<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999
REGISTRATION NO. 333-76649
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SALEM COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4832 77-0121400
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
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:
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
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. [ ]
------------------------
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
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 JUNE 25, 1999
[SALEM LOGO]
- --------------------------------------------------------------------------------
7,500,000 SHARES
CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
THIS IS SALEM'S INITIAL PUBLIC OFFERING. WE ARE OFFERING 6,000,000 SHARES OF
CLASS A COMMON STOCK AND THE SELLING STOCKHOLDERS OF SALEM ARE OFFERING
1,500,000 SHARES OF CLASS A COMMON STOCK.
WE EXPECT THE PUBLIC OFFERING PRICE TO BE BETWEEN $19.00 AND $21.00 PER SHARE.
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "SALM."
Investing in our Class A common stock involves risks which are described in the
"Risk Factors" section beginning on page 8 of this prospectus.
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.
<TABLE>
<CAPTION>
PROCEEDS, PROCEEDS,
BEFORE BEFORE EXPENSES,
PRICE TO UNDERWRITING EXPENSES, TO SELLING
PUBLIC DISCOUNT TO SALEM STOCKHOLDERS
<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL $ $ $ $
</TABLE>
THE UNDERWRITERS MAY ALSO PURCHASE FROM THE SELLING STOCKHOLDERS UP TO AN
ADDITIONAL 1,125,000 SHARES OF CLASS A COMMON STOCK WITHIN 30 DAYS FROM THE DATE
OF THIS PROSPECTUS TO COVER OVER-ALLOTMENTS.
Joint Lead Managers and Joint Bookrunners
Deutsche Banc Alex. Brown ING Barings
-------------------------
Salomon Smith Barney
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
INSIDE FRONT COVER: A depiction of the names and logos of Salem Communications
Corporation, Salem Radio Network, Salem Radio Representatives, OnePlace, Ltd.
and CCM Communications, Inc.
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. and CCM Communications, Inc.
<PAGE> 4
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 option, unless otherwise stated. In addition,
unless otherwise stated, we have adjusted all references in this prospectus to
shares and per share data to reflect a 67-for-one stock dividend on Salem's
Class A and Class B common stock declared on May 26, 1999. 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.
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 52 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 over 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 broadcasting 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" basis, our net broadcasting revenue improved 12.7%
from 1997 to 1998 and our broadcast cash flow increased 21.4% from 1997
to 1998.
1
<PAGE> 5
We continue to seek new ways to expand and integrate our distribution and
content capabilities. We recently acquired publishing, Internet and information
technology 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.
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 17% each year from 1989 to
1998 (The Recording Industry Association of America).
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
2
<PAGE> 6
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 publishing, Internet and
information technology 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 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 publishing, Internet and information technology
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 letters of intent to purchase KAIM-AM,
KAIM-FM, KGU-AM and KHNR-AM Honolulu, Hawaii for a total purchase price of $3.4
million.
In April 1999, we entered into a letter of intent to purchase WLSY-FM and
WRVI-FM, Louisville, Kentucky, for a total purchase price of $5.0 million.
In April 1999, we entered into an agreement to purchase KGME-AM, Phoenix,
Arizona, for $5.0 million. This radio station currently operates under the call
letters KFDJ-AM and will be renamed KCTK-AM after closing.
In April 1999, we purchased KKOL-AM, Seattle, Washington, for $1.4 million
from a corporation owned by our principal stockholders. We have been operating
this station pursuant to a local marketing agreement since June 1997.
In October 1998, we purchased KTEK-AM, Houston, Texas, and KYCR-AM,
Minneapolis, Minnesota, for a total purchase price of $2.6 million, retained the
stations' religious talk formats and combined 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 combined with our other Los Angeles radio
stations.
3
<PAGE> 7
In August 1998, we purchased KKMO-AM, Seattle-Tacoma, Washington, for
$500,000, reformatted the station to a religious talk format and combined 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.
OTHER MEDIA
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.
------------------------------
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.
4
<PAGE> 8
THE OFFERING
Class A common stock offered
by:
Salem........................ 6,000,000 shares
Selling stockholders......... 1,500,000 shares
Total........................ 7,500,000 shares
Common stock outstanding after
the offering:
Class A common stock......... 17,182,392 shares
Class B common stock......... 5,553,696 shares
Over-allotment option.......... 1,125,000 shares
Use of proceeds................ We intend to use the estimated net proceeds to
Salem of $111.3 million as follows:
- to redeem a portion of our senior
subordinated notes,
- to repay all indebtedness outstanding under
our credit facility, and
- 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.
- Existing stockholders hold all of the shares
of Class B common stock and, after this
offering, will own shares having
approximately 90% 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.
Nasdaq National Market
symbol....................... "SALM"
5
<PAGE> 9
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 and our acquisition
of other media businesses.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue............... $ 38,575 $ 48,168 $ 59,010 $ 67,912 $ 77,891 $ 17,702 $ 20,425
Other media revenue.................... -- -- -- -- -- -- 1,095
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue.......................... 38,575 48,168 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses....... 22,179 27,527 33,463 39,626 42,526 9,930 11,379
Other media operating expenses........ -- -- -- -- -- -- 1,298
Corporate expenses.................... 3,292 3,799 4,663 6,210 7,395 1,503 1,796
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 3,337 4,111
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............... 34,081 41,267 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net operating income................... 4,494 6,901 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income....................... 230 319 523 230 291 103 25
Gain (loss) on disposal of assets..... (482) (7) 16,064 4,285 236 (22) --
Interest expense...................... (3,668) (6,646) (7,361) (12,706) (15,941) (3,772) (4,375)
Other expense......................... (135) (255) (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense)........... (4,055) (6,589) 8,956 (8,580) (15,836) (3,796) (4,470)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.................... 439 312 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes... (247) (204) 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item.................................. 686 516 12,753 (1,193) (1,581) (574) (1,308)
Extraordinary loss(2).................. -- (394) -- (1,185) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
========== ========== ========== ========== ========== ========== ==========
Pro forma net income (loss)(1)......... $ 848 $ 1,024 $ 12,838 $ (770)
========== ========== ========== ==========
Basic and diluted income (loss) per
share before extraordinary item....... $ 0.04 $ 0.03 $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net income (loss) per
share(3).............................. $ 0.04 $ 0.01 $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Pro forma basic and diluted income
(loss) per share before extraordinary
item.................................. $ 0.05 $ 0.09 $ 0.77 $ 0.02
========== ========== ========== ==========
Pro forma basic and diluted net income
(loss) per share...................... $ 0.05 $ 0.06 $ 0.77 $ (0.05)
========== ========== ========== ==========
Basic and diluted weighted average
shares outstanding(3)................. 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Broadcast cash flow(4)................. $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365 $ 7,772 $ 9,046
Broadcast cash flow margin(5).......... 42.5% 42.9% 43.3% 41.7% 45.4% 43.9% 44.3%
EBITDA(4).............................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970 $ 6,269 $ 7,047
After-tax cash flow(4)................. 8,770 9,306 11,594 10,647 12,335 2,776 2,803
Cash flows related to:
Operating activities.................. $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015 $ (519) $ (1,255)
Investing activities.................. (18,806) (27,681) (18,923) (26,326) (31,762) (1,935) (10,023)
Financing activities.................. 11,827 19,227 9,383 18,695 21,019 2,248 11,398
ADJUSTED STATEMENT OF OPERATIONS AND
OTHER DATA(6):
Interest expense....................... $ (9,939) $ (2,534)
Net income (loss)...................... 2,167 (43)
Basic and diluted net income (loss) per
share(7).............................. 0.10 (0.00)
After-tax cash flow(4)................. $ 16,083 $ 4,068
Basic and diluted after-tax cash flow
per share(4)(7)....................... 0.71 0.18
Basic and diluted weighted average
shares outstanding(7)................. 22,736,088 22,736,088
</TABLE>
(footnotes
on following page)
6
<PAGE> 10
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,037 $ 19,592
Total assets................................................ 219,397 235,444
Long-term debt and capital lease obligations, less current
portions.................................................. 187,840 100,290
Stockholders' equity........................................ 7,793 115,071
</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, excluding other media
revenue and other media operating expenses, 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
broadcasting revenue.
(6) The adjusted data give effect to the offering and the application of the net
proceeds of the offering to redeem $50 million in principal amount of our
senior subordinated notes and to repay all amounts outstanding under our
credit facility ($36.8 million as of March 31, 1999), including amounts
borrowed in April 1999 under our credit facility to repay our unsecured note
to stockholder ($800,000 as of March 31, 1999), as if the offering and the
application of the net proceeds had occurred as of January 1, 1998 in the
case of the adjusted statement of operations data and March 31, 1999 in the
case of the adjusted balance sheet data. The adjusted statement of
operations data include a reduction in interest expense of $6.0 million for
1998 and $1.8 million for the quarter ended March 31, 1999 and related
increases in income tax expense of $2.3 million for 1998 and $576,000 for
the quarter ended March 31, 1999. We will record a redemption premium ($4.8
million) and a write-off of 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. We will also record a charge of
$1.5 million plus an amount for the individual federal and state income tax
effects for an officer who was awarded 75,000 shares of Class A common stock
in May 1999. The adjusted statement of operations data excludes the
extraordinary loss and the charge associated with the stock award since
these will be non-recurring charges. The adjusted balance sheet data reflect
the estimated cash and equity effects of the extraordinary loss and the
stock award.
(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 and 75,000 shares of Class A common stock issued in May 1999 to
an officer of Salem, assuming the offering and the stock award had occurred
as of January 1, 1998.
7
<PAGE> 11
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
- their pre-existing relationships with other radio stations in these
markets.
8
<PAGE> 12
- 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. Stations in Los Angeles and New York accounted for
22% and 16%, respectively, of our broadcast cash flow for the quarter ended
March 31, 1999. 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 effect on our financial results
9
<PAGE> 13
by, for example, causing our advertising 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 2001; 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. We incurred a net loss of $1.3 million for the quarter
ended March 31, 1999, compared to a net loss of $574,000 for the same quarter of
the prior year. 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. In the
first quarter of 1999, our newly acquired publishing, Internet and information
technology businesses incurred a net operating loss of $398,000. We cannot be
sure that our newly acquired publishing, Internet and information technology
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.
10
<PAGE> 14
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. 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 90% of the combined
votes of the Class A and Class B common stock. If the underwriters'
over-allotment option is exercised in full, they will own or control
approximately 88% 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 a 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
11
<PAGE> 15
17,182,392 shares of Class A common stock and 5,553,696 shares of Class B common
stock. The 7,500,000 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 9,682,392 shares of Class A common
stock and all 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 Deutsche Bank
Securities Inc. and ING Barings 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 $21.32 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> 16
USE OF PROCEEDS
We will receive estimated net proceeds of $111.3 million from the sale of
shares of Class A common stock in the offering, based on an assumed initial
public offering price of $20.00 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:
- Redeem $50 million principal amount of our 9 1/2% senior subordinated
notes due 2007, approximately 30 to 60 days following the offering, plus
a $4.75 million redemption premium and accrued and unpaid interest. In
order to reduce the redemption premium, we may repurchase some or all of
the $50 million principal amount of the notes in privately negotiated
transactions.
- Repay all indebtedness outstanding under our credit facility ($38.8
million as of June 2, 1999).
- Provide for general corporate purposes, including acquisitions and
working capital requirements.
We will use approximately $13.4 million of the net proceeds of the offering
to fund the acquisitions of KAIM-AM, KAIM-FM, KGU-AM, KHNR-AM, KFDJ-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 June 2, 1999, the blended interest
rate on credit facility borrowings was 7.99%.
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> 17
CAPITALIZATION
The following table sets forth cash and cash equivalents and capitalization
of Salem as of March 31, 1999 (i) on an actual historical basis and (ii) on a
pro forma as adjusted basis to reflect (a) the recording of compensation
expense, net of the related tax benefits, associated with the award of 75,000
shares of Class A common stock to an officer of Salem, including the estimated
cash bonus to be paid to the officer to pay the individual federal and state
income taxes associated with the award, (b) the sale by us of 6,000,000 shares
of Class A common stock in the offering at an assumed initial public offering
price of $20.00 per share (after deducting underwriting discounts and estimated
offering expenses payable by Salem) and (c) the application of the estimated net
proceeds to Salem to redeem $50 million principal amount of our senior
subordinated notes and pay a $4.8 million redemption premium, and repay all
amounts outstanding under our credit facility, including the borrowing of
$800,000 used to repay the unsecured note to stockholder.
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 MARCH 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $ 2,037 $ 19,592
======== ========
Capital lease obligations, less current portion......... $ 290 $ 290
Long-term debt:
Unsecured note to stockholder(1)...................... 800 --
Senior subordinated notes............................. 150,000 100,000
Credit facility(2).................................... 36,750 --
-------- --------
Total long-term debt, less current portion.... 187,550 100,000
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding
11,107,392 shares, actual; 17,182,392 shares, as
adjusted(3)........................................ 111 172
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 5,553,696
shares, actual 5,553,696 shares, as adjusted....... 56 56
Additional paid-in capital............................ 5,665 118,404
Retained earnings (accumulated deficit)(4)............ 1,961 (3,561)
-------- --------
Total stockholders' equity.................... 7,793 115,071
-------- --------
Total capitalization.................................. $195,633 $215,361
======== ========
</TABLE>
- -------------------------
(1) We repaid this note in full in April 1999.
(2) As of June 2, 1999, $38.8 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) As adjusted amounts exclude 1,000,000 shares of Class A common stock
reserved for grants under Salem's 1999 stock incentive plan, but include
75,000 shares of Class A common stock issued in May 1999 to an officer of
Salem as a stock bonus.
(4) Reflects the charges associated with the one time payment of the redemption
premium ($4.8 million), the write-off of a portion of the unamortized bond
issue costs ($1.5 million) and the charges associated with the award of
75,000 shares of Class A common stock to an officer of Salem and the bonus
to be paid to the officer for individual federal and state income taxes
associated with the award, all net of the applicable estimated tax effects.
14
<PAGE> 18
DILUTION
Our net tangible book value (deficit) as of March 31, 1999 was $(142.1)
million or $(8.53) 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. After giving effect to our sale of 6,000,000 shares of Class A
common stock and the application of the proceeds from the sale (after deducting
underwriting discounts and estimated offering expenses) to redeem $50 million
principal amount of our senior subordinated notes, pay a $4.8 million redemption
premium and repay all amounts outstanding under our credit facility, and after
giving effect to the award of 75,000 shares of Class A common stock to a Salem
officer in May 1999, our pro forma as adjusted net tangible book value (deficit)
would have been $(30.0) million or $(1.32) per share. This represents an
immediate increase in net tangible book value of $7.21 per share to existing
stockholders and an immediate dilution of $21.32 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........ $20.00
Net tangible book value (deficit) per share before the
offering............................................. $(8.53)
Increase per share attributable to new investors....... 7.21
------
Net tangible book value (deficit) per share after the
offering............................................. (1.32)
------
Dilution per share to new investors.................... $21.32
======
</TABLE>
The following table summarizes, after giving effect to the offering, the
differences between existing stockholders, including the Salem officer who
received an award of 75,000 shares of Class A common stock, 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 $20.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 16,736,088 73.6% $ 5,832,000 4.6% $ 0.35
New investors........ 6,000,000 26.4 120,000,000 95.4 $20.00
---------- ----- ------------- -----
Total.............. 22,736,088 100.0% $ 125,832,000 100.0%
========== ===== ============= =====
</TABLE>
15
<PAGE> 19
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. Salem's
selected consolidated financial information presented below as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 is derived from Salem's
unaudited consolidated financial statements which, in the opinion of Salem's
management, contain all necessary adjustments of a normal recurring nature, to
present the financial statements in conformity with generally accepted
accounting principles. Our quarterly results for the three months ended March
31, 1999 are not necessarily indicative of the results for the year ended
December 31, 1999. 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 and our
acquisition of other media businesses. 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue............... $ 38,575 $ 48,168 $ 59,010 $ 67,912 $ 77,891 $ 17,702 $ 20,425
Other media revenue.................... -- -- -- -- -- -- 1,095
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue.......................... 38,575 48,168 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses....... 22,179 27,527 33,463 39,626 42,526 9,930 11,379
Other media operating expenses........ -- -- -- -- -- -- 1,298
Corporate expenses.................... 3,292 3,799 4,663 6,210 7,395 1,503 1,796
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 3,337 4,111
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............... 34,081 41,267 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net operating income................... 4,494 6,901 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income....................... 230 319 523 230 291 103 25
Gain (loss) on disposal of assets..... (482) (7) 16,064 4,285 236 (22) --
Interest expense...................... (3,668) (6,646) (7,361) (12,706) (15,941) (3,772) (4,375)
Other income expense.................. (135) (255) (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense)........... (4,055) (6,589) 8,956 (8,580) (15,836) (3,796) (4,470)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.................... 439 312 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes... (247) (204) 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item.................................. 686 516 12,753 (1,193) (1,581) (574) (1,308)
Extraordinary loss(2).................. -- (394) -- (1,185) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
========== ========== ========== ========== ========== ========== ==========
Pro forma net income (loss)(1)......... $ 848 $ 1,024 $ 12,838 $ (770)
========== ========== ========== ==========
Basic and diluted income (loss) per
share before extraordinary item....... $ 0.04 $ 0.03 $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net income (loss) per
share(3).............................. $ 0.04 $ 0.01 $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Pro forma basic and diluted income
(loss) per share before extraordinary
item.................................. $ 0.05 $ 0.09 $ 0.77 $ 0.02
========== ========== ========== ==========
Pro forma basic and diluted net income
(loss) per share...................... $ 0.05 $ 0.06 $ 0.77 $ (0.05)
========== ========== ========== ==========
Basic and diluted weighted average
shares outstanding(3)................. 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Broadcast cash flow(4)................. $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365 $ 7,772 $ 9,046
Broadcast cash flow margin(5).......... 42.5% 42.9% 43.3% 41.7% 45.4% 43.9% 44.3%
EBITDA(4).............................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970 $ 6,269 $ 7,047
After-tax cash flow(4)................. 8,770 9,306 11,594 10,647 12,335 2,776 2,803
Cash flows related to:
Operating activities.................. $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015 $ (519) $ (1,255)
Investing activities.................. (18,806) (27,681) (18,923) (26,326) (31,762) (1,935) (10,023)
Financing activities.................. 11,827 19,227 9,383 18,695 21,019 2,248 11,398
ADJUSTED STATEMENT OF OPERATIONS AND
OTHER DATA(6):
Interest expense....................... $ (9,939) $ (2,534)
Net income (loss)...................... 2,167 (43)
Basic and diluted net income (loss) per
share(7).............................. 0.10 (0.00)
After-tax cash flow(4)................. $ 16,083 $ 4,068
Basic and diluted after-tax cash flow
per share(4)(7)....................... 0.71 0.18
Basic and diluted weighted average
shares outstanding(7)................. 22,736,088 22,736,088
</TABLE>
(footnotes on following page)
16
<PAGE> 20
<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF
--------------------------------------------------- MARCH 31
1994 1995 1996 1997 1998 1999
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 1,780 $ 1,007 $ 1,962 $ 1,645 $ 1,917 $ 2,037
Total assets...................... 82,041 104,817 159,185 184,813 207,750 219,397
Long-term debt and capital lease
obligations, less current
portions........................ 60,656 81,020 121,790 154,500 178,610 187,840
Stockholders' equity.............. 13,160 13,282 20,534 10,682 9,101 7,793
</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 for the periods prior to and including our August 1997
reorganization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1994 1995 1996 1997
------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Pro Forma Information:
Income (loss) before income taxes and extraordinary
item as reported above............................ $ 439 $ 312 $19,408 $(1,087)
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
Pro forma provision (benefit) for income taxes...... 568 951 8,608 278
------ ------ ------- -------
Pro forma income (loss) before extraordinary item... 848 1,418 12,838 415
Extraordinary loss.................................. -- (394) -- (1,185)
------ ------ ------- -------
Pro forma net income (loss)......................... $ 848 $1,024 $12,838 $ (770)
====== ====== ======= =======
</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, excluding other media
revenue and other media operating expenses, 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.
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-
(footnotes continued on following page)
17
<PAGE> 21
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
broadcasting revenue.
(6) The adjusted data give effect to the offering and the application of the net
proceeds of the offering to redeem $50 million in principal amount of our
senior subordinated notes and to repay all amounts outstanding under our
credit facility ($36.8 million as of March 31, 1999), including amounts
borrowed in April 1999 under our credit facility to repay our unsecured note
to stockholder ($800,000 as of March 31, 1999), as if the offering and the
application of the net proceeds had occurred as of January 1, 1998. The
adjusted statement of operations data include a reduction in interest
expense of $6.0 million for 1998 and $1.8 million for the quarter ended
March 31, 1999 and related increases in income tax expense of $2.3 million
for 1998 and $576,000 for the quarter ended March 31, 1999. We will record
the redemption premium ($4.8 million) and a write-off of 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. We will also record a charge of $1.5 million plus an amount for
the individual federal and state income tax effects for an officer who was
awarded 75,000 shares of Class A common stock in May 1999. The adjusted
statement of operations data excludes the extraordinary loss and the charge
associated with the stock award since these will be non-recurring charges.
(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 and 75,000 shares of Class A common stock issued in May 1999 to
an officer of Salem, assuming the offering and the stock award had occurred
as of January 1, 1998.
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<PAGE> 22
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 broadcasting revenue, percentage of gross
broadcasting revenue for each broadcasting revenue source and net broadcasting
revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS
----------------------------------------------------- ENDED
1996 1997 1998 MARCH 31, 1999
--------------- --------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Block program time:
National................... $26,610 40.8% $27,664 37.0% $30,337 35.5% $ 8,165 36.6%
Local...................... 10,869 16.7 11,392 15.2 12,558 14.7 3,279 14.7
------- ----- ------- ----- ------- ----- ------- -----
37,479 57.5 39,056 52.2 42,895 50.2 11,444 51.3
Advertising:
National................... 4,088 6.3 3,621 4.8 4,458 5.2 1,118 5.0
Local...................... 17,416 26.7 21,143 28.3 26,106 30.6 6,846 30.7
------- ----- ------- ----- ------- ----- ------- -----
21,504 33.0 24,764 33.1 30,564 35.8 7,964 35.7
Infomercials(1).............. -- -- 3,819 5.1 4,121 4.8 871 3.9
Salem Radio Network.......... 5,270 8.1 6,186 8.3 6,053 7.1 1,665 7.4
Other........................ 888 1.4 1,005 1.3 1,778 2.1 382 1.7
------- ----- ------- ----- ------- ----- ------- -----
Gross broadcasting revenue... 65,141 100.0% 74,830 100.0% 85,411 100.0% 22,326 100.0%
===== ===== ===== =====
Less agency commissions...... 6,131 6,918 7,520 1,901
------- ------- ------- -------
Net broadcasting revenue..... $59,010 $67,912 $77,891 $20,425
======= ======= ======= =======
</TABLE>
- ---------------
(1) Prior to 1997, classification of broadcasting 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 broadcasting 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 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.
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<PAGE> 23
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.
OnePlace earns its revenue by selling products and services on the Internet
and licensing its e-commerce, search engines and imaging applications. CCM earns
its revenue by selling advertising in and subscriptions to its publications. The
revenue and related operating expenses of these businesses are reported as
"other media" on our condensed consolidated statements of operations.
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, excluding other media revenue and other media operating
expenses, before depreciation and amortization
20
<PAGE> 24
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 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.
In the following discussion of our results of operations, we compare our
results between periods on an as reported basis (that is, the results of
operations of all radio stations and network formats owned or operated at any
time during either period) and on a "same station" basis. We include in our same
station comparisons the results of operations of radio stations and network
formats that:
- we own or operate for all of both periods;
- we acquire or begin to operate at any time after the beginning of the
first relevant comparison period if the station or network format (i) is
in a market in which we already own or operate a radio station or network
format and (ii) is integrated with the existing station or network format
for our internal financial reporting purposes; or
- we sell or cease to operate at any time after the beginning of the first
relevant comparison period if the station or network format (i) was
integrated with another station or network format in a market for our
internal financial reporting purposes prior to the sale or cessation of
operations and (ii) we continue to own or operate the other station or
network format following the sale or cessation of operations.
We include in our same station comparisons the results of operations of our
integrated stations and network formats from the date that we acquire or begin
to operate them or through the date that we sell or cease to operate them, as
the case may be.
In the quarter ending June 30, 1999, we will record a charge of $1.5
million relating to the award of 75,000 shares of Class A common stock to an
officer of Salem plus an amount for the individual federal and state income tax
effects associated with the award.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
Net Broadcasting Revenue. Net broadcasting revenue increased $2.7 million
or 15.3% to $20.4 million for the quarter ended March 31, 1999 from $17.7
million for the same quarter of the prior year. The inclusion of revenue from
radio stations acquired in 1998, partially offset by the loss of revenue from
radio stations sold in 1998, provided $600,000
21
<PAGE> 25
of the increase. On a same station basis, net broadcasting revenue improved $2.1
million or 12.0% to $19.6 million in 1999 from $17.5 million in 1998. Included
in this same station comparison are the results of three stations that we
acquired in 1998 for a total purchase price of $3.1 million. The improvement was
primarily due to an increase in revenue at the radio stations we acquired in
1996 and 1997 that previously operated with formats other than a religious and
family issues format, an increase in program rates and, to a lesser extent, an
increase in advertising time and improved selling efforts at both the national
and local level. Revenue from advertising as a percentage of our gross
broadcasting revenue increased from 33.9% for the quarter ended March 31, 1998
to 35.7% for the same quarter in 1999. Revenue from block program time as a
percentage of our gross broadcasting revenue decreased from 51.6% for the
quarter ended March 31, 1998 to 51.3% for the same quarter in 1999. This change
in our revenue mix is primarily due to our efforts to develop more advertising
sales in all of our markets.
Other Media Revenue. Other media revenue was $1.1 million for the quarter
ended March 31, 1999, and was generated from the businesses acquired during that
quarter.
Broadcasting Operating Expenses. Broadcasting operating expenses increased
$1.5 million or 15.2% to $11.4 million for the quarter ended March 31, 1999 from
$9.9 million for the same quarter of the prior year. The inclusion of operating
expenses from radio stations acquired in 1998, partially offset by the exclusion
of operating expenses from radio stations sold in 1998, accounted for $200,000
of the increase. On a same station basis, broadcasting operating expenses
increased $1.3 million or 13.4% to $11.0 million in 1999 from $9.7 million in
1998, primarily due to incremental selling and production expenses incurred to
produce the increased revenue in the period.
Other Media Operating Expenses. Other media operating expenses were $1.3
million for the quarter ended March 31, 1999, and were incurred in the
businesses acquired during that quarter.
Broadcast Cash Flow. Broadcast cash flow increased $1.2 million or 15.4% to
$9.0 million for the quarter ended March 31, 1999 from $7.8 million for the same
quarter of the prior year. 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. As a
percentage of net broadcasting revenue, broadcast cash flow was essentially
unchanged for the quarter ended March 31, 1999 compared to the same quarter of
the prior year. 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. These improvements were offset by higher
station and network selling expenses in the quarter ended March 31, 1999. On a
same station basis, broadcast cash flow improved $800,000 or 10.3% to $8.6
million in the quarter ended March 31, 1999 from $7.8 million in the same
quarter of the prior year.
Corporate Expenses. Corporate expenses increased $300,000 or 20.0% to $1.8
million in the quarter ended March 31, 1999 from $1.5 million in the same
quarter of the prior year, primarily due to additional overhead costs associated
with radio station acquisitions in 1998.
EBITDA. EBITDA increased $700,000 or 11.1% to $7.0 million for the quarter
ended March 31, 1999 from $6.3 million for the same quarter of the prior year.
As a percentage of total revenue, EBITDA decreased to 32.6% for the quarter
ended March 31, 1999 from 35.6% for the same quarter of the prior year. The
decrease is primarily
22
<PAGE> 26
attributable to a negative EBITDA margin on our other media businesses (that is,
EBITDA for our other media businesses divided by other media revenue), partially
offset by an improvement in the EBITDA margin on our broadcasting business (that
is, EBITDA for our broadcasting business divided by net broadcasting revenue).
Depreciation and Amortization. Depreciation and amortization expense
increased $800,000 or 24.2% to $4.1 million for the quarter ended March 31, 1999
from $3.3 million for the same quarter in the prior year, primarily due to radio
station acquisitions consummated during 1998, and acquisitions of other media
businesses in 1999.
Other Income (Expense). Interest income, loss on disposal of assets and
other expense were essentially unchanged for the quarter ended March 31, 1999
compared to the same quarter of the prior year. Interest expense increased
$600,000 or 15.8% to $4.4 million for the quarter ended March 31, 1999 from $3.8
million for the same quarter in the prior year, primarily due to interest
expense associated with additional borrowings to fund acquisitions consummated
during 1999 and 1998.
Benefit for Income Taxes. Benefit for income taxes as a percentage of loss
before income taxes (that is, the effective tax rate) was (14.7)% for the
quarter ended March 31, 1999 and (33.6)% for the same quarter of the prior year.
For the quarter ended March 31, 1999 and 1998 the effective tax rate differs
from the federal statutory income tax rate of 34.0% primarily due to the effect
of state income taxes and certain expenses that are not deductible for tax
purposes. The increase in the effective tax rate for the quarter ended March 31,
1999 as compared to the same quarter of the prior year is primarily due to an
increase in state income taxes.
Net Loss. We recognized a net loss of $1.3 million for the quarter ended
March 31, 1999, compared to a net loss of $574,000 for the same quarter of the
prior year.
After-Tax Cash Flow. After-tax cash flow increased $100,000 or 3.7% to $2.8
million for the quarter ended March 31, 1999 from $2.7 million for the same
quarter of the prior year. The increase is primarily attributable to an increase
in operating income before depreciation and amortization, partially offset by an
increase in interest expense.
1998 COMPARED TO 1997
Net Broadcasting Revenue. Net broadcasting 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 $1.5 million of
the increase. On a same station basis, net broadcasting revenue improved $8.5
million or 12.7% to $75.3 million in 1998 from $66.8 million in 1997. Included
in this same station comparison are the results of three stations that we
acquired in 1998 for a total purchase price of $3.1 million, four stations that
we acquired or began to operate in 1997 for a total purchase price of $4.9
million and one station that we sold in 1997 for $5.0 million. 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, an increase in program rates and, to a lesser extent, an increase
in advertising time and improved selling efforts at both the national and local
level. Revenue from advertising as a percentage of our gross broadcasting
revenue increased from 33.1% in 1997 to 35.8% in 1998. Revenue from block
program time as a percentage of our gross broadcasting 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.
23
<PAGE> 27
Broadcasting Operating Expenses. Broadcasting 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 $400,000 of the increase. On a same station basis, broadcasting
operating expenses increased $2.5 million or 6.4% to $41.3 million in 1998 from
$38.8 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.
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
broadcasting 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. On a same station basis, broadcast cash
flow improved $6.0 million or 21.4% to $34.0 million in 1998 from $28.0 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 total 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
24
<PAGE> 28
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 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 Broadcasting Revenue. Net broadcasting 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 $5.5 million of
the increase. On a same station basis, net broadcasting revenue improved $3.4
million or 6.2% to $58.4 million in 1997 from $55.0 million in 1996 due
primarily to an increase in program rates and, to a lesser extent, an increase
in advertising time and improved selling efforts at both the national and local
level. Included in this same station comparison are the results of four stations
that we acquired or began to operate in 1997 for a total purchase price of $11.3
million, one station that we sold in 1997 for $5.0 million and one station that
we sold in 1996 for $1.5 million. While broadcasting revenue from advertising as
a percentage of our gross broadcasting revenue was essentially unchanged from
1996 to 1997, revenue from local advertising as a percentage of our gross
broadcasting revenue increased from 26.7% in 1996 to 28.3% in 1997. Revenue from
block program time as a percentage of our gross broadcasting revenue decreased
from 57.5% in 1996 to 52.2% in 1997. Revenue from informercials was 5.1% of
gross broadcasting 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 broadcasting 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.
Broadcasting Operating Expenses. Broadcasting 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 $4.4 million of the increase. On a same station basis,
broadcasting operating expenses increased $1.7 million or 5.9% to $30.6 million
in 1997 from $28.9 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
broadcasting 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. On a same station basis,
broadcast cash flow improved $1.7 million or 6.5% to $27.8 million in 1997 from
$26.1 million in 1996.
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<PAGE> 29
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.
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 total 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.
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<PAGE> 30
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.
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 June 2, 1999, we had $38.8 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 under our existing credit facility, the prime rate
spread ranged from 0% to 2.25%, and the LIBOR spread ranged from 1% to 3.5%.
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, the Adjusted Debt to Cash Flow Ratio, after giving effect to the
offering and the application of the net proceeds, including $13.4 million for
our pending acquisitions, would have been 3.59 to 1, resulting in total
borrowing availability of approximately $99 million, all of which is available
for acquisition purposes and $69 million of which is available for working
capital purposes.
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 amended credit facility will provide that the lenders may
accelerate the indebtedness if the voting power of Salem's capital stock held by
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<PAGE> 31
Stuart W. Epperson, Edward G. Atsinger III, their family members, trusts for
their benefit and their estates drops below 51% or if their capital stock
holdings represent less than 35% of the total economic interest in Salem. The
credit facility will also require us to satisfy 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 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 will be 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 and any accrued and unpaid interest that we will pay
in connection with this partial redemption.
The decrease in accounts receivable from December 31, 1998 to March 31,
1999 is due to increased collections during the first quarter of 1999. The
decrease was partially offset by the inclusion of accounts receivable of other
media businesses acquired in 1999. The decrease in accrued interest from
December 31, 1998 to March 31, 1999 is due to the payment of interest on our
senior subordinated notes on March 31, 1999. Deferred subscription revenue,
which was assumed as part of the acquisition of CCM Communications, Inc.,
represents revenue from magazine subscriptions to be earned over a one year
period.
Net cash used in operating activities increased to $1.3 million for the
quarter ended March 31, 1999, compared to $500,000 for the same quarter in the
prior year, primarily due to a larger decrease in accounts payable during the
quarter ended March 31, 1999 compared with the same quarter of the prior year.
Net cash provided by operating activities 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 $10.0 million for the
quarter ended March 31, 1999, compared to $1.9 million in the same quarter of
the prior year, primarily due to the acquisitions during the first quarter of
1999. We did not acquire any radio stations or other businesses during the first
quarter of 1998. 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 (cash used of $33.7 million to purchase four stations in
1998 compared to cash used of $19.4 million to purchase eight stations in 1997).
Net cash used in investing activities increased to $26.3 million in 1997,
compared to $18.9 million in
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<PAGE> 32
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 increased to $11.4 million for
the quarter ended March 31, 1999 compared to $2.2 million for the quarter ended
March 31, 1998, primarily due to increased long-term debt borrowings for
acquisitions. 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 the stock of
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 for a total of $5 million. We anticipate this purchase will close in
July 1999. This radio station currently operates under the call letters KFDJ-AM
and will be renamed KCTK-AM after closing. We will use a portion of the net
proceeds of the offering to fund this purchase.
In April 1999, we entered into letters of intent to purchase radio stations
KAIM-AM, KAIM-FM, KGU-AM and KHNR-AM, Honolulu, Hawaii, and WLSY-FM and WRVI-
FM, Louisville, Kentucky, in separate transactions for a total of $8.4 million.
Subject to the execution of mutually acceptable purchase agreements, we
anticipate these purchases will close in July or August of 1999.
In April 1999, we purchased KKOL-AM, Seattle-Tacoma, Washington, for $1.4
million from a corporation owned by our principal stockholders. We financed this
acquisition primarily by a borrowing under our credit facility. We also agreed
to purchase the real estate at the transmitting site for KKOL-AM for $400,000
from the same seller.
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
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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 third 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, 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 has begun and is
expected to be completed by the end of the third quarter. Based on test results
and assessment of outside risks, contingency plans will be developed as
determined necessary. We would expect to complete such plans in the fourth
quarter of 1999.
We anticipate minimal business disruption from both external and internal
factors. However, possible risks include, but are not limited to, loss of power
and communication links which are not subject to our control. We believe that
our Y2K compliance issues from all phases of our plan will be resolved on a
timely basis and that any related costs will not have a material impact on our
operations, cash flows or financial condition of future periods.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We do not invest, and during 1998 and the quarter
ended March 31, 1999 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
March 31, 1999, we had borrowed $36.8 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 under our existing credit facility the prime rate
spread ranged from 0% to 2.25%, and the LIBOR spread ranged from 1% to 3.5%. At
March 31, 1999, the blended interest rate on amounts outstanding under the
credit facility was 8.01%. 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 March 31, 1999, a hypothetical 100 basis
point increase in the prime rate would result in additional interest expense of
$367,500 on an annualized basis.
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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 52 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 over 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 publishing, Internet and information
technology 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
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S 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 17% each year from 1989 to
1998 (The Recording Industry Association of America).
- 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 with formats directed to our listeners' specific needs
and interests. This consistent focus
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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 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
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publishing, Internet and information technology 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 publishing, Internet and information technology 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 52 radio stations in
29 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
Seattle-Tacoma, WA....................... 14 KGNW-AM 1985
KLFE-AM 1994
KKOL-AM 1999
KKMO-AM 1998
</TABLE>
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<TABLE>
<CAPTION>
MSA YEAR
MARKET(1) RANK(2) STATION CALL LETTERS ACQUIRED
--------- ------- -------------------- --------
<S> <C> <C> <C>
Phoenix, AZ.............................. 15 KPXQ-AM 1996
KFDJ-AM (4)
San Diego, CA............................ 16 KPRZ-AM 1986
Minneapolis-St. Paul, MN................. 18 KKMS-AM 1996
KYCR-AM 1998
Baltimore, MD............................ 20 WITH-AM(5) 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(6) 1986
Columbus, OH............................. 33 WRFD-AM 1982
San Antonio, TX.......................... 34 KSLR-AM 1994
Louisville, KY........................... 53 WLSY-FM (7)
WRVI-FM (7)
Honolulu, HI............................. 60 KAIM-AM (8)
KAIM-FM (8)
KGU-AM (8)
KHNR-AM (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 Metro Survey Area. We have obtained all Metro Survey 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) A contract to acquire this radio station for $5.0 million has been signed
and FCC approval of the acquisition is pending. This radio station was
formerly known by the call letters KGME-AM and will be renamed KCTK-AM after
the closing.
(5) The station is simulcast with WAVA-FM, Washington, D.C.
(6) The station is simulcast with KKLA-FM, Los Angeles.
(7) 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.
(8) Letters of intent to acquire four radio stations for $3.4 million have been
signed.
(9) The station is simulcast with WHK-AM, Cleveland.
PROGRAM REVENUE. For the quarter ended March 31, 1999, we derived 36.6% and
14.7% of our gross broadcasting revenue from the sale of nationally syndicated
and local block program time, respectively. In 1998, we derived 35.5% and 14.7%
of our gross broadcasting revenue from the sale of nationally syndicated and
local block program time, respectively. We derive nationally syndicated program
revenue from a program customer
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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 the quarter ended March 31, 1999, we derived 30.7%
and 5.0% of our gross broadcasting revenue from the sale of local and national
advertising, respectively. In 1998, we derived 30.6% and 5.2% of our gross
broadcasting 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 May 17, 1999, our network had over 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 was $6.1 million for 1998 and $1.7 million
for the quarter ended March 31, 1999. Salem Radio Network(R) incurred a net
operating loss of $392,000 for 1998 and had net operating income of $157,000 for
the quarter ended March 31, 1999.
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 May 17, 1999, 523 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.
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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 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 May 17, 1999, Salem Radio Network(R) provided SRN News to
607 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(R), 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 May 17, 1999, Morningstar, The Word in Music(R) and The Word in
Praise had 117, 15 and 11 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(R) 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
136 affiliate radio stations as of May 17, 1999.
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.
OTHER MEDIA
INTERNET AND INFORMATION TECHNOLOGY. 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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PUBLISHING. 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 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.
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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.
OTHER 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 May 14, 1999, Salem employed 592 full-time and 239 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 H.
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.
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
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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.
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,
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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(1) CALL LETTERS 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 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(6) 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(6) 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 72 102.7 MHz 4/1/2005
KGFT-FM C 676 78 100.7 MHz 4/1/2005
KPRZ-FM(7) 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(8) B 175 36 98.1 MHz 10/1/2004
</TABLE>
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<PAGE> 49
- -------------------------
(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) 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.
(7) 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.
(8) 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 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
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<PAGE> 50
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.
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);
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<PAGE> 51
- 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) 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
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<PAGE> 52
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 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
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<PAGE> 53
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;
- 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, including requests for new radio
stations or major changes in the facilities of existing stations filed after
June 30, 1997. 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.
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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 Mass Media Bureau has scheduled the first auction of commercial
broadcast station construction permits for September 28, 1999. The Mass Media
Bureau and Wireless Telecommunications Bureau have under consideration proposed
procedural rules for that auction. Still under consideration by the FCC is a
further refinement of the rule under which bidding credits will be awarded.
The freeze imposed in connection with the November 25, 1997 auction 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, redefining many former major changes
as minor changes and potentially lessening the impact of the freeze on licensees
of commercial AM radio stations.
The FCC has issued a notice of proposed rulemaking that contemplates
adopting rules to authorize a new service of low powered, limited coverage FM
stations. Should this new low powered FM service be authorized, the FCC has
proposed to adopt ownership limitations which would exclude present multiple
station owners. The FCC has asked for comments on whether this new service, if
authorized, should be limited to noncommercial operation.
The FCC has also 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.
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,
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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 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 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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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
Joseph S. Schuchert............ 70 Director
Donald P. Hodel................ 64 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. In addition, he
serves as Executive Vice President of each subsidiary of Salem. 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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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 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.
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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.
Mr. Schuchert has been a Director of Salem since May 1999. He was a founder
of the investment firm Kelso & Company, Inc. in 1970 and served as its Chairman
and Chief Executive Officer through December 1997 and Chairman since January
1998. Mr. Schuchert currently serves on the boards of directors of American
Standard Corporation, Earl M. Jorgensen Company, the United States Chamber of
Commerce and St. Vincent College. He is Director Emeritus of Carnegie Mellon
University.
Mr. Hodel has been a Director of Salem since May 1999. Mr. Hodel is a
founder and has been the Managing Director of Summit Group International, Ltd.,
an energy and natural resources consulting firm, since 1989. He has served as
Vice Chairman of Texon Corporation, an oil and natural gas marketing company,
since 1994. Mr. Hodel served as President of the Christian Coalition from June
1997 to January 1999 and as Executive Vice President of Focus on the Family from
January 1996 to August 1996. Mr. Hodel currently serves on the boards of
directors of Integrated Electrical Services, Inc., Eagle Publishing, Inc. and
Focus on the Family. During the Reagan Administration, Mr. Hodel served as
Secretary of Energy and Secretary of the Interior.
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 Hodel. 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. Hinz and Schuchert. 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 -- 1,281,192(1) --
Executive Officer 1996 400,000 350,000(2) 996,372(1) --
and Director
Stuart W. Epperson........ 1998 400,000 288,000 -- --
Chairman of the Board 1997 400,000 -- 1,281,192(1) --
1996 400,000 350,000(2) 1,012,319(1) --
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 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 note 1 to our consolidated
financial statements included elsewhere in this prospectus. Of the 1997
amounts, approximately $390,000 was paid to each executive as distributions
from New Inspiration and Golden Gate.
(2) Paid as distributions from New Inspiration and Golden Gate.
(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 May 26, 1999, we adopted the 1999 stock incentive plan, conditioned upon
completion of the offering, 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
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<PAGE> 60
board of directors or a board committee that 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 1,000,000 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.
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
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<PAGE> 62
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.
Upon the completion of the offering, the board of directors intends to
grant options under the plan for the purchase of an aggregate of up to 334,000
shares of Class A common stock to selected directors, executive officers and
employees of Salem. The exercise price of the options will be the public
offering price set forth on the cover page of this prospectus.
EMPLOYMENT AGREEMENTS
Edward G. Atsinger III and Stuart W. Epperson entered into employment
agreements with Salem effective as of August 1, 1997 and as amended effective as
of May 19, 1999, pursuant to which Mr. Atsinger will serve as President and
Chief Executive Officer of Salem and Mr. Epperson will serve as chairman of
Salem for an initial period expiring July 31, 2001. Pursuant to the employment
agreements, each of Messrs. Atsinger and Epperson will be paid an annual base
salary and an annual bonus determined at the discretion of the board of
directors. Effective as of June 1, 1999, the annual base salary payable to each
of Messrs. Atsinger and Epperson will be $600,000. 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
$400,000, 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
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<PAGE> 63
will receive (i) 50% of the average of his three highest years of compensation,
payable for a period of ten consecutive years, if he remains employed by Salem
until age 60, or (ii) a discounted amount, based upon the compensation he would
have received if he had remained employed until age 60, if his employment
terminates for any reason after the term of the employment agreement or before
he reaches age 60 by reason of death, disability or termination by Salem without
cause.
On May 26, 1999, we granted 75,000 shares of Class A common stock to Eric
H. Halvorson and a cash bonus to be paid in an amount equal to the individual
income tax liability incurred by Mr. Halvorson in connection with the stock
grant.
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
OUR 1997 REORGANIZATION
Salem's August 1997 reorganization was effected by each of the three
stockholders contributing their shares of stock in New Inspiration and Golden
Gate to Salem (which in turn effected the contribution to Salem of the
stockholders' interests in Beltway Media Partners in exchange for new shares in
Salem). The share conversion factors were based on the ratio of asset values of
each of Salem, New Inspiration and Golden Gate to the combined asset value of
all of these entities. The asset values of these entities were determined by an
independent radio station broker. Following our 1997 reorganization, Mrs.
Epperson, who had been a 50% owner of New Inspiration, became a stockholder of
Salem.
In connection with our 1997 reorganization, New Inspiration and Golden
Gate, which were each S corporations prior to our 1997 reorganization,
distributed cash and promissory notes to their respective stockholders in the
aggregate amount of $8.5 million. Of such amount, $1.8 million, which equaled
the estimated federal and state income tax liability of the stockholders on the
earnings of New Inspiration and Golden Gate, was paid by New Inspiration and
Golden Gate in cash. The remainder, $6.7 million, was paid in the form of
promissory notes payable to the stockholders immediately following the closing
of the offering of our senior subordinated notes. After that closing, Salem
borrowed $6.7 million under its credit agreement and applied this amount to the
payment of indebtedness owed by Salem to New Inspiration and Golden Gate. The
cash made available from the repayment of such loans was then used by New
Inspiration and Golden Gate to pay the notes due to the stockholders.
LOAN TRANSACTIONS
In December 1996, Messrs. Atsinger and Epperson, Salem's principal
stockholders, repaid Salem $4.8 million for outstanding principal and accrued
interest under two promissory notes given for loans made to them in 1991. Salem
made these loans,
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<PAGE> 64
approximately $1.7 million each, to Messrs. Atsinger and Epperson, to facilitate
the repayment of personal indebtedness each of them had incurred in connection
with prior radio station acquisitions. The notes bore interest at a floating
rate. The repayments to Salem were made with the proceeds of a distribution to
Messrs. Atsinger and Epperson from Golden Gate and New Inspiration of previously
taxed S corporation income. Principal and accrued interest on these notes
amounted to approximately $4.6 million at December 31, 1995. Salem earned
approximately $189,000 in interest on these two notes in 1996.
In December 1996, Salem borrowed $1.9 million from Mr. Atsinger. Salem
repaid the note for this borrowing, including interest at 9 1/4%, in January
1997, with proceeds from a borrowing under our credit facility.
In July 1997, Salem canceled certain indebtedness owed to us by Eric H.
Halvorson, an executive officer and director of Salem, in the amount of $25,000
plus accrued interest calculated at a floating rate. At the same time, Salem
made a distribution to Mr. Halvorson in an amount equal to the tax liability he
incurred as a result of the cancellation of this debt.
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 a 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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<PAGE> 65
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
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
----------
$1,203,050
----------
LEASE WITH MR. ATSINGER:
San Diego, CA................ KPRZ-FM Antenna/Tower 46,812 2002
----------
$1,249,862
==========
</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, 1997 and 1996
amounted to approximately $1,000,000, $1,000,000 and, $800,000, respectively.
Rental expense paid by Salem solely to Mr. Atsinger or trusts created for the
benefit of his family for 1998, 1997 and 1996 amounted to approximately $60,000,
$57,000 and $57,000, respectively. Rental expense paid by Salem to Messrs.
Atsinger and Epperson in 1998, 1997 and 1996 represented payment under
substantially the same leases as currently in effect, however, leases for radio
station properties disposed of by Salem during 1996, 1997 and 1998 are not
included in the preceding summary table.
