SALEM COMMUNICATIONS CORP /DE/ (Form: 10-Q, Received: 05/15/2001 17:20:36)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR QUARTERLY PERIOD ENDED MARCH 31, 2001

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

FOR THE TRANSITION PERIOD FROM __________________ TO __________________

COMMISSION FILE NUMBER 333-76649

SALEM COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		77-0121400 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)




4880 SANTA ROSA ROAD, SUITE 300 CAMARILLO, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		93012 (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400

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

As of May 14, 2001 there were 17,902,392 shares of Class A common stock and 5,553,696 shares of Class B common stock of Salem Communications Corporation outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 3.03
EXHIBIT 3.04
EXHIBIT 3.05
EXHIBIT 3.06
EXHIBIT 3.07
EXHIBIT 3.08
EXHIBIT 3.09
EXHIBIT 3.10
EXHIBIT 3.11
EXHIBIT 3.12
EXHIBIT 3.13
EXHIBIT 3.14
EXHIBIT 3.15
EXHIBIT 3.16
EXHIBIT 3.17
EXHIBIT 3.18
EXHIBIT 3.19
EXHIBIT 4.10.02
EXHIBIT 4.19.01
EXHIBIT 4.19.02
EXHIBIT 10.01.01
EXHIBIT 10.03.06
EXHIBIT 10.11
EXHIBIT 99.1

SALEM COMMUNICATIONS CORPORATION
INDEX


		PAGE NO.

COVER PAGE			1




INDEX			2




PART I — FINANCIAL INFORMATION			4




	Item 1. Financial Statements (Unaudited)		4




	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8




	Item 3. Quantitative and Qualitative Disclosures About Market Risk		12




PART II — OTHER INFORMATION			12




	Item 1. Legal Proceedings		12




	Item 2. Changes in Securities and Use of Proceeds		12




	Item 3. Defaults upon Senior Securities		12




	Item 4. Submission of Matters to a Vote of Security Holders		12




	Item 5. Other Information		12




	Item 6. Exhibits and Reports on Form 8-K		12




SIGNATURES			18

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

From time to time, in both written reports (such as this report) and oral statements, Salem Communications Corporation (“Salem” or the “company”, including references to Salem by “we,” “us” and “our”) makes “forward-looking statements” within the meaning of Federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “may” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company’s current expectations and are based upon data available to the company at the time of the statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations including, but not limited to, Salem’s ability to close and integrate announced transactions, competition in the radio broadcast, publishing and Internet industries and from new technologies, market acceptance of recently launched music formats and adverse economic conditions. These risks as well as other risks and uncertainties are detailed from time to time in Salem’s periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. Forward-looking statements made in this report speak as of the date hereof. The company undertakes no obligation to update or revise any forward-looking statements made in this report. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections or forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”).

PART I — FINANCIAL INFORMATION

SALEM COMMUNICATIONS CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


			December 31,		March 31,
			2000		2001

					(Unaudited)
		ASSETS




Current assets:




	Cash and cash equivalents		$	3,928	$	65,108




	Accounts receivable (less allowance for doubtful accounts of $3,550 in 2000 and $3,151 in 2001)			25,129		21,981




	Other receivables			1,230		1,033




	Prepaid expenses			1,558		2,104




	Due from stockholders			450		450




	Deferred income taxes			2,250		187

Total current assets				34,545		90,863




Property, plant and equipment, net				69,004		76,294




Intangible assets, net				358,482		291,745




Bond issue costs				2,396		2,307




Other assets				6,241		5,552

Total assets			$	470,668	$	466,761

	LIABILITIES AND STOCKHOLDERS’ EQUITY




Current liabilities:




	Accounts payable and accrued expenses		$	6,031	$	5,961




	Accrued compensation and related			3,361		3,727




	Accrued interest			3,299		7,847




	Deferred subscription revenue			1,509		1,529




	Income taxes			300		273




	Capital lease obligations			93		74

Total current liabilities				14,593		19,411




Long-term debt				286,050		287,050




Deferred income taxes				15,279		10,653




Other liabilities				1,798		1,361




Stockholders’ equity:




		Class A common stock, $.01 par value; authorized 80,000,000 shares; issued and outstanding 17,902,392 shares		179		179




		Class B common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 5,553,696 shares		56		56




	Additional paid-in capital			147,380		147,380




	Retained earnings			5,333		671

Total stockholders’ equity				152,948		148,286

Total liabilities and stockholders’ equity			$	470,668	$	466,761

See accompanying notes

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)


		Three Months Ended
		March 31,

		2000			2001

Gross broadcasting revenue		$	24,662		$	32,904




Less agency commissions			2,053			2,818

Net broadcasting revenue			22,609			30,086




Other media revenue			1,791			1,965

Total revenue			24,400			32,051




Operating expenses:




	Broadcasting operating expenses		12,705			19,850




	Other media operating expenses		4,144			2,536




	Corporate expenses		2,454			3,868




	Depreciation and amortization (including $494 in 2000 and $572 in 2001 for other media businesses)		4,939			7,273





Total operating expenses			24,242			33,527

Net operating income (loss)			158			(1,476	)




Other income (expense):




	Interest income		288			795




	Interest expense		(2,520	)		(6,467	)




	Loss on sale of assets		—			(8	)




	Other expense		(287	)		(55	)

Loss before income taxes			(2,361	)		(7,211	)




Benefit for income taxes			(704	)		(2,549	)

Net loss		$	(1,657	)	$	(4,662	)

Basic and diluted loss per share		$	(0.07	)	$	(0.20	)

Basic and diluted weighted average shares outstanding			23,456,088			23,456,088

See accompanying notes

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)


			Three Months Ended
			March 31,

			2000			2001

OPERATING ACTIVITIES




Net loss			$	(1,657	)	$	(4,662	)




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




	Depreciation and amortization			4,939			7,273




	Amortization of bond issue costs and bank loan fees			121			183




	Deferred income taxes			(158	)		(2,563	)




	Loss on sale of assets			—			8




	Changes in operating assets and liabilities:




		Accounts receivable		1,198			3,345




		Prepaid expenses and other current assets		45			(546	)




		Accounts payable and accrued expenses		(2,748	)		4,843




		Deferred subscription revenue		128			21




		Other liabilities		5			(160	)




		Income taxes		157			(27	)

Net cash provided by operating activities				2,030			7,715





INVESTING ACTIVITIES




Capital expenditures				(3,527	)		(7,743	)




Deposits on radio station acquisitions				(445	)		--




Purchases of radio stations				(26,465	)		(38,214	)




Proceeds from sale of property, plant and equipment and intangible assets				—			98,358




Other assets				264			399

Net cash (used) provided in investing activities				(30,173	)		52,800

FINANCING ACTIVITIES




Proceeds from issuance of long-term debt and notes payable to stockholders				1,000			1,000




Payments of long-term debt and notes payable to stockholders				(2,811	)		--




Payments on capital lease obligations				(61	)		(19	)




Payments of costs related to debt refinancing				—			(316	)





Net cash provided by (used in) financing activities				(1,872	)		665

Net increase (decrease) in cash and cash equivalents				(30,015	)		61,180




Cash and cash equivalents at beginning of period				34,124			3,928

Cash and cash equivalents at end of period			$	4,109		$	65,108

Supplemental disclosures of cash flow information:




	Cash paid during the period for:




		Interest	$	4,970		$	1,746




		Income taxes		37			42

See accompanying notes

SALEM COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Information with respect to the three months ended March 31, 2001 and 2000 is unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of Salem Communications Corporation and Subsidiaries (“Salem”, or “the Company”), for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2000.

NOTE 2. ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

We purchased the assets (principally intangibles) of the following radio stations during the quarter ended March 31, 2001:


			Allocated
			Purchase
Acquisition Date	Station	Market Served	Price

			(in thousands)
February 2, 2001	WXRT-AM (now WYLL-AM)	Chicago, IL	$	29,000




February 16, 2001	WWTC-AM	Minneapolis, MN		4,882




February 16, 2001	WZER-AM (now WYLO-AM)	Milwaukee, WI		2,018




March 9, 2001	WRBP-AM (now WHKW-AM)	Youngstown-Warren, OH		500




March 16, 2001	WFIA-AM	Louisville, KY		1,750

			$	38,150

On January 22, 2001, the company sold the assets of radio station KALC-FM, Denver, CO for approximately $100 million. The net proceeds have been placed in an account with a qualified intermediary under a like-kind exchange agreement in order to preserve our ability to effect a tax-deferred exchange. As of March 31, 2001, we have invested $38.2 million of the proceeds. The balance of $61.1 million is reflected in cash and cash equivalents at March 31, 2001.

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 establishes accounting and reporting standards requiring that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value and that changes in fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. Certain provisions of SFAS No. 133, including its required implementation date, were subsequently amended. We adopted SFAS No. 133, as amended, in the first quarter of 2001 and its adoption did not have a material effect on our results of operations or our financial position.

NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted average number of common stock shares and when dilutive, common stock share equivalents outstanding. Options to purchase 342,500 and 473,200 shares of common stock were outstanding as of March 31, 2000 and 2001, respectively. These options were excluded from the respective computations of diluted net loss per share because their effect would be anti-dilutive and, as such, basic and diluted net loss per share are the same.

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:


		Three Months Ended March 31,

		2000			2001

Numerator:




	Net loss	$	(1,657,000	)	$	(4,662,000	)




Denominator for basic loss per share:




	Weighted average shares		23,456,088			23,456,088





Effect of dilutive securities — stock options			—			--

Denominator for diluted loss per share
	Weighted average shares adjusted for dilutive securities		23,456,088			23,456,088

Basic and diluted loss per share		$	(0.07	)	$	(0.20	)

NOTE 5. CONTINGENCIES

The company and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims, including the Gospel Communications International, Inc. (“GCI”) matter described in more detail below. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Also, we maintain insurance which may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters as of March 31, 2001. However, we believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon the our financial position, results of operations or cash flows.

On December 6, 2000, GCI made a demand for arbitration upon Salem. The demand, pending before an arbitration panel of the American Arbitration Association, alleges Salem and its subsidiary OnePlace, failed to provide certain e-commerce software to GCI pursuant to a written contract between GCI and OnePlace, for which GCI seeks $5.0 million in damages. We have filed an answer to the demand, denying the factual basis for certain elements of GCI’s claims and has asserted counterclaims against GCI for breach of contract. Although there can be no assurance that the GCI matter will be resolved in favor of the Company, we will vigorously defend the action and pursue its counterclaims against GCI.

NOTE 6. SUBSEQUENT EVENTS

On April 1, 2001, we purchased the assets of radio station WROL-AM, Boston, MA, for $11.0 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. Our condensed consolidated financial statements are not directly comparable from period to period because of our acquisition and disposition of radio stations and our acquisitions of other media businesses. See Note 2 to our condensed consolidated financial statements.

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, developed over the last 25 years, is the ownership and operation of radio stations in large metropolitan markets. After completing our pending transactions, we will own or operate 79 radio stations, including 54 stations which broadcast to 22 of the top 25 U.S. markets. We also operate Salem Radio Network®, a national radio network offering syndicated talk, news and music programming to over 1,600 affiliated radio stations, after giving effect to a pending transaction.

Historically, 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.

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. Historically we have not subscribed to traditional audience measuring services. Instead, we have marketed ourselves to advertisers based upon the responsiveness of our audience. With the launch of the contemporary Christian music format, called “The Fish™”, in several markets, we have started to subscribe to Arbitron Inc., which develops quarterly reports to measure a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our network have a general pre-determined level of time that they make available for block programs and/or advertising, which may vary at different times of the day.

In recent years, we have begun to place greater emphasis on the development of local advertising in all of our markets. We encourage general managers and sales managers to increase advertising revenue. We can create additional advertising revenue in a variety of ways, such as removing block programming that generates marginal audience response, adjusting the start time of programs to add advertising in more desirable time slots and increasing advertising rates.

As is typical in the radio broadcasting industry, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. Quarterly revenue from the sale of block program time does not tend to vary, however, since program rates are generally set annually.

Our cash flow is affected by a transition period experienced by radio stations when, due to the nature of the radio station, our plans for the market and other circumstances, we find it beneficial or advisable to change its format. This transition period is when we develop the radio station’s program customer and listener base. During this period, a station will 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 2000, we sold 94% 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). Beginning in 2000, in connection with the launch of our contemporary Christian music format in several markets, we incurred increased amounts for promotional expenses and music license fees. 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 from the (1) sales of banner advertising and sponsorships on the Internet, (2) sales of streaming services, and (2) sales of software and software support contracts. CCM Communications, Inc. 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.

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 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 items minus gain (loss) on disposal of assets (net of income tax) plus depreciation and amortization.

