of Ohio, Inc.
Golden Gate Broadcasting Co., Inc. Salem Media of Oregon, Inc.
Inland Radio, Inc. Salem Media of Pennsylvania, Inc.
Inspiration Media, Inc. Salem Media of Texas, Inc.
Inspiration Media of Texas, Inc. Salem Media of Virginia, Inc.
Kingdom Direct, Inc. Salem Music Network, Inc.
New England Continental Media, Inc. Salem Radio Network, Incorporated
New Inspiration Broadcasting Co., Inc. Salem Radio Representatives, Inc.
Oasis Radio, Inc. South Texas Broadcasting, Inc.
OnePlace, Ltd. SRN News Network, Inc.
Pennsylvania Media Associates, Inc. Vista Broadcasting, Inc.
Radio 1210, Inc.
</TABLE>
WHEREAS, the Board of Directors of Salem Communications
Corporation, a California corporation ("Salem California") and the Board of
Directors of Salem Communications Corporation, a Delaware corporation ("Salem
Delaware"), have carefully considered and approved the terms of the Agreement
and Plan of Merger, pursuant to which Salem California will be merged with Salem
Delaware and Salem Delaware will be the surviving corporation (the "Merger").
WHEREAS, the consummation of the Merger requires the consent (the
"Consent") of the parties to the Seventy Five Million Dollar ($75,000,000)
Credit Agreement,
A-1
<PAGE> 8
dated September 25, 1997, by and among the Corporation's parent corporation,
Salem Communications Corporation, a California corporation, The Bank of New York
as Administrative Agent, Bank of America NT&SA as Documentation Agent and other
Lenders party thereto with BNY Capital markets, Inc. as Arranger (the "Credit
Agreement") and the assumption by Salem Delaware of Salem California's
obligations under the Credit Agreement pursuant to an assumption agreement (the
"Assumption Agreement").
WHEREAS, the consummation of the Merger requires a supplemental
indenture (the "Supplemental Indenture") as required by the terms of the
Indenture, dated as of September 25, 1997, by and among Salem California, as
Issuer, the Corporation, as Guarantors, and the Bank of New York, as Trustee
(the "Indenture"), to provide, inter alia, for the assumption of the obligations
of Salem California under the Indenture by Salem Delaware, and the confirmation
of the Guarantors' guarantee under the Indenture (except for the guarantee of
Salem Delaware).
WHEREAS, the Board has determined that it is in the best
interests of the Corporation to proceed with execution and implementation of the
Consent, the Assumption Agreement and the Supplemental Indenture.
NOW THEREFORE, BE IT RESOLVED, that the form, terms and
provisions of the Consent, the Assumption Agreement and the Supplemental
Indenture, in substantially the forms presented to and reviewed by the Board,
and each of the transactions contemplated thereby, and the performance by the
Corporation of all of its obligations pursuant thereto, be, and they hereby are,
in all respects, authorized and approved.
FURTHER RESOLVED that Edward G. Atsinger III in his capacity as
President, Eric H. Halvorson in his capacity as Vice President, Dirk Gastaldo in
his capacity as Vice President and Jonathan L. Block in his capacity as
Secretary of the Corporation be, and each of them acting alone hereby is,
authorized and empowered to execute and deliver or cause to be executed and
delivered, in the name and on behalf of the Corporation, the Consent, the
Assumption Agreement and the Supplemental Indenture on the terms and conditions
presented to the Board, with such changes and modifications thereto as may be
approved by the officer or officers executing the same, such approval to be
conclusively evidenced by his or their execution and delivery thereof;
FURTHER RESOLVED, that the foregoing officers of the Corporation
be, and each of them acting alone hereby is authorized, empowered and directed
to pay or cause to be paid all fees and expenses, to do or cause to be done all
such acts or things and to make, file, execute, seal or deliver, or caused to be
made, filed, executed, sealed or delivered, all such agreements, documents,
instruments, payments, applications and certificates in the name of and on
behalf of the Corporation and under its corporation seal or otherwise as such,
in his discretion, may deem necessary or advisable to carry out and perform the
Consent, the Assumption Agreement and the Supplemental Indenture and to
consummate any and all of the transactions contemplated by such documents.
A-2
<PAGE> 9
IN WITNESS WHEREOF, this unanimous written consent has been
executed by each of the Directors of the Corporation as of the 31st day of
March, 1999.