KKOL-AM
In April 1999, Salem purchased KKOL-AM, Seattle, Washington for $1.4
million from Sonsinger, Inc., a corporation owned by Messrs. Atsinger and
Epperson. Prior to the acquisition, pursuant to a local marketing agreement with
Sonsinger entered into on June 13, 1997, Salem programed KKOL-AM and sold all
the airtime. Under that local marketing agreement we retained all of the revenue
(approximately $82,000 and $20,400 for 1998 and 1997, respectively) and incurred
all of the expenses related to our operation
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<PAGE> 66
of KKOL-AM and incurred approximately $164,000 and $64,000 in local marketing
fees under the agreement in 1998 and 1997, respectively. We also agreed to
purchase the real estate and transmitter site for KKOL-AM for $400,000 from
Sonsinger.
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,
1997 and 1996, Salem paid approximately $69,000, $60,000 and $38,000
respectively to Atsinger Aviation for airplane rental; no amounts were paid for
helicopter rental in 1998, 1997 or 1996.
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<PAGE> 67
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 executive officers as a group.
Individually and through family and charitable 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
1,125,000 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>
CLASS A COMMON STOCK PERCENT OF VOTE OF
--------------------------------------------------- ALL CLASSES OF
CLASS B COMMON 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) 5,553,696 49.7% 750,000 4,803,696 28.0% 2,776,848 50% 49.9% 44.8%
Stuart W. Epperson 5,553,696(2) 49.7% 750,000 4,803,696(2) 28.0% 2,776,848(3) 50% 49.9% 44.8%
Nancy A. Epperson 5,553,696(2) 49.7% 0 4,803,696(2) 28.0% 2,776,848(3) 50% 49.9% 44.8%
Eric H. Halvorson 75,000(4) * 0 75,000(4) * 0 0% * *
All directors and
executive officers as
a group (16 persons) 11,182,392 100.0% 1,500,000 9,682,392 56.4% 5,553,696 100% 100.0% 89.7%
</TABLE>
- -------------------------
* Less than 1%.
(1) Represents shares of Class A and Class B common stock held by trusts of
which Mr. Atsinger is trustee.
(2) Includes shares of Class A common stock held by trusts of which Mr. Epperson
is trustee and held directly by Mr. Epperson. As husband and wife, Mr. and
Mrs. Epperson are each deemed to be the beneficial owner of shares held by
the other and, therefore, their combined beneficial ownership is shown in
the table.
(3) Includes shares of Class B common stock held directly by Mr. Epperson and
held directly by Mrs. Epperson.
(4) Represents shares of Class A common stock held by a trust of which Mr.
Halvorson and his wife are trustees.
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<PAGE> 68
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 17,182,392 shares of Class
A common stock and 5,553,696 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 to approximately
90% (88% if the underwriters' over-allotment option is 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
Management" and "Risk Factors -- Existing Stockholders Have the Ability to
Control Matters on Which Salem's Existing Stockholders May Vote."
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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 quoted on the Nasdaq National Market under
the symbol "SALM."
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 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.
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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 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
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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 (i) the total number of all shares of such capital stock
outstanding at any time and from time to time or (ii) 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 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
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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 AND REGISTRAR
The transfer agent and registrar for the Class A common stock is The Bank
of New York.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES OUTSTANDING AND FREELY TRADEABLE AFTER OFFERING
Upon completion of this offering, Salem will have 17,182,392 shares of
Class A common stock and 5,553,696 shares of Class B common stock outstanding
(assuming that the underwriters do not exercise their over-allotment option).
Shares of Class B common stock are convertible at the option of the holder into
an equal number of Class A common stock. The 6,000,000 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 Deutsche Bank Securities Inc. and ING
Barings 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
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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.
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
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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 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.
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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.
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 through a number of
underwriters. Deutsche Bank Securities Inc., ING Barings LLC and Salomon Smith
Barney Inc. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among Salem, the selling stockholders and the underwriters, we and the selling
stockholders have agreed to sell to the underwriters, and each of the
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
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
ING Barings LLC.............................................
Salomon Smith Barney Inc....................................
---------
Total............................................... 7,500,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in the purchase agreement, to purchase all of
the shares of Class A common stock being sold under the terms of the purchase
agreement if any of the shares of Class A common stock being sold under the
terms of the purchase agreement are purchased. In the event of a default by an
underwriter, the purchase agreement provides that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreement may be terminated.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments the underwriters 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
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 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.
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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
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 underwriters of the over-allotment option.
<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 $1.2 million and are payable by us.
OVER-ALLOTMENT OPTION
The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 1,125,000 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 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 underwriters exercise this option, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of our Class A common stock proportionate to such
underwriter's initial amount reflected in the foregoing table.
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
Deutsche Bank Securities Inc. and ING Barings 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
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- 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.
NASDAQ NATIONAL MARKET QUOTATION
Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "SALM."
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 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 representatives 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 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
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the 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
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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
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
ING Barings 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.
76
<PAGE> 80
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 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.
77
<PAGE> 81
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
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 (unaudited)............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 82
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 May 26, 1999
F-2
<PAGE> 83
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,645 $ 1,917 $ 2,037
Accounts receivable (less allowance for doubtful accounts
of $1,249 in 1997, $862 in 1998 and $1,350 in 1999)..... 12,227 14,289 14,275
Other receivables......................................... 81 67 121
Prepaid expenses.......................................... 640 658 1,342
Prepaid income taxes...................................... 48 -- --
Deferred income taxes..................................... 2,254 2,443 3,163
-------- -------- --------
Total current assets........................................ 16,895 19,374 20,938
Property, plant and equipment, net.......................... 36,638 40,749 47,715
Intangible assets:
Broadcast licenses........................................ 138,837 167,870 167,880
Noncompetition agreements................................. 14,593 14,593 14,593
Customer lists and contracts.............................. 4,094 4,094 4,094
Favorable and assigned leases............................. 1,800 1,800 1,800
Goodwill.................................................. 5,999 6,689 11,176
Other intangible assets................................... 972 2,567 4,262
-------- -------- --------
166,295 197,613 203,805
Less accumulated amortization............................. 46,212 55,837 58,697
-------- -------- --------
Intangible assets, net...................................... 120,083 141,776 145,108
Notes receivable from stockholders.......................... 94 94 94
Bond issue costs............................................ 4,907 4,657 4,524
Other assets................................................ 6,196 1,100 1,018
-------- -------- --------
Total assets................................................ $184,813 $207,750 $219,397
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,050 $ 1,676 $ 2,073
Accrued expenses.......................................... 476 489 581
Accrued compensation and related.......................... 1,381 1,613 1,827
Accrued interest.......................................... 3,804 3,968 187
Deferred subscription revenue............................. -- -- 1,578
Income taxes.............................................. 341 89 226
Current portion of capital lease obligations.............. -- -- 252
Current portion of long-term debt......................... -- -- 2,810
-------- -------- --------
Total current liabilities................................... 7,052 7,835 9,534
Capital lease obligations, less current portion............. -- -- 290
Long-term debt, less current portion........................ 154,500 178,610 187,550
Deferred income taxes....................................... 12,122 11,581 13,331
Other liabilities........................................... 457 623 899
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding 11,107,392
shares.................................................. 111 111 111
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 5,553,696
shares.................................................. 56 56 56
Additional paid-in capital................................ 5,665 5,665 5,665
Retained earnings......................................... 4,850 3,269 1,961
-------- -------- --------
Total stockholders' equity.................................. 10,682 9,101 7,793
-------- -------- --------
Total liabilities and stockholders' equity.................. $184,813 $207,750 $219,397
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 84
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenue.................................. $ 65,141 $ 74,830 $ 85,411 $ 19,459 $ 22,326
Less agency commissions..................................... 6,131 6,918 7,520 1,757 1,901
---------- ---------- ---------- ---------- ----------
Net broadcasting revenue.................................... 59,010 67,912 77,891 17,702 20,425
Other media revenue......................................... -- -- -- -- 1,095
---------- ---------- ---------- ---------- ----------
Total revenue............................................... 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses........................... 33,463 39,626 42,526 9,930 11,379
Other media operating expenses............................ -- -- -- -- 1,298
Corporate expenses........................................ 4,663 6,210 7,395 1,503 1,796
Tax reimbursements to S corporation shareholders.......... 2,038 1,780 -- -- --
Depreciation and amortization (including $195 in 1999 for
other media businesses)................................. 8,394 12,803 14,058 3,337 4,111
---------- ---------- ---------- ---------- ----------
Total operating expenses.................................. 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ----------
Net operating income........................................ 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income........................................... 523 230 291 103 25
Gain (loss) on disposal of assets......................... 16,064 4,285 236 (22) --
Interest expense.......................................... (7,361) (12,706) (15,941) (3,772) (4,375)
Other expense............................................. (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary item.... 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes........................ 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item..................... 12,753 (1,193) (1,581) (574) (1,308)
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) $ (574) $ (1,308)
========== ========== ========== ========== ==========
Basic and diluted income (loss) per share before
extraordinary item........................................ $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
Extraordinary loss.......................................... -- (0.07) -- -- --
---------- ---------- ---------- ---------- ----------
Basic and diluted net income (loss) per share............... $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
---------- ---------- ---------- ---------- ----------
Basic and diluted weighted average shares outstanding....... 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ==========
Pro forma information for 1996 and 1997 (unaudited):
Income (loss) before income taxes and extraordinary item as
reported above............................................ $ 19,408 $ (1,087)
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
Pro forma provision (benefit) for income taxes.............. 8,608 278
---------- ----------
Pro forma income (loss) before extraordinary item........... 12,838 415
Extraordinary loss.......................................... -- (1,185)
---------- ----------
Pro forma net income (loss)................................. $ 12,838 $ (770)
========== ==========
Pro forma basic and diluted income (loss) per share before
extraordinary item........................................ $ 0.77 $ 0.02
Extraordinary loss per share................................ -- (0.07)
---------- ----------
Pro forma basic and diluted net income (loss) per share..... $ 0.77 $ (0.05)
========== ==========
Basic and diluted weighted average shares outstanding....... 16,661,088 16,661,088
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
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........ 11,107,392 $111 5,553,696 $56 $5,665 $ 7,450 $13,282
Net income............... -- -- -- -- -- 12,753 12,753
Stockholder
distributions.......... -- -- -- -- -- (5,501) (5,501)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1996...... 11,107,392 111 5,553,696 56 5,665 14,702 20,534
Net loss................. -- -- -- -- -- (2,378) (2,378)
Stockholder
distributions.......... -- -- -- -- -- (7,474) (7,474)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1997...... 11,107,392 111 5,553,696 56 5,665 4,850 10,682
Net loss................. -- -- -- -- -- (1,581) (1,581)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1998...... 11,107,392 111 5,553,696 56 5,665 3,269 9,101
Net loss (unaudited)..... -- -- -- -- -- (1,308) (1,308)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
March 31, 1999
(unaudited)............ 11,107,392 $111 5,553,696 $56 $5,665 $ 1,961 $ 7,793
========== ==== ========= === ====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- ------------------
1996 1997 1998 1998 1999
-------- --------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 8,394 12,803 14,058 3,337 4,111
Amortization of bank loan fees............................ 109 175 42 11 11
Amortization of bond issue costs.......................... -- 126 531 132 133
Deferred income taxes..................................... 6,133 (1,022) (730) (369) (382)
Loss (gain) on sale of assets............................. (16,064) (4,285) (236) 22 --
Loss on early extinguishment of debt...................... -- 1,844 -- -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,370) (1,572) (2,048) 923 1,285
Prepaid expenses and other current assets............... (111) (473) (18) (260) (330)
Accounts payable and accrued expenses................... 258 1,844 1,035 (3,897) (4,736)
Deferred subscription revenue........................... -- -- -- -- 56
Other liabilities....................................... 270 78 166 38 (231)
Income taxes............................................ 123 174 (204) 118 136
-------- --------- -------- ------- --------
Net cash provided by (used in) operating activities......... 10,495 7,314 11,015 (519) (1,255)
INVESTING ACTIVITIES
Capital expenditures...................................... (6,982) (7,521) (7,360) (1,982) (1,579)
Purchases of other media businesses....................... -- -- -- -- (8,372)
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 42 --
Other assets.............................................. (334) 418 147 5 (72)
-------- --------- -------- ------- --------
Net cash used in investing activities....................... (18,923) (26,326) (31,762) (1,935) (10,023)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable
to stockholders......................................... 23,800 222,710 40,500 6,000 13,750
Payments of long-term debt and notes payable to
stockholders............................................ (15,430) (190,100) (19,000) (3,500) (2,310)
Payments of bank loan fees................................ -- (1,025) -- -- --
Payments of costs related to debt refinancing............. -- (417) -- -- --
Payments on capital lease obligations..................... -- -- -- -- (42)
Payments of bond issue costs.............................. -- (5,033) (281) (252) --
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 2,248 11,398
-------- --------- -------- ------- --------
Net (decrease) increase in cash and cash equivalents........ 955 (317) 272 (206) 120
Cash and cash equivalents at beginning of period.......... 1,007 1,962 1,645 1,645 1,917
-------- --------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,962 $ 1,645 $ 1,917 $ 1,439 $ 2,037
======== ========= ======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 6,158 $ 9,523 $ 14,965 $ 7,381 $ 7,715
Income taxes............................................ 400 295 591 -- 20
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) -- -- -- --
Acquisition of other media businesses
Fair market value of assets acquired.................... -- -- -- -- 14,365
Fair market value of liabilities assumed................ -- -- -- -- (5,993)
-------- --------- -------- ------- --------
Cash paid................................................... $ 1,600 $ -- $ 30,400 $ -- $ 8,372
======== ========= ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 87
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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.
Information with respect to the three months ended March 31, 1999 and 1998
is unaudited. The accompanying unaudited consolidated financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company and subsidiaries, for the periods
presented. The results of operations for the three month period are not
necessarily indicative of the results of operations for the full year.
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
F-7
<PAGE> 88
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
$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.
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.
F-8
<PAGE> 89
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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
Computer software................................. 3 - 5 years
Record and tape libraries......................... 20 years
Automobiles....................................... 5 years
Leasehold improvements............................ 15 years
</TABLE>
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.
F-9
<PAGE> 90
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 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.
F-10
<PAGE> 91
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).... $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
Denominator:
Weighted average
shares............ 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
---------- ---------- ---------- ---------- ----------
Basic and diluted net
income (loss) per
share................ $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ==========
</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.
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
F-11
<PAGE> 92
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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.
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. OnePlace earns its revenue
by selling products and services on the Internet and licensing its e-commerce,
search engines and imaging applications. CCM earns its revenue by selling
advertising in and subscriptions to its publications. In March 1999, the Company
acquired the assets of Christian Research Report for $300,000. The publications
of Christian Research Report follow the contemporary Christian music industry.
The revenue and operating expenses of these businesses are reported as "other
media" on our consolidated statements of operations.
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 Seattle-Tacoma, WA $ 500
August 26, 1998............. KIEV-AM Los Angeles, CA 33,210
October 30, 1998............ KYCR-AM Minneapolis-St. Paul, MN 500
October 30, 1998............ KTEK-AM Houston-Galveston, 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-12
<PAGE> 93
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 Cleveland, 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-13
<PAGE> 94
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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-Boulder, 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-St. Paul, MN 1,894
December 30,
1996............. KWRD-FM Dallas-Ft. Worth, 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 (Columbus, Ohio), for $1.5 million, KLTE-FM (Kirksville,
Missouri), for $550,000 and KDBX-FM (Portland, 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-14
<PAGE> 95
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
------------------ 1999
1997 1998 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 325 $ 1,440 $ 1,443
Buildings................................ 1,477 1,417 1,434
Office furnishings and equipment......... 8,902 9,775 10,977
Antennae, towers and transmitting
equipment.............................. 25,652 25,665 25,857
Studio and production equipment.......... 14,033 14,817 15,692
Computer software........................ -- -- 5,252
Record and tape libraries................ 442 511 511
Automobiles.............................. 68 69 114
Leasehold improvements................... 3,684 3,797 3,868
Construction-in-progress................. 4,054 8,767 9,327
------- ------- -------
58,637 66,258 74,475
Less accumulated depreciation............ 21,999 25,509 26,760
------- ------- -------
$36,638 $40,749 $47,715
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
-------------------- 1999
1997 1998 (UNAUDITED)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving line of credit with banks.... $ 2,500 $ 24,000 $ 36,750
9 1/2% Senior Subordinated Notes due
2007................................. 150,000 150,000 150,000
Obligation to acquire KIEV-AM
property............................. -- 2,810 2,810
Unsecured note payable to stockholder
with interest at 9% in 1997 and
8 1/4% in 1998....................... 2,000 1,800 800
-------- -------- --------
154,500 178,610 190,360
Less current portion................... -- -- 2,810
-------- -------- --------
$154,500 $178,610 $187,550
======== ======== ========
</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
F-15
<PAGE> 96
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
maximum amount that the Company may borrow under the Credit Agreement is limited
by the Company's debt to cash flow ratio, adjusted for recent radio station
acquisitions as defined in the Credit Agreement (the Adjusted Debt to Cash Flow
Ratio). At December 31, 1998, the maximum Adjusted Debt to Cash Flow Ratio
allowed under the Credit Agreement was 6.75 to 1.00. The Company's ability to
borrow for the purpose of acquiring a radio station is further limited by the
Credit Agreement in that the Company may not borrow for an acquisition if the
Adjusted Debt to Cash Flow Ratio is greater than 6.00 to 1.00. At December 31,
1998, the Adjusted Debt to Cash Flow Ratio was 5.99 to 1.00, resulting in total
borrowing availability (i.e., in addition to amounts already outstanding) of
approximately $22.6 million, approximately $483,000 of which can currently be
used for radio station acquisitions. At March 31, 1999, the Adjusted Debt to
Cash Flow Ratio was 6.65 to 1.00, resulting in total borrowing availability of
approximately $10.2 million, none of which can currently be used for radio
station acquisitions. The note evidencing the indebtedness bears interest at a
fluctuating base rate plus a spread that was determined by Salem's Adjusted Debt
to Cash Flow Ratio. At Salem's option, the base rate is either a bank's prime
rate or LIBOR. For purposes of determining the interest rate the prime rate
spread ranges from 0% to 1.75%, and the LIBOR spread ranges from 1% to 3%. At
December 31, 1998, the interest rate on amounts outstanding under the Credit
Agreement was 8.25%. Interest is payable quarterly. Commencing March 31, 1999,
the commitment under the Credit Agreement reduces by $2.5 million quarterly
through December 31, 2003, and by $6.25 million quarterly through June 30, 2004.
The Credit Agreement expires August 31, 2004. The classification of the amounts
due under the revolving line of credit in the accompanying balance sheet at
December 31, 1998 is based on the terms of the Credit Agreement.
In January 1999, the Credit Agreement was amended to increase the maximum
Adjusted Debt to Cash Flow Ratio to 7.00 to 1.00 through June 29, 1999. The
interest rate spreads were also amended. The prime rate spread ranges from 0% to
2.25%, and the LIBOR spread ranges from 1% to 3.5%.
The Credit Agreement with the banks (a) provides for restrictions on
additional borrowings and leases; (b) prohibits Salem, without prior approval
from the banks, from paying dividends, liquidating, merging, consolidating or
selling its assets or business, and (c) requires Salem to maintain certain
financial ratios and other covenants. Salem has pledged all of its assets as
collateral under the Credit Agreement. Additionally, all the Company's stock
holdings in its subsidiaries are pledged as collateral.
In September 1997, in connection with the issuance of the Notes and the
Credit Agreement the Company repaid all amounts due under its previous revolving
line of credit with the banks. The Company wrote off certain deferred financing
costs and terminated all of its interest rate swap and cap agreements associated
with the line of credit (see Note 5). The write-off and termination fees of
$1,185,000, net of a $659,000 income tax benefit, was recorded as an
extraordinary item in the accompanying statement of operations for the year
ended December 31, 1997.
F-16
<PAGE> 97
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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
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.
F-17
<PAGE> 98
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements
outstanding at December 31, 1998 and March 31, 1999, for each of the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
1999.......................................... $ -- $ --
2000.......................................... 2,810 2,810
2001.......................................... -- --
2002.......................................... -- 5,250
2003.......................................... 3,500 10,000
Thereafter.................................... 172,300 172,300
-------- --------
$178,610 $190,360
======== ========
</TABLE>
5. INTEREST RATE CAP AND SWAP AGREEMENTS
In 1996 and 1997 Salem had entered into interest rate swap and cap
agreements to reduce the impact of changes in interest rates on its
floating-rate long-term debt. In September 1997, in connection with the issuance
of the Notes and the Credit Agreement the Company terminated all of its interest
rate swap and cap agreements for aggregate fees of $417,000. The Company wrote
off these costs (unamortized swap fee of $201,000 and the swap termination fee
of $417,000) in September 1997. This write-off, net of income tax benefit, was
included in the extraordinary loss in the accompanying statement of operations
for the year ended December 31, 1997 (see Note 4).
6. INCOME TAXES
As discussed in Note 1, prior to the Reorganization, New Inspiration and
Golden Gate were S Corporations for income tax purposes. Accordingly, any
federal and state income tax liability on net income of the S Corporations has
been the liability of shareholders of the S Corporations. The S Corporation
status of New Inspiration and Golden Gate was terminated in the Reorganization,
which was effective August 13, 1997, and the income of New Inspiration and
Golden Gate will thereafter be subject to federal and state income taxes. The
accompanying consolidated statements of operations include an unaudited pro
forma income tax adjustment, using an estimated combined effective tax rate of
approximately 40%, to reflect the estimated income tax expense of the Company as
if New Inspiration and Golden Gate had been subject to federal and state income
taxes for the periods presented. In connection with the Reorganization, which
resulted in the termination of the S Corporation status of New Inspiration and
Golden Gate, the Company recorded a deferred tax liability and provision of
approximately $609,000 in December 1997.
F-18
<PAGE> 99
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The consolidated provision (benefit) for income taxes for Salem consisted
of the following at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 189 $ (149) $ --
State........................................ 333 618 387
------ ------- -----
522 469 387
Deferred:
Federal...................................... 5,737 (1,162) (467)
State........................................ 396 140 (263)
------ ------- -----
6,133 (1,022) (730)
Current tax benefit reflected in net
extraordinary loss........................... -- (659) --
------ ------- -----
Income tax provision (benefit)................. $6,655 $ 106 $(343)
====== ======= =====
</TABLE>
The consolidated deferred tax asset and liability consisted of the
following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Financial statement accruals not currently
deductible...................................... $ 610 $ 665
Net operating loss, AMT credit and other
carryforwards................................... 2,224 2,367
State taxes........................................ 197 122
------- -------
Total deferred tax assets............................ 3,031 3,154
Valuation allowance for deferred tax assets.......... (95) (95)
------- -------
Net deferred tax assets.............................. 2,936 3,059
Deferred tax liabilities:
Excess of net book value of property, plant and
equipment for financial reporting purposes over
tax basis....................................... 3,806 4,263
Excess of net book value of intangible assets for
financial reporting purposes over tax basis..... 8,118 7,305
Other.............................................. 880 629
------- -------
Total deferred tax liabilities....................... 12,804 12,197
------- -------
Net deferred tax liabilities......................... $ 9,868 $ 9,138
======= =======
</TABLE>
F-19
<PAGE> 100
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before income taxes, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 34% (34)% (34)%
State income taxes, net........................... 3 49 4
Nondeductible expenses............................ -- 5 7
Exclusion of income taxes of S corporations and
the Partnership................................. (7) (76) --
Change in taxable entity (S corporation to C
corporation).................................... -- 56 --
Other, net........................................ 4 10 5
-- --- ---
34% 10% (18)%
== === ===
</TABLE>
The S Corporations had book income (loss) before income taxes of $3,800,000
and $2,400,000 in 1996 and 1997, respectively. These amounts include the S
Corporations' 85% ownership interest in Beltway.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,800,000 which expire in years
2010 through 2018 and for state income tax purposes of approximately $4,600,000
which expire in years 1999 through 2013. The Company has federal alternative
minimum tax credit carryforwards of approximately $147,000. For financial
reporting purposes, a valuation allowance of $95,000 has been provided in 1998
and 1997 to offset a portion of the deferred tax assets related to the state net
operating loss carryforwards.
7. COMMITMENTS AND CONTINGENCIES
Salem leases various land, offices, studios and other equipment under
operating leases that expire over the next 10 years. The majority of these
leases are subject to escalation clauses and may be renewed for successive
periods ranging from one to five years on terms similar to current agreements
and except for specified increases in lease payments. Rental expense included in
operating expense under all lease agreements was $3,800,000, $4,800,000 and
$4,800,000 in 1996, 1997, and 1998 respectively.
F-20
<PAGE> 101
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 1996, the Company borrowed $1.9 million from one of its
principal stockholders. The Company repaid the note for the borrowing, including
interest at 9 1/4%, in January 1997, with proceeds from a borrowing under its
credit facility.
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 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
F-21
<PAGE> 102
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
$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 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.
F-22
<PAGE> 103
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 5,553,696 shares of common stock
were converted into 11,107,392 shares of Class A common stock and 5,553,696
shares of Class B common stock.
In April 1999, the Company filed a registration statement for an initial
public offering (the Offering) of its Class A common stock with the Securities
and Exchange Commission. In connection with the Offering, the Company's board of
directors approved a 67-for-one stock dividend on the Company's Class A and
Class B common stock. All references in the accompanying financial statements to
Class A and Class B common stock and per share amounts have been retroactively
adjusted to give effect to the stock dividend.
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.
The Company established, subject to the completion of the Offering, the
1999 Stock Incentive Plan under which awards of stock options, performance
awards, restricted stock, stock appreciation rights, stock payments, dividend
equivalents, stock bonuses, stock sales, phantom stock and other stock-based
benefits may be granted. An aggregate of 1,000,000 shares of Class A common
stock will be reserved for issuance under the plan.
On May 26, 1999, the Company awarded 75,000 shares of Class A common stock
to an officer of the Company. The Company also agreed to pay the individual
federal and state income tax liabilities associated with the stock award. The
Class A common stock award will be valued based on the initial public offering
price and along with the compensation resulting from the payment of the
individual federal and state income taxes
F-23
<PAGE> 104
SALEM COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
associated with the award will be recognized as compensation expense during the
quarter ended June 30, 1999.
11. SUBSEQUENT EVENTS (UNAUDITED)
In April 1999, the Company purchased KKOL-AM, Seattle-Tacoma, Washington,
for $1.4 million from a corporation owned by our principal stockholders. The
Company financed this acquisition primarily by a borrowing under its credit
facility. The Company also agreed to purchase the real estate at the transmitter
site for KKOL-AM for $400,000.
In April 1999, the Company entered into an agreement to purchase radio
station KGME-AM, Phoenix, Arizona, for $5 million. The Company anticipates this
purchase will close in July 1999. This radio station currently operates under
the call letters KFDJ-AM and upon closing, the call letters will be changed to
KCTK-AM.
In April 1999, the Company entered into letters of intent to purchase radio
stations KAIM-AM, KAIM-FM, KGU-AM and KHNR-AM, Honolulu, Hawaii, and WLSY-FM and
WRVI-FM, Louisville, Kentucky, in separate transactions for a total of $8.4
million. Subject to the execution of mutually acceptable purchase agreements,
the Company anticipates these purchases will close in July or August 1999.
F-24
<PAGE> 105
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of Class A
common stock means that information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares in any circumstances under which
the offer or solicitation is unlawful.
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.............................. 31
MANAGEMENT............................ 53
TRANSACTIONS INVOLVING OFFICERS,
DIRECTORS AND PRINCIPAL
STOCKHOLDERS........................ 60
SECURITY OWNERSHIP OF SELLING
STOCKHOLDERS, BENEFICIAL OWNERS AND
MANAGEMENT.......................... 64
DESCRIPTION OF CAPITAL STOCK.......... 65
SHARES ELIGIBLE FOR FUTURE SALE....... 69
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF CLASS A COMMON STOCK............. 70
UNDERWRITING.......................... 73
LEGAL MATTERS......................... 77
EXPERTS............................... 77
ADDITIONAL INFORMATION................ 77
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in these shares of Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
[SALEM LOGO]
7,500,000 Shares
Class A Common Stock
Deutsche Banc Alex. Brown
ING Barings
Salomon Smith Barney
PROSPECTUS
, 1999
<PAGE> 106
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 Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.... $ 55,600
NASD filing fee........................................ 20,500
Nasdaq listing fee..................................... 95,000
Accounting fees and expenses........................... 200,000
Legal fees and expenses................................ 600,000
Printing and engraving expenses........................ 230,000
Transfer agent and registrar fees...................... 15,000
----------
Total........................................ $1,216,100
==========
</TABLE>
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 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.
II-1
<PAGE> 107
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.
(d) On May 26, 1999, Salem granted Eric H. Halvorson 75,000 shares of
Class A common stock.
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 acquirors of the securities described in
paragraphs (a), (c) and (d) 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), (c) and (d)
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> 108
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
1.01* Form of Equity Underwriting Agreement, among Salem, the
selling stockholders, and BT Alex. Brown Incorporated (now
known as Deutsche Bank Securities Inc.), 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.
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, The Bank of New York, as Administrative Agent for the
Lenders, Bank of America NT&SA, as Documentation Agent, and
the Lenders named therein.
</TABLE>
II-3
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
4.14* Amendment No. 3 and Consent No. 4, dated as of April 23,
1999, under the Credit Agreement, dated as of September 25,
1997, by and among Salem, The Bank of New York, as
Administrative Agent for the Lenders, Bank of America NT&SA,
as Documentation Agent, and the Lenders party thereto.
4.15 Form of First Amended and Restated Credit Agreement by and
among Salem, The Bank of New York, as Administrative Agent
for the Lenders, Bank of American NT&SA, as Documentation
Agent, and the Lenders named therein.
5.01* Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding validity of the Class A common stock.
10.01* Amended and Restated Employment Agreement, dated as of May
19, 1999, between Salem and Edward G. Atsinger III.
10.02* Amended and Restated Employment Agreement, dated as of May
19, 1999, 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.
10.03.05 Third Amendment to Employment Agreement, entered into May
26, 1999 between Salem and Eric 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.
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.
</TABLE>
II-4
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
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.
</TABLE>
II-5
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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).
10.06.10* Asset Purchase Agreement dated as of April 1, 1999 by and
between Inspiration Media, Inc. and Sonsinger, Inc.
(KKOL-AM, Seattle, Washington).
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.
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 for all signators but Roland S. Hinz,
Donald P. Hodel and Joseph S. Schuchert (included on
signature pages of Registration Statement).
24.02* Power of Attorney for Roland S. Hinz, Donald P. Hodel and
Joseph S. Schuchert (included on signature pages of
Amendment No. 1 to 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 of the same number, unless
otherwise noted, of Salem's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 4, 1998.
II-6
<PAGE> 112
++ 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.
* Previously filed.
** 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.
(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 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-7
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Camarillo, California on June 25, 1999.
SALEM COMMUNICATIONS CORPORATION
By: *
---------------------------------------
Edward G. Atsinger III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated on June 25, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* President and Chief Executive Officer
- ------------------------------------------- (Principal Executive Officer)
Edward G. Atsinger III
* Vice President and Chief Financial Officer
- ------------------------------------------- (Principal Financial Officer)
Dirk Gastaldo
* Vice President and Controller
- ------------------------------------------- (Principal Accounting Officer)
Eileen E. Hill
* Director
- -------------------------------------------
Edward G. Atsinger III
* Director
- -------------------------------------------
Stuart W. Epperson
/s/ ERIC H. HALVORSON Director
- -------------------------------------------
Eric H. Halvorson
* Director
- -------------------------------------------
Richard A. Riddle
* Director
- -------------------------------------------
Roland S. Hinz
* Director
- -------------------------------------------
Donald P. Hodel
* Director
- -------------------------------------------
Joseph S. Schuchert
</TABLE>
* Eric H. Halvorson, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
<TABLE>
<C> <S>
*By: /s/ ERIC H. HALVORSON
- -------------------------------------------
Eric H. Halvorson
Attorney-in-fact
</TABLE>
II-8
<PAGE> 114
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>
Allowance for doubtful accounts
Year ended December 31, 1996........ $ 704 $1,067 $ -- $ (766) $1,005
Year ended December 31, 1997........ 1,005 1,283 -- (1,039) 1,249
Year ended December 31, 1998........ 1,249 2,087 -- (2,474) 862
</TABLE>
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.01* Form of Equity Underwriting Agreement, among Salem, the
selling stockholders, and BT Alex. Brown Incorporated (now
known as Deutsche Bank Securities Inc.), ING Baring Furman
Selz LLC and Salomon Smith Barney Inc.
3.01* Amended and Restated Certificate of Incorporation of Salem
Communications Corporation, a Delaware corporation.
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, 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.
4.14* Amendment No. 3 and Consent No. 4, dated as of April 23,
1999, under the Credit Agreement, dated as of September 25,
1997, by and among Salem, The Bank of New York, as
Administrative Agent for the Lenders, Bank of America NT&SA,
as Documentation Agent, and the Lenders party thereto.
4.15 Form of First Amended and Restated Credit Agreement by and
among Salem, The Bank of New York, as Administrative Agent
for the Lenders, Bank of American NT&SA, as Documentation
Agent, and the Lenders named therein.
5.01* Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding validity of the Class A common stock.
10.01* Amended and Restated Employment Agreement, dated as of May
19, 1999, between Salem and Edward G. Atsinger III.
10.02* Amended and Restated Employment Agreement, dated as of May
19, 1999, between Salem and Stuart W. Epperson.
10.03.05 Third Amendment to Employment Agreement, entered into May
26, 1999 between Salem and Eric Halvorson.
10.06.10* Asset Purchase Agreement dated as of April 1, 1999 by and
between Inspiration Media, Inc. and Sonsinger, Inc.
(KKOL-AM, Seattle, Washington).
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).
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
24.01* Powers of Attorney for all signators but Roland S. Hinz,
Donald P. Hodel and Joseph S. Schuchert (included on
signature pages of Registration Statement).
24.02* Power of Attorney for Roland S. Hinz, Donald P. Hodel and
Joseph S. Schuchert (included on signature pages of
Amendment No. 1 to Registration Statement).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
TEMPORARY RECEIPT -- EXCHANGEABLE FOR DEFINITIVE
ENGRAVED RECEIPT WHEN READY FOR DELIVERY
SALEM COMMUNICATIONS
CLASS A CORPORATION CLASS A
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS OF DELAWARE
CUSIP 794093 10 4
SEE REVERSE FOR CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A
COMMON STOCK OF THE PAR VALUE OF $0.01 OF
SALEM COMMUNICATIONS CORPORATION
transferable on the books of the Company by the holder hereof in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless duly countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of
its duly authorized Officers.
Dated:
Countersigned and Payor
THE BANK OF NEW YORK
Transfer Agent and Registrar
By:
JONATHAN L. BLOCK EDWARD G. ATSINGER
AUTHORIZED SIGNATURE [SEAL] SECRETARY PRESIDENT
<PAGE> 2
SALEM COMMUNICATIONS CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof which the Corporation is authorized to issue and the qualifications,
limitations or restrictions of such preferences and/or rights. Any such request
may be made to the Corporation or the Transfer Agent.
The shares represented by this certificate are subject to restrictions
under the Communications Act of 1934, as amended (the "Act"), relating to
ownership by foreign nationals, foreign entities, foreign governments or
representatives of the foregoing (an "Alien"). In addition, the amended and
restated certificate of incorporation of the Corporation provides that the
Board of Directors of the Corporation shall have all powers necessary to
implement the Alien ownership restrictions of the Act.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be constituted as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
-------- --------
(Cust) (Minor)
TEN ENT -- as tenants by the entireties
under Uniform Gifts to Minors Act
JT TEN -- as joint tenants with right
of survivorship and not as ---------------------------------
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESSES, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said Stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:
-------------------------
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED
By:
-------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions with membership in an
approved signature guarantee Medallion
Program), pursuant to S.E.C. Rule 17AD-15.
<PAGE> 1
EXHIBIT 4.15
================================================================================
SALEM COMMUNICATIONS CORPORATION
-------------------------------------
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JUNE __, 1999
BY AND AMONG
SALEM COMMUNICATIONS CORPORATION,
THE BANK OF NEW YORK,
AS ADMINISTRATIVE AGENT,
BANK OF AMERICA NT&SA,
AS DOCUMENTATION AGENT,
BANKBOSTON, N.A.,
FLEET BANK, N.A.,
AND
UNION BANK OF CALIFORNIA, N.A.,
AS CO-AGENTS
AND
THE LENDERS PARTY HERETO
-------------------------------------
WITH
BNY CAPITAL MARKETS, INC.,
AS LEAD ARRANGER AND BOOK MANAGER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS........................................................................1
1.1 Defined Terms.............................................................1
1.2 Principles of Construction...............................................19
2. AMOUNT AND TERMS OF LOANS.........................................................20
2.1 Loans....................................................................20
2.2 Notes....................................................................20
2.3 Procedure for Borrowing Loans............................................21
2.4 Reduction and Increase of Commitments....................................22
2.5 Prepayments of the Loans.................................................26
2.6 Interest Rate and Payment Dates; Highest Lawful Rate.....................27
2.7 Use of Proceeds..........................................................29
2.8 Conversions; Other Matters...............................................29
2.9 Indemnification for Loss.................................................30
2.10 Reimbursement for Costs.................................................31
2.11 Illegality of Funding...................................................32
2.12 Option to Fund..........................................................32
2.13 Taxes; Net Payments.....................................................33
2.14 Capital Adequacy........................................................34
2.15 Substituted Interest Rate...............................................34
2.16 Transaction Record......................................................35
2.17 Certificates of Payment and Reimbursement; Other Provisions
Regarding Yield Protection.............................................35
2.18 Letter of Credit Sub-Facility...........................................36
2.19 Letter of Credit Participation..........................................37
2.20 Absolute Obligation with respect to Letter of Credit Payments...........39
3. FEES; PAYMENTS....................................................................39
3.1 Fees.....................................................................39
3.2 Pro Rata Treatment and Application of Payments...........................40
4. REPRESENTATIONS AND WARRANTIES....................................................41
4.1 Subsidiaries.............................................................41
4.2 Corporate Existence and Power............................................41
4.3 Authority................................................................42
4.4 Governmental Authority Approvals.........................................42
4.5 Binding Agreement........................................................42
4.6 Litigation...............................................................42
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
4.7 No Conflicting Agreements................................................42
4.8 Taxes....................................................................43
4.9 Compliance with Applicable Laws..........................................43
4.10 Governmental Regulations................................................43
4.11 Property; Broadcasting Business.........................................44
4.12 Federal Reserve Regulations; Use of Proceeds............................44
4.13 No Misrepresentation....................................................44
4.14 Plans...................................................................45
4.15 FCC Matters.............................................................45
4.16 Burdensome Obligations..................................................45
4.17 Financial Statements....................................................46
4.18 Environmental Matters...................................................46
4.19 Year 2000...............................................................47
5. CONDITIONS OF EFFECTIVENESS AND LENDING...........................................47
5.1 Effectiveness............................................................47
5.2 All Loans and Letters of Credit..........................................50
6. FINANCIAL COVENANTS...............................................................51
6.1 Total Leverage Ratio.....................................................51
6.2 Consolidated Annual Operating Cash Flow to Pro-Forma Debt Service........52
6.3 Consolidated Annual Operating Cash Flow to Interest Expense..............52
6.4 Consolidated Annual Operating Cash Flow to Fixed Charges.................52
7. AFFIRMATIVE COVENANTS.............................................................53
7.1 Financial Statements.....................................................53
7.2 Certificates; Other Information..........................................54
7.3 Legal Existence..........................................................56
7.4 Taxes....................................................................56
7.5 Insurance and Condemnation...............................................57
7.6 Payment of Indebtedness and Performance of Obligations...................58
7.7 Condition of Property....................................................58
7.8 Observance of Legal Requirements; ERISA; Environmental Laws..............58
7.9 Inspection of Property; Books and Records; Discussions...................59
7.10 FCC Licenses, Etc.......................................................59
7.11 Subsidiary Guaranty.....................................................59
7.12 Mortgages...............................................................59
8. NEGATIVE COVENANTS................................................................60
8.1 Borrowing................................................................60
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
8.2 Liens....................................................................60
8.3 Merger or Acquisition of Property........................................61
8.4 Dividends; Purchase of Stock.............................................63
8.5 Investments, Loans, Etc..................................................63
8.6 Business Changes.........................................................65
8.7 Sale of Property.........................................................65
8.8 Creation of Subsidiaries.................................................66
8.9 Compliance with ERISA....................................................66
8.10 Certificate of Incorporation and By-laws................................67
8.11 Prepayments of Indebtedness.............................................67
8.12 Accounting Practice; Fiscal Year........................................67
8.13 Limitation on Upstream Transfers........................................67
8.14 Transactions with Affiliates............................................67
8.15 Sale and Leaseback......................................................68
8.16 Stock Issuance..........................................................68
8.17 Subordinated Indenture..................................................68
8.18 Federal Reserve Regulations.............................................68
8.19 Change in Name; Nature of Business......................................68
8.20 Lease Obligations.......................................................69
9. DEFAULT...........................................................................69
9.1 Events of Default........................................................69
10. THE ADMINISTRATIVE AGENT.........................................................73
10.1 Appointment.............................................................73
10.2 Delegation of Duties....................................................73
10.3 Exculpatory Provisions..................................................73
10.4 Reliance by Administrative Agent........................................74
10.5 Notice of Default.......................................................74
10.6 Non-Reliance............................................................75
10.7 Indemnification.........................................................75
10.8 Administrative Agent in its Individual Capacity.........................76
10.9 Successor...............................................................76
10.10 Updating Exhibits and Schedules........................................77
10.11 The Lead Arranger and Agents...........................................77
11. MISCELLANEOUS....................................................................77
11.1 Amendments and Waivers..................................................77
11.2 Notices.................................................................79
11.3 No Waiver; Cumulative Remedies..........................................80
11.4 Survival of Representations and Warranties..............................80
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
11.5 Payment of Expenses and Taxes...........................................81
11.6 Lending Offices.........................................................82
11.7 Successors and Assigns..................................................82
11.8 Counterparts............................................................83
11.9 Adjustments; Set-off....................................................84
11.10 No Third Party Beneficiary.............................................85
11.11 Indemnity..............................................................85
11.12 Governing Law..........................................................86
11.13 Headings...............................................................86
11.14 Severability...........................................................86
11.15 Integration............................................................87
11.16 Limitation of Liability................................................87
11.17 Consent to Jurisdiction................................................87
11.18 Service of Process.....................................................87
11.19 No Limitation on Service or Suit.......................................88
11.20 WAIVER OF TRIAL BY JURY................................................88
11.21 Confidentiality........................................................88
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A List of Commitments
Exhibit B Form of Revolving Credit Note
Exhibit C Form of Borrowing Request
Exhibit D Form of Letter of Credit Request
Exhibit E Form of Opinion of Counsel to the Borrower and Subsidiaries
Exhibit F Form of Opinion of FCC Counsel to the Borrower and Subsidiaries
Exhibit G Form of Compliance Certificate
Exhibit H Form of Borrower Security Agreement
Exhibit I Form of Subsidiary Guaranty
Exhibit J Form of Assignment and Assumption Agreement
Exhibit K Form of RC Supplement
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule 1.1(L) List of Lending Offices
Schedule 4.1 List of Subsidiaries
Schedule 4.6 List of Litigation
Schedule 4.7 List of Conflicting Agreements
Schedule 4.8 List of Taxes
Schedule 4.11(b) FCC Matters
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule 4.14 List of Plans
Schedule 4.18 List of Environmental Plans
Schedule 8.1 List of Indebtedness
Schedule 8.2 List of Liens
Schedule 8.5(c) List of Investments
</TABLE>
- v -
<PAGE> 7
FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June __, 1999,
by and among SALEM COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Borrower"), THE BANK OF NEW YORK, as administrative agent for the Lenders
hereunder (in such capacity, the "Administrative Agent"), BANK OF AMERICA NT&SA,
as Documentation Agent (in such capacity, the "Documentation Agent"),
BANKBOSTON, N.A., FLEET BANK, N.A., and UNION BANK OF CALIFORNIA, N.A., as
Co-Agents (in such capacity, the "Co-Agents") and each Lender party hereto or
which becomes a "Lender" pursuant to the provisions of Section 11.7 (each a
"Lender" and, collectively, the "Lenders").
RECITALS
A. This Agreement amends and restates the Credit Agreement, dated
as of September 25, 1997, by and among Salem Communications Corporation, a
California corporation ("Salem California"), the lenders party thereto, Bank of
America NT&SA, as Documentation Agent, and The Bank of New York, as
Administrative Agent, as amended and modified by Amendment No. 1 and Consent No.
1, dated as of August 5, 1998, Amendment No. 2 and Consent No. 2, dated as of
January 22, 1999, Consent No. 3 ("Consent No. 3"), dated as of March 31, 1999,
and Amendment No. 3 and Consent No. 4, dated as of April 23, 1999 (as so
amended, the "Original Credit Agreement").
B. On March 31, 1999, Salem California merged into Salem Delaware
with Salem Delaware as the survivor. Pursuant to the terms and conditions of
Consent No. 3, Salem Delaware entered into the Assumption Agreement whereby
Salem Delaware, among other things, assumed all of the obligations of Salem
California under the Loan Documents.
C. For convenience, this Agreement is dated as of June __, 1999,
and references to certain matters relating to the period prior thereto have been
deleted.
1. DEFINITIONS
1.1 Defined Terms.
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Loans": the Loans (or any portions thereof) at such time as they
(or such portions) are made or are being maintained at a rate of interest based
upon the Alternate Base Rate.
<PAGE> 8
"Accountants": Ernst & Young LLP, or such other firm of certified public
accountants of recognized national standing selected by the Borrower and
reasonably satisfactory to the Administrative Agent.
"Adjusted Operating Cash Flow": Operating Cash Flow less Excluded Cash
Flow.
"Affected Loan": as defined in Section 2.15.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (i) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause direction of the management and policies of such Person whether
by contract or otherwise.
"Agreement": this First Amended and Restated Credit Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.
"Alternate Base Rate": on any date, a rate of interest per annum equal
to the higher of (i) the BNY Rate in effect on such date or (ii) 1/2 of 1% plus
the Federal Funds Rate in effect on such date.
"Applicable Margin": (a) subject to paragraph (b) of this definition, at
all times during the applicable periods set forth below, (i) with respect to the
unpaid principal amount of the ABR Loans, the percentage set forth below under
the heading "Alternate Base Rate Margin" next to the applicable period and (ii)
with respect to the unpaid principal amount of the Eurodollar Loans, the
percentage set forth below under the heading "Eurodollar Rate Margin" next to
the applicable period:
<TABLE>
<CAPTION>
Alternate Base Eurodollar
Period Rate Margin Rate Margin
------ ------------- -----------
<S> <C> <C>
when the Total
Leverage Ratio
is equal to or
greater than
5.50:1.00 1.000% 2.250%
when the Total
Leverage Ratio is
equal to or
greater than
5.00:1.00 but less
than 5.50:1.00 0.625% 1.875%
</TABLE>
- 2 -
<PAGE> 9
<TABLE>
<CAPTION>
Alternate Base Eurodollar
Period Rate Margin Rate Margin
------ ------------- -----------
<S> <C> <C>
when the Total
Leverage Ratio is
equal to or
greater than
4.50:1.00 but
less than
5.00:1.00 0.250% 1.500%
when the Total
Leverage Ratio is
equal to or
greater than
4.00:1.00 but
less than
4.50:1.00 0.000% 1.250%
when the Total
Leverage Ratio is
equal to or
greater than
3.50:1.00 but
less than
4.00:1.00 0.000% 1.000%
when the Total
Leverage Ratio is
less than
3.50:1.00 0.000% 0.875%
</TABLE>
(b) Changes in the Applicable Margin resulting from a change
in the Total Leverage Ratio, as evidenced by a Compliance Certificate delivered
to the Administrative Agent pursuant to Section 7.1(d) or a Borrowing Request or
Letter of Credit Request delivered to the Administrative Agent pursuant to
Section 5.2(c) evidencing such a change, shall become effective upon (i) in the
case of the delivery of a Compliance Certificate, the first Business Day
following the delivery of (x) such Compliance Certificate and (y) the applicable
financial statements required to be delivered pursuant to Section 7.1(a) or (c),
as the case may be, and (ii) in the case of the delivery of a Borrowing Request
or Letter of Credit Request, the Borrowing Date applicable thereto. If the
Borrower shall fail to deliver a Compliance Certificate within 60 days after the
end of any of the first three fiscal quarters, or within 120 days after the
- 3 -
<PAGE> 10
end of the last fiscal quarter, of each fiscal year (each a "certificate
delivery date"), for purposes of calculating the Applicable Margin, the Total
Leverage Ratio from and including such certificate delivery date to the date of
delivery by the Borrower to the Administrative Agent of such Compliance
Certificate shall be conclusively presumed to be greater than 5.50:1.00.