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 networks that we own or operate

in the same format during the current period compared with the results of the same stations and networks for the corresponding period of the prior year. We do not include a station or network in this comparison unless it has been owned or operated for at least an entire quarter included in each of the current and corresponding prior year periods.

RESULTS OF OPERATIONS

NET BROADCASTING REVENUE. Net broadcasting revenue increased $7.5 million or 33.2% to $30.1 million for the quarter ended March 31, 2001 from $22.6 million for the same quarter of the prior year. The growth is attributable to the increase in same station revenue and the acquisitions of radio stations and a network during 2000 and 2001, partially offset by the sales of radio stations during 2000. On a same station basis, net broadcasting revenue improved $1.9 million or 12.2% to $17.5 million for the quarter ended March 31, 2001 from $15.6 million for the same quarter of the prior year. The improvement was primarily due to an increase in network revenue due to increased network affiliations and quality programming, an increase in net revenue at radio stations we acquired in 1998 and 1999 that previously operated with formats other than their current format, an increase in program rates and increases 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 to 41.0% for the quarter ended March 31, 2001 from 35.2% for the same quarter of the prior year. Revenue from block program time as a percentage of our gross broadcasting revenue decreased to 43.5% for the quarter ended March 31, 2001 from 51.8% for the same quarter of the prior year. This change in our revenue mix is primarily due to our continued efforts to develop more advertising revenue in all of our markets as well as the launch of our contemporary Christian music format in several markets.

OTHER MEDIA REVENUE. Other media revenue increased $0.2 million or 11.1% to $2.0 million for the quarter ended March 31, 2001 from $1.8 million for the same quarter in the prior year. The increase is due primarily to our increased revenue from banner advertising and streaming services, offset by the loss of revenues from the sale of certain assets which generated revenue from the sale of advertising in print and online catalogs and product sales.

BROADCASTING OPERATING EXPENSES. Broadcasting operating expenses increased $7.2 million or 56.7% to $19.9 million for the quarter ended March 31, 2001 from $12.7 million for the same quarter of the prior year. The increase is attributable to operating expenses associated with the acquisitions of radio stations and a network during 2000 and 2001, promotional expenses associated with the launch of the contemporary Christian music format in several markets, and an increase in music license fees, partially offset by the operating expenses associated with three radio stations sold during 2000. On a same station basis, broadcasting operating expenses increased $1.1 million or 12.8% to $9.7 million for the quarter ended March 31, 2001 from $8.6 million for the same quarter of the prior year. The increase is 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 decreased $1.6 million or 39.0% to $2.5 million for the quarter ended March 31, 2001 from $4.1 million for the same quarter in the prior year. The decrease is attributable primarily to the reduction of operating expenses incurred due to the sale of certain software products, assets and contracts.

BROADCAST CASH FLOW. Broadcast cash flow increased $0.3 million or 3.0% to $10.2 million for the quarter ended March 31, 2001 from $9.9 million for the same quarter of the prior year. As a percentage of net broadcasting revenue, broadcast cash flow decreased to 33.9% for the quarter ended March 31, 2001 from 43.8% for the same quarter of the prior year. The decrease is primarily attributable to the effect of stations acquired during 2000 and 2001 that previously operated with formats other than their current format and the effect of the launch of the contemporary Christian music format in several markets. Acquired and reformatted radio stations typically produce low margins during the first few years following conversion. 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 $0.8 million or 11.4% to $7.8 million for the quarter ended March 31, 2001 from $7.0 million for the same quarter of the prior year.

CORPORATE EXPENSES. Corporate expenses increased $1.4 million or 56.0% to $3.9 million in the quarter ended March 31, 2001 from $2.5 million in the same quarter of the prior year, primarily due to additional overhead costs associated with the acquisitions of radio stations and a network during 2000 and 2001.

EBITDA. EBITDA increased $0.7 million or 13.7% to $5.8 million for the quarter ended March 31, 2001 from $5.1 million for the same quarter of the prior year. As a percentage of total revenue, EBITDA decreased to 18.1% for the quarter ended March 31, 2001 from 20.9% for the same quarter of the prior year. EBITDA was negatively impacted by the results of operations of our other media businesses acquired in 1999, which generated a net loss before depreciation and amortization of $0.6 million for the quarter ended March 31, 2001 as compared to $2.4 million for the same quarter of the prior year. Broadcast EBITDA excluding the other media businesses decreased $1.1 million or 14.7% to $6.4 million for the quarter ended March 31, 2001 from $7.5 million for the same quarter in the prior year. As a percentage of net broadcasting revenue, broadcast EBITDA excluding the other media business decreased to 21.3% for the quarter ended March 31, 2001 from 33.2% for the same quarter of the prior year. The decrease is primarily attributable to the effect of

stations acquired during 2000 and 2001 that previously operated with formats other than their current format, the effect of the launch of the Contemporary Christian music format in several markets and increased corporate expenses.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $2.4 million or 49.0% to $7.3 million for the quarter ended March 31, 2001 from $4.9 million for the same quarter of the prior year. The increase is primarily due to the acquisitions of radio stations and a network in 2000 and 2001.

OTHER INCOME (EXPENSE). Interest income increased $0.5 million to $0.8 million for the quarter ended March 31, 2001 from $0.3 million for the same quarter of the prior year, primarily due to interest earned on the investment of the proceeds from the sale of radio station KALC-FM, Denver, Colorado for $100 million in January 2001. Interest expense increased $4.0 million or 160.0% to $6.5 million for the quarter ended March 31, 2001 from $2.5 million for the same quarter of the prior year. The increase is due to interest expense associated with borrowings on our credit facility to fund acquisitions in 2000. Other expense, net decreased $0.2 million to $0.1 million for the quarter ended March 31, 2001 from $0.3 million for the same quarter in the prior year primarily due to decreased bank commitment fees.

BENEFIT FOR INCOME TAXES. Benefit for income taxes as a percentage of loss before income taxes and extraordinary item (that is, the effective tax rate) was 34.7% for the quarter ended March 31, 2001 and 29.8% for the same quarter of the prior year. For the quarter ended March 31, 2001 and 2000 the effective tax rate differs from the federal statutory income rate of 34.0% primarily due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.

NET LOSS. We recognized a net loss of $4.7 million for the quarter ended March 31, 2001 as compared to a net loss of $1.7 million for the same quarter of the prior year.

AFTER-TAX CASH FLOW. After-tax cash flow decreased $0.7 million or 21.2% to $2.6 million for the quarter ended March 31, 2001 from $3.3 million for the same quarter of the prior year. After-tax cash flow was negatively impacted by the after-tax cash flow of our other media businesses. After-tax cash flow excluding our other media losses (net of income tax) decreased $1.7 million or 36.2% to $3.0 million for the quarter ended March 31, 2001 from $4.7 million for the same quarter of the prior year. The decrease is primarily due to an increase in interest expense and corporate expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents was $65.1 million at March 31, 2001 including $61.1 million held by a qualified intermediary under a like-kind exchange agreement to preserve our ability to effect a tax-deferred exchange. Working capital was $71.5 million at March 31, 2001. Cash and cash equivalents was $3.9 million at December 31, 2000. The increase in cash and cash equivalents is due to cash provided by operating activities and cash provided by investing activities primarily related to the net proceeds received from the sale of KALC-FM, Denver, CO for approximately $100 million, offset by $38.2 million of the proceeds used to acquire five radio stations in the first quarter of 2001 (see Note 2).

Net cash provided by operating activities increased to $7.7 million for the quarter ended March 31, 2001 compared to $2.0 million in the same period of the prior year. The increase is primarily due to a decrease in accounts receivable and an increase in accounts payable.

Net cash provided by investing activities was $52.8 million for the quarter ended March 31, 2001 compared to net cash used in investing activities of $30.2 million for the same period of the prior year. The increase is due to cash received for the sale of KALC-FM, Denver, CO, partially offset by cash used for acquisitions (cash used of $38.2 million to purchase five radio stations during the quarter ended March 31, 2001 as compared to cash used of $26.5 million to purchase ten radio stations and a network for the same period of the prior year) and offset by an increase in capital expenditures.

Net cash provided by financing activities was $0.7 million for the quarter ended March 31, 2001. Net cash used in investing activities was $1.9 million for the same period of the prior year due to a payment of long-term debt associated with the purchase of the KRLA-AM transmitter site in February 2000.

We have historically funded, and will continue to fund, 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 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 cash on hand, cash flow from operations, borrowings under our credit facility and proceeds from the sale of some of our existing radio stations will be sufficient to permit us to meet our financial obligations, fund our pending acquisitions and fund operations for at least the next twelve months.

At March 31, 2001 we have $100.0 million principal amount of 9 1/2% senior subordinated notes due 2007. In August 2000, we supplemented the indenture for our senior subordinated notes in connection with the assignment of substantially all of the assets and liabilities to our wholly-owned subsidiary Salem Communications Holding Corporation (“HoldCo”), including the obligations as successor issuer under the indenture. 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 HoldCo’s subsidiaries.

At March 31, 2001, we had $187.1 million outstanding under our credit facility. Since August 2000, we amended our credit facility to increase our borrowing capacity from $150 million to $225 million, lower the borrowing rates and modify current financial ratio tests to provide us with additional borrowing flexibility. The credit facility matures on June 30, 2007. Aggregate commitments under the credit facility begin to decrease commencing March 31, 2002.

Amounts outstanding under our credit facility bear interest 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 credit facility, the prime rate spread ranges from 0% to 1.5%, and the LIBOR spread ranges from 0.875% to 2.75%.

The maximum amount that we may borrow under our credit facility is limited by a ratio of our existing adjusted debt to pro forma twelve-month cash flow (the “Adjusted Debt to Cash Flow Ratio”). Our credit facility will allow us to adjust our total debt as used in such calculation by the lesser of 50% of the aggregate purchase price of acquisitions of newly acquired non-religious formatted radio stations that we reformat to a religious talk, conservative talk or religious music format or $30.0 million and the cash flow from such stations will not be considered in the calculation of the ratio. The maximum Adjusted Debt to Cash Flow Ratio allowed under our credit facility is 6.50 to 1 through December 30, 2001. Thereafter, the maximum ratio will decline periodically until December 31, 2005, at which point it will remain at 4.00 to 1 through June 2007. The Adjusted Debt to Cash Flow Ratio at March 31, 2001 was 4.74 to 1, resulting in a borrowing availability of approximately $12.4 million.

Our credit facility contains additional restrictive covenants customary for credit facilities of the size, type and purpose contemplated which, with specified exceptions, limits our ability to enter into affiliate transactions, pay dividends, consolidate, merge or effect certain asset sales, make specified investments, acquisitions and loans and change the nature of our business. The credit facility also requires us to satisfy specified financial covenants, which covenants require the maintenance of specified financial ratios and compliance with certain financial tests, including ratios for maximum leverage as described, minimum interest coverage, minimum debt service and minimum fixed charge coverage. The credit facility is guaranteed by the company and all of its subsidiaries other than HoldCo, which is the borrower, and is secured by pledges of all of the capital stock of the company’s subsidiaries.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments. We do not invest, and during the quarter ended March 31, 2001 did not invest, in market risk sensitive instruments.

Market Risk. Our credit facility is subject to market risk exposure, specifically to changes in LIBOR and in the “prime rate” in the United States. As of March 31, 2001, we may borrow an additional $12.4 million under our credit facility. At March 31, 2001, we had borrowed $187.1 million under our credit facility. Amounts outstanding under the credit facility bear interest 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 credit facility, the prime rate spread ranges from 0% to 1.5%, and the LIBOR spread ranges from 0.875% to 2.75%. At March 31, 2001, the blended interest rate on amounts outstanding under the credit facility was 8.16%. At March 31, 2001, a hypothetical 100 basis point increase in the prime rate would result in additional interest expense of $1.9 million on an annualized basis.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On December 6, 2000, GCI made a demand for arbitration upon Salem. The demand, pending before an arbitration panel of the American Arbitration Association, alleges Salem and its subsidiary OnePlace failed to provide certain e-commerce software to GCI pursuant to a written contract between GCI and OnePlace, for which GCI seeks $5.0 million in damages. We have filed an answer to the demand, denying the factual basis for certain elements of GCI’s claims and has asserted counterclaims against GCI for breach of contract. Although there can be no assurance that the GCI matter will be resolved in favor of the Company, we will vigorously defend the action and pursue its counterclaims against GCI.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters have been submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the period covered by this report.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

Set forth below is a list of exhibits included as part of this Quarterly Report:


Exhibit
Number		Description of Exhibits
2.01		Certificate of Incorporation of Salem Communications Holding Corporation. (9)




2.02		Bylaws of Salem Communications Holding Corporation. (9)




2.03		Certificate of Incorporation of Salem Communications Acquisition Corporation. (9)




2.04		Bylaws of Salem Communications Acquisition Corporation. (9)




2.05		Certificate of Incorporation of SCA License Corporation. (9)




2.06		Bylaws of SCA License Corporation. (9)




3.01		Amended and Restated Certificate of Incorporation of Salem Communications Corporation, a Delaware corporation. (4)




3.02		Bylaws of Salem Communications Corporation, a Delaware Corporation. (4)




3.03		Certificate of Formation of Salem Radio Operations, LLC.




3.04		Operating Agreement of Salem Radio Operations, LLC.




3.05		Certificate of Formation of Salem Media of Illinois, LLC.




3.06		Operating Agreement of Salem Media of Illinois, LLC.




3.07		Certificate of Formation of Salem Media of New York, LLC.




3.08		Operating Agreement of Salem Media of New York, LLC.




3.09		Certificate of Incorporation of Salem Radio Operations — Pennsylvania, Inc.




3.10		Bylaws of Salem Radio Operations — Pennsylvania, Inc.




3.11		Agreement of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.12		Certificate of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.13		Certificate of Amendment to Certificate of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.14		Certificate of Conversion of OnePlace, Ltd.