/s/ EDWARD G. ATSINGER III
-------------------------------
Edward G. Atsinger III
/s/ STUART W. EPPERSON
-------------------------------
Stuart W. Epperson
A-3
<PAGE> 1
EXHIBIT 4.11
SALEM COMMUNICATIONS CORPORATION
CONSENT NO. 3
CONSENT NO. 3 (this "Consent"), dated as of March 31, 1999, under 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 and Amendment No. 2 and Consent No. 2, dated
as of January 22, 1999 (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, the Issuing Bank and the Required Lenders in connection with the merger
(the "Merger") of the Borrower into its wholly-owned Subsidiary, Salem
Communications Corporation, a Delaware corporation ("Salem Delaware"), with
Salem Delaware as the survivor.
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, the Subsidiary Guarantors, the Administrative
Agent, the Issuing Bank and each Lender signatory hereto agree as follows:
1. Notwithstanding anything to the contrary contained in Section 8.3
of the Credit Agreement, the Administrative Agent, the Issuing Bank and the
Required Lenders hereby consent to the consummation of the Merger.
2. The Subsidiary Guarantors hereby agree to and acknowledge the
continuing validity and enforceability of the Loan Documents on and after the
consummation of the Merger.
3. Notwithstanding anything to the contrary contained in Section 8.8
of the Credit Agreement, the Administrative Agent, the Issuing Bank and the
Required Lenders hereby consent to the creation by the Borrower of a
wholly-owned Subsidiary named "Kingdom Direct, Inc.", provided that the Borrower
shall have complied with the provisions of Section 7.11 of the Credit Agreement.
<PAGE> 2
4. PARAGRAPHS 1 - 3 of this Consent shall not become effective until
the prior or simultaneous satisfaction of the following:
(a) The Administrative Agent shall have received counterparts of this
Consent duly executed by the Borrower, the Subsidiary Guarantors, the
Administrative Agent, the Issuing Bank and the Required Lenders.
(b) The Administrative Agent shall have received counterparts of an
assumption agreement, substantially in the form of Attachment A hereto (the
"Assumption Agreement"), duly executed by Salem Delaware and the Administrative
Agent.
(c) The Administrative Agent shall have received a certificate, dated
the date of the consummation of the Merger (the "Merger Effective Date"), of the
Secretary or Assistant Secretary of each of the Borrower and Salem Delaware
(each as existing immediately prior to the consummation of the Merger) (i)
attaching a true and complete copy of the resolutions of its Board of Directors
(in form and substance reasonably satisfactory to the Administrative Agent)
authorizing this Consent and the consummation of the Merger, (ii) attaching a
true and complete copy of its certificate of incorporation and bylaws, (iii)
setting forth the incumbency of its officer(s) (including signature specimens)
authorized to execute and deliver this Consent and the documents executed and
delivered in connection with the consummation of the Merger (the "Merger
Documents"), and (iv) attaching a certificate of good standing of the Secretary
of State of the State of its incorporation and of each other State in which it
is qualified to do business.
(d) The Administrative Agent shall have received a certificate, dated
the Merger Effective Date, of the Secretary or Assistant Secretary of Salem
Delaware (as existing immediately after the consummation of the Merger) (i)
attaching a true and complete copy of the resolutions of its Board of Directors
(in form and substance reasonably satisfactory to the Administrative Agent)
authorizing the execution and delivery of the Assumption Agreement, (ii)
attaching a true and complete copy of its certificate of incorporation and
bylaws, (iii) setting forth the incumbency of its officer(s) (including
signature specimens) authorized to execute and deliver the Assumption Agreement,
and (iv) attaching a certificate of good standing of the Secretary of State of
the State of its incorporation and of each other State in which it is qualified
to do business.
(e) The Administrative Agent shall have received a certificate of an
Authorized Signatory of the Borrower attaching a true and correct copy of (i)
the Merger Documents and (ii) a supplement to the Subordinated Indenture with
respect to the Merger, each in form and substance reasonably satisfactory to the
Administrative Agent.