Notwithstanding anything to the contrary contained in this definition, during
the period commencing on the Restatement Effective Date and ending on the
earlier of (i) the delivery of the fourth Compliance Certificate after the
Restatement Effective Date and (ii) the date upon which the fourth Compliance
Certificate after the Restatement Effective Date should have been delivered
pursuant to 7.1(d), the Total Leverage Ratio (solely for purposes of this
definition) shall not be less than 3.50:1.00.
"Assignment": as defined in Section 11.7(b).
"Assignment and Assumption Agreement": an agreement substantially in the
form of Exhibit J.
"Assignment Fee": as defined in Section 11.7(b).
"Assumption Agreement": the Assumption Agreement, dated as of March 31,
1999, made by Salem Delaware to the Administrative Agent.
"Authorized Signatory": the chief executive officer, the chief financial
officer, the chief operating officer, the president, a general partner or any
other duly authorized officer (acceptable to the Administrative Agent) of a Loan
Party.
"BNY": The Bank of New York.
"BNY Rate": a rate of interest per annum equal to the rate of interest
publicly announced in New York City by BNY from time to time as its prime
commercial lending rate, such rate to be adjusted automatically (without notice)
on the effective date of any change in such publicly announced rate.
"Borrower Security Agreement": the First Amended and Restated Borrower
Security Agreement, dated as of the date hereof, between the Borrower and the
Administrative Agent, substantially in the form attached hereto as Exhibit H, as
the same may be amended, supplemented or otherwise modified from time to time.
"Borrowing Date": (i) any Business Day specified in a Borrowing Request
as a date on which the Borrower requests the Lenders to make Loans or (ii) any
Business Day specified in a Letter of Credit Request as a date on which the
Borrower requests the Issuing Bank to issue a Letter of Credit.
- 4 -
<PAGE> 11
"Borrowing Request": a Borrowing Request substantially in the form of
Exhibit C.
"Broadcasting Station": all related licenses, franchises and permits
issued under federal, state or local laws from time to time which authorize a
Person to receive or distribute, or both, over the airwaves, audio and visual,
radio or microwave signals within a geographic area for the purpose of
broadcasting radio programming, together with all Property owned or used in
connection with the programming provided pursuant to, and all interest of such
Person to receive revenues from any other Person which derives revenues from or
pursuant to, said licenses, franchises and permits. The term "Broadcasting
Station" shall also include a corporation incorporated in the United States
which shall own one or more Broadcasting Stations.
"Business Day": (i) for all purposes other than as set forth in clause
(ii) below, any day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law or other
governmental action to close and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day which is a Business Day described in clause (i) above
and which is also a day on which dealings in foreign currency and exchange
between banks in the interbank eurodollar market may be carried on as determined
by the Administrative Agent.
"CERCLA": the Comprehensive Environmental Response, Compensation and
Liability Act, as set forth at 42 U.S.C. Section 9601, et seq. as the same may
be amended from time to time, and the rules and regulations issued thereunder,
as from time to time in effect.
"Change of Control": any of the following: (i) the Permitted Holders
fail to own (A) at least 51% of the total outstanding Voting Stock of the
Borrower or (B) at least 35% of the economic interest of the Borrower, or (ii) a
"Change of Control" (under and as defined in the Subordinated Indenture) occurs.
"Code": the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Collateral": collectively, the Collateral under and as defined in the
Collateral Documents.
"Collateral Documents": collectively, the Borrower Security Agreement,
the Subsidiary Guaranty and the mortgages and deeds of trust delivered pursuant
to Section 7.12.
- 5 -
<PAGE> 12
"Commitment Fee" and "Commitment Fees": as defined in Section 3.1(a).
"Common Equity Issuance": as defined in Section 5.1(g).
"Common Ground Collateral Release": as defined in Section 11.1.
"Common Ground Reorganization": collectively, (i) the transfer of
certain of the assets of Common Ground Broadcasting, Inc. and Caron
Broadcasting, Inc. to the Borrower or one or more wholly-owned Subsidiaries, and
(ii) the merger of Caron Broadcasting, Inc. with and into the Borrower, with the
Borrower as the survivor.
"Commonly Controlled Entity": any Subsidiary or any entity, whether or
not incorporated, which is under common control with the Borrower within the
meaning of Section 414(b) or 414(c) of the Code.
"Communications Act": the Communications Act of 1934, as the same may be
amended from time to time, and the rules and regulations issued thereunder, as
from time to time in effect.
"Compliance Certificate": a certificate substantially in the form of
Exhibit G.
"Consent No. 3": as defined in Recital A.
"Consolidated": the Borrower and its Subsidiaries which are consolidated
for financial reporting purposes.
"Consolidated Adjusted Operating Cash Flow": Adjusted Operating Cash
Flow of the Borrower and its Subsidiaries on a Consolidated basis.
"Consolidated Annual Adjusted Operating Cash Flow": at any time,
Consolidated Adjusted Operating Cash Flow for the immediately preceding four
fiscal quarters for which financial statements have been delivered pursuant to
Section 7.1(a) or (c), or, in the event that the date of determination is a
fiscal quarter ending date, the fiscal quarter then ended and the immediately
preceding three fiscal quarters.
"Consolidated Annual Operating Cash Flow": at any time, Consolidated
Operating Cash Flow for the immediately preceding four fiscal quarters for which
financial statements have been delivered pursuant to Section 7.1(a) or (c), or,
in the event that the date of determination is a fiscal quarter ending date, the
fiscal quarter then ended and the immediately preceding three fiscal quarters.
"Consolidated Operating Cash Flow": Operating Cash Flow of the Borrower
and its Subsidiaries on a Consolidated basis.
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<PAGE> 13
"Consolidating": the Borrower and each of its Subsidiaries taken
separately.
"Contingent Obligation": as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any Property constituting direct or
indirect security therefor, (ii) to advance or supply funds for the purchase or
payment of any such primary obligation or to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase Property, securities or
services primarily for the purpose of assuring the beneficiary of any such
primary obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the beneficiary
of such primary obligation against loss in respect thereof; provided, however,
that the term Contingent Obligation shall not include the indorsement of
instruments for deposit or collection in the ordinary course of business. The
term Contingent Obligation shall also include the liability of a general partner
in respect of the Indebtedness of a partnership in which it is a general
partner, excluding Indebtedness which is non-recourse to such general partner.
The amount of any Contingent Obligation of a Person shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith.
"Control Person": as defined in Section 2.14.
"Copyright Act": Title 17 of the United States Code, as amended, and the
rules and regulations issued thereunder, as from time to time in effect.
"Credit Exposure" with respect to any Lender at any time, its RC
Commitment or, if no RC Commitment is in effect, the sum of its outstanding RC
Loans and Letter of Credit Exposure, at such time.
"Credit Parties": the Administrative Agent, the Issuing Bank and the
Lenders.
"Debt Service": the sum of Interest Expense and scheduled principal
amortization (including scheduled mandatory reductions of revolving credit and
similar commitments) of Total Debt, whether or not actually paid, for, as
applicable, the immediately preceding four fiscal quarters for which financial
statements have been delivered pursuant to Section 7.1(a) or (c), or, in the
event that the date of determination is a fiscal quarter ending date, the fiscal
quarter then ended and the immediately preceding three fiscal quarters.
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<PAGE> 14
"Default": any of the events specified in Section 9, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Dollars" and "$": lawful currency of the United States of America.
"Environmental Laws": any and all federal, state and local laws relating
to the environment, the use, storage, transporting, manufacturing, handling,
discharge, disposal or recycling of hazardous substances, materials or
pollutants or industrial hygiene and including, without limitation, (i) CERCLA;
(ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 USCA
Section 6901 et seq.; (iii) the Toxic Substance Control Act, as amended, 15 USCA
Section 2601 et. seq.; (iv) the Water Pollution Control Act, as amended, 33 USCA
Section 1251 et. seq.; (v) the Clean Air Act, as amended, 42 USCA Section 7401
et seq.; (vi) the Hazardous Material Transportation Authorization Act of 1994,
as amended, 49 USCA Section 5101 et seq. and (viii) all rules, regulations
judgments, decrees, injunctions and restrictions thereunder and any analogous
state law, in each case as from time to time in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations issued thereunder, as from time
to time in effect.
"Eurodollar Loan": a portion of the Loans selected by the Borrower to
bear interest during an Interest Period selected by the Borrower at a rate per
annum based upon a Eurodollar Rate determined with reference to such Interest
Period, all pursuant to and in accordance with Sections 2.3 and 2.8.
"Eurodollar Rate": with respect to any Interest Period, the rate per
annum, as determined by the Administrative Agent, obtained by dividing (and then
rounding to the nearest 1/16 of 1%, or, if there is no nearest 1/16 of 1%, the
next higher 1/16 of 1%):
(a) the rate quoted by the Administrative Agent to major
banks in the interbank eurodollar market as the rate at which the Administrative
Agent is offering Dollar deposits in an amount approximately equal to BNY's pro
rata share of the given portion of the Loans selected by the Borrower to bear
interest during such Interest Period based upon a rate of interest determined
under this definition, and having a term to maturity corresponding to such
Interest Period, as quoted at approximately 10:00 A.M. two Business Days prior
to the date upon which such Interest Period is to commence, by
(b) a number equal to 1.00 minus the aggregate of the then
stated maximum rates during such Interest Period of all reserve requirements
(including, without limitation, marginal, emergency, supplemental and special
reserves), expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and
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<PAGE> 15
any other banking authority to which BNY and other major United States banks or
money center banks are subject, in respect of eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of the Board of
Governors of the Federal Reserve System). Such reserve requirements shall
include, without limitation, those imposed under such Regulation D. Eurodollar
Loans shall be deemed to constitute Eurocurrency liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of credits
for proration, exceptions or offsets which may be available from time to time to
any Lender under such Regulation D. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in any such reserve
requirement.
"Event of Default": any of the events specified in Section 9, provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Excess Cash Flow": at any time, in respect of any period, Consolidated
Operating Cash Flow for such period (before any adjustments to reflect
acquisitions, sales and exchanges of Property during such period) less the sum
of, without duplication, (i) Fixed Charges and (ii) voluntary principal
prepayments made pursuant to Section 2.5(a), provided that the RC Commitments
are permanently reduced in an aggregate amount equal to such prepayments made
under Section 2.5(a).
"Exchange Act": the Securities Exchange Act of 1934, as amended.
"Excluded Cash Flow": at any time, for any period, Operating Cash Flow
for such period allocable to all Excluded Properties at such time.
"Excluded Property": at any time, any Broadcasting Station, designated
in writing by the Borrower to the Administrative Agent and the Lenders as an
Excluded Property, that was acquired by the Borrower within the immediately
preceding 18 month period and in respect of which the Borrower changed the
format from that in effect at the time such Broadcasting Station was acquired by
the Borrower.
"Excluded Taxes": with respect to any Credit Party or any other
recipient of any payment to be made by or on account of any obligation of any
Loan Party under any Loan Document, (a) income or franchise taxes imposed on (or
measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Credit Party, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which such Loan Party is located and (c) in the case of a
Foreign Lender, any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new
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<PAGE> 16
lending office) or is attributable to such Foreign Lender's failure to comply
with Section 2.13(e), except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from such Loan Party with
respect to such withholding tax pursuant to Section 2.13(a).
"FCC": the Federal Communications Commission, or any Governmental
Authority succeeding to the functions thereof.
"Federal Funds Rate": for any day, the rate per annum (rounded to the
nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the next
higher 1/16 of 1%) equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers on such day, as published by the Federal Reserve Bank
of New York on the Business Day next succeeding such day, provided that (i) if
the day for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if such rate is not so published for any day, the Federal Funds Rate
for such day shall be the average rate charged to the Administrative Agent on
such day on such transactions as determined by the Administrative Agent.
"Fixed Charges": the sum, without duplication, of (a) Debt Service, (b)
cash income taxes paid and (c) capital expenditures (excluding capital
expenditures made with insurance proceeds and capital expenditures associated
with an acquisition made within the 12 month period immediately following such
acquisition), in each case of the Borrower and its Subsidiaries on a
Consolidated basis, determined in accordance with GAAP, for, as applicable, the
immediately preceding four fiscal quarters for which financial statements have
been delivered pursuant to Section 7.1(a) or (c), or, in the event that the date
of determination is a fiscal quarter ending date, the fiscal quarter then ended
and the immediately preceding three fiscal quarters.
"Foreign Lender": any Lender that is organized under the laws of a
jurisdiction other than that in which the applicable Loan Party is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP": generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statement by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination, consistently applied. If at any time any change in GAAP would
affect the computation of any financial ratio or requirement set
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<PAGE> 17
forth in this Agreement, the Administrative Agent, the Lenders and the Borrower
shall negotiate in good faith to amend such ratio or requirement to reflect such
change in GAAP (subject to the approval of the Required Lenders), provided that,
until so amended, (i) such ratio or requirement shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) the Borrower shall
provide to the Administrative Agent, and the Lenders financial statements and
other documents required under this Agreement or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP.
"Governmental Authority": the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government
"Hazardous Discharge": as defined in Section 11.11(b).
"Highest Lawful Rate": as to any Lender, the maximum rate of interest,
if any, that at any time or from time to time may be contracted for, taken,
charged or received by such Lender on the Notes held thereby, or which may be
owing to such Lender pursuant to this Agreement and the other Loan Documents
under the laws applicable to such Lender and this transaction.
"Indebtedness": as to any Person, at a particular time, all items which
constitute, without duplication, (i) indebtedness for borrowed money or the
deferred purchase price of Property (other than trade payables incurred in the
ordinary course of business), (ii) indebtedness evidenced by notes, bonds,
debentures or similar instruments, (iii) obligations with respect to any
conditional sale agreement or title retention agreement, (iv) indebtedness
arising under acceptance facilities and the amount available to be drawn under
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder to the extent such Person shall not
have reimbursed the issuer in respect of the issuer's payment of such drafts,
(v) all liabilities secured by any Lien on any Property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof (other than Liens permitted under Sections 8.2(i) through (iv)
and carriers', warehousemen's, mechanics', repairmen's or other like
non-consensual Liens arising in the ordinary course of business), (vi)
obligations for principal payments under leases which have been, or under GAAP
are required to be, capitalized and (vii) all Contingent Obligations.
"Indemnified Party": shall have the meaning set forth in Section
11.11(a).
"Indemnified Taxes": Taxes other than Excluded Taxes.
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<PAGE> 18
"Interest Expense": the sum of all (i) interest (adjusted to give effect
to all Interest Rate Protection Arrangements and fees and expenses paid in
connection with same, all as determined in accordance with GAAP) on Total Debt
and (ii) commitment, letter of credit and similar fees, in each case of the
Borrower and its Subsidiaries on a Consolidated basis, determined in accordance
with GAAP, for, as applicable, the immediately preceding four fiscal quarters
for which financial statements have been delivered pursuant to Section 7.1(a) or
(c), or, in the event that the date of determination is a fiscal quarter ending
date, the fiscal quarter then ended and the immediately preceding three fiscal
quarters.
"Interest Payment Date": (i) as to any ABR Loan, the last day of each
March, June, September and December commencing on the first of such days to
occur after such ABR Loan is made, (ii) as to any Eurodollar Loan in respect of
which the Borrower has selected an Interest Period of one, two or three months,
the last day of such Interest Period and (iii) as to any Eurodollar Loan in
respect of which the Borrower has selected an Interest Period of six months, the
last day of such Interest Period and the corresponding day of the month which is
three months after the date of the commencement of such Interest Period, or, if
such day is not a Business Day or does not exist, on the immediately preceding
Business Day.
"Interest Period": the period commencing on any Business Day selected by
the Borrower in accordance with Section 2.3 or 2.8 and ending one, two, three or
six months thereafter, as selected by the Borrower in accordance with such
Section, subject to the following:
(a) if any Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall be extended to the
immediately succeeding Business Day unless the result of such extension would be
to carry the end of such Interest Period into another calendar month, in which
event such Interest Period shall end on the Business Day immediately preceding
such day; and
(b) if any Interest Period shall begin on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period),
such Interest Period shall end on the last Business Day of a calendar month.
"Interest Rate Protection Arrangement": any interest rate swap, cap or
collar arrangement or any other derivative product customarily offered by banks
to their customers in order to manage the exposure of such customers to interest
rate fluctuations.
"Investments": as defined in Section 8.5.
"Issuing Bank": BNY.
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<PAGE> 19
"Lead Arranger": BNY Capital Markets, Inc., as Lead Arranger and Book
Manager.
"Lending Office": in respect of any Lender, initially, the office or
offices of such Lender designated as such in Schedule 1.1(L) hereto; thereafter,
such other office or offices of such Lender, if any, which shall be making or
maintaining Loans.
"Letter of Credit": as defined in Section 2.18.
"Letter of Credit Commitment": the commitment of the Issuing Bank to
issue Letters of Credit in accordance with the terms hereof in an aggregate
outstanding face amount not exceeding $15,000,000 (or, if less, the RC
Commitments) at any time, as the same may be reduced pursuant to Section 2.4.
"Letter of Credit Exposure": at any time, (a) in respect of all Lenders,
the sum, without duplication, of (i) the maximum aggregate amount which may be
drawn under all unexpired Letters of Credit at such time (whether the conditions
for drawing thereunder have or may be satisfied), (ii) the aggregate amount, at
such time, of all unpaid drafts (which have not been dishonored) drawn under all
Letters of Credit, and (iii) the aggregate unpaid principal amount of the
Reimbursement Obligations at such time, and (b) in respect of any Lender, an
amount equal to such Lender's RC Commitment Percentage at such time multiplied
by the amount determined under clause (a) of this definition.
"Letter of Credit Fee": as defined in Section 3.1(c).
"Letter of Credit Participation": with respect to each Lender, its
obligations to the Issuing Bank under Section 2.19.
"Letter of Credit Request": a request in the form of Exhibit D.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or other security agreement
or security interest of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing.
"Leveraged Acquisition": as defined in Section 8.3(b).
"Loans": the RC Loans.
"Loan Documents": collectively, this Agreement, the Notes, the
Reimbursement Agreements and the Collateral Documents.
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<PAGE> 20
"Loan Party": the Borrower, each Subsidiary Guarantor and each other
party (other than the Administrative Agent, the Issuing Bank and the Lenders)
that is a signatory to a Loan Document.
"Margin Stock": any "margin stock", as said term is defined in
Regulation U of the Board of Governors of the Federal Reserve System, as the
same may be amended or supplemented from time to time.
"Material Adverse Change": a material adverse change in (i) the
operations, business, prospects, Property or condition (financial or otherwise)
of (a) the Borrower or (b) the Borrower and its Subsidiaries on a Consolidated
basis, (ii) the ability of the Borrower or any other Loan Party to perform its
obligations under the Loan Documents to which it is a party or (iii) the ability
of the Administrative Agent or any of the Lenders to enforce any of the Loan
Documents.
"Material Adverse Effect": a material adverse effect on (i) the
operations, business, prospects, Property or condition (financial or otherwise)
of (a) the Borrower or (b) the Borrower and its Subsidiaries on a Consolidated
basis, (ii) the ability of the Borrower or any other Loan Party to perform its
obligations under the Loan Documents to which it is a party or (iii) the ability
of the Administrative Agent or any of the Lenders to enforce any of the Loan
Documents.
"Maturity Date": June 30, 2006.
"Media Asset": any Broadcasting Station or any other existing business
of the Borrower or any Subsidiary as of the Restatement Effective Date
(including, without limitation, magazine, Internet and software businesses) and
any assets ancillary to any of the foregoing.
"Moody's": Moody's Investors Service, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Equity Proceeds": as defined in Section 2.4(b)(v).
"Notes": the RC Notes.
"Operating Cash Flow": at any time, with respect to any Person, for any
period: (i) revenues (exclusive of reciprocal and barter revenues) of such
Person, determined in accordance with GAAP, for such period, less (ii) expenses
(exclusive of depreciation, amortization, interest, income tax, employee
compensation payable solely in stock of the Borrower, and reciprocal and barter
expenses, in each case to the extent included therein), plus (iii) non-recurring
expense items and other non-cash expense items of such
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<PAGE> 21
Person for such period, in each case mutually agreed upon between the Borrower
and the Administrative Agent, to the extent deducted in accordance with clause
(ii) above, less (iv) the amount of any cash payments related to non-cash
expense items added pursuant to clause (iii) above. Operating Cash Flow shall be
adjusted on a consistent basis to reflect the acquisition, sale, exchange and
disposition of Property during such period as if such acquisition, sale,
exchange or disposition of Property had occurred at the beginning of such
period, provided that pro-forma adjustments related to certain operating
expenses of such stations being acquired (mutually agreed upon by the Borrower
and the Administrative Agent) shall be included in the calculation of Operating
Cash Flow. Operating Cash Flow shall exclude all gains and losses from the sale
or disposition of Property and all extraordinary gains and losses.
"Original Credit Agreement": as defined in Recital A.
"Original Effective Date": September 25, 1997.
"Other Taxes": any and all current or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, the Loan Documents.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the
functions thereof.
"Permitted Holders": as of any date of determination (i) any of Stuart
W. Epperson and Edward G. Atsinger III; (ii) family members or the relatives of
the Persons described in clause (i); (iii) any trusts, family limited
partnerships or other similar entities created for the benefit of the Persons
described in clauses (i), (ii) or (iv) or any such entity for the benefit of
such entity; or (iv) in the event of the incompetence or death of any of the
Persons described in clauses (i) and (ii), such Person's estate, executor,
administrator, committee or other personal representative or beneficiaries, in
each case who at any particular date shall beneficially own or have the right to
acquire, directly or indirectly, Voting Stock of the Borrower.
"Permitted Liens": Liens permitted to exist pursuant to Section 8.2.
"Person": an individual, a partnership, a corporation, a business trust,
a joint stock company, a trust, an unincorporated association, a joint venture,
a limited liability company, a Governmental Authority or any other entity of
whatever nature.
"Plan": any pension plan which is covered by Title IV of ERISA and which
is maintained by or to which contributions are made by the Borrower or a
Commonly
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<PAGE> 22
Controlled Entity or in respect of which the Borrower or a Commonly Controlled
Entity has or may have any liability.
"Pro-Forma Debt Service": the sum of Pro-Forma Interest Expense and the
scheduled payments of principal (including scheduled mandatory reductions of
revolving credit and similar commitments) in respect of Total Debt required to
be made during the four fiscal quarters of the Borrower immediately succeeding
any determination thereof. For purposes of calculating Pro-Forma Debt Service,
the principal amount outstanding under any revolving or line of credit facility
on the date of any calculation of Pro-Forma Debt Service shall be assumed to be
outstanding during the entire applicable four fiscal quarter period, subject to
any mandatory scheduled payments of principal required to be made during such
period.
"Pro-Forma Interest Expense": the sum of (i) all interest (adjusted to
give effect to all Interest Rate Protection Arrangements and fees and expenses
paid in connection with the same, all as determined in accordance with GAAP) in
respect of Total Debt and (ii) commitment, letter of credit and similar fees, in
each case of the Borrower and its Subsidiaries on a Consolidated basis,
determined in accordance with GAAP, for the four fiscal quarters of the Borrower
immediately succeeding any determination thereof. Where any item of interest
varies or depends upon a variable rate of interest (or other rate of interest
which is not fixed for such entire four fiscal quarters), such rate, for
purposes of calculating Pro-Forma Interest Expense, shall be assumed to equal
the interest rate in effect on the date of such calculation. Also, for purposes
of calculating Pro-Forma Interest Expense, the principal amount outstanding
under any revolving or line of credit facility on the date of any calculation of
Pro-Forma Debt Service shall be assumed to be outstanding during the entire
applicable four fiscal quarter period, subject to any mandatory scheduled
payments of principal required to be made during such period.
"Property": all types of real, personal, tangible, intangible or mixed
property.
"RC Commitment": as to any Lender, the amount set forth next to the name
of such Lender on Exhibit A under the heading "RC Commitment", as such RC
Commitment may be reduced from time to time pursuant to Section 2.4.
"RC Commitments": the RC Commitments of all Lenders.
"RC Commitment Percentage": as to any Lender, the percentage set forth
opposite the name of such Lender on Exhibit A under the heading "RC Commitment
Percentage".
"RC Commitment Period": the period from the Original Effective Date
until the RC Commitment Termination Date.
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<PAGE> 23
"RC Commitment Termination Date": the earlier of the Business Day
immediately preceding the Maturity Date or such other date upon which the RC
Commitments shall have been terminated in accordance with Section 2.4 or 9.1.
"RC Loan" and "RC Loans": as defined in Section 2.1.
"RC Note" and "RC Notes": as defined in Section 2.2.
"RC Supplement": a supplement substantially in the form of Exhibit K.
"Reimbursement Agreement": as defined in Section 2.18(b).
"Reimbursement Obligations": all obligations and liabilities of the
Borrower due and to become due (a) under the Reimbursement Agreements and (b)
hereunder in respect of Letters of Credit.
"Reinvested Proceeds": net cash proceeds from the sale, exchange or
other disposition of all or substantially all of a Media Asset, after giving
effect to the payment of cash taxes payable in connection with the same, which
cash proceeds are used to acquire one or more additional Media Assets through a
merger or acquisition in accordance with Section 8.3 during the Reinvestment
Period.
"Reinvestment Period": the period which is 360 days from the date that
proceeds from the sale, exchange or other disposition of all or substantially
all of a Media Asset are received by the Borrower.
"Remaining Interest Period": (i) in the event that the Borrower shall
fail for any reason to borrow or convert Loans after it shall have notified the
Administrative Agent of its intent to do so in which it shall have requested a
Eurodollar Loan pursuant to Section 2.3 or 2.8, a period equal to the Interest
Period that the Borrower elected in respect of such Eurodollar Loan; (ii) in the
event that a Eurodollar Loan shall terminate for any reason prior to the last
day of the Interest Period applicable thereto, a period equal to the period from
and including the date of such termination to but excluding the last day of such
Interest Period; and (iii) in the event that the Borrower shall prepay or repay
all or any part of the principal amount of a Eurodollar Loan prior to the last
day of the Interest Period applicable thereto, a period equal to the period from
and including the date of such prepayment or repayment to but excluding the last
day of such Interest Period.
"Reportable Event": any event described in Section 4043(b) of ERISA,
other than an event (excluding an event described in Section 4043(b)(1) relating
to tax disqualification) with respect to which the 30-day notice requirement has
been waived.
"Required Lenders": at any date of determination, Lenders having Credit
Exposures equal to or greater than 51% of the Total Credit Exposure.
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<PAGE> 24
"Restatement Effective Date": June __, 1999.
"Restricted Payment": as defined in Section 8.4.
"Salem California": as defined in Recital A.
"Salem Delaware": the Borrower and the survivor of the merger between
itself and Salem California.
"S & P": Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Single Employer Plan": any Plan which is not a Multiemployer Plan.
"Special Counsel": Bryan Cave LLP, special counsel to the Administrative
Agent.
"Stock": any and all shares, interests, participations, options,
warrants or other equivalents (however designated) of corporate stock,
including, without limitation, phantom stock.
"Subordinated Indenture": the Indenture, dated as of September 25, 1997,
between the Borrower and The Bank of New York, as trustee, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
Section 8.19.
"Subordinated Indenture Notes": the 9.5% Senior Subordinated Notes, due
2007, issued in the aggregate principal amount of $150,000,000 pursuant to the
Subordinated Indenture, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with Section 8.17.
"Subordinated Indenture Subsidiary Guaranty": the subordinated guaranty
or guaranties executed and delivered by one or more of the Subsidiaries in
connection with the Subordinated Indenture, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with Section
8.17.
"Subsidiary": any corporation, association, partnership, joint venture
or other business entity of which the Borrower and/or any Subsidiary of the
Borrower, directly or indirectly, either (i) in respect of a corporation, owns
or controls more than 50% of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors or similar managing body,
irrespective of whether or not a class or classes shall or might have voting
power by reason of the happening of any contingency, or (ii) in respect of an
association, partnership, joint venture or other business entity, is entitled to
share in more than 50% of the profits and losses, however determined.
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<PAGE> 25
"Subsidiary Guarantor": each Subsidiary.
"Subsidiary Guaranty": the First Amended and Restated Subsidiary
Guaranty and Security Agreement, dated as of the date hereof, made by the
Subsidiaries to the Administrative Agent, substantially in the form attached
hereto as Exhibit I, as the same may be amended, supplemented or otherwise
modified from time to time.
"Taxes": any and all current or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
"Total Adjusted Debt": Total Debt less the lesser of (i) 50% of the
lesser of, with respect to each Excluded Property (x) the purchase price of such
Excluded Property and (y) the independent appraisal value (if required under
clause (i) of the first paragraph of Section 8.3(b)) of such Excluded Property
and (ii) $30,000,000.
"Total Credit Exposure": at any time, the sum of the Credit Exposures of
all Lenders at such time.
"Total Debt": the aggregate Indebtedness of the Borrower and its
Subsidiaries on a Consolidated basis, determined in accordance with GAAP.
"Total Facility Usage": as of any date, a fraction (expressed by a
decimal) the numerator of which is the aggregate outstanding principal amount of
RC Loans plus the Letter of Credit Exposure of all Lenders, and the denominator
of which is the aggregate amount of RC Commitments.
"Total Leverage Ratio": the ratio of (i) Total Adjusted Debt less cash
and cash equivalents in excess of $5,000,000 to (ii) Consolidated Annual
Adjusted Operating Cash Flow.
"Upstream Transfers": as defined in Section 8.13.
"Voting Stock": Stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time Stock of any other class
or classes shall have or might have voting power by reason or the happening of
any contingency).
1.2 Principles of Construction.
(a) All terms defined in this Agreement shall have the
meanings given such terms herein when used in the Loan Documents or any
certificate or other document made or delivered pursuant hereto or thereto,
unless otherwise defined therein.
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<PAGE> 26
(b) Unless otherwise specified herein, as used in the Loan
Documents and in any certificate, opinion or other document made or delivered
pursuant hereto or thereto, all accounting terms used herein shall be
interpreted, and all accounting determinations hereunder shall be made, in
accordance with GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder"
and similar words when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
paragraph, schedule and exhibit references contained herein shall refer to
Sections or paragraphs hereof or schedules or exhibits hereto unless otherwise
expressly provided herein.
(d) The word "or" shall not be exclusive; "may not" is
prohibitive and not permissive; and the singular includes the plural.
(e) Unless otherwise specifically set forth herein, all
references to time shall refer to New York City time.
2. AMOUNT AND TERMS OF LOANS.
2.1 Loans.
Subject to the terms and conditions hereof, each Lender having
an RC Commitment agrees to make loans (each an "RC Loan" and, collectively with
the other RC Loans of such Lender and/or with the RC Loans of each other Lender,
the "RC Loans") to the Borrower from time to time during the RC Commitment
Period. At all times during the RC Commitment Period, the Borrower may borrow,
prepay and reborrow RC Loans in accordance with the provisions hereof, provided
that the aggregate unpaid principal amount of all RC Loans and the Letter of
Credit Exposure of all Lenders at any one time shall not exceed the RC
Commitments then in effect, and provided further that the aggregate unpaid
principal amount of each Lender's RC Loans and its Letter of Credit Exposure at
any one time shall not exceed such Lender's RC Commitment. The principal amount
of each Lender's RC Loan made on a Borrowing Date shall be an amount equal to
its RC Commitment Percentage of all RC Loans made on such date. Subject to the
provisions of Sections 2.3, 2.8 and 2.15, RC Loans may be (i) ABR Loans, (ii)
Eurodollar Loans or (iii) any combination thereof.
2.2 Notes.
The RC Loans of each Lender shall be evidenced by a promissory
note in the form of Exhibit B (each as indorsed or modified from time to time,
including all replacements thereof and substitutions therefor, an "RC Note" and,
collectively with the RC Note of each other Lender, the "RC Notes"), payable to
the order of such Lender, in the maximum stated principal amount equal to such
Lender's RC Commitment. Each RC
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<PAGE> 27
Note shall (i) be dated the Restatement Effective Date, (ii) be stated to mature
on the Maturity Date and be payable in the amounts and at the times required by
Section 2.5 and (iii) bear interest on the unpaid principal amount thereof at
the applicable interest rate or rates per annum determined as provided in
Section 2.6, payable as specified in Section 2.6. Each Lender is hereby
irrevocably authorized by the Borrower to enter on the schedule attached to its
RC Note and/or in its internal books and records the amount of each RC Loan made
by it thereunder, each payment thereon, and the other information provided for
on such schedule, and such schedule and books and records shall be presumptively
correct absent manifest error as to the amount of such Lender's RC Loans and as
to the amount of principal and interest paid by the Borrower in respect of such
RC Loans and as to the other information set forth on such schedule or books and
records relating to the RC Loans, provided, however, that the failure to make
any such entry (or any error therein) with respect to any RC Loan shall not
limit or otherwise affect the obligations of the Borrower hereunder or under
such RC Note. Each Lender may attach one or more continuations to such schedule
as and when required. In all events, the principal amount owing by the Borrower
to each Lender in respect of such Lender's RC Note shall be the aggregate amount
of all RC Loans made by such Lender thereunder less all payments of principal
thereon made by the Borrower.
2.3 Procedure for Borrowing Loans.
(a) The Borrower may borrow RC Loans on any Business Day
occurring during the RC Commitment Period, provided that, with respect to any
requested borrowing, the Borrower shall notify the Administrative Agent (by
telephone or telecopy) no later than 1:00 P.M., three Business Days prior to the
requested Borrowing Date, in the case of Eurodollar Loans, and no later than
1:00 P.M., one Business Day prior to the requested Borrowing Date, in the case
of ABR Loans, specifying (i) the aggregate amounts to be borrowed under the RC
Commitments, (ii) the requested Borrowing Date, (iii) whether the borrowing is
to be a Eurodollar Loan, an ABR Loan, or a combination thereof, and (iv) if the
borrowing is to be a Eurodollar Loan, the length of the initial Interest Period
for such Eurodollar Loan. Each such notice shall be irrevocable and confirmed
immediately by delivery to the Administrative Agent of a Borrowing Request. Each
borrowing of RC Loans, consisting of ABR Loans shall be in an aggregate
principal amount equal to $1,000,000 or such amount plus an integral multiple of
$100,000 in excess thereof or, if less, the unused amount of the RC Commitments.
Each borrowing of RC Loans, as the case may be, consisting of Eurodollar Loans
shall be in a minimum aggregate principal amount equal to $2,000,000 or an
integral multiple of $250,000 in excess thereof. Upon receipt of each notice of
borrowing from the Borrower, the Administrative Agent shall promptly notify each
Lender (by telephone or otherwise, such notice to be confirmed by telecopy or
other writing) of the requested borrowing. Subject to its receipt of the notice
referred to in the preceding sentence and to the other terms and conditions of
this Agreement, each Lender will make the amount of its
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<PAGE> 28
applicable RC Commitment Percentage, of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent set forth in Section 11.2 not later than 12:00 Noon, on the
Borrowing Date requested by the Borrower, in funds immediately available to the
Administrative Agent at such office. The amounts so made available to the
Administrative Agent on a Borrowing Date will then, subject to the satisfaction
of the terms and conditions of this Agreement as determined by the
Administrative Agent, be made available on such date to the Borrower by the
Administrative Agent, in immediately available funds, at the office of the
Administrative Agent specified in Section 11.2 by crediting the account of the
Borrower on the books of such office with the aggregate of said amounts received
by the Administrative Agent.
(b) Unless the Administrative Agent shall have received
prior notice from a Lender (by telephone or otherwise, such notice to be
confirmed by telecopy or other writing) that such Lender will not make available
to the Administrative Agent such Lender's pro rata share of the Loans requested
by the Borrower, the Administrative Agent may assume that such Lender has made
such share available to the Administrative Agent on such Borrowing Date in
accordance with this Section 2.3 provided that such Lender received notice of
the proposed borrowing from the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower on
such Borrowing Date a corresponding amount. If and to the extent such Lender
shall not have so made such pro rata share available to the Administrative
Agent, such Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount (to the extent not
previously paid by the other), together with interest thereon for each day from
the date such amount is made available to the Borrower until the date such
amount is paid to the Administrative Agent, at a rate per annum equal to, in the
case of the Borrower, the applicable interest rate set forth in Section 2.6,
and, in the case of such Lender, the Federal Funds Rate in effect on such date
(as determined by the Administrative Agent). Such payment by the Borrower,
however, shall be without prejudice to its rights against such Lender. If such
Lender shall pay to the Administrative Agent such corresponding amount, such
amount so paid shall constitute such Lender's Loan as part of such Loans for
purposes of this Agreement, which Loan shall be deemed to have been made by such
Lender on the Borrowing Date applicable to such Loans.
2.4 Reduction and Increase of Commitments.
(a) Voluntary Reductions. The Borrower shall have the right,
upon at least three Business Days' prior irrevocable written notice to the
Administrative Agent, to reduce permanently the RC Commitments or the Letter of
Credit Commitment, in whole at any time, or in part from time to time, without
premium or penalty, to an amount not less than (i) in the case of the RC
Commitments, the sum of the aggregate outstanding principal balance of the RC
Loans, after giving effect to any contemporaneous
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<PAGE> 29
prepayment thereof, and the Letter of Credit Exposure of all Lenders, provided
that each partial reduction of such RC Commitments shall be in a minimum amount
of $5,000,000 or an integral multiple of $1,000,000 in excess thereof or, if
less, the amount of the RC Commitments then in effect, and (ii) in the case of
the Letter of Credit Commitment, the Letter of Credit Exposure of all Lenders,
provided that each partial reduction of the Letter of Credit Commitment shall be
in a minimum amount of $1,000,000 or an integral multiple of $1,000,000 in
excess thereof or, if less, the Letter of Credit Commitment then in effect.
(b) Mandatory Reductions of RC Commitments.
(i) Mandatory Scheduled Reductions of RC
Commitments. On each date set forth below, the RC Commitments shall be reduced
by the amount equal to the percentage set forth below next to such date
multiplied by the aggregate RC Commitments existing on March 31, 2001 (prior to
giving effect to such initial reduction):
<TABLE>
<CAPTION>
Reduction
Dates Amounts
----- -------
<S> <C>
March 31, 2001 1.25%
June 30, 2001 1.25%
September 30, 2001 1.25%
December 31, 2001 1.25%
March 31, 2002 2.50%
June 30, 2002 2.50%
September 30, 2002 2.50%
December 31, 2002 2.50%
March 31, 2003 3.75%
June 30, 2003 3.75%
September 30, 2003 3.75%
December 31, 2003 3.75%
March 31, 2004 3.75%
June 30, 2004 3.75%
September 30, 2004 3.75%
December 31, 2004 3.75%
March 31, 2005 3.75%
June 30, 2005 3.75%
September 30, 2005 3.75%
December 31, 2005 3.75%
March 31, 2006 20.00%
June 30, 2006 20.00%
</TABLE>
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<PAGE> 30
(ii) Mandatory Reductions of RC Commitments Relating
to Excess Cash Flow. On the earlier of (i) the date the annual financial
statements in respect of each fiscal year (commencing with the fiscal year
ending December 31, 2000), are delivered to the Administrative Agent pursuant to
Section 7.1(a) or (ii) the 120th day following the end of each fiscal year
(commencing with the fiscal year ending December 31, 2000), the RC Commitments
shall be reduced by an amount equal to 50% of Excess Cash Flow with respect to
such fiscal year, provided that no such reduction in respect of such fiscal year
shall be required if (x) the Total Leverage Ratio as at the end of such fiscal
year is less than 5.00:1.00 and (y) no Default or Event of Default shall exist
at the end of such fiscal year or on the date the RC Commitments would be
required to be reduced.
(iii) Mandatory Reductions of RC Commitments Relating
to Insurance and Condemnation. The RC Commitments shall be reduced in the
amounts and at the times required by Sections 7.5(b) and 7.5(c).
(iv) Mandatory Reductions of RC Commitments Relating
to Proceeds of Media Asset Sales and Other Property Sales. The RC Commitments
shall be reduced by an amount equal to the difference between (a) 100% of the
proceeds of the sale, exchange or other disposition of (A) all or substantially
all of any Media Asset of the Borrower or any of its Subsidiaries, or (B) any
other Property to the extent not sold, exchanged or disposed of in the ordinary
course of business (net of (1) sales and other commissions and legal and other
expenses incurred, (2) cash taxes payable, and (3) Indebtedness permitted under
Sections 8.1(ii) and (iv) which is secured by the Media Asset or other Property
sold, exchanged or disposed of and required to be repaid and is repaid, in each
case in connection therewith), and (b) the amount of Reinvested Proceeds in
connection with such sale, exchange or other disposition of a Media Asset which
has been used prior to the date such reduction is required to be made to acquire
one or more additional Media Assets through a merger or acquisition in
accordance with Section 8.3. Such reduction shall be made on the earlier of (x)
the last day of the Reinvestment Period with respect to such sale, exchange or
other disposition, or (y) the occurrence of a Default or Event of Default.
(v) Mandatory Reductions of RC Commitments Relating
to Issuances of Equity. The RC Commitments shall be reduced immediately upon
receipt by the Borrower of the aggregate proceeds of any issuance by the
Borrower of Stock (net of sales and other commissions and legal and other
related expenses incurred in connection with such issuance) (the "Net Equity
Proceeds") by an amount equal to:
(A) if no Default or Event of Default shall
then exist and the Total Leverage Ratio (calculated without giving effect to the
phrase "less cash and cash equivalents in excess of $5,000,000" contained in
clause (i) of the definition "Total Leverage Ratio") is greater than 5.00:1.00,
the lesser of (x) 50% of the Net Equity
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<PAGE> 31
Proceeds and (y) the amount of the Net Equity Proceeds which when applied to the
prepayment of the Loans will result in the Total Leverage Ratio (calculated
without giving effect to the phrase "less cash and cash equivalents in excess of
$5,000,000" contained in clause (i) of the definition "Total Leverage Ratio")
not exceeding 5.00:1.00; and
(B) if a Default or Event of Default shall
then exist, 100% of the Net Equity Proceeds.
(c) Application of Reductions.
(i) Each reduction of the RC Commitments made
pursuant to this Section 2.4 shall effect a corresponding reduction of each
Lender's applicable RC Commitment by an amount equal to such Lender's applicable
RC Commitment Percentage of such reduction.
(ii) Reductions of the RC Commitments made pursuant
to Section 2.4(a) or 2.4(b)(ii), (iii), (iv) and (v) shall be applied in inverse
order among the remaining RC Commitment reductions set forth in Section
2.4(b)(i).
(iii) Simultaneously with each reduction of the RC
Commitments under this Section 2.4, the Borrower shall pay the applicable
Commitment Fee accrued on the amount by which such RC Commitments have been
reduced.
(iv) If for any reason the Letter of Credit Exposure
of all Lenders shall exceed the RC Commitments, the Borrower shall immediately
deposit in a cash collateral account maintained with and under the sole dominion
and control of the Administrative Agent an amount equal to such excess.
(d) Increase of RC Commitments. The Borrower may at any time
after the first Borrowing Date to occur after the Restatement Effective Date but
prior to March 31, 2000, at its sole cost and expense, request any one or more
of the Lenders to increase (such decision to increase the RC Commitment of a
Lender to be within the sole and absolute discretion of such Lender) its RC
Commitment, or any other Person reasonably satisfactory to the Administrative
Agent and the Issuing Bank to provide a new RC Commitment, by submitting an RC
Supplement duly executed by the Borrower and each such Lender or other Person,
as the case may be. If such RC Supplement is in all respects reasonably
satisfactory to the Administrative Agent, the Administrative Agent shall execute
such RC Supplement and deliver a copy thereof to the Borrower and each such
Lender or other Person, as the case may be. Upon execution and delivery of such
RC Supplement, (i) in the case of each such Lender, such Lender's RC Commitment
shall be increased to the amount set forth in such RC Supplement, (ii) in the
case of each such other Person, such other Person shall become a party hereto
and shall for all purposes of
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<PAGE> 32
the Loan Documents be deemed a "Lender" having an RC Commitment as set forth in
such RC Supplement and (iii) in each case, the RC Commitment of such Lender or
such other Person, as the case may be, shall be as set forth in the applicable
RC Supplement; provided, however, that:
(i) immediately after giving effect thereto, the
aggregate RC Commitments shall not exceed $200,000,000;
(ii) such increase shall be in an amount not less
than $5,000,000 or such amount plus an integral multiple of $1,000,000;
(iii) the Borrower shall have delivered to the
Administrative Agent projections, reasonably satisfactory to the Administrative
Agent, demonstrating pro-forma compliance (after giving effect to such increase)
with the terms of the Loan Documents, including but not limited to Sections 6.1,
6.2, 6.3 and 6.4, through the Maturity Date;
(iv) if RC Loans would be outstanding immediately
after giving effect to such increase, then simultaneously with such increase (A)
each such Lender, each such other Person and each other Lender shall be deemed
to have entered into an assignment and acceptance agreement, in form and
substance substantially similar to Exhibit J, pursuant to which each such other
Lender shall have assigned to each such Lender and each such other Person a
portion of its RC Loans necessary to reflect proportionately the aggregate RC
Commitments as adjusted in accordance with this Section 2.4(d), and (B) in
connection with such assignment, each such Lender and each such other Person
shall pay to the Administrative Agent, for the account of the other Lenders,
such amount as shall be necessary to appropriately reflect the assignment to it
of RC Loans, and in connection with such assignment each such other Lender may
treat the assignment of Eurodollar Loans as a prepayment of such Eurodollar
Loans for purposes of Section 2.9;
(v) each such other Person shall have delivered to
the Administrative Agent and the Borrower all forms, if any, that are required
to be delivered by such other Person pursuant to Section 2.13; and
(vi) the Administrative Agent shall have received
such certificates, legal opinions and other items as it shall reasonably request
in connection with such increase.
2.5 Prepayments of the Loans.
(a) Voluntary Prepayments. The Borrower may, at its option,
prepay the RC Loans, in whole or in part, without premium or penalty, at any
time and from time
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<PAGE> 33
to time, by notifying the Administrative Agent at least three Business Days'
prior to the proposed prepayment date with respect to Eurodollar Loans, and at
least one Business Day prior to the proposed prepayment date with respect to ABR
Loans. Each such notice shall be in writing and shall specify the Loans to be
prepaid (whether Eurodollar Loans or ABR Loans), the amount to be prepaid, and
the date of prepayment. Upon receipt by the Administrative Agent of any such
notice, the Administrative Agent shall promptly notify each Lender thereof. If
any such notice of the Borrower is given pursuant to this Section 2.5, such
notice shall be irrevocable and the payment amount specified in such notice
shall be due and payable on the date specified, together with accrued interest
to the date of such payment on the amount prepaid. Partial prepayments of ABR
Loans shall be in an aggregate principal amount of $1,000,000 or an integral
multiple of $100,000 in excess thereof and partial prepayments of Eurodollar
Loans shall be in an aggregate principal amount of $2,000,000 or an integral
multiple of $250,000 in excess thereof, or, if less, the outstanding principal
balance of such Loans.
(b) Mandatory Prepayments of Loans. The Borrower shall
immediately prepay the RC Loans (i) at any time at which the sum of the
aggregate outstanding principal amount of the outstanding RC Loans and the
Letter of Credit Exposure of all Lenders exceeds the aggregate RC Commitments of
all Lenders in an amount equal to the amount of such excess and (ii) in the
amounts and at the times required by Section 7.5.
(c) In General. If any prepayment is made under this Section
2.5 with respect to any Eurodollar Loans, in whole or in part, prior to the last
day of the applicable Interest Period, the Borrower agrees to indemnify the
Lenders in accordance with Section 2.9. After giving effect to any partial
prepayment with respect to Eurodollar Loans which were made (whether as the
result of a borrowing or a conversion) on the same date and which had the same
Interest Period, the outstanding principal amount of such Eurodollar Loans shall
not be less than $2,000,000 or an integral multiple of $250,000 in excess
thereof. The Borrower may designate which Loans (ABR Loans or Eurodollar Loans)
are to be prepaid in connection with any prepayment made under this Section 2.5.
2.6 Interest Rate and Payment Dates; Highest Lawful Rate.
(a) Prior to Maturity. Prior to maturity, the outstanding
principal amount of the Loans shall bear interest on the unpaid principal amount
thereof at the Alternate Base Rate or the Eurodollar Rate, as applicable, plus
the Applicable Margin.