3.15		Certificate of Formation of OnePlace, LLC.




3.16		Operating Agreement of OnePlace, LLC.




3.17		Articles of Conversion of Inspiration Media of Texas, Inc.




3.18		Articles of Organization of Inspiration Media of Texas, LLC.




3.19		Operating Agreement of Inspiration Media of Texas, LLC.




4.01		Indenture between Salem Communications Corporation, a California corporation, certain named guarantors and The Bank of New York, as Trustee, dated as of September 25, 1997, relating to the 9 1/2% Series A and Series B Senior Subordinated Notes due 2007. (1)




4.02		Form of 9 1/2% Senior Subordinated Note (filed as part of Exhibit 4.01). (1)




4.03		Form of Note Guarantee (filed as part of Exhibit 4.01). (1)




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). (1)




4.05		Borrower Security Agreement, dated as of September 25, 1997, by and between Salem and The Bank of New York, as Administrative Agent of the Lenders (incorporated by reference to Exhibit 4.07 of the previously filed Registration Statement on Form S-4). (1)




4.06		Subsidiary Guaranty and Security Agreement dated as of September 25, 1997, by and between Salem, certain named guarantors, and The Bank of New York, as Administrative Agent (incorporated by reference to Exhibit 4.09 of the previously filed Registration Statement on Form S-4). (1)




4.07		Amendment No. 1 and Consent No. 1, dated as of August 5, 1998, to the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America NT&SA, as documentation agent, and the several Lenders (incorporated by reference to Exhibit 10.02 of previously filed Current Report on Form 8-K). (2)




4.08		Amendment No. 2 and Consent No. 2, dated as of January 22, 1999, to the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America NT&SA, as documentation agent, and the Lenders. (5)




4.09		Specimen of Class A common stock certificate. (5)




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. (5)




4.10.01		Supplemental Indenture No. 2, dated as of August 24, 2000, by and among Salem Communications Corporation, a Delaware corporation, Salem Communications Holding Corporation, a Delaware corporation, the guarantors named therein and The Bank of New York, as Trustee (previously filed as Exhibit 4.11). (9)




4.10.02		Supplemental Indenture No. 2, dated as of March 9, 2001, by and among Salem Communications Corporation, a Delaware corporation, Salem Communications Holding Corporation, a Delaware corporation, the guarantors named therein and The Bank of New York, as Trustee.




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. (5)




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. (5)




4.13		Amendment No. 1 to the Grant of Security Interest (Servicemarks) by Salem to The Bank of New York, as Administrative Agent, under the Borrower Security Agreement, dated as of September 25, 1997, with the Administrative Agent. (5)




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. (5)




4.15		First Amended and Restated Credit Agreement 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. (5)




4.16		Amendment No. 1 to First Amended and Restated Credit Agreement, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America, N.A., as Documentation Agent and the Lenders party thereto. (6)




4.17		Amendment No. 2 to First Amended and Restated Credit Agreement, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America, N.A., as Documentation Agent and the Lenders party thereto. (6)




4.18		Amendment No. 3 to First Amended and Restated Credit Agreement, dated as of August 17, 2000, by and among the Company, The Bank of New York, as administrative Agent for the Lender, Bank of America, N.A., and the Lenders party thereto. (9)




4.19		Second Amended and Restated Credit Agreement, dated as of August 24, 2000, by and among






		Salem Communications Holding Corporation, The Bank of New York, as Administrative Agent, Bank of America, N.A. as Syndication Agent, Fleet National Bank as Documentation Agent, Union Bank of California, N.A. and the Bank of Nova Scotia as Co-Agents and the Lenders party thereto. (9)




4.19.01		Supplement to Second Amended and Restated Subsidiary Guaranty dated November 7, 2000 by Salem Communications Acquisition Corporation and The Bank of New York.




4.19.02		Supplement to Second Amended and Restated Subsidiary Guaranty dated November 7, 2000 by SCA License Corporation and The Bank of New York.




4.20		Credit Agreement dated as of August 24, 2000, by and among the Company, ING (U.S.) Capital LLC as Administrative Agent, The Bank of New York as Syndication Agent, Fleet National Bank as Documentation Agent, and the Lenders party thereto. (9)




4.21		Amendment No. 1, dated as of January 15, 2001, to the Third Amended and Restated Credit Agreement, dated as of November 7, 2000, by and among Salem Communications Corporation, a Delaware Corporation; The Bank of New York, as Administrative Agent; Bank Of America, N.A., as Syndication Agent; Fleet National Bank, as Documentation Agent; Union Bank of California, N.A. and The Bank of Nova Scotia, as Co-Agents; and Lenders. (10)




4.22		Amendment No. 1, dated as of January 15, 2001, to the First Amended and Restated Parent Guaranty, dated as of November 7, 2000, by and among Salem Communications Corporation, a Delaware corporation, Salem Communications Holding Corporation, a Delaware corporation, and The Bank of New York, as Administrative Agent. (10)




4.23		Third Amended and Restated Credit Agreement dated as of November 7, 2000, by and among Salem Communications Holding Corporation, a Delaware corporation, The Bank of New York, as Administrative Agent, Bank of America, N.A., as Syndication Agent, Fleet National Bank as Documentation Agent, Union Bank of California, N.A. and The Bank of Nova Scotia, as Co-agents and lenders. (10)




10.01		Amended and Restated Employment Agreement, dated as of May 19, 1999, between Salem and Edward G. Atsinger III. (5)




10.01.01		Promissory Note from Edward G. Atsinger III to Salem dated December 31, 2000.




10.02		Amended and Restated Employment Agreement, dated as of May 19, 1999, between Salem and Stuart W. Epperson. (5)




10.03.01		Employment Contract, dated November 7, 1991, between Salem and Eric H. Halvorson. (1)




10.03.02		First Amendment to Employment Contract, dated April 22, 1996, between Salem and Eric H. Halvorson. (1)




10.03.03		Second Amendment to Employment Contract, dated July 8, 1997, between Salem and Eric H. Halvorson. (1)




10.03.04		Deferred Compensation Agreement, dated November 7, 1991, between Salem and Eric H. Halvorson. (1)




10.03.05		Third Amendment to Employment Agreement, entered into May 26, 1999, between Salem and Eric Halvorson. (5)




10.03.06		Consulting Agreement dated August 7, 2000, between Salem and Eric H. Halvorson.




10.05.01		Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-AM/Akron, Ohio) and Messrs. Atsinger and Epperson expiring 2007. (1)




10.05.02		Antenna/tower/studio lease between Caron Broadcasting, Inc. (WTSJ-AM/ Cincinnati, Ohio) and Messrs. Atsinger and Epperson expiring 2007. (1)




10.05.03		Antenna/tower lease between Caron Broadcasting, Inc. (WHK-FM/Canton, Ohio) and Messrs. Atsinger and Epperson expiring 2007. (1)




10.05.04		Antenna/tower/studio lease between Common Ground Broadcasting, Inc. (KKMS-AM/Eagan, Minnesota) and Messrs. Atsinger and Epperson expiring in 2006. (1)




10.05.05		Antenna/tower lease between Common Ground Broadcasting, Inc. (WHK-AM/ Cleveland, Ohio) and Messrs. Atsinger and Epperson expiring 2008. (1)




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. (1)




10.05.07		Antenna/tower/studio lease between Inland Radio, Inc. (KKLA-AM/San Bernardino, California) and Messrs. Atsinger and Epperson expiring 2002. (1)




10.05.08		Antenna/tower lease between Inspiration Media, Inc. (KGNW-AM/Seattle, Washington) and Messrs. Atsinger and Epperson expiring in 2002. (1)




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.(1)




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. (1)




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. (1)




10.05.12		Antenna/tower lease between Radio 1210, Inc. (KPRZ-AM/Olivenhain, California) and The Atsinger Family Trust expiring in 2002. (1)




10.05.13		Antenna/tower lease between Salem Media of Texas, Inc. and Atsinger Family Trust/Epperson Family Limited Partnership (KSLR-AM/San Antonio, Texas). (6)




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. (1)




10.05.15		Antenna/tower lease between Salem Media of Colorado, Inc. (KNUS-AM/Denver-Boulder, Colorado) and Messrs. Atsinger and Epperson expiring 2006. (1)




10.05.16		Atenna/tower lease between Salem Media of Colorado, Inc. and Atsinger Family Trust/Epperson Family Limited Partnership (KRKS-AM/KBJD-AM/Denver, Colorado). (6)




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. (1)






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. (1)




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. (1)




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. (1)




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.(1)




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.(1)




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. (3)




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. (3)




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). (1)




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). (1)




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). (1)




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). (3)




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). (5)




10.07.01		Tower Purchase Agreement dated August 22, 1997 by and between Salem and Sonsinger Broadcasting Company of Houston, L.P. (1)




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. (1)




10.07.03		Promissory Note dated November 11, 1997 made by Sonsinger Broadcasting Company of Houston, L.P. payable to Salem. (1)




10.07.04		Promissory Note dated December 24, 1997 made by Salem payable to Edward G. Atsinger III. (1)




10.07.05		Promissory Note dated December 24, 1997 made by Salem payable to Stuart W. Epperson. (1)




10.08.01		Local Marketing Agreement dated August 13, 1999 between Concord Media Group, Inc. and Radio 1210, Inc. (6)




10.08.02		Asset Purchase Agreement dated as of August 18, 1999, by and between Salem Media of Georgia, Inc. and Genesis Communications, Inc. (WNIV-FM, Atlanta, Georgia and WLTA-FM, Alpharetta, Georgia.) (6)




10.08.03		Asset Purchase Agreement dated as of November 29, 1999, by and among JW Broadcasting, Inc., Salem Media of Georgia, Inc. and Salem Communications Corporation (WGKA-AM, Atlanta, Georgia.) (6)




10.08.04		Asset Exchange Agreement dated as of January 19, 2000 by and among Bison Media, Inc.; AMFM Texas Broadcasting, LP and AMFM Texas Licenses, LP (KSKY-AM, Balch Springs, TX; KPRZ-FM, Colorado Springs, CO). (7)




10.08.05		Asset Purchase Agreement dated as of March 6, 2000 by and among Salem, Citicasters Co., AMFM Texas Broadcasting, LP; AMFM Texas Licenses LP; AMFM Ohio, Inc.; AMFM Radio Licenses LLC; Capstar Radio Operating Company and Capstar TX Limited Partnership (WBOB-AM, KEZY-AM, KXMX-FM, KDGE-FM, WKNR-AM, WRMR-AM, KALC-FM, WYGY-FM). (7)




10.08.06		Asset Exchange Agreement dated as of May 31, 2000 by and among Salem; South Texas Broadcasting, Inc.; Cox Radio, Inc.; and CXR Holdings, Inc. (WALR-FM, Athens, GA; WSUN-AM, Plant City, FL, KLUP-AM, Terrell Hills, TX, KKHT-FM, Conroe, TX). (8)




10.08.07		Asset Purchase Agreement dated as of July 2000, by and among Salem Media of California and Hi-Favor Broadcasting, LLC (KLTX-AM Long Beach, CA). (8)




10.08.08		Asset Purchase Agreement, dated September 2000, by and between Salem Communications Acquisition Corporation, a Delaware corporation and Emmis Communications Corporation, an Indiana corporation (KALC-FM Denver, CO). (10)




10.08.09		Asset Purchase Agreement, dated as of July 2000, by and between Truth Broadcasting Corporation, a North Carolina corporation, and Salem Media Of Kentucky, Inc., a Kentucky corporation (WLKY-AM Louisville, KY). (10)




10.08.10		Asset Purchase Agreement, dated December 2000, by and between Carter Broadcasting, Inc. and SCA License Corporation, a Delaware corporation (WROL-AM Boston, MA). (10)




10.08.11		Asset Purchase Agreement, dated as of November 6, 2000, by and among Infinity Broadcasting Corporation of Illinois, a Delaware corporation, Infinity Broadcasting Corporation, a Delaware corporation, and Salem Communications Corporation, a Delaware corporation (WXRT-AM Chicago, IL). (10)




10.08.12		Promissory Note dated November 7, 2000 made by Salem Communications Corporation payable to Salem






		Communications Holding Corporation.(10)




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. (1)




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. (1)




10.09.03		Evidence of Key man life insurance policy no. 2257476B insuring Stuart W. Epperson in the face amount of $5,000,000. (1)




10.10		1999 Stock Incentive Plan. (5)




10.11		Management Services Agreement by and among Salem and Salem Communications Holding Corporation, dated August 25, 2000.