2
<PAGE> 3
(f) The Administrative Agent shall have received a certificate, dated
the Merger Effective Date, of an Authorized Signatory of the Borrower certifying
that (i) both immediately before and after giving effect to the consummation of
the Merger, all representations and warranties contained in the Loan Documents
shall be true and correct with the same effect as though such representations
and warranties had been made on the Merger Effective Date, except as the context
otherwise requires or as otherwise permitted by the Credit Agreement or this
Consent, and no Default or Event of Default shall or would exist, and (ii)
immediately prior to the consummation of the Merger, Salem Delaware had no
liabilities other than with respect to its obligations under the Subsidiary
Guaranty.
(g) The Borrower shall have received a final order (subject to no
appeal) from the FCC (and all other similar material orders from all other
applicable Governmental Authorities) with regard to the Merger, and the
Administrative Agent shall have received a true and correct copy of such orders,
certified by an Authorized Signatory of the Borrower.
(h) The Administrative Agent shall have received (i) UCC search
results with respect to Salem Delaware in the State of Delaware, (ii) such UCC-3
amendments, UCC-1 financing statements and trademark and patent assignment
amendments as requested by the Administrative Agent, each duly executed by Salem
Delaware, and (iii) such other documents, certificates or instruments requested
by the Administrative Agent with respect to the perfection of the Administrative
Agent's security interest in the Collateral.
(i) The Administrative Agent shall have received an opinion of
counsel to the Borrower, Salem Delaware and the Subsidiary Guarantors, in form
and substance reasonably acceptable to the Administrative Agent.
(j) The Administrative Agent shall have received all such other
documents as the Administrative Agent may reasonably require in connection with
this Consent.
5. In all other respects the Credit Agreement and other Loan
Documents shall remain in full force and effect.
6. In order to induce the Administrative Agent, the Issuing Bank and
the Lenders to execute and deliver this Consent, the Borrower and the Subsidiary
Guarantors each (a) certifies that, immediately before and after giving effect
to this Consent, all representations and warranties contained in the Loan
Documents to which it is a party shall be true and correct in all respects with
the same effect as though such representations and warranties had been made on
the date hereof, except as the context otherwise requires or as otherwise
permitted by the Credit Agreement or this Consent, (b) certifies that,
immediately before and after giving effect to this Consent, no Default or
3
<PAGE> 4
Event of Default shall exist under the Loan Documents, as amended, and (c)
agrees to pay all of the reasonable fees and disbursements of counsel to the
Administrative Agent (i) incurred in connection with the preparation,
negotiation and closing of this Consent, and (ii) without duplication, incurred
in connection with the Loan Documents that have accrued up to the Merger
Effective Date.
7. Each of the Borrower and the Subsidiary Guarantors (a) reaffirms
and admits the validity, enforceability and continuing effect 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.
8. This Consent 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 Consent to produce or account for more than one counterpart signed by
the party to be charged.
9. This Consent 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.
10. The parties have caused this Consent to be duly executed as of
the date first written above.
4
<PAGE> 5
SALEM COMMUNICATIONS CORPORATION
CONSENT NO. 3
SALEM COMMUNICATIONS CORPORATION,
a California corporation
By: /s/ ERIC H. HALVORSON
---------------------------------
Name: Eric H. Halvorson
-------------------------------
Title: Vice President
------------------------------
<PAGE> 6
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
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 OF TEXAS, INC.
INSPIRATION MEDIA, 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 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
<PAGE> 7
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
THE BANK OF NEW YORK,
individually, as Administrative Agent
and as Issuing Bank
By: /s/ STEPHEN M. NETTLER
---------------------------------
Name: STEPHEN M. NETTLER
---------------------------------
Title: ASSISTANT VICE PRESIDENT
---------------------------------
<PAGE> 8
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
BANKBOSTON, N.A.
By: /s/ SHEPARD D. RAINIE
---------------------------------
Name: Shepard D. Rainie
---------------------------------
Title: Managing Director
---------------------------------
<PAGE> 9
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
BANK OF AMERICA NT & SA
By: /s/ JOHN J. SULLIVAN
---------------------------------
Name: JOHN J. SULLIVAN
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 10
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
FLEET BANK, N.A.
By: /s/ GARRET KOMJATHY
---------------------------------
Name: GARRET KOMJATHY
---------------------------------
Title: VICE PRESIDENT
---------------------------------
<PAGE> 11
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
UNION BANK OF CALIFORNIA, N.A.