(b) Default Rate. After maturity and at all times during the
continuance of any Event of Default under Section 9.1(a), (b), (h) or (i) or
during the continuance for more than 30 days of any other Event of Default, the
outstanding principal amount of all Loans hereunder shall bear interest,
notwithstanding the rate
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<PAGE> 34
which would otherwise be applicable pursuant to Section 2.6(a) above, at a rate
of interest per annum equal to 2% above such otherwise applicable rate.
(c) Late Payment Rate. Any payment of interest on any Note
or any Reimbursement Obligation and any payment of any Commitment Fee, Letter of
Credit Fee or other fee or payment payable by the Borrower under any Loan
Document and not paid on the date when due and payable shall bear interest, to
the extent permitted by law, at the Alternate Base Rate plus the Applicable
Margin for ABR Loans plus 2% per annum from the due date thereof until the date
such payment is made.
(d) General. Interest on ABR Loans, to the extent based on
the BNY Rate, shall be calculated on the basis of a 365 or 366 day year (as the
case may be), and interest on all Eurodollar Loans and ABR Loans, to the extent
based on the Federal Funds Rate, shall be calculated on the basis of a 360 day
year, in each case for the actual number of days elapsed. Interest shall be
payable in arrears on each Interest Payment Date and upon payment (or prepayment
(or required payment or prepayment) of the Loans, except that interest payable
pursuant to Sections 2.6(b) and 2.6(c) shall be payable on demand. Any change in
the interest rate on a Loan resulting from a change in the Alternate Base Rate
shall become effective as of the opening of business on the day on which such
change in the Alternate Base Rate shall become effective. The Administrative
Agent shall, as soon as practicable, notify the Borrower and the Lenders of the
effective date and the amount of each such change in the Alternate Base Rate,
but failure to so notify shall not in any manner affect the obligation of the
Borrower to pay interest on the Loans in the amounts and on the dates required.
Each determination of the Alternate Base Rate or Eurodollar Rate by the
Administrative Agent pursuant to this Agreement shall be conclusive and binding
on the Borrower and the Lenders absent manifest error.
(e) Highest Lawful Rate. At no time shall the interest rate
payable on the Loans of any Lender, together with the Commitment Fees, the
Letter of Credit Fee and all other fees and other amounts payable hereunder, to
the extent the same are construed to constitute interest, exceed the Highest
Lawful Rate applicable to such Lender. If interest payable to a Lender on any
date would exceed the maximum amount permitted by the Highest Lawful Rate, such
interest payment shall automatically be reduced to such maximum permitted
amount, and interest for any subsequent period, to the extent less than the
maximum amount permitted for such period by the Highest Lawful Rate, shall be
increased by the unpaid amount of such reduction. Any interest actually received
for any period in excess of such maximum allowable amount for such period shall
be deemed to have been applied as a prepayment of such Lender's Loans. The
Borrower acknowledges that to the extent interest payable on ABR Loans is based
on the BNY Rate, such BNY Rate is only one of the bases for computing interest
on loans made by the Lenders, and by basing interest payable on ABR Loans on the
BNY Rate, the Lenders have not committed to charge, and the Borrower has not in
any way
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<PAGE> 35
bargained for, interest based on a lower or the lowest rate at which the Lenders
may now or in the future make loans to other borrowers.
2.7 Use of Proceeds.
(a) The proceeds of all Loans shall be used (i) to finance
acquisitions permitted hereunder, including transaction expenses in connection
therewith, (ii) to make capital expenditures permitted hereunder, (iii) for
working capital purposes and (iv) for general corporate purposes.
(b) Letters of Credit shall be used to support ordinary
course working capital purposes and to fulfill deposit requirements associated
with proposed acquisitions of Media Assets.
(c) Notwithstanding anything to the contrary contained in
any Loan Document, the Borrower agrees that no part of the proceeds of any Loan
or Letter of Credit have been or will be used, directly or indirectly, for a
purpose which violates any law, rule or regulation of any Governmental
Authority, including without limitation the provisions of Regulations T, U or X
of the Board of Governors of the Federal Reserve System, as amended.
2.8 Conversions; Other Matters.
(a) The Borrower may elect from time to time to convert
Eurodollar Loans to ABR Loans by giving the Administrative Agent at least two
Business Days' prior irrevocable notice of such election, specifying the amount
to be so converted, provided, that any such conversion shall only be made on the
last day of the Interest Period applicable thereto. In addition, the Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans or to
convert Eurodollar Loans to new Eurodollar Loans by giving the Administrative
Agent at least three Business Days' prior irrevocable notice of such election,
specifying the amount to be so converted and the initial Interest Period
relating thereto, provided that any such conversion of ABR Loans to Eurodollar
Loans shall only be made on a Business Day and any such conversion of Eurodollar
Loans to new Eurodollar Loans shall only be made on the last day of the Interest
Period applicable to the Eurodollar Loans which are to be converted to such new
Eurodollar Loans. The Administrative Agent shall promptly provide the Lenders
with notice of any such election. Loans may be converted pursuant to this
Section 2.8(a) in whole or in part, provided that conversions of ABR Loans to
Eurodollar Loans, or Eurodollar Loans to new Eurodollar Loans having the same
Interest Period, shall be in an aggregate principal amount of $2,000,000 or such
amount plus a whole multiple of $250,000.
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(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of a Default or Event
of Default, the Borrower shall have no right to elect to convert any ABR Loan to
a Eurodollar Loan or to convert any Eurodollar Loan to a new Eurodollar Loan. In
such event, such ABR Loan shall be automatically continued as an ABR Loan or
such Eurodollar Loan shall be automatically converted to an ABR Loan on the last
day of the Interest Period applicable to such Eurodollar Loan. If a Default or
an Event of Default shall have occurred and be continuing, the Administrative
Agent shall, at the request of the Required Lenders, notify the Borrower (by
telephone or otherwise) that all, or such lesser amount as the Administrative
Agent and the Required Lenders shall designate, of the outstanding Eurodollar
Loans, if any, shall be automatically converted to ABR Loans, in which event
such Eurodollar Loans of each Lender, at the option of such Lender, shall be
automatically converted to ABR Loans on the date such notice is given.
(c) Each such conversion shall be effected by each Lender by
applying the proceeds of the new ABR Loan or Eurodollar Loan, as the case may
be, to the Loan (or portion thereof) being converted (it being understood that
such conversion shall not constitute a borrowing for purposes of Sections 4 or
5).
(d) Notwithstanding any other provision of this Agreement:
(i) If the Borrower shall have failed to elect a
Eurodollar Loan under Sections 2.3 or 2.8, as the case may be, in connection
with any borrowing of new Loans or expiration of an Interest Period with respect
to any existing Eurodollar Loan, the amount of the Loans subject to such
borrowing or such existing Eurodollar Loan shall thereafter be an ABR Loan until
such time, if any, as the Borrower shall elect a new Eurodollar Loan pursuant to
Section 2.8,
(ii) The Borrower shall not be permitted to select
any Eurodollar Loan the Interest Period in respect of which ends later than the
Maturity Date,
(iii) When electing a Eurodollar Loan, the Borrower
shall select an Interest Period such that, on each date that a mandatory
principal payment is required to be made pursuant to Section 2.5(b) in
connection with a RC Commitment reduction pursuant to Section 2.4(b), the
outstanding principal amount of all Loans which are ABR Loans, when added to the
aggregate principal amount of all Loans which are Eurodollar Loans the Interest
Period in respect of which shall end on such date, shall equal or exceed the
aggregate principal amount of the Loans required to be paid on such date, and
(iv) The Borrower shall not be permitted to have more
than five Interest Periods with respect to outstanding Eurodollar Loans at any
one time.
2.9 Indemnification for Loss.
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In the event of (a) the payment or prepayment (voluntary or
otherwise) of any principal of any Eurodollar Loan other than on the last day of
an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto or (c) the failure to borrow, convert,
continue or prepay any Eurodollar Loan on the date specified in any notice
delivered pursuant hereto, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest that would have accrued on the
principal amount of such Loan had such event not occurred, at the Eurodollar
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest that would accrue on such principal amount for such period at the
interest rate that such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the eurodollar market. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
2.10 Reimbursement for Costs.
The Borrower hereby agrees to reimburse each Lender and the
Issuing Bank on demand for its reasonable costs (excluding general
administrative and overhead costs) directly attributable to its compliance with
this Agreement during the term hereof with all applicable future laws, executive
orders, and regulations of the governments of the United States and the United
Kingdom, and of any other applicable government, and of any regulatory or
administrative agency thereof (including, without limitation, the reserve
requirements established by the Board of Governors of the Federal Reserve System
under Regulation D), or any change in existing or future applicable laws,
executive orders and regulations and in the interpretations thereof which
impose, modify or deem applicable any reserve, asset, special deposit or special
assessment requirements on deposits obtained in the interbank eurodollar market,
or which subject any Lender or the Issuing Bank to any tax (documentary, stamp
or otherwise) with respect to any Loan Document or Letter of Credit, or change
the basis of taxation of payments to any Lender or the Issuing Bank, of
principal, interest, fees or other amounts payable under any Loan Document or
Letter of Credit (except for any tax, or changes in the rate of tax, on its
income or receipts (including franchise taxes on or based upon such income or
receipts) imposed by the United States or any other jurisdiction). Each such
Lender and the Issuing Bank agrees to provide the Borrower with notice of any
law, executive order or
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regulation, or change in the interpretation thereof, which would require the
Borrower to indemnify such Lender or the Issuing Bank under this Section 2.10
promptly upon it obtaining actual knowledge thereof and determining that it
intends to require the Borrower to reimburse it pursuant to this Section 2.10
for any costs resulting therefrom. The cost to each Lender in complying with
laws, executive orders or regulations which impose, modify or deem applicable
any reserve, asset, special deposit or special assessment requirements on
deposits obtained in the market for eurocurrency loans shall be computed by
determining the amount by which such requirements effectively increase such
Lender's cost of making and maintaining its Eurodollar Loans and by computing
the additional amount which would have been owing to such Lender hereunder if
such effective increase had been added to the Eurodollar Rate for purposes of
determining the applicable Eurodollar Rate during the period or applicable
portion thereof in question. Each Lender and the Issuing Bank may make multiple
requests for compensation under this Section 2.10.
2.11 Illegality of Funding.
Notwithstanding anything contained herein to the contrary, if
any law, regulation, treaty or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender to
make or maintain any Eurodollar Loan as contemplated by this Agreement, (i) the
commitment of such Lender to make Eurodollar Loans or convert ABR Loans to
Eurodollar Loans, as the case may be, shall forthwith be suspended and (ii) such
Lender's then outstanding Eurodollar Loans affected thereby, if any, shall be
converted automatically to ABR Loans on the last day of the then current
Interest Period applicable thereto or at such earlier time as may be required.
If the commitment of any Lender with respect to Eurodollar Loans is suspended
pursuant to this Section 2.11 and such Lender shall notify the Administrative
Agent and the Borrower that it is once again legal for such Lender to make or
maintain Eurodollar Loans, such Lender's commitment to make or maintain
Eurodollar Loans shall be reinstated.
2.12 Option to Fund.
Each Lender has indicated that, if the Borrower requests a
Eurodollar Loan, such Lender may wish to purchase one or more deposits in order
to fund or maintain its funding of its pro rata share of such Loan during the
Interest Period with respect thereto; it being understood that the provisions of
this Agreement relating to such funding are included only for the purpose of
determining the rate of interest to be paid on such Loan and any amounts owing
under Sections 2.9, 2.10, 2.11 and 2.15. Each Lender shall be entitled to fund
and maintain its funding of all or any part of its Eurodollar Loans in any
manner it sees fit, but all such determinations hereunder shall be made as if
each Lender had actually funded and maintained its Eurodollar Loans during the
applicable Interest Period through the purchase of deposits in an amount equal
to its pro rata share of the Eurodollar Loans having a maturity corresponding to
such Interest Period. Any
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Lender may fund its pro rata share of the Eurodollar Loans from any branch or
office of such Lender as such Lender may choose from time to time, subject to
Section 2.17.
2.13 Taxes; Net Payments.
(a) Any and all payments by or on account of any obligation
of any Loan Party hereunder and under any other Loan Document shall be made free
and clear of and without deduction for any Indemnified Taxes or Other Taxes,
provided that, if such Loan Party shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that, after making all required deductions (including
deductions applicable to additional sums payable under this Section), the
applicable Credit Party receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Loan Party shall make such
deductions and (iii) such Loan Party shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Loan Parties shall pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.
(c) Each Loan Party shall indemnify each Credit Party,
within ten days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by such Credit Party on or with respect to
any payment by or on account of any obligation of such Loan Party under the Loan
Documents (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Credit Party, or by
the Administrative Agent on its own behalf or on behalf of a Credit Party, shall
be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
relevant Loan Party is located, or any treaty to which such jurisdiction is a
party, with respect to payments under the Loan Documents shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly
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completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.
2.14 Capital Adequacy.
If the amount of capital required or expected to be maintained
by any Lender, the Issuing Bank or any Person directly or indirectly owning or
controlling such Lender or the Issuing Bank (each a "Control Person"), shall be
affected by
(a) the introduction or phasing in of any law, rule or
regulation after the Original Effective Date,
(b) any change after the Original Effective Date in the
interpretation of any existing law, rule or regulation
by any central bank or United States or foreign
Governmental Authority charged with the administration
thereof, or
(c) compliance by such Lender, the Issuing Bank or such
Control Person with any directive, guideline or request
from any central bank or United States or foreign
Governmental Authority (whether or not having the force
of law) promulgated or made Original Effective Date,
and such Person shall have determined that such introduction, phasing in, change
or compliance shall have had or will thereafter have the effect of reducing (i)
the rate of return on its capital, or (ii) the asset value to such Lender, the
Issuing Bank or such Control Person of the Loans made or maintained by such
Lender, the Letters of Credit issued or maintained by the Issuing Bank or the
Reimbursement Obligations or any participation therein owed to the Issuing Bank
or any Lender to a level below that which such Lender, the Issuing Bank or such
Control Person could have achieved or would thereafter be able to achieve but
for such introduction, phasing in, change or compliance (after taking into
account such Lender's, the Issuing Bank's or such Control Person's policies
regarding capital), in either case by an amount which it deems material, then,
within ten days after demand by such Lender or the Issuing Bank, the Borrower
shall pay to such Lender, the Issuing Bank or such Control Person, as the case
may be, such additional amount or amounts as shall be sufficient to compensate
such Lender, the Issuing Bank or such Control Person, as the case may be, for
such reduction on an after-tax basis.
2.15 Substituted Interest Rate.
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In the event that (i) the Administrative Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank eurodollar
market either adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.6 or (ii) in the event that any
Lender shall have notified the Administrative Agent that it has determined
(which determination shall be conclusive and binding on the Borrower) that the
applicable Eurodollar Rate will not adequately and fairly reflect the cost to
such Lender of maintaining or funding loans bearing interest based on such
Eurodollar Rate, with respect to a proposed Loan that the Borrower has requested
be made as a Eurodollar Loan, or a Eurodollar Loan that will result from the
requested conversion of any Loan into a Eurodollar Loan (any such Loan being
herein called an "Affected Loan"), the Administrative Agent shall promptly
notify the Borrower and the Lenders (by telephone or otherwise) of such
determination, confirmed in writing, on or prior to the requested Borrowing Date
for such Affected Loan or the requested conversion date of such Loan. If the
Administrative Agent shall give such notice, (a) any requested Affected Loan
shall be made as an ABR Loan, (b) any Loan that was to have been converted to an
Affected Loan shall be converted to or continued as an ABR Loan and (c) any
outstanding Affected Loan shall be converted, on the last day of the then
current Interest Period with respect thereto, to an ABR Loan. Until any such
notice under clause (i) of this Section 2.15 has been withdrawn by the
Administrative Agent (by notice to the Borrower promptly upon the Administrative
Agent's having determined that such circumstances affecting the interbank
eurodollar market no longer exist and that adequate and reasonable means do
exist for determining the Eurodollar Rate pursuant to Section 2.6) no further
Eurodollar Loans shall be made by the Lenders nor shall the Borrower have the
right to convert any Loans to Eurodollar Loans. Until any such notice under
clause (ii) of this Section 2.15 has been withdrawn by the Administrative Agent
(by notice to the Borrower promptly upon the Administrative Agent's having been
notified by such Lender that circumstances no longer render any Loan an Affected
Loan), no further Eurodollar Loans shall be required to be made by such Lender
nor shall the Borrower have the right to convert any Loan of such Lender to a
Eurodollar Loan of such Lender.
2.16 Transaction Record.
The Administrative Agent's records regarding the amount of each
Loan, each payment by the Borrower of principal and interest on the Loans, each
Letter of Credit and other information relating to the Loans and Letters of
Credit shall be presumed correct absent manifest error.
2.17 Certificates of Payment and Reimbursement; Other Provisions
Regarding Yield Protection.
(a) In connection with any request by a Lender or the
Issuing Bank for payment or reimbursement pursuant to Section 2.9, 2.10, 2.11,
2.14 or 2.15, such Lender
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or the Issuing Bank, as the case may be, shall provide the Borrower with a
certificate, signed by an officer, setting forth a description, in reasonable
detail, of any such payment or reimbursement. Each determination by a Lender or
the Issuing Bank of such amount or amounts owed by the Borrower to it under any
such Section shall be presumed correct absent manifest error, and shall be made
without duplication as to any other amounts owing by the Borrower to it under
Section 2.9, 2.10, 2.11, 2.14 or 2.15.
(b) In the event that any amount is owed by the Borrower to
any Lender pursuant to Section 2.9, 2.10, 2.11, 2.14 or 2.15 and an assignment
by such Lender of its rights and a delegation and transfer of its obligations
hereunder to another office or branch of such Lender would cause such amount to
cease to be owed by the Borrower, then such Lender shall make reasonable efforts
(which shall not in any event require such Lender to incur a loss or otherwise
suffer any disadvantage) to make an assignment of its rights and a delegation
and transfer of its obligations hereunder to such other office or branch, so
long as such assignment and delegation will not cause other amounts to be owed
by the Borrower under Section 2.9, 2.10, 2.11, 2.14 or 2.15 and so long as the
Lender shall be permitted under applicable law to make and maintain Eurodollar
Loans after giving effect to such assignment and delegation.
(c) The obligations of the Borrower under Sections 2.9,
2.10, 2.11, 2.14 and 2.15 shall survive any termination of this Agreement, the
expiration of the RC Commitments and the payment of all indebtedness of the
Borrower hereunder and under the Loan Documents.
2.18 Letter of Credit Sub-Facility.
(a) Subject to the terms and conditions hereof and the
payment by the Borrower to the Issuing Bank of such fees as the Borrower and the
Issuing Bank shall have agreed in writing, the Issuing Bank agrees, in reliance
on the agreement of the other Lenders set forth in Section 2.19, to issue
standby letters of credit (each a "Letter of Credit" and, collectively, the
"Letters of Credit") during the RC Commitment Period for the account of the
Borrower, provided that immediately after the issuance of each Letter of Credit
(i) the Letter of Credit Exposure of all Lenders shall not exceed the Letter of
Credit Commitment, and (ii) the sum of the aggregate outstanding RC Loans and
the Letter of Credit Exposure of all Lenders shall not exceed the RC
Commitments. Each Letter of Credit shall have an expiration date which shall be
not later than the earlier to occur of one year from the date of issuance or
last extension thereof or one Business Day prior to the RC Commitment
Termination Date. No Letter of Credit shall be issued if the Administrative
Agent, or any Lender by notice to the Administrative Agent and the Issuing Bank
no later than 3:00 P.M. one Business Day prior to the requested date of issuance
of such Letter of Credit, shall have determined that the applicable conditions
set forth in Section 5 have not been satisfied.
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(b) Each Letter of Credit shall be issued for the account of
the Borrower. The Borrower shall give the Administrative Agent and the Issuing
Bank a Letter of Credit Request for the issuance of each Letter of Credit no
later than 1:00 P.M at least three Business Days prior to the requested date of
issuance. Such Letter of Credit Request shall be accompanied by the Issuing
Bank's standard Application and Agreement for Standby Letter of Credit (each a
"Reimbursement Agreement") executed by the Borrower, and shall specify (i) the
beneficiary of such Letter of Credit and the obligations of the Borrower in
respect of which such Letter of Credit is to be issued, (ii) the Borrower's
proposal as to the conditions under which a drawing may be made under such
Letter of Credit and the documentation to be required in respect thereof, (iii)
the maximum amount to be available under such Letter of Credit and (iv) the
requested date of issuance. Upon receipt of such Letter of Credit Request from
the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. The Issuing Bank shall, on the proposed date of issuance and subject to
the other terms and conditions of this Agreement, issue the requested Letter of
Credit. Each Letter of Credit shall be in a minimum amount of $1,000,000 and be
in form and substance reasonably satisfactory to the Issuing Bank, with such
provisions with respect to the conditions under which a drawing may be made
thereunder and the documentation required in respect of such drawing as the
Issuing Bank shall reasonably require. Each Letter of Credit shall be used
solely for the purposes described therein.
(c) Each payment by the Issuing Bank of a draft drawn under
a Letter of Credit shall give rise to the obligation of the Borrower to
immediately reimburse the Issuing Bank for the amount thereof. The Issuing Bank
shall promptly notify the Borrower of such payment by the Issuing Bank of a
draft drawn under a Letter of Credit, but any failure to so notify shall not in
any manner affect the obligation of the Borrower to make reimbursement when due.
In lieu of such notice, if the Borrower has not made reimbursement prior to the
end of the Business Day when due, the Borrower hereby irrevocably authorizes the
Issuing Bank to deduct the amount of any such reimbursement from any account(s)
of the Borrower maintained with the Issuing Bank, upon which the Issuing Bank
shall apply the amount of such deduction to such reimbursement. If all or any
portion of any reimbursement obligation in respect of a Letter of Credit shall
not be paid when due (whether at the stated maturity thereof, by acceleration or
otherwise), such overdue amount shall bear interest, payable upon demand, at a
rate per annum equal to the Alternate Base Rate plus the Applicable Margin
applicable to ABR Loans plus 2% (calculated in the same manner as ABR Loans),
from the date of such nonpayment until paid in full (whether before or after the
entry of a judgment thereon).
2.19 Letter of Credit Participation.
(a) Each Lender hereby unconditionally and irrevocably,
severally (and not jointly) takes an undivided participating interest in the
obligations of the Issuing Bank under and in connection with each Letter of
Credit in an amount equal to such
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Lender's RC Commitment Percentage of the amount of such Letter of Credit. Each
Lender shall be liable to the Issuing Bank for its RC Commitment Percentage of
the unreimbursed amount of any draft drawn and honored under each Letter of
Credit. Each Lender shall also be liable for an amount equal to the product of
its RC Commitment Percentage and any amounts paid by the Borrower pursuant to
Sections 2.18 and 2.20 that are subsequently rescinded or avoided, or must
otherwise be restored or returned. Such liabilities shall be unconditional and
without regard to the occurrence of any Default or Event of Default or the
compliance by the Borrower with any of its obligations under the Loan Documents.
(b) The Issuing Bank shall promptly notify the
Administrative Agent, and the Administrative Agent shall promptly notify each
Lender (which notice shall be promptly confirmed in writing), of the date and
the amount of each draft paid under each Letter of Credit with respect to which
full reimbursement payment shall not have been made by the Borrower as provided
in Section 2.18(c), and forthwith upon receipt of such notice, such Lender shall
promptly make available to the Administrative Agent for the account of the
Issuing Bank its RC Commitment Percentage of the amount of such unreimbursed
draft at the office of the Administrative Agent specified in Section 11.2 in
lawful money of the United States and in immediately available funds. The
Administrative Agent shall distribute the payments made by each Lender pursuant
to the immediately preceding sentence to the Issuing Bank promptly upon receipt
thereof in like funds as received. Each Lender shall indemnify and hold harmless
the Administrative Agent and the Issuing Bank from and against any and all
losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) resulting from any failure on the part
of such Lender to provide, or from any delay in providing, the Administrative
Agent with such Lender's RC Commitment Percentage of the amount of any payment
made by the Issuing Bank under a Letter of Credit in accordance with this
subsection (b) above (except in respect of losses, liabilities or other
obligations suffered by the Administrative Agent or the Issuing Bank, as the
case may be, resulting from the gross negligence or willful misconduct of the
Administrative Agent or the Issuing Bank, as the case may be). If a Lender does
not make available to the Administrative Agent when due such Lender's RC
Commitment Percentage of any unreimbursed payment made by the Issuing Bank under
a Letter of Credit, such Lender shall be required to pay interest to the
Administrative Agent for the account of the Issuing Bank on such Lender's RC
Commitment Percentage of such payment at a rate of interest per annum equal to
(i) from the date such Lender should have made such amount available until the
third day therefrom, the Federal Funds Effective Rate, and (ii) thereafter, the
Federal Funds Effective Rate plus 2%, in each case payable upon demand by the
Issuing Bank. The Administrative Agent shall distribute such interest payments
to the Issuing Bank upon receipt thereof in like funds as received.
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(c) Whenever the Administrative Agent is reimbursed by the
Borrower, for the account of the Issuing Bank, for any payment under a Letter of
Credit and such payment relates to an amount previously paid by a Lender in
respect of its RC Commitment Percentage of the amount of such payment under such
Letter of Credit, the Administrative Agent (or the Issuing Bank, if such payment
by a Lender was paid by the Administrative Agent to the Issuing Bank) will
promptly pay over such payment to such Lender.
2.20 Absolute Obligation with respect to Letter of Credit Payments.
The Borrower's obligation to reimburse the Issuing Bank for each
payment under or in respect of each Letter of Credit shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which the Borrower may have or have had
against the beneficiary of such Letter of Credit, the Administrative Agent, the
Issuing Bank, any Lender or any other Person, including, without limitation, any
defense based on the failure of any drawing to conform to the terms of such
Letter of Credit, any drawing document proving to be forged, fraudulent or
invalid, or the legality, validity, regularity or enforceability of such Letter
of Credit, provided, however, that, with respect to any Letter of Credit, the
foregoing shall not relieve the Issuing Bank of any liability it may have to the
Borrower for any actual damages sustained by the Borrower arising from a
wrongful payment (or failure to pay) under such Letter of Credit made as a
result of the Issuing Bank's gross negligence or willful misconduct.
3. FEES; PAYMENTS
3.1 Fees.
(a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a fee (the "Commitment Fee") during the RC
Commitment Period, payable quarterly in arrears on the last day of each March,
June, September and December of each year, commencing on the first such date
following the Original Effective Date, and on the RC Commitment Termination
Date, on the average daily excess of (i) the RC Commitment of such Lender, over
(ii) the aggregate outstanding principal balance of the RC Loans of such Lender
plus its Letter of Credit Exposure, at a rate per annum equal to (a) at all
times when the Total Leverage Ratio is greater than or equal to 4.50:1.00,
0.500% (or 0.625% if Total Facility Usage is less than 0.50) and (b) at all
times when the Total Leverage Ratio is less than 4.50:1.00, 0.375% (or 0.500% if
Total Facility Usage is less than 0.50). The Commitment Fee shall be computed on
the basis of a 360-day year for the actual number of days elapsed.
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(b) Solely for purposes of calculating the Commitment Fee,
changes in the Total Leverage Ratio, as evidenced by a Compliance Certificate
delivered to the Administrative Agent pursuant to Section 7.1(d) or a Borrowing
Request or Letter of Credit Request delivered to the Administrative Agent
pursuant to Section 5.2(c) evidencing such a change, shall become effective upon
(i) in the case of the delivery of a Compliance Certificate, the first Business
Day following the delivery of (x) such Compliance Certificate and (y) the
applicable financial statements required to be delivered pursuant to Section
7.1(a) or (c), as the case may be, and (ii) in the case of the delivery of a
Borrowing Request or Letter of Credit Request, the Borrowing Date applicable
thereto. Solely for purposes of calculating the Commitment Fee, if the Borrower
shall fail to deliver a Compliance Certificate within 60 days after the end of
each of the first three fiscal quarters, or within 120 days after the end of the
last fiscal quarter, of each fiscal year (each a "certificate delivery date"),
the Total Leverage Ratio from and including such certificate delivery date to
the date of delivery by the Borrower to the Administrative Agent of such
Compliance Certificate shall be conclusively presumed to be greater than
4.50:1.00.
(c) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a fee (the "Letter of Credit Fee") with respect
to the Letters of Credit during the period commencing on the Original Effective
Date and ending on the RC Commitment Termination Date or, if later, the date
when the Letter of Credit Exposure of all Lenders is $0, payable quarterly in
arrears on the last day of each March, June, September and December of each
year, commencing on the first such date following the Original Effective Date,
on the RC Commitment Termination Date and on the last date of such period, on
such Lender's RC Commitment Percentage of the average daily aggregate amount
which may be drawn under the Letters of Credit during such period (whether or
not the conditions for drawing thereunder have or may be satisfied) multiplied
by a rate per annum equal to the Applicable Margin for Eurodollar Loans during
such period. The Letter of Credit Fee shall be computed on the basis of a
360-day year for the actual number of days elapsed.
3.2 Pro Rata Treatment and Application of Payments.
All payments (including prepayments) made by the Borrower to the
Administrative Agent on account of principal of or interest on the RC Loans
shall be made pro rata according to the outstanding principal amount of each
Lender's RC Loans. All payments by the Borrower shall be made without set-off or
counterclaim and shall be made prior to 1:00 P.M. on the date such payment is
due, to the Administrative Agent for the account of the Lenders, at the
Administrative Agent's office specified in Section 11.2, in each case in lawful
money of the United States of America and in immediately available funds, and,
as between the Borrower and the Lenders, any payment by the Borrower to the
Administrative Agent for the account of the Lenders shall be deemed to be
payment by the Borrower to the Lenders. The failure of the Borrower to make any
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<PAGE> 47
such payment by 1:00 P.M. on such due date shall not constitute a Default or
Event of Default hereunder, provided that such payment is made on such due date,
but any such payment received by the Administrative Agent on any Business Day
after 1:00 P.M. shall be deemed to have been received on the immediately
succeeding Business Day for the purpose of calculating any interest payable in
respect thereof. The Administrative Agent agrees promptly to notify the Borrower
if it shall receive any such payment after 1:00 P.M. on the due date hereof,
provided that the failure of the Administrative Agent to give such prompt notice
shall in no way affect the Borrower's obligation to make any payment hereunder
on the date such payment is due. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. Unless
otherwise set forth in the definition of "Interest Period", if any payment
hereunder or on any Note becomes due and payable on a day other than a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate or rates during such extension.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent, the Issuing Bank and the
Lenders to enter into this Agreement and to make Loans, and in order to induce
the Issuing Bank to issue Letters of Credit and the Lenders to participate
therein, the Borrower hereby makes the following representations and warranties
to the Administrative Agent, the Issuing Bank and to each Lender:
4.1 Subsidiaries.
The Borrower has only the Subsidiaries set forth in Schedule
4.1. Except as set forth in Schedule 4.1, the shares of each corporate
Subsidiary owned by the Borrower are duly authorized, validly issued, fully paid
and nonassessable. The shares of each Subsidiary are owned free and clear of any
Liens, except (i) Liens in favor of the Administrative Agent and the Lenders
pursuant to the Collateral Documents and (ii) Permitted Liens.
4.2 Corporate Existence and Power.
The Borrower and each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own its
Property and to carry on its business as now conducted, and is in good standing
and authorized to do business in each jurisdiction in which the failure to be so
authorized could reasonably be expected to have a Material Adverse Effect.
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<PAGE> 48
4.3 Authority.
The Borrower and each other Loan Party has full power and
authority to enter into, execute, deliver and carry out the terms of the Loan
Documents to which it is a party, to make the borrowings contemplated hereby, to
execute, deliver and carry out the terms of the Notes and to incur the
obligations provided for herein and therein, all of which have been duly
authorized by all proper and necessary action and are in full compliance with
its certificate of incorporation and by-laws.
4.4 Governmental Authority Approvals.
No consent, authorizations or approval of, filing with, notice
to, or exemption by, stockholders, any Governmental Authority or any other
Person (except for those which have been obtained, made or given and those which
will be obtained, made or given prior to the Restatement Effective Date) is
required to authorize, or is required in connection with the execution, delivery
and performance of the Loan Documents, or is required as a condition to the
validity or, except as expressly set forth in the Collateral Documents with
respect to the FCC, the enforceability of the Loan Documents. Except as set
forth in the preceding sentence, no provision of any applicable statute, law
(including, without limitation, any applicable usury or similar law), rule or
regulation of any Governmental Authority will prevent the execution, delivery or
performance of, or affect the validity of, the Loan Documents.
4.5 Binding Agreement.
The Loan Documents constitute the valid and legally binding
obligations of the Borrower and each other Loan Party to which it is a party,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally.
4.6 Litigation.
Except as set forth in Schedule 4.6, there are no actions,
suits, arbitration proceedings or claims (whether or not purportedly on behalf
of the Borrower or any Subsidiary) pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Subsidiary, or maintained by the Borrower
or any Subsidiary, at law or in equity, before any Governmental Authority which
could reasonably be expected to have a Material Adverse Effect. There are no
proceedings pending or, to the knowledge of the Borrower, threatened against the
Borrower or any Subsidiary which call into question the validity or
enforceability of any of the Loan Documents.
4.7 No Conflicting Agreements.
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<PAGE> 49
Except as set forth in Schedule 4.7, neither the Borrower nor
any Subsidiary is in default under any mortgage, indenture, contract, agreement,
judgment, decree or order to which it is a party or by which it or any of its
Property is bound, which defaults, taken as a whole, could reasonably be
expected to have a Material Adverse Effect. Except for any Lien created by any
Loan Document, the execution, delivery or carrying out of the terms of the Loan
Documents will not constitute a default under, conflict with, require any
consent under (other than consents which have been obtained) or result in the
creation or imposition of, or obligation to create, any Lien upon the Property
of the Borrower or any Subsidiary pursuant to the terms of any such mortgage,
indenture, contract, agreement, judgment, decree or order, which defaults,
conflicts and consents, if not obtained, taken as a whole, could reasonably be
expected to have a Material Adverse Effect.
4.8 Taxes.
Except as set forth in Schedule 4.8, the Borrower and each
Subsidiary has filed or caused to be filed all tax returns required to be filed
and has paid, or has made adequate provision for the payment of, all Taxes shown
to be due and payable on said returns or in any assessments made against it
which would be material to the Borrower or any Subsidiary, and no tax Liens
(other than Permitted Liens) have been filed. Except as set forth in Schedule
4.8, the charges, accruals and reserves on the books of the Borrower and each
Subsidiary with respect to all federal, state, local and other Taxes are, to the
best knowledge of the Borrower, adequate, and the Borrower knows of no unpaid
assessment which is due and payable against it or any Subsidiary or any claims
being asserted which could reasonably be expected to have a Material Adverse
Effect, except such thereof as are being contested in good faith and by
appropriate proceedings diligently conducted, and for which adequate reserves
have been set aside in accordance with GAAP.
4.9 Compliance with Applicable Laws.
Neither the Borrower nor any Subsidiary is in default with
respect to any judgment, order, writ, injunction, decree or decision of any
Governmental Authority which default could reasonably be expected to have a
Material Adverse Effect. The Borrower and each Subsidiary is complying in all
material respects with all applicable statutes and regulations, including ERISA,
of all Governmental Authorities, a violation of which could reasonably be
expected to have a Material Adverse Effect.
4.10 Governmental Regulations.
Neither the Borrower nor any Subsidiary is subject to regulation
under the Public Utility Holding Company Borrower Act of 1935, the Federal Power
Act or the Investment Company Act of 1940, and neither the Borrower nor any
Subsidiary is subject to any statute or regulation which prohibits or restricts
the incurrence of Indebtedness
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<PAGE> 50
under the Loan Documents, including, without limitation, statutes or regulations
relative to common or contract carriers or to the sale of electricity, gas,
steam, water, telephone, telegraph or other public utility services.
4.11 Property; Broadcasting Business.
(a) The Borrower and each Subsidiary has good and, except
with respect to FCC licenses which cannot be transferred without the consent of
the applicable Governmental Authority, marketable title to all of its Property,
title to which is material to the Borrower and the Subsidiaries taken as a
whole, subject to no Liens, except Liens in favor of the Administrative Agent
and the Lenders pursuant to the Collateral Documents and Permitted Liens.
(b) The Borrower and the Subsidiaries are the registered
holders of all licenses duly issued by the FCC in respect of all Broadcasting
Stations owned and operated by the Borrower and each Subsidiary. Such licenses
constitute all of the authorizations by the FCC or any other Governmental
Authority necessary for the operation of the business of the Borrower and each
Subsidiary substantially in the manner presently being conducted by it, and such
licenses are validly issued and in full force and effect, unimpaired by any act
or omission by the Borrower or such Subsidiary. To the best of the Borrower's
knowledge, except as set forth in Schedule 4.11(b), neither the Borrower nor any
Subsidiary is a party to any investigation, notice of violation, order or
complaint issued by or before the FCC which could reasonably be expected to have
a Material Adverse Effect. Except for such proceedings that affect the radio
broadcasting industry generally and as set forth in Schedule 4.11(b), there are
no proceedings by or before the FCC, which could in any manner materially
threaten or adversely affect the validity of any of such licenses. Neither the
Borrower nor any Subsidiary has knowledge of a threat of any investigation,
notice of violation, order, complaint or proceeding before the FCC which could
reasonably be expected to have a Material Adverse Effect or has any reason to
believe that any of such licenses will not be renewed in the ordinary course.
4.12 Federal Reserve Regulations; Use of Proceeds.
Neither the Borrower nor any Subsidiary is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any Margin Stock. No part of the proceeds
of the Loans or Letters of Credit will be used, directly or indirectly, to
purchase or carry any Margin Stock or for a purpose which violates any law, rule
or regulation of any Governmental Authority, including without limitation the
provisions of Regulations T, U or X of the Board of Governors of the Federal
Reserve System, as amended.
4.13 No Misrepresentation.
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<PAGE> 51
No representation or warranty contained herein and no
certificate or report furnished or to be furnished by the Borrower or any
Subsidiary in connection with the transactions contemplated hereby, contains or
will contain a misstatement of material fact, or, to the best knowledge of the
Borrower or any Subsidiary omits or will omit to state a material fact required
to be stated in order to make the statements herein or therein contained not
misleading in the light of the circumstances under which made.
4.14 Plans.
The Borrower and each Subsidiary have only the Plans listed in
Schedule 4.14. Each Single Employer Plan and, to the best knowledge of the
Borrower, each Multiemployer Plan is in compliance in all material respects with
the applicable provisions of ERISA and the Code, and the Borrower and each
Subsidiary have filed all reports required to be filed by them under ERISA and
the Code with respect to each such Plan. The Borrower and each Subsidiary have
met all material requirements imposed by ERISA and the Code with respect to the
funding of all Plans, including Multiemployer Plans. Since the effective date of
ERISA, there have not been, nor are there now existing, any events or conditions
which would permit any Single Employer Plan or, to the best knowledge of the
Borrower, Multiemployer Plan to be terminated under circumstances which would
cause the Lien provided under Section 4068 of ERISA to attach to the Property of
the Borrower or any Subsidiary. Since the effective date of ERISA, no Reportable
Event which may constitute grounds for the termination of any Single Employer
Plan or, to the best knowledge of the Borrower, Multiemployer Plan under Title
IV of ERISA has occurred and no Single Employer Plan or Multiemployer Plan has
been terminated in whole or in part.
4.15 FCC Matters.
The Borrower and each Subsidiary (i) have duly and timely filed
all filings which are required to be filed by the Borrower and each Subsidiary
under the Communications Act and the rules and regulations of the FCC, the
failure to file of which could reasonably be expected to have a Material Adverse
Effect, and (ii) are in all respects in compliance with the Communications Act,
including, without limitation, the rules and regulations of the FCC relating to
the transmission of radio signals, the failure to comply of which could
reasonably be expected to have a Material Adverse Effect.
4.16 Burdensome Obligations.
Neither the Borrower nor any Subsidiary is a party to or bound
by any franchise, agreement, deed, lease or other instrument, or subject to any
corporate restriction which, in the opinion of the management of the Borrower,
is so unusual or burdensome, in the context of the Borrower's or such
Subsidiary's business, as in the foreseeable future could reasonably be expected
to have a Material Adverse Effect. The
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<PAGE> 52
Borrower does not presently anticipate that future expenditures needed to meet
the provisions of federal or state statutes, orders, rules or regulations will
be so burdensome as to have a Material Adverse Effect.
4.17 Financial Statements.
The Borrower has heretofore delivered to the Lenders a copy of
(i) the annual audited Consolidated (and unaudited Consolidating) Balance Sheets
of the Borrower and its Subsidiaries as of December 31, 1998, together with the
related Consolidated and Consolidating Statements of Operations, Shareholders'
Equity and Cash Flows for the period then ended, and (ii) the unaudited
Consolidated and Consolidating Balance Sheets of the Borrower and its
Subsidiaries as of March 31, 1999, together with the related Consolidated and
Consolidating Statements of Operations for the periods then ended. The foregoing
financial statements fairly present the Consolidated and Consolidating financial
condition and results in the operations of the Borrower and its Subsidiaries as
of the dates and for the periods indicated therein and have been prepared in
conformity with GAAP. Except as reflected in such financial statements or in the
footnotes thereto, neither the Borrower nor any of its Subsidiaries has any
obligation or liability of any kind (whether fixed, accrued, contingent,
unmatured or otherwise) which, in accordance with GAAP, should have been shown
on such financial statements and was not. Since December 31, 1998, the Borrower
and its Subsidiaries have conducted their business only in the ordinary course
(except with respect to the acquisitions of Media Assets permitted by the terms
hereof and except as set forth in the March 31, 1999 financial statements
referred to above), and there has been no Material Adverse Change.
4.18 Environmental Matters.
Except as set forth in Schedule 4.18, neither the Borrower nor
any Subsidiary (i) has received written notice or otherwise learned of any
claim, demand, action, event, condition, report or investigation indicating or
concerning any potential or actual liability which individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect arising
in connection with (a) any noncompliance with or violation of the requirements
of any Environmental Law, or (b) the release or threatened release of any toxic
or hazardous waste, substance or constituent, or other substance into the
environment, (ii) to the best knowledge of the Borrower, has any threatened or
actual liability in connection with the release or threatened release of any
toxic or hazardous waste, substance or constituent, or other substance into the
environment which individually or in the aggregate could reasonably be expected
to have a Material Adverse Effect, (iii) has received notice of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release or threatened release of any toxic or hazardous waste, substance or
constituent or other substance into the environment for which the Borrower or
any Subsidiary is or may be liable which individually or in the
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<PAGE> 53
aggregate could reasonably be expected to have a Material Adverse Effect, or
(iv) has received notice that the Borrower or any Subsidiary is or may be liable
to any Person under any Environmental Law which individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect. The Borrower and
each Subsidiary is in compliance in all material respects with the financial
responsibility requirements of all Environmental Laws to the extent applicable,
including, without limitation, those contained in 40 C.F.R., parts 264 and 265,
subpart H, and any analogous state law.
4.19 Year 2000.
Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the computer systems of the Borrower and the
Subsidiaries necessary for the conduct of the business of the Borrower and the
Subsidiaries as a whole and (ii) the equipment of the Borrower and the
Subsidiaries necessary for the conduct of the business of the Borrower and the
Subsidiaries as a whole containing embedded microchips (including systems and
equipment supplied by others or with which the Borrower's or the Subsidiaries'
systems interact) and the testing of all such systems and equipment, as so
reprogrammed, will be completed by August 31, 1999. The cost to the Borrower and
the Subsidiaries of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Borrower and the Subsidiaries will
not result in a Default or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and the Subsidiaries
are and, with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient to permit the Borrower and the
Subsidiaries to conduct their business without Material Adverse Effect.
5. CONDITIONS OF EFFECTIVENESS AND LENDING
5.1 Effectiveness.
The effectiveness of this Agreement is subject to the prior or
simultaneous fulfillment of the following conditions precedent:
(a) Evidence of Corporate or Other Action. The
Administrative Agent shall have received a certificate, dated the Restatement
Effective Date, of the Secretary or an Assistant Secretary of each Loan Party
(i) attaching a true and complete copy of the resolutions of its Board of
Directors or other authorizing documents and of all documents evidencing all
necessary corporate or other action (in form and substance reasonably
satisfactory to the Administrative Agent) taken by it to authorize the Loan
Documents to which it is a party and the transactions contemplated thereby, (ii)
attaching a true and complete copy of its certificate of incorporation and
by-laws or other
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<PAGE> 54
organizational documents, (iii) setting forth the incumbency of its officer or
officers who may sign such Loan Documents, including therein a signature
specimen of such officer or officers and (iv) attaching a certificate of good
standing, if available, of the Secretary of State of the State of its
incorporation or formation and of each other State in which it is qualified to
do business.
(b) Notes. The Borrower shall have delivered to the
Administrative Agent the Notes, each duly executed on behalf of the Borrower by
an Authorized Signatory thereof.
(c) No Liens. The Administrative Agent shall have received a
certificate of the Borrower, signed by an Authorized Signatory thereof, dated
the Restatement Effective Date, certifying that on the Restatement Effective
Date there exist no Liens on the Collateral other than Permitted Liens.
(d) Subsidiary Guaranty and Borrower Security Agreement. The
Borrower shall have delivered to the Administrative Agent (i) the Subsidiary
Guaranty, dated as of the Restatement Effective Date, duly executed on behalf of
each Subsidiary by an Authorized Signatory thereof, (ii) the Borrower Security
Agreement, dated as of the Restatement Effective Date, duly executed on behalf
of the Borrower by an Authorized Signatory thereof, (iii) one or more share
certificates, representing all of the issued and outstanding Stock of each of
the Subsidiaries, together with undated stock powers, duly executed in blank on
behalf of the Borrower by an Authorized Signatory thereof and bearing an
appropriate signature guarantee in all respects satisfactory to the
Administrative Agent, in respect of each such certificate, (iv) all documents
evidencing intercompany Indebtedness owing to the Borrower or any Subsidiary,
and (v) certificates of insurance in all respects satisfactory to the
Administrative Agent evidencing the insurance required to be maintained pursuant
to Section 7.5(b).
(e) Filing of Financing Statements. The Borrower shall have
executed and delivered to the Administrative Agent such financing statements,
recordations and other documents with respect to the Collateral Documents as the
Administrative Agent or Special Counsel may request for the purpose of
perfecting the Liens granted thereunder. All filing fees and Taxes in connection
with the filing of the Collateral Documents shall have been paid or otherwise
provided for and the Administrative Agent and Special Counsel shall have
received satisfactory evidence thereof.
(f) Existing RC Loans. The Borrower shall have repaid (i)
the outstanding principal amount of all RC Loans under the Original Credit
Agreement (together with any costs associated with the prepayment of Eurodollar
Loans pursuant to the provisions of Section 2.9), and (ii) all accrued interest
and fees under the Original Credit Agreement, as such amounts exist immediately
prior to the effectiveness of this Agreement. To the extent the Borrower borrows
RC Loans hereunder (simultaneously
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<PAGE> 55
with the effectiveness of this Agreement) to make any of the payments required
by the previous sentence, the Administrative Agent is authorized to net any
funds payable by or to the Lenders as applicable.
(g) Common Equity Issuance. (i) The Borrower shall have
issued common Stock, on terms and provisions acceptable to the Administrative
Agent and the Lenders (the "Common Equity Issuance"), (ii) the Borrower shall
have received net cash proceeds from the Common Equity Issuance in an amount
equal to or greater than $100 million, and (iii) the Borrower shall have
delivered to the Administrative Agent a certificate of an Authorized Signatory
of the Borrower, dated the Restatement Effective Date, certifying as to the
amount of net cash proceeds that the Borrower received from the Common Equity
Issuance.
(h) Approvals. The Administrative Agent shall have received
evidence reasonably satisfactory to it that all approvals and consents of all
Persons required to be obtained in connection with the consummation of the
transactions contemplated by the Loan Documents have been obtained and that all
required notices have been given and all required waiting periods have expired.
(i) Litigation. There shall be no injunction, writ,
preliminary restraining order or other order of any nature issued by any
Governmental Authority in any respect affecting any Loan Document, or any
transaction contemplated by the Loan Documents and no action or proceeding by or
before any Governmental Authority shall have been commenced and be pending
seeking to prevent or delay any of the foregoing or challenging any term or
provision thereof or seeking any damages in connection therewith, and the
Administrative Agent shall have received a certificate, dated the Restatement
Effective Date and in all respects reasonably satisfactory to the Administrative
Agent, of an Authorized Signatory of the Borrower to the foregoing effect.
(j) Opinion of Counsel to the Borrower and the Subsidiaries.
The Administrative Agent shall have received opinions of counsel to the Borrower
and its Subsidiaries, dated the first Borrowing Date, substantially in the form
of Exhibit E.