21.01		Subsidiaries of Salem. (10)




99.1		Supplemental Report of Salem Communications Holding Corporation.

(1)		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.




(2)		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.




(3)		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.




(4)		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 April 14, 1999.




(5)		Incorporated by reference to the exhibit of the same number to the Company’s Registration Statement on Form S-1 (No. 333-76649) as amended, as declared, effective by the Securities and Exchange Commission on June 30, 1999.




(6)		Incorporated by reference to the exhibit of the same number to Salem’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2000.




(7)		Incorporated by reference to the exhibit of the same number to Salem’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 15, 2000.




(8)		Incorporated by reference to the exhibit of the same number to Salem’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 14, 2000.




(9)		Incorporated by reference to the exhibit of the same number, unless otherwise noted, to Salem’s Current Report on Form 8-K; filed with the Securities and Exchange Commission on September 8, 2000.




(10)		Incorporated by reference to the exhibit of the same number to Salem’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 2, 2001.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the quarter ended March 31, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Communications Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SALEM COMMUNICATIONS CORPORATION

May 15, 2001

By: /s/ EDWARD G. ATSINGER III

Edward G. Atsinger III

President and Chief Executive Officer

May 15, 2001

By: /s/ DAVID A. R. EVANS

David A. R. Evans

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EXHIBIT INDEX


Exhibit
Number		Description of Exhibits
3.03		Certificate of Formation of Salem Radio Operations, LLC.




3.04		Operating Agreement of Salem Radio Operations, LLC.




3.05		Certificate of Formation of Salem Media of Illinois, LLC.




3.06		Operating Agreement of Salem Media of Illinois, LLC.




3.07		Certificate of Formation of Salem Media of New York, LLC.




3.08		Operating Agreement of Salem Media of New York, LLC.




3.09		Certificate of Incorporation of Salem Radio Operations — Pennsylvania, Inc.




3.10		Bylaws of Salem Radio Operations — Pennsylvania, Inc.




3.11		Agreement of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.12		Certificate of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.13		Certificate of Amendment to Certificate of Limited Partnership of Inspiration Media of Pennsylvania, LP.




3.14		Certificate of Conversion of OnePlace, Ltd.




3.15		Certificate of Formation of OnePlace, LLC.




3.16		Operating Agreement of OnePlace, LLC.




3.17		Articles of Conversion of Inspiration Media of Texas, Inc.




3.18		Articles of Organization of Inspiration Media of Texas, LLC.




3.19		Operating Agreement of Inspiration Media of Texas, LLC.




4.10.02		Supplemental Indenture No. 2, dated as of March 9, 2001, by and among Salem Communications Corporation, a Delaware corporation, Salem Communications Holding Corporation, a Delaware corporation, the guarantors named therein and The Bank of New York, as Trustee.




4.19.01		Supplement to Second Amended and Restated Subsidiary Guaranty dated November 7, 2000 by Salem Communications Acquisition Corporation and The Bank of New York.




4.19.02		Supplement to Second Amended and Restated Subsidiary Guaranty dated November 7, 2000 by SCA License Corporation and The Bank of New York.




10.01.01		Promissory Note from Edward G. Atsinger III to Salem dated December 31, 2000.




10.03.06		Consulting Agreement dated August 7, 2000, between Salem and Eric H. Halvorson.




10.11		Management Services Agreement by and among Salem and Salem Communications Holding Corporation, dated August 25, 2000.




99.1		Supplemental Report of Salem Communications Holding Corporation.

EXHIBIT 3.03

ENDORSED
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 02/13/2001
010073238 - 3356549

CERTIFICATE OF FORMATION

SALEM RADIO OPERATIONS, LLC

I. The name of the limited liability company ("Company") is Salem Radio Operations, LLC.

II. The address of the Company's registered office in the State of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc.

III. This Certificate of Formation shall be effective immediately upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of Salem Radio Operations, LLC this 13th day of February, 2001.

SALEM MEDIA CORPORATION,
a New York corporation

By: /s/ Jonathan L. Block
   ---------------------------------
   Jonathan L. Block, Vice President

EXHIBIT 3.04

THE MEMBERSHIP INTEREST REPRESENTED BY THIS DOCUMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF DELAWARE OR ANY OTHER JURISDICTION. THE MEMBERSHIP INTEREST MAY NOT BE SOLD, PLEDGED, GIVEN, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE SECURITIES LAWS UNLESS APPROPRIATE EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE AS EVIDENCED EITHER BY THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MANAGER OR SUBMISSION TO THE MANAGER OF OTHER EVIDENCE SATISFACTORY TO THE MANAGER.

OPERATING AGREEMENT OF

SALEM RADIO OPERATIONS, LLC,

A DELAWARE LIMITED LIABILITY COMPANY

THIS OPERATING AGREEMENT OF SALEM RADIO OPERATIONS, LLC, a Delaware limited liability company ("Agreement"), is entered into effective as of March 9, 2001, by SALEM MEDIA CORPORATION, a New York corporation (the "Member" and the "Manager"). SALEM RADIO OPERATIONS, LLC is referred to as the "Company". The Member hereby agrees as follows:

ARTICLE 1

ORGANIZATION AND PURPOSE

1.1 Formation. The Company has been formed as a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 Del. C.Section 18-101 et seq. (as from time to time amended including any successor statute of similar import, the "Act"), subject to the terms contained in this Agreement. The Company shall be managed by a single Manager. The initial Manager of the Company shall be SALEM MEDIA CORPORATION, a New York corporation.

1.2 Name. The name of the Company is "SALEM RADIO OPERATIONS, LLC" and all business of the Company will be conducted under the name of the Company.

1.3 Purpose. The business of the Company is to (a) acquire, own, hold for investment, operate, finance, refinance, manage and/or sell ownership interests in other business entities and (b) to engage in any other legal activity which a limited liability company is permitted to do pursuant to the Act, all as the Manager shall reasonably determine.

1.5 Addresses. The addresses of the Member and the Manager are set forth on the signature page of this Agreement.

1.6 Term. The Company's term shall commence upon the filing with the Delaware Secretary of State of a "Certificate of Formation" and will terminate on December 31, 2050, subject to earlier termination upon an event of termination otherwise provided by this Agreement or by law.

1.7 Documents. The Manager will execute and file the documents necessary to comply with the requirements of the Act and the other laws of Delaware for the formation,

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continuation and operation of limited liability companies. The Manager will further execute and file the documents necessary to qualify the Company to do business in any other jurisdictions in which the Company shall do business. The Manager will cause the Company to comply with applicable laws.

ARTICLE 2

CAPITAL

2.1 Capital Contribution. Concurrently with the execution of this Agreement, the Member shall contribute cash in the amount of $3,236,000 to the capital of the Company. The Member shall not be obligated to contribute any additional capital to the Company.

2.2 Liability. Except as otherwise provided in this Agreement, the parties are not obligated to make any advances or contributions of capital to the Company. Except as otherwise provided in this Agreement or as required by law, the parties will not be liable for any of the debts of the Company.

2.3 No Interest on Capital. No interest will be paid to the Member on its capital contribution.

2.4 Return of Capital. Except as otherwise provided in this Agreement, no time has been agreed upon for the contribution of the Member to be returned to it.

2.5 Loans from Member. The Member may advance funds to the Company in its sole, absolute and arbitrary discretion. Any such advances will be evidenced by the Company's note payable to the Member.

ARTICLE 3

PROFITS, LOSSES AND DISTRIBUTIONS

3.1 Allocation of Profits. All profits of the Company shall be allocated 100% to the Member.

3.2 Allocation of Losses. All losses of the Company shall be allocated 100% to the Member.

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3.3 Distributions. All cash distributions by the Company shall be distributed 100% to the Member.

3.4 Time of Distributions. Distributions shall be made to the Member as soon as possible after the Manager's determination of the availability of cash for such purposes, which determination shall be within the reasonable discretion of the Manager.

ARTICLE 4

REIMBURSEMENT OF MANAGER'S EXPENSES

AND INDEMNIFICATION OF MANAGER

ARTICLE 5

RIGHTS AND OBLIGATIONS OF MANAGER

5.1 Manager to Manage Business. The business and affairs of the Company shall be managed by one Manager. The Manager shall be SALEM MEDIA CORPORATION, a New York corporation, who shall serve as the sole Manager. The Manager shall direct, manage and control the business of the Company to the best of its ability and shall devote such time and attention to the conduct of the business of the Company as is necessary to carry out the purposes and business of the Company.

5.2 Powers of the Manager. Except as otherwise provided in this Agreement, the Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the

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Company's business, including, but not limited to the power:

5.2.1 To encumber all or less than all Company assets or rights;

5.2.2 To make all decisions concerning the operational aspects of the Company;

5.2.3 To execute and deliver all leases, contracts, deeds and other instrumentation and documentation in connection with the operations or business of the Company;

5.2.4 To borrow money on behalf of the Company and to execute and deliver in the name of the Company notes evidencing such borrowings and mortgages, deeds of trust and any other security instruments securing such borrowings;

5.2.5 To pay from Company assets all expenses of organizing and conducting the business of the Company, including without limitation, legal and accounting fees and costs;

5.2.6 To execute any and all other instruments and take any and all other action necessary or desirable to carry out the purposes and business of the Company;

5.2.7 To sell, transfer, convey and/or exchange all or any portion of the property or assets of the Company; and

5.2.8 To do any other lawful act or thing in furtherance of the Company's business.

5.3 Right to Rely on the Manager. The Manager shall have the absolute authority to bind the Company by its signature alone and anyone dealing with the Company shall have the right to rely on such authority. Except as otherwise expressly authorized by this Agreement or by the Manager, no Member (other than a Member then acting as the Manager), attorney-in-fact, employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose. Any person dealing with the Company may rely (without duty of further inquiry) upon a certificate signed by the Manager as to: the identity of the Manager or any Member; the existence or nonexistence of any fact or facts which constitute a condition precedent to acts by the Manager or which are in any other manner germane to the affairs of the Company; the persons and/or entities who are authorized to execute and deliver any instrument or document of the Company; or any act or failure to act by the Company or any other matter whatsoever involving the Company or the Member.

5.4 Affiliates. The Manager may, in the Manager's absolute discretion, employ an Affiliate in any capacity on a basis comparable to that which could be arranged with unaffiliated third parties for comparable service. Any Affiliate employed by the Company shall have the absolute right (but not the obligation) to contract with independent third parties in connection with

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the performance of the foregoing service. For purposes of this Agreement, an "Affiliate" shall include any and all firms and entities, including, without limitation, corporations, partnerships, joint ventures, trusts, limited liability companies and associations, which are directly or indirectly owned or controlled, in whole or in part, by any Member or Manager and/or any of such entities or any combination of any such persons or entities.

5.5 Officers. The Manager may appoint and/or remove officers of the company from time to time in its sole and absolute discretion. Each officer shall have the title and authority designated by the Manager.