By: /s/ LENA M. BRYANT
---------------------------------
Name: Lena M. Bryant
---------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE> 12
ATTACHMENT A TO CONSENT NO. 3
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of ______________,
1999,(1) by and between SALEM COMMUNICATIONS CORPORATION, a Delaware corporation
("Salem Delaware"), the survivor of the merger (the "Merger") of Salem
Communications Corporation, a California corporation ("Salem California") with
and into Salem Delaware, and THE BANK OF NEW YORK, as Administrative Agent (the
"Administrative Agent") under the Credit Agreement, dated as of September 25,
1997, among Salem California (as it existed prior to the merger), BANK OF
AMERICA NT&SA, as Documentation Agent, the Lenders thereunder and the
Administrative Agent (as the same may have been amended, modified or
supplemented from time to time, the "Credit Agreement"). Capitalized terms used
herein which are defined in the Credit Agreement shall have the meanings defined
therein, unless otherwise defined herein.
RECITALS
A. Reference is made to Consent No. 3, dated as of March ___, 1999, by
and among Salem California, the Administrative Agent, the Issuing Bank and the
Lenders signatory thereto (the "Consent").
B. It is a condition to the effectiveness of the Consent that Salem
Delaware execute and deliver this Agreement to the Administrative Agent.
Now, therefore, in consideration of the premises, the parties hereto
agree as follows:
1. Assumption.
(a) Salem Delaware hereby fully, absolutely, unconditionally and
irrevocably accepts and assumes from Salem California, all of Salem California's
rights, obligations and liabilities under the Loan Documents.
(b) Salem Delaware hereby agrees that (i) Salem Delaware shall be
deemed the Borrower for all purposes under the Loan Documents and all references
to the Borrower therein shall mean Salem Delaware, (ii) all references in the
Borrower Security Agreement to the Collateral shall mean the Collateral of Salem
Delaware (after giving effect to the consummation of the Merger and the
assignment to, and assumption by, Salem Delaware of all of the assets of Salem
California), and Salem Delaware hereby ratifies and confirms the Administrative
Agent's first priority security interest in the Collateral granted to the
Administrative Agent under the Borrower Security Agreement and (iii) Salem
Delaware shall promptly execute and deliver or cause to be executed and
delivered, at its expense, all documents, certificates and opinions as the
- --------
(1) Must be dated the Merger Effective Date.
<PAGE> 13
Administrative Agent shall at any time reasonably request in connection with
such assumption by Salem Delaware of all of the obligations and liabilities of
the Borrower under the Credit Agreement, the Borrower Security Agreement and the
other Loan Documents, including, without limitation, the execution and delivery
of UCC statements.
(c) Salem Delaware hereby represents, warrants and certifies that
it has no place of business in the State of Delaware and that its chief
executive office is located at 4880 Santa Rosa Road, Suite 300, Camarillo,
California 93012.
2. Return of Salem Delaware's Stock Certificate.
In consideration of the assumption by Salem Delaware set forth in
Section 1, Salem Delaware (after giving effect to the consummation of the Merger
and this Agreement) shall be released as a Subsidiary Guarantor under the
Subsidiary Guaranty, and the Administrative Agent shall return the stock
certificate of Salem Delaware (delivered to the Administrative Agent by Salem
California under the Borrower Security Agreement) to Salem Delaware.
3. Representations and Warranties.
Salem Delaware hereby represents and warrants on the date hereof
(i) that all representations and warranties set forth in the Loan Documents
applicable to Salem Delaware (including such representations and warranties
applicable to Salem California immediately prior to the consummation of the
Merger) are true and correct in all respects with the same effect as though such
representations and warranties had been made on the date hereof, except as the
context otherwise requires or as otherwise permitted by the Credit Agreement or
this Consent, and (ii) that it is in compliance in all material respects with
all agreements, including, without limitation, all affirmative and negative
covenants, contained in the Loan Documents.
4. Miscellaneous.
(a) The Loan Documents are in all respects ratified and confirmed
and shall remain in full force and effect, and Salem Delaware shall be fully
liable thereunder (including such Loan Documents to which Salem California was a
party immediately prior to the consummation of the Merger) in the same manner as
if it had separately executed same.
(b) This Agreement 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.
2
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have caused this Assumption
Agreement to be duly executed as of the date first above written.