(k) Opinion of FCC Counsel to the Borrower and the
Subsidiaries. The Administrative Agent shall have received opinions of special
FCC counsel to the Borrower and its Subsidiaries, dated the first Borrowing
Date, substantially in the form of Exhibit F.
(l) Payment of Fees. The Borrower shall have paid to the
Administrative Agent and the Lenders all fees and expenses which it shall have
agreed to pay, to the extent such fees and expenses have become payable on or
prior to the
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<PAGE> 56
Restatement Effective Date, and shall have paid the reasonable fees and
disbursements of Special Counsel.
(m) Financial Statements and Financial Projections. The
Borrower shall have delivered to the Administrative Agent and the Lenders the
financial statements referred to in Section 4.17 together with such projections
and other information as the Administrative Agent and the Lenders shall
reasonably require, all of which shall be in all material respects satisfactory
to the Administrative Agent and the Lenders.
(n) Subordinated Indenture and Subordinated Indenture
Subsidiary Guaranty. The Administrative Agent shall have received a copy of the
Subordinated Indenture and Subordinated Indenture Subsidiary Guaranty duly
certified by an Authorized Signatory of the Borrower as a true and complete copy
thereof.
(o) Other Documents. The Administrative Agent shall have
received such other documents as the Administrative Agent shall reasonably
require in connection with the effectiveness of this Agreement.
5.2 All Loans and Letters of Credit.
The obligation of the Lenders to make any Loan on a Borrowing Date, and
the obligation of the Issuing Bank to issue a Letter of Credit on a Borrowing
Date, is subject to the satisfaction of the following conditions precedent as of
the date of such Loan or Letter of Credit:
(a) Compliance. On each Borrowing Date and after giving
effect to the Loans or Letter of Credit to be made or issued thereon, (i) the
Loan Parties shall be in compliance with all of the terms, covenants and
conditions of the Loan Documents, (ii) there shall exist no Default or Event of
Default, (iii) the 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 such Borrowing Date, except as
the context otherwise requires, except as otherwise permitted or contemplated by
this Agreement, and except such matters relating thereto as are indicated in
each Borrowing Request which shall be reasonably satisfactory to the
Administrative Agent and the Required Lenders, and (iv) there shall have
occurred no Material Adverse Change since December 31, 1998. Each borrowing by
the Borrower and each issuance of a Letter of Credit shall constitute a
certification by the Borrower as of the date of such borrowing or issuance that
each of the foregoing matters is true and correct in all respects.
(b) Loan Closings. All documents required by the provisions
of this Agreement to be executed or delivered to the Administrative Agent on or
before the applicable Borrowing Date shall have been executed and shall have
been delivered at the
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<PAGE> 57
office of the Administrative Agent set forth in Section 11.2 on or before such
Borrowing Date.
(c) Borrowing Request or Letter of Credit Request. The
Administrative Agent shall have received a Borrowing Request or a Letter of
Credit Request, as applicable, duly executed by an Authorized Signatory of the
Borrower.
(d) Reimbursement Agreement. In connection with any Letter
of Credit Request, the Issuing Bank shall have received a Reimbursement
Agreement duly executed by an Authorized Signatory of the Borrower.
(e) Approval of Counsel. All legal matters in connection
with the making of each Loan or issuance of such Letter of Credit shall be
reasonably satisfactory to Special Counsel.
(f) Other Documents. The Administrative Agent shall have
received such other documents as the Administrative Agent shall reasonably
request.
6. FINANCIAL COVENANTS
The Borrower covenants and agrees that on and after the Original
Effective Date and until all obligations of the Borrower under the Notes and the
other Loan Documents have been paid in full and all RC Commitments of the
Lenders have been terminated and no obligations of the Administrative Agent, the
Issuing Bank or any of the Lenders exist under any of the Loan Documents, the
Borrower shall:
6.1 Total Leverage Ratio.
Maintain at all times a Total Leverage Ratio not greater than
the applicable ratio set forth below opposite the applicable period set forth
below:
<TABLE>
<CAPTION>
Periods Ratio
------- -----
<S> <C>
Restatement Effective Date through
December 31, 2000 6.00:1.00
January 1, 2001 through
June 30, 2001 5.75:1.00
July 1, 2001 through
December 31, 2001 5.50:1.00
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Periods Ratio
------- -----
<S> <C>
January 1, 2002 through
June 30, 2002 5.25:1.00
July 1, 2002 through
December 31, 2002 5.00:1.00
January 1, 2003 through
December 31, 2003 4.50:1.00
January 1, 2004
and thereafter 4.00:1.00
</TABLE>
6.2 Consolidated Annual Operating Cash Flow to Pro-Forma Debt
Service.
Maintain as at the end of each fiscal quarter a ratio of
Consolidated Annual Operating Cash Flow to Pro-Forma Debt Service not less than
1.10:1.00.
6.3 Consolidated Annual Operating Cash Flow to Interest Expense.
Maintain as at the end of each fiscal quarter during the
applicable periods set forth below a ratio of Consolidated Annual Operating Cash
Flow to Interest Expense not less than the ratio set forth below opposite the
applicable period set forth below:
<TABLE>
<CAPTION>
Periods Ratio
------- -----
<S> <C>
Restatement Effective Date through
June 29, 2001 1.75:1.00
June 30, 2001 through
June 29, 2002 2.00:1.00
June 30, 2002 through
June 29, 2003 2.25:1.00
June 30, 2003 and
thereafter 2.50:1.00
</TABLE>
6.4 Consolidated Annual Operating Cash Flow to Fixed Charges.
Maintain as at the end of each fiscal quarter a ratio of
Consolidated Annual Operating Cash Flow to Fixed Charges not less than
1.10:1.00.
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<PAGE> 59
7. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that on and after the Original
Effective Date and until all obligations of the Borrower under the Notes and the
other Loan Documents have been paid in full and all RC Commitments have been
terminated and no obligations of the Administrative Agent, the Issuing Bank or
any of the Lenders exist under any of the Loan Documents, the Borrower shall:
7.1 Financial Statements.
Maintain, and cause each Subsidiary to maintain, a standard
system of accounting in accordance with GAAP, and furnish or cause to be
furnished to the Administrative Agent and each Lender:
(a) As soon as available, but in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of the Consolidated
and Consolidating Balance Sheets of the Borrower and its Subsidiaries as at the
end of such fiscal year, together with the related Consolidated Statements of
Shareholders' Equity and Cash Flows and Consolidated and Consolidating
Statements of Operations as of and through the end of such fiscal year, setting
forth in each case, in comparative form, the Consolidated and Consolidating
figures for the preceding fiscal year. The Consolidated Balance Sheet and
Statements of Operations, Shareholders' Equity and Cash Flows shall be certified
without qualification by the Accountants, which certification (i) shall state
that the examination by such Accountants in connection with such Consolidated
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances, (ii) shall include the opinion of such Accountants that such
Consolidated financial statements have been prepared in accordance with GAAP in
a manner consistent with prior fiscal periods, except as otherwise specified in
such opinion.
(b) Simultaneously with the delivery of the certified
Consolidated financial statements required by clause (a) above, copies of a
certificate of such Accountants stating that, in making the examination
necessary for their audit of such financial statements for such fiscal year,
nothing came to their attention of an accounting nature that caused them to
believe that the Borrower was not in compliance with the terms, covenants,
provisions, or conditions of this Agreement, including, without limitation,
Sections 6.1, 6.2, 6.3 and 6.4, or, if so, specifying in such certificate all
such instances of noncompliance and the nature and status thereof.
(c) As soon as available, but in any event not later than 60
days after the end of each of the first three quarterly accounting periods in
each fiscal year of the Borrower, a copy of the Consolidated and Consolidating
Balance Sheets of the Borrower
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and its Subsidiaries as at the end of each such quarterly period, together with
the related Consolidated and Consolidating Statements of Operations, for such
period and for the elapsed portion of the fiscal year through such date, setting
forth in each case, in comparative form, the Consolidated and Consolidating
figures for the corresponding periods of the preceding fiscal year, certified by
the Chief Financial Officer of the Borrower (or such other officer acceptable to
the Administrative Agent), as being complete and correct in all material
respects and as presenting fairly the Consolidated and Consolidating financial
condition and the results of operations of each of the Borrower and its
Subsidiaries, subject to normal, non-material year-end adjustments.
(d) Within 60 days after the end of each of the first three
fiscal quarters (120 days after the end of the fourth fiscal quarter) of the
Borrower, a Compliance Certificate as at the end of such fiscal quarter,
certified by the Chief Financial Officer of the Borrower (or such other officer
as shall be acceptable to the Administrative Agent).
(e) Concurrently with the delivery of the financial
statements referred to in Sections 7.1(a) and (c), a profile of each Media
Asset, which shall include, but not be limited to, the call letters and location
of each Broadcasting Station and management's estimate of the fair market value
of each Media Asset and a management's discussion and analysis of such financial
statements, including a summary of all acquisitions and dispositions of Media
Assets and acquisitions of real property that occurred during the period covered
by such financial statements, which shall include a schedule of the
consideration paid in each acquisition and the cash received in each
disposition.
(f) Within 30 days after the beginning of each fiscal year,
an annual Consolidated and Consolidating forecast for the Borrower and its
Subsidiaries for such fiscal year and the following two fiscal years, including
projected Consolidated and Consolidating statements of income of the Borrower
and its Subsidiaries, all in reasonable detail acceptable to the Administrative
Agent; (ii) promptly upon preparation thereof, such other forecasts that the
Borrower or any of its Subsidiaries may prepare and any revisions that may be
made to any forecast previously delivered to the Lenders; and (iii) no later
than 30 days after the end of each fiscal quarter in which there has been a
material deviation from a forecast provided to the Lenders, a certificate of an
Authorized Signatory explaining the deviation and the action, if any, that has
been taken or is proposed to be taken with respect thereto; in each case the
foregoing forecasts shall state all underlying assumptions.
7.2 Certificates; Other Information.
Furnish to the Administrative Agent and each Lender:
(a) Prompt written notice if: (i) any Indebtedness of the
Borrower or any Subsidiary is declared or shall become due and payable prior to
its stated maturity, or
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called and not paid when due, (ii) a default shall have occurred under any note
(other than the Notes) or the holder of any such note, or other evidence of
Indebtedness, certificate or security evidencing any such Indebtedness or any
obligee with respect to any other Indebtedness of the Borrower or any Subsidiary
has the right to declare any such Indebtedness due and payable prior to its
stated maturity as a result of such default, or (iii) there shall occur and be
continuing a Default or an Event of Default;
(b) Prompt written notice of: (i) any citation, summons,
subpoena, order to show cause or other order naming the Borrower or any
Subsidiary a party to any proceeding before any Governmental Authority which
might have a Material Adverse Effect or which call into question the validity or
enforceability of any of the Loan Documents and include with such notice a copy
of such citation, summons, subpoena, order to show cause or other order, (ii)
the commencement or threat of any action, suit, arbitration proceeding or claim
by, on behalf of or against the Borrower or any Subsidiary, at law or in equity,
before any Governmental Authority, which could reasonably be expected to have a
Material Adverse Effect, (iii) any lapse or other termination of any material
license, permit, franchise or other authorization issued to the Borrower or any
Subsidiary by any Governmental Authority which could reasonably be expected to
have a Material Adverse Effect, (iv) any refusal by any Governmental Authority
to renew or extend any such material license, permit, franchise or other
authorization which could reasonably be expected to have a Material Adverse
Effect, and (v) any dispute between the Borrower or any Subsidiary and any
Governmental Authority, which dispute might have a material adverse effect on
any Media Asset or a Material Adverse Effect;
(c) Promptly upon becoming available, copies of all regular,
periodic or special reports, schedules and other material that the Borrower or
any Subsidiary may now or hereafter be required to file with or deliver to any
securities exchange or the Securities and Exchange Commission, or any other
Governmental Authority succeeding to the functions thereof;
(d) Prompt written notice in the event that (i) the Borrower
or any Commonly Controlled Entity shall receive notice from the Internal Revenue
Service or the Department of Labor that the Borrower or such Commonly Controlled
Entity shall have failed to meet the minimum funding requirements of Section 412
of the Code with respect to a Plan, if applicable, and include therewith a copy
of such notice, or (ii) the Borrower or any Commonly Controlled Entity gives or
is required to give notice to the PBGC of any Reportable Event with respect to a
Plan, or knows that the plan administrator of a Plan has given or is required to
give notice of any such Reportable Event;
(e) With respect to a Single Employer Plan of the Borrower
or any Commonly Controlled Entity, copies of any request for a waiver of the
funding standards
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or any extension of the amortization periods required by Sections 303 and 304 of
ERISA or Section 412 of the Code promptly after any such request is submitted to
the Department of Labor or the Internal Revenue Service, as the case may be;
(f) Promptly after the filing thereof, a copy of the annual
report required to be filed pursuant to Section 103 of ERISA in connection with
each Single Employer Plan of the Borrower and each Commonly Controlled Entity
for each plan year, including (i) a statement of the assets and liabilities of
such Plan as of the end of such plan year and statements of changes in fund
balance and in financial position, or a statement of changes in net assets
available for plan benefits, for such plan year, certified by the Accountants
and (ii) an actuarial statement of such Plan applicable to such plan year,
certified by an enrolled actuary of recognized standing reasonably acceptable to
the Administrative Agent and the Required Lenders;
(g) Promptly upon request therefor, such other information
and reports relating to the past, present or future financial condition,
operations, plans and projections of the Borrower or its Subsidiaries as the
Administrative Agent or any other Lender (through the Administrative Agent) may
at any time and from time to time reasonably request;
(h) Promptly after the same are received by the Borrower,
copies of all management letters and similar reports provided to the Borrower or
any Subsidiary by its independent certified public accountants;
(i) Prompt written notice of any material change in the
accounting policies or financial reporting practices of the Borrower or any of
its Subsidiaries; and
(j) Prompt written notice of the occurrence of a Material
Adverse Change or the occurrence of any event or facts or circumstances which
are reasonably likely to result in a Material Adverse Change.
7.3 Legal Existence.
Except as otherwise permitted by Sections 8.3 and 8.7, maintain, and
cause each Subsidiary to maintain, its corporate existence, and maintain its
good standing in the jurisdiction of its incorporation or organization and in
each other jurisdiction in which the failure so to do could reasonably be
expected to have a Material Adverse Effect.
7.4 Taxes.
Pay and discharge when due, and cause each Subsidiary so to do,
all Taxes, assessments and governmental charges, license fees and levies upon or
with respect to the Borrower or such Subsidiary and upon the income, profits and
Property of
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the Borrower and the Subsidiaries taken as a whole, which if unpaid, could
reasonably be expected to have a Material Adverse Effect or become a Lien on the
Property of the Borrower or any Subsidiary not permitted under Section 8.2,
unless and to the extent only that such Taxes, assessments, charges, license
fees and levies shall be contested in good faith and by appropriate proceedings
diligently conducted by the Borrower or such Subsidiary and provided that the
Borrower shall give the Administrative Agent prompt notice of such contest and
that such reserve or other appropriate provision as shall be required by the
Accountants in accordance with GAAP shall have been made therefor.
7.5 Insurance and Condemnation.
(a) Liability Insurance. Maintain, and cause each Subsidiary
to maintain, insurance with financially sound insurance carriers on such of its
Property, against at least such risks, and in at least such amounts, as are
customarily insured against by similar businesses and which, in the case of
property insurance, shall be in amounts sufficient to prevent the Borrower or
any Subsidiary from becoming a co-insurer, including, without limitation, public
liability (bodily injury and property damage), fidelity, bonding and workers'
compensation with deductibles not exceeding $25,000 per occurrence, in each case
naming the Administrative Agent as an additional insured under such policies,
and file with the Administrative Agent within five days after request therefor a
detailed list of such insurance then in effect, stating the names of the
carriers thereof, the policy numbers, the insureds thereunder, the amounts of
insurance, dates of expiration thereof, and the Property and risks covered
thereby, together with a certificate of an Authorized Signatory certifying that
in the opinion of such officer such insurance is adequate in nature and amount,
complies with the obligations of the Borrower under this Section 7.5, and is in
full force and effect.
(b) Property Insurance. Maintain such property and other
insurance as is customarily maintained by companies engaged in similar
businesses with deductibles not exceeding $25,000 per occurrence. Promptly upon
request therefor, the Borrower shall deliver or cause to be delivered to the
Administrative Agent originals or duplicate originals of all such policies of
insurance. All such property insurance shall name the Administrative Agent,
under a standard loss payable clause, as sole loss payee in respect of each
claim resulting in a payment under any such insurance policy exceeding $500,000
and shall contain such endorsements as the Administrative Agent shall require.
Provided that no Default or Event of Default shall exist, the Administrative
Agent agrees, promptly upon its receipt thereof, to pay over to the Borrower the
proceeds of any such payment received by the Administrative Agent in its
capacity as Administrative Agent hereunder. The RC Commitments shall be reduced
by an amount equal to any such insurance proceeds not used by the Borrower or
any of its Subsidiaries within 360 days to repair or replace any Property in
respect of which it received property insurance proceeds. If a Default or Event
of Default shall exist, the Borrower, at the request of the Administrative
Agent, shall prepay the Loans with such proceeds in an amount equal to the total
amount
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of such insurance payment and the RC Commitments shall simultaneously be reduced
by an amount equal to such prepayment.
(c) Condemnation Awards. If a Default or Event of Default
shall exist and the Borrower or any of its Subsidiaries shall receive the
proceeds of any condemnation or similar awards, the Borrower shall pay over the
proceeds thereof to the Administrative Agent and, at the election of the
Administrative Agent, such proceeds shall be applied to the prepayment of the
Loans in an amount equal to the total amount of such proceeds. The RC
Commitments shall be reduced by an amount equal to any such proceeds not used by
the Borrower or any of its Subsidiaries within 360 days to repair or replace any
Property in respect of which it received a condemnation or similar award.
7.6 Payment of Indebtedness and Performance of Obligations.
Pay and discharge, and cause each Subsidiary to pay and
discharge, when due all lawful Indebtedness, obligations and claims for labor,
materials and supplies or otherwise which, if unpaid, might (i) have a Material
Adverse Effect, or (ii) become a Lien upon Property of the Borrower or any
Subsidiary not permitted under Section 8.2, unless and to the extent only that
the validity of such Indebtedness (other than Indebtedness under the Loan
Documents), obligation or claim shall be contested in good faith and by
appropriate proceedings diligently conducted by the Borrower or such Subsidiary,
and that any such contested Indebtedness, obligations or claims shall not
constitute, or create, a Lien on any Property of the Borrower or any Subsidiary
not permitted under Section 8.2 senior to the Lien granted to the Administrative
Agent by the Collateral Documents on such Property, and further provided that
the Borrower shall give the Administrative Agent and the Lenders prompt notice
of any such material contest and that such reserve or other appropriate
provision as shall be required by the Accountants in accordance with GAAP shall
have been made therefor.
7.7 Condition of Property.
At all times, maintain, protect and keep in good repair, working
order and condition (ordinary wear and tear excepted), and cause each Subsidiary
so to do, all Property necessary to the operation of the Borrower's or such
Subsidiary's business.
7.8 Observance of Legal Requirements; ERISA; Environmental Laws.
Observe and comply in all respects, and cause each Subsidiary so
to do, with all laws (including ERISA and Environmental Laws), ordinances,
orders, judgments, rules, regulations, certifications, franchises, permits,
licenses, directions and requirements of all Governmental Authorities, which now
or at any time hereafter may be applicable to the Borrower or such Subsidiary, a
violation of which could reasonably be expected to have a Material Adverse
Effect, except such thereof as shall be contested in good faith
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and by appropriate proceedings diligently conducted by the Borrower or such
Subsidiary, and provided that the Borrower shall give the Administrative Agent
and the Lenders prompt notice of such contest and that such reserve or other
appropriate provision as shall be required by the Accountants in accordance with
GAAP shall have been made therefor.
7.9 Inspection of Property; Books and Records; Discussions.
Keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of law shall be
made of all dealings and transactions in relation to its business and
activities; and permit representatives of the Administrative Agent and each
Lender, or potential assignees and/or participants of the Administrative Agent
or any Lender, to visit the offices of the Borrower and the Subsidiaries on
reasonable advance notice, to inspect any of its Property and examine and make
copies or abstracts from any of its books and records at any reasonable time and
as often as may reasonably be desired, and to discuss the business, operations,
prospects, licenses, Property and financial condition of the Borrower and the
Subsidiaries with the officers thereof and with the Accountants.
7.10 FCC Licenses, Etc.
Maintain and cause each Subsidiary to maintain, in full force
and effect, each main station license issued by the FCC to it for each
Broadcasting Station. The Borrower shall also maintain and cause each Subsidiary
to maintain, in full force and effect, all other material licenses (including,
without limitation, all material auxiliary licenses issued by the FCC),
copyrights, patents, including all licenses, permits, applications, reports,
authorizations and other rights as are necessary for the conduct of its
business, except to the extent that such ownership or right to use shall
terminate as a matter of law or expire as a matter of contractual right through
no action or default by the Borrower or any Subsidiary.
7.11 Subsidiary Guaranty.
Promptly upon the creation or acquisition of any Subsidiary,
cause such Subsidiary to execute and deliver to the Administrative Agent a
supplement to the Subsidiary Guaranty in the form attached thereto, together
with such other documents and opinions of counsel as the Administrative Agent
shall reasonably required in connection therewith.
7.12 Mortgages.
Promptly upon the acquisition by the Borrower or any Subsidiary
of any real property on or after the Restatement Effective Date having a fair
market value at the time of acquisition of (i) $2,000,000 or more or (ii)
$1,000,000 or more (but less than
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$2,000,000) if in the case of this clause (ii) the aggregate fair market value
at the time of acquisition of all such real property acquired by the Borrower
and the Subsidiaries on or after the Restatement Effective Date in respect of
which no mortgage or deed of trust has been executed and delivered to the
Administrative Agent pursuant to this Section 7.12 shall exceed $5,000,000,
execute and deliver, and cause each Subsidiary so to do, a mortgage or deed of
trust with respect to such real property in form and substance satisfactory to
the Administrative Agent, together with such UCC financing statements, surveys,
title insurance policies, environmental reports, opinions and other documents as
the Administrative Agent shall reasonably request in connection therewith.
8. NEGATIVE COVENANTS
The Borrower covenants and agrees that on and after the Original
Effective Date and until all obligations of the Borrower under Notes and the
other Loan Documents have been paid in full and all RC Commitments have been
terminated and no obligations of the Administrative Agent, the Issuing Bank or
any of the Lenders exist under any of the Loan Documents, the Borrower shall
not:
8.1 Borrowing.
Create, incur, assume or suffer to exist any liability for
Indebtedness, or permit any Subsidiary so to do, except: (i) Indebtedness under
the Loan Documents; (ii) Indebtedness (including Contingent Obligations) of the
Borrower and the Subsidiaries existing on the date hereof as set forth in
Schedule 8.1 and other Indebtedness of the Borrower in an aggregate outstanding
principal amount for all such Indebtedness under this clause (ii) not in excess
of $25,000,000; (iii) Indebtedness of the Borrower and the Subsidiaries
evidenced by the Subordinated Indenture Notes and Subordinated Indenture
Subsidiary Guaranty; (iv) intercompany Indebtedness between the Borrower and its
Subsidiaries; and (v) refinancings of any Indebtedness permitted under clause
(ii) above with other Indebtedness permitted under clause (i) or (ii) above.
8.2 Liens.
Create, incur, assume or suffer to exist, or enter into any
agreement with any third Person agreeing not to create, incur, assume or suffer
to exist, any Lien upon any of its Property, whether now owned or hereafter
acquired, or permit any Subsidiary so to do, except: (i) Liens for Taxes,
assessments or similar charges incurred in the ordinary course of business which
are not delinquent or which are being contested in accordance with Section 7.4,
provided that such Liens are not senior (except to the extent provided by law)
to the Liens granted to the Administrative Agent and the Lenders by the
Collateral Documents, (ii) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations (but not ERISA),
(iii)
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deposits or pledges to secure bids, tenders, contracts (other than contracts for
the payment of money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary course of business,
(iv) zoning ordinances, easements and other similar restrictions affecting real
property which could not reasonably be expected to have a Material Adverse
Effect, (v) the Liens created under the Collateral Documents, (vi) statutory
Liens arising by operation of law such as mechanics' liens incurred in the
ordinary course of business which are not delinquent or which are being
contested in accordance with Section 7.4, (vii) Liens arising out of judgments
or decrees which are being contested in accordance with Section 7.4, provided
that such Liens are subordinate to the Liens granted to the Administrative Agent
and the Lenders by the Collateral Documents and provided further that
enforcement of such Liens is stayed during such contest, (viii) Liens on
Property of the Borrower and the Subsidiaries existing on the date hereof as set
forth in Schedule 8.2, (ix) Liens in connection with the making of deposits in
accordance with Section 8.5(e) and (x) Liens in connection with Indebtedness
permitted under Section 8.1(ii), provided that such Liens extend only to the
Property acquired with such Indebtedness.
8.3 Merger or Acquisition of Property.
Consolidate with, be acquired by, or merge into or with any
Person, or acquire all or substantially all of the Stock or Property of any
Person, or permit any Subsidiary so to do, except:
(a) any wholly-owned Subsidiary may merge with the Borrower
(with the Borrower as survivor) or with another wholly-owned Subsidiary;
(b) upon 30 days' notice to the Administrative Agent, the
Borrower or any wholly-owned Subsidiary may acquire any Media Asset through an
acquisition or merger (with the Borrower or such wholly-owned Subsidiary (or a
Person that becomes a wholly-owned Subsidiary) as the survivor thereof),
provided that (i) if immediately before or after giving effect to any such
acquisition or merger the Total Leverage Ratio exceeds 5.50:1.00 (in such case,
a "Leveraged Acquisition"), the aggregate gross consideration (including capital
expenditures relating to such Leveraged Acquisition that are reasonably
anticipated for the 12 month period following such Leveraged Acquisition) paid
or payable for all Leveraged Acquisitions (including the Leveraged Acquisition
then being contemplated) made during the period commencing on the Restatement
Effective Date and ending through and including the date of the Leveraged
Acquisition then being contemplated shall not exceed $50,000,000, (ii)
immediately before and after giving effect to any such proposed acquisition or
merger, all representations and warranties contained in the Loan Documents shall
be true and correct and no Default or Event of Default shall exist, and (iii)
the Borrower shall have received with respect to each such acquisition or merger
a final order (subject to no appeal) from the FCC (in respect of the acquisition
or merger of a Broadcasting Station) and all other
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similar material orders from all other applicable Governmental Authorities, with
regard to the acquisition or merger, authorizing the applicable transactions, if
required by applicable law, and the Administrative Agent shall have received
true, complete and correct copies, certified by an Authorized Signatory of the
Borrower, of all such orders;
(c) as permitted under Section 8.5; and
(d) the Common Ground Reorganization, provided that (i)
immediately before and after giving effect to the Common Ground Reorganization,
all representations and warranties contained in the Loan Documents shall be true
and correct and no Default or Event of Default shall exist, (ii) the Borrower
shall have received with respect to the Common Ground Reorganization an order
(subject to no pending contest or administrative review) from the FCC (in
respect of each affected Broadcasting Station) and all other similar material
orders from all other applicable Governmental Authorities, with regard to the
Common Ground Reorganization, authorizing the applicable transactions, if
required by applicable law, and the Administrative Agent shall have received
true, complete and correct copies, certified by an Authorized Signatory of the
Borrower, of all such orders, (iii) the Common Ground Collateral Release shall
not have occurred more than five Business Days prior to the consummation of the
Common Ground Reorganization, (iv) within five Business Days after the
consummation of the Common Ground Reorganization, (A) Common Ground
Broadcasting, Inc. and each Subsidiary that receives transferred assets and that
is not then a party to the Subsidiary Guaranty shall become a party to the
Subsidiary Guaranty, and (B) the Borrower and each Subsidiary that receives
transferred assets shall grant a security interest pursuant to the Borrower
Security Agreement or the Subsidiary Guaranty in and to all of the assets
transferred to it, all in the manner required by this Section 8.3, and (v) the
Common Ground Reorganization shall be consummated no later than 90 days
following the Restatement Effective Date.
If the aggregate gross consideration for any such acquisition or
merger permitted by Section 8.3(b) (including capital expenditures relating to
such acquisition or merger that are reasonably anticipated for the 12 month
period following such acquisition or merger) exceeds $10,000,000, (i) the
Borrower shall have delivered to the Administrative Agent and each Lender such
details of such transaction as the Administrative Agent or any Lender (through
the Administrative Agent) shall reasonably request, and (ii) the Borrower shall
have delivered to the Administrative Agent a certificate of an Authorized
Signatory of the Borrower certifying that (A) the Borrower is in pro-forma
compliance with the terms, covenants, provisions, and conditions of this
Agreement, including, without limitation, Sections 6.1, 6.2, 6.3 and 6.4 (and
attaching calculations with respect to Sections 6.1, 6.2, 6.3 and 6.4), and (B)
immediately before and after giving effect to any such acquisition or merger,
all representations and warranties contained in the Loan Documents are true and
correct and no Default or Event of Default exists.
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If the aggregate gross consideration for any such acquisition or
merger permitted by Section 8.3(b) (including capital expenditures relating to
such acquisition or merger that are reasonably anticipated for the 12 month
period following such acquisition or merger) exceeds $20,000,000, the Borrower
shall have delivered to the Administrative Agent and each Lender an independent
appraisal of each Media Asset to be acquired, such appraisal to be in all
respects satisfactory to the Administrative Agent.
Immediately upon the consummation of any acquisition or merger
permitted under Section 8.3(b) or (d), (i) the Borrower shall have delivered to
the Administrative Agent such UCC financing statements and other documents as
the Administrative Agent shall reasonably require in order to grant to the
Administrative Agent a first priority perfected security interest in the Stock
and/or Property, as applicable, of such Media Asset under and pursuant to the
Collateral Documents, subject to no Liens other than Permitted Liens, (ii) if
the Borrower shall have created or acquired a Subsidiary in connection with such
acquisition, such Subsidiary shall have become a party to the Subsidiary
Guaranty and (iii) the Borrower shall have delivered to the Administrative Agent
such opinions and other documents as the Administrative Agent shall reasonably
require in connection therewith.
8.4 Dividends; Purchase of Stock.
Declare or pay any dividends payable in cash or otherwise or
apply any of its Property to the purchase, redemption or other retirement of, or
set apart any sum for the payment of any dividends on, or make any other
distribution by reduction of capital or otherwise in respect of, any of its
Stock (each a "Restricted Payment") or permit any Subsidiary so to do, except
that:
(a) any wholly-owned Subsidiary may declare and pay
dividends to the Borrower or any other wholly-owned Subsidiary from time to
time.
8.5 Investments, Loans, Etc.
At any time, purchase or otherwise acquire, hold or invest in
the Stock of, or any other interest in, any Person, or make any loan or advance
(excluding deposits or pledges permitted under Section 8.2(iii)) to, or enter
into any arrangement for the purpose of providing funds or credit to, or make
any other investment, whether by way of capital contribution or otherwise, in or
with any Person (all of which are sometimes referred to herein as
"Investments"), or permit any Subsidiary so to do, except:
(a) Investments in short-term domestic and eurodollar
certificates of deposit issued by any Lender, or any other commercial bank,
trust company or national banking association incorporated under the laws of the
United States or any State thereof and having undivided capital surplus and
retained earnings exceeding $500,000,000;
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(b) Investments in short-term direct obligations of the
United States of America or agencies thereof which obligations are guaranteed by
the United States of America;
(c) Investments existing on the date hereof as set forth in
Schedule 8.5(c);
(d) Investments to the extent the same are acquisitions
permitted pursuant to Section 8.3;
(e) Investments by the Borrower in the form of deposits or
options made in the ordinary course of business in connection with any proposed
acquisition or acquisitions of Property permitted pursuant to the terms of this
Agreement;
(f) loans and advances to employees for travel and
relocation purposes; and
(g) loans and advances to employees for other valid business
purposes that do not exceed $100,000 in the aggregate at any one time
outstanding;
(h) intercompany Indebtedness permitted pursuant to Section
8.1(iv);
(i) commercial paper or other short term obligations of any
corporation organized under the laws of the United States or any State thereof
whose ratings, at the time of the investment or contractual commitment to invest
therein, from each of Moody's and S & P are the highest investment category
granted thereby;
(j) investments in money market funds having a rating from
each of Moody's and S & P in the highest investment category granted thereby;
(k) bankers acceptances issued by any commercial bank, trust
company or national banking association referred to in subsection (a) above;
(l) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States or any
agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States, in either case entered into with a
commercial bank, trust company or national banking association (acting as
principal) referred to in subsection (a) above; and
(m) repurchase obligations with respect to any security or
whole loan entered into with (i) a commercial bank, trust company or national
banking association (acting as principal) described in subsection (a) above,
(ii) a broker/dealer (acting as principal) registered as a broker or dealer
under Section 15 of the Exchange Act the unsecured short-term debt obligations
of which are rated P-1 by Moody's and at least A-1
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by S & P at the time of entering into such repurchase obligation, (iii) an
unrated broker/dealer, acting as principal, that is a wholly-owned subsidiary of
a non-bank or bank holding company the unsecured short-term debt obligations of
which are rated P-1 by Moody's and at least A-1 by S & P at the time of
purchase.
8.6 Business Changes.
Engage in any material line of business substantially different
from those lines of business carried on as of the Restatement Effective Date, or
permit any Subsidiary so to do.
8.7 Sale of Property.
Sell, exchange, lease, transfer or otherwise dispose of any
Property to any Person, or permit any Subsidiary so to do, except as permitted
in connection with the Common Ground Reorganization pursuant to the terms and
conditions of Section 8.3 and except for sales, exchanges, leases, transfers or
other dispositions made in the ordinary course of business (which shall not
include the sale or other disposition of all or substantially all of the Stock
or assets of any Media Asset or involve an FCC license of the Borrower or any of
its Subsidiaries), except that, subject to the second to the last paragraph of
this Section 8.7, the Borrower may sell or exchange any Media Asset, provided
that (i) the aggregate gross consideration to be received for all Media Assets
that have been sold or exchanged pursuant to the provisions of this Section
8.7(a) during the one year period ending on the date of the proposed sale of
exchange (including the Media Asset then being contemplated to be sold or
exchanged) shall not exceed $30,000,000, (ii) the aggregate gross consideration
to be received for all Media Assets that have been sold or exchanged pursuant to
the provisions of this Section 8.7(a) during the period commencing on the
Restatement Effective Date and ending through and including the date of the
proposed sale of exchange (including the Media Asset then being contemplated to
be sold or exchanged) shall not exceed $60,000,000, and (iii) immediately before
and after giving effect to the proposed sale or exchange (including any related
change in Indebtedness), all representations and warranties contained in the
Loan Documents shall be true and correct and no Default or Event of Default
shall exist.
If the aggregate gross consideration for any such sale or
exchange permitted under Section 8.7(a) exceeds $10,000,000, (i) the Borrower
shall have delivered to the Administrative Agent and each Lender such details of
such transaction as the Administrative Agent or any Lender (through the
Administrative Agent) shall reasonably request, and (ii) the Borrower shall have
delivered to the Administrative Agent a certificate of an Authorized Signatory
of the Borrower certifying that (A) the Borrower is in pro-forma compliance with
the terms, covenants, provisions, and conditions of this Agreement, including,
without limitation, Sections 6.1, 6.2, 6.3 and 6.4 (and attaching calculations
with respect to Sections 6.1, 6.2, 6.3 and 6.4), and (B)
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immediately before and after giving effect to any such sale or exchange
(including any related change in Indebtedness), all representations and
warranties contained in the Loan Documents are true and correct and no Default
or Event of Default exists. In connection with any such sale or exchange
permitted under Section 8.7(a), (i) the Borrower shall have received fair value
for each Media Asset sold or exchanged and (ii) at least 75% of the
consideration to be received in connection with any such sale shall be in any
combination of like-kind property, cash or cash equivalents.
Upon the sale or disposal of the entire assets of any Subsidiary
as provided in this Section 8.7, the Borrower may liquidate such Subsidiary upon
reasonable prior notice to the Administrative Agent.
8.8 Creation of Subsidiaries.
Create any other Subsidiary, or permit any Subsidiary so to do,
except the Borrower or any Subsidiary may create a wholly-owned Subsidiary,
provided that (i) immediately before and after giving effect to any such
proposed creation, all representations and warranties contained in the Loan
Documents shall be true and correct and no Default or Event of Default shall
exist; (ii) the Borrower shall have delivered to the Administrative Agent such
UCC financing statements and other documents as the Administrative Agent shall
reasonably require in order to grant to the Administrative Agent a first
priority perfected security interest in the Stock and/or Property, as
applicable, of such Subsidiary under and pursuant to the Collateral Documents,
subject to no Liens other than Permitted Liens; (iii) the Subsidiary shall
become a party to the Subsidiary Guaranty and (iv) the Borrower shall have
delivered to the Administrative Agent such opinions and other documents as the
Administrative Agent shall reasonably require in connection therewith.
8.9 Compliance with ERISA.
Adopt any Plan other than those listed in Schedule 4.14 or
permit any Subsidiary so to do, or engage in any "prohibited transaction", as
such term is defined in Section 4975 of the Code or Section 406 of ERISA, with
respect to any Plan, or incur any "accumulated funding deficiency", as such term
is defined in Section 412 of the Code or Section 302 of ERISA, or terminate, or
permit any Commonly Controlled Entity to terminate, any Plan that would result
in any liability of the Borrower or any Commonly Controlled Entity to the PBGC,
or permit the occurrence of any Reportable Event or any other event or condition
that presents a risk of such a termination by the PBGC of any Plan, or withdraw
or effect a partial withdrawal from a Multiemployer Plan, or permit any Commonly
Controlled Entity which is an employer under such a Multiemployer Plan so to do,
if any such withdrawal would result in such withdrawing employer incurring any
withdrawal liability in excess of $250,000.
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8.10 Certificate of Incorporation and By-laws.
Amend or otherwise modify its certificate of incorporation,
bylaws or other organizational documents, or permit any Subsidiary so to do, in
any way that would adversely affect the interests of the Lenders or the Issuing
Bank or the obligations of any Loan Party under any of the Loan Documents.
8.11 Prepayments of Indebtedness.
Prepay or obligate itself to prepay, in whole or in part, any
Indebtedness (other than the Loans) prior to the due date thereof, or permit any
Subsidiary so to do, other than (i) the prepayment by any Subsidiary of
Indebtedness owing by such Subsidiary to the Borrower, (ii) the prepayment of
Indebtedness permitted under Section 8.1(ii) with the proceeds of other
Indebtedness permitted under Section 8.1(i) or (ii) or with the proceeds of
Stock issued by the Borrower pursuant to Section 8.16, (iii) provided that no
Default or Event of Default shall then exist, the prepayment by the Borrower of
Indebtedness incurred by the Borrower in the ordinary course of its business to
any Subsidiary, and (iv) as permitted by Section 8.17.
8.12 Accounting Practice; Fiscal Year.
Make any significant change in accounting treatment or reporting
practices, except as required by GAAP, or change its fiscal year from a fiscal
year commencing January 1st and ending December 31st, or permit any of its
Subsidiaries so to do; provided that any Subsidiary may change to a fiscal year
commencing January 1st and ending December 31st.
8.13 Limitation on Upstream Transfers.
Permit or cause any of its Subsidiaries to enter into or agree,
or otherwise be or become subject, to any agreement, contract or other
arrangement (other than this Agreement) with any Person pursuant to the terms of
which (a) such Subsidiary is or would be prohibited from making any advances to
the Borrower or declaring or paying any cash dividends on any class of its Stock
owned directly or indirectly by the Borrower or any of the other Subsidiaries or
from making any other distribution on account of any class of any such Stock
(herein referred to as "Upstream Transfers"), or (b) the declaration or payment
of Upstream Transfers on an annual or cumulative basis is or would be otherwise
limited or restricted.
8.14 Transactions with Affiliates.
Become, or permit any Subsidiary to become, a party to any
transaction with any Affiliate of the Borrower or any Subsidiary (other than a
transaction solely between any wholly-
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owned Subsidiary and either the Borrower or any other wholly-owned Subsidiary)
on a basis less favorable to the Borrower or such Subsidiary in any material
respect than if such transaction were not with an Affiliate of the Borrower or
such Subsidiary.
8.15 Sale and Leaseback.
Enter into any arrangement with any Person, or permit any
Subsidiary so to do, providing for the leasing by the Borrower or such
Subsidiary of Property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such Property
or rental obligations of the Borrower or such Subsidiary.
8.16 Stock Issuance.
Issue any additional shares of Stock, or permit any of its
Subsidiaries so to do, except (i) the Borrower may issue shares of its Class A
common Stock and (ii) any Subsidiary may issue shares of its Stock to the
Borrower or any wholly-owned Subsidiary.
8.17 Subordinated Indenture.
Enter into or agree to any amendment, modification or waiver of
any term or condition of the Subordinated Indenture, the Subordinated Indenture
Notes or the Subordinated Indenture Subsidiary Guaranty, or purchase, redeem or
make any payment with respect to Indebtedness under the Subordinated Indenture
Notes or the Subordinated Indenture Subsidiary Guaranty, or permit any of its
Subsidiaries so to do, except (i) the Borrower may make required payments to the
extent expressly permitted pursuant to the subordination terms set forth
therein, provided that all payments required to be made under this Agreement
shall have been made, and (ii) provided that (A) no Default or Event of Default
shall then exist, and (B) the Total Leverage Ratio shall be less than or equal
to 4.50:1.00 after giving effect thereto, the Borrower may prepay the
Subordinated Indenture Notes in an amount not to exceed $50,000,000 plus any
premium associated with such prepayment (such premium not to exceed $5,000,000).
8.18 Federal Reserve Regulations.
Own, or permit any of its Subsidiaries to own, Margin Stock in
excess of 25% (or such greater or lesser percentage as is provided in the
exclusions from the definition of "Indirectly Secured" contained in Regulation U
in effect at the time of the making of each Loan or the issuance of each Letter
of Credit) of the value of the assets of (i) the Borrower, or (ii) the Borrower
and the Subsidiaries on a Consolidated basis.
8.19 Change in Name; Nature of Business.
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Change its legal name or make any material change in the nature
of its business, taken as a whole, as conducted on the Restatement Effective
Date, or permit any of its Subsidiaries so to do, except that any Subsidiary may
change its name provided that the Subsidiary (i) shall provide to the
Administrative Agent 30 days prior written notice of such name change, (ii) no
fewer than 10 days prior to the name change, shall have taken all steps
necessary or reasonably required by the Administrative Agent to maintain the
perfection of the Security Interest under the Subsidiary Guaranty and (iii)
shall deliver to the Administrative Agent such certificates and other documents
as the Administrative Agent shall reasonably require.
8.20 Lease Obligations.
Create or suffer to exist any obligations for the payment of
rent by the Borrower or any Subsidiary for any Property under lease or agreement
to lease, or permit any of its Subsidiaries so to do, except for:
(a) leases in existence on the Restatement Effective Date
and any renewal, extension or refinancing thereof;
(b) operating leases in the ordinary course of business
entered into or assumed after the Restatement Effective Date as a result of a
merger or acquisition permitted under Section 8.3; and
(c) capital leases other than those permitted under clauses
(a) and (b) of this Section, entered into after the Restatement Effective Date
to finance the acquisition of equipment to the extent the Indebtedness evidenced
by such capital leases is permitted under Section 8.1.
9. DEFAULT
9.1 Events of Default.
The following shall each constitute an "Event of Default"
hereunder:
(a) The failure of the Borrower to pay any installment of
principal on any Note or any reimbursement payment in respect of a Letter of
Credit on the date when due and payable; or
(b) The failure of the Borrower to pay any installment of
interest or any other fees or expenses payable hereunder or under or in
connection with any other Loan Documents within three Business Days of the date
when due and payable; or
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(c) The use by the Borrower of the proceeds of any Loan or
Letter of Credit in a manner inconsistent with or in violation of Section 2.7;
or
(d) The failure of the Borrower to observe or perform any
covenant or agreement contained in Section 6, Section 7.3, 7.5, 7.10 or 7.11, or
Section 8; or
(e) The failure of the Borrower to observe or perform any
other term, covenant, or agreement contained in this Agreement and such failure
shall have continued unremedied for a period of 30 days after the Borrower shall
have obtained knowledge thereof; or
(f) Any representation or warranty of any Loan Party (or of
any officer on its behalf) made in any Loan Document or in any certificate,
report, opinion (other than an opinion of counsel) or other document delivered
or to be delivered pursuant to any Loan Document, shall prove to have been
incorrect or misleading (whether because of misstatement or omission) in any
material respect when made; or
(g) Any obligation of the Borrower or any Subsidiary (other
than its obligations under the Loan Documents), whether as principal, guarantor,
surety or other obligor, for the payment or purchase of any Indebtedness or
operating lease(s) (i) shall become or shall be declared to be due and payable
prior to the expressed maturity thereof, or (ii) shall not be paid or purchased
when due or within any grace period for the payment or purchase thereof, or
(iii) the holder of any such obligation(s) in excess of $500,000 in the
aggregate shall have the right to declare such obligation(s) due and payable or
require the purchase thereof prior to the expressed maturity thereof; or
(h) The Borrower or any Subsidiary shall (i) except as
permitted by Sections 8.3 and 8.7, suspend or discontinue its business, or (ii)
make an assignment for the benefit of creditors, or (iii) generally not be
paying its debts as such debts become due, or (iv) admit in writing its
inability to pay its debts as they become due, or (v) file a voluntary petition
in bankruptcy, or (vi) become insolvent (however such insolvency shall be
evidenced), or (vii) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt, liquidation or
dissolution or similar relief under any present or future statute, law or
regulation of any jurisdiction, or (viii) petition or apply to any tribunal for
any receiver, custodian or any trustee for any substantial part of its Property,
or (ix) be the subject of any such proceeding filed against it which remains
undismissed for a period of 60 days, or (x) file any answer admitting or not
contesting the material allegations of any such petition filed against it or of
any order, judgment or decree approving such petition in any such proceeding, or
(xi) seek, approve, consent to, or acquiesce in any such proceeding, or in the
appointment of any trustee, receiver, custodian, liquidator, or fiscal agent for
it, or any substantial part of its Property, or an order is entered appointing
any such trustee, receiver, custodian, liquidator or fiscal agent and such order
remains in effect for 60 days,
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or (xii) except as permitted by Sections 8.3 and 8.7, take any formal action for
the purpose of effecting any of the foregoing or looking to the liquidation or
dissolution of the Borrower or such Subsidiary; or
(i) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court having
jurisdiction (i) adjudging the Borrower or any Subsidiary a bankrupt or
insolvent, or (ii) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or composition of or in
respect of the Borrower or any Subsidiary under the United States bankruptcy
laws or any other applicable Federal or state law, or (iii) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Borrower or any Subsidiary or of any substantial part
of the Property thereof, or (iv) ordering the winding up or liquidation of the
affairs of the Borrower or any Subsidiary, and any such decree or order
continues unstayed and in effect for a period of 60 days; or
(j) Any judgments or decrees against the Borrower or its
Subsidiaries (to the extent not covered by independent third-party insurance as
to which the insurer does not dispute coverage) aggregating in excess of
$500,000 for all such parties shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days; or
(k) The occurrence of an Event of Default under and as
defined in any Collateral Document or any Reimbursement Agreement; or
(l) Any of the Loan Documents or the Assumption Agreement
shall cease, for any reason, to be in full force and effect, or any Loan Party
shall so assert in writing or shall disavow its obligations thereunder; or
(m) The FCC or any other Governmental Authority revokes or
fails to renew any license, permit or franchise of the Borrower or any of its
Subsidiaries, or the Borrower or any of its Subsidiaries for any reason loses
any license, permit or franchise, or the Borrower or any of its Subsidiaries
suffers the imposition of any restraining order, escrow, suspension or impound
of funds in connection with any proceeding (judicial or administrative) with
respect to any license, permit or franchise, to the extent such revocation,
failure to renew, loss or imposition has a Material Adverse Effect; or
(n) The occurrence of a Material Adverse Change; or
(o) A Change of Control shall occur.