ARTICLE 6

DISSOLUTION AND LIQUIDATION

6.1 Events of Termination: The Company shall, unless otherwise provided, terminate and dissolve on the happening of any of the following events:

6.1.1 Expiration. When the period fixed for the duration of the Company shall expire pursuant to Paragraph 1.6 (entitled "Term");

6.1.2 Statutory Dissolution. The happening of any event as required by Section 18-801 of the Act, unless the business of the Company is continued by the consent of any remaining Member within 90 days after the happening of that event and the business of the Company is continued; or

6.1.3 Disposition of Assets. The sale of all or substantially all of the Company's assets.

6.2 Winding Up Affairs and Liquidations. Upon the termination and dissolution of the Company, the Manager or the persons required or permitted by law to carry out the winding up of the affairs of the Company ("Liquidator") will promptly notify the Member of such dissolution; shall proceed to the liquidation of the assets of the Company by converting such assets to cash insofar as deemed practicable by the Manager or the Liquidator; will wind up the affairs of the Company; and, after paying or providing for the payment of all liabilities and obligations of the Company, will distribute the proceeds of liquidation and other assets of the Company as provided by law and the terms of this Agreement. Upon the dissolution of the Company as the result of the occurrence of an event described in Paragraph 6.1 (entitled "Events of Termination"), the Manager or Liquidator shall cause to be filed in the office of, and on a form prescribed by, the Delaware Secretary of State, a Certificate of Dissolution. Upon the completion of the winding up of the affairs of the Company, the Manager or Liquidator shall cause to be filed in the office of, and on a from prescribed by, the Delaware Secretary of State, a Certificate of Cancellation of Certificate of Formation.

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6.3 Continuation of Business for Purpose of Winding Up Affairs. Upon the filing with the Delaware Secretary of State of a Certificate of Dissolution, the Company shall cease to carry on its business, except insofar as may be necessary for the winding up of its business..

6.4 Distributions on Dissolution. The proceeds of liquidation and other assets of the Company shall be applied and distributed in the following order of priority:

6.4.1 Debts. To the payment of debts and liabilities of the Company (other than (a) any loans and advances that may have been made by the Member, or amounts owing to the Member, and (b) secured obligations that will be assumed or otherwise transferred to third parties on the liquidation of the Company) and the expenses of liquidation;

6.4.2 Reserves. To the setting up of any reserves that the Manager or Liquidator may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company, which reserves shall be paid over to an escrow holder designated by the Manager or Liquidator to be held for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the expiration of such period, as the Manager or the Liquidator shall deem advisable, to distribute the balance thereafter remaining in the manner hereinafter provided;

6.4.3 Member Loans. To the payment of any loans or advances that may have been made by the Member; and

6.4.4 Members. Any balance then remaining will be distributed 100% to the Member.

6.5 Assets Other Than Cash. Assets of the Company may be distributed in kind on the basis of the then fair market value of such assets as determined by the Manager.

ARTICLE 7

FISCAL MATTERS

7.1 Books and Journals. The Company will maintain full and accurate books of the Company at the offices of the Company, showing all receipts and expenditures, assets and liabilities, profits and losses, and all other records necessary for recording the Company's business and affairs or required by the Act. Each Member and such Member's duly authorized representatives shall, during normal business hours, have access to and may inspect and copy any of such books and records. Furthermore, upon the request of any Member, copies of any portion of such books and records shall be delivered to such Member at such Member's sole cost and expense.

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7.2 Accountants. The accountants shall be such firm of certified public accountants as may be selected by the Manager.

7.3 Bank Accounts. All funds of the Company will be deposited in its name and in such bank accounts as the Manager shall reasonably determine.

7.4 Accounting Decisions. All decisions as to accounting matters, except as specifically provided to the contrary in this Agreement, will be made by the Company's accountants subject to the approval of the Manager.

ARTICLE 8

MISCELLANEOUS PROVISIONS

8.1 Notices. Any notice required under this Agreement shall be given in writing (at the address set forth on the signature page for any Member and at the Company's registered office for the Company) by any of the following means:
(a) personal service; (b) electronic communicating by telegram, telecopying or fax transmission; (c) overnight courier; or (d) registered or certified, first class mail, return receipt requested. Such addresses may be changed by notice given in the same manner as above provided. Any notice sent pursuant to either
(a) or (b), above, shall be deemed received upon such personal service or upon confirmation of receipt by electronic means (unless confirmation occurs after 4:00 P.M. on the day sent or the day sent is not a business day, in either of which events confirmation shall be deemed to occur on the next following business day). Any notice sent pursuant to (c), above, shall be deemed received on the next business day following deposit with the overnight courier, and any notice sent pursuant to (d), above, shall be deemed received two (2) business days following deposit in the mail.

8.2 Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware.

8.3 Severability. In case any one or more of the provisions contained in this Agreement or any application of the provisions shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions or the remaining applications will not in any way be affected or impaired.

8.4 Captions. The captions and headings in this Agreement are for convenience only and will not be considered in interpreting any provision of this Agreement.

8.5 Gender and Number. Whenever required by the context, the singular will be deemed to include the plural, and the plural will be deemed to include the singular, and the masculine, feminine and neuter genders will each be deemed to include the other.

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8.6 Execution in Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

ADDRESS                                     MANAGER AND MEMBER


4880 Santa Rosa Road                        SALEM MEDIA CORPORATION,
Suite 300                                   a New York corporation
Camarillo, CA 93012

                                            By: /s/ Jonathan L. Block
                                               ----------------------
                                               Jonathan L. Block, Vice President

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EXHIBIT 3.05

ENDORSED
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:10 PM 12/20/2000
001642792 - 3333936

CERTIFICATE OF FORMATION

SALEM MEDIA OF ILLINOIS, LLC

I. The name of the limited liability company ("Company") is Salem Media of Illinois, LLC.

III. This Certificate of Formation shall be effective immediately upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of Salem Media of Illinois, LLC this 19th day of December, 2000.

SALEM MEDIA CORPORATION,
a New York corporation

By: /s/ Jonathan L. Block
    ----------------------------------------
    Jonathan L. Block, Vice President

EXHIBIT 3.06

THE MEMBERSHIP INTERESTS REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF DELAWARE OR ANY OTHER JURISDICTION. THE MEMBERSHIP INTERESTS MAY NOT BE SOLD, PLEDGED, GIVEN, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE SECURITIES LAWS UNLESS APPROPRIATE EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE AS EVIDENCED EITHER BY THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MANAGER OR SUBMISSION TO THE MANAGER OF OTHER EVIDENCE SATISFACTORY TO THE MANAGER.

OPERATING AGREEMENT OF

SALEM MEDIA OF ILLINOIS, LLC,

A DELAWARE LIMITED LIABILITY COMPANY

THIS OPERATING AGREEMENT OF SALEM MEDIA OF ILLINOIS, LLC, a Delaware limited liability company ("Agreement"), is entered into effective as of March 9, 2001, by and between SALEM MEDIA CORPORATION, a New York corporation (the "Manager"), and SALEM RADIO OPERATIONS, LLC, a Delaware limited liability company ("SRO"). The Manager and SRO are sometimes referred to collectively as the "Members" or the "parties" and individually as a "Member" or a "party". In consideration of the mutual covenants in this Agreement, the Members agree as follows.

ARTICLE 1

ORGANIZATION AND PURPOSE

1.1 Formation. The Members have formed Salem Media of Illinois, LLC (the "Company") as a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101 et seq. (as from time to time amended including any successor statute of similar import, the "Act"), subject to the terms contained in this Agreement. The business and affairs of the Company shall be managed by one Manager.

1.2 Name. The name of the Company is "Salem Media of Illinois, LLC" and all business of the Company will be conducted under the name of the Company. The Manager may change the Company's name and all of the Members shall be notified of such change.

1.3 Purpose. The business of the Company is to (a) acquire, own, hold, operate, finance, refinance, maintain, manage, develop, lease and/or sell the radio broadcasting business heretofore owned and operated by the Manager commonly known as station WYLL-FM (the "Business") and (b) to engage in any other legal activity which a limited liability company is permitted to do pursuant to the Act, all as the Manager shall reasonably determine.

1.4 Registered Office and Registered Agent. Company's initial office shall be at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012. The Company's registered agent in Delaware shall be National Registered Agents, Inc. and its registered office in Delaware shall be 9 East Loockerman Street, City of Dover, County of Kent, State of Delaware. The Company shall be qualified to do business in the State of Illinois. The Company's registered agent in Illinois shall be National Registered Agents, Inc. and its registered office in Illinois shall be 208 La Salle Street, Suite 1855, Chicago, Illinois 60604. The registered office and agent of the Company in either or both of Delaware or Illinois may be changed from time to time by the Manager by filing the address of the new registered office and/or the name of the new agent with the appropriate Secretary of State pursuant to the laws of that state.

1.5 Addresses of Members. The addresses of the Members are set forth on the signature pages of this Agreement.

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1.7 Documents. The Company will execute and file the documents necessary to comply with the requirements of the Act and the other laws of Delaware for the formation, continuation and operation of limited liability companies. The Members agree to execute all documents and to undertake all other acts, as reasonably may be deemed necessary by the Manager, in order to comply with the requirements of the laws of Delaware for the formation, continuation and operation of limited liability companies. The Manager will further execute and file the documents necessary to qualify the Company to do business in Illinois and any other jurisdictions in which the Company shall do business.

1.8 Membership Interest. "Membership Interest" shall mean a Member's rights in the Company, collectively, including such Member's economic interest, any right to vote and participate in management, and any right to information concerning the business and affairs of the Company provided under this Agreement or the Act.

ARTICLE 2

CAPITAL

2.1 Members' Capital Contributions. Concurrently with the execution of this Agreement, (a) the Manager shall contribute all of the assets of the Business and all related leases and contracts to the capital of the Company subject to all existing liabilities of the Business, and (b) SRO shall contribute cash in the amount of $790,000 to the capital of the Company. The Members shall not be obligated to contribute any additional capital to the Company.

2.2 Liability. No Member or Manager is liable to any other Member for the repayment of any Member's capital contributions and, except as otherwise provided in Section 2.1 of this Agreement, no Member is obligated to make any advances or contributions of capital to the Company. Except as otherwise provided in this Agreement or as required by law, the Members and Manager will not be liable for any of the debts of the Company.

2.3 No Interest on Capital. Except as otherwise provided in this Agreement, no interest will be paid to the Members on capital contributions or on "Capital Account" (defined below) balances.

2.4 Return of Capital. Except as otherwise provided in this Agreement, no time has been agreed upon for the contributions of the Members to be returned to them. The Manager does not, in any way, guarantee the return of the Members' capital contributions or a

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profit for the Members from the operations of the Company. The Members have no right to demand and receive property other than cash in return for the Members' capital contributions.

2.5 Loans from Members. Any Member may advance funds to the Company if funds are deemed necessary by the Manager. The advances will be evidenced by the Company's note payable to the lending Member. The note will provide for a rate of interest mutually acceptable to the Manager and the Member advancing funds to the Company; provided, however, such rate of interest shall be commercially reasonable.

2.6 Capital Accounts. A "Capital Account" shall be maintained for each Member in accordance with the provisions of Paragraph 1 of Exhibit "A".

2.7 Membership Percentages. The "Membership Percentages" of the Members are as follows:

MEMBER                                             MEMBERSHIP PERCENTAGE
------                                             ---------------------
Salem Radio Operations, LLC                                   1%

Salem Media Corporation                                      99%
                                                            ---

Total                                                       100%
                                                            ===

2.8 Majority-in-Interest. For purposes of this Agreement, a "Majority-in-Interest" of the Members shall mean those Members then owning more than 50% of the Membership Percentages then owned by all of the Members who are then entitled to vote. Except as otherwise provided in this Agreement or by the Act, all decisions of the Members shall be made by a Majority-in-Interest of the Members.

ARTICLE 3

PROFITS, LOSSES AND DISTRIBUTIONS

3.1 Definitions. For purposes of this Agreement, the following capitalized terms are defined as follows:

3.1.1 "Distributable Cash" is all cash of the Company (including without limitation cash from the sale of any or all of the Company property) less (i) the amount necessary for payment of all costs, expenses, obligations and liabilities of the Company then due (including any then due advances to the Company by the Members) and (ii) the amount deemed necessary by the Manager, in the exercise of its reasonable discretion, for the operation of the Company and to establish a reserve for the payment of foreseen or unforeseen costs, expenses, obligations or

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liabilities of the Company.

3.1.2 The "Profits" and "Losses" of the Company (as determined for book purposes) shall be calculated in accordance with Paragraph 1.2.3 of attached Exhibit "A".

3.1.3 The "Accounting Period" of the Company will be each period commencing on the first day following the last day of the immediately preceding Accounting Period (which for the Company's first fiscal year shall be deemed to be the date of the commencement of the Company) and ending on December 31 (which shall also be the Company's fiscal year end), unless another fiscal year is selected by the Manager and permission to change to such other fiscal year is granted by the Internal Revenue Service.

3.2 Allocation of Profits: Except as otherwise provided in Exhibit "A" to this Agreement, Profits for any Accounting Period shall be allocated among the Members in the ratio of their respective Membership Percentages.

3.3 Allocation of Losses: Except as otherwise provided in Exhibit "A" to this Agreement, Losses for any Accounting Period shall be allocated among the Members in the ratio of their respective Membership Percentages.