SALEM COMMUNICATIONS CORPORATION, a
Delaware corporation and the
survivor of a merger with Salem
Communications Corporation, a
California corporation
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
THE BANK OF NEW YORK, as Administrative
Agent
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE> 15
SALEM COMMUNICATIONS CORPORATION,
CONSENT NO. 3
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 OF TEXAS, INC.
INSPIRATION MEDIA, 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 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:
--------------------------------
Name:
Title:
<PAGE> 16
SALEM COMMUNICATIONS CORPORATION
CONSENT NO. 3
SALEM COMMUNICATIONS CORPORATION,
a California corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 4.12
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of March 31, 1999,
by and between SALEM COMMUNICATIONS CORPORATION, a Delaware corporation ("Salem
Delaware"), the survivor of the merger (the "Merger") of Salem Communications
Corporation, a California corporation ("Salem California") with and into Salem
Delaware, and THE BANK OF NEW YORK, as Administrative Agent (the "Administrative
Agent") under the Credit Agreement, dated as of September 25, 1997, among Salem
California (as it existed prior to the merger), BANK OF AMERICA NT&SA, as
Documentation Agent, the Lenders thereunder and the Administrative Agent (as the
same may have been amended, modified or supplemented from time to time, the
"Credit Agreement"). Capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings defined therein, unless otherwise
defined herein.
RECITALS
A. Reference is made to Consent No. 3, dated as of March 31, 1999, by
and among Salem California, the Administrative Agent, the Issuing Bank and the
Lenders signatory thereto (the "Consent").
B. It is a condition to the effectiveness of the Consent that Salem
Delaware execute and deliver this Agreement to the Administrative Agent.
Now, therefore, in consideration of the premises, the parties hereto
agree as follows:
1. Assumption.
(a) Salem Delaware hereby fully, absolutely, unconditionally and
irrevocably accepts and assumes from Salem California, all of Salem California's
rights, obligations and liabilities under the Loan Documents.
(b) Salem Delaware hereby agrees that (i) Salem Delaware shall be
deemed the Borrower for all purposes under the Loan Documents and all references
to the Borrower therein shall mean Salem Delaware, (ii) all references in the
Borrower Security Agreement to the Collateral shall mean the Collateral of Salem
Delaware (after giving effect to the consummation of the Merger and the
assignment to, and assumption by, Salem Delaware of all of the assets of Salem
California), and Salem Delaware hereby ratifies and confirms the Administrative
Agent's first priority security interest in the Collateral granted to the
Administrative Agent under the Borrower Security Agreement and (iii) Salem
Delaware shall promptly execute and deliver or cause to be executed and
delivered, at its expense, all documents, certificates and opinions as the
Administrative Agent shall at any time reasonably request in connection with
such assumption by Salem Delaware of all of the obligations and liabilities of
the Borrower under the Credit
<PAGE> 2
Agreement, the Borrower Security Agreement and the other Loan Documents,
including, without limitation, the execution and delivery of UCC statements.
(c) Salem Delaware hereby represents, warrants and certifies that
it has no place of business in the State of Delaware and that its chief
executive office is located at 4880 Santa Rosa Road, Suite 300, Camarillo,
California 93012.
2. Return of Salem Delaware's Stock Certificate.
In consideration of the assumption by Salem Delaware set forth in
Section 1, Salem Delaware (after giving effect to the consummation of the Merger
and this Agreement) shall be released as a Subsidiary Guarantor under the
Subsidiary Guaranty, and the Administrative Agent shall return the stock
certificate of Salem Delaware (delivered to the Administrative Agent by Salem
California under the Borrower Security Agreement) to Salem Delaware.
3. Representations and Warranties.
Salem Delaware hereby represents and warrants on the date hereof
(i) that all representations and warranties set forth in the Loan Documents
applicable to Salem Delaware (including such representations and warranties
applicable to Salem California immediately prior to the consummation of the
Merger) are true and correct in all respects with the same effect as though such
representations and warranties had been made on the date hereof, except as the
context otherwise requires or as otherwise permitted by the Credit Agreement or
this Consent, and (ii) that it is in compliance in all material respects with
all agreements, including, without limitation, all affirmative and negative
covenants, contained in the Loan Documents.
4. Miscellaneous.
(a) The Loan Documents are in all respects ratified and confirmed
and shall remain in full force and effect, and Salem Delaware shall be fully
liable thereunder (including such Loan Documents to which Salem California was a
party immediately prior to the consummation of the Merger) in the same manner as
if it had separately executed same.