Upon the occurrence of an Event of Default or at any time thereafter
during the continuance thereof, (a) if such event is an Event of Default
specified in clauses (h) or (i) above, the RC Commitments and the Letter of
Credit Commitment shall immediately and
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automatically terminate and the Loans, all accrued and unpaid interest thereon
and all other amounts owing under the Loan Documents shall immediately become
due and payable, and the Administrative Agent may, and upon the direction of the
Required Lenders shall, exercise any and all remedies and other rights provided
pursuant to the Loan Documents and (b) if such event is any other Event of
Default, any or all of the following actions may be taken: (i) with the consent
of the Required Lenders, the Administrative Agent may, and upon the direction of
the Required Lenders shall, by notice to the Borrower, declare the RC
Commitments and the Letter of Credit Commitment to be terminated whereupon the
RC Commitments and the Letter of Credit Commitment shall immediately terminate,
and (ii) with the consent of the Required Lenders, the Administrative Agent may,
and upon the direction of the Required Lenders shall, by notice of default to
the Borrower, declare the Loans, all accrued and unpaid interest thereon and all
other amounts owing under the Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable, and the
Administrative Agent may, and upon the direction of the Required Lenders shall,
exercise any and all remedies and other rights provided pursuant to the Loan
Documents. Except as otherwise provided in this Section 9.1, presentment,
demand, protest and all other notices of any kind are hereby expressly waived to
the extent permitted by applicable law. The Borrower hereby further expressly
waives and covenants not to assert any appraisement, valuation, stay, extension,
redemption or similar laws, to the extent permitted by applicable law, now or at
any time hereafter in force, which might delay, prevent or otherwise impede the
performance or enforcement of any of the Loan Documents. In the event that the
Administrative Agent shall fail or refuse so to proceed, the Issuing Bank and
each Lender shall be entitled to take such action as the Required Lenders shall
deem appropriate to enforce its rights under the Loan Documents.
In the event that the RC Commitments or the Letter of Credit Commitment
shall have been terminated or all of the Notes shall have been declared due and
payable pursuant to the provisions of this Section 9.1, (i) the Borrower shall
forthwith deposit an amount equal to the Letter of Credit Exposure in a cash
collateral account with and under the sole dominion and control of the
Administrative Agent and (ii) the Lenders and the Issuing Bank agree, among
themselves, that any funds received in respect of the Loan Documents from or on
behalf of the Borrower by any of the Lenders or the Issuing Bank (except funds
received by any Lender or the Issuing Bank as a result of a purchase pursuant to
the provisions of Section 11.9) shall be remitted to the Administrative Agent,
and shall be applied by the Administrative Agent in payment of the Loans, the
Reimbursement Obligations and the obligations of the Borrower under the Loan
Documents in the following manner and order: (1) first, to reimburse the
Administrative Agent, the Issuing Bank and the Lenders for any expenses due from
the Borrower pursuant to the provisions of Section 11.5; (2) second, to the
payment of the Commitment Fee and Letter of Credit Fee, pro rata according to
the RC Commitment Percentage of each Lender; (3) third, to the payment of any
other fees, expenses or amounts (other than
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the principal of and interest on the Notes, the Reimbursement Obligations and
any obligations to any Lender (and any Affiliate of any Lender) arising out of
any Interest Rate Protection Arrangement) payable by the Borrower to the
Administrative Agent, the Issuing Bank or any of the Lenders under the Loan
Documents; (4) fourth, to the payment, pro rata according to the outstanding
Loans of each Lender and outstanding Reimbursement Obligations including any
interest by a Lender therein), of interest due thereon; (5) fifth, on a pro rata
basis, to the payment of (A) the principal outstanding on the Notes, pro rata
according to each Lender's outstanding Loans, (B) the principal outstandings on
the Reimbursement Obligations, pro rata according to the Issuing Bank's and each
other Lender's interest therein, and (C) the obligations of the Borrower to the
Lenders (and any Affiliate of any Lender) arising out of any Interest Rate
Protection Arrangements; and (6) sixth, any remaining funds shall be paid to
whomsoever shall be entitled thereto or as a court of competent jurisdiction
shall direct.
10. THE ADMINISTRATIVE AGENT
10.1 Appointment.
Each Lender hereby irrevocably designates and appoints BNY as
the Administrative Agent of such Lender under and in connection with the Loan
Documents. Each such Lender hereby irrevocably authorizes BNY as the
Administrative Agent for such Lender to take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent by the terms of
the Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or any of the other Loan Documents, the Administrative Agent shall
have no duties or responsibilities, except those expressly set forth herein or
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into the Loan Documents or otherwise exist against the Administrative
Agent.
10.2 Delegation of Duties.
The Administrative Agent may execute any of its duties under the
Loan Documents by or through agents or attorneys-in-fact and shall be entitled
to rely upon the advice of counsel concerning all matters pertaining to such
duties.
10.3 Exculpatory Provisions.
Neither the Administrative Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with the Loan
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Documents (except for its own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in the Loan Documents or in any certificate, report, statement or
other document referred to or provided for in, or received by the Administrative
Agent under or in connection with, the Loan Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any of
the Loan Documents or for any failure of the Borrower or any other Person to
perform its obligations hereunder or thereunder. The Administrative Agent shall
be under no obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Loan Documents, or to inspect the properties, books or records of the
Borrower or any Subsidiary. The Administrative Agent shall have no liability or
responsibility whatsoever to the Borrower or any other Person as a consequence
of any failure or delay in performance, or any breach, by the Issuing Bank or
any Lender of any of its obligations under any of the Loan Documents.
10.4 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, opinion, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by it. Subject to Section 11.7, the Administrative Agent may
treat each Lender as the holder of all of the interests of such Lender in its RC
Commitment and in its Loans and Notes. The Administrative Agent shall have no
duty to examine or pass upon the validity, effectiveness or genuineness of the
Loan Documents or any instrument, document or communication furnished pursuant
thereto or in connection therewith, and the Administrative Agent shall be
entitled to assume that the same are valid, effective and genuine, have been
signed or sent by the proper parties and are what they purport to be. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under the Loan Documents unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under the Loan Documents in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
10.5 Notice of Default.
The Administrative Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
it has
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received written notice thereof from the Issuing Bank, a Lender or the Borrower.
In the event that the Administrative Agent receives such a notice, it shall
promptly give notice thereof to the Issuer and the Lenders. The Administrative
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; provided, however, that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem to be in the best interests of the Lenders.
10.6 Non-Reliance.
Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or warranties to it
and that no act by the Administrative Agent hereinafter, including any review of
the affairs of the Borrower or the Subsidiaries, shall be deemed to constitute
any representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
evaluation of and investigation into the business, operations, Property,
financial and other condition and creditworthiness of the Borrower and its
Subsidiaries and made its own decision to enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, evaluations and decisions in taking or not taking action under
this Agreement or any of the Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, Property,
financial and other condition and creditworthiness of the Borrower and its
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall have no duty or responsibility to provide any Lender
with any credit or other information concerning the business, operations,
Property, financial and other condition or creditworthiness of the Borrower or
its Subsidiaries which may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
10.7 Indemnification.
Each Lender agrees to indemnify the Administrative Agent in its
capacity as such (to the extent not promptly reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower or any other Loan
Party to do so), ratably according to its Credit Exposure at such time, from and
against any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses
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or disbursements of any kind whatsoever including, without limitation, any
amounts paid to the Lenders (through the Administrative Agent) by the Borrower
pursuant to the terms hereof, that are subsequently rescinded or avoided, or
must otherwise be restored or returned) which may at any time (including,
without limitation, at any time following the payment of the Notes) be imposed
on, incurred by or asserted against the Administrative Agent in any way relating
to or arising out of this Agreement, the other Loan Documents or any other
documents contemplated by or referred to herein or the transactions contemplated
hereby or any action taken or omitted to be taken by the Administrative Agent
under or in connection with any of the foregoing; provided, however, that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting directly and primarily from
the gross negligence or willful misconduct of the Administrative Agent. The
agreements in this Section 10.7 shall survive the payment of the Notes and all
other amounts payable under the Loan Documents.
10.8 Administrative Agent in its Individual Capacity.
BNY and its Affiliates, may make loans to, accept deposits from,
issue letters of credit for the account of and generally engage in any kind of
business with, the Borrower and its Subsidiaries as though BNY were not the
Administrative Agent. With respect to the RC Commitment made by BNY and each
Note issued to BNY, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it was not the Administrative Agent or the Issuing
Bank, and the terms "Lender" and "Lenders" shall in each case include BNY.
10.9 Successor.
If at any time the Administrative Agent deems it advisable, in
its sole discretion, it may submit to each of the Lenders a written notification
of its resignation as Administrative Agent under the Loan Documents, such
resignation to be effective on the later to occur of (i) the thirtieth day after
the date of such notice and (ii) the date upon which any successor
Administrative Agent, in accordance with the provisions of this Section 10.9,
shall have accepted in writing its appointment as such successor Administrative
Agent. Upon any such resignation of the Administrative Agent, the Required
Lenders shall have the right to appoint from among the Lenders a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Required Lenders and accepted such appointment within 30 days
after the retiring Administrative Agent's giving of notice of resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which successor Administrative Agent shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a
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combined capital and surplus of at least $100,000,000. Upon the acceptance of
any appointment as Administrative Agent by a successor Administrative Agent,
such successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent's rights, powers,
privileges and duties as Administrative Agent under the Loan Documents shall be
terminated. The Borrower and the Lenders shall execute such documents as shall
be necessary to effect such appointment. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of Section 10 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under the Loan Documents. If at any time hereunder
there shall not be a duly appointed and acting Administrative Agent, the
Borrower agrees to make each payment due under the Loan Documents directly to
the Persons entitled thereto during such time.
10.10 Updating Exhibits and Schedules.
The Administrative Agent is hereby authorized and directed from
time to time to (i) amend Exhibit A to reflect the RC Commitments of each Lender
as of the date of each assignment pursuant to Section 11.7 and, in connection
therewith, the Lending Offices and address for notices of each assignee
"Lender", (ii) amend Schedule 1.1(L) to reflect any change of address of which
the Administrative Agent has received written notice pursuant to Section 11.2,
and (iii) in each such case, to send a copy thereof to each party hereto.
10.11 The Lead Arranger and Agents.
The Lead Arranger, the Documentation Agent and the Co-Agents
shall have no duties or obligations under the Loan Documents in their respective
capacities as Lead Arranger, Documentation Agent and Co-Agents. The Lead
Arranger, the Documentation Agent and the Co-Agents shall be entitled to the
same protections, indemnities and rights, and subject to the same standards with
respect to their actions, inactions and duties, as the Administrative Agent.
11. MISCELLANEOUS
11.1 Amendments and Waivers.
With the written consent of the Required Lenders, which consent
may be transmitted by telecopier, the Administrative Agent and the appropriate
Loan Parties may, from time to time, enter into written amendments, supplements
or modifications of the Loan Documents and, with the consent of the Required
Lenders, the Administrative Agent on behalf of the Lenders may execute and
deliver to any such parties a written
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instrument waiving or consenting to the departure from, on such terms and
conditions as the Administrative Agent may specify in such instrument, any of
the requirements of the Loan Documents or any Default or Event of Default and
its consequences; provided, however, that:
(a) no such amendment, supplement, modification, waiver or
consent shall, without the written consent of all of the Lenders, (i) increase
the RC Commitments (other than pursuant to Section 2.4(d)) or the Letter of
Credit Commitment, (ii) extend the Maturity Date or the RC Commitment
Termination Date, (iii) extend the date or decrease the amount of any mandatory
reduction of the RC Commitments pursuant to Section 2.4(b)(i), (iv) decrease the
interest rate, extend the time, forgive or change the pro rata method of payment
of interest or principal on or applicable to any Note or Reimbursement
Obligation, (v) decrease the amount, extend the time, forgive or change the pro
rata method of payment of the Commitment Fee or the Letter of Credit Fee, (vi)
release all or any part of the Collateral or any Subsidiary Guaranty except in
connection with a permitted sale or other permitted disposition of the
Collateral or the applicable Subsidiary Guarantor, as the case may be, or to the
extent that the Administrative Agent shall be required or permitted to do so
under the terms and provisions of the Loan Documents, (vii) change the
definition of Required Lenders, (viii) change the sharing provisions among the
Lenders, (ix) change the several nature of the obligations of the Lenders to
make Loans and participate in Letters of Credit, or (x) change the provisions of
Sections 2.9, 2.10, 2.11, 2.13, 2.14, 11.1, 11.7(a) or 11.11;
(b) without the written consent of the Administrative Agent,
no such amendment, supplement, modification or waiver shall amend, modify or
waive any provision of Section 10 or otherwise change any of the rights or
obligations of the Administrative Agent under the Loan Documents; and
(c) without the written consent of the Issuing Bank, no such
amendment, supplement, modification or waiver shall amend, modify or waive any
provision relating to the Issuing Bank, the Letter of Credit Commitment or the
Letters of Credit or otherwise change any of the rights or obligations of the
Issuing Bank hereunder or under the Loan Documents.
Any such amendment, supplement, modification or waiver shall
apply equally to each of the Lenders and shall be binding upon the parties to
the applicable agreement, the Lenders, the Administrative Agent, the Issuing
Bank and all future holders of the Notes and the Reimbursement Obligations. In
the case of any waiver, the parties to the applicable agreement, the Lenders,
the Administrative Agent, and the Issuing Bank shall be restored to their former
position and rights under the Loan Documents to the extent provided for in such
waiver, and any Default or Event of Default waived shall not extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
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Notwithstanding the foregoing and in connection with the
consummation of the Common Ground Reorganization, the Administrative Agent may
release Common Ground Broadcasting, Inc. and Caron Broadcasting, Inc. and
certain of their respective assets from the Subsidiary Guaranty (the "Common
Ground Collateral Release") upon the receipt by the Administrative Agent of a
written notice from the Borrower stating that the Common Ground Reorganization
will be consummated within the following five Business Days.
11.2 Notices.
Except as otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made (i) when delivered by hand, (ii) one
Business Day after having been sent by overnight courier service, (iii) five
Business Days after having been deposited in the mail, first-class postage
prepaid, or (iv) in the case of telecopier notice, when sent and transmission
confirmed (which may include electronic confirmation), addressed as follows in
the case of the Borrower, the Administrative Agent and the Issuing Bank, and as
set forth in Schedule 1.1(L) hereto in the case of each of the Lenders, or to
such other addresses as to which the Administrative Agent may be hereafter
notified by the respective parties hereto or any future holders of the Notes:
The Borrower:
Salem Communications Corporation
4880 Santa Rosa Road, Suite 300
Camarillo, California 93012
Attention: Dirk Gastaldo,
Vice President and
Chief Financial Officer
Telephone: (805) 384-4531
Telecopy: (805) 384-4532
with a copy to:
Salem Communications Corporation
4880 Santa Rosa Road, Suite 300
Camarillo, California 93012
Attention: Jonathan L. Block, Esq.,
Secretary
Telephone: (805) 987-0400 (ext. 106)
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Telecopy: (805) 384-4505
The Administrative Agent, the Issuing Bank and/or BNY:
The Bank of New York
Communications, Publishing & Entertainment Division
One Wall Street, 16th Floor
New York, New York 10286
Attention: Stephen M. Nettler,
Assistant Vice President
Telephone: (212) 635-8699
Telecopy: (212) 635-8595
with a copy to, in the case of all Borrowing Requests and Letter of Credit
Requests, prepayment notices under Section 2.5(a) and conversion notices under
Section 2.8, and to the attention of, in the case of all fundings by the
Lenders:
The Bank of New York, as Administrative Agent
Agency Function Administration
One Wall Street, 18th Floor
New York, New York 10286
Attention: Patricia A. Hylton
Telephone: (212) 635-4975
Telecopy: (212) 635-6365 (or 6366/6367)
except that any notice, request or demand by the Borrower to or upon the
Administrative Agent, the Issuing Bank or the Lenders pursuant to Section 2.3,
2.4, 2.5, 2.8 or 2.18 shall not be effective until received.
11.3 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part
of the Administrative Agent, the Issuing Bank or any Lender, any right, remedy,
power or privilege under any Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges under the Loan Documents are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties.
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All representations and warranties made hereunder and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement, the Notes
and the other Loan Documents.
11.5 Payment of Expenses and Taxes.
The Borrower agrees, promptly upon presentation of a statement
or invoice therefor, and whether or not any Loan is made or Letter of Credit is
issued, (i) to pay or reimburse the Administrative Agent and the Arranger for
all their out-of-pocket reasonable costs and expenses incurred in connection
with the development, preparation, execution and syndication of, and any
amendment, waiver, consent, supplement or modification to, the Loan Documents,
any documents prepared in connection therewith and the consummation of the
transactions contemplated hereby and thereby, whether such Loan Documents or any
such other documents are executed and whether the transactions contemplated
thereby are consummated, including, without limitation, the reasonable fees and
disbursements of Special Counsel, (ii) to pay or reimburse the Administrative
Agent, the Issuing Bank, the Arranger and the Lenders for all of their
respective reasonable costs and expenses incurred in connection with the
workout, enforcement or preservation of any rights under the Loan Documents and
any such documents, including, without limitation, reasonable fees and
disbursements of counsel (including the allocated cost of internal counsel) to
the Administrative Agent, the Issuing Bank, the Arranger and the Lenders
including, without limitation, reasonable expenses of the Administrative Agent,
the Issuing Bank, the Arranger and the Lenders in connection with or
attributable to commercial finance examiners, accountants, investment banks and
environmental consultants, (iii) to pay, indemnify, and hold each Lender, the
Administrative Agent, the Issuing Bank and the Arranger harmless from, any and
all recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other Taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, any of the Loan Documents and any such other documents, and (iv) to
pay, indemnify and hold each Lender, the Administrative Agent, the Issuing Bank
and the Arranger and each of their respective officers, directors, employees and
agents harmless from and against any and all other liabilities, obligations,
claims, losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever (including, without
limitation, reasonable counsel fees and disbursements (including the allocated
cost of internal counsel)) with respect to the execution, delivery, enforcement
and performance of the Loan Documents or the use of the proceeds of the Loans
and Letters of Credit hereunder (all the foregoing, collectively, the
"Indemnified Liabilities") and, if and to the extent that the foregoing
indemnity may be unenforceable for any reason, the Borrower agrees to make the
maximum payment permitted under applicable law; provided, however, that the
Borrower
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shall have no obligation hereunder to pay Indemnified Liabilities to the
Administrative Agent, the Issuing Bank, the Arranger or any Lender to the extent
arising directly and primarily from the gross negligence or willful misconduct
of the Administrative Agent, the Issuing Bank, the Arranger or such Lender, as
the case may be. The agreements in this Section 11.5 shall survive the
termination of the RC Commitments and the payment of the Notes and all other
amounts payable hereunder.
11.6 Lending Offices.
Subject to Section 2.17(b), each Lender shall have the right at
any time and from time to time to transfer any Loan to a different office of
such Lender, provided that such Lender shall promptly notify the Administrative
Agent and the Borrower of any such change of office. Such office shall thereupon
become such Lender's Lending Office.
11.7 Successors and Assigns.
(a) This Agreement, the Notes and the other Loan Documents
to which the Borrower is a party shall be binding upon and inure to the benefit
of the Borrower, the Lenders, the Administrative Agent, the Issuing Bank, all
future holders of the Notes and their respective successors and assigns, except
that the Borrower may not assign, delegate or transfer any of its rights or
obligations under this Agreement, the Notes and the Loan Documents to which the
Borrower is a party without the prior written consent of each Lender.
(b) Each Lender shall have the right at any time, upon
written notice to the Administrative Agent of its intent to do so, to sell or
assign (each an "Assignment") all or any part of its Loans, its RC Commitment
and its Notes, on a pro rata basis to one or more of the other Lenders (or, with
the written consent of the Issuing Bank, such consent not to be unreasonably
withheld or delayed, to affiliates of such Lender or such other Lenders) or,
with the written consent of Administrative Agent and the Issuing Bank (such
consents not to be unreasonably withheld or delayed), to any other bank,
insurance company, pension fund, mutual fund or other financial institution,
provided that (i) each such partial Assignment shall be in a minimum aggregate
amount of $5,000,000 (unless otherwise consented to by the Borrower) or, in the
case of any assignment pursuant to Section 2.4(d), $1,000,000, (ii) the parties
to each such Assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption Agreement along with a fee (the "Assignment Fee") of
$3,500 with respect to the Assignment made under this Agreement and (iii) no
such assignment may be made to the Borrower or to any Affiliate of the Borrower.
Upon receipt of each such duly executed Assignment and Assumption Agreement
together with the Assignment Fee therefor in compliance with the provisions
hereof, the Administrative Agent shall (x) record the same and signify its
acceptance thereof by executing two copies of such Assignment and Assumption
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Agreement in the appropriate place and delivering one copy to the assignor and
one copy to the assignee and (y) request the Borrower to execute and deliver (1)
to such assignee one or more Notes, in an aggregate principal amount equal to
the Loans assigned to, and RC Commitments assumed by, such assignee and (2) to
such assignor one or more Notes, in an aggregate principal amount equal to the
balance of such assignor Lender's Loans and RC Commitment, if any, in each case
against receipt of such assignor Lender's existing Notes. The Borrower agrees
that it shall, upon each such request of the Administrative Agent, execute and
deliver such new Notes at its own cost and expense. Upon such delivery,
acceptance and recording by the Administrative Agent, from and after the
effective date specified in such Assignment and Assumption Agreement, the
assignee thereunder shall be a party hereto and shall for all purposes of this
Agreement and the other Loan Documents be deemed a "Lender" and, to the extent
provided in such Assignment and Assumption Agreement, the assignor Lender
thereunder shall be released from its obligations under this Agreement and the
other Loan Documents.
(c) Each Lender may grant participations in all or any part
of its Loans, its Notes or its RC Commitment to any other bank, insurance
company, pension fund, mutual fund, financial institution or other entity,
provided that no such participant shall have any right to require such Lender to
take or omit to take any action under any Loan Document except any action which
would require the consent of all Lenders pursuant to Section 11.1. The Borrower
hereby acknowledges and agrees that any such participant shall for purposes of
Sections 2.9, 11.5, 11.9 and 11.11 be deemed to be a "Lender".
(d) No Lender shall, as between and among the Borrower, the
Administrative Agent, the Issuing Bank, and such Lender, be relieved of any of
its obligations under the Loan Documents as a result of any Assignment or
granting of a participation in, all or any part of its Loans, its RC Commitment
or its Notes, except that a Lender shall be relieved of its obligations to the
extent of any Assignment of all or any part of its Loans, its RC Commitment or
its Notes pursuant to subsection (b) above.
(e) Notwithstanding anything to the contrary contained in
this Section 11.7, any Lender may at any time assign all or any portion of its
rights under the Loan Documents to a Federal Reserve Bank. No such assignment
shall release such Lender from its obligations thereunder.
11.8 Counterparts.
This Agreement and each of the other Loan Documents (other than
the Notes) may be executed by one or more of the parties to this Agreement or to
such other Loan Document, as the case may be, on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same agreement. It shall not be necessary in making proof
of any Loan Document to produce or account for more than one counterpart signed
by the party to be charged. Any of the
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parties to this Agreement and the other Loan Documents may rely on signatures of
such parties hereto and thereto which are transmitted by telecopier or other
electronic means as fully as if originally signed. A set of the copies of this
Agreement and each of the other Loan Documents signed by all the parties shall
be lodged with each of the Borrower and the Administrative Agent.
11.9 Adjustments; Set-off.
(a) If any Lender (a "benefited Lender") shall at any time
receive any payment of all or any part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
Section 9.1 (h) or (i), or otherwise) in a greater proportion than any such
payment to and collateral received by any other Lender, if any, in respect of
such other Lender's Loans, or interest thereon, such benefited Lender shall
notify the Administrative Agent and shall purchase for cash from the other
Lenders such portion of each such other Lender's Loans, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefited Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest, unless the benefitted Lender is required to pay
interest on the amount of the excess payment to be returned, in which case the
other Lenders shall pay their pro rata share of such interest. The Borrower
agrees that each Lender so purchasing a portion of another Lender's Loans may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
(b) In addition to any rights and remedies of the Lenders
provided by law, upon the occurrence and at any time during the continuance of
an Event of Default, each Lender shall have the right, without prior notice to
any Loan Party, any such notice being expressly waived by each such Loan Party
to the extent permitted by applicable law, to set off and apply against any
indebtedness, whether matured or unmatured, of such Loan Party to such Lender,
any amount owing from such Lender to such Loan Party, at, or at any time after,
the happening of any of the above-mentioned events. To the extent permitted by
applicable law, the aforesaid right of set-off may be exercised by such Lender
against each Loan Party or against any trustee in bankruptcy, custodian, debtor
in possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of such Loan Party, or against anyone else
claiming through or against such Loan Party or such trustee in bankruptcy,
custodian, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by such Lender
prior to the making, filing or issuance, or service upon such Lender of, or
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of notice of, any such petition, assignment for the benefit of creditors,
appointment or application for the appointment of a receiver, or issuance of
execution, subpoena, order or warrant. Promptly after any such set-off and
application made by a Lender against a Loan Party, such Lender shall notify such
Loan Party and the Administrative Agent, provided that the failure to give such
notice shall not affect the validity of such set-off and application.
11.10 No Third Party Beneficiary.
This Agreement is among the Borrower, the Lenders, the
Administrative Agent, the Issuing Bank and the Arranger and no other Person is
intended to or shall have any rights hereunder or shall be permitted to rely
hereon.
11.11 Indemnity.
(a) The Borrower agrees to indemnify and hold harmless each
of the Administrative Agent, the Issuing Bank, the Arranger, each Lender and
each of their respective officers, directors, employees and agents (each an
"Indemnified Party") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
each such Indemnified Party, including all local counsel hired by any such
counsel) incurred by each such Indemnified Party in investigating, preparing
for, defending against, or providing evidence, producing documents or taking any
other action in respect of, any claim, commenced or threatened litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon (i) any untrue
statement or alleged untrue statement of any material fact of the Borrower or
any Subsidiary in any document or schedule executed or filed with the Securities
and Exchange Commission or any other Governmental Authority by or on behalf of
the Borrower or any Subsidiary, (ii) any omission or alleged omission to state
any material fact required to be stated in such document or schedule, or
necessary to make the statements made therein, in light of the circumstances
under which made, not misleading, (iii) any of the Loan Documents, the
transactions contemplated hereby or thereby or any acts, practices or omissions
or alleged acts, practices or omissions of the Borrower or any of its agents
relating to the use of the proceeds of any or all Letters of Credit or Loans
which are alleged to be in violation of Section 2.7, or in violation of any
federal securities law or of any other statute, regulation or other law of any
jurisdiction applicable thereto, or (iv) any acquisition or proposed acquisition
by the Borrower or any Subsidiary of all or a portion of the Stock, or all or a
portion of the assets, of any Person, in each case whether or not any
Indemnified Party is a party thereto.
(b) In addition to the indemnity provided under Section
11.11(a), the Borrower agrees to defend, indemnify and hold harmless each
Indemnified Party from
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and against any loss, cost, liability, fine, penalties, damage or expense
(including the reasonable fees and out-of-pocket expenses of counsel to each
such Indemnified Party, including all local counsel hired by any such counsel)
suffered or incurred by each such Indemnified Party, pertaining to any release
or threatened release of a reportable quantity of any hazardous substance or
hazardous waste at any Property of the Borrower or any of its Subsidiaries (a
"Hazardous Discharge"), including, but not limited to, claims of any
Governmental Authority or any third Person, whether arising under or on account
of any Environmental Law or tort, contract or common law, including, without
limitation, the assertion of any Lien thereunder, with respect to any Hazardous
Discharge, the presence of any hazardous substances or hazardous wastes
affecting any Property of the Borrower or any of its Subsidiaries, whether or
not the same originates or engages from such Property or any contiguous real
estate, including any loss of value of such Property as a result of the
foregoing. The Borrower's obligations under this Section 11.11(b) shall arise
upon the discovery of any Hazardous Discharge at such Property, whether or not
any Governmental Authority or any other Person has taken or threatened any
action in connection with the presence of any hazardous substances or hazardous
wastes.
(c) The indemnities set forth herein shall be in addition to
any other obligations or liabilities of the Borrower to the Indemnified Parties
hereunder or at common law or otherwise, and shall survive any termination of
this Agreement, the expiration of the RC Commitments and the payment of all
indebtedness of the Borrower hereunder and under the other Loan Documents,
provided that the Borrower shall have no obligation under this Section 11.11 to
an Indemnified Party with respect to any of the foregoing to the extent arising
directly and primarily out of the gross negligence or willful misconduct of such
Indemnified Party.
11.12 Governing Law.
This Agreement, the Notes and the other Loan Documents and the
rights and obligations of the parties under this Agreement, the Notes and the
other Loan Documents 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.
11.13 Headings.
Section headings have been inserted herein and in the other Loan
Documents for convenience only and shall not be construed to be a part hereof or
thereof.
11.14 Severability.
Every provision of this Agreement and the other Loan Documents
is intended to be severable, and if any term or provision hereof or thereof
shall be invalid, illegal or unenforceable for any reason, the validity,
legality and enforceability of the
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remaining provisions hereof or thereof shall not be affected or impaired
thereby, and any invalidity, illegality or unenforceability in any jurisdiction
shall not affect the validity, legality or enforceability of any such term or
provision in any other jurisdiction.
11.15 Integration.
All exhibits and schedules to this Agreement shall be deemed to
be a part of this Agreement or the applicable Loan Document, as the case may be.
Except for agreements between the Borrower and the Administrative Agent, the
Issuing Bank and the Arranger with respect to certain fees, this Agreement and
the other Loan Documents embody the entire agreement and understanding among the
Borrower, the Administrative Agent, the Issuing Bank, the Arranger and the
Lenders with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings among the Borrower, the Administrative
Agent, the Issuing Bank, the Arranger and the Lenders with respect to the
subject matter hereof and thereof.
11.16 Limitation of Liability.
No claim may be made by the Borrower, any of its Subsidiaries,
any other Loan Party, any Lender or other Person against the Administrative
Agent, the Issuing Bank, any Lender, the Arranger, or any directors, officers,
employees, or agents of any of them, for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or any other
theory of liability arising out of or related to the transactions contemplated
by any Loan Document, or any act, omission or event occurring in connection
therewith, and each of the Borrower, its Subsidiaries, such other Loan Party,
any such Lender or other Person hereby waives, releases and agrees not to sue
upon any claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
11.17 Consent to Jurisdiction.
The Borrower hereby irrevocably submits to the jurisdiction of
any New York State or Federal Court sitting in the City of New York over any
suit, action or proceeding arising out of or relating to the Loan Documents. The
Borrower hereby irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum. The Borrower hereby agrees that a final judgment in any such
suit, action or proceeding brought in such a court, after all appropriate
appeals, shall be conclusive and binding upon it.
11.18 Service of Process.
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The Borrower hereby agrees that process may be served in any
suit, action, counterclaim or proceeding of the nature referred to in Section
11.17 by mailing copies thereof by registered or certified mail, postage
prepaid, return receipt requested, to the address of the Borrower set forth in
Section 11.2 or to any other address of which the Borrower shall have given
written notice to the Administrative Agent. The Borrower hereby agrees that such
service, to the extent permitted by applicable law (i) shall be deemed in every
respect effective service of process upon it in any such suit, action,
counterclaim or proceeding, and (ii) shall to the fullest extent enforceable by
law, be taken and held to be valid personal service upon and personal delivery
to it.
11.19 No Limitation on Service or Suit.
Nothing in the Loan Documents or any modification, waiver, or
amendment thereto shall affect the right of the Administrative Agent, the
Issuing Bank or any Lender to serve process in any manner permitted by law or
limit the right of the Administrative Agent, the Issuing Bank or any Lender to
bring proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions.
11.20 WAIVER OF TRIAL BY JURY.
THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER
OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREIN. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT
OF THE ADMINISTRATIVE AGENT, THE ISSUING BANK OR THE LENDERS, OR COUNSEL TO THE
ADMINISTRATIVE AGENT, THE ISSUING BANK OR THE LENDERS, HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE ADMINISTRATIVE AGENT, THE ISSUING BANK OR THE
LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER
OF RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE
ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE LENDERS HAVE BEEN INDUCED TO
ENTER INTO THE LOAN DOCUMENTS BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.
11.21 Confidentiality.
The Administrative Agent, the Issuing Bank and the Lenders each
agree that, without the prior written consent of the Borrower, it will not
disclose the terms of this Agreement or any material confidential information
with respect to the Borrower, or any of its Subsidiaries which is furnished
pursuant to this Agreement to any Person
- 88 -
<PAGE> 95
except (i) its accountants, attorneys and other advisors who have a need to know
such information or its Affiliates, and in each case who agree to be bound by
the provisions of this Section 11.21, (ii) to the extent such information is
requested to be disclosed to any regulatory or administrative body or commission
to whose jurisdiction the Administrative Agent, the Issuing Bank or such Lender
is subject, (iii) to the extent such information is requested or required to be
disclosed by subpoena or similar process of applicable law or regulation, (iv)
to the extent the Borrower has previously disclosed such information publicly or
such information is otherwise in the public domain (except by virtue of a breach
by the Administrative Agent, the Issuing Bank or such Lender of its obligations
under this Section 11.21) at the time of disclosure, (v) such information which
is disclosed in connection with any litigation or dispute between the
Administrative Agent, the Issuing Bank or such Lender and any Loan Party
concerning this Agreement, any other Loan Document, or any instrument or
document executed or delivered in connection herewith or therewith, (vi) such
information which was in the possession of such Person or such Person's
Affiliates without the obligation of confidentiality prior to the Administrative
Agent, the Issuing Bank or such Lender furnishing it to such Person, and (vii)
in connection with a prospective assignment, grant of a participation interest
or other transfer by a Lender of any of its interest in this Agreement or the
Notes, provided that the Person to whom such information is disclosed shall
agree to be bound by the provisions of this Section 11.21.
- 89 -
<PAGE> 96
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE BANK OF NEW YORK,
in its individual capacity,
as Issuing Bank and as
Administration Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 97
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BANK OF AMERICA NT&SA,
in its individual capacity
and as Documentation Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 98
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BANKBOSTON, N.A. ,
in its individual capacity
and as a Co-Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 99
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FLEET BANK, N.A.,
in its individual capacity
and as a Co-Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 100
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
UNION BANK OF CALIFORNIA, N.A.,
in its individual capacity
and as a Co-Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 101
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 102
SALEM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FIRST HAWAIIAN BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 103
SALEM EXHIBIT A
LIST OF RC COMMITMENTS
<TABLE>
<CAPTION>
RC RC Commitment
Bank Commitment Percentage
- ---- ---------- -------------
<S> <C> <C>
The Bank of New York $________ ___%
[LENDER] $________ ___%
TOTAL $150,000,000 100%
============ ===
</TABLE>
<PAGE> 104
SALEM EXHIBIT B
FORM OF RC NOTE
June ___, 1999
New York, New York
FOR VALUE RECEIVED, on the Maturity Date, SALEM COMMUNICATIONS
CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to
the order of _______________________ (the "Lender"), at the office of The Bank
of New York, as Administrative Agent (the "Administrative Agent"), located at
One Wall Street, New York, New York, 10286 or at such other place as the
Administrative Agent may specify from time to time, in lawful money of the
United States of America, the unpaid principal amount of the RC Loans made by
the Lender to the Borrower, payable in the amounts and at the times set forth in
the Agreement (as hereinafter defined).
This RC Note shall bear interest from the date hereof on the unpaid
balance hereof payable on the dates and at the rate or rates provided for in the
First Amended and Restated Credit Agreement, dated as of June __, 1999, by and
among the Borrower, the Lenders party thereto, Bank of America NT&SA, as
Documentation Agent, BankBoston, N.A., Fleet Bank, N.A. and Union Bank of
California, N.A., as Co-Agents and the Administrative Agent (as the same may be
amended, modified or supplemented from time to time, the "Agreement").
Capitalized terms used herein which are defined in the Agreement shall have the
meanings therein defined. In no event shall the interest rate payable in respect
hereof exceed the Highest Lawful Rate.
This RC Note is one of the RC Notes referred to in the Agreement is
subject to the terms, set forth in the Agreement and is entitled to the benefits
set forth in the Loan Documents. The principal of this RC Note is prepayable in
the amounts and under the circumstances, and its maturity is subject to
acceleration upon the terms, set forth in the Agreement. Except as otherwise
expressly provided in the Agreement, if any payment on this RC Note becomes due
and payable on a day which is not a Business Day the maturity thereof shall be
extended to the next Business Day, and interest shall be payable at the
applicable rate or rates specified in the Agreement during such extension
period.
Presentment for payment, demand, notice of dishonor, protest, notice of
protest and all other demands and notices in connection with the delivery,
performance and enforcement of this RC Note are hereby waived, except as
specifically otherwise provided in the Agreement.
This RC Note is being delivered in, is intended to be performed in,
shall be construed and interpreted in accordance with, and be governed by the
internal laws of, the State of New York without regard to principles of conflict
of laws.
<PAGE> 105
This RC Note may be amended only by an instrument in writing executed
pursuant to the provisions of Section 11.1 of the Agreement.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 106
SCHEDULE TO RC NOTE
<TABLE>
<CAPTION>
Type of RC Interest Interest
Loan (ABR or Borrowing Principal Rate (if Period (if Unpaid
Eurodollar or Amount of paid or Eurodollar Eurodollar Principal Notation
Date Loan) Conversion RC Loan prepaid Loan) Loan) Amount Made By
- ---- ------------ ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 107
SALEM EXHIBIT C
FORM OF BORROWING REQUEST
[DATE]
The Bank of New York, as Administrative Agent
One Wall Street - 16th Floor
New York, New York 10286
Attention: Stephen M. Nettler,
Vice President
and
The Bank of New York, as Administrative Agent
One Wall Street - 18th Floor
New York, New York 10286
Attention: Patricia A. Hylton,
Agency Function Administration
Re: First Amended and Restated Credit Agreement, dated as of June
__, 1999, by and among Salem Communications Corporation, the
Lenders party thereto, The Bank of New York, as Administrative
Agent, Bank of America NT&SA, as Documentation Agent, and
BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California,
N.A., as Co-Agents (as the same may be amended, modified or
supplemented from time to time, the "Agreement")
Capitalized terms used herein which are defined in the Agreement shall
have the meanings therein defined.
Pursuant to section 2.3 of the Agreement, the Borrower hereby gives
notice of its intention to borrow RC Loans in an aggregate principal amount of
$________, on ___________, which borrowing shall consist of the following RC
Loan(s):
<TABLE>
<CAPTION>
Type of RC Loan
(Eurodollar Interest Period
or ABR) Amount (for Eurodollar Loan)
--------------- ------ ---------------------
<S> <C> <C>
(1) $
(2) $
</TABLE>
<PAGE> 108
Immediately after giving effect to the RC Loans and Letters of Credit to
be made and issued on the Borrowing Date set forth above, the Total Leverage
Ratio will be ____: 1.00, as shown on Exhibit I attached hereto.
The Borrower hereby certifies that on the date hereof and on the
Borrowing Date set forth above, and after giving effect to the RC Loan(s)
requested hereby:
(a) The Borrower is and shall be in compliance with all of the
terms, covenants and conditions of the Agreement and the other Loan Documents.
(b) There exists and there shall exist no Default or Event of
Default under the Agreement.
(c) The proceeds of such RC Loans will be used in accordance with
section 2.7 of the Agreement.
(d) Each of the representations and warranties contained in the Loan
Documents which is required to be made on such Borrowing Date is and shall be
true and correct.
IN WITNESS WHEREOF, the Borrower has caused this certificate to be
executed by its duly authorized officer as of the date and year first written
above.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- 2 -
<PAGE> 109
EXHIBIT I
Calculation of Total Leverage Ratio
<PAGE> 110
SALEM EXHIBIT D
FORM OF LETTER OF CREDIT REQUEST
[DATE]
The Bank of New York, as Administrative Agent
One Wall Street - 16th Floor
New York, New York 10286
Attention: Stephen M. Nettler,
Vice President
and
The Bank of New York, as Administrative Agent
One Wall Street - 18th Floor
New York, New York 10286
Attention: Patricia A. Hylton
Agency Function Administration
Re: First Amended and Restated Credit Agreement, dated as of May __,
1999, by and among Salem Communications Corporation, the Lenders
party thereto, The Bank of New York, as Administrative Agent,
and Bank of America NT&SA, as Documentation Agent, and
BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California,
N.A., as Co-Agents (as the same may be amended, modified or
supplemented from time to time, the "Agreement")
Capitalized terms used herein which are defined in the Agreement shall
have the meanings therein defined.
Pursuant to section 2.18 of the Agreement, the Borrower hereby requests
the Issuing Bank to issue Letter(s) of Credit in an aggregate principal amount
of $_____, on ________________, in accordance with the information annexed
hereto.
Immediately after giving effect to the RC Loans and Letters of Credit to
be made and issued on the Borrowing Date set forth above, the Total Leverage
Ratio will be ______:1.00, as shown on Exhibit I attached hereto.
The Borrower hereby certifies that on the date hereof and on the
Borrowing Date set forth above, and after giving effect to the Letters of Credit
requested hereby:
<PAGE> 111
(a) The Borrower is and shall be in compliance with all of the
terms, covenants and conditions of the Agreement and the other Loan Documents.
(b) There exists and there shall exist no Default or Event of
Default under the Agreement.
(c) The proceeds of such Letters of Credit will be used in
accordance with section 2.7 of the Agreement.
(d) Each of the representations and warranties contained in the Loan
Documents which is required to be made on such Borrowing Date is and shall be
true and correct.
IN WITNESS WHEREOF, the Borrower has caused this certificate to be
executed by its duly authorized officer as of the date and year first written
above.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 112
LETTER OF CREDIT INFORMATION
1. Name of Beneficiary: ______________________________.
2. Address of Beneficiary to which Letter of Credit will be sent:
-----------------------------------------------------------------------.
3. Conditions under which a drawing may be made (specify any required
documentation):
-----------------------------------------------------------------------.
4. Maximum amount to be available under such Letter of Credit:
$____________.
5. Requested date of issuance: _______________.
6. Requested date of expiration: _______________.
<PAGE> 113
EXHIBIT I
Calculation of Total Leverage Ratio
<PAGE> 114
SALEM EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
[DATE]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: Stephen M. Nettler,
Vice President
Reference is made to the First Amended and Restated Credit
Agreement, dated as of June __, 1999, by and among Salem Communications
Corporation, the Lenders party thereto, The Bank of New York, as Administrative
Agent, Bank of America NT&SA, as Documentation Agent, and BankBoston, N.A.,
Fleet Bank, N.A. and Union Bank of California, N.A., as Co-Agents (as the same
may be amended, modified or supplemented from time to time, the "Agreement").
Capitalized terms used herein which are defined in the Agreement shall have the
meanings therein defined.
There exists no violation of any of the terms or provisions of
the Loan Documents, or the occurrence of any condition or event which would
constitute a Default or Event of Default, except ____________.
The Total Leverage Ratio as of _________ for the four fiscal
quarter period ended __________ is ____:1.00, as determined on Exhibit I
attached hereto.
The ratio of Consolidated Annual Operating Cash Flow to
Pro-Forma Debt Service as of __________ is ___:1.00, as determined on Exhibit I
attached hereto.
The ratio of Consolidated Annual Operating Cash Flow to Interest
Expense as of __________ is ___:1.00, as determined on Exhibit I attached
hereto.
The ratio of Consolidated Annual Operating Cash Flow to Fixed
Charges as of __________ is ___:1.00, as determined on Exhibit I attached
hereto.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 115
EXHIBIT I
Calculation of Total Leverage Ratio
Calculation of Ratio of
Consolidated Annual Operating Cash Flow
to Pro-Forma Debt Service
Calculation of Ratio of
Consolidated Annual Operating Cash Flow
to Interest Expense
Calculation of Ratio of
Consolidated Annual Operating Cash Flow
to Fixed Charges
<PAGE> 116
SALEM EXHIBIT H
FORM OF FIRST AMENDED AND RESTATED BORROWER SECURITY AGREEMENT
FIRST AMENDED AND RESTATED BORROWER SECURITY AGREEMENT (as the same may
be amended, supplemented or otherwise modified from time to time, this
"Agreement"), dated as of June __, 1999, by and between SALEM COMMUNICATIONS
CORPORATION, a Delaware corporation (the "Borrower"), and THE BANK OF NEW YORK
(the "Administrative Agent"), in its capacity as Administrative Agent for the
Lenders under the Credit Agreement referred to below and the Rate Protection
Lenders as defined herein.
RECITALS
A. This Agreement amends and restates the Borrower Security
Agreement, dated as of September 25, 1997, by and between Salem Communications
Corporation, a California corporation ("Salem California"), and the
Administrative Agent (as amended to the date hereof, the "Original Security
Agreement"). On March 31, 1999, Salem California merged into Salem Delaware with
Salem Delaware as the survivor. Pursuant to the terms and conditions of Consent
No. 3, Salem Delaware entered into the Assumption Agreement whereby Salem
Delaware, among other things, assumed all of the obligations of Salem California
under the Loan Documents (including, without limitation, the Original Security
Agreement).
B. This Agreement is intended solely as an amendment of, and
contemporaneous restatement of, the terms and conditions of the Original
Security Agreement and is not intended, and should not be construed in any way,
to extinguish or terminate the Obligations or the Security Interests granted
under the Original Security Agreement.
C. Reference is made to the First Amended and Restated Credit
Agreement, dated as of June __, 1999, by and among the Borrower, the Lenders
party thereto, the Administrative Agent, Bank of America NT&SA, as Documentation
Agent, and BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California,
N.A., as Co-Agents (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), which Credit Agreement
amends and restates the Credit Agreement, dated as of September 25, 1997, by and
among Salem California, the lenders party thereto, Bank of America NT&SA, as
Documentation Agent, and The Bank of New York, as Administrative Agent, as
amended and modified by Amendment No. 1 and Consent No. 1, dated as of August 5,
1998, Amendment No. 2 and Consent No. 2, dated as of January 22, 1999, Consent
No. 3, dated as of March 31, 1999, and Amendment No. 3 and Consent No. 4, dated
as of April 23, 1999 (as so amended, the "Original Credit Agreement").
D. It is a condition precedent to the effectiveness of the Credit
Agreement and the making of all Loans and all other extensions of credit under
the Credit Agreement that the Borrower shall have executed and delivered this
Agreement.
<PAGE> 117
E. For convenience, this Agreement is dated as of June __, 1999,
and references to certain matters relating to the period prior thereto have been
deleted.
Therefore, in consideration of the Recitals, the terms and conditions
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the
Administrative Agent hereby agree as follows:
1. Defined Terms
(a) Capitalized terms used herein which are not otherwise
defined herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
(b) When used in this Agreement, the following capitalized
terms shall have the respective meanings ascribed thereto as follows:
"Collateral": as defined in Section 2.
"Equity Interest": (i) with respect to a corporation, the
capital stock thereof, (ii) with respect to a partnership, a partnership
interest therein, all rights of a partner in such partnership, whether arising
under the partnership agreement of such partnership or otherwise; (iii) with
respect to a limited liability company, a membership interest therein, all
rights of a member of such limited liability company, whether arising under the
limited liability company agreement of such limited liability company or
otherwise; (iv) with respect to any other firm, association, trust, business
enterprise or other entity, any equity interest therein, any interest therein
which entitles the holder thereof to share in the revenue, income, earnings or
losses thereof or to vote or otherwise participate in any election of one or
more members of the Managing Person thereof, and (v) all warrants and options in
respect of any of the foregoing and all other securities which are convertible
or exchangeable therefor.
"Event of Default": as defined in Section 6.
"Financing Statements": the UCC financing statements executed by
the Borrower and delivered pursuant to the Credit Agreement.
"Grants of Security Interests": collectively, the Grant of
Security Interest (Patents) and the Grant of Security Interest (Trademarks), in
the form of Annexes A-1 and A-2 hereto, respectively, in each case appropriately
completed and signed by the Borrower.
"NYUCC": the UCC as in effect in the State of New York on the
date hereof.
"Obligations": all of the obligations and liabilities of the
Borrower under the Loan Documents and under each Interest Rate Protection
Arrangement entered into by the Borrower with a Rate Protection Lender, in each
case whether fixed, contingent, now existing or hereafter arising, created,
assumed, incurred or acquired, as such obligations and liabilities may be
amended, increased, modified, renewed, refinanced by the Administrative Agent
and the Lenders, refunded or extended from time to time.
<PAGE> 118
"Office Location": as defined in Section 3(a).
"Patents": all patents issued under the laws of the United
States of America and all patent applications filed with the United States
Patent and Trademark Office, and all of the rights associated with each of the
foregoing.
"Proceeds": as defined in the NYUCC, together with (i) all
dividends, distributions and income on and in respect of all of the Securities
and Instruments and all other rights and benefits in respect thereof, and (ii)
with respect to the Patents and Trademarks, all renewals thereof, all proceeds
of infringement suits, all rights to sue for infringement, all license
royalties, all reissues, divisions, continuations, extensions and continuations
in part thereof.