3.4 Distributions and Payments: For each Accounting Period, on a cumulative basis, Distributable Cash shall be paid and distributed to the Members in the ratio of their respective Membership Percentages.

3.5 Identity of Distributees. Distributions shall be made only to persons who, according to the books and records of the Company, are the owners of record of Membership Interests on a date to be determined by the Manager. Neither the Manager nor the Company shall incur any liability for making distributions in accordance with the preceding sentence, whether or not the Manager has knowledge or notice of any transfer of ownership of any Membership Interests.

3.6 Time of Distributions. Distributions shall be made to the Members as soon as possible after the Manager's determination of the availability of cash for such purposes, which determination shall be within the reasonable discretion of the Manager.

3.7 Sharing Between Transferor and Transferee. If a Membership Interest is transferred, the income, gains, losses and deductions allocable to the Membership Interest transferred for the Accounting Period during which the transfer occurred will be allocated between the transferor and transferee of the Membership Interest in proportion to the time during the Accounting Period that the Membership Interest was owned by the transferor and transferee. Credits shall be allocated to the Member who owned the Membership Interest at the time that the property giving rise to the credit was placed in service. Each transferee will be credited with the Capital Account of the transferee's transferor. If a transferor transfers less than all of the

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transferor's Membership Interest, the Capital Account will be allocated in proportion to the fraction of the Membership Interest respectively transferred and retained.

ARTICLE 4

REIMBURSEMENT OF MANAGER'S EXPENSES

AND INDEMNIFICATION OF MANAGER

The Company will reimburse the Manager for all ordinary and necessary operating expenses incurred by the Manager in carrying on the Company's business. The Manager shall not be liable to the Company or to any Member for any act or omission suffered or taken by the Manager in good faith, and the Manager shall be fully protected and indemnified by the Company against all liabilities and losses suffered by virtue of its status as the Manager, including amounts paid in respect of judgments, fines or in settlement of litigation and expenses reasonably incurred by the Company or the Manager in connection with any pending or threatened litigation or proceeding, with respect to any action or omission suffered or taken, including but not limited to any action taken by the Manager in the formation and operation of the Company or in the financing, refinancing, improvement and sale of any assets of the Company, liabilities arising under the "IRC" (as defined below) and the Manager's activities as the "TMP" (as defined below), provided that (i) the acts or omissions do not constitute gross negligence, fraud or criminal act by such Manager, and (ii) the satisfaction of any indemnification and saving harmless will be from and limited to Company assets. No Member will have any personal liability on account of the indemnification and saving harmless of the Manager. To the extent that the acts or omissions of the Manager constitute gross negligence, fraud or criminal act, the Manager shall indemnify and save harmless the Company and the Members from any loss or damage occasioned thereby (including, without limitation, reasonable attorneys' fees). The Manager shall not be liable to the Company or any Member because any taxing authorities disallow or adjust any deductions, losses, credits or items of income or gain in the Company's or any Member's income tax returns.

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ARTICLE 5

RIGHTS AND OBLIGATIONS OF MANAGER

5.1 Manager to Manage Business. The business and affairs of the Company shall be managed by one Manager. The Manager shall be SALEM MEDIA CORPORATION, a New York corporation, who shall serve as Manager until its dissolution, resignation or removal. The Manager shall direct, manage and control the business of the Company to the best of its ability and shall devote such portion of its time and attention to the conduct of the business of the Company as is necessary to carry out the purposes and business of the Company.

5.2 Powers of the Manager. The Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's business, including, but not limited to the power:

5.2.1 To encumber all or less than all Company assets or rights;

5.2.2 To make all decisions concerning the operational aspects of the Company;

5.2.3 To execute and deliver all leases, contracts, deeds and other instrumentation and documentation in connection with the operations or business of the Company;

5.2.5 To pay from Company assets all expenses of organizing and conducting the business of the Company, including without limitation, legal and accounting fees and costs;

5.2.6 To execute any and all other instruments and take any and all other action necessary or desirable to carry out the purposes and business of the Company;

5.2.7 To sell, transfer, convey and/or exchange all or any portion of the property or assets of the Company; and

5.2.8 To do any other lawful act or thing in furtherance of the Company's business.

5.3 Restrictions on Authority of the Manager. The Manager shall not have the

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authority or right to do any of the following acts:

5.3.1 To act in contravention of this Agreement.

5.3.2 To act in any manner that would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement;

5.3.3 To possess property, or assign rights in specific property, for other than a Company purpose; or

5.3.4 To knowingly perform any act that would cause the Company to conduct business in a state which has neither enacted legislation which permits limited liability companies to organize in such state nor permits the Company to register to do business in such state as a foreign limited liability company.

5.4 Right to Rely on the Manager. The Manager shall have the absolute authority to bind the Company by its signature alone and anyone dealing with the Company shall have the right to rely on such authority. Except as otherwise expressly authorized by this Agreement or by the Manager, no Member (other than the Manager), attorney-in-fact, employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose. Any person dealing with the Company may rely (without duty of further inquiry) upon a certificate signed by the Manager as to: the identity of the Manager or any Member; the existence or nonexistence of any fact or facts which constitute a condition precedent to acts by the Manager or which are in any other manner germane to the affairs of the Company; the persons and/or entities who are authorized to execute and deliver any instrument or document of the Company; or any act or failure to act by the Company or any other matter whatsoever involving the Company or any Member.

5.5 Manager Has No Exclusive Duty to Company. The Manager shall not be required to manage the Company as its sole and exclusive function. Subject to the fulfillment of the Manager's obligations pursuant to this Agreement, the Manager may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Manager or to the income or proceeds derived therefrom. The Manager shall not incur any liability to the Company or to any of the Members as a result of engaging in any other business or venture.

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"Affiliate" shall include any and all firms and entities, including, without limitation, corporations, partnerships, joint ventures, trusts, limited liability companies and associations, which are directly or indirectly owned or controlled, in whole or in part, by or in common with, any Member or Members or Manager and/or any of such entities or any combination of any such persons or entities.

5.7 Removal.

5.7.1 The "removal" of the Manager shall automatically take place in the event that any of the following occurs:

5.7.1.1 The Manager becoming bankrupt. The Manager shall be deemed to be bankrupt upon: (a) the filing of an application by the Manager for, or its consent to, the appointment of a trustee, receiver, or custodian of its assets; (b) the entry of an order for relief with respect to the Manager in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) the making by the Manager of a general assignment for the benefit of creditors; (d) the entry of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver or custodian of the assets of the Manager unless the proceedings and the trustee, receiver or custodian appointed are dismissed within ninety (90) days; or (e) the failure by the Manager generally to pay its debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the admission in writing of its inability to pay its debts as they become due.

5.7.1.2 The Manager is dissolved.

5.7.2 The removal of a Manager shall not affect such Manager's rights as a Member and shall not constitute a withdrawal of a Member.

5.8 Vacancies. Upon any vacancy occurring for any reason in the office of Manager of the Company, the vacancy may be filled by the affirmative vote of a Majority-in-Interest of the Members.

5.9 Officers. The Manager may appoint and/or remove officers of the company from time to time in its sole and absolute discretion. Each officer shall have the title and authority designated by the Manager.

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ARTICLE 6

MEETINGS OF MEMBERS

6.1 Meetings. Any Member may call a meeting at any time on not less than five (5) business days' prior written notice to all Members. Any notice for a meeting must identify the nature of the business to be discussed at such meeting.

6.2 Designees. Any Member may at any time, and from time to time, by written notice to the other Members, designate a person ("Designee") to act on its behalf at any meeting of the Members. Such Designee shall have all of the voting rights of such Member. A Member who has named a Designee may subsequently revoke such designation and may, at the same time or subsequently, name a replacement Designee.

6.3 Meeting of all Members. If all of the Members shall meet at any time and place, either within or outside of the State of Delaware and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting lawful action may be taken.

6.4 Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment, or Members entitled to receive payment of any distribution, or in order to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Paragraph 6.4, such determination shall apply to any adjournment.

6.5 Quorum. A Majority-In-Interest of the Members, represented in person or by proxy, shall constitute a quorum at any meeting of Members. In the absence of a quorum at any such meeting, a majority of the Membership Percentages so represented may adjourn the meeting from time to time for a period not to exceed 60 days without further notice. However, if the adjournment is for more than 60 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The Members present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal during such meeting of that number of Membership Percentages whose absence would cause less than a quorum.

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the Articles of Organization, or by this Agreement. Unless otherwise expressly provided in this Agreement or required under applicable law, Members who have an interest (economic or otherwise) in the outcome of any particular matter upon which the Members are being asked to vote or consent may vote or consent upon any such matter and their Membership Percentage, vote or consent, as the case may be, shall be counted in the determination of whether the requisite matter was approved by the Members.

6.7 Proxies. At all meetings of Members, a Member may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Members of the Company before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

6.8 Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents signed by all Members.

6.9 Waiver of Notice. When any notice is required to be given to any Member, a waiver in writing signed by the person entitled to such notice, whether before, at, or after the time stated in such notice shall be equivalent to the giving of such notice.

ARTICLE 7

ADMISSION AND WITHDRAWAL OF MEMBERS

AND TRANSFER OF MEMBERSHIP INTERESTS

7.1 Definitions.

7.1.1 "Admission" means the addition of a new Member to the Company.

7.1.2 "Transfer" means the transfer, alienation, sale, assignment, pledge or other disposition or encumbrance of all or any part of a Membership Interest, whether voluntarily or involuntarily.

7.1.3 The term "Associate" shall mean with respect to any Member (i) any other Member, (ii) any beneficiary of a trust which is a Member, (iii) any spouse or adult lineal ascendants or descendants of any such Member or beneficiary, or a trust for his or her or their benefit (including minor descendants), and (iv) any and all firms and entities, including, without limitation, corporations, limited liability companies, partnerships, joint ventures, trusts and associations, which are directly or indirectly owned or controlled by, or in common with, one or

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more of the previously identified persons.

7.2 Transfer and Admission.

7.2.1 Transfer. Except as otherwise provided in this Agreement, no Member may effect a Transfer of any Membership Interest except for (i) Transfers to Associates, (ii) Transfers previously approved in writing by the Manager, which approval may be withheld in the Manager's absolute discretion, and (iii) Transfers to persons pursuant to Paragraph 7.4 (entitled "Right of First Refusal") (collectively referred to as "Permitted Transfers"); provided, however, that (a) all such Permitted Transfers must be made in full compliance with all requirements contained in this Agreement and (b) no Member may transfer all or any part of such Member's Membership Interest to a minor or an incompetent unless the Transfer is to a trust, guardianship, or other legal entity formed for the benefit of the incapacitated party. Any Transfer of a Membership Interest which does not comply with the provisions of this Agreement shall be invalid and shall not vest any interest in the transferee.

7.2.2 Admission. Except as otherwise provided in this Agreement, a person shall become a Member only upon (i) the approval of the Manager, which approval may be withheld in the Manager's absolute discretion, and (ii) the person executing any and all documents reasonably requested by the Manager, including without limitation an agreement by which such person shall be bound by all of the provisions of this Agreement. Notwithstanding the foregoing, if a Member transfers a Membership Interest to an Associate or a Membership Interest is transferred to a successor upon the death of a Member, the Associate or the successor shall be entitled to Admission without the approval of the Manager, provided that all other requirements contained in this Agreement must be complied with prior to such Admission.

7.2.3 Admission Date. Any Admission shall be deemed to occur effective either (i) if the Admission occurs from the first through the 15th day of the month, then on the first day of the calendar month in which the admission occurs or (ii) if the Admission occurs from the 16th through the last day of the month, then on the first day of the calendar month after the month in which the Admission occurs.

7.2.4 Additional Requirements. No Transfer or Admission shall be permitted (i) if the proposed Transfer, transferee or Admission will, or could, impair the ability of the Company to be taxed as a partnership under the Federal income tax laws, or (ii) if the Transfer or Admission will, or could, cause the Company's tax year to close or the Company to terminate for Federal income tax purposes, and (iii) no Admission shall be permitted unless the proposed Member has acknowledged in writing the liabilities of the transferor and the Company which cannot be ascertained from this Agreement.

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capital contributions of the newly admitted Member and to set forth any new provisions or to amend any existing provisions of this Agreement which may be necessary or desirable in light of the Admission of a Member or Transfer by a Member.

7.2.6 Enforceability of Transfer Restrictions. Each Member acknowledges the reasonableness of the restrictions on the transferability of Membership Interests imposed by this Agreement in view of the Company purposes and the relationship of the Members. Accordingly, the restrictions on transferability contained in this Agreement shall be specifically enforceable.