(b) This Agreement 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.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Assumption
Agreement to be duly executed as of the date first above written.
SALEM COMMUNICATIONS CORPORATION, a
Delaware corporation and the
survivor of a merger with Salem
Communications Corporation, a
California corporation
By: /s/ ERIC H. HALVORSON
----------------------------------
Name: Eric H. Halvorson
----------------------------------
Title: Vice President
----------------------------------
THE BANK OF NEW YORK, as Administrative
Agent
By: /s/ STEPHEN M. NETTLER
----------------------------------
Name: STEPHEN M. NETTLER
----------------------------------
Title: ASSISTANT VICE PRESIDENT
----------------------------------
<PAGE> 1
EXHIBIT 4.13
AMENDMENT NO. 1 TO THE
GRANT OF SECURITY INTEREST (SERVICEMARKS)
Salem Communications Corporation, a California corporation ("Salem
California"), is obligated to THE BANK OF NEW YORK, as Administrative Agent (the
"Administrative Agent"), and has entered into a Borrower Security Agreement,
dated as of September 25, 1997 (the "Agreement"), with the Administrative Agent.
On March 31, 1999, Salem California merged (the "Merger") with and into
Salem Communications Corporation, a Delaware corporation ("Salem Delaware"),
with Salem Delaware as the survivor. Pursuant to the Merger and pursuant to the
Assumption Agreement, dated as of March 31, 1999 (attached hereto as reference
as Attachment A), Salem Delaware has succeeded to all of the assets and assumed
all of the liabilities and obligations of Salem Delaware, including the
Obligations (as defined in the Agreement) under the Agreement.
The Grant of Security Interest (Servicemarks) granted to the
Administrative Agent as of September 25, 1997, granting a security interest in
all of the right, title and interest of Salem California in and to the
servicemarks listed on Schedule 1 hereto, which servicemarks are registered in
the United States Patent and Trademark Office (the "Servicemarks"), together
with the goodwill of the business symbolized by the Servicemarks and the
applications and registrations therefor, and all proceeds thereof, and all
causes of action which may exist by reason of infringement thereof (the
"Collateral"), continues and remains in effect with respect to Salem Delaware to
the same extent as the same existed prior to the consummation of the Merger.
All references to the Borrower in the Grant of Security Interest
(Servicemarks) shall mean Salem Delaware. All references to the Collateral in
the Grant of Security Interest (Servicemarks) shall mean the collateral of Salem
Delaware (after giving effect to the consummation of the Merger and the
assignment to, and assumption by, Salem Delaware of all of the assets of Salem
California).
IN WITNESS WHEREOF, Salem Delaware has caused this Amendment to the
Grant of Security Interest (Servicemarks) to be duly executed by its duly
authorized officer as of the 31st day of March, 1999.
SALEM COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ ERIC H. HALVORSON
---------------------------------
Name: Eric H. Halvorson
---------------------------------
Title: Executive Vice President
---------------------------------
<PAGE> 2
SCHEDULE 1
TO
GRANT OF SECURITY INTEREST (SERVICEMARKS)
1. "Salem Communications Corporation" - Reg. No. 1,996,372
2. Salem Logo - Reg. No. 1,940,452
<PAGE> 3
STATE OF California )
----------
) ss.:
COUNTY OF Ventura )
-------
On this 31st day of March, 1999, before me personally came Eric H.
Halvorson, to me known, who, being by me duly sworn, did depose and say that he
is the Executive Vice President of SALEM COMMUNICATIONS CORPORATION, the
corporation described in and which executed the above instrument, and that he
signed his name thereto by order of the board of directors thereof.
/s/ JANICE CRAWFORD
[SEAL] ----------------------------------------
NOTARY PUBLIC
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF SALEM COMMUNICATIONS CORPORATION,
A DELAWARE 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 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.
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated March 24, 1999,
except for Note 10, as to which the date is March 31, 1999, in the Registration
Statement (Form S-1) dated April 20, 1999, and related Prospectus of Salem
Communications Corporation for the registration of shares of its common stock.
Our audits also included the financial statement schedule of Salem
Communications Corporation listed in Item 16(b). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
April 16, 1999