"Rate Protection Lenders": collectively, the Lenders and any
affiliates of the Lenders which from time to time enter or have entered into
Interest Rate Protection Arrangements with the Borrower.
"Registrations": (i) patents issued under the laws of the United
States of America, (ii) patent applications filed with the United States Patent
and Trademark Office, and (iii) all registered trademarks.
"Trademarks": (i) all rights under the laws of the United States
of America, and each State thereof, to trademarks, together with all
registrations thereof, applications therefor and all of the rights associated
therewith, and (ii) the goodwill of the Borrower's business symbolized by
registered trademarks.
"UCC": with respect to any jurisdiction, Articles 1, 8 and 9 of
the Uniform Commercial Code as from time to time in effect in such jurisdiction.
(c) When used in this Agreement, the following capitalized
terms shall have the respective meanings ascribed thereto in the NYUCC:
"Account", "Certificated Security", "Chattel Paper", "Document", "Equipment",
"Fixture", "General Intangible", "Instruction", "Instrument", "Inventory",
"Issuer", "Secured Party", "Security", "Security Interest" and "Uncertificated
Security".
2. Grant of Security Interest
(a) To secure the prompt and complete payment, observance
and performance of the Obligations, the Borrower hereby grants to the
Administrative Agent, for its benefit and the ratable benefit of the Lenders,
the Issuing Bank and the Rate Protection Lenders, a Security Interest in and to
all of the Borrower's right, title and interest in and to all: Accounts, Chattel
Paper, Documents, Equipment, Fixtures, General Intangibles, Instruments,
including, without limitation, Instruments evidencing intercompany Indebtedness,
Inventory, Patents, Trademarks, Equity Interests in each Person which now is or
may hereafter become a Subsidiary of the Borrower, whether or not evidenced by a
Security, and all Proceeds of all of the foregoing, in each case whether now
owned or existing or hereafter arising or acquired, and including, without
limitation, all licenses, approvals, permits and other authorizations issued by
the FCC, including
<PAGE> 119
the Proceeds of any sale or other disposition thereof, in each case to the
extent that a security interest therein is not prohibited by law, provided that
to the extent that a security interest therein is now so prohibited and to the
extent that such security interest at any time hereafter shall no longer be so
prohibited, then such security interest shall automatically and without any
further action attach and become fully effective at that time (giving effect to
any retroactive effect to any change in applicable law or regulation)
(collectively, the "Collateral").
3. Representations and Warranties
The Borrower hereby represents and warrants to the
Administrative Agent as follows:
(a) Chief Executive Office. As of the date hereof, the
Borrower's place of business or, if the Borrower has more than one place of
business, its chief executive office, is, and has been continuously for the
immediately preceding 5 month period, located at the address set forth for
notices to the Borrower contained in the Credit Agreement (the "Office
Location"). The Borrower has not changed its legal name during the six year
period immediately preceding the date hereof.
(b) Information. As of the date hereof, all of the
information set forth on each of the Schedules hereto is true, complete and
correct.
(c) Security Interest. This Agreement, together with the
delivery to the Administrative Agent of the Certificated Securities constituting
Collateral and the continuous possession thereof by the Administrative Agent in
the State of New York, creates a continuing "enforceable" Security Interest in
the Collateral in favor of the Administrative Agent. Upon (i) the presentation
for filing of the Financing Statements at the respective offices listed thereon
together with the appropriate filing fee therefor, (ii) the delivery to the
Administrative Agent of the Instruments and the Certificated Securities
constituting the Collateral, and (iii) the registration, in accordance with
Article 8 of the NYUCC, of the Security Interest granted hereby on the books of
each Person which is an Issuer of an Uncertificated Security constituting the
Collateral or the agreement by such Person to comply with Instructions
originated by the Administrative Agent with respect to such Uncertificated
Securities without further consent by the Borrower, and (iv) the filing of the
Grants of Security Interests in the United States Patent and Trademark Office
with respect to Patents, Registrations, and Trademarks, (A) such Security
Interest shall be perfected, and (B) assuming that the Administrative Agent does
not have "notice of any adverse claim" within the meaning of Article 8 of the
NYUCC, the Administrative Agent shall be a "protected purchaser", within the
meaning of such Article, with respect to the Collateral consisting of
Securities.
(d) Absence of Liens. There are no Liens upon the Collateral
other than Permitted Liens, if any.
(e) Equity Interests. The Equity Interests listed on
Schedule 3(e) hereto constitute, as of the date hereof, all of the Equity
Interests in each Subsidiary in which the Borrower has any right, title or
interest, and each such Equity Interest issued by a corporate
<PAGE> 120
Issuer has been duly authorized, validly issued and fully paid for, and is
non-assessable. As of the Effective Date, except as set forth on Schedule 3(e),
(i) no Subsidiary of the Borrower has issued any securities convertible into, or
options or warrants for, any common or preferred equity securities thereof and
(ii) there are no agreements, voting trusts or understandings binding upon the
Borrower or any of its Subsidiaries with respect to the voting securities of any
of such Subsidiary or affecting in any manner the sale, pledge, assignment or
other disposition thereof, including any right of first refusal, option,
redemption, call or other right with respect thereto, whether similar or
dissimilar to any of the foregoing.
(f) Chattel Paper, Documents and Instruments. The Chattel
Paper, Documents and Instruments listed on Schedule 3(f) hereto constitute, as
of the date hereof, all of the Chattel Paper, Documents and Instruments which
constitute the Collateral, and, to the best of the Borrower's knowledge, all
such Chattel Paper, Documents and Instruments have been duly authorized, issued
and delivered, and constitute the legal, valid, binding and enforceable
obligations of the respective makers thereof.
(g) Accounts. As of the date hereof, all records concerning
any Account constituting the Collateral are located at its Office Location, and
no such Account is evidenced by a promissory note or other instrument.
(h) Equipment and Inventory. Except for Equipment and
Inventory in transit with common carriers, the Borrower has exclusive possession
and control of all Equipment and Inventory constituting the Collateral, all of
which is as of the date hereof and has been continuously for the 5 month period
immediately preceding the date hereof, located at one or more of the places
listed on Schedule 3(h) hereto.
(i) Patents and Trademarks. The Borrower has no
Registrations relating to Patents other than those listed on Schedule 3(i)
hereto, and each such Registration is subsisting and is not invalid or
unenforceable, in whole or in part, except to the extent that the
unenforceability thereof could not reasonably be expected to have a material
adverse effect on the value of the Patents taken as a whole. The Borrower has no
Registrations relating to Trademarks other than those listed on Schedule 3(i)
hereto, and each such Registration is subsisting and has not been adjudged
invalid or unenforceable, in whole or in part, except to the extent that the
unenforceability thereof could not reasonably be expected to have a material
adverse effect on the value of the Trademarks taken as a whole. To the best of
the Borrower's knowledge, each Patent and Trademark constituting Collateral is
valid and enforceable. Except for Permitted Liens, the Borrower is the sole and
exclusive owner of the entire and unencumbered right, title and interest in and
to each of the Patents and Trademarks constituting Collateral, free and clear of
all Liens. To the best of the Borrower's knowledge, no claim has been made that
the use of any Patent or Trademark violates the rights of any third person. The
Borrower has used consistent standards of quality in its manufacture of products
sold under the Patents and Trademarks.
4. Covenants of the Borrower
The Borrower hereby covenants with the Administrative Agent as
follows:
<PAGE> 121
(a) Chief Executive Office. The Borrower shall maintain its
place of business, or if the Borrower has more than one place of business, its
chief executive office, at the Office Location or at such other location in
respect of which (A) the Borrower shall have provided the Administrative Agent
with prior written notice thereof, and (B) UCC financing statements (or
amendments thereto), in form and substance reasonably satisfactory to the
Administrative Agent, shall have been filed within two months of such change.
(b) Further Assurances. The Borrower shall, at its own
expense, promptly execute and deliver all certificates, documents, instruments,
financing and continuation statements and amendments thereto, notices and other
agreements, and take all further action, that the Administrative Agent may
reasonably request from time to time, in order to perfect and protect the
Security Interest granted hereby or to enable the Administrative Agent to
exercise and enforce its rights and remedies hereunder with respect to the
Collateral. The Borrower hereby irrevocably appoints the Administrative Agent as
the Borrower's true and lawful attorney-in-fact, in the name, place and stead of
the Borrower, to perform on behalf of the Borrower any and all obligations of
the Borrower under this Agreement, and the Borrower agrees that the power of
attorney herein granted constitutes a power coupled with an interest, provided,
however, that the Administrative Agent shall have no obligation to perform any
such obligation and such performance shall be at the sole cost and expense of
the Borrower. If the Borrower fails to comply with any of its obligations
hereunder, the Administrative Agent may do so in the Borrower's name or in the
Administrative Agent's name, but at the Borrower's expense, and the Borrower
hereby agrees to reimburse the Administrative Agent in full for all reasonable
expenses, including reasonable attorney's fees, incurred by the Administrative
Agent in connection therewith.
(c) Information. The Borrower at its own expense shall
furnish to the Administrative Agent such information, reports, statements and
schedules with respect to the Collateral as the Administrative Agent may
reasonably request from time to time.
(d) Defense of Collateral. The Borrower at its own expense
shall defend the Collateral against all claims of any kind or nature (other than
Permitted Liens, if any) of all Persons at any time claiming the same or any
interest therein adverse to the interests of the Administrative Agent, the
Issuing Bank, any Rate Protection Lender or any Lender, and the Borrower shall
not cause, permit or suffer to exist any Lien upon the Collateral other than
Permitted Liens, if any.
(e) Uncertificated Securities. The Borrower shall cause each
Person which is an Issuer of an Uncertificated Security constituting Collateral
(i) to register the Security Interest granted hereby upon the books of such
Person in accordance with Article 8 of the NYUCC, and (ii) to agree to comply
with Instructions originated by the Administrative Agent with respect to such
Uncertificated Securities without further consent by the Borrower.
(f) Delivery of Pledged Collateral. Each Certificated
Security representing an Equity Interest in a Person which is or shall become a
Subsidiary of the Borrower shall be promptly delivered to the Administrative
Agent, to be held by the Administrative Agent pursuant
<PAGE> 122
hereto, in suitable form for transfer by delivery or accompanied by duly
executed documents of transfer or assignment in blank, all in form and substance
satisfactory to the Administrative Agent. The Borrower agrees that until so
delivered, each such Certificated Security shall be held by the Borrower in
trust for the benefit of the Administrative Agent and be segregated from the
other Property of the Borrower.
(g) Chattel Paper, Documents and Instruments. All of the
Instruments, Documents and Chattel Paper now or hereafter owned by or in the
possession of the Borrower which constitute Collateral (other than checks
received in the ordinary course of collection) shall be promptly delivered to
the Administrative Agent, to be held by the Administrative Agent pursuant
hereto, in suitable form for transfer by delivery or accompanied by duly
executed documents of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Administrative Agent. The Borrower agrees that,
with respect to all items of the Collateral which it is or shall hereafter be
obligated to deliver to the Administrative Agent, until so delivered such items
shall be held by the Borrower in trust for the benefit of the Administrative
Agent and be segregated from the other Property of the Borrower.
(h) Accounts. Except as otherwise provided in this Section
4(h), the Borrower shall continue to collect in accordance with its customary
practice, at its own expense, all amounts due or to become due to the Borrower
in respect of the Borrower's Accounts and, prior to the occurrence of an Event
of Default, the Borrower shall have the right to adjust, settle or compromise
the amount or payment of any such Account, all in accordance with its customary
practices. In connection with such collections, the Borrower may take and, at
the direction of the Administrative Agent at any time that an Event of Default
shall have occurred and be continuing shall take, such action as the Borrower or
the Administrative Agent may reasonably deem necessary or advisable to enforce
collection of such Accounts.
(i) Equipment and Inventory. The Borrower shall keep the
Equipment and Inventory constituting Collateral at the places listed on Schedule
3(h) hereto, and at such other places located within the United States in
respect of which (i) the Borrower shall have provided the Administrative Agent
with prior written notice, and (ii) UCC financing statements (or amendments
thereto), in form and substance satisfactory to the Administrative Agent, shall
have been filed within two months of such change. The Borrower shall promptly
furnish to the Administrative Agent a statement respecting any material loss or
damage to any of the Equipment or Inventory constituting Collateral except to
the extent that such loss or damage shall be insured pursuant to policies
required to be maintained pursuant to the Credit Agreement.
(j) Patents and Trademarks. The Borrower will continue to
use for the duration of this Agreement, consistent standards of quality in its
manufacture of products sold under the Patents and Trademarks constituting
Collateral. The Borrower shall give to the Administrative Agent prompt written
notice thereof in the event that the Borrower shall obtain any right to any new
Patent or Trademark or to any reissue, division, continuation, renewal,
extension, or continuation-in-part of any Patent or Trademark. The Borrower
shall prosecute diligently any applications of the Patents and Trademarks
constituting Collateral pending as of the date of this Agreement or thereafter,
and preserve and maintain all rights in applications of
<PAGE> 123
Patents and Trademarks constituting Collateral consistent with past practice,
including the payment of all maintenance fees, except to the extent the failure
so to preserve or maintain such rights could not reasonably be expected to have
a material adverse effect on either (i) the value of the Patents taken as a
whole, or (ii) the value of the Trademarks taken as a whole. The Borrower shall
not abandon any right to file an application or any pending application for any
Patent or Trademark unless the failure so to do could not reasonably be expected
to have a material adverse effect on either (i) the value of the Patents taken
as a whole, or (ii) the value of the Trademarks taken as a whole. The Borrower
agrees that it will not enter into any agreement, including a license agreement,
with respect to any Patent or Trademark which is inconsistent with the
Borrower's past practices of licensing Patents or Trademarks as the case may be.
The Borrower hereby grants to the Administrative Agent the right to visit the
Borrower's plants and facilities which manufacture, inspect or store products
sold under any of the Patents and Trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours upon reasonable prior notice.
5. Other Agreements of the Borrower
(a) No Duty to Preserve. Except as otherwise required by
law, the Borrower agrees that, with respect to the Collateral, neither the
Administrative Agent, the Issuing Bank, any Rate Protection Lender nor any
Lender has any obligation to preserve rights against prior or third parties.
(b) Administrative Agent's Duty With Respect to Collateral.
The Administrative Agent's only duty with respect to the Collateral delivered to
it shall be to use reasonable care in the custody and preservation of the
Collateral, and the Borrower agrees that if the Administrative Agent accords the
Collateral substantially the same kind of care as it accords its own Property,
such care shall conclusively be deemed reasonable. In the event that all or any
part of the Certificated Securities or Instruments constituting the Collateral
are lost, destroyed or wrongfully taken while such Certificated Securities or
Instruments are in the possession of the Administrative Agent, the Borrower
agrees that it will use its best efforts to cause the delivery of new
Certificated Securities or Instruments in place of the lost, destroyed or
wrongfully taken Certificated Securities or Instruments upon request therefor by
the Administrative Agent, without the necessity of any indemnity bond or other
security, other than the Administrative Agent's agreement of indemnity upon
usual and customary terms therefor. Anything herein to the contrary
notwithstanding, the Administrative Agent shall not be under any duty to send
notices, perform services, exercise any rights of collection, enforcement,
conversion or exchange, vote, pay for insurance, taxes or other charges or take
any action of any kind in connection with the management of the Collateral.
(c) Liability of Borrower under Contracts and Agreements
Included in the Collateral. Anything herein to the contrary notwithstanding, (i)
the Borrower shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Administrative Agent, the Issuing Bank, any
Rate Protection Lender or any Lender of any of its rights hereunder shall not
release the Borrower
<PAGE> 124
from any of its duties or obligations under any such contract or agreement,
(iii) neither the Administrative Agent, the Issuing Bank, any Rate Protection
Lender nor any Lender shall have any obligation or liability, including
indemnification obligations, under any such contract or agreement by reason of
this Agreement, nor shall the Administrative Agent, the Issuing Bank, any Rate
Protection Lender or any Lender be obligated to perform any of the obligations
or duties of the Borrower thereunder, to make any payment, to make any inquiry
as to the nature or sufficiency of any payment received by the Borrower or the
sufficiency of any performance by any party under any such contract or agreement
or to take any action to collect or enforce any claim for payment assigned
hereunder, and (iv) neither the Administrative Agent, the Issuing Bank, any Rate
Protection Lender nor any Lender shall be under any duty to send notices,
perform services, exercise any rights of collection, enforcement, conversion or
exchange, vote, pay for insurance, taxes or other charges or take any action of
any kind in connection with the management of the Collateral.
6. Events of Default
Each of the following shall constitute an "Event of Default":
(a) If the Borrower shall fail to observe or perform any
term, covenant or agreement contained in this Agreement; or
(b) The occurrence and continuance of an Event of Default
under, and as such term is defined in, the Credit Agreement.
7. Remedies
(a) Upon the occurrence of an Event of Default or at any
time thereafter during the continuance thereof, the Administrative Agent may:
(i) exercise any and all rights and remedies (A)
granted to a Secured Party by the UCC in effect in the State of New York
or otherwise allowed at law, and (B) otherwise provided by this
Agreement, and
(ii) dispose of the Collateral as it may choose, so
long as every aspect of the disposition including the method, manner,
time, place and terms are commercially reasonable, and the Borrower
agrees that, without limitation, the following are each commercially
reasonable: (A) the Administrative Agent shall not in any event be
required to give more than 10 days' prior notice to the Borrower of any
such disposition, (B) any place within the City of New York or the
Counties of Nassau, Suffolk, and Westchester may be designated by the
Administrative Agent for disposition, and (C) the Administrative Agent
may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) The Borrower acknowledges and agrees that the
Administrative Agent may elect, with respect to the offer or sale of any or all
of the Equity Interests constituting the
<PAGE> 125
Collateral, to conduct such offer and sale in such a manner as to avoid the need
for registration or qualification of such Equity Interests or the offer and sale
thereof under any Federal or state securities laws and that the Administrative
Agent is authorized to comply with any limitation or restriction in connection
with such sale as counsel may advise the Administrative Agent is reasonably
necessary in order to avoid any violation of applicable law, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to Persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such Equity
Interests, or in order to obtain any required approval of the sale or of the
purchaser by any Governmental Authority. The Borrower further acknowledges and
agrees that any such transaction may be at prices and on terms less favorable
than those which may be obtained through a public sale and not subject to such
restrictions and agrees that, notwithstanding the foregoing, the Administrative
Agent is under no obligation to conduct any such public sale and may elect to
impose any or all of the foregoing restrictions, or any other restrictions which
may be reasonably necessary in order to avoid any such registration or
qualification, at its sole discretion or with the consent or direction of the
Required Lenders, and that any such offer and sale so conducted shall be deemed
to have been made in a commercially reasonable manner.
(c) To the extent permitted by law, the Borrower hereby
expressly waives and covenants not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force,
which might delay, prevent or otherwise impede the performance or enforcement of
this Agreement.
(d) Notwithstanding anything to the contrary contained in
this Agreement, any other Loan Document or in any other agreement, instrument or
document executed by the Borrower and delivered to the Administrative Agent, the
Issuing Bank or any Lender, neither the Administrative Agent, the Issuing Bank
nor any Lender will take any action pursuant to this Agreement, any other Loan
Document or any other document referred to above which would constitute or
result in any assignment of any license, approval, permit, certificate or other
authorization issued by the FCC or any change of control of the Borrower or any
Subsidiary if such assignment or change of control would require, under then
existing law, the prior approval of the FCC without first obtaining such prior
approval of the FCC. Upon the occurrence of an Event of Default or at any time
during the continuance thereof, the Borrower waives, to the extent permitted by
law, any right it may have to oppose, and agrees to take any action that the
Administrative Agent may reasonably request in order to obtain from the FCC,
such approval as may be necessary to enable the Administrative Agent, the
Issuing Bank and the Lenders to exercise and enjoy the full rights and benefits
granted to the Administrative Agent, the Issuing Bank and the Lenders by this
Agreement, the other Loan Documents and the other documents referred to above,
including specifically, at the cost and expense of the Borrower, the use of
commercially reasonable efforts to assist in obtaining approval of the FCC for
any action or transaction contemplated by this Agreement for which such approval
is or shall be required by law, and specifically, without limitation, upon
request, to prepare, sign and file with the FCC the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license or transfer of control necessary or appropriate under the FCC's rules
and regulations
<PAGE> 126
for approval of (a) any sale or other disposition of the Collateral by or on
behalf of the Administrative Agent, or (b) any assumption by the Administrative
Agent of voting rights in the Collateral effected in accordance with the terms
of this Agreement. It is understood and agreed that all foreclosure and related
actions will be made in accordance with the Communications Act and applicable
regulations and published policies and decisions of the FCC pertaining to such
foreclosure and related actions.
8. Voting
Notwithstanding anything to the contrary contained in this
Agreement, the Borrower shall have the right to vote all Securities and General
Intangibles constituting the Collateral and receive and retain all dividends and
distributions thereon until such time, if any, as an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have notified the
Borrower that the Administrative Agent shall have elected to terminate the
rights of the Borrower under this section, at which time the Administrative
Agent shall then be vested with the right to vote all Securities constituting
the Collateral and receive and retain all dividends and distributions thereon,
until such time as such Event of Default is cured or waived.
9. Notices
All notices and other communications provided for or otherwise
required hereunder or in connection herewith shall be given in the manner and to
the addresses set forth in Section 11.2 of the Credit Agreement.
10. Termination
On any date upon which (i) the Lenders shall no longer have any
obligation to make Loans, (ii) the Issuing Bank shall no longer have (A) any
obligation to issue Letters of Credit and (B) any obligations under the Letters
of Credit theretofor issued, and (iii) the Obligations shall have been paid in
full in cash, the outstanding principal balance of the Loans together with all
accrued interest thereon, all of the Reimbursement Obligations and all other
sums then due and owing under the Loan Documents, the Liens granted hereby shall
cease and the Administrative Agent shall, at the Borrower's expense (A) execute
and deliver all UCC Termination Statements and other documents necessary to
terminate the Liens granted hereby that the Borrower shall have reasonably
requested, and (B) return to the Borrower all Collateral that shall remain in
the possession of the Administrative Agent at such time.
11. Relationship to Credit Agreement
This Agreement is the "Borrower Security Agreement" under, and
as such term is defined in, the Credit Agreement, and is subject to, and should
be construed in accordance with, the provisions thereof. Each of the
Administrative Agent and the Borrower acknowledges that certain provisions of
the Credit Agreement, including, without limitation, Sections 1.2 (Principles of
Construction), 11.1 (Amendments and Waivers), 11.3 (No Waiver; Cumulative
Remedies), 11.4 (Survival of Representations and Warranties), 11.7 (Successors
and Assigns), 11.8 (Counterparts), 11.9 (Adjustments; Setoff), 11.12 (Governing
Law), 11.13 (Headings),
<PAGE> 127
11.14 (Severability), 11.15 (Integration), 11.16 (Limitation of Liability),
11.17 (Consent to Jurisdiction), 11.18 (Service of Process), 11.19 (No
Limitation on Service or Suit) and 11.20 (WAIVER OF TRIAL BY JURY) thereof, are
made applicable to this Agreement and all such provisions are incorporated by
reference herein as if fully set forth herein.
IN EVIDENCE of the agreement by the parties hereto to the terms
and conditions herein contained, each such party has caused this First Amended
and Restated Borrower Security Agreement to be duly executed on its behalf.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE BANK OF NEW YORK,
as Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 128
SCHEDULE 3(E) TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF EQUITY INTERESTS
<TABLE>
<CAPTION>
Percentage of
Number of Cert. Outstanding
Issuer Class Shares Number Shares
- ------ ----- --------- ------ -------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 129
SCHEDULE 3(f) TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS
<PAGE> 130
SCHEDULE 3(h) TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
ADDRESSES FOR EQUIPMENT AND INVENTORY LOCATIONS
<PAGE> 131
SCHEDULE 3(i) TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF REGISTRATIONS
A. Patents
B. Trademarks
<PAGE> 132
ANNEX A-1 TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
FORM OF GRANT OF SECURITY INTEREST (PATENTS)
SALEM COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Borrower"), is obligated to THE BANK OF NEW YORK, as Administrative Agent (the
"Administrative Agent"), and has entered into the First Amended and Restated
Borrower Security Agreement as of June ____, 1999 (as the same may be amended,
supplemented or otherwise modified, the "Agreement") with the Administrative
Agent.
Pursuant to the Agreement, the Borrower granted to the
Administrative Agent a security interest in all of the right, title and interest
of the Borrower in and to the letters patent or applications for letters patent,
of the United States, more particularly described on Schedule 1 (the "Patents")
together with any reissue, continuation, continuation-in-part or extension
thereof, and all proceeds thereof, any and all causes of action which may exist
by reason of infringement thereof for the full term of the Patents (the
"Collateral"), to secure the prompt payment, performance and observance of the
Obligations (as defined in the Agreement).
For good and valuable consideration, the receipt of which is
hereby acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Borrower does hereby further assign to the
Administrative Agent, and grant to the Administrative Agent a security interest
in, the Collateral to secure the prompt payment, performance and observance of
the Obligations.
The Borrower does hereby further acknowledge and affirm that the
rights and remedies of the Administrative Agent with respect to the assignment
of and security interest in the Collateral made and granted hereby are set forth
in the Agreement, the terms and provisions of which are hereby incorporated
herein by reference as if fully set forth herein.
Upon the indefeasible cash payment in full of all Obligations
(as such term is defined in the Agreement), the Administrative Agent will take
whatever actions are necessary at the Borrower's expense to release or reconvey
to Borrower all right, title and interest of the Borrower in and to the Patents.
The Administrative Agent's address is: One Wall Street, New
York, New York 10286.
IN WITNESS WHEREOF, the Borrower has caused this Assignment to
be duly executed by its duly authorized officer as of the __ day of _____,
_____.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 133
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _____, ____, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at __________________; that he is the ________ 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.
Notary Public
[Notary's Stamp]
<PAGE> 134
Schedule 1
to
Grant of Security Interest (Patents)
Dated as of ______________
<PAGE> 135
ANNEX A-2 TO THE BORROWER SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
FORM OF GRANT OF SECURITY INTEREST (TRADEMARKS)
SALEM COMMUNICATIONS CORPORATION, a California corporation (the
"Borrower"), is obligated to THE BANK OF NEW YORK, as Administrative Agent (the
"Administrative Agent"), and has entered into the First Amended and Restated
Borrower Security Agreement dated as of June ____, 1999 (as the same may be
amended, supplemented or otherwise modified, the "Agreement") with the
Administrative Agent.
Pursuant to the Agreement, the Borrower granted to the
Administrative Agent a security interest in all of the right, title and interest
of the Borrower in and to the trademarks listed on Schedule 1, which trademarks
are registered in the United States Patent and Trademark Office (the
"Trademarks"), together with the goodwill of the business symbolized by the
Trademarks and the applications and registrations therefor, and all proceeds
thereof, any and all causes of action which may exist by reason of infringement
thereof (the "Collateral"), to secure the prompt payment, performance and
observance of the Obligations (as defined in the Agreement).
For good and valuable consideration, the receipt of which is
hereby acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Borrower does hereby further assign to the
Administrative Agent, and grant to the Administrative Agent a security interest
in, the Collateral to secure the prompt payment, performance and observance of
the Obligations.
The Borrower does hereby further acknowledge and affirm that the
rights and remedies of the Administrative Agent with respect to the assignment
of and security interest in the Collateral made and granted hereby are set forth
in the Agreement, the terms and provisions of which are hereby incorporated
herein by reference as if fully set forth herein.
Upon the indefeasible cash payment in full of all Obligations
(as such term is defined in the Agreement), the Administrative Agent will take
whatever actions are necessary at the Borrower's expense to release or reconvey
to the Borrower all right, title and interest of the Borrower in and to the
Trademarks.
The Administrative Agent's address is: One Wall Street, New
York, New York 10286.
IN WITNESS WHEREOF, the Borrower has caused this Assignment to
be duly executed by its duly authorized officer as of the __ day of _____, ____.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 136
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _____, _____, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at __________________; that he is the ________ 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.
Notary Public
[Notary's Stamp]
<PAGE> 137
Schedule 1
to
Grant of Security Interest (Trademarks)
Dated as of ____________
<PAGE> 138
SALEM EXHIBIT I
FORM OF FIRST AMENDED AND RESTATED
SUBSIDIARY GUARANTY AND SECURITY AGREEMENT
FIRST AMENDED AND RESTATED SUBSIDIARY GUARANTY AND SECURITY AGREEMENT
(as the same may be amended, supplemented or otherwise modified from time to
time, this "Agreement"), dated as of June __, 1999, by and among the Persons
party hereto (the "Current Guarantors"), such other Persons which from time to
time may become party hereto (the "Additional Guarantors", and collectively with
the Current Guarantors, the "Guarantors"), SALEM COMMUNICATIONS CORPORATION, a
Delaware corporation (the "Borrower"), and THE BANK OF NEW YORK (the
"Administrative Agent"), in its capacity as Administrative Agent for the Lenders
under the Credit Agreement referred to below and the Rate Protection Lenders as
defined herein.
RECITALS
A. This Agreement amends and restates the Subsidiary Guaranty and
Security Agreement, dated as of September 25, 1997, by and between the
Guarantors party thereto, Salem Communications Corporation, a California
corporation ("Salem California"), and the Administrative Agent (as amended to
the date hereof, the "Original Security Agreement"). On March 31, 1999, Salem
California merged into Salem Delaware with Salem Delaware as the survivor.
Pursuant to the terms and conditions of Consent No. 3, Salem Delaware entered
into the Assumption Agreement whereby Salem Delaware, among other things,
assumed all of the obligations of Salem California under the Loan Documents
(including, without limitation, the Original Security Agreement).
B. This Agreement is intended solely as an amendment of, and
contemporaneous restatement of, the terms and conditions of the Original
Security Agreement and is not intended, and should not be construed in any way,
to extinguish or terminate the Borrower Obligations, the Guarantor Obligations
or the Security Interests granted under the Original Security Agreement.
C. Reference is made to the First Amended and Restated Credit
Agreement, dated as of June __, 1999, by and among the Borrower, the Lenders
party thereto, the Administrative Agent, Bank of America NT&SA, as Documentation
Agent, and BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California,
N.A., as Co-Agents (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), which Credit Agreement
amends and restates the Credit Agreement, dated as of September 25, 1997, by and
among Salem California, the lenders party thereto, Bank of America NT&SA, as
Documentation Agent, and The Bank of New York, as Administrative Agent, as
amended and modified by Amendment No. 1 and Consent No. 1, dated as of August 5,
1998, Amendment No. 2 and Consent No. 2, dated as of January 22, 1999, Consent
No. 3, dated as of March 31, 1999, and Amendment No. 3 and Consent No. 4, dated
as of April 23, 1999 (as so amended, the "Original Credit Agreement").
<PAGE> 139
D. In the past, as now, the Borrower has provided financing for the
Guarantors and the Guarantors have relied upon the Borrower to provide such
financing. In addition, it is anticipated that, if the Guarantors execute and
deliver this Agreement, the Borrower will continue to provide such financing to
the Guarantors, and that the proceeds of the Loans to be made and Letters of
Credit to be issued will be used, in part, for the general corporate and working
capital purposes of the Guarantors. It is a condition precedent to the
effectiveness of the Credit Agreement and the making of all Loans and all
extensions of credit under the Credit Agreement that the Guarantors shall have
executed and delivered this Agreement. In light of all of the foregoing, each
Guarantor expects to derive substantial benefit from the Credit Agreement and
the transactions contemplated thereby and, in furtherance thereof, has agreed to
execute and deliver this Agreement.
E. For convenience, this Agreement is dated as of June __, 1999,
and references to certain matters relating to the period prior thereto have been
deleted.
Therefore, in consideration of the Recitals, the terms and conditions
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantors, the Borrower and
the Administrative Agent hereby agree as follows:
1. Defined Terms
(a) Capitalized terms used herein which are not otherwise
defined herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
(b) When used in this Agreement, the following capitalized
terms shall have the respective meanings ascribed thereto as follows:
"Borrower Obligations": all of the obligations and
liabilities of the Borrower under the Loan Documents and under each Interest
Rate Protection Arrangement entered into by the Borrower with a Rate Protection
Lender, in each case whether fixed, contingent, now existing or hereafter
arising, created, assumed, incurred or acquired, and whether before or after the
occurrence of any Insolvency Event, and including (i) any obligation or
liability in respect of any breach of any representation or warranty and (ii)
all post-petition interest and funding losses, whether or not allowed as a claim
in any proceeding arising in connection with an Insolvency Event.
"Collateral": as defined in Section 4.
"Equity Interest": (i) with respect to a corporation,
the capital stock thereof, (ii) with respect to a partnership, a partnership
interest therein, all rights of a partner in such partnership, whether arising
under the partnership agreement of such partnership or otherwise; (iii) with
respect to a limited liability company, a membership interest therein, all
rights of a member of such limited liability company, whether arising under the
limited liability company agreement of such limited liability company or
otherwise; (iv) with respect to any other firm, association, trust, business
enterprise or
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other entity, any equity interest therein, any interest therein which entitles
the holder thereof to share in the revenue, income, earnings or losses thereof
or to vote or otherwise participate in any election of one or more members of
the Managing Person thereof, and (v) all warrants and options in respect of any
of the foregoing and all other securities which are convertible or exchangeable
therefor.
"Financing Statements": the UCC financing statements
executed by the Guarantor and delivered pursuant to the Credit Agreement.
"Grants of Security Interests": collectively, the Grant
of Security Interest (Patents) and the Grant of Security Interest (Trademarks),
in the form of Annexes B-1 and B-2 hereto, respectively, in each case
appropriately completed and signed by the Guarantor.
"Guarantor Obligations": with respect to each Guarantor,
all of the obligations and liabilities of such Guarantor hereunder, whether
fixed, contingent, now existing or hereafter arising, created, assumed, incurred
or acquired.
"Insolvency Event": any Event of Default under Section
9.1(h) or (i) of the Credit Agreement.
"NYUCC": the UCC as in effect in the State of New York
on the date hereof.
"Office Location": as defined in Section 5(c).
"Patents": all patents issued under the laws of the
United States of America and all patent applications filed with the United
States Patent and Trademark Office, and all of the rights associated with each
of the foregoing.
"Proceeds": as defined in the NYUCC, together with (i)
all dividends, distributions and income on and in respect of all of the
Securities and Instruments and all other rights and benefits in respect thereof,
and (ii) with respect to the Patents and Trademarks, all renewals thereof, all
proceeds of infringement suits, all rights to sue for infringement, all license
royalties, all reissues, divisions, continuations, extensions and continuations
in part thereof.
"Registrations": (i) patents issued under the laws of
the United States of America, (ii) patent applications filed with the United
States Patent and Trademark Office, and (iii) all registered trademarks.
"Rate Protection Lenders": collectively, the Lenders and
any affiliates of the Lenders which from time to time enter or have entered into
Interest Rate Protection Arrangements with the Borrower.
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"Supplement": a Supplement to this Agreement, duly
completed, in the form of Annex A hereto.
"Trademarks": as to any Guarantor (i) all rights under
the laws of the United States of America, and each State thereof, to trademarks,
together with all registrations thereof, applications therefor and all of the
rights associated therewith, and (ii) the goodwill of such Guarantor's business
symbolized by registered trademarks.
"UCC": with respect to any jurisdiction, Articles 1, 8
and 9 of the Uniform Commercial Code as from time to time in effect in such
jurisdiction.
(c) When used in this Agreement, the following capitalized
terms shall have the respective meanings ascribed thereto in the NYUCC:
"Account", "Certificated Security", "Chattel Paper", "Document", "Equipment",
"Fixture", "General Intangible", "Instruction", "Instrument", "Inventory",
"Issuer", "Secured Party", "Security", "Security Interest" and "Uncertificated
Security".
2. Guaranty
(a) Subject to Section 2(b) hereof, each Guarantor hereby
absolutely, irrevocably and unconditionally guarantees the full and prompt
payment when due (whether at stated maturity, by acceleration or otherwise) of
the Borrower Obligations. This Agreement constitutes a guaranty of payment and
neither the Administrative Agent, the Issuing Bank nor any Lender shall have any
obligation to enforce any Loan Document or any Interest Rate Protection
Arrangement or exercise any right or remedy with respect to any collateral
security thereunder by any action, including making or perfecting any claim
against any Person or any collateral security for any of the Borrower
Obligations, prior to being entitled to the benefits of this Agreement. The
Administrative Agent may, at its option, proceed against the Guarantors, or any
one or more of them, in the first instance, to enforce the Guarantor Obligations
without first proceeding against the Borrower or any other Person, and without
first resorting to any other rights or remedies, as the Administrative Agent may
deem advisable. In furtherance hereof, if the Administrative Agent, the Issuing
Bank or any Lender is prevented by law from collecting or otherwise hindered
from collecting or otherwise enforcing any Borrower Obligation in accordance
with its terms, the Administrative Agent, the Issuing Bank or such Lender, as
the case may be, shall be entitled to receive hereunder from the Guarantors
after demand therefor, the sums which would have been otherwise due had such
collection or enforcement not been prevented or hindered.
(b) Anything contained in this Agreement to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the greatest amount that would not render
such Guarantor's obligations hereunder subject to avoidance as a fraudulent
transfer or
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conveyance under Section 548 of Title 11 of the United States Code or any
provisions of applicable state law (collectively, the "Fraudulent Transfer
Laws"), in each case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (A) in respect of intercompany indebtedness to the Borrower or
Affiliates of the Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by such Guarantor hereunder and
(B) under any guarantee of senior unsecured indebtedness or Indebtedness
subordinated in right of payment to the Obligations which guarantee contains an
assumption that indebtedness incurred under the Credit Agreement shall be deemed
to have been incurred prior to any indebtedness incurred under any such
guarantee or contains a limitation as to maximum amount similar to that set
forth in this subsection, pursuant to which the liability of such Guarantor
hereunder is included in the liabilities taken into account in determining such
maximum amount) and after giving effect as assets to the value (as determined
under the applicable provisions of the Fraudulent Transfer Laws) of any rights
to subrogation, contribution, reimbursement, indemnity or similar rights of such
Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an
equitable allocation among such Guarantor and other Affiliates of the Borrower
of obligations arising under guarantees by such parties (including the
agreements in paragraph (d) of this Section).
(c) Each Guarantor agrees that the Guarantor Obligations may
at any time and from time to time exceed the maximum liability of such Guarantor
hereunder without impairing this Agreement or affecting the rights and remedies
of the Administrative Agent, the Issuing Bank or any Lender hereunder.
(d) In addition to all rights of indemnity and subrogation
as the Guarantors may have under applicable law (but subject to this paragraph),
the Borrower agrees that (i) in the event a payment shall be made by any
Guarantor hereunder, the Borrower shall indemnify such Guarantor for the full
amount of such payment, and such Guarantor shall be subrogated to the rights of
the person to whom such payments shall have been made to the extent of such
payment, and (ii) in the event that any assets of any Guarantor shall be sold
pursuant to any Loan Document to satisfy any claim of the Administrative Agent,
any Lender, the Issuing Bank or any Rate Protection Lender, the Borrower shall
indemnify such Guarantor in an amount equal to the greater of the book value or
the fair market value of the assets so sold. Each Guarantor (a "contributing
Guarantor") agrees (subject to this paragraph) that, in the event a payment
shall be made by any other Guarantor hereunder or assets of any other Guarantor
shall be sold pursuant to any Loan Document to satisfy a claim of the
Administrative Agent, any Lender, the Issuing Bank or any Rate Protection Lender
and such other Guarantor (the "claiming Guarantor") shall not have been fully
indemnified by the Borrower as provided in this paragraph, the contributing
Guarantor shall indemnify the claiming Guarantor in an amount equal to the
amount of such payment or the greater of the book value or the fair
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market value of such assets, as applicable, in each case multiplied by a
fraction of which the numerator shall be the net worth of the contributing
Guarantor on the date hereof and the denominator shall be the aggregate net
worth of all the Guarantors on the date hereof (or, in the case of any Guarantor
becoming a party hereto pursuant to Section 15, the date of the Supplement
hereto executed and delivered by such Guarantor). Any contributing Guarantor
making any payment to a claiming Guarantor pursuant to this paragraph shall be
subrogated to the rights of such claiming Guarantor under this paragraph to the
extent of such payment. Notwithstanding any provision of this paragraph to the
contrary, all rights of the Guarantors under this paragraph and all other rights
of indemnity, contribution or subrogation under applicable law or otherwise
shall be fully subordinated to the indefeasible payment in full in cash of the
Borrower Obligations and the Guarantor Obligations. No failure on the part of
the Borrower or any Guarantor to make the payments required by this paragraph
(or any other payments required under applicable law or otherwise) shall in any
respect limit the obligations and liabilities of any Guarantor with respect to
its obligations under this paragraph, and each Guarantor shall remain liable for
the full amount of the obligations of such Guarantor under this paragraph.
3. Absolute Obligation
No Guarantor shall be released from liability hereunder unless and until
the Maturity Date shall have occurred and either (a) the Issuing Bank shall not
have any obligation under the Letters of Credit and the Borrower shall have paid
in full in cash the outstanding principal balance of the Loans, together with
all accrued interest thereon, all of the Reimbursement Obligations, and all
other sums then due and owing under the Loan Documents, or (b) the Guarantor
Obligations of such Guarantor shall have been paid in full in cash. Each
Guarantor acknowledges and agrees that (i) neither the Administrative Agent, the
Issuing Bank nor any Lender has made any representation or warranty to such
Guarantor with respect to the Borrower, its Subsidiaries, any Loan Document, any
Interest Rate Protection Arrangement, or any agreement, instrument or document
executed or delivered in connection therewith, or any other matter whatsoever,
and (ii) such Guarantor shall be liable hereunder, and such liability shall not
be affected or impaired, irrespective of (A) the validity or enforceability of
any Loan Document, any Interest Rate Protection Arrangement, or any agreement,
instrument or document executed or delivered in connection therewith, or the
collectability of any of the Borrower Obligations, (B) the preference or
priority ranking with respect to any of the Borrower Obligations, (C) the
existence, validity, enforceability or perfection of any security interest or
collateral security under any Loan Document, or any Interest Rate Protection
Arrangement, or the release, exchange, substitution or loss or impairment of any
such security interest or collateral security, (D) any failure, delay, neglect
or omission by the Administrative Agent, the Issuing Bank or any Lender to
realize upon, enforce or protect any direct or indirect collateral security,
indebtedness, liability or obligation, any Loan
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Document, any Interest Rate Protection Arrangement, or any agreement, instrument
or document executed or delivered in connection therewith, or any of the
Borrower Obligations, (E) the existence or exercise of any right of setoff by
the Administrative Agent, the Issuing Bank or any Lender, (F) the existence,
validity or enforceability of any other guaranty with respect to any of the
Borrower Obligations, the liability of any other Person in respect of any of the
Borrower Obligations, or the release of any such Person or any other guarantor
of any of the Borrower Obligations, (G) any act or omission of the
Administrative Agent, the Issuing Bank or any Lender in connection with the
administration of any Loan Document, any Interest Rate Protection Arrangement,
or any of the Borrower Obligations, (H) the bankruptcy, insolvency,
reorganization or receivership of, or any other proceeding for the relief of
debtors commenced by or against, any Person, (I) the disaffirmance or rejection,
or the purported disaffirmance or purported rejection, of any of the Borrower
Obligations, any Loan Document, any Interest Rate Protection Arrangement, or any
agreement, instrument or document executed or delivered in connection therewith,
in any bankruptcy, insolvency, reorganization or receivership, or any other
proceeding for the relief of debtor, relating to any Person, (J) any law,
regulation or decree now or hereafter in effect which might in any manner affect
any of the terms or provisions of any Loan Document, any Interest Rate
Protection Arrangement, or any agreement, instrument or document executed or
delivered in connection therewith or any of the Borrower Obligations, or which
might cause or permit to be invoked any alteration in the time, amount, manner
or payment or performance of any of the Borrower's obligations and liabilities
(including the Borrower Obligations), (K) the merger or consolidation of the
Borrower into or with any Person, (L) the sale by the Borrower of all or any
part of its assets, (M) the fact that at any time and from time to time none of
the Borrower Obligations may be outstanding or owing to the Administrative
Agent, the Issuing Bank or any Lender, (N) any amendment or modification of, or
supplement to, any Loan Document or any Interest Rate Protection Arrangement or
(O) any other reason or circumstance which might otherwise constitute a defense
available to or a discharge of the Borrower in respect of its obligations or
liabilities (including the Borrower Obligations) or of such Guarantor in respect
of any of the Guarantor Obligations (other than by the performance in full
thereof).
4. Grant of Security Interest
To secure the prompt and complete payment, observance and performance of
the Guarantor Obligations, each Guarantor hereby grants to the Administrative
Agent, for its benefit and the ratable benefit of the Issuing Bank, the Lenders
and the Rate Protection Lenders, a Security Interest in and to all of such
Guarantor's right, title and interest in and to all: Accounts, Chattel Paper,
Documents, Equipment, Fixtures, General Intangibles, Instruments, including,
without limitation, Instruments evidencing intercompany Indebtedness, Inventory,
Patents, Trademarks, Equity Interests in each Person which now is or may
hereafter become a Subsidiary of such Guarantor or of the Borrower, whether
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or not evidenced by a Security, and all Proceeds of all of the foregoing, and
including, without limitation, all licenses, approvals, permits and other
authorizations issued by the FCC, including the Proceeds of any sale or other
disposition thereof, in each case to the extent that a security interest therein
is not prohibited by law, provided that to the extent that a security interest
therein is now so prohibited and to the extent that such security interest at
any time hereafter shall no longer be so prohibited, then such security interest
shall automatically and without any further action attach and become fully
effective at that time (giving effect to any retroactive effect to any change in
applicable law or regulation), in each case whether now owned or existing or
hereafter arising or acquired, (collectively, the "Collateral").
5. Representations and Warranties
Each Guarantor hereby represents and warrants to the Administrative
Agent as follows:
(a) Binding Obligation. This Agreement constitutes the valid
and binding obligation of such Guarantor, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws related to or affecting
the enforcement of creditors' rights generally.
(b) Solvency. Such Guarantor (if a Current Guarantor, both
immediately before and after giving effect to this Agreement and to all
Indebtedness incurred by the Borrower in connection with the Loan Documents or,
if an Additional Guarantor, immediately before and after giving effect to this
Agreement) (i) is not insolvent, (ii) is not engaged, and is not about to
engage, in any business or transaction, for which it has unreasonably small
capital, and (iii) does not intend to incur, and does not believe that it would
incur, debts that would be beyond its ability to pay such debts as they mature,
in each case referred to above within the meaning of both Title XI of the United
States Code and Article 10 of New York Debtor Credit Law, each as in effect on
the date hereof.
(c) Chief Executive Office. As of the date hereof, such
Guarantor's place of business or, if such Guarantor has more than one place of
business, its chief executive office, is, and has been continuously for the
immediately preceding 5 month period, located (the "Office Location") at, (i) if
such Guarantor is a Current Guarantor, the address therefor referred to in
Schedule 5(c) hereto, or (ii) if such Guarantor is an Additional Guarantor, the
address therefor set forth on Schedule 5(c) to the Supplement delivered by such
Additional Guarantor. Such Guarantor, (i) in the case of a Current Guarantor,
has not changed its legal name during the 6 year period immediately preceding
the date hereof, and (ii) in the case of an Additional Guarantor, has not
changed its legal name during the 6 year period immediately preceding the date
it became a
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Guarantor hereunder, except as otherwise disclosed on the Supplement delivered
by such Additional Guarantor.
(d) Information. If such Guarantor is a Current Guarantor,
all of the information with respect to such Guarantor, or any of its Property,
set forth on each of the Schedules hereto is true, complete and correct as of
the date hereof. If such Guarantor is an Additional Guarantor, all of the
information with respect to such Guarantor, or any of its Property, set forth on
each of the Schedules to the Supplement delivered by such Additional Guarantor
is true, complete and correct as of the date of such Supplement. All of such
Guarantor's books, records and documents relating to its Guarantor Collateral
are in all material respects what they purport to be.
(e) Security Interest. This Agreement, together with the
delivery to the Administrative Agent of the Certificated Securities constituting
Collateral and the continuous possession thereof by the Administrative Agent in
the State of New York, creates a continuing "enforceable" Security Interest in
the Collateral in favor of the Administrative Agent. Upon (i) the presentation
for filing of the Financing Statements at the respective offices listed thereon
together with the appropriate filing fee therefor, (ii) the delivery to the
Administrative Agent of the Instruments and the Certificated Securities
constituting the Collateral, (iii) the registration, in accordance with Article
8 of the NYUCC, of the Security Interest granted hereby on the books of each
Person which is an Issuer of an Uncertificated Security constituting the
Collateral as the agreement by such Person to comply with Instructions
originated by the Administrative Agent with respect to such Uncertificated
Securities without further consent by the registered owner of such
Uncertificated Securities, and (iv) the filing of the Grants of Security
Interests in the United States Patent and Trademark Office with respect to
Patents, Registrations, and Trademarks, (A) such Security Interest shall be
perfected, and (B) assuming that the Administrative Agent does not have "notice
of any adverse claim" within the meaning of Article 8 of the NYUCC, the
Administrative Agent shall be a "protected purchaser", within the meaning of
such Article, with respect to the Collateral consisting of Securities.