7.3 Members and Assignees.

7.3.1 Rights of Admitted Member. A transferee who becomes a Member succeeds to all of the rights and powers and is subject to all of the obligations, restrictions and liabilities of a Member for the Membership Interest which is acquired by the transferee;

7.3.2 Rights of Assignee. A transferee who does not become a Member ("Assignee") will be entitled only to (i) receive, to the extent assigned, the distributions and the allocations of income, gains, losses, deductions, credit or similar items to which the assignor would be entitled and (ii) require information and accounts of Company transactions and to inspect the Company books only as required by the Act, and an Assignee shall have no other rights or powers of a Member. An Assignee nevertheless is subject to all of the provisions of this Agreement and to all of the obligations, restrictions and liabilities under this Agreement for the Membership Interest acquired.

7.3.3 Duties of Assignor. Until the time when the transferee of a Membership Interest becomes a Member, the transferor of the Membership Interest remains subject to all of the obligations, restrictions and liabilities under this Agreement for the Membership Interest and retains all rights and powers of a Member for the Membership Interest other than the right to receive cash and in kind distributions and the return of capital contributions.

7.4 Right of First Refusal.

7.4.1 A Member ("Selling Member") who desires to sell all or any portion of such Member's Membership Interest (the "Offered Interest") to a third party purchaser ("Third Party") shall obtain from such Third Party a bona fide written offer to purchase such Offered Interest stating the price and other terms and conditions for the proposed purchase (the "Offer"). The Selling Member shall give written notification to the remaining Members of the Selling Member's intention to so transfer the Offered Interest (the "Offer Notice") and shall include with the Offer Notice a copy of the Offer.

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7.4.2 The remaining Members shall have the right to exercise a right of first refusal to purchase, in proportion to the Membership Percentages of the remaining Members who exercise such right, all (but not less than all) of the Offered Interest upon the same terms and conditions as stated in the Offer by giving written notification to the Selling Member of their exercise of such right (the "Exercise Notice") within 30 days after the Offer Notice is given. If any of the remaining Members (in the aggregate) exercise their right to purchase all of the Offered Interest, then the transaction shall close within 90 days after the date upon which the last Exercise Notice is given. If no remaining Members exercise their right to purchase all of the Offered Interest, then the Selling Member may sell the Offered Interest on the terms and conditions stated in the Offer to the purchaser named in the Offer within 120 days after the Offer Notice is given. The purchaser shall become either a Member or an Assignee in accordance with Paragraph 7.2 (entitled "Transfer and Admission") and shall not otherwise be entitled to Admission. Whether or not the Offered Interest is so sold, it shall remain subject to all of the terms and conditions of this Agreement, including without limitation this Paragraph 7.4.

7.5 Withdrawal. No Member may withdraw or resign from the Company or take any other voluntary action which would cause the dissolution of the Company without the consent of the Manager, which consent may be withheld in its absolute discretion.

7.6 Death of a Member. Upon the death of a Member who is an individual, the Membership Interest of the deceased Member shall be transferred to his or her lawful successor(s)-in-interest. Any such successor shall become a Member in accordance with the provisions of this Article 7.

ARTICLE 8

DISSOLUTION AND LIQUIDATION

8.1 Events of Termination: The Company shall, unless otherwise provided, terminate and dissolve on the happening of any of the following events:

8.1.1 Expiration. When the period fixed for the duration of the Company shall expire pursuant to Paragraph 1.6 (entitled "Term");

8.1.2 Consent. By the consent in writing of the Manager and a Majority-in-Interest of the Members; or

8.1.3 Statutory Dissolution. The happening of any events set forth in Section 18-801 of the Act, unless the business of the Company is continued by the consent of a Majority-in-Interest of the remaining Members within 90 days after the happening of that event and there are at least two remaining Members.

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8.2 Winding Up Affairs and Liquidations. Upon the termination and dissolution of the Company, the Manager or the persons required or permitted by law to carry out the winding up of the affairs of the Company ("Liquidator") will promptly notify all Members of such dissolution; shall proceed to the liquidation of the assets of the Company by converting such assets to cash insofar as deemed practicable by the Manager or the Liquidator; will wind up the affairs of the Company; and, after paying or providing for the payment of all liabilities and obligations of the Company, will distribute the proceeds of liquidation and other assets of the Company as provided by law and the terms of this Agreement. Upon the dissolution of the Company as the result of the occurrence of an event described in Paragraph 8.1 (entitled "Events of Termination"), the Manager or Liquidator shall cause to be filed in the office of, and on a form prescribed by, the Delaware Secretary of State, a Certificate of Dissolution. Upon the completion of the winding up of the affairs of the Company, the Manager or Liquidator shall cause to be filed in the office of, and on a from prescribed by, the Delaware Secretary of State, a Certificate of Cancellation of Certificate of Formation.

8.3 Continuation of Business for Purpose of Winding Up Affairs. Upon the filing with the Delaware Secretary of State of a Certificate of Dissolution, the Company shall cease to carry on its business, except insofar as may be necessary for the winding up of its business.

8.4 Distributions on Dissolution. The proceeds of liquidation and other assets of the Company shall be applied and distributed in the following order of priority:

8.4.1 Debts. To the payment of debts and liabilities of the Company (other than any loans and advances that may have been made by any of the Members, or amounts owing to any of the Members) and the expenses of liquidation;

8.4.2 Reserves. To the setting up of any reserves that the Manager or Liquidator may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company, which reserves shall be paid over to an escrow holder designated by the Manager or Liquidator to be held for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the expiration of such period, as the Manager or the Liquidator shall deem advisable, to distribute the balance thereafter remaining in the manner hereinafter provided;

8.4.3 Member Loans. To the payment of any loans or advances that may have been made by any of the Members; and

8.4.4 Members. Any balance then remaining will be distributed to the Members in accordance with Paragraph 3.4 (entitled "Distributions and Payments").

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determined by an independent appraiser appointed by the Members (the cost and expense of said appraisal to be borne by the Company). If agreed to by all the Members, distributions in-kind will be made to the Members as tenants-in-common. For purposes of making such distribution only, the unrealized profit or loss on any such asset (based on its fair market value) shall be first allocated among the Members and the distribution of the asset shall be treated as a distribution of cash equal to the fair market value of such asset.

ARTICLE 9

FISCAL MATTERS

9.1 Books and Journals. The Company will maintain full and accurate books of the Company at the offices of the Company, showing all receipts and expenditures, assets and liabilities, Profits and Losses, and all other records necessary for recording the Company's business and affairs or required by the Act. Each Member and such Member's duly authorized representatives shall, during normal business hours, have access to and may inspect and copy any of such books and records. Furthermore, upon the request of any Member, copies of any portion of such books and records shall be delivered to such Member at such Member's sole cost and expense.

9.2 Accountants. The accountants shall be such firm of certified public accountants as may be selected by the Manager.

9.3 Reports to Members. Within 90 days after the end of each fiscal year, each Member shall be furnished a copy of the foreign, federal and state income tax information returns of the Company for the preceding fiscal year showing each Member's distributive share of each item of income, gain, loss, deduction, credit or preference which a Member is required to take into account separately on such Member's foreign, federal and state income tax returns.

9.4 Bank Accounts. All funds of the Company will be deposited in its name and in such bank accounts as the Manager shall reasonably determine.

9.5 Accounting Decisions. All decisions as to accounting matters, except as specifically provided to the contrary in this Agreement, will be made by the Company's accountants subject to the approval of the Manager.

9.6 Federal Income Tax Elections. The Manager shall cause the Company to make an election (or consent to any such election by a Member) pursuant to any of IRC Sections 732(d) and/or 754 (or corresponding provisions of succeeding law or state law), as may be determined by the Manager in the Manager's sole, absolute and arbitrary discretion, except to the extent otherwise directed by this Agreement.

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ARTICLE 10

MISCELLANEOUS PROVISIONS

10.1 Notices. Any notice required under this Agreement shall be given in writing (at the addresses set forth on the signature page for Members and at Company's registered office for the Company) by any of the following means: (i) personal service; (ii) electronic communicating by telegram, telecopying or fax transmission; (iii) overnight courier; or (iv) registered or certified, first class mail, postage prepaid with return receipt requested. Such addresses may be changed by notice to the other parties given in the same manner as above provided. Any notice sent pursuant to either (i) or (ii), above, shall be deemed received upon such personal service or upon confirmation of receipt by electronic means (unless confirmation occurs after 4:00 P.M. on the day sent or the day sent is not a business day, in either of which events confirmation shall be deemed to occur on the next following business day). Any notice sent pursuant to (iii), above, shall be deemed received on the next business day following deposit with the overnight courier, and any notice sent pursuant to (iv), above, shall be deemed received two (2) business days following deposit in the mail.

10.2 Limited Power of Attorney. Each Member, by such Member's execution of this Agreement, irrevocably constitutes and appoints the Manager as such Member's true and lawful attorney and agent, with full power and authority in such Member's name, place and stead only to execute, acknowledge and deliver and to file or record in any appropriate public office: (i) any certificate or other instrument which may be necessary, desirable or appropriate to qualify or to continue the Company as a limited liability company or to transact business as a limited liability company in any jurisdiction in which the Company conducts business; (ii) any amendment to this Agreement or to any certificate or other instrument which may be necessary, desirable or appropriate to reflect an Admission, Transfer, withdrawal or any additional capital contributions, all in accordance with the provisions of this Agreement; and (iii) any certificates or instruments which may be appropriate, necessary or desirable to reflect the dissolution and termination of the Company. This power of attorney will be deemed to be coupled with an interest and will survive the transfer by any Member of such Member's Membership Interest. Notwithstanding the existence of this power of attorney, each Member agrees to join in the execution, acknowledgment and delivery of the instruments referred to above if requested to do so by the Members. This power of attorney granted to the Manager is a limited power of attorney that does not authorize the Manager to act on behalf of any Member except to execute the documents described in this Paragraph 11.2.

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covenants, representations or warranties, express or implied, oral or written, have been made by any Member to the other with respect to the subject matter of this Agreement. All prior and contemporaneous conversations, negotiations, possible and alleged agreements and representations, covenants, and warranties with respect to the subject matter of this Agreement are waived, merged in this Agreement and/or the other referenced documents and superseded by this Agreement. This is an integrated agreement.

10.4 Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware.

10.5 Counterparts. This Agreement may be executed in counterparts and all counterparts so executed shall constitute one Agreement binding on all the parties. It shall not be necessary for each Member to execute the same counterpart.

10.6 Severability. In case any one or more of the provisions contained in this Agreement or any application of the provisions shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions or the remaining applications will not in any way be affected or impaired.

10.7 Captions. The captions and headings in this Agreement are for convenience only and will not be considered in interpreting any provision of this Agreement.

10.8 Binding Effect. Except as otherwise provided to the contrary, this Agreement will be binding upon, and inure to the benefit of, the Members and their respective heirs, executors, administrators, successors and assigns.

10.9 Gender and Number. Whenever required by the context, the singular will be deemed to include the plural, and the plural will be deemed to include the singular, and the masculine, feminine and neuter genders will each be deemed to include the other.

10.10 Amendment. Except as otherwise permitted in this Agreement, this Agreement may be amended in whole or in part only by an agreement in writing signed by all of the Members.

10.11 Exhibits. All attached Exhibits are incorporated in this Agreement by reference as though fully set forth in this Agreement.

10.12 Interpretation. No provision of this Agreement is to be interpreted for or against any Member because that Member or that Member's legal representative drafted such provision. The term "including" shall not be limiting and shall mean "including but not limited to."

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10.13 Company Tax Audits. The Manager is designated as the Company's "Tax Matters Partner" ("TMP") in accordance with the provisions of IRC Section 6231(a)(7).

10.14 Waiver of Action for Partition. Each Member irrevocably waives any right that such Member may have to maintain any action for partition of the Company or any of its property during the term of the Company. Each Member hereby acknowledges having been previously advised as to his or her partition rights and further acknowledges entering into this Agreement in reliance on the waiver of these rights by each other Member.