(f) Absence of Liens. There are no Liens upon the Collateral
other than Permitted Liens, if any.
(g) Equity Interests. As of the Effective Date with respect
to each Current Guarantor, as of the date of the Supplement executed by an
Additional Guarantor with respect to such Additional Guarantor, (i) the Equity
Interests listed on Schedule 5(g) or Schedule 5(g) to the Supplement, as the
case may be, constitute all of the Equity Interests in each Subsidiary in which
such Guarantor has any right, title or interest, and each such Equity Interest
issued by a corporate Issuer has been duly authorized, validly issued and fully
paid for, and is non-assessable and (ii) except as set forth in such Schedule
5(g) or Schedule 5(g) to such Supplement, (A) no Subsidiary of such Guarantor
has issued any securities convertible into, or options or warrants for, any
common or
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preferred equity securities thereof, (B) there are no agreements, voting trusts
or understandings binding upon such Guarantor or any of its Subsidiaries with
respect to the voting securities of any of such Subsidiary or affecting in any
manner the sale, pledge, assignment or other disposition thereof, including any
right of first refusal, option, redemption, call or other right with respect
thereto, whether similar or dissimilar to any of the foregoing and (C) no such
Equity Interest is represented by an Uncertificated Security.
(h) Chattel Paper, Documents and Instruments. With respect
to each Current Guarantor, the Chattel Paper, Documents and Instruments listed
on Schedule 5(h) hereto constitute, as of the date hereof, and with respect to
each Additional Guarantor, the Chattel Paper, Documents and Instruments listed
on Schedule 5(h) to the Supplement delivered by such Additional Guarantor
constitute, as of the date of such Supplement, all of the Chattel Paper,
Documents and Instruments which constitute the Collateral, and, to the best of
such Guarantor's knowledge, all such Chattel Paper, Documents and Instruments
have been duly authorized, issued and delivered, and constitute the legal,
valid, binding and enforceable obligations of the respective makers thereof.
(i) Accounts. As of the date hereof, all records concerning
any Account constituting the Collateral are located at its Office Location, and
no such Account is evidenced by a promissory note or other instrument.
(j) Equipment and Inventory. Except for Equipment and
Inventory in transit with common carriers, such Guarantor has exclusive
possession and control of all Equipment and Inventory constituting the
Collateral, all of which is as of the date hereof and has been continuously for
the 5 month period immediately preceding the date hereof (or, in the case of an
Additional Guarantor, the date of the Supplement delivered by such Additional
Guarantor), located at one or more of the places listed on (i) if such Guarantor
is a Current Guarantor, Schedule 5(j) hereto hereto, and (ii) if such Guarantor
is an Additional Guarantor, Schedule 5(j) hereto to the Supplement delivered by
such Additional Guarantor. Within the last 5-1/2 years as of the date hereof (or
of the Supplement of such Additional Guarantor) such Guarantor has not acquired
any Inventory or Equipment in connection with any bulk sale, or other than in
the ordinary course of business.
(k) Patents and Trademarks. Such Guarantor has no
Registrations relating to Patents other than those listed on (i) if such
Guarantor is a Current Guarantor, Schedule 5(k) hereto, and (ii) if such
Guarantor is an Additional Guarantor, Schedule 5(k) to the Supplement delivered
by such Guarantor, and each such Registration is subsisting and is not invalid
or unenforceable, in whole or in part, except to the extent that the
unenforceability thereof could not reasonably be expected to have a material
adverse effect on the value of the Patents taken as a whole. Such Guarantor has
no Registrations relating to Trademarks other than those listed on (i) if such
Guarantor is a Current
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Guarantor, Schedule 5(k) hereto, and (ii) if such Guarantor is an Additional
Guarantor, Schedule 5(k) to the Supplement delivered by such Guarantor, and each
such Registration is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part, except to the extent that the
unenforceability thereof could not reasonably be expected to have a material
adverse effect on the value of the Trademarks taken as a whole. To the best of
such Guarantor's knowledge, each Patent and Trademark constituting Collateral is
valid and enforceable. Except for Permitted Liens, such Guarantor is the sole
and exclusive owner of the entire and unencumbered right, title and interest in
and to each of the Patents and Trademarks constituting Collateral, free and
clear of all Liens. To the best of such Guarantor's knowledge, no claim has been
made that the use of any Patent or Trademark violates the rights of any third
person. Such Guarantor has used consistent standards of quality in its
manufacture of products sold under the Patents and Trademarks.
(l) Uncertificated Securities. Each Guarantor which is an
Issuer of an Uncertificated Security constituting Collateral has registered the
Administrative Agent on its books and records as the registered owner of each
such Uncertificated Security.
6. Covenants
Each Guarantor covenants with the Administrative Agent as follows:
(a) Chief Executive Office. Such Guarantor shall maintain
its place of business, or if it has more than one place of business, its chief
executive office, at the Office Location or at such other location in respect of
which (i) such Guarantor shall have provided the Administrative Agent with prior
written notice thereof, and (ii) UCC financing statements (or amendments
thereto), in form and substance reasonably satisfactory to the Administrative
Agent, shall have been filed within two months of such change.
(b) Further Assurances. Such Guarantor shall, at its own
expense, promptly execute and deliver all certificates, documents, instruments,
financing and continuation statements and amendments thereto, notices and other
agreements, and take all further action, that the Administrative Agent may
reasonably request from time to time, in order to perfect and protect the
Security Interest granted hereby or to enable the Administrative Agent to
exercise and enforce its rights and remedies hereunder with respect to the
Collateral. Such Guarantor hereby irrevocably appoints the Administrative Agent
as such Guarantor's true and lawful attorney-in-fact, in the name, place and
stead of such Guarantor, to perform on behalf of such Guarantor any and all
obligations of such Guarantor under this Agreement, and such Guarantor agrees
that the power of attorney herein granted constitutes a power coupled with an
interest, provided, however, that the Administrative Agent shall have no
obligation to perform any such obligation and such performance shall be at the
sole cost and expense of such Guarantor. If such Guarantor
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fails to comply with any of its obligations hereunder, the Administrative Agent
may do so in such Guarantor's name or in the Administrative Agent's name, but at
such Guarantor's expense, and such Guarantor hereby agrees to reimburse the
Administrative Agent in full for all reasonable expenses, including reasonable
attorney's fees, incurred by the Administrative Agent in connection therewith.
(c) Information. Such Guarantor shall, at its own expense,
furnish to the Administrative Agent such information, reports, statements and
schedules with respect to the Collateral as the Administrative Agent may
reasonably request from time to time.
(d) Defense of Collateral. Such Guarantor shall, at its own
expense, defend the Collateral against all claims of any kind or nature (other
than Permitted Liens, if any) of all Persons at any time claiming the same or
any interest therein adverse to the interests of the Administrative Agent, the
Issuing Bank, any Rate Protection Lender or any Lender, and such Guarantor shall
not cause, permit or suffer to exist any Lien upon the Collateral other than
Permitted Liens, if any.
(e) Uncertificated Securities. Such Guarantor shall cause
each Person which is an Issuer of an Uncertificated Security constituting the
Collateral (i) to register the Security Interest granted hereby upon the books
of such Person in accordance with Article 8 of the NYUCC, and (ii) to agree to
comply with Instructions originated by the Administrative Agent with respect to
such Uncertificated Securities without further consent by the registered owner
of such Uncertificated Securities.
(f) Delivery of Pledged Collateral. Each Certificated
Security representing an Equity Interest in a Person which is or shall become a
Subsidiary of the Borrower shall be promptly delivered to the Administrative
Agent, to be held by the Administrative Agent pursuant hereto, in suitable form
for transfer by delivery or accompanied by duly executed documents of transfer
or assignment in blank, all in form and substance satisfactory to the
Administrative Agent. Such Guarantor agrees that until so delivered, each such
Certificated Security shall be held by such Guarantor in trust for the benefit
of the Administrative Agent and be segregated from the other Property of such
Guarantor.
(g) Chattel Paper, Documents and Instruments. All of the
Instruments, Documents and Chattel Paper now or hereafter owned by or in the
possession of such Guarantor which constitute Collateral (other than checks
received in the ordinary course of collection) shall be promptly delivered to
the Administrative Agent, to be held by the Administrative Agent pursuant
hereto, in suitable form for transfer by delivery or accompanied by duly
executed documents of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Administrative Agent. Such Guarantor agrees that,
with respect to all items of the Collateral which it is or shall hereafter be
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obligated to deliver to the Administrative Agent, until so delivered such items
shall be held by such Guarantor in trust for the benefit of the Administrative
Agent and be segregated from the other Property of such Guarantor.
(h) Accounts. Except as otherwise provided in this
subsection, such Guarantor shall continue to collect in accordance with its
customary practice, at its own expense, all amounts due or to become due to such
Guarantor in respect of such Guarantor's Accounts and, prior to the occurrence
of an Event of Default, such Guarantor shall have the right to adjust, settle or
compromise the amount or payment of any such Account, all in accordance with its
customary practices. In connection with such collections, such Guarantor may
take and, at the direction of the Administrative Agent at any time that an Event
of Default shall have occurred and be continuing shall take, such action as such
Guarantor or the Administrative Agent may reasonably deem necessary or advisable
to enforce collection of such Accounts.
(i) Equipment and Inventory. Such Guarantor shall keep the
Equipment and Inventory constituting Collateral at the places listed on (i) if
such Guarantor is a Current Guarantor, Schedule 5(l) hereto, and (ii) if such
Guarantor is an Additional Guarantor, Schedule 5(l) to the Supplement delivered
by such Guarantor, and at such other places located within the United States in
respect of which (A) such Guarantor shall have provided the Administrative Agent
with prior written notice, and (B) UCC financing statements (or amendments
thereto), in form and substance satisfactory to the Administrative Agent, shall
have been filed within two months of such change. Such Guarantor shall promptly
furnish to the Administrative Agent a statement respecting any material loss or
damage to any of the Equipment or Inventory constituting Collateral except to
the extent that such loss or damage shall be insured pursuant to policies
required to be maintained pursuant to the Credit Agreement.
(j) Patents and Trademarks. Such Guarantor will continue to
use for the duration of this Agreement, consistent standards of quality in its
manufacture of products sold under the Patents and Trademarks constituting
Collateral. Such Guarantor shall give to the Administrative Agent prompt written
notice thereof in the event that such Guarantor shall obtain any right to any
new Patent or Trademark or to any reissue, division, continuation, renewal,
extension, or continuation-in-part of any Patent or Trademark. Such Guarantor
shall prosecute diligently any applications of the Patents and Trademarks
constituting Collateral pending as of the date of this Agreement or thereafter,
and preserve and maintain all rights in applications of Patents and Trademarks
constituting Collateral consistent with past practice, including the payment of
all maintenance fees, except to the extent the failure so to preserve or
maintain such rights could not reasonably
- 13 -
<PAGE> 151
be expected to have a material adverse effect on either (i) the value of the
Patents taken as a whole, or (ii) the value of the Trademarks taken as a whole.
Such Guarantor shall not abandon any right to file an application or any pending
application for any Patent or Trademark unless the failure so to do could not
reasonably be expected to have a material adverse effect on either (i) the value
of the Patents taken as a whole, or (ii) the value of the Trademarks taken as a
whole. Such Guarantor agrees that it will not enter into any agreement,
including a license agreement, with respect to any Patent or Trademark which is
inconsistent with such Guarantor's past practices of licensing Patents or
Trademarks as the case may be. Such Guarantor hereby grants to the
Administrative Agent the right to visit such Guarantor's plants and facilities
which manufacture, inspect or store products sold under any of the Patents and
Trademarks, and to inspect the products and quality control records relating
thereto at reasonable times during regular business hours upon reasonable prior
notice.
7. Other Agreements of the Guarantors
(a) No Duty to Preserve. Except as otherwise required by
law, each Guarantor agrees that, with respect to the Collateral, neither the
Administrative Agent, the Issuing Bank, any Rate Protection Lender nor any
Lender has any obligation to preserve rights against prior or third parties.
(b) Administrative Agent's Duty With Respect to Collateral.
Each Guarantor agrees that the Administrative Agent's only duty with respect to
the Collateral delivered to the Administrative Agent shall be to use reasonable
care in the custody and preservation of the Collateral, and each Guarantor
agrees that if the Administrative Agent accords the Collateral substantially the
same kind of care as the Administrative Agent accords its own Property, such
care shall conclusively be deemed reasonable. In the event that all or any part
of the Certificated Securities or Instruments constituting the Collateral are
lost, destroyed or wrongfully taken while such Certificated Securities or
Instruments are in the possession of the Administrative Agent, each Guarantor
agrees that it will use its best efforts to cause the delivery of new
Certificated Securities or Instruments in place of the lost, destroyed or
wrongfully taken Certificated Securities or Instruments upon request therefor by
the Administrative Agent, without the necessity of any indemnity bond or other
security, other than the Administrative Agent's agreement of indemnity upon
usual and customary terms therefor. Anything herein to the contrary
notwithstanding, the Administrative Agent shall not be under any duty to send
notices, perform services, exercise any rights of collection, enforcement,
conversion or exchange, vote, pay for insurance, taxes or other charges or take
any action of any kind in connection with the management of the Collateral.
(c) Liability of Guarantors under Contracts and Agreements
Included in the Collateral. Anything herein to the contrary notwithstanding, (i)
each Guarantor shall remain liable under the contracts and agreements to which
it is a party and which is included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (ii) the exercise by the
Administrative Agent, the Issuing Bank, any Rate Protection Lender or any Lender
of any of its rights hereunder shall not release any Guarantor from any of
- 14 -
<PAGE> 152
its duties or obligations under any such contract or agreement, (iii) neither
the Administrative Agent, the Issuing Bank, any Rate Protection Lender nor any
Lender shall have any obligation or liability, including indemnification
obligations, under any such contract or agreement by reason of this Agreement,
nor shall the Administrative Agent, the Issuing Bank, any Rate Protection Lender
or any Lender be obligated to perform any of the obligations or duties of any
Guarantor thereunder, to make any payment, to make any inquiry as to the nature
or sufficiency of any payment received by any Guarantor or the sufficiency of
any performance by any party under any such contract or agreement or to take any
action to collect or enforce any claim for payment assigned hereunder, and (iv)
neither the Administrative Agent, the Issuing Bank, any Rate Protection Lender
nor any Lender shall be under any duty to send notices, perform services,
exercise any rights of collection, enforcement, conversion or exchange, vote,
pay for insurance, taxes or other charges or take any action of any kind in
connection with the management of the Collateral.
(d) Uncertificated Securities. Each Guarantor which is an
Issuer of an Uncertificated Security constituting Collateral agrees to comply
with Instructions originated by the Administrative Agent with respect to each
such Uncertificated Security without further consent by the registered owner of
such Uncertificated Security.
8. Events of Default
Each of the following shall constitute an "Event of Default":
(a) The failure of any Guarantor to observe or perform any
term, covenant or agreement contained in this Agreement; or
(b) The occurrence and continuance of an Event of Default
under, and as such term is defined in, the Credit Agreement.
9. Remedies
(a) Upon the occurrence of an Event of Default or at any
time thereafter during the continuance thereof, the Administrative Agent may:
(i) exercise any and all rights and remedies (A)
granted to a Secured Party by the UCC in effect in the State of New York
or otherwise allowed at law, and (B) otherwise provided by this
Agreement, and
(ii) dispose of the Collateral as it may choose, so
long as every aspect of the disposition including the method, manner,
time, place and terms are commercially reasonable, and each Guarantor
agrees that, without limitation, the
- 15 -
<PAGE> 153
following are each commercially reasonable: (A) the Administrative Agent
shall not in any event be required to give more than 10 days' prior
notice to the Guarantors of any such disposition, (B) any place within
the City of New York or the Counties of Nassau, Suffolk, and Westchester
may be designated by the Administrative Agent for disposition, and (C)
the Administrative Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned.
(b) Each Guarantor acknowledges and agrees that the
Administrative Agent may elect, with respect to the offer or sale of any or all
of the Equity Interests constituting the Collateral, to conduct such offer and
sale in such a manner as to avoid the need for registration or qualification of
such Equity Interests or the offer and sale thereof under any Federal or state
securities laws and that the Administrative Agent is authorized to comply with
any limitation or restriction in connection with such sale as counsel may advise
the Administrative Agent is reasonably necessary in order to avoid any violation
of applicable law, compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to Persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Equity Interests, or in order to obtain any required approval of
the sale or of the purchaser by any Governmental Authority. Each Guarantor
further acknowledges and agrees that any such transaction may be at prices and
on terms less favorable than those which may be obtained through a public sale
and not subject to such restrictions and agrees that, notwithstanding the
foregoing, the Administrative Agent is under no obligation to conduct any such
public sale and may elect to impose any or all of the foregoing restrictions, or
any other restrictions which may be reasonably necessary in order to avoid any
such registration or qualification, at its sole discretion or with the consent
or direction of the Required Lenders, and that any such offer and sale so
conducted shall be deemed to have been made in a commercially reasonable manner.
(c) To the extent permitted by law, each Guarantor hereby
expressly waives and covenants not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force,
which might delay, prevent or otherwise impede the performance or enforcement of
this Agreement.
(d) Notwithstanding anything to the contrary contained in
this Agreement, any other Loan Document or in any other agreement, instrument or
document executed by any Guarantor and delivered to the Administrative Agent,
the Issuing Bank or any Lender, neither the Administrative Agent, the Issuing
Bank nor any Lender will take any action pursuant to this Agreement, any other
Loan Document or any other document referred to above which would constitute or
result in any assignment of any
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<PAGE> 154
license, approval, permit, certificate or other authorization issued by the FCC
or any change of control of the Borrower or any Subsidiary if such assignment or
change of control would require, under then existing law, the prior approval of
the FCC without first obtaining such prior approval of the FCC. Upon the
occurrence of an Event of Default or at any time thereafter during the
continuance thereof, each Guarantor waives, to the extent permitted by law, any
right it may have to oppose, and agrees to take any action that the
Administrative Agent may reasonably request in order to obtain from the FCC,
such approval as may be necessary to enable the Administrative Agent, the
Issuing Bank and the Lenders to exercise and enjoy the full rights and benefits
granted to the Administrative Agent, the Issuing Bank and the Lenders by this
Agreement, the other Loan Documents and the other documents referred to above,
including specifically, at the cost and expense of the Borrower, the use of
commercially reasonable efforts to assist in obtaining approval of the FCC for
any action or transaction contemplated by this Agreement for which such approval
is or shall be required by law, and specifically, without limitation, upon
request, to prepare, sign and file with the FCC the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license, approval, permit, certificate or other authorization or transfer of
control necessary or appropriate under the FCC's rules and regulations for
approval of (i) any sale or other disposition of the Collateral by or on behalf
of the Administrative Agent, or (ii) any assumption by the Administrative Agent
of voting rights in the Collateral effected in accordance with the terms of this
Agreement. It is understood and agreed that all foreclosure and related actions
will be made in accordance with the Communications Act and applicable
regulations and published policies and decisions of the FCC pertaining to such
foreclosure and related actions.
10. Voting
Notwithstanding anything to the contrary contained in this Agreement,
each Guarantor shall have the right to vote all Securities constituting its
Collateral and receive and retain all dividends and distributions thereon until
such time, if any, as an Event of Default shall have occurred and be continuing
and the Administrative Agent shall have notified such Guarantor that the
Administrative Agent shall have elected to terminate the rights of such
Guarantor under this section, at which time the Administrative Agent shall then
be vested with the right to vote all Securities constituting the Collateral and
receive and retain all dividends and distributions thereon, until such time as
such Event of Default is cured or waived.
11. Termination
On any date upon which (i) the Lenders shall no longer have any
obligation to make Loans, (ii) the Issuing Bank shall no longer have (A) any
obligation to issue Letters of Credit and (B) any obligations under the Letters
of Credit theretofor issued, and (iii) the Obligations shall have been paid in
full in cash, the outstanding principal balance of
- 17 -
<PAGE> 155
the Loans together with all accrued interest thereon, all of the Reimbursement
Obligations and all other sums then due and owing under the Loan Documents, the
Liens granted hereby shall cease and the Administrative Agent shall, at the
Guarantors' expense (A) execute and deliver all UCC Termination Statements and
other documents necessary to terminate the Liens granted hereby that the
Guarantors shall have reasonably requested, and (B) return to the Guarantors all
their respective Collateral that shall remain in the possession of the
Administrative Agent at such time.
12. Notices
Except as otherwise specifically provided herein, all notices, requests,
consents, demands, waivers and other communications hereunder shall be in
writing (including facsimile) and shall be electronically transmitted or mailed
by registered or certified mail or delivered in person, and all statements,
reports, documents, certificates and papers to be delivered hereunder shall be
mailed by first class mail or delivered in person, in each case to the
respective parties to this Agreement as follows: in the case of the
Administrative Agent or the Borrower, as set forth in Section 11.2 of the Credit
Agreement, in the case of each Current Guarantor, as set forth adjacent to the
name of such Current Guarantor on the signature page(s) hereof, and, in the case
of each Additional Guarantor, as set forth adjacent to the name of such
Additional Guarantor on the signature page(s) of the Supplement delivered by
such Additional Guarantor, or to such other addresses as to which the
Administrative Agent may be hereafter notified by the respective parties hereto.
Any notice, request, consent, demand, waiver or communication given in
accordance with the provisions of this section shall be conclusively deemed to
have been received by a party hereto and to be effective on the day on which
delivered to such party at its address specified above or, if sent by registered
or certified mail, on the delivery date noted on the receipt therefor, provided
that a notice of change of address shall be deemed to be effective only when
actually received. Any party hereto may rely on signatures of the other parties
hereto which are transmitted by facsimile or other electronic means as fully as
if originally signed.
13. Expenses
Each Guarantor agrees that it shall, upon demand, pay to the
Administrative Agent any and all reasonable out-of-pocket sums, costs and
expenses, which the Administrative Agent, the Issuing Bank or any Lender may pay
or incur defending, protecting or enforcing this Agreement (whether suit is
instituted or not), reasonable attorneys' fees and disbursements. All sums,
costs and expenses which are due and payable pursuant to this section shall bear
interest, payable on demand, at the highest rate then payable on the Borrower
Obligations.
14. Repayment in Bankruptcy, etc.
- 18 -
<PAGE> 156
If, at any time or times subsequent to the payment of all or any part of
the Borrower Obligations or the Guarantor Obligations, the Administrative Agent,
the Issuing Bank or any Lender shall be required to repay any amounts previously
paid by or on behalf of the Borrower or any Guarantor in reduction thereof by
virtue of an order of any court having jurisdiction in the premises, as a result
of an adjudication that such amounts constituted preferential payments or
fraudulent conveyances, the Guarantors unconditionally agree to pay to the
Administrative Agent within 10 days after demand a sum in cash equal to the
amount of such repayment, together with interest on such amount from the date of
such repayment by the Administrative Agent, the Issuing Bank or such Lender, as
the case may be, to the date of payment to the Administrative Agent at the
applicable after maturity rate set forth in the Credit Agreement.
15. Additional Guarantors
Upon the execution and delivery to the Administrative Agent of a
Supplement by any Person, appropriately acknowledged, such Person shall be a
Guarantor.
16. Agreement to Pay; Subordination
In furtherance of the foregoing and not in limitation of any other right
that the Administrative Agent, the Issuing Bank, any Lender or any Rate
Protection Lender has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Borrower Obligations when and as the same shall become due, whether at maturity,
be acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Administrative
Agent in cash the amount of such unpaid Obligations. Upon payment by any
Guarantor of any sums to the Administrative Agent as provided above, all rights
of such Guarantor against the Borrower arising as a result thereof by way of
right of subrogation, contribution, reimbursement, indemnity or otherwise shall
in all respects be subordinate and junior in right of payment to the prior
indefeasible payment in full in cash of all the Borrower Obligations. In
addition, any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated in right of payment to the prior payment in
full in cash of the Borrower Obligations. If any amount shall erroneously be
paid to any Guarantor on account of (i) such subrogation, contribution,
reimbursement, indemnity or similar right or (ii) any such indebtedness of the
Borrower, such amount shall be held in trust for the benefit of the
Administrative Agent, the Issuing Bank, the Lenders and the Rate Protection
Lenders and shall forthwith be paid to the Administrative Agent to be credited
against the payment of the Borrower
- 19 -
<PAGE> 157
Obligations, whether matured or unmatured, in accordance with the terms of the
Loan Documents.
17. Miscellaneous
(a) Except as otherwise expressly provided in this
Agreement, each Guarantor hereby waives presentment, demand for payment, notice
of default, nonperformance and dishonor, protest and notice of protest of or in
respect of this Agreement, the other Loan Documents, each Interest Protection
Arrangement, and the Borrower Obligations, notice of acceptance of this
Agreement and reliance hereupon by the Administrative Agent, the Issuing Bank
and each Lender, and the incurrence of any of the Borrower Obligations, notice
of any sale of collateral security or any default of any sort.
(b) No Guarantor is relying upon the Administrative Agent,
the Issuing Bank or any Lender to provide to such Guarantor any information
concerning the Borrower or any of its Subsidiaries, and each Guarantor has made
arrangements satisfactory to such Guarantor to obtain from the Borrower on a
continuing basis such information concerning the Borrower and its Subsidiaries
as such Guarantor may desire.
(c) Each Guarantor agrees that any statement of account with
respect to the Borrower Obligations from the Administrative Agent, the Issuing
Bank or any Lender to the Borrower which binds the Borrower shall also be
binding upon such Guarantor, and that copies of said statements of account
maintained in the regular course of the Administrative Agent's, the Issuing
Bank's or such Lender's business, as the case may be, may be used in evidence
against such Guarantor in order to establish its Guarantor Obligations.
(d) Each Guarantor acknowledges that it has received a copy
of the Loan Documents and each Interest Rate Protection Arrangement and has
approved of the same. In addition, such Guarantor acknowledges having read each
Loan Document and each such Interest Rate Protection Arrangement and having had
the advice of counsel in connection with all matters concerning its execution
and delivery of this Agreement.
(e) No Guarantor may assign any right, or delegate any duty,
it may have under this Agreement.
(f) Subject to the limitations set forth in Section 2(b),
the Guarantor Obligations shall be joint and several.
(g) This Agreement is the "Subsidiary Guaranty" referred to
in the Credit Agreement, and is subject to, and should be construed in
accordance with, the provisions thereof. Each of the Administrative Agent, the
Guarantors and the Borrower
- 20 -
<PAGE> 158
acknowledges that certain provisions of the Credit Agreement, including, without
limitation, Sections 1.2 (Principles of Construction), 11.1 (Amendments and
Waivers), 11.3 (No Waiver; Cumulative Remedies), 11.4 (Survival of Certain
Obligations), 11.7 (Successors and Assigns), 11.8 (Counterparts), 11.9
(Adjustments; Setoff), 11.12 (Governing Law), 11.13 (Headings), 11.14
(Severability), 11.15 (Integration), 11.16 (Limitation of Liability), 11.17
(Consent to Jurisdiction), 11.18 (Service of Process), 11.19 (No Limitation on
Service or Suit) and 11.20 (WAIVER OF TRIAL BY JURY) thereof, are made
applicable to this Agreement and all such provisions are incorporated by
reference herein as if fully set forth herein.
IN EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this First Amended and
Restated Subsidiary Guaranty and Security Agreement to be duly executed on its
behalf.
- 21 -
<PAGE> 159
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 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: Eric H. Halvorson
Title: Vice President
Address for Notices:
4880 Santa Rosa Road
Suite 300
<PAGE> 160
Camarillo, California 93012
Attention: Jonathan L. Block
Telephone: (805) 987-0400 (ext.106)
Telecopy: (805) 384-4505
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name: Eric H. Halvorson
Title: Executive Vice President
THE BANK OF NEW YORK,
as Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 161
SCHEDULE 5(c) TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF OFFICE LOCATIONS
<PAGE> 162
SCHEDULE 5(g) TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF EQUITY INTERESTS
<TABLE>
<CAPTION>
Percentage of
Number of Cert. Outstanding
Issuer Class Shares Number Shares
- ------ ----- --------- ------ -------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 163
SCHEDULE 5(h) TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS
<PAGE> 164
SCHEDULE 5(j) TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
ADDRESSES FOR EQUIPMENT AND INVENTORY LOCATIONS
<PAGE> 165
SCHEDULE 5(k) TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
LIST OF REGISTRATIONS
A. Patents
B. Trademarks
<PAGE> 166
ANNEX A TO THE SUBSIDIARY GUARANTY
FORM OF SUPPLEMENT TO FIRST AMENDED AND RESTATED
SUBSIDIARY GUARANTY
FIRST AMENDED AND RESTATED SUBSIDIARY GUARANTY AND SECURITY AGREEMENT,
dated as of June __, 1999, by and among the Guarantors party thereto, Salem
Communications Corporation and The Bank of New York, as Administrative Agent (as
the same may be amended, supplemented or otherwise modified from time to time,
the "Agreement").
[Date]
Capitalized terms used herein which are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Agreement. Pursuant
to Section 15 of the Agreement, by execution and delivery of this Supplement
and, upon acceptance hereof by the Administrative Agent, the undersigned (i)
shall be, and shall be deemed to be, a "Guarantor" under, and as such term is
defined in, the Agreement, (ii) shall have made, and shall be deemed to have
made, the representations and warranties contained in Section 5 of the Agreement
on and as of the date hereof, (iii) as security for the payment and performance
in full of its Guarantor Obligations, does hereby create and grant to the
Administrative Agent, its successors and permitted assigns, for its benefit and
the ratable benefit of the Issuing Bank, the Lenders and the Rate Protection
Lenders, their respective successors and permitted assigns, a security interest
in the Collateral (as defined in the Agreement) of the Additional Guarantor and
(iv) shall have made, and shall be deemed to have made, all of the covenants and
agreements of a Guarantor set forth in the Agreement.
[NAME OF ADDITIONAL GUARANTOR]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address for Notices:
Attention:
Telephone: (___) ___-____
Telecopy: (___) ___-____
<PAGE> 167
Accepted and agreed to as of the date first above written:
THE BANK OF NEW YORK, as Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[SCHEDULES CORRESPONDING TO THE SCHEDULES
IN THE AGREEMENT ARE TO BE ATTACHED]
<PAGE> 168
ANNEX B-1 TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
FORM OF GRANT OF SECURITY INTEREST (PATENTS)
[NAME OF GUARANTOR], a _____________ corporation (the "Guarantor"), is
obligated to THE BANK OF NEW YORK, as Administrative Agent (the "Administrative
Agent"), and has entered into the First Amended and Restated Subsidiary Guaranty
and Security Agreement, dated as of June __, 1999 (as the same may be amended,
supplemented or otherwise modified from time to time, the "Agreement"), by and
among each Guarantor party thereto, SALEM COMMUNICATIONS CORPORATION (the
"Borrower") and THE BANK OF NEW YORK, as Administrative Agent (in such capacity,
the "Administrative Agent").
Pursuant to the Agreement, the Guarantor granted to the Administrative
Agent a security interest in all of the right, title and interest of the
Guarantor in and to the letters patent or applications for letters patent, of
the United States, more particularly described on Schedule 1 (the "Patents")
together with any reissue, continuation, continuation-in-part or extension
thereof, and all proceeds thereof, any and all causes of action which may exist
by reason of infringement thereof for the full term of the Patents (the
"Collateral"), to secure the prompt payment, performance and observance of the
Guarantor Obligations (as defined in the Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Guarantor does hereby further assign to the
Administrative Agent, and grant to the Administrative Agent a security interest
in, the Collateral to secure the prompt payment, performance and observance of
the Guarantor Obligations.
The Guarantor does hereby further acknowledge and affirm that the rights
and remedies of the Administrative Agent with respect to the assignment of and
security interest in the Collateral made and granted hereby are set forth in the
Agreement, the terms and provisions of which are hereby incorporated herein by
reference as if fully set forth herein.
Upon the indefeasible cash payment in full of all Guarantor Obligations
(as such term is defined in the Agreement), the Administrative Agent will take
whatever actions are necessary at the Guarantor's expense to release or reconvey
to Guarantor all right, title and interest of the Guarantor in and to the
Patents.
<PAGE> 169
The Administrative Agent's address is: One Wall Street, New York, New
York 10286.
IN WITNESS WHEREOF, the Guarantor has caused this Assignment to be duly
executed by its duly authorized officer as of the __ day of _____, ____.
[NAME OF GUARANTOR]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 170
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _____, ____, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at __________________; that he is the ________ of [NAME OF
GUARANTOR], 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.
Notary Public
[Notary's Stamp]
<PAGE> 171
Schedule 1
to
Grant of Security Interest (Patents)
Dated as of __________
<PAGE> 172
ANNEX B-2 TO THE SUBSIDIARY GUARANTY
AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1999
FORM OF GRANT OF SECURITY INTEREST (TRADEMARKS)
[NAME OF GUARANTOR], a _____________ corporation (the "Guarantor"), is
obligated to THE BANK OF NEW YORK, as Administrative Agent (the "Administrative
Agent"), and has entered into the First Amended and Restated Subsidiary Guaranty
and Security Agreement, dated as of June __, 1999 (as the same may be amended,
supplemented or otherwise modified from time to time, the "Agreement"), by and
among each Guarantor party thereto, SALEM COMMUNICATIONS CORPORATION (the
"Borrower") and THE BANK OF NEW YORK, as Administrative Agent (in such capacity,
the "Administrative Agent").
Pursuant to the Agreement, the Guarantor granted to the Administrative
Agent a security interest in all of the right, title and interest of the
Guarantor in and to the trademarks listed on Schedule 1, which trademarks are
registered in the United States Patent and Trademark Office (the "Trademarks"),
together with the goodwill of the business symbolized by the Trademarks and the
applications and registrations therefor, and all proceeds thereof, any and all
causes of action which may exist by reason of infringement thereof (the
"Collateral"), to secure the prompt payment, performance and observance of the
Guarantor Obligations (as defined in the Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Guarantor does hereby further assign to the
Administrative Agent, and grant to the Administrative Agent a security interest
in, the Collateral to secure the prompt payment, performance and observance of
the Guarantor Obligations.
The Guarantor does hereby further acknowledge and affirm that the rights
and remedies of the Administrative Agent with respect to the assignment of and
security interest in the Collateral made and granted hereby are set forth in the
Agreement, the terms and provisions of which are hereby incorporated herein by
reference as if fully set forth herein.
Upon the indefeasible cash payment in full of all Guarantor Obligations
(as such term is defined in the Agreement), the Administrative Agent will take
whatever actions are necessary at the Guarantor's expense to release or reconvey
to the Guarantor all right, title and interest of the Guarantor in and to the
Trademarks.
<PAGE> 173
The Administrative Agent's address is: One Wall Street, New York, New
York 10286.
IN WITNESS WHEREOF, the Guarantor has caused this Assignment to be duly
executed by its duly authorized officer as of the __ day of _____, ____.
[NAME OF GUARANTOR]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 174
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _____, ____, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at __________________; that he is the ________ of [NAME OF
GUARANTOR], 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.
Notary Public
[Notary's Stamp]
<PAGE> 175
Schedule 1
to
Grant of Security Interest (Trademarks)
Dated as of _________
<PAGE> 176
SALEM EXHIBIT J
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is made and entered into as of
______________, by and between ____________ (the "Assignor") and ____________
(the "Assignee").
R E C I T A L S
A. Capitalized terms used herein which are not defined herein shall
have the meanings set forth in the Credit Agreement (as hereinafter defined).
B. The Assignor, certain other lenders (together with any prior
assignees, the "Lenders") and The Bank of New York, as Administrative Agent (the
"Administrative Agent"), Bank of America NT&SA, as Documentation Agent, and
BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California, N.A., as
Co-Agents, are parties to that certain First Amended and Restated Credit
Agreement, dated as of June __, 1999 (as amended, modified or otherwise
supplemented, the "Credit Agreement"), with Salem Communications Corporation, a
Delaware corporation (the "Borrower"). Pursuant to the Credit Agreement, the
Lenders agreed to make RC Loans to the Borrower under the RC Commitments in the
aggregate amount of $[150,000,000] and the Issuing Bank agreed to issue Letters
of Credit under the Letter of Credit Commitment in the aggregate amount of
$[15,000,000]. The amount of the Assignor's RC Commitment is specified in Item 1
of Schedule 1 hereto. The type and outstanding principal amount of the
Assignor's RC Loans are specified in Item 2 of Schedule 1 hereto. The Assignor's
Letter of Credit Exposure is specified in Item 3 of Schedule 1 hereto.
C. The Assignor wishes to sell and assign to the Assignee, and the
Assignee wishes to purchase and assume from the Assignor, (i) the portion of the
Assignor's RC Commitment specified in Item 4 of Schedule 1 hereto (the "Assigned
Commitment"), (ii) the portion of the Assignor's RC Loans specified in Item 5 of
Schedule 1 hereto (the "Assigned Loans") and (iii) the portion of the Assignor's
Letter of Credit Exposure specified in Item 7 of Schedule 1 hereto (the
"Assigned Letter of Credit Exposure").
The parties agree as follows:
1. Assignment. Subject to the terms and conditions set forth herein
and in the Credit Agreement, the Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor,
without recourse, on the date set forth above (the "Assignment Date") all right,
title, interest and obligations under the Credit Agreement and the other Loan
Documents of the Assignor in and with respect to the Assigned Loans, the
Assigned Letter of Credit Exposure and the Assigned Commitment. As full
consideration for the sale of the Assigned Loans, the Assigned Letter of Credit
Exposure and the Assigned Commitment, the Assignee shall pay to the Assignor on
the Assignment Date the principal amount of the Assigned Loans (the "Purchase
Price").
<PAGE> 177
2. Representation and Warranties. Each of the Assignor and the
Assignee represents and warrants to the other that (a) it has full power and
legal right to execute and deliver this Agreement and to perform the provisions
of this Agreement; (b) the execution, delivery and performance of this Agreement
have been authorized by all action, corporate or otherwise, and do not violate
any provisions of its charter or by-laws or any contractual obligations or
requirement of law binding on it; and (c) this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms.
3. Condition Precedent. The obligations of the Assignor and the
Assignee hereunder shall be subject to the fulfillment of the condition that the
Assignor shall have (a) received payment in full of the Purchase Price, and (b)
complied with the other applicable provisions of Section 11.7 of the Credit
Agreement.
4. Notice of Assignment. The Assignor agrees to give notice of the
assignment and assumption of the Assigned Loans, the Assigned Letter of Credit
Exposure and the Assigned Commitment to the Administrative Agent and the
Borrower and hereby instructs the Administrative Agent and the Borrower to make
all payments with respect to the Assigned Loans, the Assigned Letter of Credit
Exposure and the Assigned Commitment directly to the Assignee at the applicable
Lending Offices specified in Item 8 on Schedule 1 hereto; provided, however,
that the Borrower and the Administrative Agent shall be entitled to continue to
deal solely and directly with the Assignor in connection with the interests so
assigned until the Administrative Agent and the Borrower shall have received
notice of the assignment, the Administrative Agent and the Issuing Bank (to the
extent required by Section 11.7 of the Credit Agreement) shall have consented in
writing thereto, and the Administrative Agent shall have recorded and accepted
this Agreement and received the Assignment Fee required to be paid pursuant to
Section 11.7 of the Credit Agreement. From and after the date (the "Effective
Date") on which the Administrative Agent shall notify the Borrower and the
Assignor that the requirements set forth in the foregoing sentence shall have
occurred and all consents (if any) required shall have been given, (i) the
Assignee shall be deemed to be a party to the Credit Agreement and, to the
extent that rights and obligations thereunder shall have been assigned to
Assignee as provided in such notice of assignment to the Administrative Agent,
shall have the rights and obligations of a Lender under the Credit Agreement,
and (ii) the Assignee shall be deemed to have appointed the Administrative Agent
to take such action as Administrative Agent on its behalf and to exercise such
powers under the Loan Documents as are delegated to the Administrative Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. After the Effective Date, the Administrative Agent shall make all
payments in respect of the interest assigned hereby (including payments of
principal, interest, fees and other amounts) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustment in payments under the Assigned
Loans, the Assigned Letter of Credit Exposure and the Assigned Commitment for
periods prior to the Effective Date hereof directly between themselves. The
Assignee agrees to deliver to the Borrower and the Administrative Agent such
Internal Revenue Service forms as may be required to establish that the Assignee
is entitled to receive payments under the Credit Agreement without deduction or
withholding of tax.
- 2 -
<PAGE> 178
5. Independent Investigation. The Assignee acknowledges that it is
purchasing the Assigned Loans, the Assigned Letter of Credit Exposure and the
Assigned Commitment from the Assignor totally without recourse and, except as
provided in Section 2 hereof, without representation or warranty. The Assignee
further acknowledges that it has made its own independent investigation and
credit evaluation of the Borrower and the other Loans Parties in connection with
its purchase of the Assigned Loans, the Assigned Letter of Credit Exposure and
the Assigned Commitment. Except for the representations or warranties set forth
in Section 2, the Assignee acknowledges that it is not relying on any
representation or warranty of the Assignor, expressed or implied, including
without limitation, any representation or warranty relating to the legality,
validity, genuineness, enforceability, collectibility, interest rate, repayment
schedule or accrual status of the Assigned Loans, the Assigned Letter of Credit
Exposure or the Assigned Commitment, the legality, validity, genuineness or
enforceability of the Credit Agreement, the related Notes, or any other Loan
Document referred to in or delivered pursuant to the Credit Agreement, or
financial condition or creditworthiness of the Borrower or any other Person. The
Assignor has not and will not be acting as either the representative,
Administrative Agent or trustee of the Assignee with respect to matters arising
out of or relating to the Credit Agreement or this Agreement. From and after the
Effective Date, except as set forth in Section 4 above, the Assignor shall have
no rights or obligations with respect to the Assigned Loans, the Assigned Letter
of Credit Exposure or the Assigned Commitment.
6. Method of Payment. All payments to be made by either party
hereunder shall be in funds available at the place of payment on the same day
and shall be made by wire transfer to the account designated by the party to
receive payment.
7. Integration. This Agreement shall supersede any prior agreement
or understanding between the parties (other than the Credit Agreement) as to the
subject matter hereof.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon both parties, their successors and assigns.
9. Headings. Section headings have been inserted herein for
convenience only and shall not be construed to be a part hereof.
10. Amendments; Waivers. This Agreement may not be amended, changed,
waived or modified except by a writing executed by the parties hereto, and may
not be amended, changed, waived or modified in any manner inconsistent with
Section 11.7 of the Credit Agreement without the prior written consent of the
Administrative Agent.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of, the State of New York.
- 3 -
<PAGE> 179
[ASSIGNOR]
By:
-------------------------------------
Name:
-----------------------------------
[ASSIGNEE]
By:
-------------------------------------
Name:
-----------------------------------
Consented and Accepted:
THE BANK OF NEW YORK, as Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Consented:
THE BANK OF NEW YORK, as Issuing Bank
By:
-------------------------------------
Name:
-----------------------------------
- 4 -
<PAGE> 180
SCHEDULE 1
TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
relating to the
First Amended and Restated Credit Agreement, dated as of June __, 1999, by and
among Salem Communications Corporation, the Lenders party thereto, The Bank of
New York, as Administrative Agent, Bank of America NT&SA, as Documentation
Agent, and BankBoston, N.A., Fleet Bank, N.A. and Union Bank of California,
N.A., as Co-Agents, as amended, modified or otherwise supplemented.
<TABLE>
<S> <C> <C>
Item 1. Assignor's RC Commitment $________________
Item 2. Assignor's RC Loans $________________
consisting of:
ABR Loans $________________
Eurodollar Loans $________________
Item 3. Assignor's Letter of
Credit Exposure $________________
Item 4. Amount of Assigned RC
Commitment $________________
Item 5. Percentage of RC
Commitment Assigned
as a percentage of
the aggregate RC
Commitments of all
Lenders _____________%
Item 6. Amount of Assigned RC Loans $________________
consisting of:
ABR Loans $________________
Eurodollar Loans $________________
Item 7. Amount of Assigned Letter
of Credit Exposure $________________
</TABLE>
<PAGE> 181
Item 8. Applicable Lending Offices
of Assignee and Address for
Notices pursuant to Section
11.2 of the Credit Agreement
<TABLE>
<CAPTION>
Applicable Applicable
Lending Lending Office
Office for ABR for Eurodollar Address
Loans Loans for Notices
- -------------- -------------- -----------
<S> <C> <C>
- -------------- -------------- -----------
- -------------- -------------- -----------
- -------------- -------------- -----------
Attention: Attention: Attention:
Telephone: Telephone: Telephone:
Telecopier: Telecopier: Telecopier:
</TABLE>
- 2 -
<PAGE> 182
DRAFT 6/21/99
SALEM EXHIBIT K
FORM OF RC SUPPLEMENT
REVOLVER SUPPLEMENT, dated as of ___________________, to the First
Amended and Restated Credit Agreement, dated as of June __, 1999, by and among
Salem Communications Corporation (the "Borrower"), the Lenders party thereto,
The Bank of New York, as Administrative Agent, Bank of America NT & SA, as
Documentation Agent, and BankBoston, N.A., Fleet Bank, N.A. and Union Bank of
California, N.A., as Co-Agents (as the same may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"). Capitalized terms
used herein that are defined in the Credit Agreement shall have the meanings
therein defined.
1. Pursuant to Section 2.4(d) of the Credit Agreement, the Borrower
hereby proposes to increase (the "Increase") the RC Commitment from $________ to
$________.
2. Each of the following Lenders (each an "Increasing Lender") has
been invited by the Borrower, and is ready, willing and able, to increase its RC
Commitment as follows:
<TABLE>
<CAPTION>
RC Commitment
Name of Lender (after giving effect to the Increase)
-------------- -------------------------------------
<S> <C>
----------------- $__________________
----------------- $__________________
</TABLE>
3. Each of the following Persons (each a "Proposed Lender") has
been invited by the Borrower, and is ready, willing and able, to become a
"Lender" and issue a RC Commitment under the Credit Agreement as follows:
<TABLE>
<CAPTION>
Name of Person RC Commitment
-------------- -------------
<S> <C>
----------------- $__________________
----------------- $__________________
</TABLE>
4. The Borrower hereby represents and warrants to the
Administrative Agent, each Lender and each such Person that (i) immediately
before and after giving effect to the Increase, no Default exists or would exist
and (ii) the Increase is in all respects in compliance with the terms and
conditions of the Loan Documents.
5. Pursuant to Section 2.4(d) of the Credit Agreement, by execution
and delivery of this Supplement, together with the satisfaction of all of the
other requirements set forth in such Section 2.4(d), (i) each of the Increasing
Lenders shall have, on and as of the effective date of the Increase, a RC
Commitment equal to the amount set forth above next to its name, and (ii) each
such Proposed Lender shall be deemed to be a "Lender" under, and as such term is
defined in,
<PAGE> 183
the Credit Agreement, and shall have a RC Commitment equal to the amount set
forth above next to its name.
IN WITNESS WHEREOF, the parties hereto have caused this RC
Supplement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
SALEM COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE BANK OF NEW YORK, as
Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[INCREASING LENDER]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[PROPOSED LENDER]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.03.05
THIRD AMENDMENT TO
EMPLOYMENT CONTRACT
This Third Amendment to Employment Contract is entered into this 26th day of
May, 1999 between SALEM COMMUNICATIONS CORPORATION, a Delaware corporation
("Company"), and ERIC HALVORSON ("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into a contract for the
employment of Employee by Company on November 7, 1991, which contract was
amended on April 22, 1996 and July 8, 1997 (the "Agreement"); and
WHEREAS, the parties desire to further amend the Agreement.
NOW THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Section 3.1 of the Agreement is hereby amended to provide that the
annual base salary of Employee shall be $400,000 effective June 1, 1999.
2. Except as specifically amended herein, all terms and conditions of the
Agreement shall remain in full force and effect.
Executed as of the date first above written.
SALEM COMMUNICATIONS CORPORATION
By: /s/ EDWARD G. ATSINGER III /s/ ERIC HALVORSON
------------------------------ ---------------------------
Edward G. Atsinger III Eric Halvorson
<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 May 26, 1999, in the Registration
Statement Amendment No. 2 (Form S-1 No. 333-76649), 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
June 24, 1999