10.15 Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any Member shall not preclude or waive the right to use any or all other remedies. All rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

10.16 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

ADDRESS                                   MANAGER

4880 Santa Rosa Road                      SALEM MEDIA CORPORATION,
Suite 300                                 a New York corporation
Camarillo, CA 93012


                                          By: /s/ Jonathan L. Block
                                              ---------------------------------
                                                  Jonathan L. Block,
                                                  Vice President

[signatures continued on the following page]

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[signatures continued from previous page]

MEMBERS

4880 Santa Rosa Road                      SALEM RADIO OPERATIONS, LLC, a
Suite 300                                 Delaware limited liability company

Camarillo, CA 93012

                                          By: /s/ Jonathan L. Block
                                              ---------------------------------
                                                  Jonathan L. Block,
                                                  Vice President



4880 Santa Rosa Road                      SALEM MEDIA CORPORATION,
Suite 300                                 a New York corporation
Camarillo, CA 93012

                                          By: /s/ Jonathan L. Block
                                              ---------------------------------
                                                  Jonathan L. Block,
                                                  Vice President

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EXHIBIT "A"

ALLOCATION PROVISIONS

1. Capital Accounts and Definitions.

1.1 Capital Account. A Capital Account shall be maintained for each Member in accordance with Regulations Section 1.704-1(b)(2)(iv). If the Manager determines that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits to the Capital Accounts (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or a Member), are computed in order to comply with such Regulations, the Manager may make such modification, provided that the modification is not likely to have a material affect on the amounts distributable to any Member pursuant to Article 9 of this Agreement upon the dissolution of the Company. The Manager also shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b)(2)(iv).

1.2 Definitions. For purposes of this Agreement, the following capitalized terms are defined as follows:

1.2.1 Depreciation. "Depreciation" means, for each Accounting Period (as defined below) of the Company, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Accounting Period, except that if the "Gross Asset Value" (defined below) of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Accounting Period, Depreciation shall, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g)(3), be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, that if such asset has a zero adjusted tax basis, Depreciation shall be determined using any reasonable method selected by the Members.

1.2.2 Gross Asset Value. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows:

1.2.2.1 Initial Value. The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset at the time of contribution, as mutually agreed by the contributing Member and the Manager.

1.2.2.2 Adjustments. The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Manager, as of the following times: (i) the acquisition of an additional interest in the Company

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by any new or existing Member in exchange for more than a de minimis capital contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (i) and (ii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

1.2.2.3 Distributions. The Gross Asset Value of any Company asset distributed to any Member shall be the gross fair market value of such asset on the date of distribution; and

1.2.2.4 Special Adjustments. The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to IRC Section 734(b) or IRC Section
743(b), but only to the extent that such adjustments are required to be taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph 2.4 of this Exhibit "A"; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph 1.2.2.4 to the extent the Manager determines that an adjustment pursuant to subparagraph 1.2.2.2 of this Exhibit "A" is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph 1.2.2.4. If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraphs 1.2.2.1 or 1.2.2.2 of this Exhibit "A" or this subparagraph 1.2.2.4, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing "Profits" and "Losses" (as defined below).

1.2.2.5 Manager's Determination. Except as otherwise provided in subparagraph 1.2.2.1 of this Exhibit "A", for purposes of determining the Gross Asset Value of any Company asset, the reasonable determination of the Manager shall control.

1.2.3 Profits and Losses. "Profits" and "Losses" means, for each Accounting Period of the Company, an amount equal to the Company's taxable income or loss for such year, determined in accordance with IRC Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to IRC Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

1.2.3.1 Income. Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this subparagraph 1.2.3 shall be added to such taxable income or loss;

1.2.3.2 Special Expenditures. Any expenditures of the Company described in IRC Section 705(a)(2)(B) or treated as IRC Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or

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Losses pursuant to this subparagraph 1.2.3 shall be subtracted from such taxable income or loss;

1.2.3.3 Disposition. If the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph 1.2.2.2 or subparagraph 1.2.2.3 of this Exhibit "A", the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset;

1.2.3.4 Gross Asset Value Adjustment. Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

1.2.3.5 Special Depreciation. In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Accounting Period, computed in accordance with subparagraph 1.2.1 of this Exhibit "A"; and

1.2.3.6 Special Allocations. Notwithstanding any other provision of this Paragraph 1, any items which are specially allocated pursuant to Paragraphs 2 or 3 of this Exhibit "A" shall not be taken into account in computing Profits or Losses.

1.2.4 Adjusted Capital Account Deficit. For purposes of this Agreement, "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Accounting Period after giving effect to the following adjustments:

1.2.4.1 Restoration Amounts. Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of the Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

1.2.4.2 Special Debits. Debit to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d) (4), 1.704-1(b)(2)(ii)(d)(5) and/or 1.704-1(b)(2)(ii)(d)(6).

The definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

2. Special Allocations: The following special allocations shall be made in the following order:

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2.1 Minimum Gain Chargeback. Each Member shall be specially allocated items of Company income and gain to the extent necessary to comply with the "minimum gain chargeback" requirements in Regulations Sections 1.704-2(f), (i)(4).

2.2 Qualified Income Offset. Each Member shall be specially allocated items of Company income and gain to the extent necessary to comply with the "qualified income offset" requirements in Regulations Section 1.704-1(b)(2)(d).

2.3 Recourse and Nonrecourse Debt. Each Member shall be specially allocated items of Company loss, deduction and IRC Section 705(a)(2)(B) expenditure to the extent necessary to comply with the allocation requirements for "partner nonrecourse deductions" and "nonrecourse deductions" in Regulations Sections 1.704-2(i), (c).

2.4 Special Tax Basis Adjustments. To the extent that Regulations
Section 1.704-1(b)(2)(iv)(m) requires an adjustment to the adjusted tax basis of any Company property under IRC Sections 734(b) or 743(b) to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations.

2.5 Adjusted Capital Account Deficits. The Losses allocated pursuant to Paragraph 3.3 of this Agreement shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Accounting Period. In the event that some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses under Paragraph 3.2 of this Agreement, the limitation set forth in this Paragraph 2.5 shall be applied on a Member by Member basis so as to allocate the maximum permissible loss to each Member under Regulations Section 1.704-1(b)(2)(ii)(d).

3. Other Allocation Rules:

3.1 Method of Allocation. For any Company Accounting Period, all items of Company income, gain, loss, deduction and any other items not otherwise allocated pursuant to this Agreement shall be divided among the Members in the same proportions as they share Profits or Losses, as the case may be, for such Company Accounting Period.

3.2 Acknowledgment by Members. The Members are aware of the income tax consequences of the allocations made by Article 3 of this Agreement and this Exhibit "A" and agree to be bound by the provisions of Article 3 of this Agreement and this Exhibit "A" in reporting their shares of Company income and loss for income tax purposes.

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3.3 Contributed Property. In accordance with IRC Section 704(c) and the Regulations, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with subparagraph 1.2.2.1 of this Exhibit "A").

3.4 Tax Purposes. In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph 1.2.2.2 of this Exhibit "A", subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under IRC Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Manager in a manner that reasonably reflects the purpose and intention of the Agreement. Allocations pursuant to this Paragraph 3 are solely for purposes of federal and state income taxes and shall not, except to the extent required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement.

3.5 Liquidation of Member's Interest. Upon liquidation of any Member's interest in the Company, the liquidating distributions shall be made in accordance with the positive Capital Account balances of the Members adjusted as otherwise required by the provisions of this Agreement. A liquidation of a Member's interest shall occur as required pursuant to Regulations Section 1.704-1(b)(2)(ii)(g).

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EXHIBIT 3.07

ENDORSED
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:10 PM 12/20/2000
001642538 - 3333898

CERTIFICATE OF FORMATION

SALEM MEDIA OF NEW YORK, LLC

I. The name of the limited liability company ("Company") is Salem Media of New York, LLC.

III. This Certificate of Formation shall be effective immediately upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of Salem Media of New York, LLC this 19th day of December, 2000.

SALEM MEDIA CORPORATION,
a New York corporation

By: /s/ Jonathan L. Block
-----------------------------------------
Jonathan L. Block, Vice President

EXHIBIT 3.08

OPERATING AGREEMENT OF

SALEM MEDIA OF NEW YORK, LLC,

A DELAWARE LIMITED LIABILITY COMPANY

THIS OPERATING AGREEMENT OF SALEM MEDIA OF NEW YORK, LLC, a Delaware limited liability company ("Agreement"), is entered into effective as of March 9, 2001, by and between SALEM MEDIA CORPORATION, a New York corporation (the "Manager"), and SALEM RADIO OPERATIONS, LLC, a Delaware limited liability company ("SRO"). The Manager and SRO are sometimes referred to collectively as the "Members" or the "parties" and individually as a "Member" or a "party". In consideration of the mutual covenants in this Agreement, the Members agree as follows.

ARTICLE 1

ORGANIZATION AND PURPOSE

1.1 Formation. The Members have formed Salem Media of New York, LLC (the "Company") as a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 Del. C.Section 18-101 et seq. (as from time to time amended including any successor statute of similar import, the "Act"), subject to the terms contained in this Agreement. The business and affairs of the Company shall be managed by one Manager.

1.2 Name. The name of the Company is "Salem Media of New York, LLC" and all business of the Company will be conducted under the name of the Company. The Manager may change the Company's name and all of the Members shall be notified of such change.

1.3 Purpose. The business of the Company is to (a) acquire, own, hold, operate, finance, refinance, maintain, manage, develop, lease and/or sell the radio broadcasting businesses heretofore owned and operated by the Manager commonly known as stations WMCA-AM and WWDJ-AM (the "Business") and (b) to engage in any other legal activity which a limited liability company is permitted to do pursuant to the Act, all as the Manager shall reasonably determine.

1.4 Registered Office and Registered Agent. The Company's initial office shall be at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012. The Company's registered agent in Delaware shall be National Registered Agents, Inc. and its registered office in Delaware shall be 9 East Loockerman Street, City of Dover, County of Kent, State of Delaware. The Company shall be qualified to do business in the State of New Jersey. The Company's registered agent in New Jersey shall be National Registered Agents, Inc. of NJ and its registered office in New Jersey shall be 51 Everett Drive, Suite 107B, P.O. Box 927, West Windsor, New Jersey 08550-0927. The registered office and agent of the Company in either or both of Delaware or New Jersey may be changed from time to time by the Manager by filing the address of the new registered office and/or the name of the new agent with the appropriate Secretary of State pursuant to the laws of that state.

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1.5 Addresses of Members. The addresses of the Members are set forth on the signature pages of this Agreement.

1.7 Documents. The Company will execute and file the documents necessary to comply with the requirements of the Act and the other laws of Delaware for the formation, continuation and operation of limited liability companies. The Members agree to execute all documents and to undertake all other acts, as reasonably may be deemed necessary by the Manager, in order to comply with the requirements of the laws of Delaware for the formation, continuation and operation of limited liability companies. The Manager will further execute and file the documents necessary to qualify the Company to do business in New Jersey and any other jurisdictions in which the Company shall do business.

ARTICLE 2

CAPITAL

2.1 Members' Capital Contributions. Concurrently with the execution of this Agreement, (a) the Manager shall contribute all of the assets of the Business and all related leases and contracts to the capital of the Company subject to all existing liabilities of the Business, and (b) SRO shall contribute cash in the amount of $1,000,000 to the capital of the Company. The Members shall not be obligated to contribute any additional capital to the Company.

2.3 No Interest on Capital. Except as otherwise provided in this Agreement, no interest will be paid to the Members on capital contributions or on "Capital Account" (defined below) balances.

2.4 Return of Capital. Except as otherwise provided in this Agreement, no

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time has been agreed upon for the contributions of the Members to be returned to them. The Manager does not, in any way, guarantee the return of the Members' capital contributions or a profit for the Members from the operations of the Company. The Members have no right to demand and receive property other than cash in return for the Members' capital contributions.

2.6 Capital Accounts. A "Capital Account" shall be maintained for each Member in accordance with the provisions of Paragraph 1 of Exhibit "A".

2.7 Membership Percentages. The "Membership Percentages" of the Members are as follows:

MEMBER                                     MEMBERSHIP PERCENTAGE
------                                     ---------------------
Salem Radio Operations, LLC                       1%

Salem Media Corporation                          99%
                                                 ---

Total                                            100%
                                                 ====

2.8 Majority-in-Interest. For purposes of this Agreement, a "Majority-in- Interest" of the Members shall mean those Members then owning more than 50% of the Membership Percentages then owned by all of the Members who are then entitled to vote. Except as otherwise provided in this Agreement or by the Act, all decisions of the Members shall be made by a Majority-in-Interest of the Members.

ARTICLE 3

PROFITS, LOSSES AND DISTRIBUTIONS

3.1 Definitions. For purposes of this Agreement, the following capitalized terms are defined as follows:

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by the Manager, in the exercise of its reasonable discretion, for the operation of the Company and to establish a reserve for the payment of foreseen or unforeseen costs, expenses, obligations or liabilities of the Company.

3.1.2 The "Profits" and "Losses" of the Company (as determined for book purposes) shall be calculated in accordance with Paragraph 1.2.3 of attached Exhibit "A".

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property giving rise to the credit was placed in service. Each transferee will be credited with the Capital Account of the transferee's transferor. If a transferor transfers less than all of the transferor's Membership Interest, the Capital Account will be allocated in proportion to the fraction of the Membership Interest respectively transferred and retained.